In early July, the government announced the framework for a new national strategy on infrastructure exports including power plants and railway projects. This new strategy's centerpieces included tighter conditions for providing government funding for exports of coal-fired power plants that place a heavy burden on the environment, and increased support for projects that use digital technologies developed by Japanese companies. The administration of Prime Minister Shinzo Abe has chalked up some solid results in infrastructure exports, but intensifying competition with companies from overseas is just one of the many challenges facing the nation in this field.
The infrastructure export strategy decided by the Abe administration in May 2013 set a goal of increasing annual infrastructure-related orders to Japanese companies from about 10 trillion yen in 2010 to 30 trillion yen by 2020. Given that the domestic market was unlikely to grow due to Japan's shrinking population, the government took the lead in promoting overseas sales of products featuring Japanese companies' technological prowess. This is aimed at giving Japan's economy a boost. In 2018, the value of infrastructure-related orders had risen to 25 trillion yen, and the government's target was almost within touching distance. Among the success stories arising from Abe's campaign as the nation's "top salesman" was a 9 billion yen port facility in Cote d'Ivoire.
Nuclear power plants were initially considered prime contenders in the project lineup, but exports have fallen flat. In 2013, Abe held talks with Turkish Prime Minister Recep Tayyip Erdogan and pitched a deal to build a nuclear power plant. However, snowballing costs resulted in Mitsubishi Heavy Industries, Ltd. effectively giving up construction of the plant. In 2019, Hitachi, Ltd. decided to cancel a nuclear plant construction project in Britain. Consequently, Japan now has zero nuclear plant exports in motion.
-- Developing nations a target
Japan possesses superb coal-fired power generation technologies. However, exporting these technologies has become much more difficult as international public opinion turns against coal-fired power plants and more in favor of steps to combat global warming. That prompted the government's latest strategy framework to settle on a plan to provide financial support only for ultra-supercritical (USC) and integrated coal gasification combined cycle (IGCC) plants – two new types of coal-fired plants that generate fewer carbon dioxide emissions.
The government also aims to promote these plants to developing nations in Southeast Asia and elsewhere that must rely on cheap coal for generating electricity.
Amid all this, the competition for contracts with rival China is intensifying. A partner country decides who wins an infrastructure project contract after comprehensively assessing the price, technological capabilities and other factors during the bidding process. According to Shozo Kaneko, a research advisor at the University of Tokyo's Institute of Industrial Science, China's export drive keeps these costs down by using USC technology Japan provided.
In some cases, China can present a bid half the cost of that offered by Japanese companies, Kaneko said. "Looking ahead, Japan should seek to win contracts by focusing on higher-performance USCs and IGCCs that China can't manufacture," he added.
Poland relies on coal-fired thermal power for about 80% of its electricity supply, so it needs highly efficient power plants to reduce its carbon dioxide emissions. Polish Prime Minister Mateusz Morawiecki has indicated a willingness to adopt Japanese IGCCs, so Poland could become a foothold for boosting exports of such infrastructure.
-- Rail exports on track?
Railway exports have been a solid performer, with signature projects constructed in nations including Indonesia and Thailand, and a Shinkansen bullet train line that opened in Taiwan in 2007.
However, even this field has had its problems. The prospects are unclear for the planned construction of a linear Shinkansen super-high speed train in the eastern United States. This line is scheduled to link Washington D.C. with Baltimore and New York. "Geological surveys have started, and Japan has earmarked money for these surveys, but progress on the project is in the early stages," a Land, Infrastructure, Transport and Tourism Ministry official said.
Hitachi is Japan's largest player in domestic railway projects, but even its sales are only half or a quarter of its rivals from China and Europe. If Japan wants to become more competitive internationally, consideration must be given to additional government support in combination with the integration of Japanese rail-related companies to expand their scale.
Exports of water-related business, such as operating water supply and sewer services, which are in growing demand around the world, also continue to struggle because local Japanese authorities with excellent technologies hesitate to enter the fray.
"The Tokyo metropolitan government, the Osaka prefectural government and other local governments have vast expertise in this field, but there remains little support among administrators and residents for local authorities to get involved in projects overseas," said Shinichiro Adachi, head of the Development Bank of Japan's Regional Planning Department. "We need to come up with ways to get businesses to participate in this field, such as by having the public and private sectors jointly establish a company."
-- Meeting needs crucial
Susumu Takahashi, chairman emeritus of the Japan Research Institute, Ltd. who chaired an expert advisory panel on the government's infrastructure exports, suggested Japan's approach will need to change.
"Japan can't just sell high-performance infrastructure. It's vital to make proposals that include operating, managing and maintaining this infrastructure after it's built," Takahashi said. "We should be exporting package deals that combine tangible and intangible elements, from the perspective of being useful in resolving the partner nation's problems."
Takahashi believes promising export fields include "smart cities" that use information technology to optimize infrastructure and "mobility as a service" (MaaS), which integrates trains, taxis, self-driving vehicles and other transport means into a single mobility service. "Japan should not perfect this first and then export it. We must change our thinking. We need to find solutions by collecting data and even conducting demonstration experiments in the partner country," Takahashi said.
Even if Japan has advanced technologies to sell, they will stay on the shelf unless they match a partner nation's needs. With a new strategy policy scheduled to be compiled by the end of this year, the government's ability to flesh out the framework will be under the microscope.
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