Asia House Advisory takes a look at the new agreement emerging from the US-Japan summit that could herald a shift in the Indo-Pacific’s digital landscape.
On Friday 16 April, US President Joe Biden and Japanese Prime Minister Yoshihide Suga met in Washington, marking Biden’s first in-person meeting with a foreign leader in the White House. The event has been widely recognised as a sign of recalibrated foreign policy amid leadership transitions for both countries, with the Indo-Pacific region set to become a major foreign policy priority for the US – a renewed commitment that rekindles the US-Japan relationship.
Much attention has been paid to the meeting’s significance in bolstering cooperation on security issues in the region, pointedly addressing the growing influence of China. However, beyond strategic issues, the US and Japan have pledged US$4.5 billion for a ‘Competitiveness and Resilience (CoRe) Partnership’ to be invested in the research, development and deployment of next-generation mobile networks (‘6G’ or ‘Beyond 5G’).
Additional areas include enhanced cooperation on digital security under a ‘Global Digital Connectively Partnership’ and advancing access to 5G networks via Open Radio Access Networks (Open-RAN) aimed at supporting network operators.
Rebalancing the Indo-Pacific technology sphere
Crucially, the Competitiveness and Resilience Partnership will increase cooperation in emerging technologies – an area that has been typically dominated by China. It reflects a rapidly evolving effort by the Biden administration to develop new initiatives and bolster cooperation with allies across the Indo-Pacific, a region that has been identified by the US as consequential for the growth of high-quality infrastructure that will facilitate the expansion of emerging technologies. Technology development in the region is largely overshadowed by the dominance of China across multiple sectors, from e-commerce to 5G hardware. The US-Japan partnership clearly seeks to redress this balance.
Looking ahead, prospects for digital growth across the Indo-Pacific will be increasingly driven by an effort to capitalise on the region’s rapid rise of e-commerce solutions, fintech and internet-based services. These efforts have accelerated over the past 12 months during the COVID-19 pandemic, which has seen an increase in online consumer purchasing activity. The region houses the fastest growing internet base globally; internet users across Australia, Cambodia, Indonesia, Malaysia, Singapore and Vietnam collectively total around one billion people, which amounts to a fifth of the world’s overall online users.
A boost to Japan’s domestic digitisation
While US and Japanese economic interests closely align on these prospects, the agreement also marks a strategic step by Prime Minister Suga amid ongoing efforts to speed up his country’s digitisation process and elevate its status as a digital leader. Since his appointment in September 2020, Suga has initiated a series of domestic reforms aimed at advancing digitisation in government, notably establishing a new ‘Digital Agency’, led by recently appointed Digital Transformation Minister, Takuya Hirai. Elsewhere, Japan’s Digital Reform Bills, passed in February 2021, also focus on standardising government information systems and expanding the use of the taxation and social security ‘My Number’ as a means of further harnessing the government’s digitisation efforts.
Digital transformation across the public and private sectors had been previously undertaken, with limited success, by Suga’s predecessor, Shinzo Abe. Despite having long been a leading innovator in digital technology, Japan has lagged in the field of 5G. Major telecom operators such as Nippon Telegraph & Telephone (NTT) and NEC Corp have fallen behind compared to major competitors such as China’s Huawei Technologies, Finland’s Nokia and Sweden’s Ericsson. Within the collective 80 per cent global market share these companies have in the world’s wireless network base, NEC holds around one per cent.
Efforts to close this gap are exemplified by NTT’s announcement in June 2020 to buy a US$601million stake in NEC. This comes amid global efforts, largely orchestrated by the US, to develop alternative 5G competitors. NEC’s new alliance with NTT will likely also shape the Competitive and Resilience Partnership’s aim towards advancing 5G networks via Open-RAN. In May 2020, both companies became founding members of the US-launched Open RAN Policy Coalition, a group of 40 companies aligned on promoting the rapid implementation of 5G RAN technology. Such a group will be key to progressing the Competitiveness and Resilience Partnership’s digital infrastructure goals, given the numerous regulatory issues involved with the roll-out of 5G networks. Of particular importance will be government coordination with the private sector on access to underserved areas, international licensing and zoning approvals. In this respect, a US-Japan agreement signifies a strategic opportunity for both Japan’s private and public sectors to leverage influence in the digital field.
A decoupling in semi-conductor supply chains
In a key area to note, the Competitiveness and Resilience Partnership pledges to ‘cooperate on sensitive supply chains’, specifically referencing semi-conductors. This area of manufacturing is rapidly accelerating to meet the demands of 5G technology. And yet, key vulnerabilities to the supply chain have been exposed by the ongoing impact of the COVID-19 pandemic and US-China trade tensions; both have largely contributed to the current global semi-conductor shortage. This owes to the fact that the world’s major semiconductor foundries are largely based in Taiwan and mainland China. Crucially, this leaves the supply chain susceptible to disruption or collapse, as demonstrated over the past year. A shift is necessary, and there are strategic alternatives within the Indo-Pacific, which houses a growing number of pure-play chip foundries and fabless facilities in countries such as Singapore and Malaysia.
Semiconductor assembly and test (A&T) facilities are also being developed in the region; this includes plants such as that in Vietnam’s Ho Chi Minh City, heavily invested in by US company Intel as its largest A&T site worldwide. Japan’s technology sector, alongside its chemical and industrial sectors, will likely welcome the enhanced cooperation and joint investments in semiconductor supply chains.
The Competitiveness and Resilience Partnership ultimately reflects a shifting geopolitical dynamic where a greater focus on the Indo-Pacific is set to be realised in strategic and accelerating areas such as digital technology. It signals a welcome boost to the telecommunications and manufacturing sectors across the region, while also marking a notable step forward in Tokyo’s digitisation efforts and US engagement with both Japan and the wider Indo-Pacific. How the new partnership fits around US-aligned formations such as the Quad and the Free and Open Indo-Pacific on the one hand, and China-led projects such as the Belt and Road Initiative on the other, will be a likely determinant of its success.
This analysis was produced by Asia House Advisory. For more information about the consultancy and research services provided by Asia House Advisory, please contact firstname.lastname@example.org