China’s neighbours in Southeast Asia are pivotal to the success of its ambitious Belt and Road development strategy, a new joint report from LSE IDEAS at the London School of Economics and Political Science (LSE) and CIMB ASEAN Research Institute (CARI) argues.
The report, jointly launched in Kuala Lumpur today (30 October), analyses 88 countries involved in China’s ambitious plans to fund and build infrastructure abroad, and notes the project’s success will depend heavily on the participation and support of countries in Southeast Asia including Malaysia, Vietnam, and Thailand.
The Belt and Road Initiative (BRI) is important to China’s economic future and the report finds nearby states generally welcome it due to the scale of infrastructure development and connectivity it promises to bring to their economies. The Association of Southeast Asian Nations (ASEAN) Development Bank estimates that the total infrastructure investment needs in ASEAN from 2016 to 2030 will be between US$2.8tr and US$3.1tr. BRI projects will help alleviate this need.
For example, upon completion, land bridges being built in Laos and Malaysia, such as the Vientiane–Boten Railway, will greatly facilitate the export of goods from continental ASEAN countries into China and Europe.
However, the authors warn there is growing resistance from host countries in Southeast Asia to adopting BRI projects due to fears of incurring debt, as it is the recipient country that often bears the financial risk of infrastructure projects while China benefits from the financing and construction.
There are also concerns host countries will lose some of their sovereignty when dealing with Chinese companies and be subjected to unfair contract terms. The authors note agreements often feature lengthy tax concession periods and long-term leases for Chinese imports and quotas plus exemptions from foreign worker quotas.
The authors strongly warn China against entering dependent and unequal relationships with host countries and note this could jeopardise the Initiative for all involved. They urge China to work collaboratively with countries and respond to any concerns they have about BRI to ensure its success.
Commenting, report editor and co-author, Chairman of the CIMB ASEAN Research Institute, and Senior Visiting Fellow of LSE IDEAS, Tan Sri Dr. Munir Majid said: “Collaboration on BRI should be a part of the ASEAN-China Strategic Partnership Vision 2030 to ensure its resounding success and to address kinks in BRI roll-out as have become evident. Objective, expert and professional project terms and execution will anticipate and remove problems that should not be allowed to puncture the visionary BRI - whose potential for connectivity has been observed to be unmatched in human history.”
Commenting, report co-author Dr Yu Jie said, “Beijing must maintain a close understanding of how countries across Southeast Asia are reacting to the Belt and Road Initiative, and respond to their concerns. The challenge for China going forward is as much about winning hearts and minds as it is showering dollars and pounds.”
Commenting, Director of LSE IDEAS, Professor Christopher Coker said: “It is important to acknowledge the challenges ahead. Will Chinese bodies such as the Safety Administration of Foreign Exchange (SAFE) and State-owned Assets Supervision and Administration Commission of the State Council (SASAC) as well as the country’s financial industry regulators, which are responsible for setting the actual parameters such as budgets and standards of operationalization, be up to the job? Will the contracting countries be able to avoid over-indebtedness and will the governance regime be able to deal with problems like insider dealings? Finally, will the big infrastructure projects be on budget and on time? History would suggest we be cautiously optimistic.”