- China's Belt and Road Initiative Financing in Southeast Asia
As an infrastructure financier in many parts of the developing world, China has built hydroelectric plants, railroads, roads, airports and telecommunication networks on a global scale. Southeast Asia occupies a significant place in China's Belt and Road Initiative (BRI). Situated at the very centre of the Indo-Pacific region, Southeast Asia has long been a strategically important region for China's foreign relations and security.1 A stable and positive relationship with the region will serve several of China's interests, such as the development of its maritime economy, energy security, and maritime claims in the South China Sea. Moreover, the centrality of ASEAN in regional multilateralism and its stated neutrality in great power competition adds to the geostrategic importance for China.2
To incentivize Southeast Asian states to participate in the BRI, China highlighted the long-term economic benefits of the BRI that could be gained through cooperation on policy coordination, trade facilitation, financial integration, infrastructure development and societal-level exchanges. To counter anti-globalization sentiments, the BRI can be used to sustain and revitalize globalization, to improve infrastructure connectivity, and to promote regional and global trade as part of Chinese efforts to provide public goods. Two corridors pass through Southeast Asia: the China-Indochina Peninsular Economic Corridor and the Sino-Myanmar Economic Corridor (originally Bangladesh-China-India-Myanmar Economic Corridor). In addition, China's proposed Maritime Silk Road includes marine industry cooperation, port alliances and logistics. China has also proposed the Lancang-Mekong Cooperation (LMC) in Southeast Asia. The LMC has supported some projects that reduce poverty and others that promote small [End Page 77] and medium-sized enterprises, agriculture, training in water resource management, and education.
It is undeniable that the vision of infrastructure connectivity is targeted at economic growth and regional development. According to the World Bank, connectivity projects in the BRI will increase the trade of countries along the route by 4.1 per cent. The United Nations Development Programme also suggests that the initiative can help BRI-participating countries accelerate industrial diversification and economic growth to achieve the Sustainable Development Goals (SDG).3 With Chinese companies having set up more than fifty-six economic cooperation zones in more than twenty countries, generating US$1.1 billion in tax revenues and 180,000 jobs during the 2014–16 period, the hubs for capital and manufacturing investment may trigger broader market reforms and spur local employment, export earnings and growth.4
Considered as the vehicle for the provision of public goods, initially China's BRI had potential for enhancing regional connectivity. It appealed to Southeast Asian countries with infrastructure bottlenecks that hindered economic growth.5 However, the proliferation of BRI projects has encountered considerable regional setbacks, as seen in the cancellation and renegotiation of projects in Malaysia and in the downgrading of the deep-sea port by the Myanmar government. During local elections in Indonesia, Malaysia and Thailand, China's BRI-related investments became easy targets for criticism and accusations.6 In this regard, amid an image crisis, China is also vulnerable because of domestic political changes in BRI host countries.7
According to a report by the Organisation for Economic Co-operation and Development (OECD), troubled global Chinese investments are associated with about US$369.5 billion worth of global transactions. The largest problem area is the BRI's US$101.8 billion of troubled assets.8 Troubled Chinese infrastructure investment is evidenced by the increasing number of suspended, renegotiated or cancelled BRI projects, including those in Malaysia. Nonetheless, the majority of projects seem to be progressing without significant problems.
The observation above has led to the research question: Is there a specific set of conditions that can lead China's infrastructure investment into trouble in Southeast Asia? The main challenge in studying China's large-scale official infrastructure investment is its opacity. Although Beijing claims to collect data on China's overseas aid and investments through the new International Development and Cooperation Agency, it still has not released data on lending, interest rates or borrowing parties of its overseas projects. Under such constraints, the author has used data from China...