Pushback against BRI in Southeast Asia

Pushback against BRI in Southeast Asia

Southeast Asian nations are pushing back against China’s Belt and Road Initiative (BRI), wary of Beijing’s creeping influence and unmanageable debts. Japan and India are seeking to capitalize on this setback and bolster their presence in the region, but standing up to Beijing could carry economic costs for regional states.

Southeast Asia occupies a prominent position in China’s signature BRI strategy — a planned network of trade routes and physical infrastructure linking China to more than 60 countries — as a result of its geographic proximity, infrastructure needs, and emerging markets. Beijing has pledged to undertake a radical transformation of the region to boost interconnectivity. Chinese firms are building new railways, roads, and ports across Southeast Asia. However, Beijing’s ambitious initiative has now provoked opposition from some regional states, concerned over rising Chinese political clout and potential debt burden.

Malaysia Leads Regional Cavalry

Once a poster child for BRI projects in the region, Malaysia is now leading the regional charge against BRI-related investments. Kuala Lumpur has shifted gears under the new administration led by Mahathir Mohamad. Mahathir has expressed reservations about the viability of Beijing-backed big- ticket projects such as the East Coast Rail Link, adding that the terms are inimical for the economy. The about-turn comes following a decision to postpone the Kuala Lumpur-Singapore high-speed rail project amid concerns over Malaysia’s finances.

Myanmar is reportedly reviewing a $9 billion deepwater port project backed by China over concerns it is too expensive and could ultimately fall under Beijing’s control if Naypyidaw were unable to service its debts.  A key economic adviser to the de-facto leader Aung San Suu Kyi has lambasted the Kyaukpyu project, calling it “crazy” and “absurd.” Beijing and Naypyidaw have been at loggerheads over Chinese-backed projects before. In 2011, President Thein Sein of Myanmar suspended the $3.6 billion Myitsone dam project, the largest of a cascade of dams in the upper reaches of the Irrawaddy.

Similarly, Thailand plans to convince neighboring countries to set up a regional infrastructure fund for the Mekong region, in a bid to cut dependence on Chinese investment. Prime Minister Prayuth Chan-ocha pitched the idea to the leaders of Cambodia, Laos, Myanmar, and Vietnam at the 8th Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS) summit in Bangkok from 15-16 June. Thailand is at the heart of the Beijing-backed pan-Asian railway network to improve boost connectivity between southern China and Southeast Asia. In December 2017, Thai officials broke ground on the construction of a high-speed rail project that will link the country to China through Laos. The project was dogged by delays over disagreements on issues such as funding, design, and technology transfer.

The regional pushback underscores fears of Beijing’s use of the BRI as a vehicle to expand influence in a region it considers its backyard. Major BRI projects in low-income countries like Myanmar, Laos, and Cambodia rely heavily on Chinese labor, equipment , and capital, giving Beijing immense clout on the ground. Almost always enjoying an upper-hand during negotiations, Chinese officials are known to harangue their reluctant Southeast Asian counterparts to approve major projects. Regional states are also haunted by the prospect of a Sri-Lanka-style debt trap, where they will be forced to give up strategic assets in the face of unsustainable debts. In December 2017, the Sri Lankan government ceded control of a Chinese-financed multi-billion dollar port at Hambantota after it was unable to fulfil its debt commitments. Hambantota has become a lightning rod for Beijing’s “debtbook diplomacy,” peddling billions of dollars of loans in return for strategic control.

China Rivals Set To Benefit

China’s rivals are maneuvering to benefit from Southeast Asia’s wariness over BRI-led investments. Japan is poised to increase boost foreign investment and trade with the region at the expense of Beijing. Malaysia’s Mahathir wooed Japanese investors during his to Tokyo from 10-12 June – a positive development for Japan which is locked in a regional contest for infrastructure development with China. Tokyo has also pledged to bolster its presence in the Mekong sub-region by expanding development aid and technical programs.

Meanwhile, India has mounted its own charm offensive in the region. During Prime Minister Narendra Modi’s tour to Southeast Asia last month, he promised pledged to boost trade and investment with the region. Indonesia and India agreed to develop a port in the strategically-located island of Sabang, located near the vital maritime corridor of the Strait of Malacca. In addition, New Delhi has sought to inject more dynamism in its ties with the Mekong sub-region, vowing pledging to develop the healthcare sector in Myanmar, Cambodia and Vietnam during a business conclave in Phnom Penh last month.

Pushback Carries Costs

However, decoupling from Beijing’s economic bandwagon is a bridge too far for the region. Despite overtures by rival powers, Southeast Asia will struggle to completely reduce its dependence on China underpinned by decades of strong ties and trade. As the biggest trade partner and investor in all major Southeast Asian economies, Beijing commands enormous leverage over the region — which it has successfully utilized to extract political support from key regional allies on issues such as the South China Sea dispute.

Regional states must also tread carefully knowing that incurring Beijing’s wrath could result in blowback. China has a track record of flexing its economic muscles to impose punishment and extract concessions. The Philippines bore the brunt of this tactic at the height of the 2012 Scarborough Shoal standoff, when Beijing imposed tighter measures on agricultural imports from Manila. If the past is any indicator, Beijing’s use of the economic stick is a blunt yet effective instrument in achieving political objectives.

Categories: Asia Pacific, Economics

About Author

Brijesh Khemlani

Brijesh is a Bangkok-based analyst focusing on Southeast Asian and South Asian geopolitics. He has experience with IHS Jane’s, the Royal United Services Institute and the UN Food and Agriculture Organization. He holds an MSc in Comparative Politics from the London School of Economics and a BA in International Studies from Mahidol University, Thailand.