Belt and Road: China's gaze shifts to southeast Asia


Elliot Wilson
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Overlooked during the early years of the Belt and Road Initiative, the region is now central to the entire project. China is shifting its attention south, and it likes what it sees in the Asean zone: lending opportunities, ambitious consumers and fast-growing states and cities.


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When China’s president Xi Jinping floated the idea of a New Silk Road in 2013, eyes turned to the original route that had linked imperial China with India, central Asia and the Mediterranean Sea.

Later, Pakistan became the focal point of this century’s first great geopolitical project. The south Asian nation, handily located on both the overland ‘belt’ and the maritime ‘road’, was starved of cash and infrastructure, and China promised both in return for a reliable trade route from its western border to the Indian Ocean.

But there’s another region, sometimes overlooked in this conversation, that could become not just an important part of the Belt and Road Initiative (BRI), but the glue that binds the entire project together.

Over the last quarter of a century, southeast Asia has had many guises, from kindergarten for the tiger nations to economic basket case in the wake of the Asian financial crisis. But China’s rise this century overshadowed a region that has for years been quietly outperforming.

The IMF tips the collective economy of the 10-member Association of Southeast Asian Nations to grow by an average of 8.5% a year between 2017 and 2023. PwC projects Indonesia to be the world’s fourth-largest economy by 2050, with the Philippines, Vietnam, Thailand and Malaysia all in the top 25.

Asean’s large labour force is predominantly young, in stark contrast to that in richer, more developed northeast Asia, with its slowing growth rates and aging workforce.

Southeast Asia also bursts with ambition, driven by a rapidly expanding middle class, better education and a new generation of entrepreneurs hungry for information, digitally innovative and keen to build a future at home.

But there’s a hitch. With the exception of Singapore, Asean’s infrastructure veers between the patchy and the wretched. In the World Bank’s 2018 logistics performance index (LPI) survey, which rates countries by their trading infrastructure, Singapore ranked sixth, with Malaysia and Thailand in 40th and 41st place, and the Philippines down in 67th place.

The Asian Development Bank puts the region’s total infrastructure need at $2.8 trillion between 2016 and 2030, or $184 billion a year.

This is where BRI comes in. China’s geopolitical grand project, which Beijing has been careful to brand loosely as a win-win that benefits all nations, has been touted as an answer to at least some of the region’s infrastructure woes. A host of big-ticket deals that aim to stitch Asean together have been inked.

The list includes $4.5 billion committed by China Development Bank for the construction of Indonesia’s first high-speed rail line, and $6 billion, 70% funded by mainland cash, to build a high-speed rail link between the southwest Chinese city of Yunnan and the Laotian capital Vientiane, in time stretching right through to Singapore.

Look beyond the headline-grabbing transactions, and you see some of the other BRI-related ambitions brought quietly but effectively to life. China sees the project as a great chance to internationalise the renminbi, transforming it into a global currency. So, it must have been heartened to see Malaysia’s Maybank print Rmb1 billion ($145 million)-worth of three-year panda bonds in July 2017, with the proceeds to be ploughed into BRI deals.

In April, Singapore lender UOB joined the club, raising $150 million via a three-year, yuan-denominated bond – the first issued by an Asean-based lender in the mainland using Beijing’s Bond Connect scheme, which connects foreign investors to China’s debt markets.


Carmen Ling

“Most BRI deals are still US dollar-based, but the ultimate aim is for them to be priced in renminbi,” says Carmen Ling, head of global renminbi at Standard Chartered Bank in Hong Kong.

It’s not always easy to spot a BRI deal. From the start, Beijing let the outlines of the grandiose project remain fuzzy, allowing nations, investors, lenders and corporates to fill in the map with their own ambitions.

Thus one asks: was the Chinese car-maker Geely’s September 2017 acquisition of a 49.9% stake in Malaysia’s Proton, and its concurrent purchase of a majority stake in the luxury auto brand Lotus, really a BRI deal? What about the deal struck by China’s Cosco Shipping in November 2017 to buy Cogent Holdings, valuing the Singapore logistics firm at $400 million?

Maybe both are; perhaps neither is. But the fact is that both were loosely wrapped in a BRI flag. As a brand, BRI clearly works wonders. At a time when China’s impact across the region can occasionally veer toward the overbearing – one thinks of its financial and military muscle and ability to economically destabilize countries with which it quarrels – being able to leverage a softer kind of commercial and financial power is very handy.

Southeast Asia is important to Beijing for other reasons. It is an ideal market for the mainland’s ever-improving consumer and producer products, from solar panels and smartphones, to air conditioners and automobiles. Then there’s digital connectivity. To China, enhancing cross-border telecommunications infrastructure and e-commerce is part of its mission in all BRI states, but nowhere more so than in southeast Asia.

Its leading digital payments services, Alipay and WeChat Pay, already offer financial services in Thailand, Malaysia, Indonesia and the Philippines.

China won’t have the place all to itself. This is a proud region filled with big cities, strong-minded entrepreneurs and tycoons, and, in the shape of Singapore, perhaps the model city-state. Its best banks are stronger than ever, and some are genuine global pioneers – look at DBS, voted world’s best digital bank in 2018 by Euromoney. Nor does Beijing have a lock on all big-ticket infrastructure. Far from it. Japan, keen to export its shinkansen, or bullet train, technology, is building a high-speed rail line in Thailand, and is long touted as the likely winner of a proposed $50 billion high-speed service linking the Vietnam capital of Hanoi, with Ho Chi Minh City in the south.

Nor should South Korea, which has ploughed billions of dollars into its own high-speed rail services, be counted out. When Asiamoney interviewed the Philippines finance secretary, Carlos Dominguez, in Manila in July, he pointed to the “good bridges and great IT systems for tax collection” that Korea’s multinationals are building and installing in his country.

The fight for the right to build or replace a region’s creaking infrastructure with roads, bridges, ports and railways fit for the 21st Century has only just started. China and its Belt and Road Initiative are in the lead, but there will be one clear winner here: southeast Asia.