The economic potential of China’s Belt and Road projects in Southeast Asia is huge. But whether that potential can be maximised hinges not on funding or capability, rather it will depend on how well the various economies involved are able to foster trust and cooperation.
So says DBS research strategist Chris Leung, in a recent report on the impact of BRI plans in the region. ASEANBUSINESS presents the most salient points from that report.
What are the key BRI plans involving Southeast Asia?
The overarching plan is to connect Kunming, capital of Yunnan province and the closest major Chinese city to Southeast Asia, with various countries, via three proposed railway routes:
- Central Route: This will run from Kunming to Vientiane (in Laos), and then to Bangkok (in Thailand). From there, it could run down to Kuala Lumpur (in Malaysia) and onwards to Singapore
- Eastern Route: This will run from Kunming to Hanoi (in Vietnam) via the newly constructed Mengzi-Hekou railway. It will go as far as Ho Chi Minh city (in Vietnam).
- Western Route: This will run from Kunming to Yangon (in Myanmar) via the Dali-Ruili railway line, which is still under construction
If these routes materialise, what will they bring?
- Improved connectivity: all three rail routes are also meant to connect to maritime links.
- Creation of ecosystems producing, distributing and consuming goods and services
Which looks most likely to materialise?
The central route, which covers the highest-income countries of that region (Thailand, Malaysia, and Singapore), has the least political resistance. Mr Leung believes the development and success of these initiatives will hinge on China’s diplomatic ties with the countries involved.
What do the various Asean economies along the BRI route stand to gain?
- It is heavily dependent on China, which is its biggest foreign donor, main investor and second-largest trade partner.
- China-Laos railway - slated to be completed in 2022 at a cost of US$5.6 billion (or 50% of Laos’ GDP) - meant to transform Laos from a “land-locked” country into an accessible “land-linked” one, as railway tunnels cut through its mountainous areas, and power its economic development
- Construction of the railway has already brought improvements, such as connecting northern Laos to the electricity grid
- It is in the centre of continental Southeast Asia, set to become a central trade hub, as it shares borders with four countries - Laos, Cambodia, Malaysia and Myanmar
- China has been Thailand’s largest trading partner since 2012, but Thailand imports more from China than it exports.
- And foreign direct investment from China remains below that from Japan, Singapore and the US.
- Under Najib Razak’s leadership, Malaysia is currently China’s strongest BRI partner
- China is Malaysia’s main construction contractor, its largest source of foreign investment in manufacturing, and its third-largest source of foreign tourist arrivals
- It will be a key stop on the central railway line, but it is also a key stop on the new Maritime Silk Road. As part of the mega Melaka Gateway Project, that is itself part of a wider port alliance between Kuala Lumpur and Beijing, the Malaysian government is cooperating with PowerChina International, Shenzhen Yantian Port Group and Rizhao Port Group to build a deep-sea port and maritime industrial park on three reclaimed islands off Melaka city on the west coast.
- China’s infrastructure investment in Malaysia is likely to deepen further: FDI from China to Malaysia for the first nine months of 2017 surged 47.7 per cent from what it was a year earlier.
Vietnam and Myanmar
- Vietnam’s historical territorial disputes with China complicates prospects for the eastern route.
- Myanmar’s ongoing ethnic conflicts and local opposition to some infrastructure projects plague the western route.
- In 2014, Myanmar deferred indefinitely plans to have China build a US$ 20 billion high-speed train connection between western Rakhine State and Kunming. As a result, the construction of the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor, which will end in Kolkata, India, will likely face daunting challenges.
Mr Leung believes that “Southeast Asia will be the first to reap economic benefits from this megatrend” of China’s BRI. “China must deliver concrete results in Southeast Asia to highlight the brilliance of the concept worldwide. The grand plan is clear and the challenges are known.”