China’s “Belt and Road” and Mainland Southeast Asia
Photo Credit: AFP
By Alvin Cheng-Hin Lim

China’s “Belt and Road” and Mainland Southeast Asia

Feb. 07, 2017  |     |  0 comments

In October 2012, Wang Jisi, the influential dean of Peking University’s School of International Studies, published an opinion piece in China’s Global Times recommending that China rebalance its geopolitical strategy westwards towards Eurasia. Professor Wang’s Western strategy would be made state policy the following year when Chinese President Xi Jinping announced the Silk Road Economic Belt and the 21st Century Maritime Silk Road, thereby expanding Professor Wang’s initial vision beyond the Eurasian landmass to the nations of the Indian and Pacific Oceans. The Silk Road Economic Belt and Maritime Silk Road together constitute both arms of the “One Belt One Road” development framework. Their potential reach is enormous: China’s partners presently number over 60 nations with a combined population of 4.4 billion.

The Belt and Road as a mode of practical cooperation offers developmental benefits to China and its partners. While China’s partners will accelerate their economic development through the strategic construction of much-needed infrastructure, the Belt and Road offers China an engine for its new normal of single-digit growth. This new normal is the result of China’s transition from a manufacturing- to a consumer-based economy, and new engines of growth will be needed to replace the ones that had powered its double-digit growth during the first decade of the 2000s. China’s transition to its new normal has driven down global commodity prices, negatively impacting its commodity suppliers, and this global slowdown confirms that initiatives like the Belt and Road will be needed to stimulate future global growth.

The construction of infrastructure projects under the Belt and Road framework is hence expected to provide an economic boost for China’s partners. The IMF has calculated that developing countries can expect to enjoy a multiplier effect from the construction of infrastructure, such that each dollar spent on infrastructure will stimulate 1.6 dollars in economic growth. In the case of trade, the Belt and Road is expected to increase trade for China’s partner economies by USD 2.5 trillion over the next decade. With respect to investment, the overseas investment opportunities created by the Belt and Road projects will transform China into a net exporter of capital. The export of industrial plant in particular will facilitate the Chinese government’s supply-side reform program by reducing China’s industrial overcapacity, and in turn will benefit the recipient nations by supplying them with much-needed industrial plant at concessional rates.

To help its partners finance their Belt and Road projects, China has set up several international financial institutions. The most prominent of these is the Asian Infrastructure Investment Bank (AIIB), which launched its first slate of projects last year. The AIIB aims to close the global development gap by offering financing to low-income countries which normally would have difficulty securing such financing from traditional sources like the World Bank and the Asian Development Bank. Apart from the AIIB, China has also set up the Silk Road Fund, and as a member of the BRICS, is one of the founders of the New Development Bank.

Southeast Asia straddles both the Silk Road Economic Belt and the Maritime Silk Road, and the Belt and Road projects promise to stimulate economic development and trade in the participating nations. Indeed, China and ASEAN seek to raise their trade to USD 1 trillion by 2020. Let’s now have a closer look at mainland Southeast Asia.

Mainland Southeast Asia

Sino-Myanmar relations have become frosty in recent years, and Chinese investment has slowed, following the Thein Sein regime’s freezing of the Myitsone Dam project in 2011, as well as the Myanmar military’s clashes with ethnic Chinese rebels on the troubled border region with Yunnan. Despite the recent difficulties, China remains Myanmar’s largest economic partner, both in terms of investment and trade. Some influential figures in Myanmar recognize the potential benefits of the Belt and Road for their country’s development. Likewise, the Chinese government cannot afford to “lose” Myanmar, given its geostrategic importance as a land corridor linking Yunnan with the Indian Ocean. In particular, the Shwe pipelines which connect Yunnan with Myanmar’s Kyaukphu port allow oil and gas to be delivered to China without having to pass through the Malacca Straits and the South China Sea. The election in 2016 of a government led by former opposition leader Aung San Suu Kyi raised hopes in China of improved Sino-Myanmar relations. However, major outstanding issues including the requested resumption of the Myitsone Dam project, or the proposal for a high-speed rail line running from Yunnan through Myanmar into Thailand and Malaysia, have yet to be decided by the Myanmar government.

Thailand’s largest trading partner is China, and the increased connectivity through the Belt and Road is expected to increase their trading volume to USD 100 billion.

Laos and Cambodia arguably have the closest and most stable relations with China in mainland Southeast Asia. In Laos, the high-speed rail line between Kunming, the capital of Yunnan province, and the Laotian capital of Vientiane is a massive undertaking that will involve the construction of 154 bridges, 76 tunnels, and 31 train stations. The Kunming-Vientiane line is estimated to cost USD 7 billion, which the Laotian government will finance with concessionary loans from China. While this will saddle the Laotian government with substantial debt, Laos believes the new infrastructure will generate significant long-term economic growth for the country. In the energy sector, Laos is working with Chinese hydropower firms to construct a series of dams across its stretch of the Mekong. When completed, these hydropower dams will earn revenue for Laos from the export of electricity to neighboring countries. Critics however warn that these dams could have a devastating impact on the Mekong’s ecosystems, including damage to riverine fisheries in Laos and the other Mekong nations.

While the Silk Road Economic Belt’s vision for a high-speed rail network across mainland Southeast Asia includes a line running from Thailand through Cambodia and Vietnam into China, neither Cambodia nor Vietnam have yet committed to the construction of such a line. Vietnam is an unlikely partner for the Belt and Road given its fear of economic domination by China and its long-standing dispute with China over the South China Sea. However, the Trump administration’s sudden withdrawal of the US from the Trans-Pacific Partnership could force Vietnam to seek deeper economic engagement with China, especially since the Vietnamese government had been counting on the TPP to be a major source of future growth.

In the case of Cambodia, Sino-Cambodian economic engagement currently focuses on the construction of basic but urgently-needed infrastructure like roads, bridges, and hydropower dams. President Xi did announce during his state visit to Cambodia in 2016 that China plans to invest in a high-speed rail line in Cambodia, but the details have yet to be announced. Within ASEAN, Cambodia’s — and to a lesser extent, Laos’ — willingness to advocate for China, to the extent of blocking consensus in ASEAN on joint criticisms of China’s activities in the South China Sea, has in recent years led to unhappiness from other ASEAN members towards the Cambodian government, to the extent that calls have been made for Cambodia’s expulsion from the group. However, as we shall see, in 2016 Malaysia and the Philippines suddenly pivoted towards China, increasing the number of nations within ASEAN that could side with China in highly contested disputes like the South China Sea.

Thailand is an interesting case as it stands at the intersection of both the Silk Road Economic Belt and the Maritime Silk Road. Thailand’s largest trading partner is China, and the increased connectivity through the Belt and Road is expected to increase their trading volume to USD 100 billion. While China had proposed a high-speed rail line connecting Kunming with the Thai cities of Nong Khai, Bangkok, and Rayong, concerns over the proposed terms of financing prompted the Thai government in 2016 to reject the Chinese financing offer and to shorten the line to a domestic line between Bangkok and Nakhon Ratchasima, and to postpone its decision on an extension of the line through Laos into Kunming. Separately, Malaysia and Thailand are exploring the possibility of a high-speed rail line connecting Bangkok with Kuala Lumpur. This line will connect with the KL-Singapore high speed rail line, and if both projects are awarded to China, they will materialize the Silk Road Economic Belt’s vision of a high-speed rail network across mainland Southeast Asia.

As noted, Thailand is also on the Maritime Silk Road, with its port of Laem Chabang being Thailand’s gateway to the maritime network. Already Thailand’s busiest port, the shipping volume at Laem Chabang is expected to increase with the establishment of new shipping routes on the Maritime Silk Road. One possible future Maritime Silk Road project in Thailand is the long-discussed canal across the Isthmus of Kra, which if constructed will create a shipping route between the Indian Ocean and the South China Sea that will bypass the Malacca Straits. In some versions of the proposal, the canal is replaced with a land bridge. As we shall see, Malaysia’s East Coast Rail Link offers a land bridge similar to the one proposed for Kra, though further down the Malay Peninsula. As noted above, Malaysia and Thailand are discussing plans for a high-speed rail line between Bangkok and KL. Should this and the Kra project be built, the Chinese and Thai planners will need to find a way to integrate the KL-Bangkok high-speed rail line with the Kra canal or land bridge.

In Part 2 of this article we will turn to maritime Southeast Asia.

(Editor’s note: This article is an update of the author’s 2015 essay China’s “Belt and Road” and Southeast Asia: Challenges and Prospects. It will be presented on March 18, 2017 in Toronto at the annual conference of the Association for Asian Studies.)

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