China’s “Belt and Road” and Maritime Southeast Asia
Photo Credit: Ministry of Transport, Singapore
By Alvin Cheng-Hin Lim

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

Feb. 10, 2017  |     |  0 comments

This is the second of a two-part article. Part 1 can be found here.

In maritime Southeast Asia, following the 2016 election of President Rodrigo Duterte, the Philippines has finally joined the Maritime Silk Road. While the Duterte administration has sought a rapprochement with Beijing following the steep decline in Sino-Philippine relations under the previous administration, US-Philippine relations have concurrently suffered a steep decline, especially following the Obama administration’s criticism of the human rights violations occurring under the Duterte administration’s war on drugs. Thanks to this pivot to Beijing, the Philippines has been rewarded with significant increases in Chinese investment. President Duterte’s state visit to China in 2016 yielded USD 24 billion in credit and investment agreements, including infrastructure and industrial projects, and a subsequent visit by a delegation from the Philippine cabinet to Beijing yielded USD 3.7 billion in poverty alleviation projects.

An effect of the warming relations between China and the Philippines has been the de-emphasis in Manila of the South China Sea dispute. While the Permanent Court of Arbitration in 2016 did rule for the Philippines in its award in the case filed by the previous administration, the Duterte administration has opted to resume bilateral negotiations and consultations with China over the South China Sea. For the Philippines, this de-escalation of tensions has brought a surge of Chinese investment, as well as possible Sino-Philippine joint exploration of resources in the South China Sea. For China, this has meant the defanging of what had previously been the most hostile of the Southeast Asian claimants in the South China Sea dispute. More importantly, given the geographical position of the Philippines vis-à-vis the South China Sea, Beijing’s cultivation of Philippine goodwill could yield long-term strategic dividends. This will be crucial just in case a Sino-US conflict breaks out in the South China Sea, which is a scenario of heightened risk for China especially given the unpredictability and volatility of the Trump administration.

In Indonesia, China won the bid to construct the high-profile Jakarta-Bandung high-speed rail line, defeating a Japanese proposal whose financing package was less favorable to the Indonesian government. The Japanese proposal had required the Indonesian government to provide a loan guarantee as well as funding from the national budget. The Chinese proposal, on the other hand, did not require either, but this could eventually prove to be financially unsustainable for the Chinese and Indonesian partners in the joint venture. Despite the failure of the Japanese bid, the Indonesian government subsequently awarded contracts to Japan to construct the medium-speed Jakarta-Surabaya rail line, as well as the port of Patimban in West Java. In the energy sector, China has constructed coal-fired and hydroelectric power plants across the archipelago, and the Indonesian government intends to seek financing from the AIIB for a future expansion of the country’s electrical supply.

In Malaysia and Singapore, both governments have signed an agreement for the KL-Singapore high-speed rail line, and they will call for the bids for the construction of the project in late 2017. While Singapore reportedly prefers bids from either Germany or Japan, Malaysia reportedly prefers a bid from China. Even before the KL-Singapore high-speed rail line had been proposed, China Railway Rolling Stock Corporation had established a major presence in Malaysia, supplying Malaysian Railway with rolling stock for the country’s light and trunk rail lines, and setting up a manufacturing plant in Batu Gajah. China Railway Group has also established a major presence in Malaysia, with its construction of KL’s new transportation hub at Bandar Malaysia, which will house not just the terminus for the KL-Singapore and the proposed KL-Bangkok high-speed rail lines, but also China Railway Group’s USD 2 billion regional headquarters.

China has provided development assistance for the construction of government buildings and the upgrading of drainage in the Timorese capital Dili.

As noted earlier, China is constructing the East Coast Rail Link, which when completed will connect Kuantan Port on the east coast of Peninsular Malaysia with Port Klang on the west, creating a land bridge that will allow shippers to bypass Singapore when moving goods between the Straits of Malacca and the South China Sea. In the industrial sector, the Malaysia-China Kuantan Industrial Park has attracted investment in key sectors including IT, communications, and renewable energy. This industrial park has been twinned with the China-Malaysia Qinzhou Industrial Park in Guangxi province in China, and the increased industrial trade between Malaysia and China will be facilitated by the Chinese expansion and upgrading of Kuantan Port. On the west coast of Peninsular Malaysia, China has also invested in the Melaka Gateway project, which consists of the development of an existing island and the construction of three artificial islands for commercial and industrial development, as well as the construction of the Melaka Gateway Port, which when complete in 2019 will be run by a partnership of two Chinese port operators. Melaka Gateway Port is expected to handle 100,000 vessels annually, with the majority of the traffic anticipated to come from China.

China’s growing investment footprint in Malaysia, along with its largesse to the Malaysian government, especially its financial support for Malaysia’s troubled state-owned 1MDB investment fund, has softened KL’s position against China in the South China Sea dispute. As noted earlier, a similar pattern can be seen with the Philippines. This was evident in late 2016 when satellite imagery was released showing China’s installation of military systems in the contested Spratly Islands. In contrast with the harsh reaction from the US, the reactions from the Philippines and Malaysia were mild, with both governments simply stating that they will seek clarifications from Beijing on the militarization of the disputed islands.

In the case of Singapore, the Singaporean and Chinese governments have been cooperating on a range of projects, including three intergovernmental megaprojects — Suzhou Industrial Park, Tianjin Eco-city, and the Chongqing Connectivity Initiative. With respect to the Belt and Road, apart from possible Chinese involvement in the KL-Singapore high-speed rail project, Singapore has positioned itself to serve as a key financial and logistics hub in the growing Belt and Road network. The Sino-Singaporean relationship has not always been smooth sailing, however. In late 2016, Singapore’s position on the South China Sea dispute and its relationship with Taiwan emerged as points of friction in the Sino-Singaporean relationship. Despite such moments of tension, the deepening economic engagement between both countries will continue to draw them closer together.

In Brunei, China has emerged as the sultanate’s largest foreign investor, with major infrastructure projects like the Temburong Bridge and the Pulau Muara Besar oil refinery. A cooperation agreement signed with Guangxi province has facilitated the increase in trade between China and Brunei, and both governments are working towards connecting the Belt and Road initiative with Brunei’s Vision 2035 development plan. As with Vietnam, Brunei had been counting on the Trans-Pacific Partnership to jumpstart its economic development. However, the Trump administration’s rejection of the TPP has left China as the main external catalyst for Brunei’s economic growth.

Finally, Timor-Leste, the youngest and poorest country in Southeast Asia, is currently working towards accession to ASEAN. China has provided development assistance for the construction of government buildings and the upgrading of drainage in the Timorese capital Dili, as well as development projects in infrastructure, agriculture, and human resource development. Both governments are also cooperating in key economic sectors like petrochemicals, civil aviation, and tourism, and the Timorese government has begun the process of joining the AIIB. It is hence likely that Timor-Leste will eventually be involved with Maritime Silk Road. Should Timor-Leste achieve accession to ASEAN, this could further increase the number of nations in ASEAN that are willing to advocate on China’s behalf.

In his address to the United Nations General Assembly in September 2015, President Xi called for a new mode of international relations based on practical cooperation that will lead to the creation of a global “community of common destiny.” Such practical cooperation is not new for China, which has a long history of offering aid to other countries in the developing world. From this perspective, the Belt and Road can be seen as one of the latest manifestations of China’s cooperative mode of international relations. Should their expanded infrastructure networks be successfully deployed for industrial development, China’s Belt and Road partners in Southeast Asia and beyond may look forward to enjoying the dividends of accelerated economic growth.

(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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