China’s cash promises in South-East Asia are coming up short, report says

Singapore: China’s funding promises under its contentious Belt and Road Initiative are falling short by close to $80 billion in South-East Asia alone, according to a new report, as megaprojects languish or fail entirely amid the global clean energy transition, poor planning and host country instability.

New analysis from Australia’s Lowy Institute also showed that, even with these problems, China remained by far the biggest source of outsider cash in the strategically critical region, and was learning from experience.

The Jakarta-Bandung High-Speed Rail project in Indonesia was completed four years behind schedule and US$1.2 billion over budget.

While there had been a steep decline in new agreements, China was shifting its investment towards smaller projects while lifting its focus on risk management, compliance, safety and environmental standards.

This, along with Beijing’s commitment to realising its vision and the sheer scale of investment, meant the ambitious Belt and Road Initiative was “here to stay” and would continue to play an outsized role in the region’s infrastructure development, authors Alexandre Dayant and Grace Stanhope wrote in the report.

President Xi Jinping launched his signature strategy to connect China and the world through infrastructure in 2013, immediately winning over many foreign governments with promises of unprecedented investment, but stirring fears among others about debt traps, political influence and eventual military expansion.

The Belt and Road dream has grown over the past decade from development mostly in Asia and Europe – originally a retracing of the ancient Silk Road – to include swathes of Africa, the Middle East and South America.

China was involved in 24 out of 34 megaprojects projects in South-East Asia valued at more than $US1 billion ($1.5 billion) each, according to the Lowy researchers, and its total commitments were worth almost $130 billion. A number of them had already been delivered.

“These projects respond to real and immediate needs in the region,” the authors wrote. “But there is a significant gap between China’s promises and its implementation, between what it commits to and what it delivers.

“This gap amounts to more than $US50 billion ($77 billion) in unfulfilled project financing with more than half allocated to projects that have been cancelled, downsized, or otherwise seem unlikely to proceed.”

Among those in doubt are coal-fired power stations in Vietnam after investors Mitsubishi and HSBC withdrew their funding because of corporate climate change goals. The Vietnamese government had also emphasised renewables and gas in its energy plan, while Xi himself pledged to stop building coal-fired plants outside China.

Cambodia’s Phnom Penh airport had more than $US1 billion in financing from the China Development Bank, but it has been delayed, in large part because of land disputes arising from insufficient consultation.

The Lowy Institute report cited Malaysia’s East Coast Rail Link, originally slated to cost $US12 billion, as one of the most expensive examples of a Belt and Road debacle.

First announced in 2016, the project was soon caught up in a domestic corruption scandal and suspended in 2018.

The following year, Mahathir Mohamad, then prime minister, renegotiated the deal at the reduced cost, only for one of his short-lived successors to revert to the original plan.

“Current Prime Minister Anwar Ibrahim will continue the project, albeit with a substantial haircut,” the report said. “It was reported in 2022 to be costing the Malaysian government about $US16 billion.”

The Thailand-China High-Speed Railway Project fell into disarray because of homegrown political turmoil. Projects in war-ravaged Myanmar were still considered likely but faced obvious ongoing challenges.

While Beijing has cited the COVID-19 pandemic as seriously affecting the delivery of Belt and Road projects, Lowy crunched the numbers and found this was only a partial explanation.

“Other factors appear to have been far more instrumental in China’s low project implementation rate in South-East Asia,” the authors said. “These factors include the nature and scale of the projects, political instability, local stakeholder engagement, and the global energy transition.”

China’s President Xi Jinping at the opening ceremony of the Belt and Road Forum in Beijing in October 2023.Credit: Bloomberg

The analysis revealed Japan, South Korea and the Asian Development Bank, which were also building $US1 billion-plus projects in South-East Asia, had been more successful at meeting their promises with money.

But the dollar-value footprint of these investors was small compared to China’s.

“Even if Japan [the next biggest contributor] were to implement all its current commitments while China maintained its existing pace of delivery, Japan would still fall short of catching up with China’s infrastructure disbursements,” the report said.

“The conservative assumption of a 35 per cent implementation rate for Chinese projects clearly suggests that even in a scenario where the external environment for Chinese projects does not improve, Beijing would remain the largest provider of infrastructure development in South-East Asia by a wide margin.

“Hence, the narrative suggesting a failure of the [Belt and Road] seems misplaced. A change of economic environment in China, however, means that the initiative is evolving to a more sustainable source of financing.”

Political instability and corruption, real or perceived, is a factor in the Australian private sector’s relatively low levels of investment in South-East Asia, which the Albanese government was hoping to turn around with a recently released and region-specific economic strategy.

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