Belt & Road in Global Perspective
A red and white train sits in a train station in Jakarta, Indonesia
Commentary / Analysis, Economy & prosperity, Belt & Road

The BRI at 10: What have We Learned from Southeast Asia?

In a few months, it will be 10 years since the Belt and Road Initiative (BRI) – an ambitious program to more meaningfully connect Europe and Asia – was announced by Chinese President Xi Jinping. The world, especially Southeast Asia, was a different place in 2013. Back then, almost all the regional economies saw the BRI in a positive light. One of the most important reasons was the expectation that the BRI would bring in much-needed capital and technology to plug the region’s infrastructure gap. With the World Bank (2019) valuing investments related to the BRI at USD575 billion, it was virtually impossible to not have one’s head turned.

To be sure, the Southeast Asian economies, apart from Singapore, generally lack a supportive financial ecosystem for infrastructure building. This means that capital cannot be effectively mobilized to pursue costly infrastructure projects with a longer-than-normal payback period, otherwise undersupplied by market forces. Related to this is the macroeconomic management preferences of the regional economies, particularly those most severely impacted by the 1997 Asian Financial Crisis. Scarred by the traumatic experience of the crisis, which led to widespread financial hardship and political instability, successive cohorts of policymakers have opted to run current account surpluses that are arguably larger than optimal as they accumulate foreign exchange to shore up their countries’ external position (Khor et al 2021).

Between Competition and Cooperation

However, initial warmth towards the BRI soon gave way to project-related concerns as well as old, if unspoken, fears that China is ‘buying the world' through a spate of 'debt trap diplomacy'. One of the clearest manifestations of this was demonstrated during the May 2018 Malaysian general election. Led by former Prime Minister Mahathir Mohamad (1981 to 2003 and May 2018 to March 2020), Pakatan Harapan, the then opposition, singled out several high-profile BRI projects in an attempt to sway voters in the country’s watershed general election. The electoral discontent increased to such an extent that the then incumbent, the long-ruling Barisan Nasional, was voted out of office. Soon after capturing Putrajaya, the nation’s administrative capital, Mahathir announced the delay of the East Coast Rail Link, one of the megaprojects promoted by the Barisan Nasional government. However, an amicable solution was eventually brokered when both the Malaysians and Chinese successfully re-negotiated the terms of the project (Liu and Lim 2019). As of early 2023, the East Coast Rail Link is progressing well and is slated for completion in December 2027.

A similar dynamic was observed in the Indonesian Presidential election of April 2019 (Lim et al 2021). Campaigning to unseat then incumbent Joko Widodo (Jokowi), Prabowo Subianto, a former commander of the Army Strategic Reserve Command, targeted prominent BRI projects. Much of Prabowo’s broadside was directed towards the Jakarta-Bandung High-Speed Rail project, arguably the most well-known BRI project in Indonesia (and by extension, Southeast Asia). Prabowo harped on the alleged threat of China’s Communist ideology to Indonesia, claiming that the High-Speed Rail project circumscribed Indonesia’s strategic autonomy. He also promised to conduct a thorough review of key BRI projects if he was elected President. Nevertheless, this matter was put to rest in late 2019 when Jokowi, in his first cabinet reshuffle after being re-elected, appointed Prabowo as the Minister of Defense (Liu and Lim 2022). The High-Speed Rail project is expected to commence operations by June 2023.

Local Politics Matter

In both Malaysia and Indonesia, politicians sought to score points by critiquing incumbents for supposedly adopting too accommodative a stance towards Chinese business groups.  Fiery (and arguably primordial) rhetoric was also evident, which invoked negative sentiment against this type of collaboration. While it led to regime change in Malaysia, this was not quite the case in Indonesia. However, the key takeaway from these two Southeast Asian economies was that Chinese capital, especially that related to infrastructure, has been increasingly embedded into the host state’s political fabric. It also highlighted the critical importance of the agency of domestic interest groups, not least in engaging with the BRI to advance key projects and to promote their own agenda. In so doing, the hitherto dominant concept that Chinese actors are the most significant, if not the only, variable in explaining China’s outward economic expansion has been problematized (Liu and Lim 2019).

Relatedly, our observation is that some Chinese business executives are almost entirely unaware that their operations might have been exposed to such intense politicking. To a certain extent, their lack of awareness is a product of their relative latecomer status to the international (in this case, Southeast Asian) economy.  Although some of these Chinese firms have taken action to better analyze and manage the political risk in prospective host economies, many continue to derive a large portion of their revenue from the Chinese market, implying that it will take some time yet for them to catch-up to their Western and Japanese counterparts in transitioning from ‘national champions’ to ‘global champions’.

Emerging Trends and Broader Implications

What then are the implications of our findings for the real world? Firstly, Chinese capital will still be important to the Southeast Asian economies; so will infrastructure. As mentioned earlier, the region’s derelict infrastructure owes its origins to deficient financial intermediation and overly conservative macroeconomic management. This twin dilemma has remained broadly unchanged, indicating that Chinese capital and know-how will continue to be sought after.

For policymakers, the key takeaway is to pay closer attention to the ways deals are negotiated and implemented. The East Coast Rail Link and Jakarta-Bandung High-Speed Rail examples tell us that projects, even those with supposedly strong local and national sponsors, are difficult to insulate from getting caught up in domestic politicking and countervailing pressures from opponents. To this end, enhanced transparency is expected to foster a greater understanding of how Chinese firms are embedded into the national and local ecosystems. A related move is to conduct more candid, open-door dialogues with multiple smaller parties, rather than relying primarily on government-to-government negotiation. A multipronged exchange of ideas and best practices, while time-consuming, is helpful in ensuring that gains are more widely shared.

Secondly, the optimism driving global cooperation during the early years of the BRI has waned in recent years. Public distrust of international economic interdependence, populist backlash against neoliberal globalization, as well as geopolitical, ideological, technological tussles between China and the West are some of the more obvious stumbling blocks to closer China-Southeast Asian cooperation. US-China trade friction in the semiconductor industry, for example, has upended what was previously a stable production network. However, some of the savvier Southeast Asian economies have seemingly benefited from the relocation of transnational corporations (TNCs) away from China. Vietnam has been one of the most referenced examples. Leveraging its proximity to China, deepening manufacturing prowess, and competitive input costs, Vietnam has increasingly been integrated into the production network of major commodities (such as the famed Apple Watches and MacBooks) hitherto assembled exclusively in China.

While it might sound or look appealing to push TNCs to divert some trade and investment deals away from China, this has to be carefully calibrated to prevent a full-blown beggar-thy-neighbor effect. In principle, the courting of trade and investment, from China or elsewhere, has to be compatible with the host state’s socioeconomic conditions. While structural transformation of its productive structure is to be encouraged, this cannot be done too hastily. It is also unrealistic to expect Southeast Asia to completely usurp China’s role as a manufacturing hub. For Vietnam at least, its growth since the famed 1986 doi moi (renovation) program has been largely driven by the reallocation of input and output away from less productive to more productive businesses. A simple analogy would be shifting rural labor to the factories in the major cities without a commensurate increase in productivity. The other issue lies in the consumer market – it is virtually impossible for Southeast Asia to replicate China’s purchasing power in the short to medium term. Facing these headwinds, it is opportune to more rigorously examine how an enlarged China-Southeast Asian production network can be forged, thereby creating mutually beneficial outcomes.

Thirdly, China is reassessing the impact of the BRI on the regional economies as well as its own, with a view to transitioning into the BRI 2.0 which gives greater attention to green development, digital economy, and public health. The issue of efficiency and transparency has also become more important as the BRI enters its second decade. These issues are relevant not only because of the need to connect the BRI with China’s Dual Circulation Strategy, but also to compete with new alternatives for infrastructure such as the US-led Indo-Pacific Economic Framework and the EU-led Global Gateway projects. Healthy competition will surely improve the quality and relevance of the BRI projects, in turn adding weight to the ASEAN Economic Community Blueprint 2025 as well as the much-cherished ASEAN Centrality.


References

Khor HE, Poonpatpibul C, & Foo SY (2021). Belt and Road Initiative: A framework to address challenges and unlock potential for high-quality and inclusive growth. The Singapore Economic Review, 66(01): 21–58.

Lim G, Li C, & Syailendra EA (2021). Why is it so hard to push Chinese railway projects in Southeast Asia? The role of domestic politics in Malaysia and Indonesia. World Development, 138: 105272.

Liu H & Lim G (2019). The political economy of a rising China in Southeast Asia: Malaysia’s response to the Belt and Road Initiative. Journal of Contemporary China, 28(116): 216–231.

Liu H & Lim G (2022). When the state goes transnational: The political economy of China’s engagement with Indonesia. Competition & Change, 1-20. https://doi.org/10.1177/10245294221103069

World Bank (2019). Belt and road economics: Opportunities and risks of transport corridors. Washington, DC: World Bank.


Biodata

Guanie Lim (Orcid: 0000-0001-9083-8883) is an Assistant Professor at the National Graduate Institute for Policy Studies (GRIPS), Japan. His main research interests are comparative political economy, value chain analysis, and the Belt and Road Initiative in Southeast Asia.

Hong Liu (Orcid: 0000-0003-3328-8429) is the Tan Lark Sye Chair Professor of Public Policy and Global Affairs at the School of Social Sciences, Nanyang Technological University in Singapore. His recent publications include The Political Economy of Transnational Governance: China and Southeast Asia in the 21st Century (Routledge, 2022).


Disclaimer

The views in this essay are solely of the authors and do not necessarily reflect those of the authors’ institutions.