China's ASEAN Silk Road gets slippery as other powers move in

LIEN HOANG

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HO CHI MINH CITY -- Chinese blue-and-white porcelain first hauled along the Silk Routes to Europe proved so popular with British consumers that by the late 1800s the phenomenon spawned a nickname: "Chinamania." Today, the China obsession has a darker shade, as European and Pacific powers compete with Beijing's "new Silk Road" infrastructure projects -- and offer their Asian trade partners an alternative.

The battle is intense on China's doorstep in Southeast Asia, where bridges and ports have sprung up to meet the infrastructure needs of some of the world's fastest-growing economies and key supply chain hubs. Tokyo has long been the main donor behind the region's truck and train routes, but Beijing changed the game when it struck out on the Belt and Road Initiative (BRI) nearly a decade ago to build its own trade networks.

Now the puzzle pieces are shifting again as Beijing's billions trigger a response from democratic adversaries. These rival powers have announced a string of ambitious and overlapping hybrid state and commercial projects. Australia's new government is expected to increase development aid, the European Union wants to sign an infrastructure deal with Southeast Asia, and the U.S. has led a Group of Seven riposte to the BRI -- a $600 billion infrastructure aid fund launched in June. Some suggest unleashing Indian conglomerates as well.

The mix of donations, commerce and realpolitik flowing to the region raises a crucial question: Are China's competitors too late to the quest to build Southeast Asia's next generation of infrastructure?

"Chinamania is leading our political actors to make rash decisions," said Terence Wood, a research fellow at the Development Policy Center, an Australian think tank, and a former New Zealand aid official. He argues that rich countries are financing some projects based on a perceived China threat, rather than recipient nations' needs.

The first train on the China-Laos Railway. China has laid down track for a "Silk Rail" to reach Singapore by way of Laos, Thailand and Malaysia, but progress has stalled. © Getty Images

Pavida Pananond at Thailand's Thammasat University welcomed the G-7 funds but asked how much would materialize and how projects among "countries with diverse interests" would be chosen.

"These issues could reduce the real impacts of the G-7 plan and raise doubts whether the attempt is more to counteract China's growing geopolitical and geoeconomic power," the professor of international business told Nikkei Asia.

She added, "It remains to be seen if the scheme could catch up with China's BRI."

Democratic allies treat the BRI as a foil to what they claim are their own "value-driven, high-quality and transparent" infrastructure partnerships, in the words of European Parliament researcher Gisela Grieger.

Japan has held onto its crown as Southeast Asia's biggest infrastructure financier, with recent aid ranging from a 0.1% interest loan for Indonesia's Patimban Port to subways in Vietnam and the Philippines. The U.S., the world's top foreign aid donor overall, announced a transportation partnership with the Association of Southeast Asian Nations and clean-energy funding for ASEAN infrastructure in May.

Japan, Southeast Asia's top source of infrastructure financing by far, has funded subway train systems across the region, including this one in Ho Chi Minh City. (Photo by Lien Hoang)

The funds, disclosed at a summit of ASEAN leaders at the White House, were part of a $150 million package. It swiftly drew unflattering contrasts to China, which, for example, spent $14 million on one multiroad project in Cambodia alone.

Supporters of the new effort by the U.S. and other countries say it should not all be seen through the prism of geopolitical competition. Friederike Roder, vice president of anti-poverty group Global Citizen, told Nikkei Asia that global problems from COVID to climate change demand solidarity and coordination.

"It's quite terrible ... that we still need to make this point," she said.

The most blunt reincarnation of China's Silk Road in Southeast Asia is perhaps the plan for a high-speed train network zipping through five countries. China has laid down track for a "Silk Rail" to reach Singapore by way of Laos, Thailand and Malaysia. But progress has stalled, while rivals are leaving their mark on transportation construction elsewhere. Thai bridges were funded with Australian dollars, the French will help build an Indonesian airport and U.S. taxpayers financed a study to upgrade Vietnam's busiest container port.

European companies in Vietnam said better infrastructure is their top need, second only to help with red tape, a poll released on July 4 showed. Several Japanese officials also said that logistical constraints created a "bottleneck" for investors in Southeast Asia.

"We expect that infrastructure development would create and stimulate [the] investment climate," the Japan International Cooperation Agency's Indonesia branch told Nikkei Asia. Aid cash "basically contributes to economic and social benefits of recipient countries because they are important partners for Japan."

Public and private financing from Japan is backing $330 billion of ongoing construction projects across the ASEAN bloc, according to Fitch Solutions, which counted funds in all member states except Brunei. The figure linked to Chinese financing is $100 billion, less than Japan but more than Europe and North America combined.

Whenever asked if they can match Beijing's largesse, G-7 governments stress China's hidden costs and their own capitalist talent. This narrative began with the Trump administration, which responded to the BRI by dispatching aid officials to talk up free markets.

"America's Indo-Pacific strategy offers our partners an enterprise-driven future, and private enterprise is the greatest force known to man for lifting lives and building communities," Mark Green, then the administrator of the U.S. Agency for International Development, said in 2018.

The Thai-Lao Friendship Bridge. Australia has supported bridge construction across Thailand. © Reuters

This approach continued with the Biden administration, which says the new G-7 infrastructure campaign is worth more than its headline budget of $600 billion.

"In the case of Southeast Asia, what we're really trying to stimulate is a long-term economic relationship rooted in private-sector investment -- not in massive cash transfers from the American Treasury," U.S. national security adviser Jake Sullivan said at an event in June.

In ASEAN, the next phase of the power battle may be more literal. The region's energy investment must double from current annual averages to at least $130 billion by 2030 to keep pace with demand, the International Energy Agency said in a May report. Renovations to electric lines have been fraught, such as a proposed ASEAN Power Grid that has stalled after some progress.

But there are glimmers of light. Investors from the Dutch to the Danes have streamed into Southeast Asia's solar and wind power market, often with government backing. The EU is keen to sign an ASEAN Connectivity Partnership, modeled on one it inked with India in 2021. This would include deploying the European Investment Bank to finance renewable energy and other infrastructure. Chinese manufacturers and Japanese installers have also flocked to the region's photovoltaic panel business.

Southeast Asia's biggest solar producer, Vietnam, demonstrates how aid money has followed the private trend. According to the OECD, it received $533 million in infrastructure aid in 2019, before the pandemic, which tallies donations mostly from rich EU and Pacific nations except China. About 48% of those funds to Vietnam involved energy.

The energy race also shows the approach of the G-7, comprising Canada, France, Germany, Italy, Japan, the U.K. and the U.S., plus the EU. The USAID Clean Power Asia program spent $16.3 million on Southeast Asian alternative energy from 2016 to 2021 but claimed credit for $7 billion in investment. The agency said it had focused on "mobilizing finance," especially private funds for grid-connected projects, such as its advisory on a $115 million wind farm in Vietnam and a $40 million contract for Thai supermarket giant Big C to put photovoltaic cells on its rooftops.

Southeast Asia's biggest solar producer, Vietnam, received $533 million in infrastructure aid in 2019. About 48% of those funds involved energy. © AP

The key word is "mobilize," used in the announcements of several Belt and Road alternatives. These include the EU's new Global Gateway for "quality infrastructure" aid and investment; a similar $50 billion program from Quad members India, the U.S., Japan and Australia; and the G-7 fund, once dubbed Build Back Better World.

Beijing dismissed the $600 billion G-7 fund and speculated mockingly about where it would end up. Recipient nations might very well spend the G-7 money to build infrastructure by buying cheap materials from China, the state-owned Global Times claimed.

Just as their ancestors profited from porcelain, Chinese merchants expect to cash in on the trade routes of the 21st century, no matter who finances them.