South-east Asia finds China love as Xi pushes One Belt, One Road

[MAKATI] Dominated by Japanese investment since the 1980s, South-east Asia has found a new source of funds in China. Chinese companies poured a record US$14.6 billion of foreign direct investment into South-east Asia in 2015, almost double from the previous year and a gargantuan leap from US$156 million a decade ago, according to Maybank Kim Eng Holdings Ltd.

They're also diversifying from manufacturing, mining and agriculture into financial and commercial services, such as advertising and travel.

Armed with trillions of dollars of savings, China is rapidly accumulating foreign assets as it transforms into a global power. China is turning its eye to South-east Asia in part to source cheaper manufacturing and partly through President Xi Jinping's plans to recreate the ancient Silk Road trading routes between Asia and Europe.

"South-east Asia is an attractive FDI destination for China because of its fast-growing and large domestic market," Lee Ju Ye, a Maybank economist at Singapore, said in an interview.

"Countries in this region also need foreign capital to help fund their fiscal and infrastructure investment needs. China brings ready capital and expertise and China's investment will continue growing, boosted by the 'One Belt One Road' initiatives."

Just this month, Mr Xi pledged 540 billion yuan (S$109 billion) in financing and encouraged state-run banks to contribute another 300 billion yuan in overseas capital to support his Belt and Road Initiative.

Credit Suisse Group AG estimates the plan could funnel investments worth as much as US$502 billion into 62 countries, including those in South-east Asia, over five years. In the region, China's top investment destination is Singapore.

China is making inroads on its rivals too. Citigroup Inc research shows Chinese investment into the five largest South-east Asian nations - Singapore, Malaysia, Thailand, Indonesia and the Philippines - climbed to US$13.5 billion last year, exceeding flows from Japan for the first time. In the 10-member Association of South-east Asian Nations, China still has some way to go. The largest source of FDI into Asean in 2015 was South-east Asian countries themselves, according to Maybank. The European Union was second followed by Japan and the US.

To overtake those rivals, Mr Xi is going to have to whip out the cheque book.

BLOOMBERG