Asean stands to gain from Belt and Road Initiative despite challenges

CHINA'S Belt and Road Initiative, or the BRI, is a potential game-changer that may have significant win-win implications for both China and the more than 80 countries and international organisations that have already joined. The BRI's aim, in short, is to connect countries via a combination of the land-based "Silk Road Economic Belt" which encompasses six economic corridors, and the ocean-crossing "Maritime Silk Road". All this will entail massive and multi-decade infrastructure investment.

What's in it for Asean? The region is well-positioned to reap significant benefits as it is part of not only the China-Indochina Economic Corridor but also the Maritime Silk Road. Indeed the Maritime Silk Road was first proposed by President Xi Jinping when he visited Jakarta in 2013.

The rollout of the BRI is also happening at a time when the Asean governments are in overdrive to build infrastructure which cannot be fully funded by their own budgets considering the sheer size of their needs. The BRI provides a platform for Asean to fast-track the implementation of their infrastructure projects, with China helping with both financing and technical expertise.

Good progress is being made, with projects worth US$53.3 billion already underway in the Asean-5, and another US$16.7 billion worth launched in Cambodia, Laos, Myanmar and Vietnam (CLMV). And these numbers will only increase over time: while the dollar amounts look sizeable thus far, they amount to only 2.5 per cent of GDP for the Asean-5 and 5.2 per cent for CLMV.

Biggest beneficiaries

The early and biggest beneficiaries of the BRI look to be Malaysia and the Philippines. Malaysia is well ahead of the pack in attracting investment. The US$14 billion East Coast Rail Link broke ground in August 2017 and will complement two other BRI projects on the east coast: the Malaysia-China Kuantan Industrial Park (MCKIP) and the expansion of Kuantan Port in the state of Pahang.

The improved freight connectivity will likely increase the viability of the east coast for manufacturing activities, which should support regional development. In the Philippines, President Rodrigo Duterte's so-called "pivot to China" is paving the way for a slew of proposed China-funded infrastructure projects and investments.

A total of US$4.4 billion of infrastructure projects is now in the pipeline, including the US$3.4 billion South Long Haul Railway which saw a loan agreement signed on the sidelines of the Asean summit in November 2017. The 610km line will run across six provinces on the island of Luzon, connecting ports and special economic zones.

The BRI is of course not without its risks and challenges. The newly elected Malaysian government has pledged to review the big-ticket projects, likely in response to the public backlash and questions over the direct benefits, especially on job creation, as China provides not only funding but also project management, equipment, construction materials and even workers.

The high-profile high-speed rail projects in Thailand and Indonesia have also been marred by significant delays due to execution problems ranging from land acquisition to cost over-runs and other constraints, even if delays are not uncommon for such big-ticket projects. In addition, some government officials around the region remain sceptical of the viability of these long-term projects given the geopolitical risks due to territorial claims in the South China Sea.

Encouraging developments

Nonetheless, there have been encouraging developments that suggest a clear recognition of these associated challenges and the need to address them to ultimately allow the large long-term benefits of the BRI to materialise. China has taken steps to improve the perception of the BRI, by emphasising the importance of greater connectivity with more investment in both hard and soft infrastructure.

The BRI is evolving to show that it is flexible enough to accommodate the growth strategies of recipient countries, both individually and at the regional level. In the case of Asean, it has a blueprint for an ambitious economic community that could be greatly enhanced by, for instance, a network of railways and high-speed trains envisioned under the BRI.

More centralised funding mechanisms such as the Asian Infrastructure Investment Bank (AIIB) to increase transparency are also welcomed by regional leaders.

There are also other schemes being developed which involve the private sector. For example, Singapore is encouraging its domestic firms to become "complementary partners" of the BRI, generating opportunities for outward direct investment in the rest of Asean.

China's own investment-led development has taught it valuable lessons, and new multilateral funding institutions such as the AIIB can help increase the focus on promoting best practice public-private partnerships and the role of market forces in rolling out the BRI.

Over time, Asean should stand to gain in moving along the Belt and Road.