May 16, 2017 3:15 am JST
Richard Heydarian

Perils for Southeast Asia in Beijing's Belt and Road scheme

Impact of Xi's new Silk Road could exceed post-war US Marshall Plan

Perturbed by the rise of trade protectionism in the West and anemic growth at home, China has embarked on a massive infrastructure project aimed at recreating the global economic order in its own image. The scale and ambition of China's Belt and Road Initiative have prompted comparisons with America's post-World War II Marshall Plan, which provided crucial aid to European recovery and played a defining role in cementing Washington's global hegemony.

China launched the BRI, also known by the names "One Belt, One Road" and "New Silk Road," with a summit in Beijing on May 14 that was dubbed the biggest diplomatic event of the year. Delegates from about 100 nations in attendance featured as many as 29 heads of state and government, including Russia's President Vladimir Putin and Turkey's President Recep Tayyip Erdogan. In his keynote address, Chinese President Xi Jinping advocated economic integration, promising that China "will build an open platform" and "defend and develop an open world economy" against rising protectionism.

Xi in January became the first Chinese head of state to attend the World Economic Forum in Davos, where he made a similar pitch, describingglobalization as a "big ocean that you cannot escape from," and decrying any attempt at raising trade barriers as "locking oneself in a dark room." Paradoxically, the world's leading nominallycommunist regime is beginning to present itself as the new vanguard of economic globalization, in a not-so-subtle rebuke of the West.

The BRI project has found a sympathetic audience among the countries in Southeast Asia, which are in desperate need of capital and technology to address their growing infrastructure-related woes. Washington's decision to withdraw from the Trans-Pacific Partnership trade has drawn regional states further into China's embrace. Key Southeast Asian leaders, including Indonesian President Joko Widodo, Philippine President Rodrigo Duterte and Malaysian Prime Minister Najib Razak were among those present at the summit in Beijing.

Despite the lofty aims touted at the gathering, there was lingering regional unease over deepening economic dependence on the Chinese juggernaut and its geopolitical implications. That is why the late former Singapore Prime Minister Lee Kuan Yew urged America to pursue more free trade agreements in the region -- to give smaller states "options besides China." Yet, unless the West and Japan step up to the plate, China is well poised to claim economic hegemony in its near neighborhood.

By all indications, China seems serious about its grand vision of a modern Silk Road. In 2014, a year after announcing its plans, Beijing set up the Leading Group for Advancing the Development of One Belt, One Road, a body that reports directly to the State Council, China's cabinet. Vice Premier Zhang Gaoli, a member of the powerful Politburo Standing Committee, leads the group, which also includes heavyweights such as former Foreign Minister Yang Jiechi and Wang Yang, another vice premier.

China has established an initial $40 billion Silk Road Fund. An additional $50 billion will be provided by the China-led Asian Infrastructure Investment Bank. During the summit Xi pledged another $113 billion, with Chinese policy banks expected to invest up to $1.3 trillion over the next few decades to revive the ancient Silk Road with a 21st century flavor.

China wants to connect its industrial heartland directly with Western Europe through a new network of highways, ports and railways running through Central Asia, the Middle East and Eastern Europe as well as Southeast Asia, South Asia and Africa.

According to the Asian Development Bank, Asia confronts an $8 trillion infrastructure-spending gap over the next decade. Developing countries in Asia need $1.7 trillion annually to cover their infrastructure needs. But developing nations have limited fiscal capacity, while multilateral institutions such as the World Bank, the International Monetary Fund and the ADB are woefully underfunded compared with the scale of the infrastructure challenge. No wonder at least 60 countries have expressed interest in joining the Chinese project.

Shouldering the cost

For China, which is expected to shoulder much of the cost, the Belt and Road Initiative makes sense as a way of overcoming infrastructure overcapacity at home, helping state-owned enterprises find new projects, more fruitfully investing foreign reserves, tapping new markets and reducing transaction costs for its exports.

Southeast Asian states such as Malaysia and Thailand have been among the biggest beneficiaries of China-led infrastructure projects in the past decade. More recently, however, the booming economies of Indonesia and the Philippines have also sought to join the fray. Under Duterte, for instance, the Philippines has launched a "Dutertenomics" initiative, which aims to revamp the country's decrepit public infrastructure with a price tag of $167 billion over the next five years. China is expected to serve as key source of financing for 12 projects worth a total of $4.4 billion.

However, as the New York-based credit rating agency Fitch Ratings recently warned, the problem with the BRI is that "genuine infrastructure needs and commercial logic might be secondary to political motivations." During the Beijing summit, China offered the Philippines a $500 million loan for arms purchases, underscoring the geopolitical logic of the project.

In the past, big-ticket Chinese infrastructure projects in the Philippines have been mired in bidding anomalies and corruption scandals. Other countries have raised concerns over China's compliance with environmental regulations and its tendency to rely heavily (if not wholly) on Chinese labor, in addition to its own capital and technology. In the Philippines, as elsewhere, some are worried about overreliance on relatively high-interest Chinese loans, which could drive the country into "debt bondage," with unfavorable geopolitical implications.

By all indications, China's infrastructure-focused charm offensive seems to be working. Since his ascent to the Philippine presidency, Duterte has not only scaled back military cooperation with America, but also downplayed territorial disputes with China in the South China Sea. As the chairman of the 10-member Association of Southeast Asian Nations, he has shielded China against criticism over its massive reclamation activities in disputed waters.

Time and again, Duterte has emphasized the necessity of reviving economic relations with China, which he has described as a partner for national development. To Beijing's delight, the Filipino president adamantly refused to raise territorial disputes with China during his meeting with Xi on the sidelines of the Belt and Road summit.

Ultimately, the biggest concern about the BRI is that it could create a "One Road, One Way" outcome, allowing China to dominate the infrastructure landscape in poorer nations, gain influence over their foreign policies, and drive them into long-term debt as mere importers of Chinese goods. In the absence of viable alternatives, however, Southeast Asian nations resemble the proverbial beggars who cannot be choosers.

Richard Heydarian is a Manila-based academic, columnist and author of "Asia's New Battlefield: US, China and the Struggle for the Western Pacific."

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