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‘Belt and Road’ brings mutual economic benefits for Southeast Asia and China

‘Belt and Road’ brings mutual economic benefits for Southeast Asia and China

TUESDAY, January 17, 2017

IN THE WAKE of more isolationist political thinking in the West, with many developed economies turning inward, China is reaching out, seeking stronger trade and investment links with its economic partners.

China’s “Belt and Road” initiative is a prime example. China aims to trigger demand for materials and goods at home by investing in strategic infrastructure projects abroad, growing economic ties along its old Silk Road to Europe and along newer maritime links in and around Asia and as far away as Africa, covering all potential points in between. 
Given the economic importance of Asean to China, and its geographical proximity, a key focus of Belt and Road is its burgeoning economies. 
Formed in August 1967, Asean overseas one of the most developed economic zones in Asia and the world.
Economic relations between China and the Asean economies have been growing strongly. By the end of May 2016, two-way investment exceeded US$160 billion (Bt5.7 trillion), with Asean remaining a major destination for Chinese companies. Bilateral trade has also increased 60 times from $7.96 billion in 1991 to $472.16 billion in 2015. Asean and China are seeking to double their trade value, setting a target of $1 trillion by the end of 2020.
The Belt and Road initiative will bring the two closer together. For Asean member countries, this initiative will help address an infrastructure deficit and lift industrial development. For China, it will provide an ideal platform to develop ties with neighbouring Asian countries while fostering the development of its own extensive high-speed rail network as a means to export high-end technology and services. 
Efforts to strengthen ties have already led to practical achievements. Among the countries of Asean, Malaysia, Thailand, Laos and Indonesia have joint Belt and Road deals with China, mainly in railway construction. 
There will be a new high-speed rail line running from southern China through Laos to Thailand’s industrial east coast, for example. A 7,000-kilometre Singapore-Kunming rail link is taking shape. And Beijing has won the contract to build Indonesia’s first national high-speed rail link, a 150km connection between Jakarta and Bandung, Indonesia’s third-largest city.
Infrastructure financing until now has been a challenge for most Asean countries. With the exception of Singapore, the nations of Southeast Asia are by and large confronting major infrastructure financing deficits. 
As the second-largest economy in Southeast Asia, Thailand’s government infrastructure spending was 3.8 per cent of gross domestic product in the four quarters ending September 2016. The country’s transportation infrastructure investment is expected to reach $42.2 billion by 2021. The need for better roads, railways and urban transport is evident.
China has set up three new financial institutions to help fund the Belt and Road infrastructure goals: the Asian Infrastructure Investment Bank, the New Development Bank and the Silk Road Fund. Among them these three institutions have registered capital of $240 billion, and they are starting to become active investors along the Belt and Road routes.
Even these combined funding capabilities cannot fully meet Asia’s immense need for infrastructure financing. The Asian Development Bank estimates that $750 billion a year will need to be invested in Asia between now and 2020 as developing nations strive to raise their economic productivity and deal with rising urbanisation. However, Beijing’s drive and financial commitments are sizeable, and will have a significant impact across Southeast Asia.
Implementing the Belt and Road agenda will require a high level of mutual cooperation, understanding and trust. But with careful handling of the regulatory, political and financial risks involved, it will support high-quality and long-lasting economic growth in Southeast Asia and in China.

Peter Wong, the author, is deputy chairman and chief executive, |Hongkong and Shanghai Banking Corporation.