The Belt and Road in Southeast Asia: a path of opportunity?

In his opening address at the Second Belt and Road Forum for International Cooperation in Beijing last month, President Xi Jinping said China’s signature foreign policy is designed to forge a global connectivity partnership to achieve common development and prosperity.

But how do different countries around the globe stand to benefit from China’s Belt and Road Initiative (BRI)? International economics and trade expert Dr Nimesh Salike explores how the initiative could offer new opportunities and economic growth in the countries of some of China’s closest neighbours – the nations of Southeast Asia.

In late April, nearly 5000 participants from more than 150 countries around the world converged in Beijing for the 2nd Belt and Road Forum, generating more than US$64 billion worth of deals as many countries committed to collaborative projects with China.

With representatives attending from all but two of the Association of Southeast Asian Nations (ASEAN), the region signaled it is open to working with China to rollout the BRI.

Southeast Asia is a key region for China economically, both because of the market potential and the deep value chain in manufacturing industries that already connects China to most countries in the region.

Countries in Southeast Asia still have lots of potential to grow with capital accumulation – in these kinds of economies, foreign capital should be more than welcome. Projects earmarked in the BRI will undeniably boost Chinese investment in the region, bringing with it new opportunities for growth across a number of sectors.

Where will the investment go?

Areas with the biggest potential for investment include manufacturing, trade (wholesale and retail), information technology and tourism. Manufacturing is particularly important because of the already established value chain, as labour costs are rising in the coastal region of China.

Private investments in the tourism sector in tourism-related activities such as hotels, leisure facilities and restaurants will also be key as there are an increasing number of Chinese tourists flowing into the region. Another sector which is undermined but with huge potential is education. Investment in the education sector and building education clusters would boost the human capital, something essential for the continued development and prosperity of any country.

With increasing connectivity around the world, trading and IT sectors also have high investment potential, as does the communications technology sector. As China moves to establish itself as one of the major players in artificial intelligence, Chinese companies could play an important role in bridging the information barriers that exist, particularly in countries where communications infrastructure is not well-established in rural areas. ASEAN plays a pivotal role in the design of the planned ‘Information Silk Road’.

Benefits of Chinese investment in the ASEAN region

In many ASEAN countries, China is already viewed as a partner for economic growth rather than a threat. Although China is relatively new to the field of overseas investment, Chinese outward investment grew exponentially across the world, including in ASEAN countries, in the past decade. Chinese investment currently accounts for more than twelve per cent of total inflow of foreign investment in Southeast Asia.

Creating a bigger market will benefit both China and Southeast Asia as it will create more opportunities for businesses. The countries (Myanmar, Laos and Vietnam) that share a border with the Chinese provinces of Yunnan and Guangxi can benefit both in terms of economic and cultural connectivity, as well as increasing links with other neighbouring countries like Cambodia.

At a government level, Chinese investment in infrastructure will be a game changer for economies in the region. Linking multiple countries via highway and/or railway will expand market opportunities.

In addition, initiating the building of industrial parks in places like Malaysia, Singapore, Thailand and Vietnam will bring much-needed manufacturing and trading opportunities. Lots of positive developments like this could – or already are – taking place in Indonesia and Philippines as well. There are also talks of building special economic zones covering several countries in the region.

Laying the right foundations

Talking purely from economic perspective, there is no reason why the business community and/or investors need to have doubts when establishing relationships between ASEAN countries and China. It is a win-win scenario.

Having said that, successful projects need to operate from a learning by doing approach, and both sides need to adapt to changing circumstances and learn from past experiences. There is already much to learn from as we look back on the initial BRI projects in the region but by learning from those experiences, participants can lay down the foundations for better relationships ahead.

To truly reap the economic benefits BRI offers, developing trust is essential. For that, it may seem sensible to include more local stakeholders from the respective countries in the projects. Cultural ties and connections can also play a positive role.

The road forward

The Southeast Asian region is set to benefit from the Chinese investment BRI will bring. At its core, the BRI is essentially about developing a ‘new’ Silk Road “that can contribute to the strengthening of the connectivity and the expansion of the world economy”, according to the Joint Communique of the Leaders' Roundtable released at the conclusion of the Belt and Road Forum in April.

Just as they have reason to be optimistic about the opportunities BRI will bring, countries in Southeast Asia have genuine reasons to review and reassess projects depending on their own national priorities. When host countries join BRI projects, it is important that they assess how the project will benefit their country and that the project is of value to all parties involved.

As we move to the next phase of China’s BRI, dozens of projects and economic corridors are set to be developed across the Southeast Asian region, bringing with them substantial Chinese investment. If done collaboratively, the BRI will give the region a significant economic boost and potentially help lift the standard of living in some of the more developing ASEAN countries in Southeast Asia.

Dr Nimesh Salike is an Associate Professor in International Business School Suzhou at Xi’an Jiaotong-Liverpool University. His research interests include international and development economics, primarily focusing on trade, foreign direct investment and Asian integration.