Can ASEAN trust China’s promises?

Indonesia president Joko Widodo shakes hands with China President Xi Jinping on his visit to Jakarta in April 2015Indonesia president Joko Widodo shakes hands with China President Xi Jinping on his visit to Jakarta in April 2015. Photo courtesy Indonesian Ministry of Trade. PHOTO: Indonesian Ministry of Trade (

China has made ambitious commitments to investment in ASEAN countries, but uncertainty over funding raises the question of whether Beijing will make good on its promises. 

By Tan Zhi Xin

After much turmoil and uncertainty, the Chinese-funded US$5.1 billion railway project in Indonesia is set to begin operation. This finally lays to rest rumours that Beijing may no longer be willing to follow through on its investment plans for southeast Asia. At least for now.

When Indonesia first floated the project both Japan and China expressed an interest, but after the fierce bidding process China emerged victorious. However, this was only because of the flexibility of funding options included in the Chinese bid. More specifically, 75% of the total cost would be funded by a loan from the Chinese Development Bank on a loan term of 40 years with a fixed rate. The remaining 25% of costs would be borne by a consortium of Indonesia’s state-owned enterprises.

The new railway operation is part of a much larger picture, where China’s foreign direct investment (FDI) into Indonesia has increased by a remarkable 291% (US$1.5billion) from January to September. What is more, this generosity is not limited to Indonesia. Chinese money is freely flowing into less developed countries like Cambodia, Laos and Myanmar to finance construction projects – all run by Chinese companies.

In this environment, HSBC Holdings believes China will soon displace America as the Philippines’ largest investor thanks to US$24 billion worth of hard and soft investment, in addition to US$2.5 billion worth of inflow. Meanwhile, Credit Suisse estimates that overall Chinese FDI in the six largest economies of ASEAN will reach US$16 billion this year. China is already responsible for 30% of FDI in Thailand and 20% in Malaysia.

Deng Xiaoping’s legacy 

Deng famously said, “It does not matter whether the cat is black or white, so long as it catches mice.” While the days of Deng are long gone, his spirit remains. Pragmatism continues to shape China’s foreign policies.

The abundance of underexploited resources and capacity in the region is what is attracting China’s attention. For example, Cambodia, Laos and Myanmar are becoming more integrated into China’s supply chains as they buy more intermediate goods from their larger neighbour and sell consumer goods manufactured by Chinese companies. Together with the robust trade ties with more developed countries like Singapore, Malaysia and the Philippines, China’s overall economic health is regularly boosted by its ASEAN linkages.

China has a clear angle, they know what they want from this kind of mutually beneficial growth,” said Santitarn Sathirathai, an economist at Credit Suisse in Singapore. China is definitely looking at these countries in general as an area where it can sell products and get good returns for its investments,” adds Edward Lee, an economist at Standard Chartered in Singapore.

China rises

But more than trade, China recognises other strategic advantages to be reaped in southeast Asia. Here it can showcase its ambition as a leader for developing nations, dispensing a huge amount of loans with no strings attached and low-interest rates. In doing so, it portrays itself as standing up for its regional neighbours.

This approach fits well with China’s historical perception that the ASEAN region is its own backyard to influence. And the void expected to appear thanks to Trump’s inward-looking policies creates a rare opportunity for China to assert its presence in the region. Beijing has wasted no time in doing so.

Looking at the current situation, the US-led Trans-Pacific Partnership (TPP) is already dead in the water and talks on the China-led Regional Comprehensive Economic Partnership (RCEP) are being speeded up. Even though just one chapter on economic and technical cooperation has been completed so far, Reuters reported that China would “push for [the] acceleration of the RCEP talks in order to finish soon”. These talks include all ten ASEAN countries and, if successful, would forge closer ties between each of them alone, and ASEAN collectively.

There is further evidence of this politics-changing rebalancing in the creation of the Asian Infrastructure Investment Bank (AIIB). Launched earlier this year, the AIIB challenges the US-led World Bank and is nothing less than a diplomatic triumph for China.

To quote Luxembourg Finance Minister Pierre Gramegna, AIIB is “further proof of the rebalancing of the world economy” and will further enhance China’s economic and political clout. It is also no coincidence that the bank aims to invest in “high-quality (and) low-cost projects”. The bulk of these will be in southeast Asia.

Despite this warming of neighbourly relationships, there remains two huge potential stumbling blocks to the China-ASEAN relationship. Tensions over the South China Sea territorial dispute between China and various southeast Asian countries are often reported, but seem to be thawing. It seems that pragmatism, and cash, may yet smooth the diplomatic waves.

Even in the face of China’s aggressive claims and behaviour, local leaders are courting Beijing as much as the other way round. The issue of relations with Taipei is more difficult, as shown by China’s furious response to Singapore shipping Terrex Infantry Carrier Vehicles (ICVx) home after deploying them for overseas training exercises in Taiwan.

China’s new playground

At the end of the day, what is really worth noting in this complex map of local and regional interests is the mutually beneficial relationship between China and ASEAN.

On the one hand, China needs ASEAN to implement its maritime silk road project successfully, hoping to counter domestic overcapacity under its grand scheme of “One Belt One Road”. As such, it cannot afford to lose ASEAN; the regional bloc is an important platform for it to assert its status in international society.

On the other, ASEAN – whether as a whole or as individual countries – is not yet willing to forego China, despite niggling differences of position and opinion. This is because it is the only country that has the economic power and political will to help develop the region without the political strings imposed by Western nations. It is for this reason that we see various ASEAN members turning to China despite their supposedly hostile relationship.

But can China be trusted to deliver on its promises? As long as their outcomes remain strongly in China’s favour then, without a doubt, yes.