Brunei looks to Beijing to ease its economic woes

Photo: Michel Temer/CC BY 2.0

Brunei’s economy is in turmoil. The oil-dependent state is looking to China for solutions.


Brunei is in crisis. The collapse of oil price has left the country scrambling for solutions. More than 95% of Brunei’s exports come from oil and gas. They make up 90% of the government’s revenue. Youth unemployment is rising. Sultan Hassanal Bolkiah needs to diversify the economy and open other revenue streams.

China looks to fill the hole

Beijing is looking to fill the void left by falling oil prices. Chinese investment is pouring into Brunei. Total Chinese investment now stands at US$4.1 billion. The Muara Besar island refinery is the largest foreign investment project in Brunei’s history. The first phase of construction is worth US$3.4 billion. The second phase will cost US$12 billion.

Chinese companies are also working to improve Brunei’s telecommunication networks. China Telecom Global partnered with Telecom Brunei to expand the country’s networks.

Sources: Reuters, Borneo Bulletin (I), (II), Xinhua Net

In November, Brunei and China signed a memorandum of understanding (MoU). The MoU strengthened agricultural cooperation between the two countries. The two countries agreed to share technology regarding seed production and cultivation.

Chinese financial institutions are also arriving in Brunei. Bank of China opened its first branch in the country at the end of 2016. It comes at a time when many financial institutions are leaving the country.

Why is China coming to Brunei’s rescue?

Chinese financial institutions have little incentive to open branches in Brunei. High levels of government financial assistance mean there is a limited mortgage market. There is no national stock exchange, and corruption is rampant.

The move is a gesture. China wants to increase Brunei’s reliance on its investment. Brunei is a rival claimant in the South China Sea dispute. Its reliance on China will buy Beijing influence over its foreign policy. It can use this influence to strengthen its claims in the region.

But this is not the only reason for Chinese interest in Brunei. The Maura Besar project will provide the region with 10,000 jobs. 5,000 of these will go to Chinese workers. Chinese workers have also been shipped in to construct the refinery.

Brunei is an integral part of China’s One Belt One Road initiative. Brunei is strategically positioned and overlooks the South China Sea. Brunei does not have the same anti-Chinese sentiment present in other ASEAN nations. This makes it the ideal regional outpost for Chinese business interests.

It will not solve Brunei’s problems

The withdrawal of the US from the Trans-Pacific Partnership (TPP) was a dent to Brunei’s aspirations. It needs to diversify its trade but now has no way of accessing the US markets. It had hoped that the TPP would drive US investment into its biotechnology sectors.

Brunei needs China now more than ever. But while China can help alleviate the damage of falling oil prices, it will not solve the problem. Brunei is substituting its reliance on hydrocarbons with a reliance on Chinese investment. Neither delivers a healthy economy.