A model for Southeast Asia?

There was a time when development finance came primarily in the form of government aid, remittances and loans by government-funded financial institutions like the World Bank and the Asian Development Bank. In the last decade or so, this has dramatically changed. Foreign direct investments (FDI) have rapidly become the leading source of development finance in most of the third world. This has been led by China’s massive investment in infrastructure projects in Asia, Africa, and the Middle East. This new era of development finance is now dominating global geopolitics. The consequence is being felt as the major superpowers – United States, China, European Union – compete for political and economic influence among emerging countries.

According to a Stratfor analysis: “Foreign investment from China has played a central role in this transformation. In 2007, the country accounted for just 4 percent of global investment flows, but by 2016, that figure had risen to 17 percent. China now holds nearly 11 percent of global FDI assets, second only to the United States.” 

The Chinese foreign investment is driven by its need for natural resources which also requires better global transportation links beyond its borders. China has set up several agencies to achieve these objectives. In 2007, it created the China-Africa Development Fund to build energy and transportation projects. Six years later in 2013, it announced its “Belt and Road Initiative,” supposedly a one trillion dollar project to link Asia, Europe, and the Middle East. The funding for this Belt and Road initiative is supposed to come from the China Development Bank, the Asian Infrastructure Investment Bank, China’s Export-Import Bank and state-owned corporations.  

China is motivated by a desire to expand access to natural resources, diversify trade routes, and create work for its state-owned enterprises. One difference between Chinese investments and those of western countries is that China is not particular about governance, environmental, and human rights issues. However, it is noticeable that Chinese infrastructure investments do come with certain strings attached.  

According to the same Stratfor analysis: “Many of the loans that fund the projects, for instance, favor China at the cost of the borrowing countries, raising the chances of default, which Beijing can then turn to its further advantage. Sri Lanka learned this lesson firsthand when it defaulted on an $8 billion loan for developing the Hambantota Port and had to sell China a controlling stake in the project as a result. The International Monetary Fund fears similar defaults will happen especially in small island countries like Papua New Guinea, Tonga, and Vanuatu. But even larger states are growing wary. Pakistan, Nepal, and Myanmar cancelled $20 billion in planned hydroelectric projects with China last year, citing concerns over loan terms, irregularities in financing, and changing priorities in the energy sector, respectively. To avoid some of these issues and to reduce its reliance on China, Thailand recently announced plans to create a Southeast Asia infrastructure and development fund to manage jointly with Cambodia, Laos, Myanmar, and Vietnam. The European Union, likewise is considering more stringent processes for screening Chinese investments in technology, strategic infrastructure, and natural resources.”

Trade and investment from China in the past had fuelled Malaysia’s economy. However, in Mahathir’s view, the tight relations with China that once helped Malaysia progress are now becoming a hindrance. It has been noted that a surge in Chinese investments in Malaysia since 2013 has also brought with it an influx of Chinese workers and businesses that is crowding out local businesses. Also, instead of foreign direct investments, many of the projects are financed by Chinese loans guaranteed by the Malaysian government.  

This growing debt to China is fast becoming an economic and political concern to many Malaysians. Its foreign debt now stands at 55% of GDP. Many Malaysians are worried that their country’s financial obligation to China: “... will give Beijing control over its economy and even its strategic interests, including its claim to the South China Sea.”  

Mahathir is actively looking for new partners abroad. In his first 100 days in office, he has already visited Japan twice in order to convince more Japanese investments in Malaysia and to appeal for sought loans. He continues to emphasize the role of regional integration and cooperation in managing tensions in the South China Sea.  

According to a Stratfor analysis, there is an emerging Mahathir Doctrine which means striving for a truly neutral foreign policy. “Malaysia as a weaker country still fighting to achieve its economic objectives, cannot afford to disassociate from China or to fully embrace the US-led economic and security initiative in the Indo-Pacific region. With that in mind, Mahathir will instead work to find a balance between the two superpowers, using his country’s relationships with other states in the region to meet Malaysia’s needs and fend off external threats.”

It is clear that Mahathir will work to end his country’s economic overreliance on China without necessarily leaning on the West. His government will look for alternative foreign partners to insulate itself from the intensifying competition between the United States and China. As a result, Japan is expected to take a more prominent role in Malaysia’s economy and security. The rest of Southeast Asia will view the Mahathir model as a potential basis for their own relationship with the superpowers.

Creative writing classes for kids and teens

Young Writers’ Hangout on September 15 (1:30 pm-3 pm; stand-alone sessions) fiction writing with Sarge Lacuesta on September 22 (1:30-4:30 pm) at Fully Booked BGC. For details and registration, email [email protected].

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Email: [email protected].