Chinese BRI Projects in Southeast Asia - An Audit Report

China has deployed BRI to expand its footprints in the geopolitical arena and to pursue its ambition of becoming the new superpower. There are estimates that around $1 trillion would be spent on this initiative. Till now, 70 countries are part of the BRI which covers around 33 per cent of the world’s population and 65% of the global GDP.

The Southeast Asian region is very important for China because of its geo-strategic location, an abundance of natural resources and manpower. Moreover, it is the primary neighbourhood of Beijing. Thus, it is important for China to exert an influence on this region in order to implement its foreign policy goals more efficiently. The BRI was launched with pomp and show and there were great expectations from it in the beginning, but in recent years, things started changing for China in the ASEAN region. China is facing a lot of problems in the region, especially after COVID-19 breakout, ranging from anti-China sentiments among the locals leading to protests and push-backs from the Southeast Asian governments which also includes some of the all-weather friends of China.

An imminent debt-trap for Laos: A railway which goes nowhere

China’s strategy towards Laos, a small Southeast Asian country with a very little and poor population, has three targets. Firstly, Laos should support Chinese stand on Tibet, Taiwan, Xinjiang and Hongkong. Secondly, Laos should allow Chinese firms to exploit its natural resources. And thirdly, to build a high-speed railway line through Laos which is part of a bigger project, Pan-Asia railway Network. In return, China provides loans and grants to Laos.

China plans to construct a high-speed railway project in Laos by 2022 which will connect Laos to Thailand and will be a part of China’s Pan-Asia Network to connect the Yunnan province of China to Singapore. The estimated cost of this Laotian project will be around $5.9 billion which is more than 33 per cent of the Laos’ GDP. Out of this amount, China’s EXIM Bank will provide a loan of $4.1 billion to a consortium of Laotian and Chinese firms, China will provide $1.3 billion through equity infusion and Laos will provide $531 million. It is interesting to know that to provide $531 million funds to this project, Laos will take a loan of $459 million from EXIM Bank of China at an interest rate of 2.3 per cent for 25 years. Recently, Thailand has stalled the railway project which was to be built in its territory. It means that this railway infrastructure in Laos will be limited to domestic use only. With its connection to the South being severed due to Thailand’s decision, the project will be making huge losses.[1]

Even before the beginning of this project, Laos and China wrangled for five years over the terms and conditions of the project. In the beginning, China wanted Laos to take a loan of $7.2 billion to finance the complete project at an interest rate of 3 per cent. This amount equates to around 75 per cent of the GDP of Laos at that time. This was a huge amount for Laos and irony is that China would benefit most from this initiative.

Moreover, locals have been protesting over some other Chinese projects in Laos because of forced relocation, improper compensation and environmental degradation. A large number of minority people were forced to relocate to some other places to clear the land for two economic zones which would be built along the Laos-China border in the Laotian territory. Along with that, a large number of farmers were dislocated from Bokeo province of Laos to build a casino, a golf course, a hotel and an agriculture project. These farmers were well-off, hence, they protested but the process didn’t stop. Although the compensation was provided, it was very little and the land provided was mostly infertile.[2]

China and Laos have also inked a deal to build a 684 MW Sanakham dam, which will be the seventh-largest dam on Mekong river. It will be built in Sanakham district which is 155 km north of Laotian capital. This proposal has also been facing domestic discontent due to its negative effects on the farms, fisheries, livelihoods in the downstream areas.[3]

Chinese Investment in Cambodia: A new hub of Drug Cartels, Casinos and Prostitution Mafias

Private companies of Chinese origin have been investing heavily in Cambodia but the majority of this investment went to the then flourishing gambling businesses. Sihanoukville is a coastal city of Cambodia which was officially announced as the centre for BRI developments in 2015. Within a few years, it became mini Las-Vegas of Southeast Asia. A large number of Chinese had invested in the casino business in the city. The gambling business brought with it a number of cases of violent crimes, drug abuses, prostitution and kidnapping. The investment in the casinos and its prospects had already overshadowed the official BRI projects like an expressway between Sihanoukville and the capital city of Phnom Penh and an SEZ next to the Sihanoukville’s port. It is quite interesting that the owners, workers and customers of these casinos were largely Chinese people.[4] This has resulted in a public discontent against China due to which the Cambodian government had banned online gambling in the country from 1^st of January 2020. Reportedly, Cambodia’s decision to ban online gambling was highly influenced by China. As online gambling is banned in China, it was facing a huge capital outflow to Cambodia due to the establishment of gambling hub there. This was a major concern for China and it wanted to stop and pull back this outflow of “hundreds of millions” of yuan. So, China pressurised Cambodia to halt online gambling. However, due to a boom in the gambling industry and the rising number of Chinese nationals there, locals earned fortunes by providing rented accommodations to the Chinese. Some even borrowed money from banks to invest in housing and related businesses like restaurants and bars etc. But this ban has triggered an inward spiral for these businesses and “the business of renting decreased by 30% and hotels by approximately 50%.”[5]

Some other Chinese projects also faced protests in Cambodia for several years. The Lower Sesan Dam which was built by a consortium of Cambodian, Chinese and Vietnamese firms faced domestic discontent and protest following the forced displacement of people, poor labour practices, illegal logging and degradation in water quality in downstream regions.[6]

Thailand’s Pushback against BRI

According to Bloomberg, Thailand has scrapped the Kra Canal project, an ambitious project of China to develop an alternative maritime route to Malacca Strait. China and Thailand inked a deal to develop a 120 km canal by cutting through the Isthmus of Kra in order to connect the Indian Ocean to the South China Sea. This was in consonance with the geopolitical strategy of Beijing as it would allow China to bypass the Malacca Strait which connects the Indian and the Pacific Ocean. It is important to note here that India’s strategic Andaman and Nicobar Islands are in the vicinity of the Malacca Strait which provides a tactical advantage to India Navy during a conflict between the two countries. Different experts have already warned that the Kra Canal project was a geostrategic project instead of a geoeconomics one which would benefit China more. The economic benefits were quite miniscule as compared to the construction cost of the project and if completed, Thailand would be the next to join the bandwagon of debt-trapped countries. This would enable China to take full control of this strategic canal. Moreover, this would also divide the Malay Peninsula of Thailand into two geographical entities. This would be quite disastrous for Thailand as Southern provinces are already facing insurgency and it would have only encouraged it. This would be a direct threat to the project and as China’s past and current activities suggest, it would have supported the insurgents to take complete control of the project.[7]

In 2014, Thailand and China signed a deal to build an 885 km railway line from Laos-Thailand border to Malaysia which would be a part of a larger Pan-Asia Railway Network which seeks to connect Kunming City of Yunnan province to Singapore. But, even after six years and more than twenty-five rounds of negotiations, little has happened. Due to the terms of the projects, Thailand has dragged its foot from the project which comes as a great shock to the Chinese ambitions in the region.[8]

In January 2019, people protested against the China Communication Construction Company (CCCC) when it did not provide the actual information about the environment and social impacts of a project it seeks to implement in the Mekong river.[9] As per the prospective project, the stretches of the Mekong River between Laos and Thailand will be blasted in order to make it commercially viable for the shipping industry and will connect China to Laos and Thailand.[10]

A Sign of pitfalls in China-Myanmar relations

China-Myanmar relations have seen a lot of ups and downs in the past several years. During the trade and arms embargos by the European Union and the US, China became the major country to provide aids, loans and other assistance to Myanmar. Myanmar is also an important part of China’s Indo-Pacific strategy and it seeks to utilise Myanmar’s territory to develop a gateway to the Indian Ocean. Beijing seeks to connect its landlocked province of Yunnan to the Kyaukpyu deepwater port in the Southwest of Myanmar via Mandalay city of Myanmar. This project is a part of China’s strategy to find alternative routes for its trade which would avoid the choke point of Malacca Strait, which lies under India’s sphere of influence. As the Thai government has already cancelled the Kra Canal project, which was a project with similar aims, the implementation of this project has become even more important for China. But the trends in the Myanmar-China relationship shows a different picture.

Myanmar plays a key role in China’s BRI because the stakes here are not only geo-economic in nature but also possess geo-political importance for China. And this becomes even more important if seen in contrast with China’s recent border conflict with India and a rising wave of anti-China sentiments throughout the world. Under the umbrella of the BRI, China has envisaged the China-Myanmar Economic Corridor which will be consisting of three projects in Myanmar, i.e., “New Yangon City, the Kyaukphyu Deep-Sea Port on the west coast and Industrial Zone, and the China-Myanmar Border Economic Cooperation Zones.”[11]

New Yangon City will be built on the principle of sustainable development with comprehensive use of smart and green technologies. Currently, Yangon city is the commercial and economic hub of Myanmar but it is not sufficiently capable to handle the forthcoming growth prospects of the country, hence, New Yangon city would be built near the old Yangon city. There will be two phases of its construction. The first one will cover an area of 90 sq. km.[12] “The first phase will now comprise a 3-sq-km industrial zone, one bridge to connect New Yangon with the old, a 9-sq-km residential area and the resettlement zones.”[13] The second phase which is more ambitious than the first one will also include the construction of a port.[14] In 2018, New Yangon Development Company (NYDC), backed by the regional government of Yangon, inked an agreement with China Communications Construction Company (CCCC) for the proposal of the 20,000-acre project of the New Yangon City.[15] Since then, the project has been surrounded by controversies related to its location, which many experts have claimed to be flood-prone, and the shady involvement of CCCC. Chinese state-owned CCCC is one of the world’s largest companies working in the infrastructure development sector with more than 60 subsidiaries, 240 branches and research and service hubs in 118 countries. But CCCC has been the source of a number of controversies related to bribery, unfair means, debt trap, environmental degradation and information collection in many countries including Thailand, Malaysia, Canada, Bangladesh, Philippines, Sri Lanka, Kenya, Tanzania and Australia. The World Bank had sanctioned the company for eight years from January 2009 to January 2017 due to its fraudulent and unfair means in the National Roads Improvement and Management Project of the Philippines.[16] Recently, the New Yangon City Project has been compartmentalised by Myanmar by opening up the investment prospects and bidding of this project for the other international companies also. This event should be seen in contrast with the fact that, in January 2020, Chinese Xi Jinping visited Myanmar and discussed the progress of BRI projects with the Burmese authorities. In a statement, Xi also talked about the need for increasing the cooperation between the two countries. This development clearly comes as a major setback for China because earlier, CCCC was to be the only investor in the city development project. This homogeneity in the investment would have provided a clear gateway to Beijing into the Indian Ocean through the Bay of Bengal.[17]

Similarly, Myanmar and China wrangled for around three years regarding the terms of the construction of the Kyaukphyu deep water port. In 2015, the cost of the project, as set by China, was around $7.5 billion and the share of Chinese firms was to be 85 per cent and remaining 15 per cent was to be held by Myanmar government. But due to a lot of domestic discontent and criticism of the cost and terms of the project by the experts, Myanmar authorities bargained with China to increase its share from the earlier 15 per cent to 30 per cent in 2018. And the cost of the project was also reduced and finalised to $1.3 billion.[18]

More recently, Myitkyina Economic Development Zone (MEDZ) project, another BRI project in the Kachin state of Myanmar, has been facing uncertainty after a lot of public discontent and reservations from the government.[19]

Malaysia, CCCC and Corruption: A new story with old precedents

It seems as if CCCC has a very close link to controversies and corruption charges. The long trail of controversies reached to Malaysia when the previous Prime Minister of Malaysia, Najib Razak, lost the elections and Mahathir Mohamad became the Prime Minister. After Mahathir assumed office, he ordered to halt and investigate many Chinese projects under the BRI including the East Coast Rail Link, the biggest Chinese project in Malaysia with an estimated cost of $16 billion. This project will connect Kuala Lumpur with the eastern coast of Malaysia. Nazib Rajak has been facing trials on the charges of corruption. The new government even cancelled the project because of its exaggerated cost and corruption charges against the CCCC. CCCC renegotiated with the Malaysian government and reduced the cost to the project from $17.2 million to $9.8 million.[20] Mahathir had also suspended other projects worth more than $3 billion including three oil and gas pipeline projects of Chinese origin.[21]

Way Forward

It is quite evident from the trends in the past few years that China has been facing criticisms and pushbacks in Southeast Asia. China should consider changing its approach towards the BRI. The partner nations of the BRI would support the initiative whole-heartedly only if they will be able to reap equal benefits from the projects. China wants to achieve its geopolitical ambitions by keeping in mind, other countries’ interests. These events coupled with the recent pandemic, China’s trade war with the US and China’s recent conflict with India would play a major role in determining the fate of the BRI. It will be interesting to see how China will steer its post-Covid BRI strategy in order to contain and tackle these disagreements and opposition by the partner Southeast Asian countries of the Belt and Road Initiative.

Notes

[1] “China’s BRI and Its High-Speed Railways to Nowhere – The Diplomat.” n.d. Accessed December 4, 2020. https://thediplomat.com/2020/11/chinas-bri-and-its-high-speed-railways-to-nowhere/.

[2] “China’s Belt and Road Initiative Faces Huge Challenges in Southeast Asia, Economy News - ThinkChina.” n.d. Accessed December 2, 2020. https://www.thinkchina.sg/chinas-belt-and-road-initiative-faces-huge-challenges-southeast-asia.

[3] “China’s BRI Strategy and Laos - The Statesman.” n.d. Accessed December 2, 2020. https://www.thestatesman.com/opinion/chinas-bri-strategy-laos-1502897886.html.

[4] “Winning Hearts on China’s Belt and Road | The Diplomat.” n.d. Accessed December 3, 2020. https://thediplomat.com/2020/09/inside-chinas-belt-and-road-tangle/.

[5] “Online Gambling: The Trap of Cambodian Dependency on Chinese Investment in Sihanoukville | Cambodianess.” n.d. Accessed December 3, 2020. https://cambodianess.com/article/online-gambling-the-trap-of-cambodian-dependency-on-chinese-investment-in-sihanoukville.

[6] “China’s Belt and Road Initiative Faces Huge Challenges in Southeast Asia, Economy News - ThinkChina.” n.d. Accessed December 2, 2020. https://www.thinkchina.sg/chinas-belt-and-road-initiative-faces-huge-challenges-southeast-asia.

[7] “Thailand Gives a Major Shock to China: Scraps Kra Canal Plan and Drops Submarine Deals under Public Pressure.” n.d. Accessed December 3, 2020. https://tfipost.com/2020/09/thailand-gives-a-major-shock-to-china-scraps-kra-canal-plans-and-submarine-deals-under-public-pressure/.

[8] “China’s Belt and Road Initiative Faces Huge Challenges in Southeast Asia, Economy News - ThinkChina.” n.d. Accessed December 2, 2020. https://www.thinkchina.sg/chinas-belt-and-road-initiative-faces-huge-challenges-southeast-asia.

[9] “Chinese Firm Involved in New Yangon City Has Long List of Controversies Abroad.” n.d. Accessed December 1, 2020. https://www.irrawaddy.com/news/burma/chinese-firm-involved-new-yangon-city-long-list-controversies-abroad.html.

[10] “Chinese Firm Fails to Convince Locals over Mekong Blasting |The Third Pole.” n.d. Accessed December 3, 2020. https://www.thethirdpole.net/2019/01/29/mekong-blasting/.

[11] “Myanmar Keen to Open up BRI Projects to Foreigners - OBOReurope.” n.d. Accessed December 1, 2020. https://www.oboreurope.com/en/myanmar-foreigners-nydc/.

[12] Ibid.

[13] “Myanmar Splits up ‘New Yangon’ Scheme to Encourage Challenge to Giant Chinese Contractor - News - GCR.” n.d. Accessed December 1, 2020. https://www.globalconstructionreview.com/news/myanmar-splits-new-yangon-scheme-encourage-challen/.

[14] “Myanmar Keen to Open up BRI Projects to Foreigners - OBOReurope.” n.d. Accessed December 1, 2020. https://www.oboreurope.com/en/myanmar-foreigners-nydc/.

[15] “Myanmar’s Union Govt Splits Up Huge China-Backed New Yangon City Project.” n.d. Accessed December 1, 2020. https://www.irrawaddy.com/news/burma/myanmars-union-govt-splits-huge-china-backed-new-yangon-city-project.html.

[16] “Chinese Firm Involved in New Yangon City Has Long List of Controversies Abroad.” n.d. Accessed December 1, 2020. https://www.irrawaddy.com/news/burma/chinese-firm-involved-new-yangon-city-long-list-controversies-abroad.html.

[17] “In Another Snub to China, Myanmar Pushes Back on Chinese Investment in Yangon City Project.” n.d. Accessed December 1, 2020. https://tfipost.com/2020/07/in-another-snub-to-china-myanmar-pushes-back-on-chinese-investment-in-yangon-city-project/.

[18] AA. 2020. “Myanmar Getting ‘Very Concerned’ By Chinese Belt & Road Initiative (BRI).” The Eurasian Times. 2020. https://eurasiantimes.com/myanmar-getting-very-concerned-by-chinese-belt-road-initiative-bri/.

[19] Chaudury, Dipanjan Roy. 2020. “Myanmar Continues Pushback against BRI: Chinese Eco Development Zone Faces Turbulence.” The Economic Times. 2020. https://economictimes.indiatimes.com/news/international/world-news/myanmar-continues-pushback-against-bri-chinese-eco-development-zone-faces-turbulence/articleshow/77364893.cms.

[20] “Chinese Firm Involved in New Yangon City Has Long List of Controversies Abroad.” n.d. Accessed December 1, 2020. https://www.irrawaddy.com/news/burma/chinese-firm-involved-new-yangon-city-long-list-controversies-abroad.html.

[21] “China’s Belt and Road Initiative Faces Huge Challenges in Southeast Asia, Economy News - ThinkChina.” n.d. Accessed December 2, 2020. https://www.thinkchina.sg/chinas-belt-and-road-initiative-faces-huge-challenges-southeast-asia.

Pic Courtesy -ishan@seefromthesky at unsplash.com

(The views expressed are personal.)