For decades, the economic development of ASEAN member states has been hampered by persistent shortages of high-quality infrastructure. The problem was not a lack of desire, but a lack of access to equity and investment. Securing foreign direct investment for infrastructure between the Asian economic crisis of 1997 and the global financial crisis of 2008 was particularly difficult for ASEAN states.
China’s economic miracle solved this problem. Chinese direct investment was already pouring into the region before President Xi Jinping announced the Belt and Road Initiative in 2013. Nonetheless, the introduction of the BRI marked a turning point in the development of China’s infrastructure. ‘ASEAN.
Since 2016, ASEAN member states have, for the most part, been able to generate the foreign investment capital needed to accelerate economic growth in Asia.
Improving land transport links – the rail and road networks that constitute ASEAN’s main economic corridors – was an ongoing priority. The success here is largely due to funding from the Chinese government and BRI projects. Until Covid-19 struck, Chinese investments in regional connectivity – roads, bridges, train lines and ports – were creating whole new levels of regional connectivity.
So what is the problem then? Well, there are three: the quality and sustainability of these investments, the debts associated with them, and the potential supply chain vulnerabilities they have created.
Infrastructure development in ASEAN, but especially in the Mekong region, has proceeded at a breakneck pace. The rapid acquisition of foreign direct investment, while welcome, has raised general concerns about the quality and sustainability of infrastructure projects. In some cases, foreign government investors have been indemnified by sovereign immunity, so there will be little liability if the quality issues cause real risk.
Of greater concern are the long-term implications of the conditions associated with many of these investments. In many cases, loan terms are opaque. Arguably, for some of the countries involved, in particular Myanmar, Laos and Cambodia, repayment of loans, however generous they may be, will be difficult, if not impossible. These types of arrangements are expected to raise concerns within ASEAN and beyond about the potential use of debt-based diplomacy, especially by the Chinese government.
The broader national security challenges relate to critical national infrastructure, supply chain vulnerability and national resilience. Infrastructure developers get a lot of information about the countries in which they operate. Through foreign direct investment, governments in countries like China can gain in-depth knowledge of critical domestic infrastructure and its inherent vulnerabilities. The region’s desperate demand for infrastructure investments has led to a reduction in the political focus on security.
The opaque relationship between Chinese engineering and construction companies and the Chinese state alone is worrying. Chinese state-owned enterprises have access to incredibly large amounts of valuable economic and security information. Such knowledge offers a strategic advantage at every phase of a potential conflict. A hostile government can derive significant value from it, using both soft power and hard power. And this kind of knowledge is essential for those who might want to disrupt national, regional and global supply chains. With this advantage, a hostile country, or even with competing interests, can profoundly undermine the national resilience of a competitor.
The Covid-19 crisis has significantly reduced foreign direct investment. It also created an opportunity for ASEAN member states to critically reassess their infrastructure needs and mitigate foreign investment risks.
ASEAN has the opportunity to leverage its economic integration efforts to address the infrastructure risks of its member states. A regional organization or network could monitor and certify aspects of future infrastructure development to address aspects of quality, sustainability and safety.
As foreign direct investment has dried up, global markets are adjusting to the economic impacts of the pandemic. Interest rates are at historically low levels and expectations of return on investment have changed. The financial crisis resulting from the pandemic is still unfolding, but like all crises, it too will pass. And when it does, infrastructure investment in the ASEAN region will pick up again, so now is the time to synchronize economic growth and security.
John Coyne is the head of the Northern and Australian Security Program and the Strategic Policing and Law Enforcement Program at ASPI. Owen Swift is the online content editor and contributor to The Red Line.
This article is courtesy of ASPI and is reproduced here in abridged form. It can be found in its original form here.
The opinions expressed here are those of the author and not necessarily those of The Maritime Executive.