China Reduced Development Finance in Southeast Asia

The Lede: New study shows a decline in China’s development finance to Southeast Asia

What We Know:

• According to research from the Lowy Institute think tank based in Sydney, China’s contribution to the region fell from $7.6 billion in 2015 to $3.9 billion in 2021. China disbursed a total of $37.9 billion in that time. The amount comprises nearly 20 percent of the region’s total financing at that time equal to $5.53 billion on average annually. China went from providing 24 percent of Southeast Asia’s overseas development financing to 14 percent in 2021.
• Other countries and partners such as the U.S., Australia, and Japan have increased assistance with the Asian Development Bank and the World Bank overtaking China’s position as the largest source.
• New sources of funding have also stepped into the frame. Saudi Arabia’s Islamic Development Bank has provided about $225 million a year in non-concessional loans, mostly to Indonesia. India has provided about $70 million a year in grants to Myanmar.

The Background: China’s funding has consisted mostly of loans and has been used to back major infrastructure projects across the region including high-speed rail projects in Malaysia, Indonesia and Thailand. Prior to the COVID-19 pandemic, China was Southeast Asia’s biggest single source of development assistance between 2015 and 2019.

Likely Outcomes:

• As Southeast Asia continues to walk a neutral line in the diverging global landscape, there will be opportunities for countries in the region to benefit from competing influences which will likely further accelerate the already rapid development among the recipients. The research suggests that the bilateral and institutional sources of development financing in Southeast Asia will flatten out more evenly between the countries competing for influence, especially as long as this neutrality is maintained.
• China’s generous financing of Belt and Road Initiative infrastructure projects and partnerships will entail greater discretion moving forward and likely focus on key areas to maximize outcomes. The recent summit with Central Asian leaders hints at Beijing’s intentions to hone in on the overland routes of the BRI with a possible emphasis on maritime access by way of Pakistan in the direction of the Middle East and Africa.

Quotables:

“Intensifying geostrategic tensions between China and Western governments have also seen a growing focus on using development finance, particularly in infrastructure, as a means of competing for influence. This makes an understanding of the scale and contours of [ODF] in Southeast Asia of critical interest to governments in the region and their development partners.” – Roland Rajah, lead economist at the Lowy Institute

“It’s more and more difficult to get a loan out of China nowadays, because China is becoming more and more cautious about how it provides financing.” – Alexandre Dayant, researcher at the Lowy Institute

Good Reads:

China’s Development Financing to Southeast Asia Declining, Report Says (The Diplomat)

China scaling back spending in Southeast Asia, report says (Al Jazeera)