A colossal infrastructure investment program could make Beijing a lot of friends around the world—or a lot of enemies.
Over the past year, Chinese officials reportedly have been surprised by how quickly the Trump administration has undermined U.S. influence in East Asia, creating a leadership void that could potentially be filled—by China. But even before Trump alienated many Asian partners with a mix of harsh trade rhetoric and a general disinterest in South and Southeast Asia, Beijing had launched a strategy to establish itself as the dominant power in its neighborhood. This strategy coincides with the rise of Xi Jinping, the most powerful Chinese leader since Mao, and a man with a desire to make China, shall we say, great again. While the Xi administration appears to have global ambitions, China has made South and Southeast Asia its current top priorities. Its efforts there could become a template for how Beijing will expand its influence worldwide.
High-Speed Empire: Chinese Expansion and the Future of Southeast Asia
by Will Doig
Columbia Global Reports, 107 pp.
China’s strategy for amassing power relies on several pillars. Perhaps the biggest is a series of massive new infrastructure investment programs, first rolled out in 2013, known together as the Belt and Road Initiative. Through Belt and Road, Beijing provides loans and some grants for enormous networks of physical and communications infrastructure that will connect nearly sixty countries around the globe. When complete, the amount spent on Belt and Road could dwarf the Marshall Plan, according to analyses by ING and PricewaterhouseCoopers. As Will Doig shows in High-Speed Empire, a short but well-told piece of reportage, projects like ports, roads, and high-speed rail could help Beijing dominate its neighborhood—and then, possibly, other parts of the world.
Funding huge infrastructure projects in countries that badly need the money and the construction could certainly be powerful tools of goodwill. Yet the Belt and Road plan, which has inspired awe and some degree of fear among U.S. policymakers and officials, may not be foolproof. The infrastructure gambit contains, within its very structure, seeds of problems that could actually turn countries against Beijing, rather than helping China win the game of influence.
Doig, a journalist who covers urban development and has worked for the Daily Beast, Salon, and other publications, offers a clear-eyed and detailed look at how Beijing’s new infrastructure push is emerging on the ground in South and Southeast Asia. In Laos, the smallest economy and sleepiest state in mainland Southeast Asia, Chinese firms are building a high-speed railway through the country, which previously just had a single two-mile train line. In December 2015, Laos’s national government threw a massive party to launch the construction, as earth movers dug the first heaps of dirt. Laos expects the railway to be done by 2021; some estimates initially suggested that the construction project will employ 100,000 people.
With the new influx of investment could come a rapid change in Laotian society, which already has been altered by new roads through the country, including many funded by China. Once a highly rural society, with villages often cut off from each other by mountains and inaccessible terrain, Laos is being knit together, a positive shift for some local farmers and others with goods to sell, but one with mixed implications for many people in the country. Chinese traders and small-scale merchants have moved into Laos, and Doig finds many of them in Oudomxay, a gritty town sixty miles from the China-Laos border. In recent years, he writes, the town has ballooned in size, and is packed with Chinese merchants selling truck equipment, sheet metal, and virtually everything else. In northern Laos, people living in and around the changing towns seem befuddled by the shifts, unsure of how they will earn a living as traditional farming is taken over by cash crop agriculture, often run by Chinese firms. Chinese businesspeople are buying up long-term leases on nearby land, to be used for homes, factories, and plantations.
Meanwhile, the rail project has forced some people out of their homes, often with little or no compensation. Despite the promise of 100,000 jobs, a recent report in the Nikkei Asian Review, a leading regional publication, revealed that most of the labor has been brought in by Chinese companies. Doig also notes that, in countries like Laos, where opaque governance and graft are the norm, huge Chinese projects are not exactly going to bring sunlight to politics. In fact, he writes, experts in Laotian politics believe that Beijing is handing top Laotian politicians millions in bribes. The Laotian government itself, hardly known for its self-searching rhetoric, recently admitted that graft cost the state three times more in 2017 than in the previous year.
Other countries in South and Southeast Asia are being similarly transformed by China’s ambitions. In Pakistan, Doig writes, China is financing and building an extensive network of “roads, rail, and energy infrastructure linking China to the Arabian Sea.” The project could help end Pakistan’s chronic electricity shortages and provide thousands of new jobs, while a new deepwater port in Gwadar, Pakistan, will allow shipments of goods through western China and out via the Arabian Sea.
Belt and Road is driven in part by Beijing’s domestic economic concerns. The infrastructure projects will help many Chinese industries suffering from overcapacity, spark growth in outlying regions of western and southwestern China, and possibly propel Chinese technology into dominant positions in cutting-edge fields like high-speed rail. But by bolstering growth in recipient nations, the initiative could also win over hearts and minds, convincing people in those countries that China’s rise as regional hegemon will, overall, benefit them too. Even in wealthier Southeast Asian states like Indonesia and the Philippines, infrastructure networks are often decrepit, with crumbling roads, railways, ports, and airports getting in the way of economic growth.
Indeed, some Southeast Asian countries have apparently already accepted that, needing Chinese aid and investment so badly, they can’t afford to maintain close security links with the United States—or even to stand up for their own territorial interests. To be sure, Belt and Road is not necessarily a zero-sum game; countries could accept infrastructure investment and still keep China at arm’s length in strategic relations, as some countries have done in the past with American, European, and Japanese aid. But Beijing already appears to be using its aid and investment as a means of leverage. The Philippines is a U.S. treaty ally, but under President Rodrigo Duterte, it has distanced itself from Washington. While Duterte’s predecessor, Benigno Aquino III, took a hardline approach to Beijing’s claims to areas of the South China Sea also claimed by the Philippines, supposed tough guy Duterte has been much meeker. While he occasionally issues macho rhetoric about defending Philippine waters, he has not enforced a decision reached by an international tribunal in 2016 that upheld Manila’s South China Sea claims. Unsurprisingly, the Xi administration has offered to make the Philippines a major Southeast Asian partner in Belt and Road.
The enormous push into infrastructure is not the sole foundation of China’s growing power in Asia. Beijing is investing heavily in its global state media outlets, modernizing them and trying to turn Xinhua into a Chinese version of Al Jazeera or the BBC. China is already the biggest trading partner of most Southeast Asian nations, and increasingly has put itself in the position of defining trade rules and norms. Beijing is rapidly modernizing its armed forces, and militarizing the South China Sea, in a way that ultimately will give China control of much of these vital waters.
But, at least theoretically, other major powers, including the United States and Japan, can still match China in these other arenas. Despite Trump’s unpopularity in Asia, the United States still has reserves of soft power stemming from American cultural hegemony and the history of American defense of Asian partners. Although China has taken major strides to control the South China Sea, and has upgraded its navy, it still cannot project force the way that the Pentagon can. While the Trump administration has benched the U.S. on trade issues, Asian countries still last year passed the Trans-Pacific Partnership—to which China does not belong. The United States could, in the future, join that deal, allowing Washington to again take the lead in setting trade rules.
Chinese leaders, however, know that the United States and other powers could never match Beijing’s infrastructure outlay, and that many developing states need infrastructure badly. A recent article on Belt and Road in the New York Times noted that the Asian Development Bank “estimated that emerging Asian economies need $1.7 trillion per year in infrastructure to maintain growth, tackle poverty and respond to climate change.” Through conversations with U.S. officials focused on the Belt and Road plan, I have seen that, despite discussions with Australia and Japan about establishing some U.S.-led alternative, the Trump administration has no clear plan for doing so. Even with the help of partners like Japan, and even if the Trump administration really focused intensely on some Asian infrastructure project, the U.S. cannot bring to countries in need anywhere near the amounts offered by China’s state banks and state-linked companies.
Yet, as Doig suggests, even without any U.S. answer to Belt and Road, China’s initiative comes with long-term problems wrapped within it both for China and for the states taking its money. Some countries in Southeast Asia still fear that Beijing cannot be trusted. As China pours more money into neighboring states, it could use those funds to coerce them into accepting its growing military dominance, a deal it seems to have already convinced the Philippines and some other countries to accept.
There is perhaps an even greater worry about Belt and Road among Asian leaders. Unlike the Marshall Plan, which delivered mostly grants, China’s infrastructure push relies heavily on loans. As the New York Timesdetailed in a recent article on China’s aid in the Pacific, these loans often come at higher interest rates than loans from other big donors, like Japan. And loans from Chinese state banks could eventually leave countries weaker in some ways than before, as they are forced to hand over critical ports, rails, roads, and communications networks to escape massive debts to Chinese lenders and firms.
That’s an obvious problem for the debtor nations, but it could also blow up in China’s face. These debt traps could turn South and Southeast Asian states against Beijing in the long run, making it much harder for China to achieve its other economic and strategic goals in Asia, and to displace the United States as the primary power. In Laos, for example, that flashy high-speed rail, which the Laotian government has touted as making the landlocked country a key transport hub, could cost about $6 billion, Doig reports. The exact amount China is contributing to the project in grants remains unclear, although Doig says China will pay for $1.6 billion, with Laos covering the rest, via loans from Chinese banks. (Other articles suggest different figures and balances of how much Laos will pay.) With interest at 2.3 to 3 percent, he notes, Laos’s debt from this railway alone ultimately will equal about half of the country’s entire GDP. Meanwhile, it remains unclear to what extent Laotian companies, which are miniscule exporters and manufacture almost nothing, will actually use the railway. Most likely, the line will be used to ship Chinese goods through Thailand and onto transpacific carriers.
Similar stories are emerging in other countries involved in Belt and Road. Sri Lanka, one of the first countries to welcome massive Chinese construction of local infrastructure, has proved to be an instructive case, as I have noted in writings for the Council on Foreign Relations. Sri Lanka had racked up some $8 billion in debt to Chinese state firms by the end of 2017, as the firms upgraded Sri Lanka’s ports and other maritime facilities. Desperate for debt relief, in December 2017 Sri Lanka handed over a major port to Beijing, on a ninety-nine-year lease. Still, in 2018, its currency continued to fall, as investors worried that the island country remained too indebted to Chinese firms. Even Pakistan, long considered one of China’s closest allies in the world, could fall into a debt trap, forced to basically hand vital infrastructure to Beijing. China has already gotten a forty-year lease on one of Pakistan’s most important ports.
China seems to have counted on awing other states with the sheer size of Belt and Road, and to be betting that the antidemocratic wave now sweeping through Asia will reduce public questioning about how the funds are being used. But on the occasions when public anger about the downsides of China’s plan has erupted, Beijing has appeared unsure about how to respond, still touting its construction diplomacy as a cure-all for diplomatic ties.
Malaysia shows how public sentiment can build up and take Beijing by surprise. In May, the former opposition alliance swept to an unexpected victory in national elections, ending the governing coalition’s six decades of dominance. The new prime minister, Mahathir Mohamad, had, on the campaign trail, publicly questioned why Malaysia was accepting so many Chinese aid and investment deals. Mahathir also has a long history of xenophobia, and during campaign season he warned that “much of the most valuable land [in Malaysia] will be owned and occupied by foreigners,” an overstatement that shows how fear of the Chinese government’s deals can easily slide into dangerous xenophobia and racism.
Malaysia made numerous deals with Chinese state firms, with little due diligence, during the era of former Prime Minister Najib tun Razak, who had been embroiled in a wide range of corruption scandals. (After the opposition won in May, emboldened Malaysian investigators raided Najib’s houses, allegedly finding an Imelda Marcos–esque stash of some 250 handbags full of cash and jewelry. Najib has been charged with several crimes.) Following the election, the new Malaysian leaders ordered tougher scrutiny of many China-backed investments in Malaysia. “Evidence is surfacing implicating China in collusion with the Najib administration’s gross fiscal mismanagement,” wrote Peter T. C. Chang, a senior lecturer at the University of Malaya, in the Diplomat, an Asian affairs publication. Beijing, he observed, seemed unprepared to deal with the criticism that it had helped prop up the Najib government.
Mahathir has already halted some of the highest-profile Belt and Road projects in Malaysia, suspending $23 billion worth of Chinese investments. Some other states, even those poorer than Malaysia and more dependent on China, are taking similar action. Myanmar, for instance, is rethinking a China-backed deepwater port in the town of Kyaukpyu, partly because of the high cost and partly because of the possibility of a debt trap. Thailand’s junta government has proposed creating a Southeast Asian regional development bank, a potential alternative to Belt and Road.
Now, it will fall to Beijing to prove that it can modify Belt and Road in ways that show it understands other countries’ fears. If Chinese leaders can demonstrate flexible diplomacy while continuing to roll out large projects, Belt and Road may actually look to other nations like a real partnership. And if that happens, Belt and Road could eventually match the Marshall Plan’s enduring impact and help cement China’s place as a major—perhaps the major—global power.
Joshua Kurlantzick is a senior fellow for Southeast Asia at the Council on Foreign Relations.