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Under President Xi Jinping, Southeast Asia occupies a special place in China’s foreign policy. Politically, the consolidation of good relations with countries there is an essential component of China’s periphery diplomacy. Within the framework of China’s ambitious Belt and Road Initiative (BRI), Southeast Asia sits at the juncture of the Silk Road Economic Belt (mainland Southeast Asia) and the 21st Century Maritime Silk Road (maritime Southeast Asia). China is one of the top investors and plays a significant role in the infrastructure project financing in Southeast Asia, especially the mainland countries including Myanmar, Laos, and Cambodia. Among maritime countries, the role played by Chinese financing is also growing as attested by funding and investment pledges made to Indonesia and the Philippines in the past few years.

According to the Chinese government, there are five areas that China emphasizes in the development of the BRI: policy communication, road connectivity, unimpeded trade, monetary circulation, and understanding among the people.¹ Within the framework, connectivity, especially the hardware connectivity through transportation infrastructure development, occupies a central position in China’s strategic plan.² Transportation networks especially in mainland Southeast Asia will enhance access to the Indochina peninsula and the Indian Ocean, as well as further consolidate China’s political and economic influence in the region. The new projects are also expected to provide much-needed business opportunities to the Chinese infrastructure industry burdened with over-capacity at home. China also expects these networks to reduce barriers and facilitate trade and investment with Southeast Asian countries.

While China’s interest in infrastructure, especially transportation networks in Southeast Asia, is unquestioned, less examined is how China’s enthusiasm is received by Southeast Asian countries. The reaction seems mixed at best. The impressive pace of infrastructure projects proclaimed by China is not matched by the constant delays, repeated negotiations, and doubts and concerns by these states, including slow or no progress in the Kyaukpyu Special Economic Zone in Myanmar, the Sino-Laos Railway, and the Sino-Thai Railway, China’s largest infrastructure projects in the three countries. A careful examination of the Southeast Asian states’ attitudes and policies toward these projects reveals fundamental questions about their political, economic, and most importantly, financial implications for the sovereignty, national security, and financial security of these countries. This article reviews the potentially negative implications of these three projects. It argues that the mismatch between Chinese and Southeast Asian capacities and aspirations will continue to hinder the progress of ambitious projects.

The Question Called Kyaukpyu

Almost two years have passed since the Chinese CITIC-led consortium (a state-owned investment company) won the bid for Myanmar’s Kyaukpyu Special Economic Zone (SEZ), potentially the largest foreign investment project the country has ever seen. Given the NLD government’s keen focus on domestic economic development, and the Chinese persistent push for the success of its projects in the country, key questions and myths have emerged regarding the megaproject’s background, financing, strategic implications, and most importantly, its future. Before the project can move smoothly forward, discussions, information-sharing and actions will be necessary to prevent fallout like what befell the ill-fated Myitsone dam project.

Kyaukpyu is one of three large SEZs the Thein Sein government had decided to pursue for its domestic growth strategy. Located on the west coast of the Rakhine state, its plan has three components: a deep-sea port, an industrial park, and a housing development project. The Myanmar government opened the bid to investors in the autumn of 2014 and selected the CITIC-led consortium for the development of the deep-sea port and the industrial park in late December 2015. The land use plan for the SEZ was approved around the same time.³ The total investment from China for the SEZ is calculated at $10 billion. CITIC plans to follow a DBFOT business model for Kyaukpyu, responsible for the projects’ design, building, financing, operation, and transfer. The consortium is to receive a 50-year entitlement for the development and the operation of the project with a potential extension of another 25 years.

The Kyaukpyu SEZ has been criticized as one of the last-minute deals that the Thein Sein government approved before stepping down, arguably in a hasty manner to appease China, without sufficient public discussion. Such controversies are said to have been a main reason for its delayed commencement. Two years after the projects were awarded, little or no actual development has been reported. Concerns about the Kyaukpyu SEZ apparently persist within the NLD government, the military, and society.

Myanmar’s financial security: Will Kyaukpyu SEZ incur prohibitive debt for the country?

One of the main concerns of Burmese officials, at least in private conversations, is that the size of the Kyaukpyu SEZ is unnecessarily large. If their government is unable to provide the financing, as people fear it cannot, it will likely have to resort to Chinese government loans to pay its share. If Myanmar were to assume 50% of the stake, the required investment could amount to $5 billion, about 7.5% of the country’s annual $67 billion GDP. The Chinese government and companies have a pattern of providing concessional loans to countries to pay for their stakes in the infrastructure projects that China builds in their countries, such as those under BRI. One comparable case is the $2.1 billion Laos has to borrow from the Chinese Export-Import Bank for a 30% stake of the Sino-Laos railway. The start-up capital Laos had to take from Beijing- $630 million – amounted to 5% of Laos’ 2015 GDP.

The total investment for the Kyaukpyu deep sea port is reported to be $7.3 billion. The original plan of the Myanmar government stipulated that foreigners should control no more than 85% of the stake for the deep-sea port and 51% of the stake for the industrial park for foreign investors. CITIC appears eager to fully exploit the offer and proposed taking a 70-85% stake in the port.⁴ This would arguably reduce Myanmar’s contribution from $3.6 to $1.1-2.2 billion. Assuming that Myanmar and China are pursuing a 50/50 joint venture in the $2.7 billion industrial park, Myanmar needs between $2.5 and $3.5 billion for a 15-30% stake of the deep-sea port and 50% of the industrial park. Over a 30-year long-term loan, the annual repayment would be around $83-$116 million, not including interest.

Whether this would be a prohibitively large debt for the government is one question, but the bigger question is whether the project should be downsized to meet the needs of Myanmar, rather than of China, whose overwhelming ambition and capacity contrast to Myanmar’s more moderate aspirations and limited capacity. Burmese ask why Myanmar should borrow money from China to support an ambitious Chinese project designed primarily to serve China’s political and economic agenda. The Chinese counterargument would be that it merely followed the instructions stipulated by the previous Burmese government and the bid was processed and accepted legally. The current delay suggests serious concern from the Burmese side.

Myanmar’s national security: Will Kyaukpyu become China’s naval base?

If China is indeed going to acquire an 85% stake in the deep-sea port and lend Myanmar the rest, critics worry about amplifying Chinese autonomy in determining how the port is developed and used—even suggesting that China could turn Kyaukpyu into a naval facility, or at a minimum, a dual-use facility in the Bay of Bengal as a part of its Indian Ocean strategy. The depth of the Kyaukpyu port (24 meters on average and 10 meters deeper than Pakistan’s Gwadar port) affords superb conditions for such use.

Myanmar, especially the Burmese military, is hyper-sensitive about the sovereignty, territorial integrity, and national security of the country. The 2008 Constitution clearly states that “no foreign troops shall be permitted to be deployed in the territory of the Union.” China’s track record in the Indian Ocean on dual-use ports is not exemplary. It is widely believed in the region that the Gwadar port has already offered military utilities for the PLA. In the case of Sri Lanka’s Hambantota port, in which China owns a 70% stake, a requirement by the Sri Lanka government prohibited China from using it for military purposes earlier than 2017.

The strategic importance China has attached to Kyaukpyu contributes to Burmese suspicions. It is seen as a component of the “string of pearls” plan that extends the naval force’s regional reach, providing a potentially new military presence for China. Beyond symbolic power projection, the port could not only be a channel that services China’s energy demand, but also could become an actual stronghold for both combat and logistics purposes. This does not mean that the construction of the port will unambiguously lead to a naval base, but serious and reassurances and written agreements will be needed to address Burmese concerns.

Who wins?  

China sees enough political and economic benefit to justify a megaproject like the Kyaukpyu SEZ. It sees Kyaukpyu as a key alternative route for a trade and transportation network that covers Southeast Asia and South Asia, with strategic benefits for China’s Indian Ocean strategy. It could stimulate the growth of China’s underdeveloped, inland provinces including Yunnan, Guangxi, and Guizhou, and generate business opportunities for Chinese companies, including CITIC.

China also paints a glorious future picture in Kyaukpyu for Myanmar, including job creation, port revenues, transportation improvements, trade facilitation, tax revenues, local education, and other corporate social responsibility programs. It promises more than 100,000 jobs upon the commencement of operation of the SEZ; 90% of the management jobs will go to Burmese within the first ten years of operation and the Myanmar government will gain a total of $15 billion in tax revenues from the port and the industrial park.⁵ However, details are missing regarding the type and timeframe for job creation. And people are unclear as to how many businesses will set up factories in the industrial park. Without creating such industrial capacity, Kyaukpyu will be merely a transit point for Chinese goods, rather than a center of growth.

The question of “who wins” is not to suggest that Myanmar will lose. But the lack of public information and debate highlights the secretive tone of the whole Kyaukpyu conversation, reminding many of the fate of another mega Chinese investment project- the Myitsone dam. 

Despite these concerns, at a time when Myanmar eagerly seeks foreign investment, Kyaukpyu represents a good opportunity to draw strength from Chinese financing, capabilities, and enthusiasm. China’s investment is based on solid consideration of its own national interests. Myanmar has a good chance to win, yet such a win requires sophisticated calculations. The long delay in the commencement of development suggests questions on the Myanmar side. Both China and Myanmar would benefit from open discussion of concerns and their timely resolution.

The Ambitious Sino-Laos Railway

While several priority areas are identified by China in its upgrade of relations with mainland Southeast Asia, nothing stands out more than the Trans-Asia railway network spearheaded by the Sino-Laos railway and Sino-Thailand railway. Originally, there were three route options for the railway network: the western route to connect Kunming to Myanmar’s Rakhine State (to the Bay of Bengal); the eastern route to run from Kunming to Hanoi, and down to Ho Chi Minh City; and the middle option between China and Laos and between Laos and Thailand and eventually to connect Kunming with Bangkok.⁶ Both the western and eastern routes became secondary considerations. Geopolitical factors played a main role, as the Thein Sein government pivoted to the West and terminated the Sino-Myanmar railway MOU in 2014 and Sino-Vietnam relations deteriorated due to the South China Sea disputes. The middle route, however, bore fruit: the agreement for the Sino-Laos railway project was finally signed in the November of 2015, the construction for which commenced within a month, and was seen as a major victory in China’s “railway diplomacy.”⁷

The Sino-Laos railway was negotiated between the two governments. The MOU was signed as early as October 2010, followed by the Laos parliamentary approval in 2012. It took three years to negotiate the terms, financing, and construction of the project before it commenced in late 2015 in Luang Prabang. In 2016, the Laos-China Railway Company Laos, the joint venture was granted the railway’s franchise. Chinese media has branded this China’s second overseas railway investment that fully uses “Chinese standard, Chinese technology, and Chinese equipment,” after the first one in Indonesia.⁸

The fact that the negotiations over the route, bidding, financing, and labor sources took as long as six years to complete suggested internal difficulties and bilateral disagreements. Internally in China, former railway minister Liu Zhijun was arrested in 2011 on corruption charges, which led to a reexamination of China’s high-speed railway plans and the restructuring of the Ministry of Railways.⁹ Externally, China believes that Vietnam’s strong opposition to the project due to its national security concerns affected Laos’ decision-making.¹⁰ China and Laos took time to reach agreement over an estimated $7 billion, or roughly two-thirds of the country’s gross domestic product, required for the project. The Lao parliament was reportedly concerned about accruing massive debts and the costs of repayment.¹¹ There were also disputes over land acquisition, and the relocation and compensation of farmers.

Laos’ financial security: Is the railway financially sound?

The total length of the Sino-Laos railway is estimated at 427 km with designed passenger train speed of 200 km and a freight train speed of 120 km. The construction is expected to be completed within five years by 2021. The estimated total investment amounts to $7 billion, roughly 40 billion RMB (Nikkei Asian Review cites $5.95 billion.¹²) The Laos Railway Company will represent the Laos government to hold the 30% stake, while the 70% stake on the Chinese side is distributed among: Mowan (Mohan-Vientiane) Railway Company (40%), Beijing Yukun Investment Company (20%), and the Yunnan provincial government (10%).¹³ Mowan is a joint venture established by four infrastructure construction companies.¹⁴  

The first phase of construction, according to Nikkei Asian Review, requires $2.38 billion, of which the Laotian government is responsible for $715 million and the Chinese government $1.67 billion. The Laotian national budget will contribute $50 million annually over a five-year period, eventually covering $250 million in total. As agreed between Laos and China, Laos will borrow the remainder of its $715 million from the Export-Import Bank of China at a low annual interest of 2.3%, with a five-year grace period and a 35-year maturity. The loans provided by the Export-Import Bank are backed by Laos natural resources—primarily bauxite.¹⁵

The financing plan for the project is significantly different from the 2012 version, when the Laos government was determined to assume full ownership with the $7 billion investment financed by a loan from China, a plan that was approved by an extraordinary session of the National Assembly.¹⁶ The government was to provide the sovereign guarantee for the loan, supposedly including not only the revenues from the project and all project assets, but also royalties from Chinese mining operations: a gold and copper mine in the Sepone and Vilaboury districts of Savannakhet, and the Champassak bauxite mine. The original plan also dictated that the Laos government need not repay the interest for the loan for 10 years but the interest would kick in from day one of the loan approval and would balloon by the 11th year when it had to be repaid with the principal.¹⁷ China would receive 5 million tons of mineral resources from Laos, primarily bauxite.¹⁸ The plan to assume full ownership of the megaproject financed 100% by a loan from China was apparently overly ambitious, given that the size of the loan would represent two thirds of Laos’ GDP in 2015. It also solicited complaints from Laos MPs that the loan would give China full control of the railway through the loan without spending a dime.

Is the new plan better? Despite the reconfiguration of the loan, observers still question the financial soundness of the project and worry that the total cost would place too heavy a burden on Lao’s economy.¹⁹ In case the government fails to deliver its initial investment, one possible solution could be offering China land concessions.²⁰ The railway’s construction will also entail an information, communication, and technology cost (the ICT cost) that amounts to $3.67 billion.²¹ The two countries have agreed to let the Laos-China Railway Company, the Lao Telecom, the Lao Asia-Pacific, and the Chinese Huawei be the four companies that provide both internet and mobile phone services along the route.

The financial security question appears to be more severe if the broader context and the future profitability of the railway is taken into consideration. Laos’ current infrastructure lacks even the most rudimentary development. A major portion of the country’s roads and railways was built during the French colonial era. As early as 2013, the UNDP’s analysis suggested that the terms of financing proffered by the Export-Import Bank of China could seriously jeopardize Laos’ macroeconomic stability.²² The IMF warned that Lao’s poor foreign reserves could lead to annual debt that equals 70% of its GDP in 2017.²³ Some pessimistic observers worry that once Laos becomes incapable of fulfilling its financial commitment, it will have to provide China not only the authority to use its land but also its natural resources, including potash and copper, in exchange for Beijing’s leniency.²⁴ A feasibility study conducted by Chinese experts suggests that the Sino-Laos railway will lose money in the first 11 years of operation, confirming the belief that transnational railways generate profit in a slow fashion.²⁵

Laos’ societal security: local employment and land compensation

The construction of the Sino-Laos railway is awarded to Chinese state-owned companies. Laos has absorbed the largest number of Chinese expatriate workers among all Southeast Asian countries, amounting to 11,000 in 2015, given the difficulty in finding skilled Lao labor with the proper education, technical expertise as well as Chinese or English language capability. The Lao population is relatively small at 6.9 million. A labor shortage has contributed to the hiring of foreign laborers from China, Thailand, and Vietnam.²⁶ Yet the Laos government has capped the percentage of foreign labors at foreign companies in Laos: 10% for laborers and 20% for managers with a four-year cap on employment in Laos.²⁷ As of August 2017, the majority of the 5,000 workers building the Sino-Laos railway are Vietnamese and Chinese, and only a small number of Lao workers have been selected.²⁸ The Chinese companies announced a plan to recruit as many as 7,112 workers, including 211 experts, 505 engineers, 56 office managers, and 6,340 workers.²⁹ It remains to be seen how such a plan could be achieved. The Chinese investors and the Lao government both have committed to provide vocational training to Laos nationals. Without job creation and local employment, the Sino-Laos railway will generate a temporary boost for the local economy through the influx of foreign workers, but will not create momentum for sustained development, including industrialization and capacity-building.

Land compensation is another thorny issue, on which the Lao government has been reluctant to allow discussion. The seizure of land for development, often without public inquiry, due process, or fair compensation for displaced locals has been a major cause of protest. China has relied on the Laos government to handle this for the 3,800 hectares permanently drafted for the railway project. The statistics of affected residents were only compiled by December 2016, more than a year after the beginning of construction.³⁰ 599 billion kip has been allocated for compensation with local complaints that offers should be improved.³¹

Who wins?

The Laos government places high hopes for the railway project, turning Laos from a landlocked country to a transportation hub for mainland Southeast Asia. It could make important contributions to national economic development; however, Laos is paying a dear price. It needs to think carefully about what industrialization assistance or trade facilitation the railway project could create for sustainable development. Laos has little industrial capacity to produce the value-added goods to transport either northward to China or southward to Thailand; the railway will turn Laos from a landlocked state into a “pass-through” country. China is unlikely to be a loser. Should Laos fail to repay its loans China still gets to extend its transportation network, and failure of repayment will give China additional influence over Laos domestic and foreign policy.

The Sino-Thailand Railway: Uncertain Future?

Compared to the Sino-Laos railway, the Sino-Thailand railway has proven to be even more difficult and delayed. While the initial announcement of the agreement was made in 2014, the project has yet to break ground three years later despite Beijing’s persistence. At least four factors contribute to the uncertain fate of the railway: the domestic politics of Thailand, financing concerns, foreign competition, and geopolitical concerns.

Thai domestic politics

China’s original proposal conditioned agreement to build the high-speed railway on reimbursement with Thai agricultural products.³² The proposal was discussed between China and the Yingluck government in 2013 and was signed in October. In China, the plan was vividly termed “Rice for Rail.” However, the Yingluck government fell into crisis due to corruption charges on her agricultural subsidy program (especially the rice purchase program), which led to the military coup in May 2014. The most immediate effect was China’s cancellation of a 1.2-million-ton rice deal with Thailand.³³ Three months after the coup, the two decided to disassociate rice deals from the railway plan. “Rice for Rail” was cancelled. Chinese diplomats acknowledged “vast differences in the values of rice and high-speed railway” and that “tying them to each other is not fair for the Chinese railways.” ³⁴

In the Chinese policy community, the initial assessment of this unexpected change was that the military government led by General Prayut was anti-China because it opposed the “China-friendly” Yingluck government. While the Chinese regretted yet another wrong bet on a political candidate in Southeast Asia, they were pleasantly surprised that the military coup soured the relationship between Thailand and the West, especially the United States. In search of international support, the military government moved forward with the approval of the Sino-Thai high-speed railway project in late 2014 during Premier Li Keqiang’s visit, but the ensuring negotiations with the Prayut government have proved to be difficult. The Chinese see the project as the victim of Thai domestic politics, the terms were repeatedly revoked and renegotiated to enhance the “political achievement” of the Thai military government.³⁵

Financing plan 

The project’s financing plan has been the biggest obstacle to both China and Thailand. A 2016 Nikkei Asian Review article suggests that disputes regarding financing include how to split the ambitious $15 billion cost proposed initially, nor could the two countries agree on how much should each side invest in the special-purpose company that would be in charge of the railway’s construction. China rejected Thailand’s proposal that China invests 60% into the special-purpose joint company, while Thailand could not agree with China’s loan with an annual interest rate of 2.5%, insisting on lowering the interest rate to 2%.³⁶

Some sources suggest that the Thai government believes its geo-strategic importance calls for China’s unconditional financial input, given that the Sino-Thai railway is an essential component of BRI in Southeast Asia.³⁷ However, China has not agreed to more concessions because Thailand refused to grant it the franchise to land usage along the route, among other special rights that China has been able to at least partially achieve with its projects in Laos.³⁸ The Thai transportation minister expressed the view that the project is built on “Sino-Thai friendship,” which reached its 40th year anniversary in 2016; so Thailand expected to do business with China at a below market price exclusively for “friends,” and China should not be profit-driven.³⁹

In 2016, very much to China’s dismay and disappointment, Thailand announced that it had decided to invest in the first phase of the project by itself, enabling it to upgrade the maximum speed to 250kph, from a medium speed plan that China demanded.⁴⁰ However, financing remains a challenge. Thailand decided to keep the maximum speed at 250kph, rather than a standard 300kph for high-speed railways, because the 50kph difference would raise the cost by 130%.⁴¹ Thailand has also been negotiating with China in order to revise the railway design to a less costly blueprint, intending to reduce the original total budget of $14.2 billion to $11.3 billion. Moreover, Thailand has not been in favor of the model proposed by Beijing, under which the engineering contractor/company is responsible for constructing and delivering the finished project to clients. Thailand intended to switch the model to the Special Purpose Vehicle (SPV) model, which allows the parent company to set up a separate sub-company to be charged with the project’s responsibility, thereby ridding the parent company/government of all financial liabilities in case of failing to deliver the project or bankruptcy.⁴² Independent investment gives Thailand greater flexibility, but it might overburden the Thai government given its record of owing public debt. Some analysts in Thailand expressed the concern that huge-scale projects could push the public debt beyond 50% of GDP. It was 41.2% of the GDP by the end of 2016.⁴³

Currently, as approved by both Beijing and Thailand, China will be responsible for the design, supervision, technology-assistance, and technology-transfer during the railway’s building, and Thailand will be responsible for the construction and financing. The two sides have also agreed to employ as many Thai engineers and workers as possible. The same preference applies to the selection of equipment and materials.⁴⁴ Still, some legal issues such as the temporary work permit for Chinese engineering advisors working on site remain unresolved.⁴⁵

Foreign competition

In the Chinese analysis, foreign competition, especially that from Japan, has been an important factor in the repeated delay and renegotiations of the Sino-Thailand railway. China has consistently seen a competition between China’s “north-south” plan to regional transportation network development and Japan’s “east-west” priority. In the case of the Thai high-speed railway, Japan offered a financial scheme with 0.1% interest rate under its Official Development Assistance, which increased the leverage of the Thai government in its negotiations with China. China’s inability to offer a better rate led to the Thai decision to pursue its own financing.⁴⁶

The Sino-Japan competition over the Thai high-speed railway contrasts to the Jakarta-Bandung railway project, for which Chinese financing was accepted by Indonesia over the Japanese proposal despite a similar interest rate discrepancy (China at 2.5% and Japan at 0.1%). Japan lost in that bid due to its requirement for a Indonesian government guarantee.⁴⁷ Japan is currently pursuing a high-speed railway project that will link Bangkok with Chiangmai, which Chinese believe has interfered with the progress of the Sino-Thailand railway project in that Thailand has been using the concessions from one country to further squeeze the other. In the case of the most recent delay of the commencement of the construction in October 2017, a Chinese expert pointed out that the fact that Japan could not make any decision on its Thai railway project during its general election has forced China to wait on the Chinese projects.⁴⁸

Political concerns

Given China’s enthusiasm about the railway project under BRI and the magnitude of the project, is China’s intention is purely economic or “colonial”? The Sino-Thailand high-speed railway is supported, administered, and spearheaded by the two governments, with little or no public debate about the political, economic, social, and environmental impact for the Thai people. Although this model is not new in Southeast Asia, it creates major popular doubts. Some Thai economists argue that the prioritization of the economic linkage with China through the high-speed railway is not in line with current policy to prioritize investment and development of coastal areas in the south.⁴⁹ China’s initial “Rice for Rail” proposal escalated the domestic political crisis, which indirectly led to the collapse of the Yingluck government and the military coup. It is conceivable that disputes associated with Chinese investment projects have had a destabilizing effect on the fragile domestic political equilibrium in countries such as Thailand.

Conclusion

The Kyaukpyu special economic zone, Sino-Laos railway and Sino-Thailand railway, if realized, would be China’s largest projects in Myanmar, Laos and Thailand, respectively. In China’s BRI through Southeast Asia, these three projects carry distinct strategic importance. The Kyaupkyu SEZ is expected to open up China’s southwestern transportation network through Myanmar to the Indian Ocean. The Sino-Laos and Sino-Thailand railways together would clear the transportation corridor from southern China through mainland Southeast Asia to the southern tip of the Indochina peninsula through land transportation. They represent key components of the land Silk Road Economic Belt and its convergence with the 21st Century Maritime Silk Road.  Vast economic and political resources have been devoted by China to ensure their prompt and smooth implementation.

The inconvenient truth, however, is that is the mega-infrastructure projects China is pushing under BRI in mainland Southeast Asia have encountered rejections or push-backs from the recipient countries. Between China and Southeast Asian countries, there is a clear mismatch of capacities and wills. China controls unparalleled financial capacities and political will to pursue these projects. Its ambition to establish advanced transportation networks across mainland Southeast Asia is ill-matched by the much more moderate capacity and aspiration by the Southeast Asian states. Indeed, compared to China’s dream to consolidate and integrate the regional economy into a China-centric network, countries such as Myanmar, Laos, and Thailand are primarily interested in domestic economic growth, which does not require the level of advanced infrastructure network China would like.  

Southeast Asian recipient countries are torn by at least two dilemmas: between economic benefits and financial security, as well as between economic opportunities and national security. While the Chinese projects will play a role in promoting economic growth and facilitate trade, they will incur significant debts and solvency problems. The Thai and Burmese rejections of the Chinese overly grandiose projects and astronomical budgets illustrate the vastly different expectations and the refusal to bring on excessive debts for the Chinese strategy. Chinese companies and local governments have a strong tendency to unnecessarily expand the scale of moderate projects in order to increase the size of the total contracts because of the operating assumption that all loans will eventually be repaid by the Southeast Asian governments. The price of infrastructure development for these governments is exceedingly large, inevitably undermining their future financial security. All three governments have taken measures to reduce the size of the proposed projects with no guarantee over financial security problems.  

To increase the feasibility of financing, the Chinese governments and policy banks have designed concessional terms and ownership distribution schemes to reduce the financial burdens for the recipient governments. However, the higher ownership ratio for China creates the immediate concerns over sovereignty and national security. The Burmese government is rightfully concerned with China’s almost exclusive control over the deep-sea port in Kyaukpyu, as is the Thai government over the demand for franchised land use along the railway route.  When China makes a tradeoff between the projects’ concessional financing terms and the more invasive and excessive demand for strategic resources, Southeast Asian countries are pressed by a difficult choice between economic opportunities and potential threat to national security.

China’s mega-infrastructure projects potentially exacerbate the internal fragility of the recipient states. In the case of Thailand, the Chinese “Rice for Rail” proposal and associated rice import plans contributed to corruption cases, which resulted in the military coup of 2014. The Chinese dominant ownership of the Kyaukpyu deep-sea port aggravated the tension between the Burmese military concerned with sovereignty and security issues and the former and current Burmese civilian governments, adding an additional layer of uncertainty to the country’s fragile political future. Across the board, all three projects are fraught with social and environmental concerns, including land grabs and compensation, lack of transparency and public discussion, the influx of Chinese workers, and opaque environmental impact assessments.

Southeast Asian states have serious concerns, which have led to the capricious implementation and uncertain future of the projects to China’s dissatisfaction. The important lesson for China is that the mismatch of capacities and aspirations between Southeast Asian nations and China in infrastructure development determines that China’s ambitious BRI will be subject to key constraints and meet local opposition. Future Sino-Southeast Asia infrastructure development should be based on mutual agreement over shared interests rather than unilateral imposition of Chinese ambitions.