China tops development finance in Southeast Asia, faces more competition for regional influence: report
- China provided less infrastructure investment in 2020 and 2021 amid the pandemic and as many projects, like those in its Belt and Road Initiative, did not deliver
- While China has out-signed traditional donors in terms of investment value, partners like the US, Europe, Japan typically do better with actual delivery
China has been Southeast Asia’s largest development partner and its biggest source of official development finance but faces increasing competition from other financiers, according to a new report by the Lowy Institute.
Transparency in aid going to regions like Southeast Asia is increasingly important amid geopolitical competition for influence, the report said.
“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,” Lowy Institute’s Indo-Pacific Development Centre director Roland Rajah said.
“This makes an understanding of the scale and contours of official developmental finance in Southeast Asia of critical interest to governments in the region and their development partners.”
“This means development cooperation financed by various forms of official development finance – grants, loans, and other forms of assistance – has a critical role to play.”
“As China’s power has grown, Beijing has been advocating for a restructuring of the global governance system to better align with its interests and values,” the Lowy report said.
“As part of this effort, China launched several large-scale initiatives, such as the Belt and Road Initiative … its aim is to position the country as a provider of global public goods, by offering Chinese resources and solutions to tackle development challenges.”
After China, traditional multilateral financiers such as the Asian Development Bank and the World Bank are the second and third biggest providers of development finance to the region and are pitting against China to be the go-to financiers for the region.
While China has out-signed the traditional donors, these traditional partners typically do better with actual delivery, the report said.
After China, the Islamic Development Bank is the next most influential non-traditional development financier to the region, providing about US$225 million a year to the region.
Most of it goes to Indonesia in the form of non-concessional loans focused on agriculture and education.
In the region, it is not the richest countries that do the heavy lifting when it comes to providing aid in development finance, the report said.