Why China is coming to Brunei’s aid as its oil slowly runs out
Beijing sees the state on the coast of Borneo as a potentially key ally as it stakes its claim to waters in the South China Sea, according to analysts
On a tiny island off Brunei’s northern tip on the South China Sea, thousands of Chinese workers are building a refinery and petrochemical complex, along with a bridge connecting it to the capital, Bandar Seri Begawan.
When completed, the first phase of the US$3.4 billion complex on Muara Besar island, run by China’s Hengyi Group, will be Brunei’s largest-ever foreign investment project and comes at a time when the oil-dependent country needs it the most.
Brunei’s oil and gas reserves are expected to run out within two decades. As production falls, oil firms will not be investing much in existing facilities, further hampering output, oil analysts say. As a result, the country’s oil revenues, which provide virtually all of Brunei’s government spending, are in steady decline.
With youth unemployment rising, Brunei’s ruler, Sultan Hassanal Bolkiah, is trying to quickly reform the economy and diversify its sources of income, while fighting graft and cracking down on dissent.
Brunei’s changing fortunes have been reflected in its financial industry. HSBC pulled out of Brunei last year, while Citibank exited in 2014 after 41 years. Bank of China, meanwhile, opened its first branch in the sultanate in December 2016.