The first phase of the BRI was already initiated by China and is expected to end by 2021, and the whole project is projected to be completed by 2049. The total investment projected by China in the implementation of the first phase is USD 240 billion.
However the cost will vary depending on the number of countries participating as well as projects funded. As China builds infrastructure in partner countries in the Asia Pacific region, this will bridge, to some extent, domestic infrastructure gaps. Asian Development Bank (ADB) forecasts the gap at around USD 1.7 trillion per year. China, to its credit, is one of the few countries willing to finance in addressing that gap through its USD 10 trillion economy, with spending of nearly 150 billion USD a year, in the 68 countries that have signed up to the initiative. In May 2017, a government-sponsored forum revealed that China would invest up to USD 150 billion over the next five years.
The Asian Infrastructure Investment Bank (AIIB), Silk Road Fund and the New Development Bank were established by China to address the enormous task of funding the infrastructure projects along the Belt and Road. These three primary institutions have a registered combined capital of USD 240 billion. BRI funding basically came from the Chinese government along with a variety of sources like Commercial Banks and private entities, and are supposed to earn a return for their financial backers. According to official figures, China’s direct investment in BRI countries amounted to USD 56 billion from 2014 to 2017. This does not includes loans from China’s banks, including state-directed “policy banks” such China Development Bank, amounting to USD 180 billion by the end of 2017, and Export-Import Bank of China amounting to USD 110 billion by the end of 2016.
Other financial institutions that can be tapped for BRI funding are: the BRICS New Development Bank, the China-ASEAN Interbank Association, SCO Interbank Association and Sovereign Wealth Funds. It also promotes the use of commercial equity investment funds and other private funds in the construction of key projects. No standard parameters were mentioned as for the mode of payment. Projects may be funded through government-to-government grants, the export credit models such as the buyer credit and supplier credits, or the Public Private Partnership model.For the past five years, Chinese companies are operating ports in several countries, building high-speed rail corridors across Southeast Asia, constructing highways in Pakistan, bridges in Bangladesh, power plants, erecting new cities and economic zones, laying-out oil and gas stretching across Central Asia, Russia and Southeast Asia, and established a 35-line network of trains connecting central and western China with cities in Europe. When China promoted the Belt and Road Initiative, it was embraced by many countries and gained praises and support.
However, there are still both positive and negative perceptions about the initiative. It was seen as a promising initiative and is commended for its potential to be a catalytic global project. On the other hand, it was also observed to be too ambiguous prompting states to exercise more cautious in adopting the initiative in spite currents projects revealed important details about the initiative, its objectives and mechanisms. 4.2 ASEAN Participation China has considers the Southeast Asian region as one of the central nodes and essential partner of its Belt and Road Initiative. Strategically located on the main path of the Maritime Silk Road (MSR), it became one of the priority regions for physical connectivity improvement under the BRI. Being the first stop of the blue economic passage it serves as principal linkage points between land based economic corridors.
The region is made up of several sea-lanes that China utilizes for its vast maritime trade. Also, the world’s busiest commercial shipping route, the Malacca Strait is located in the area. More than 90 percent of global trade passes through these vital sea lanes.
In effect, maritime connectivity with the ASEAN nations is fundamental for China that could play an important role on the geopolitical landscape of the region. For the past several years, China-ASEAN relationship has been steadily improving. Economic relations between China and ASEAN remained strong. Since 2009, China is the largest trading partner of ASEAN, ASEAN is China’s third largest and in 2011 and the priority investment destination for Chinese companies. The investment between the two had exceeded USD160 billion in 2016. There is also an increase in bilateral trade from USD 7.96 billion in 1991 to USD 472.
16 billion in 2015 with an annual growth rate of 18.5 percent. ASEAN and China are aiming to double their trade value, setting a target of USD 1 trillion by the end of 2020. China has a profound economic relation with ASEAN, although China is not a member of ASEAN, it is a member of ASEAN + 3 which also includes Japan and South Korea. The ASEAN and China economies are also connected through a large number of China-lead agreements and institutions such as the Regional Comprehensive Economic Partnership (RCEP), ASEAN China Free Trade Area (ACFTA), Asian Infrastructure Investment Bank (AIIB), China-ASEAN Investment Cooperation Fund (CAF), New Development Bank (NDB), Free Trade Area of the Asia-Pacific (FTAAP), Asia-Pacific Economic Cooperation (APEC), ASEAN-People’s Republic of China Comprehensive Economic Cooperation Agreement, and the Asia-Pacific Trade Agreement.
The success of China’s Belt and Road Initiative largely depends on the support and active participation of neighboring countries like the ASEAN. China have convinced Southeast Asian countries that they can share the benefits brought by BRI and yet still retain a sense of ownership over their participation in this China-dominated initiative. With the substantial infrastructure deficit across the region for many years, ASEAN members welcome the BRI. Most countries recognized that infrastructure is critical in improving connectivity and to support greater cross-border flows of trade and investments. However, the level of participation among ASEAN countries varied in size and scope.
Countries which are long-term strategic allies with China like Cambodia, Laos, and Myanmar readily support the initiative while other countries, such as Vietnam, Indonesia, Malaysia, and the Philippines, are taking a more cautious approach in their participation due to concerns about the risks of economic overdependence on China. They fear that China’s push to implement the initiative will result in the emergence of a China-dominated economic circle and a Sino centric geopolitical order in Asia. For several years, China-ASEAN relationship was stained by the issue of South China Sea. Nevertheless, according to China’s foreign ministry, the South China Sea problem was not a China-ASEAN dispute and should not affect China-ASEAN relations.
With the joint efforts exerted by both parties the situation in the South China Sea has been significantly stable in recent years despite the continued U.S. military presence in the South China Sea. China has employed the principle of double track of security and economy in mitigating political risk. It states that disputes over territorial waters should be addressed through bilateral negotiations. Also, the maritime Silk Road is highly valuable for advancing regional cooperation initiatives and international public good, that it not be interfered with by historical and current conflicts.
China has made a point to draw a clear line between its security policy and the BRI is consistent with its intention to portray the initiative as an inclusive regional growth strategy, not linked to Chinas strategic aims.China has realized the immense opportunities in infrastructure development in Southeast Asia. For the past few decades, the pace of infrastructure development in the region I is sluggish since governments continue to under-invest and has encountered challenges in getting infrastructure projects to market and attracting much-needed funds to finance those projects. BRI unmistakably supported the ASEAN need for infrastructure development in the region. It has been estimated by the Asian Development Bank that USD 750 billion will be invested annually for theses infrastructure development. The ASEAN Master Plan for Connectivity (AMPC) is in conjunction with China’s Belt and Road Initiative.
Both understood of the importance of transport connectivity and the system of roads, ports and railways to link adjoining ASEAN members bring them closer to one another, facilitating better trade access, investment, tourism and people-to-people exchanges. Better market connectivity is beneficial to both the ASEAN bloc and China. Enhanced connectivity across infrastructure, better communication networks and more open trade regulations will allow access to trade, investment, tourism and people-to-people exchanges.
The Belt and Road Initiative has a crucial role in bridging ASEAN and China. Setting aside the underlying geostrategic and geopolitical considerations, the potential benefits from BRI for ASEAN could be massive. The initiative will not only promote industrial development but also help enhance connectivity among the ASEAN member nations.
BRI is also the perfect medium for China to trigger demand for its products by investing intensively in strategic infrastructure projects, and developing economic ties along its Silk Road Economic Belt and the 21st Century Maritime Silk Road.4.3 Philippine ParticipationPresident Rodrigo Duterte has signaled a remarkable shift in the country’s foreign policy by opening the door to a closer relation between the Philippines and China. During his state visit to China last October 2017, he remarked that the country is shying away from the U.S.
and moving towards China. This is considered a major move to end the country’s anti-China sentiments emanating from a maritime sovereignty dispute while extending a hand of economic and political cooperation to China. With this development, approximately USD 24 billion worth of investment and credit line pledges was granted to the Philippines to boost its transport, energy, steel and agricultural sectors.
The administration is also securing a total of $3.7 billion in funding for up to 30 projects as the Philippines builds new infrastructure. This sends strong signals to businesses in both nations that the Philippines is now a participant in China’s Belt and Road Initiative. Chinese President Xi Jinping met with Philippine President Rodrigo Duterte on the sidelines of the Asia-Pacific Economic Cooperation Economic Leaders’ Meeting to strengthening bilateral ties. Xi said that bilateral ties the between the two countries’ have opened a new chapter. With cooperation enhanced it will bring tangible benefits to both peoples and will contribute to the region’s peace and stability. He also said that the two sides should align the Belt and Road Initiative with the Philippines’ development strategy, and deepen practical cooperation in infrastructure, agriculture, investment and other areas. Given BRI’s similarity with President Duterte’s domestic goal of ushering a “golden age of infrastructure”, the Philippines under the initiative will be instrumental to expand trade, build critical infrastructure and provide greater employment to sustain the country’s growth momentum.
However, implementing BRI’s future infrastructure investment plans must be consistent with the Philippines’ infrastructure and other development plans. Also, the Philippines have participated in to AIIB in October 2014 to fund infrastructure development and stimulate economic growth in Asia. Socioeconomic planning Secretary Ernesto Pernia admitted that China’s infrastructure loans are more expensive than Japan’s.
China is offering loans with 2 to 3 percent interest while Japan is imposing 0.25 to 0.75% interest rates. nonetheless, the Duterte government still wants to borrow loans from China since the processing of Japanese projects tends to be “slow” and China’s rates are “still much better” than commercial loans.