ASEAN Roundtable Series: China’s Belt and Road Initiative in ASEAN: economic opportunities and ASEAN centrality

Published on 31 July 2017

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Pauline Loong

Managing Director, Asia Analytica

Senior Fellow, CIMB ASEAN Research Institute

Pauline Loong is the managing director of the Hong Kong-based research consultancy Asia-analytica. She is also a Senior Fellow of CIMB ASEAN Research Institute. She has earned an outstanding reputation as among the best-informed analysts of China’s political economy. She authors the well-known “Loong on China” newsletter which has won accolades for its perceptiveness as well as its meticulous research and reliability.

Her distinguished career includes her role as senior vice-president and China risk analyst at CIMB Securities. She was responsible for alerting clients to the changing dynamics shaping China in the 21st century and what they mean for investment decisions.

Previously, she had been a director at Jardine Fleming (now part of JPMorgan) where she headed its China department. She also served as head of research at Jardine Fleming China, a venture backed by the World Bank’s International Financing Corp.

At Jardine Fleming, she successfully guided clients through the most tumultuous decade in modern Chinese history: the Tiananmen Square crackdown in 1989, the death of Deng Xiaoping and the highly confrontational run-up to Hong Kong’s handover to Beijing in 1997.

Ms Loong’s Chinese Mainland connections are impressive and have been developed during three decades of close personal involvement in China’s economy – both as a market player and as a journalistic observer. Her Mainland experience as well as her expertise led to an executive position with CITIC Resources as it was developing its offshore business.

The foundations of her Beijing relationships had been laid when she had been among the first foreign correspondents in China in the 1980s as assistant editor of the Far Eastern Economic Review and Editor of its authoritative China Trade Report. In the early 2000s, she had extensive access to top policy circles in Beijing after her appointment as Editor-in-Chief of Euromoney’s stable of financial magazines in Asia.

Ms Loong’s awards include being voted “Best China analyst” in 1993 (representing Jardine Fleming) and being again ranked among the best analysts in 2007 (representing CIMB) in two global polls of fund managers by Asiamoney. She won Euromoney’s “Best Stories Award” in 2000 for her analysis on Asia’s growing hedge fund industry and in 2003 on the takeover of Jardine Fleming by Chase.

She graduated in English Literature from the University of Hong Kong. She was nominated by Jardine Matheson to undertake course studies on socialist economics and the Chinese political system at Peking University and at Tsinghua University in 1997.

Tan Sri Dato’ Dr. Michael Yeoh

Chief Executive Officer, Asian Strategy & Leadership Institute (ASLI)

Tan Sri Dato’ Dr. Michael O.K. Yeoh is a public intellectual, social entrepreneur and thought leader. He is Co-Founder and Chief Executive Officer of The Asian Strategy & Leadership Institute (ASLI), recently ranked as one of the world’s and region’s top think tank. ASLI was ranked no. 23 in the world among think tanks with budget below USD5 million and 22 in the world among think tanks to watch. ASLI’s Centre for Public Policy Studies (CPPS) was also ranked 4th best in Asia Pacific región. Dr. Yeoh is also Founder Vice-Chairman of CPPS.

Dr. Yeoh was appointed by the Prime Minister of Malaysia to be a Member of the National Unity Consultative Council, the Advisory Board of the Malaysian Anti-Corruption Commission and a Commissioner in Malaysia’s Competition Commission. He was appointed by the Malaysian Government to be Malaysia’s Representative with Ambassador status on the ASEAN High Level Task Force on Connectivity. He has served two terms as a Commissioner in Malaysia’s Human Rights Commission. He is now Deputy President of the Association for Promotion of Human Rights (PROHAM). He was recently appointed to be a Council Member of the United Nations ESCAP Business Advisory Council.

With over 30 years corporate experience, he sits on the Board of Directors of Pan Malaysia Corporation, Malaysia-China Business Council and MUI Properties and was a Director of Star Publications and the National Heart Institute. He also sits on the Board of Governors of the Wawasan Open University. He is also Chairman of the World Chinese Economic Forum and the ASEAN Leadership Forum. He was recently elected as the Secretary General of the Malaysia-Japan Economic Cooperation Association (MAJECA).

He graduated in Economics and Accountancy from Australia’s Monash University and has undertaken senior executive programmes at Harvard Business School and Aresty Institute of Wharton School. He was conferred a Doctorate in Laws (honoraris causa) by the University of Nottingham. He is a sought after speaker at international conferences and has authored several books on leadership, management and politics. Dr. Yeoh is also a member of the Institute of Strategic and International Studies London, a Fellow of the UK Institute of Directors and Fellow of the Malaysian Institute of Management. He enjoys photography, reading and travelling.

Dr. Zhang Miao

Research Fellow, Institute of China Studies, University Malaya

Dr. Zhang Miao is Research Fellow at Institute of China Studies, University of Malaya. She obtained her PhD in Economics from University of Malaya in 2014. She has been studying China-Malaysia trade and investment, urban studies and institutional economics. Her research spectrum also extends to the fields of industrial policy and technology innovation. Her previous writings have appeared in a number of international journals such as Journal of Contemporary Asia, Habitat International, Cities, Journal of Asia Pacific Economy, International Journal of China Studies, Institutions and Economies and Asia Pacific Business Review.

Dr. Zhang has undertaken several consultancies for international agencies, including United Nations Development Programme (UNDP), Japan-ASEAN Center and Economic Research Institute for ASEAN and East Asia (ERIA). Dr. Zhang frequently contributes commentaries to Malaysian papers – Sin Chew Daily and Oriental Daily.

Unny Sankar

Senior Principal Assistant Director, Ministry of International Trade and Industry Malaysia (MITI)

Mr. Unny Sankar is the Senior Principal Assistant Director of Bilateral Economic and Trade Relations at the Ministry of International Trade and Industry Malaysia. His responsibilities include overseeing the newly established Belt and Road Initiative National Secretariat as well as bilateral economic and trade matters relating to the People’s Republic of China, Hong Kong, Taiwan and Macau. In addition, Mr. Unny Sankar leads coordination and monitoring team on the implementation of Five Year Program for Economic and Trade Relations between Malaysia and China.

He started his career in the civil service at the Ministry of Health Malaysia in 2003. He was part of the free trade agreement negotiating team for Intellectual Property Rights Chapter, Trade in Goods and Trade in Services — negotiating for access to medicine and trade in health.

He obtained his Bachelor of Science in Biochemistry (Honors) from the University of Malaya in 2003 and Master of Public Administration from Harvard University in 2014. Currently he also serves as the Executive Committee Member for the Harvard Club of Malaysia.

Tan Sri Dr. Munir Majid

Chairman, CIMB ASEAN Research Institute President, ASEAN Business Club

Tan Sri Dr. Munir is the Chairman of CIMB ASEAN Research Institute (CARI) and the president of ASEAN Business Club (ABC). He is also the Chairman of Bank Muamalat Malaysia Bhd, and has been on its board since 2008. He obtained his B.Sc (Econ) from the London School of Economics and Political Science in 1971, and his PhD in International Relations in 1978. He taught at the Department of International Relations in LSE from1972-1975, and was an analyst for Daiwa Europe NV in London from 1975-1978.

On his return to Malaysia at the end of 1978, Tan Sri Dr. Munir joined The New Straits Times Press (NSTP) as a lead writer and progressed to become its Group Editor. He left The NST in 1986 to become the CEO of a small merchant bank, Pertanian Baring Sanwa (PBS), which then became Commerce International Merchant Bankers, the genesis of today’s CIMB Group. He left CIMB in 1993 at the invitation of the Government of Malaysia to set up the Securities Commission and became its first Executive Chairman until 1999. He continued with his illustrious career, serving in various capacities, including as Chairman of both Celcom and Malaysia Airlines System at different times. He was the founder and President of the Kuala Lumpur Business Club (2003-2008), and was the chairman of its Advisory Council. Dr. Munir, an Honorary Fellow, is Visiting Senior Fellow at LSE IDEAS (Centre for international affairs, diplomacy and strategy).

This roundtable discussed the opportunities and challenges of the Belt and Road Initiative (BRI) for ASEAN. The BRI (formerly known as One Belt One Road or OBOR), is China’s grand plan to build and improve infrastructure to revive ancient silk trade routes, both land and sea. Chinese President Xi Jinping first announced the massive undertaking in 2013. It covers over 65 countries, encompasses around 30 percent of the world’s GDP and over 35 percent of the world trade. The target is for the two components of BRI, the Silk Route Economic Belt and the 21st Century Maritime Silk Route, to cover 80 percent of world trade by 2050. With the Asian Development Bank estimating that developing Asia will require US$ 1.7 trillion of investment per year up to 2030 to keep up with its current growth momentum, many believe that the BRI is poised to sustain the infrastructure boom needed within ASEAN as well.

1. A BRI Boon for ASEAN?

Tan Sri Dato’ Dr. Michael Yeoh and Dr. Zhang Miao were both optimistic about BRI’s potential impact for ASEAN and believe that BRI is complementary to ASEAN’s vision for development and improved connectivity as outlined in the Master Plan on ASEAN Connectivity (MPAC).

Tan Sri Michael Yeoh was of the opinion that the main benefits of BRI for ASEAN would manifest themselves in the areas of physical infrastructure, connectivity and digital connectivity. He said that BRI presents the region with major sources of infrastructure financing, two of which were specifically set up for the BRI, namely the China ASEAN Infrastructure Fund and the Silk Road Fund, and a third source the Asian Infrastructure Investment Bank (AIIB). He also pinpointed various sectors including education, energy, tourism, healthcare and fintech which will benefit from the BRI if cooperation is focused not only on investment and infrastructure, but also on innovation and inclusive development.

Dr. Zhang also spoke about the synergistic nature of BRI and the MPAC, especially since the latter is an ambitious plan which faces financial constraints. Beyond the three sources of funding Tan Sri Michael Yeoh mentioned, she listed a variety of other possible funders including the New Development Bank in China, policy banks such as China EXIM Bank and, commercial banks including Bank of China, Industrial and Commercial Bank of China and China Construction Bank. She also noted that working on BRI projects may reduce risks for all parties involved because these projects will likely be underwritten by Chinese state owned banks which are in turn backed by the Chinese government.

She was also confident that these large infrastructure investments, requiring local inputs, would bring with them employment. She gave the example of a Chinese company Alliance Steel, which has created over 3,500 jobs so far in Malaysia.

Dr. Zhang was also of the opinion that BRI has the potential to enhance local productivity and competitiveness through technology transfers, improved managerial skills and access to global production networks. She added that this would be an opportunity for Malaysia and other ASEAN countries to gain access to the domestic Chinese markets, an advantage particularly for small and medium enterprises (SMEs).

On the other hand, Ms. Pauline Loong struck a more cautious note. In her presentation, titled BRI: Beyond the WOW Factor, she urged the audience to look beyond the impressive headline figures often associated with BRI. She reminded the participants that while the media may give the impression that BRI is a multilateral initiative, it is essentially bilateral cooperation between China and the partner country.

Pauline added that trade considerations are important for the Chinese. In her opinion, the issues that will be taken into account by China in their selection of country partner and project partner include:

Country rating: China is more likely to favour projects in markets with investment grade ratings or projects that offer strategic benefits.
Bilateral trade: It makes sense to invest in a country with which China has a strong trade relations.
Larger projects: Larger projects are likely to generate more Chinese interest as they usually involve larger number of investors which spreads the risk.
Willingness to accept the renminbi –China is pushing renminbi globalisation. Any project that helps further this goal is likely to be viewed favourably by Beijing.
Contribution to funding – Projects that can contribute to financing rather than rely totally on Chinese help will have an advantage.

Pauline had some practical advice for those in the private sector looking to get involved in BRI related projects. Her advice is to treat BRI projects as they would treat any other commercial undertaking, and to pay close attention to possible financing risks as there will be no free lunch. She also highlighted that Hong Kong, the world’s third largest financial hub, will likely play a very important role in raising financing for BRI projects.

While all speakers agreed that BRI is a potentially big opportunity for ASEAN, they also agreed that it must be approached with a cautionary note, much like any other sovereign nation, China will be looking out for what is in its best interests.

2. BRI and ASEAN Centrality

With China’s increasing involvement in ASEAN’s economy and geopolitics, the erosion of ASEAN centrality will always be an area of concern to the region.

Dr. Zhang was of the opinion that ASEAN centrality is intrinsically fragile. She believes that this fragility comes from the distinctly different cultures and economies that make up the bloc along with its principle of non-interference. Additionally, each country has different relations with China especially those that are bordering China such as Myanmar and Laos. In fact, she said that the advantage always lies with China in its bilateral relations, even more so now that the United States has begun its pivot away from Asia. With the bilateral approach that China adopts in dealing with ASEAN member states, she concluded that the BRI will only exaggerate the differences and undermine ASEAN centrality further, especially if no action is taken to strengthen it.

On the other hand, Tan Sri Michael Yeoh said that in order to ensure regional peace and security ASEAN must maintain its principle of centrality. In his view, this can be done by increasing people-to-people connectivity, improving confidence and trust building between member nations. He maintained that ASEAN centrality is important and that it should be a core pillar for the region’s participation in the BRI.

While there were mixed views on ASEAN centrality, and whether it would be able to outlive the temptation of BRI, all speakers agreed that ASEAN needs to, at the very least, outline a coherent and collective BRI strategy.

3. A BRI Strategy for ASEAN

Tan Sri Michael Yeoh believes that there are other economic benefits for ASEAN beyond merely developing a stronger relationship with China. He suggested that the regional bloc can leverage on BRI to enter new markets in Africa, Eastern Europe, Central Asia and Russia and to take advantage of the India-Myanmar-Bangladesh Corridor and Pakistan-China Economic Corridor. As a first step in building an ASEAN strategy for BRI, he suggested that the member nations should adhere to some general principles around BRI projects and to have discussions to agree upon the first round of priority BRI projects. In fact, he reiterated on a previous call for the need to set up a Silk Road Stock Exchange to facilitate public listing of Chinese-ASEAN SMEs and infrastructure companies.

He also added that there is much research that needs to be done on the BRI and its potential impacts all across ASEAN. He explained that many international institutions have been established to study the BRI and that ASEAN should create a think tank or a research institute dedicated to researching and further understanding BRI issues in relation to ASEAN.

Dr. Zhang suggested that while ASEAN centrality may be weakening, it is up to ASEAN to take advantage of China’s BRI to strengthen unity and integration within the region and present a common stand and voice. She emphasised that this responsibility lies with ASEAN, not China.

Finally, Dato’ Sri Nazir Razak, who was also in attendance at the event, suggested that governments of all countries, including Malaysia, should not be too enticed by the price tags on each BRI related project, they should also look at the overall value of each project. He said that each project should be assessed in terms of the true value it brings for the country and region, for example, what industry linkages it will create, the potential crowding out effect it may have, as well as the social and environmental impacts. He cautioned that if these projects were not managed well by both private and public sectors, they may end up as liabilities on sovereign balance sheets.

All speakers and participants were in agreement that China should not be dictating the terms of BRI projects, that ASEAN has to have a collective BRI strategy that it can stand behind and turn to, so that both member nations and the region benefit from this massive undertaking.

Tan Sri Dr. Munir Majid concluded the session by saying that the BRI presents a massive opportunity for Malaysia and ASEAN, and that they should not be overwhelmed by it but instead look at each BRI project one by one to ascertain whether the project is in their best interest. Finally, it was noted that in order to ensure ASEAN centrality is not eroded in the process and that the member states truly stand to win from the BRI, the regional bloc should create a collective ASEAN strategy for BRI.

Written by Tamanna Patel, Resident Research Fellow at CARI.

ASEAN Roundtable Series