How belt and road is fuelling US-China Indo-Pacific contest

The Jakarta-Bandung and China-Laos railway projects show that countries are willing to take significant risks in the name of development
US officials must assess the impact of such Chinese projects, especially environmentally and socially, to be able to offer convincing alternatives

Nathaniel SchochetandEarl Carr

Published: 7:30pm, 15 Jan 2024

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As China’s contest with the US heats up, its Belt and Road Initiative investments are fuelling geopolitical competition in the Indo-Pacific.

The hosting of the third belt and road forum last year was lauded by President Xi Jinping in his New Year address. The US, however, wants to keep the Indo-Pacific “free and open”, and questions Beijing’s intentions in pushing a China-led network of infrastructure projects throughout the Global South.

The Belt and Road Initiative, launched by Xi in 2013, includes projects to build highways, ports, railways and more. It has expanded to include a Digital Silk Road, Maritime Silk Road and Polar Silk Road. Despite helping several states overcome developmental gaps, China’s initiative has encountered much controversy.

Critics point to the high debt faced by many participant countries and speculate about debt-trap diplomacy, as well as China’s lack of adherence to many Western norms in construction, such as in environmental regulations.

There are signs that China’s commitment to the initiative is dropping and this is likely to continue as the Chinese economy faces challenges. Beijing will be forced to prioritise certain regions or countries in dispensing belt and road investments. In this, the Indo-Pacific is emerging as a strategic arena. Both the US and China will compete for closer relations with states in the region as the geopolitical competition continues.

One significant aspect of China’s pitch is its economic might. China will seek to highlight its trade and the benefits of its Belt and Road Initiative in helping development.

02:48

Chinese President Xi Jinping unveils 8-point vision for nation’s Belt and Road Initiative at forum

Given these conditions, examining China’s most significant infrastructure projects in the region more closely is vital. Two recent notable projects are the China-Laos railway and Jakarta-Bandung high-speed railway.

Laos and China created the Lao-China Railway Company to build and finance the railway. This joint venture is held 70:30 between three Chinese state-owned enterprises and one Laotian state-owned company. The project’s total cost is US$5.9 billion, financed in a 60:40 debt-to-equity ratio, which translates to US$3.54 billion of debt – which has been secured from the Export-Import Bank of China – and US$2.36 billion of equity.

The aim? To construct 672km of railway between Vientiane, the Laotian capital, and Kunming, in China’s Yunnan province.

This railway is critical to facilitating bilateral trade. Trade between Laos and China has been growing and between November 2022 and November 2023, China’s exports to Laos increased by US$145 million while imports rose by US$35.7 million. Commodities (US$27.7 million) and computers (US$12 million) dominated the increase in China’s exports to Laos.

But not all have benefited from the railroad construction. Over 4,000 homes had to make way for construction, and the compensation was reportedly insufficient to make up for the loss of agricultural income.

Moreover, the long-term environmental impact is not clear due to the inadequate environmental assessment. Specifically, water in the Houay Pamom Creek in the Vang Vieng district’s Phahom village has been polluted by the waste produced by the tunnel construction. As a villager told the local news back in 2020: “We can’t fish in the creek, and we can’t eat fish taken from the creek.”

01:47

China-Laos railway adds connection from Beijing to Vientiane

As for the Jakarta-Bandung high-speed railway, on May 14, 2017, China Development Bank signed a nearly US$4 billion loan agreement with PT Kereta Cepat Indonesia China for the project. The loan consists of two parts. A US dollar-denominated portion worth over US$2.3 billion with a 40-year maturity, 10-year grace period, 2 per cent interest rate and no sovereign guarantee. The other is a yuan-denominated portion worth over US$1.5 billion with a 40-year maturity, a 10-year grace period, 3.46 per cent interest and no sovereign guarantee.

The total cost of the railroad was initially estimated at around US$5.3 billion, to be financed with a 75:25 debt-to-equity ratio.

Recently completed, the railway stretches over 142km from Jakarta to Bandung, cutting the travel time from three hours to 40 minutes. The railway’s construction was predicted to increase Indonesia’s real income by 12-18 per cent and generate 400,000 jobs, with railway construction to contribute around 0.4 per cent to Indonesia’s real gross domestic product and the materials used to be 60 per cent locally supplied.

Bandung is a city primed for economic productivity and bounced back after Covid-19. It is also one of the largest domestic tourism destinations, with almost 120 million visitors per year.

Still, there were issues related to construction. Land acquisition was a consistent problem, and the project’s feasibility assessment was completed in just three months, when it usually takes 18-19 months for a project this size.

05:43

Indonesia’s flagship Bandung-Jakarta high-speed railway finally launches after series of delays

It is apparent that countries of the region are in dire need of infrastructure to spur their economic development. The examples of Laos and Indonesia indicate that these countries are willing to take significant risks to ensure the development of such initiatives.

The success of these projects in the short and long terms must inform US policymakers. Officials must monitor and ascertain whether these projects end up as white elephants.

Additionally, assessing the long-term environmental and social impact of these projects is essential. The US and its allies can use these facts to provide an infrastructural alternative for Indo-Pacific countries. The West can use its higher environmental and social standards to compete against China’s offerings.

Ultimately, so as not to cede influence in the region to China, the West must have more skin in the game and be more economically active.

Nathaniel Schochet is an associate analyst at CJPA Global Advisors, an international consulting and advisory firm working with clients in Asia

Earl Carr is founder and chief executive officer at CJPA Global Advisors