KHON KAEN, Thailand — As keynote speakers at this year’s Mekong Forum repeatedly underscored the rise of China amid growing unpredictability of U.S. policies, the sole U.S. representative in the half-filled ballroom of the Pullman Hotel in Khon Kaen, Thailand, cut a lonely figure.
When it came her turn to speak on stage, Holly Miles, a Pickering fellow at the economic section of the U.S. embassy in Bangkok, said what had to be said, or what most in the room would have wanted to hear: “Let me start by saying the United States remains fully committed to engaging in the Asia-Pacific region, to engaging in the Lower Mekong region, and to strengthening and supporting economic and security relationships across this area,” she told those gathered for the July 14 forum. Then she sought to differentiate U.S. President Donald Trump’s campaign promises and the current reality.
To exemplify, she ran through a list of events in the region where a high-level U.S. official attended, is attending or has committed to attend this year: U.S. Vice President Mike Pence at a bilateral meeting with Indonesian President Joko Widodo in April; Secretary of State Rex Tillerson’s attendance at the ASEAN regional forum this week in Manila; Trump’s commitment to attend the Asia-Pacific Economic Cooperation summit in Vietnam and the East Asia summit in Manila, both in November.
As China continues to grow as a global power, so too does its footprint on the development sector. Its rise comes at a moment when the status quo is shifting in the aid industry. Traditional standard bearers such as the U.S. and EU may still drive the majority of funds and set the agenda, but protectionist policies and changing domestic priorities are setting in motion significant changes.
In this six-week special series, Devex examines China's expanding role in aid and development across the globe. From tensions in Ghana to projects in Pakistan, from climate financing to donor partnerships, from individual philanthropy to state-financed investment, this series traces the past, present and future of Chinese aid and development.
She followed this by discussing, at length, the work of the U.S. in the region through the Lower Mekong Initiative, a multicountry partnership involving the U.S. and five countries in the region, whose main purpose is to provide a platform to discuss and address “transnational development and policy challenges” in the areas of agriculture, connectivity, education, energy, environment, health and water in the region. She said the U.S. also continues to engage in the region through bilateral relationships and partnerships.
“We are committed to this region — the Asia-Pacific region — and we will continue to be committed to supporting economic development and security in both Asia-Pacific region and Lower Mekong region,” she emphasized, the second time. “We don’t see that changing.”
But officials in the Mekong require more convincing.
In the six months since taking office, Trump has rescinded the U.S. commitment to the Paris Agreement, shaken health care organizations working on family planning efforts across the globe, and, in his budget proposal, included huge cuts to U.S. foreign assistance, the largest of which is in Asia-Pacific, in terms of geographic proportions. One of Trump’s very first actions since taking office was also to pull out from the Trans-Pacific Partnership.
“The statement by the U.S. speaker this morning was trying to convince the people that the major stance of the U.S. as far as Asia-Pacific is concerned, as far as our area is concerned, has not changed. That cannot be true,” Narongchai Akrasanee, Thailand’s former minister of energy and commerce, told Devex at the sidelines of the Mekong Forum 2017 hosted by the Mekong Institute, an intergovernmental organization focused on the development and policy dialogue between countries in the Greater Mekong subregion. This year’s forum was all about the new geoeconomics and how Greater Mekong countries can adapt to the changes in the region.
One evidence, he shared, was the U.S. Agency for International Development-funded food security donor mapping project under the Lower Mekong Initiative. The Mekong Institute has been managing the project, but funding has stopped this year.
“The fact is that they have stopped the project. So the evidence is that instead of continuing, which would be approved of, no change — they have stopped the project,” said the former Thai official who sits as chair of the Mekong Institute’s steering committee. “But since the platform is very good, we continue to use it. We continue to develop it by our own effort.”
However, Maria Theresa Medialdia, director of the agricultural development and commercialization department at the Mekong Institute and whose department maintains the database, later clarified with Devex that the project’s duration was only 18 months, leaving USAID no obligation to continue financing it. There were also no further discussions for extension, she said. “There was no prior agreement with USAID on how we would specifically manage and sustain the database beyond the project life. It is only my desire to keep the database alive as I have seen many databases that cease to operate after they were created. I want USAID to feel that the trust given to MI was worth it,” she said.
The future of the whole Lower Mekong Initiative appears “unclear,” according to Watcharas Leelawath, executive director of the Mekong Institute.
“During President Obama’s regime, there was the Lower Mekong Initiative. So the U.S. planned to play the dominant role in the development cooperation in the Mekong countries,” he told Devex. “But now, we don’t know. It’s not clear.”
While uncertainties on U.S. engagement in the region certainly took the spotlight, it was China’s increasing role and presence, and the opportunities their engagement presents in the region that covered the bulk of the discussions at the forum.
None of this is exactly new. China has had a long presence in the Mekong, and did not just suddenly appear in the perceived dusk of U.S. engagement in the region. Chinese aid to Laos, for instance, dates back to the 1960s, although sparse data makes it difficult to assess how much and in what form it was provided. It wasn’t until 2011 that Beijing released the first-known white paper containing details of its foreign assistance. AidData’s record of Chinese official finance activities between 2000 and 2014 published on the Open Development Mekong website, however, provides a breakdown of the types of Chinese aid projects to the country from 2004. This included a grant for the improvement of Patuxai Park, an important landmark that showcases a war monument dedicated to those who fought for Laos’ independence from France. Another was a small hydropower project called the Nam Mang 3 Dam, largely financed through the Export-Import Bank of China.
In the same year, China renovated a highway, called the Zhangfeng-Bhamo road, linking its Yunnan province to the trading town of Bhamo in Myanmar’s northern Kachin state.
It is important to emphasize, though, that discussions regarding Chinese engagement at the forum did not center on traditional development cooperation, or what is traditionally referred to in the international development sector as aid in the form of grants. In fact, discussions largely centered on loans, trade and foreign direct investments, and how they could spur development in countries.
Panelists often mentioned China’s One Belt, One Road initiative, and the launch of the Asian Infrastructure Investment Bank — two of China’s grand propositions in Asia. Li Hong, China’s representative to the United Nations Economic and Social Commission for Asia and the Pacific, referenced these as China’s “very important public products” for international development.
“The Belt and Road initiative not only provides a platform [for countries to cooperate], but also provides vision. And the vision is we need to cooperate and to integrate [with] each other,” he told Devex in an interview.
Jin Liqun, the president of the Asian Infrastructure Investment Bank, was in Washington, D.C., this week trying to set the record straight about his institution and make the case that he wants to partner with the United States and older multilateral development banks.
AIIB, meanwhile, was launched to meet Asia’s huge demand for infrastructure and plays complement — though others see it as competition — to existing financial institutions such as the Asian Development Bank and the World Bank, although this is not the only Chinese-initiated mechanism available for infrastructure investments. Li also spoke of the Silk Road Fund, a state-owned fund that acts as the main investment vehicle for China’s programs toward the Belt and Road initiative; the China-ASEAN Investment Cooperation Fund, a private equity fund that seeks investment opportunities in a number of areas, including infrastructure, in ASEAN member countries; and the multibillion dollar China-GMS Fund, composed of a mix of aid and loans for infrastructure, poverty alleviation and production capacity among the Greater Mekong Subregion countries.
Mekong Institute’s Leelawath also mentioned the China-initiated Mekong-Lancang Cooperation Framework, whose main aim is to promote cooperation and boost the development of the countries along the Mekong river. Among the framework’s focus is the development of infrastructure and countries’ agricultural sectors.
“The agriculture sector is important [because] all the Mekong countries are agricultural countries. You cannot deny that,” Leelawath said. “Even though the contribution of the agriculture sector [to the economies] keeps going down, the majority of the labor force in agricultural sector, they are considered poor. So this [assistance] is very crucial to the smallholder farmers in the rural area.”
A number of attendees Devex spoke to at the forum are aware that the proliferation of these funds and launch of these grand initiatives are politically and economically driven. For example, by supporting the infrastructure push in Asia, they believe China is creating demand for supply of steel and construction outside of its domestic borders, following a decline in demand within the country.
But even with these motivations, and cautious reminders from experts on the pitfalls of overreliance on Chinese assistance and investments, countries don’t seem deterred in engaging with the superpower.
Viengsavang Thippavong, deputy director-general of the Economic Research Institute for Industry and Trade under Laos’ Ministry of Industry and Commerce, sees the rise of China and India, for example, as a positive in giving developing countries “more voices in global economic development.” In his presentation, he appeared to be welcoming of the shifting geoeconomics in the region, where emphasis on South-South cooperation reduces pressure on countries to deliver on certain democratic and political ideals, preconditions that are often linked with Western foreign assistance. China is known and admittedly operates under a non-interference principle.
Thippavong says the Laos government’s priority is on promoting economic connectivity in the region, and welcomes the construction of the almost $6 billion Laos-China railway — which will link China’s Yunnan province to the Laos capital of Vientiane and then Thailand — as an opportunity to boost trade with neighboring countries. Despite ongoing concerns on the cost of the railway and the pressure it will likely place on the Laotian government’s finances. Laos is anticipated to cover 30 percent of the cost, but even that proves to be a huge lift for the small landlocked country. Questions also remain on the railway’s development impacts for Laos, despite China and Thailand being Laos’ biggest export and import markets as of 2016.
After three years of negotiations, Thailand has also recently agreed to push through with the the first phase of the multibillion dollar Chinese-backed high-speed railway project that, when fully completed, would link Bangkok to Kunming, the capital of China’s Yunnan province, crossing Laos. Akrasanee said the years-long negotiation was the product of differing opinions about division of “responsibility.”
“Basically it’s about the payment and the cost and the involvement of the experts,” he said. The Thai government wanted the Chinese to cover a much higher cost of the project, and for Thai experts and workers to be involved in the project design and construction. China, however, insisted on its own experts.
“The conclusion is that we were able to get the Chinese to be responsible for the cost, more than originally. But still on whole we’re more responsible for the cost, proportionately speaking,” the former Thai official said. “On the expertise, we have to allow the Chinese expertise to come. Obviously, we could not do exactly what they did in China, but there are terms and conditions about involvement of Thai experts in the project.”
Some panelists suggest countries in the Greater Mekong Subregion keep away from relying too much on China, or any one superpower. But given the size of the American and Chinese economies, and the huge amount of trade they do with Mekong countries, that might be easier said than done.
Inter-trade is largest among ASEAN countries, covering 24 percent of total ASEAN trade in 2015. Outside ASEAN, China is Southeast Asia’s biggest trading partner, accounting for 15.2 percent of total trade in the region, followed by Japan (10.5 percent), the European Union (10 percent) and then the United States (9.4 percent).
But policy changes among the superpowers could heavily impact on trade within ASEAN, said Mekong Institute’s Leelawath. As an example, during the U.S. financial crisis of 2007-2008, commonly dubbed the “hamburger crisis” in the region, trade volume between ASEAN countries went down by 30 percent.
“We trade a lot together on the raw material and intermediate products so that we can produce the final products and supply to the U.S. market. So once the U.S. market has the financial crisis, the demand for the final products go down, [and] the demand for the raw materials and intermediate products, that trade within ASEAN, also goes down,” he explained.
With Trump’s “American First” policy, ASEAN nations anticipate more U.S. domestic consumption, which could again impact trade in the region.
The ‘bottom line’
One of the key things hugely missing in the discussions was how all these different engagements and push for trade, FDI and infrastructure development would impact on countries’ bottom lines. Much of the discussions were about macroeconomic development, but as development practitioners often argue, its benefits — if there are any — don’t always trickle down to those living in poverty, and negative impacts on social and environmental aspects are not often perceived or taken into account.
Zach Center, country manager of the international nongovernmental organization PACT in Cambodia, said as much. Understanding the incentives and motives behind an investment or development assistance is important, he said, but their focus is more on the impacts of the projects on the ground and less on who is investing, what are the terms and the strings attached to those investments — or at least in the beginning.
“The point I’m trying to get at is that it’s less about if it’s Chinese or U.S. or Australian, [and] more about understanding the impacts on the ground and then going from there, and working up to understand how can we mitigate these impacts,” he said. “We can bring it up and look for trends and say, ‘OK we’re seeing worse impacts from certain types of investments, whether because it’s Chinese, or whether because it’s hydro, or whether it’s because they haven’t taken the necessary mitigation steps or done the proper environmental impact assessments.’”
He emphasizes that a lot of these can be mitigated with the inclusion of the public in project impact analyses, before the project is implemented and throughout the life cycle.
One panelist, Xiong Bin, an associate professor at Kunming University of Science and Technology and director of its ASEAN Study Center, discussed the results of a research project her team conducted together with the Cambodia Economic Association and the National University of Laos on the impact of Chinese foreign direct investments in two Greater Mekong countries: Laos and Myanmar. The two were chosen for the volume of investments they get from Chinese investors, their statuses as both least developed countries, and differences in priorities. Laos’ focus is on resource and environmental protection, while Cambodia gives priority to income growth and employment creation, said Xiong Bin.
They looked at Chinese FDI impacts on three areas: economic development, social improvement and environmental protection. This, Xiong Bin said, is part of inclusive development, which is a “key word” in China’s One Belt, One Road initiative.
“From the perspective of China, it's very important to understand the actual needs and demands of economic development of their host country. That means we cannot just consider the supply side, what we can supply, or what we can invest. We need to consider what do you want. Then that could be a good matching for inclusive development of all stakeholders,” she told Devex.
In their study, they found that Chinese FDI has driven up imports in Cambodia, and therefore increased the government’s revenue from tariffs. In both countries, unskilled workers’ income also improved. It’s unclear, however, how sustainable the sources of income are, and whether the increases in government revenue are benefiting the wider population, for example, with better health care facilities or educational access.
The researchers had difficulty quantifying Chinese FDI impacts on social development and environmental protection in both countries, but they did in-depth interviews on workers and community members to gauge Chinese firms’ impact on social development and environmental issues. That information, which include video interviews, has yet to be made public, but there are some positive impacts, Xiong Bin said, and their team is increasingly advising Chinese firms to understand the contexts in which they are operating or plan to do business in, as well as to follow laws and regulations instead of making informal payments to skip procedures and fast track their business.
“There are still Chinese firms that are trying to do business in the right way. And I think there should be researchers also focused on this point because not too many projects focus on behaviors because it’s time consuming, budget consuming,” she said. Their research was funded by the International Development Research Center of Canada. “Sometimes bad stories go further than good stories. So there is one story of misbehavior, probably that would create negative reputation for the whole Chinese investment [community].”
If there’s anything countries could glean from the research, it is that countries should be “ready” to negotiate the terms and conditions of investments, said Akrasanee.
“Otherwise it may create a longer term bad feeling or bad sentiment, which we should not have since it’s to be expected that China will play a dominant role,” he said.
Editor’s Note: Mekong Institute facilitated Devex's travel and logistics for this reporting. However, Devex maintains full editorial control of the content.
Update, September 5, 2017: This story has been updated to clarify that the duration of the USAID-funded food security donor mapping project was only for 18 months and that funding naturally ceased after.
In this six-week special series, Devex examines China's expanding role in aid and development across the globe. From tensions in Ghana to projects in Pakistan, from climate financing to donor partnerships, from individual philanthropy to state-financed investment, this series traces the past, present and future of Chinese aid and development. Join the conversation on our Facebook discussion forum.