China’s foreign minister Wang Yi kicked off a week-long visit to Cambodia, Malaysia, Laos, Thailand and Singapore this week — a move that many see as a direct response to the US recently taking a more active approach to building ties with countries in southeast Asia.
In September, the US launched the first Mekong-US Partnership with Cambodia, Laos, Myanmar, Thailand and Vietnam, offering them funding of about $63m.
Asean, or the Association of Southeast Asian Nations, has emerged as a clear winner in this geopolitical tussle. In the first half of 2020, the 10-member Asean countries overtook the European Union to become China’s largest trading partner. And with the looming US presidential elections only expected to push up Trump’s anti-China rhetoric, China is looking at Asean as a key trading block.
“The US has been more active in supporting Asean countries recently, and China has been watching,” said Hong Kong-based Su Ee Than, managing director of China-Asean Capital Advisory Co and an adviser to the China-Asean investment Cooperation Fund.
“China has long been trying to build diplomatic relationships with the region and trying to secure multilateral collaboration with different countries, but as the US steps up, China will obviously do the same as well.”
The motives are clear, given rising US-China tensions under the leadership of Donald Trump since he began his US presidency four years ago.
Debt rescheduling
Debt has also fuelled some of those relationships. The Lao government has about $1bn in payments coming due per year until 2024, but has limited resources to meet these, said Marie Diron, head of Moody’s sovereign risk group for Asia Pacific, the Middle East and Africa.
“Laos had large payments due before the pandemic, with the shock of the pandemic increasing its financing needs when it has limited sources of funding,” she told GlobalMarkets. “Most of its debt is owed to China, so any debt rescheduling talks will involve China.”
Than said that China has not been buying cheap assets due to the pandemic, despite being the first to recover from the health crisis and growth in the country picking up pace.
“China doesn’t want to be seen as taking advantage of countries struggling due to Covid,” he said. “They haven’t gone on a shopping spree like they did after the global financial crisis.”