Adjustments of China’s Resource and Infrastructure Financing in Southeast Asia: Solving Problems or Causing Troubles?

• In Event: 149. Chinese Outward Investments in Southeast Asia: Development for Whom? Transformations Where?

Abstract

For the past decade, China has become a major financier of Southeast Asia’s resource and infrastructure development. However, oppositions and critics on Chinese-financed projects have also become widespread across the region for their environmental and social impact on local communities. The Chinese government in response has made adjustments in its financing practice to address the criticism. What are these adjustments? Are they effective? If not, why? The paper argues that the effectiveness of China’s adjustments is determined by the extent to which Chinese firms see their self-interests met. To provide a background, the paper starts with a review of critics on resource and infrastructure projects China has financed in Southeast Asia. Specifically, it discusses critics of three issue areas: social responsibility, sectoral regulations, and environmental and social safeguards. The paper then explains China’s outbound investment model by the concept I called ‘state-led but firm-requested,’ meaning the government grants (state-owned) firms to guide state capital and firms utilize it to maximize business interests. It then assesses the Chinese government’s policy adjustments in the three issue areas and examines to what extent they fit Chinese firms’ interests. I argue that China’s policy adjustments on social responsibility are more effective than that on sectoral regulations and social and environmental safeguards as the former represents more direct interest towards firms than the latter two do. I also argue that the lacking of policy implementation on the latter two is to preserve Chinese firms’ interests given the challenges at their home markets while reflecting the capacity problems on the part of the relevant authorities on the issues.

Author

• Jessica C. Liao, North Carolina State University