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New research has found China has surrendered its position as the largest single provider of development finance in South-East Asia in the wake of the COVID-19 pandemic.
- The Lowy Institute found South-East Asia typically receives around $US28 billion ($43 billion) a year in development finance
- China was the top provider of development finance to South-East Asia from 2015 to 2019
- Australia spends about $US870 million a year in the region, mostly in the form of grants
The Lowy Institute has unveiled its first South-East Asia Aid Map, which tracks financing for more than 100,000 development projects funded by almost 100 countries and international organisations between 2015 and 2021.
The institute has found South-East Asia typically received about $US28 billion ($43 billion) a year in official development finance, with Beijing handing out about $US5.5 billion annually – largely in the form of loans for infrastructure projects.
The Lowy Institute's Alexandre Dayant said China was the top provider of development finance from 2015 to 2019, but it slipped behind the Asian Development Bank (ADB) and the World Bank during the COVID-19 pandemic.
"China's economic environment has changed. Its economy is slowing down," he told the ABC.
"So there is more desire in Beijing to prioritise the domestic market, rather than spending money abroad."
Mr Dayant said Beijing had also run into obstacles in some of its infrastructure "mega projects" in South-East Asia including the on-again, off-again East Coast Rail Link in Malaysia and the delay-plagued Jakarta-Bandung High Speed Railway in Indonesia.
Finally, Beijing was also increasingly aware that some countries in the region that had borrowed heavily from China – particularly Laos – would struggle to repay the debts.
"China is taking Laos as a warning sign. It's more and more difficult to get a loan out of China nowadays, because China is becoming more and more cautious about how it provides financing," he said.
The aid map highlights how major multilateral institutions like the ADB and the World Bank stepped up development financing in the wake of the pandemic outbreak, just as China was beginning to back away.
Other big players in South-East Asia include Japan, South Korea and European Union countries, which all ploughed at least $US3 billion a year into development finance in the region.
The Lowy Institute aid map shows Australia ranks well behind those major development partners, but still spent about $US870 million a year in the region – largely in the form of grants.
And Mr Dayant said Australia's recent boosts to its foreign aid program in South-East Asia, as well as its decision to lend Indonesia $1.5 billion in 2020 to help it deal with economic shocks caused by the pandemic, showed it was starting to show more ambition in the region.
"Since the pandemic, Australia is one of the country's which has responded forcefully. While we are just a mid-sized player, we are quite responsive," he said.
"Australia is also the third-largest provider of grants in the region, behind the US and Japan. In a way, you can argue that grants, not loans, show how generous you really are."
But Mr Dayant said the federal government should consider setting up a new body – modelled on the Australian Infrastructure Financing Facility for the Pacific (AIFFP) – to allow Australia to extend more loans to South-East Asian governments determined to build up their infrastructure.
"If you really want to be ambitious about helping the region we need to think about the way we can broaden our way to finance development in South-East Asia," he told the ABC.
And while many South-East Asian countries have enjoyed strong economic growth in recent decades – fuelled by deep flows of private investment, foreign investment and remittances – Mr Dayant said the aid map showed why development finance was still playing a crucial role.
"For many, the region is past the point of aid … but the reality is that when you look at how private finance is spent, it's not often on key priorities like health and education and infrastructure," he said.
"This makes aid and development finance even more important to the region."