Southeast Asia’s infrastructure development has begun to stall. China, which has been supporting the project, has been unable to proceed with its Belt and Road initiative for a broad economic zone due to restrictions on movement caused by the new coronavirus.
Southeast Asian countries also are prioritizing infection control and curbing the funds and human resources they invest in development. A major delay in the construction of infrastructure, which is the foundation of growth, could force foreign investors to reconsider their investment plans.
In Indonesia, work on a high-speed railway (about 140 kilometers) linking the capital Jakarta with the major city of Bandung was recently halted. The project is financed by a Chinese bank, and the state-owned company is involved in the construction. The opening is expected to be postponed from the scheduled 2021.
The Thai government has extended the deadline for negotiations with the Chinese government on a construction contract for a high-speed rail line to China via Laos from the previous May to October. The target is a major section of about 250 kilometers between Bangkok, the capital of Thailand, and Nakhon Ratchasima, a major city in the northeast.
According to the Chinese Ministry of Commerce, the value of new contracts for construction work undertaken by Chinese companies in 57 countries along the Belt and Road initiative totaled $26.2 billion in January-March, down 14% YOY.
Source: The Nikkei
PSR Analysis: China’s presence in Southeast Asia’s infrastructure development projects is significant. Airports, ports, railroads, paved roads, power plants, water and sewerage. These developments will be the foundation for foreign manufacturers to enter the market. Their development will help the industrial growth of Southeast Asia. This scenario could change significantly.
According to Chinese media, the impact of COVID-19 on the Belt and Road initiative will be limited. However, China’s first priority will be to rebuild its own economy. These construction stops have an immediate effect on many fronts, including loss of local labor opportunities, reduced demand for equipment rentals and leases, and reduced demand for materials.
If the effects of the virus persist, the strategies of foreign companies already operating in the region will be greatly affected. PSR
Akihiro Komuro is a Research Analyst, Far East and Southeast Asia, for Power Systems Research
