For the past two years, the administration of China president Xi Jinping has been pursuing a centrepiece foreign policy plan: the One Belt, One Road policy.
The aim of this grand plan is to build pan-Asia ties on land and via the sea, effectively reconstructing the old Silk Road routes of centuries gone by.
To do that effectively, China needs to develop capital markets and cultivate business ties, sometimes with countries that don't particularly like it. So Beijing is adopting a sensible route: it is approaching countries in vulnerable circumstances that need financial muscle.
The strategy seems to be paying dividends in Southeast Asia.
Malaysia is the most recent example. In November, the state-owned China General Nuclear Power Corporation agreed to pay RM9.83 billion ($2.3 billion) to buy the power assets owned by Malaysian government investment fund 1MDB.
It marked a savvy investment for China. Beijing helped provide much-needed cash to the troubled and indebted 1MDB. The fund, which was established by prime minister Najib Razak in 2009 to foster economic development, is believed to sit on an estimated $11 billion in debt.
The asset sale helps provide 1MDB with much-needed liquidity at a time when the company is enmeshed in a political scandal linked to its purchase of some power stations. After the deal, one of the station sellers donated money to a charity linked to Najib, and it spent sizeable sums in battleground states in Malaysia's closely-fought 2012 election. The scandal has combined with a downturn in oil prices to hurt foreign investment flows, and leave Malaysia's economy struggling.
For a powerful player such as China to enter the scene with large funds and an interest in helping out is good news to the country's embattled government. It should be noted that Najib's government had to change the rules preventing foreign investors from buying majority stakes in power assets to let the CGNP purchase them.
For China, the purchase may well provide it with an inside track on forthcoming infrastructure projects. One is a planned high-speed railway link between Singapore and Malaysia, which China is vying with Japan to gain the contract to build.
Tying up with Thailand
Malaysia is not the only country Beijing has been financially cultivating. It has been hard at work in Thailand and Indonesia too.
Thailand is currently under the rule of a military junta, which seized power in May 2014 to end the stand-off between the administration of Yingluck Shinawatra and opposition party-affiliated street protesters.
The military promised to return the country to democratic rule but the exact date remains uncertain. In the meantime, the country's economy is stalling – GDP growth for 2015 is likely to be 2.7%, according to the Bank of Thailand – and household debt is on the rise.
To help address this, the military-installed government in March announced $60 billion-worth of infrastructure projects to be built between 2015 and 2022, while in November finance minister Apisak Tantivorawong announced a $2.79 billion Thailand Future Fund to support infrastructure investments.
In November, transport minister Arkhom Termpittayapaisith told Reuters that 20 infrastructure projects worth Bt1.8 trillion ($50 billion) covering road, rail, air transport and ports would get under way before 2018. He said the financing would come from the government budget, borrowing and public-private partnerships.
These projects include a $2 billion expansion of Bangkok's Suvarnabhumi airport, plus railway links with China and further afield.
This story has been amended to correct the price 1MDB sold its power assets from RM9.38 billion to RM9.83 billion, and to note the sale was for the assets in their entirety, not just their debt.
While Thailand's development tycoons should lead the queue for these projects, Chinese SOEs will no doubt want to participate in many of these mooted PPPs.
In fact, The Nation this month quoted China's ambassador to Thailand Ning Fukui as saying he was pleased the countries had signed a memorandum of understanding over railway projects, and that “we will next sign off on a bigger framework at the end of [December].”
“We will definitely offer Thailand loans with a rate lower than [other] foreign financing,” Ning added, noting that China had offered Thailand loans to help build the project with an interest rate of 2.5% for an unspecified length.
Similar to Malaysia and Thailand, Indonesia is also feeling the economic squeeze. Its resources-dependent economy has suffered as prices for metals and mining in particular have fallen, leaving the Asian Development Bank predicting Indonesia's GDP growth to be 4.8% for 2015, well down on the country's former hopes to raise GDP to 7% or higher.
This has left the archipelago's new leadership, under president Joko Widodo, with sizeable issues. Discontent is on the rise and there are demands for the government to help promote long-awaited infrastructure to help bolster economic growth. In November, the state-owned enterprises minister was quoted in the media as saying the country needs $364 billion to finance massive infrastructure projects.
China has already taken part in Indonesia's infrastructure plans. In September it beat out competition from Japan to win a $7.6 billion contract to build a high-speed railway link between Jakarta and West Java.
Beijing has shown its willingness to support Indonesia's administration elsewhere too. In late November, Bank Indonesia, the central bank, said China would raise an existing Rmb100 billion ($15 billion) bi-lateral currency swap scheme to Rmb130 billion, or about $20 billion, to help strengthen the central bank's liquidity.
Central bank governor Agus Martowardojo claimed the line would help build investor confidence in the resilience of Indonesia's economy, which has been battered and seen the rupiah depreciate heavily over the past year.
The ties seem implicitly linked to infrastructure. Finance minister Bambang Brodjonegoro told Indonesian media that Xi confirmed China's willingness to increase the swap line's size when meeting Widodo on the sidelines of the G20 summit in Turkey in November. At the same time, Widodo discussed with Xi the prospect of China investing more into Indonesian manufacturing and infrastructure, Bambang said.
A key area in which Indonesia could use China's help is ports. Indonesia's deepwater seaports are lacking in number, expensive and inefficient, and the government has embarked on a massive plan to upgrade them. China, meanwhile, boasts some of the largest ports in the world with top-notch technology to quickly load and unload ships. Indeed, its port industry is in need of consolidation due to too much competition. Expanding investment to a country sorely in need of more makes a lot of sense.
Therefore, news in November that Indonesia Sorong Port had signed an MoU with China North Bay Shatin to build Sorong Port in West Papua for a project cost of $2 billion made a great deal of sense. Further projects are likely. The Indonesian Chamber of Commerce and Industry has begun cooperating with the Development Committee of China on the construction of more international standard seaports in the east of the country, according to reports in November.
These links seem designed to foster open doors between China and its Asian neighbours. They may also give its SOEs more room to negotiate when it comes to investments and acquisitions in these countries. These moves are smart business for China and may well prove beneficial for the recipient countries too.
However, they are likely to come with favours attached. It would not be a surprise to see some Southeast Asian governments quietly reduce their opposition to China's claims in the South China Sea. Equally, mainland SOE or private acquirers could well win more auctions for asset sales and become preferred buyers for particular resources, while China's banks may begin to become more favoured foreign lenders.
Southeast Asia's struggling countries had best hope the cost of securing China's financial favour is not too high.