Southeast Asia’s infrastructure race has slowed to a crawl

Despite much grand rhetoric, infrastructure competition in Southeast Asia has largely failed to heat up — settling more into a simmer than a boil. Tightening infrastructure competition has reflected a slowdown in Chinese spending rather than a rise in alternative offerings. Beijing is recalibrating its approach, shifting towards fewer, smaller, and more targeted infrastructure projects. In 2023, China financed just 17 projects worth $3.5 billion, a 17% increase from 2022 but still far below the 67 projects and $5.2 billion recorded in 2015. Meanwhile, key platforms intended as the West’s answer to the Belt and Road Initiative, such as the Global Gateway and the Just Energy Transition Partnerships, have had little impact to date.

Infrastructure financing from traditional partners has remained stagnant, despite years of announcements from Western groupings such as the G7, Quad, and European Union.¹ Total infrastructure financing from traditional sources (Europe, the United States, Japan, South Korea, and the MDBs) was just $3.8 billion in 2023, 35% less than the pre-pandemic average of $5.9 billion. Nor has there been an acceleration in pipeline project financing, with new commitments from traditional donors ticking up slightly to $9.2 billion in 2023 but still much below the pre-pandemic average of $12 billion. Moreover, the vast majority of infrastructure financing from traditional partners has continued to come from the MDBs, Japan, and South Korea. European donors have played a modest role, providing around $600 million in infrastructure financing in 2023. The roles of the United States and United Kingdom remain miniscule, at just $59 million and $6 million respectively.

Aid cuts will further weaken the ability of major Western donors to compete with China in the infrastructure space, especially in more ODA-reliant economies such as Cambodia, Laos, Myanmar, and Timor-Leste. This trend is set to continue unless development finance institutions such as the US International Development Finance Corporation, British International Investment, and other European equivalents can increase project transactions in these lower income contexts — which has thus far proven difficult — or scale up their concessional financing. Meanwhile, China retains an infrastructure pipeline of some $70 billion in planned spending, suggesting Beijing is well positioned to maintain its role as the region’s leading infrastructure financier.² Overall, however, meeting the huge infrastructure financing gap facing the region — estimated at around $2.8 trillion³ — will likely become even harder.