By Deiniol Brown
Dr Guanie Lim is associate professor at the National Graduate Institute for Policy Studies in Tokyo. His research focuses on the political economy of Asia, the Belt and Road Initiative, and value chain analysis. He was previously a research fellow at Nanyang Technological University in Singapore, and has worked in the private sector in Southeast Asia. Dr Lim’s research combines multiple methods including statistical analyses, case study analyses and qualitative research, looking at economic and political dynamics in Southeast Asia and its relationship to the global economy. In this interview, we discussed China and the US’s complex economic relationships with the region, the implications for states’ development, and the nature of economic power in Southeast Asia.
Some of your research regarding FDI in Southeast Asia suggests that Chinese FDI is less empowering for ASEAN countries’ growth than other countries. What is it about Chinese projects which limit growth?
I think you are referring to my piece “Does FDI Source Matter for Growth?”. This is the same statistics that we have spliced up for several of our research projects. If we look at these statistics in the broader context of Southeast Asia, China is still a growing player in FDI in Southeast Asia. The US, European countries and Japan are still major players in this space, with China only dominating some specific countries and industries, for example Cambodia and Myanmar. There are however some important contexts to consider in these relationships, such as in the case of Myanmar, Chinese investment is dominant because they share a long land border, and there are a lot of sanctions in place there. Similarly, if we looked at Laos or Cambodia, the market for investment is very small, so Western states and companies are content to let China become a dominant part of these markets, as they are of little interest to them. China also has far fewer corporate governance controls than Western countries, so they are bound to exhibit more risky behaviour in their investments. We can see this in the nature of some of their investments, things like the semi-legal casinos which have been set up in several states in Southeast Asia by Chinese companies. So, if you look at the aggregate pool of data across the region, Chinese FDI is bound to provide less long-term growth than its other competitors.
Does your conclusion, which emphasises the importance of knowledge and tech exchange for growth, suggest a greater capacity for states with significant knowledge and tech capabilities but less capital, to make significant impacts?
This is somewhat a self-fulfilling prophecy, those countries that already have good institutions and high-tech economies are capable of attracting the most investments. For example, Singapore has cornered the market as a centre for banking, knowledge, and logistics in the region and attracts the most investment because of these traits. If you take away Singapore from the picture of Southeast Asia, it changes a lot. The bigger economies; Thailand, Malaysia, Indonesia and Vietnam, are suffering the ‘middle-income trap’, which is a phase where incomes in those countries don’t grow enough for the economies to develop. In these cases, states are really seeking better quality and higher technology FDI, but there are few who are willing to give high-quality investments in that environment when they could invest in Singapore instead.
These countries understand that they need to implement significant reforms, in areas like the legal system, corporate standards and infrastructure, in order to attract this investment, but they can’t currently afford those reforms without investment first. These countries then look to places like China for investment, which has lower standards and quality. But by taking this, it glues those countries into their current predicament of wage stagnation. We know Chinese investment is lower quality because we generally measure it by manufacturing components; Chinese manufacturing components are low quality compared to other investors like Japan or Taiwan. They are still quite different from other investors in this respect.
Do you find that some of the large-scale Chinese investment projects in Southeast Asia, for example in high-speed rail, are also limited in their technology transfer, or are these larger projects more successful?
Railways are quite a unique economic object. For a start, it is not manufacturing, but is more like a specific type of services. It is also usually funded by loans, unlike investments. Investments function as ownership of something for the long term, whereas loans are very different. I don’t think the spillover of projects like railways is that big either. I think that at least in certain countries like Laos, the state is trying to create space for itself by opening up transport connections, whereas in countries like Malaysia there is more emphasis on tech transfer. Having said that, I have doubts about the capacity of these projects to provide tech transfer of the most critical nature. If the British of old did not transfer these technologies when they built the railways we are using today, what is the likelihood that China’s railway projects will? Obviously, there are many upsides to these projects, and they do provide useful infrastructure, but they do not generally upgrade know-how in the most needed areas of the economy.
Based on some of the research you have done around the UK’s involvement in the region, what is the relevance of the UK to the Asia Pacific? Is it able to play a significant part in shaping relations there as a middle power?
The UK is very strong in the services sector, in areas like higher education. From my personal experience, I can tell that the UK higher education sector is very strong in Southeast Asia, as when I was younger, my parents really wanted me to study in the UK, over Australia and the US. A lot of this is influenced by institutional memory and soft power, and despite the UK’s diminished place on the international stage, it is still a big player economically. Another example is the Premier League, which is one of the largest products consumed in Southeast Asia. A lot of these products are especially strong across the Commonwealth, even after so many years, which is reflected in the UK’s economic heft. Countries like Singapore and Malaysia, their political elites especially, still have a lot of connections to the UK today.
You have also written about ‘transnational state capitalism’ in Indonesia, and this term is quite popular in academia at the moment. As someone studying this region closely, how do you interpret ‘state capitalism’ as a concept?
We chose the phrase ‘state capitalism’ to reflect the work of Ilias Alami and associates in that area, but we were more focusing on ‘state capital’ instead, as this is much easier to identify and measure. There is a perception that having ‘state capitalism’ or state capital means there is a decline in free markets, but I think this is a mere perception. In many cases, free markets and state capital coexist, as demonstrated by the case of sovereign wealth funds which Dixon and Alami focus on. If we look at Hong Kong’s sovereign wealth fund, or the UK’s recently created equivalent, they clearly don’t diminish free markets. Rather, they contribute to the vitality of free markets. In fact, I would say you need a well-functioning free market for sovereign wealth funds to be effective in the first place, as they need to interact with global markets and investments. The best free markets in the world also need strong governments; think about the US, they have the biggest and deepest market, but that is built on a strong legal system and bureaucracy. State capital is another form of this state-market relationship.
Do you see this logic which you apply to state capitalism in the case of Chinese investments in Southeast Asia?
If you look at the largest industrial parks in Southeast Asia, taking the biggest three; the Thai-Chinese Rayong Industrial Park, the Indonesia Morowali Industrial Park, and the Malaysia-China Kuantan Industrial Park, all three of these are funded by Chinese sources. However, all of the players from the Chinese side are either provincial state-owned enterprises, or private firms. Although the Chinese state may endorse these projects and show public support, there are fundamentally no centrally owned state-owned enterprises involved in these projects, at least not directly. In the case of high-speed railways, central state ownership is more important as there is a lot more coordination required. The money involved is also usually rather hefty.
From your perspective, what sort of things do people generally misunderstand about China’s approach to FDI or international development?
The Belt and Road initiative is often a focus of a lot of commentators, but I really think this is just a name more than anything else. If we go back to 2013, we see the Chinese government pushing FDI out with the BRI sloganeering. As far as I can tell, there are no Chinese project managers in Southeast Asia who aren’t trying to claim to be part of the Belt and Road; they all want to be involved. But can we really define what the Belt and Road is? That is the beauty of it, you’re talking about a broad flow of money, and you’re just giving it a slogan. This exists in the UK too with the ‘Global Britain’ slogan. If you look at it from a global level, governments cannot stop these international flows of money, but you can create a name, build a narrative around it, to help mobilise these flows. Just because these Chinese officials attend the ceremonies of these big projects doesn’t mean the state is directly behind them. It is mostly market signalling for these projects, showing that the state has confidence in them.
What do you see as the future of the Belt and Road initiative?
The initiative will persist, but it may not be called the belt and road specifically after a decade or two. What we have seen over the last few years is a tapering of the initiative. In the first few years there was a lot of hubris, and irrationality in some of these projects. In the first few years, there were some missteps, but now they’re starting to sit down and rationalise their projects, streamlining what they are doing. This is very normal, if you take into account the experience of Japan since the 1980s.
What do you think the impact of the US’s trade war and economic instability will be for Southeast Asia, especially for countries which were trying to balance between the US and China?
It will probably still be the same, as there is a limited number of markets which Southeast Asian nations can truly diversify into. If there were new markets for Southeast Asia to engage with, they would already be doing so now. The region is reliant on the US and China, and this is a reality that states here have accepted. To change course is not that easy over only a few months. What we saw here during the onset of the ‘Liberation Day’ tariff announcement was two Southeast Asias; the Mekong side, which conceded quite quickly to the Americans, and the littoral side, which looked to each other first to present a united front. In the first few days, we saw countries like Cambodia, which felt bullied by the tariffs, trying to concede quickly for more lenient treatment. Then we saw countries like Malaysia and Indonesia holding their positions for longer, looking for a more unified response. Although the 90-day respite means that these questions will be delayed, I still don’t think you can find a buyer of last resort for Southeast Asian goods. I also don’t think Europe or China are able to absorb many of the products that the US usually consumes
Another thing is that in smaller states, the room for errors on subjects like trade relationships is very small. In the context of ‘Liberation Day’, the priority is less about making bold or radical moves and more about avoiding unforced errors. Moreover, failing to defend one’s position can undermine not only national interests but also the stability and cohesion of the entire region.
Tell me more about your methods of research, how you gather data and where you focus your research.
I generally use mixed qualitative methods, such as case studies and archival data. I don’t have advanced quantitative or technical skills, which forces you to take a specific approach. A while ago I came to the realisation that I couldn’t compete with other researchers who are able to use advanced statistics for their analysis, so I instead decided to take an approach that maximises my strengths and interests. In this period, I also came across Chang Ha-Joon’s work at SOAS. Looking at this research, I thought I could follow his approach. I also cooperate a lot with colleagues, which helps to bridge the skill gap on a lot of topics. I’ve always wanted to maximise my comparative advantage and minimise my shortcomings. I also tend to be very sceptical on a lot of subjects, and look at a lot of the common conclusions that scholars and commentators come to, and want to challenge them. This was my strategy.
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