HSBC: Belt and Road projects will have tangible impact on Asean economies

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KUALA LUMPUR (Feb 13): Belt and Road projects will have a tangible impact on Asean economies over the next five years, especially Malaysia, Indonesia, and the Philippines, said HSBC's chief Asean economist Joseph Incalcaterra.

"In each country, we estimate there are projects worth c10-15% of GDP in the pipeline — and we are confident that many of them, especially the railway lines, energy generation plants, and port facilities, will eventually be realised, given their strategic nature for China," Incalcaterra said.

He noted that these projects are neither free aid nor equity investments but are instead largely debt-financed projects, built by mainland Chinese contractors with a high degree of import content that will put some pressure on current accounts.

"Given that Asean faces a significant infrastructure financing gap, this is still a welcome development," he added in a report titled Asean in 2018: Strength in economic diversity.

Incalcaterra said that despite playing an important role in financing regional infrastructure, China's industrial upgrading will be a challenge for Asean's traditional electronics and industrial supply chains.

"The mainland's US$150 billion investment plan for semiconductor production, intended to close its infamously large semiconductor deficit, will make it harder for those Asean countries that benefit from China's chip demand in the future.

"We must, therefore, ask ourselves what can be done to preserve Asean's competitive advantage, particularly in high-end manufacturing," he said, suggesting that firms maintain various production centres across the region, and further reduce barriers to cross-border services and investment that can facilitate expansion.

Incalcaterra said Asean members would be wise to double down on already-established targets and accelerate on-the-ground implementation of the Asean Economic Community (AEC).

"More specifically, we hope to see continued progress on banking sector integration, along with a further reduction of non-tariff barriers — measures, which can lower hurdles and operating costs for businesses operating across the bloc.

"To achieve this, as Singapore assumes Asean's rotating chair, we believe leaders must send a clear message that perfecting economic integration by fulfilling AEC goals is a priority, and that Asean is truly open for business," he said.