Why the Mekong River is Asia’s next big investment locale

Southeast Asia: The new Game of Thrones

Southeast Asia is currently the stage for many external actors vying for influence. These include the U.S, China, Japan, India, and Russia. This is typified by the frequent clashes in the South China Sea, which has seen China face-off against Vietnam, the Philippines, and even the U.S. The far greater threat is the underlying economic power that China possesses which allows it to re-orient its military from a land-based doctrine to more of a sea-based outlook in the first place.

This economic influence, which has seen China become the leading trading partner of nearly all Southeast Asian states, is only set to expand with the announcement and eventual implementation of China’s “One Belt, One Road” scheme. Even more pertinent for infrastructure-related investments, China’s Asian Infrastructure Investment Bank (AIIB) has recently announced the start of projects in IndonesiaPakistan, and Tajikistan.

Increased economic clout has also served as the foundation for China’s soft power diplomacy initiative within the region. In order to combat this, the U.S has prioritized strengthening economic relations with Southeast Asia, typified by the recent Sunnylands ASEAN summit. Japan’s larger strategic goals with its Mekong River investment deal are therefore symbiotic with U.S goals outlined at this summit.

Compared with potential investment in Russia, which would also serve Japanese geopolitical interests, investment in Southeast Asia is looked upon much more favorably by the U.S in order to balance Chinese influence. This may also be due to the fact that the U.S already considers Russia to be fully in China’s camp, so there is really no need to try and vie for influence there.

The importance of the Mekong River

The importance of the Mekong River to the regional economy cannot be underestimated. Due to the river’s strength and ubiquity throughout the region, the potential for hydro power to be harnessed is clearly evident.  However, potential investors in this sector may face blow-back as dam construction has been blamed for adverse effects upon the local fishing industry, as well as upon the water itself.

MDPI

The Mekong has been compared to the Mississippi River in the U.S.; similar to the Mississippi, the best probable prospects for potential investment lie within the realm of transportation. Transportation, whether by river or land, is the key to eventual economic integration of the regional Mekong River economies. It is for this reason that China already has efforts underway to further integrate Yunnan province with the Mekong River states through transportation linkages. This is analogous to the linkage of its Xinjiang province to Central Asia in order to further economic development regionally whilst simultaneously reducing economic disparity nationally.

Multifaceted historical and political concerns

asia pacific journalSoutheast Asia, both maritime and mainland, has a complex history with these very same external powers. Chinese suzerainty may have occurred in ‘ancient times,’ but it is still very fresh in the minds of many citizens in the region. Despite China’s increased economic linkages in the area, this history only serves to strengthen local suspicions regarding China’s true motivations.

Japan, with its more recent World War II-era ‘Greater East Asian Co-Prosperity Sphere,’ is also looked at askance within some quarters within the region. However, many ASEAN members also realize that they are potentially on the front-line in a new Cold War between China and the U.S. While this may give them potential leverage with each suitor in attracting investment deals, ASEAN members also realize that they must be careful in this delicate balancing act.

Therefore, being more receptive to potential Japanese investment may give many southeast Asian countries a “third way” and increased flexibility in overall negotiations.

With respect to Thailand and Burma, two Mekong River countries impacted by Japan’s deal, political factors must also be considered. Concerns have been raised by the U.S in the recent past about the form of government in these two states. Specifically, the prolonged military rule in Thailand has raised eyebrows amongst some in Washington looking to sustain ties in a bid to better balance China. This political orientation of a country also has the potential to affect overall investment outlook, as seen in the recent presidential elections in the Philippines.

It is currently unclear if the U.S is utilizing Japan to proceed with investment initiatives in Thailand despite its own political concerns. This would, in effect, be America’s way of dipping its toe into the investment waters vicariously through Japan, or “crossing the river by feeling the stones” according to Deng Xiaoping.

It could also be the case that Japan, independently of U.S concerns, is proceeding with the deal regardless. This could be due to Japan’s higher threat perceptions of China’s local economic power, compounded by the fact that Japan itself was, until recently, Asia’s leading economic power. However Tokyo arrived at its final decision, Japan’s investment deal is a harbinger of increased opportunity for Japanese investors throughout Southeast Asia.

Tags: asia, investment, mekong, river
Posted in Asia, Private Equity, Private Equity