Who is secretly vying for the "big brother" in Southeast Asia? Exclusive Report Disclosure |

In the context of the intensification of the great power game and the sluggish global economy, Southeast Asia, which continues to recover economically, has received more and more attention, foreign investment in Southeast Asia has grown rapidly, and the aid of various countries to Southeast Asia is also considerable. So where did these funds go and what results have they achieved?

Based on an analysis of official development finance (ODF) in 11 Southeast Asian countries, the study finds that ODF plays an important role in Southeast Asia's development, accounting for about 10% of total government development expenditure. The mainland is the largest single development partner in Southeast Asia, but the scale of financing has declined in recent years, and it has been overtaken by some traditional development finance providers and is no longer the main ODF provider in the region. "Traditional development finance providers" still account for 80 percent of the total, with the World Bank and the Asian Development Bank leading the way, followed by Japan, Europe and South Korea. Japan and South Korea are the largest traditional bilateral partners in Southeast Asia. The U.S. and Australia are medium-sized players. It is noteworthy that India and the Middle East have emerged as important sources of non-traditional development finance, with the Islamic Development Bank in particular playing a key role.

Statistics show that infrastructure is the largest category of official development financing. China, as a major country in infrastructure financing, seems to have triggered a "competition for aid" among various actors. The Belt and Road Initiative has prompted the United States, Japan, Australia and other countries to launch infrastructure financing initiatives. The G7 launched the Global Infrastructure Investment Partnership in 2022 to raise $600 billion in financing. As geostrategic tensions intensify, parties will focus more on gaining influence in Southeast Asia.

This article is the eighth in the series "The Inside and Foresight of Countries in Key Regions", which is an excerpt from the research report "Southeast Asia Aid Map", which was originally published on the website of the Lowy Institute in Australia. The article only represents the author's point of view and is for readers' reference and analysis.

Map of international aid in Southeast Asia

✪ Alexandre Dayant, 

Grace Stanhope & Roland Rajah

Lowy Institute

✪ 慧诺(编译) | 文化纵横新媒体

✪ Karan (Proofreader) | Culture is a new media

▍ Overview

Southeast Asia has a total population of about 670 million people and covers several countries. Southeast Asian economies are globally dynamic and deeply integrated into international supply chains. After decades of development, the region has made remarkable progress in terms of economy and livelihood, lifting millions of people out of poverty and improving education, health and living standards. Southeast Asia is becoming increasingly important in the provision of global public goods, including pandemic prevention, supporting an open and stable world economy, promoting net-zero carbon emissions, and maintaining the international system.

Although economic growth has reduced the need for aid, there are still financing needs in the region, particularly in the areas of infrastructure, human development, and the fight against climate change. Official development finance plays a key role here, especially in smaller low-income countries such as Timor-Leste, Laos and Cambodia. In larger emerging economies such as Viet Nam, Indonesia and the Philippines, official development finance remains the main source of development finance. As geostrategic tensions intensify, there is an increasing focus on using tools such as ODF to gain influence in Southeast Asia.

(Screenshot of this article)

(i) Southeast Asia receives about US$28 billion in official development financing annually

Between 2015 and 2021, Southeast Asia has absorbed about US$200 billion in overseas funding, with an annual average of about US$28 billion. These flows mainly go to the region's emerging and developing economies, totalling roughly 1 per cent of their collective GDP. More than half of this comes from official financial flows (OOFs), as defined by the Organisation for Economic Co-operation and Development, including non-concessional loans from China's state-owned policy banks and the two major multilateral development banks. The remainder of official development finance is provided in the form of grants and concessional financing.

Between 2015 and 2021, there was a significant gap between the amount committed to ODF projects and the amount actually disbursed. The average annual commitment is about $43 billion, which is 50% higher than the actual amount paid. The gap in infrastructure projects is the largest, mainly due to the difference in funding between large-scale projects funded by China and those funded by Japan and the Asian Development Bank.

The size of official development finance in South-East Asia by type

ODFs represent about 1.5 per cent of GDP regionally in terms of project commitments, while official development finance actually disbursed is about 1 per cent of GDP. There are significant differences in the extent of ODF in Southeast Asian countries. The role of ODFs is even more pronounced in small and low-level countries such as Timor-Leste, Laos and Cambodia.

Official development funding received by Southeast Asian countries

% of GDP

(2) China is the largest provider of official development funds in Southeast Asia, but the scale of financing has been declining in recent years

From 2015 to 2021, China, the region's largest development partner, provided about US$5.5 billion in official development finance annually, of which more than 70% was spent on infrastructure construction. China accounts for about one-fifth of the region's total official development finance and two-fifths of official infrastructure development finance. The money is mainly directed to neighbouring countries such as Indonesia, Laos and Cambodia, where China is focusing despite higher incomes.

The scale of official development financing provided by different entities

Eighty-five percent of China's disbursements are non-concessional loans, coming from the Export-Import Bank of China and the China Development Bank. 10% are concessional loans and 5% are grants, indicating China's focus on financing economic infrastructure and providing support to high-income countries.

Due to severe delays in high-speed rail projects in Malaysia and Thailand, China's financing declined during 2020 and 2021, and was overtaken by some traditional development finance providers and is no longer the main ODF provider in the region.

(iii) Traditional development partners provide the bulk of official development finance, often for broader development purposes beyond infrastructure

Traditional development finance providers contribute nearly 80 per cent of ODF and more than 90 per cent of official development finance. China's ODF focuses on infrastructure and regional development, while traditional partners focus on governance. The ADB and the World Bank are the region's major multilateral development banks, with annual financing of $4.5 billion and $4 billion, respectively. The two banks serve larger emerging economies through non-concessional loans, while providing grant and concessional loan support to less developed economies in Southeast Asia. In 2020 and 2021, ADB was the largest source of ODF in the region in response to the impact of the pandemic.

Changes in the size of the main official development finance channels

Among the traditional bilateral development partners, Japan and the Republic of Korea are the main providers of ODF in the region, contributing about US$4 billion and US$3 billion, respectively. In addition, Team Europe contributes an average of about $3 billion a year. Germany, France and EU institutions are the sixth, ninth and tenth largest ODF providers, respectively, and are key players in infrastructure financing. The United States and Australia, which provided $1.1 billion and about $870 million, respectively, provided more official development finance in other areas, mainly in the form of grants.

(iv) Official development finance plays an important role in meeting Southeast Asia's development needs

Despite the growing economic strength of Southeast Asian countries, official development finance (ODF) remains irreplaceable in supporting their development. Despite the increase in private funding, aid flows to the region still face challenges in key areas such as education, health and social protection. In terms of infrastructure, public sector investment continues to dominate.

Total ODF as a percentage of major economic projects

*Note: Government development expenditure refers to the amount spent on fixed capital assets (representing public infrastructure investment), education, health (current expenditure) and social assistance.

The ODF has a unique role to play here, supporting the most pressing development priorities. ODFs have more advantageous financial conditions than market-based financing, most of which are provided in the form of grants and concessional financing. Even in non-preferential ODFs, the conditions they offer are generally better than the market level.

Measuring the importance of ODF in the region should not be compared only to GDP, but should focus on government revenues, especially government spending on key development priorities. Although ODF is only 1-1.5% of regional GDP, it is equivalent to 6-9% of total government revenue. What's more, ODFs are equivalent to 10-15 per cent of total government development spending on infrastructure, education, health and social assistance. In addition, ODF accounts for half of total FDI and remittance inflows, suggesting that large amounts of external finance are still channelled through official development channels rather than through markets and private activities.

Official development finance as a percentage of government development expenditure in Southeast Asian countries

In the developing economies of South-East Asia, ODF plays an important role in the area of financing for development. In small, low-income countries such as Cambodia and Laos, ODFs account for almost 80% of government development spending. In Timor-Leste and Myanmar, ODFs also account for a higher share of government development expenditure. In larger emerging economies such as the Philippines, Vietnam, and Indonesia, ODFs account for more than 10% of total government development spending. Although in Malaysia and Thailand, ODF has a smaller role, but its influence cannot be ignored, especially for large Chinese-backed railway projects. For smaller and lower-income countries in South-East Asia, ODFs are critical to development financing. Even in stronger emerging economies, ODF is not insignificant. As a result, external funding from development partners will remain of great relevance to the region in the future.

Trend 1: Traditional development partners continue to dominate official development finance

In the current context, China has become the largest development partner in Southeast Asia. However, most of the official development finance (ODF) received by the region still comes from "traditional development partners". Such partners mainly refer to the members of the OECD's Development Assistance Committee (DAC), as well as multilateral organizations that are primarily funded by these countries.

Scale of ODF by Southeast Asian Countries (by Source)

In Southeast Asia, key traditional partners include multilateral development banks, Japan, South Korea, European countries, the United States and Australia. Between 2015 and 2021, these institutions and countries accounted for nearly 80% of ODF spending in the region. At the same time, they are also the main providers of ODF in other Southeast Asian countries except Malaysia and Laos. With the mainland dominating these two countries, the role of traditional development finance providers has become increasingly prominent. In 2020 and 2021, during the pandemic, the share of traditional development partners in ODF spending further increased to 85%.

(1) Multilateral development banks lead the traditional development finance work

The Asian Development Bank (ADB) and the World Bank play a pivotal role in Southeast Asia, as the two major multilateral development banks and the largest providers of traditional development finance in the region. The ADB and the World Bank are second and third respectively in development financing by governments, behind China. Between 2015 and 2021, the two institutions provided more than $60 billion in official development finance to Southeast Asia, an almost equal share, with 52 percent coming from the ADB and 48 percent from the World Bank. It is worth noting that the vast majority (99%) of the financing is provided in the form of loans, with concessional loans accounting for about 20%.

Multilateral development banks (MDBs) have diversified and optimized their financing by supporting larger emerging economies through non-concessional loans, as well as grants and concessional loans to less developed economies in Southeast Asia, building on strong balance sheets. As a result, the ADB has played an important role in responding to the global pandemic, becoming the largest source of official development finance in the region in recent years.

Between 2015 and 2021, Indonesia, the Philippines and Viet Nam were the largest recipients of official development finance from multilateral development banks. In addition, multilateral development banks have provided substantial support to Thailand, including the ADB-funded Bangkok Mass Rapid Transit project and a large COVID-related budget support loan. In fact, the total amount of official development finance (ODF) from the two major multilateral development banks (MDBs) has grown sharply in response to the pandemic, soaring by 82% in 2020 compared to 2019.

(2) Japan and South Korea: the largest traditional bilateral partners for a long time

Japan serves as a key traditional bilateral development partner in Southeast Asia. Between 2015 and 2021, Tokyo spent $28 billion, accounting for 33% of traditional bilateral official development finance, surpassing South Korea's 24% and Germany's 10%. Of this, 99 per cent is official development finance. In fact, in 2021, about 22% of Japan's global official development finance went to Southeast Asia, with Vietnam and Indonesia being the biggest beneficiaries. Nearly 80 per cent of Japan's assistance to the region has been provided in the form of concessional loans.

Japan's development finance is mainly concentrated in the transport and storage sector, accounting for 43% of official development funding between 2015 and 2021, slightly higher than that of the mainland. Many of Japan's largest and most high-profile projects in the region involve transportation, such as the Metro Manila North-South Commuter Railway, the Ho Chi Minh City Urban Rail Project, and the Mass Rapid Transit System Expansion Project in Bangkok.

In addition, Japan is investing outside of its traditional focus areas. For example, in the "humanitarian field", the Japan International Cooperation Agency (JICA) provided large loans to Indonesia in 2020 and 2021 to respond to natural disasters. Tokyo has also provided loans to support social protection programs in Indonesia, the Philippines, Myanmar and Cambodia during the global pandemic. These deals have boosted Japan's spending on governance, although Tokyo is generally less aggressive in this area than other traditional partners.

In the past 10 years, Japan's financial support for Southeast Asia has been relatively balanced. Vietnam received 26 percent, Indonesia and the Philippines each received about 20 percent, while Myanmar, where Japan is the largest partner, received 15 percent. Since 2018, Vietnam's support from Japan has decreased, with its share falling from more than 40% in 2015 to just over 11% in 2021. In contrast, the Philippines and Indonesia have gradually increased their share of Japanese aid.

South Korea is a key partner in Southeast Asia, accounting for about a quarter of global official development finance. South Korea's ODF in Southeast Asia is mainly invested in the industrial, mining and construction industries, and the energy sector. In these areas, South Korea has become the largest traditional partner in the region, with more than $5 billion invested in ODF between 2015 and 2021, second only to China in terms of total size.

Notably, South Korea's aid is concentrated in two countries, Vietnam and Indonesia, which together account for 75% of South Korea's official development finance to the region. This may reflect South Korea's business perspective in Southeast Asia's development activities. South Korea's official development finance, which is mainly led by the Export-Import Bank of Korea, focuses on supporting investment by South Korean companies, which is in line with the new southern policy of the Moon Jae-in administration.

(3) Europe, the United States and Australia: medium-sized official development finance groups

In Southeast Asia, Europe is the fifth-largest traditional ODF partner overall, while Germany, France and the EU are the sixth, ninth, and tenth-largest ODF providers in the region, respectively. Between 2015 and 2021, Germany invested US$8.5 billion, France more than US$5.3 billion, followed by EU institutions (US$3.2 billion), the United Kingdom (US$2.2 billion), Norway (US$1.2 billion) and Switzerland (US$1.17 billion).

Germany provides loans and grants to Southeast Asia, of which about $3.5 billion, or 41 per cent of total aid, compares with France's more emphasis on loans, with only $944 million, or 18 per cent. Indonesia has the highest share of development aid from Germany at 52 percent, followed by Viet Nam (19 percent), while France has a relatively even share of aid to countries such as Indonesia (35 percent), Viet Nam (25 percent), Cambodia (17 percent) and the Philippines (16 percent). Between 2015 and 2021, about half of the UK's development aid to Southeast Asia went to Myanmar, making it Myanmar's fifth largest traditional partner after Japan, China, the World Bank and the United States. The main areas of concern in Europe are governance (26%), education (12%) and energy (11%).

Surprisingly, the United States, as a medium-sized development partner, provided about $7.8 billion in development finance to the region, or 4 percent of total official development finance over the same period. However, the distinguishing feature of official development finance in the United States is that it accounts for almost all (95 percent) of grants, while foreign private investment companies provide only $415 million in loans. The two main areas of concern for the United States are health (25 percent) and governance (23 percent).

In the area of health, the United States is the largest bilateral partner in the region, behind the Global Fund to Fight AIDS, Tuberculosis and Malaria. The United States contributed the most to the fund. Between 2015 and 2021, U.S. spending on health reached $1.9 billion, far exceeding China's $544 million. In addition, the United States is a major partner in the field of environmental protection. Between 2015-21, one-third of US official development finance ($1.7 billion) was invested in the governance sector.

Australia is a medium-sized development partner in Southeast Asia, contributing about US$6 billion, or 3% of total ODF. Official development finance declined gradually from 2015 to 2019, doubling to $1.7 billion in 2020 due to the pandemic and rebounding to $850 million in 2021. Australia's spending in South-East Asia is dominated by ODF grants, accounting for more than three-quarters, making it the third largest grant provider in the region.

Between 2015 and 2021, Australia provided only two loans to Indonesia to improve eastern roads and the coronavirus response. The amount of aid to Indonesia is slightly more than half that of Southeast Asia. Timor-Leste is the second largest recipient of aid, with Australia as its largest partner. Other recipients include the Philippines, Viet Nam, Myanmar and Cambodia.

In response to the pandemic, Australia has reprioritised its plans to increase investment in governance and the health sector. Funding for health increased from less than US$23 million in 2019 to US$319 million in 2021. Funding in education has been declining year by year, from $150 million in 2015 to $45.6 million in 2021.

▍Trend 2: China, India and the Middle East are emerging as important development partners

In recent years, non-traditional development cooperation has become increasingly prominent in Southeast Asia, with China, India and Middle Eastern countries becoming important contributors to official development finance (ODF) in the region. According to statistics, between 2015 and 2021, these countries provided about 21% of total official development finance. Among them, the mainland contributed the most, with an average annual average of about US$5.5 billion, accounting for more than 90% of non-traditional official development financing. The Middle East accounts for about 5 per cent, with an average annual contribution of $300 million, mainly from the Islamic Development Bank. India provided an average of $488 million per year during this period, ranking third in the non-traditional group, but accounting for only 1 per cent of total official development finance in the region.

Proportion of non-traditional official development finance flows to Southeast Asia

(1) China: The largest single development partner, but the scale is shrinking

As China's national power grows, the Chinese government is committed to reforming the global governance system to accommodate China's interests and values. To achieve this goal, China has proposed the Belt and Road Initiative, among others, with the aim of becoming a global provider of public goods and helping to solve global challenges. China's development cooperation in Southeast Asia highlights the national policy of prioritizing development. Despite falling to fourth place in annual disbursements after the pandemic, China remains the region's largest bilateral development partner.

Many Southeast Asian countries participated in China's Belt and Road Initiative, and their commitments increased significantly in 2021. Forecasts show that from 2020 to 2030, Southeast Asia will be the second largest region in China's infrastructure investment, second only to sub-Saharan Africa. Currently, four countries in the region are among the top 10 countries in the Belt and Road Initiative. However, it should be noted that the actual disbursements of China's official development finance are generally lower than the committed amounts. In 2015-2021, overall commitments in Southeast Asia were twice as high as actual disbursements.

Seventy-two percent of China's development projects in Southeast Asia are financed through the China Development Bank (38%) and the Export-Import Bank of China (34%). Together, the two banks account for 11% of all financing in Southeast Asia, second only to the Japan International Cooperation Agency (JICA). These projects are mainly large-scale infrastructure such as the Jakarta-Bandung high-speed rail in Indonesia and the East Coast Railway in Malaysia. However, financial security and debt sustainability remain challenges, with Laos, for example, facing high debt risk, 78% of which comes from Chinese loans.

In the energy sector, China is a major funder of renewable and non-renewable energy projects in Southeast Asia. From 2015 to 2021, China financed about 62% of clean energy and 64% of non-renewable energy projects. The transport and warehousing sector accounts for 27% of China's financing in the region, the second largest sector, with the Belt and Road Initiative (BRI) aimed at enhancing market connectivity, such as the Thai-Chinese high-speed railway, the East Coast Railway, and the Jakarta-Bandung high-speed railway.

From 2015 to 2021, the relative importance of China's ODF in Southeast Asia declined. In 2015, China provided about 24% of the region's ODF, which dropped to 14% in 2021. The global pandemic was the main reason, with an increase in ODF provided by other traditional partners and disruption of large infrastructure projects. While China made important commitments in 2021, the ongoing impact of the pandemic could undermine real capacity to pay.

(2) India: The presence has gradually strengthened and it has become the second largest non-traditional partner

India, Southeast Asia's second-largest non-traditional bilateral development partner, invests about $70 million annually in the region. While India's development cooperation has traditionally focused on its South Asian neighbors, it also has a significant share of development cooperation in Southeast Asia under its "Action East" policy. India's development cooperation in Southeast Asia aims to deepen economic and trade ties, promote regional integration and connectivity, and contribute to sustainable development, the Development Partnership Authority (DPA) of India emphasises India's development cooperation in Southeast Asia.

From 2015 to 2021, India provided a total of $490 million in development assistance loans and grants to Southeast Asia. Myanmar and Cambodia received nearly 90% of the financial support. India's development cooperation projects cover a wide range of areas, such as infrastructure development, capacity-building, agriculture, health, education, information and communication technology, and disaster management.

One of the key avenues for India's development cooperation is the Indian Technical and Economic Cooperation Programme (ITEC), which provides training and capacity building in a wide range of fields for professionals and government officials from Southeast Asian countries. In addition, India is involved in some infrastructure projects in Southeast Asia, such as the US$36 million Stung Sva Hab/Slab water development project in Cambodia, which reduces flood risk by storing excess rainwater.

India has a different approach to funding for large-scale infrastructure projects than other non-traditional partners in that it supports large-scale infrastructure projects through grants. For example, India's $484 million Kaladan Multimodal Transit Transport Project aims to improve transport links between India's northeastern states and Myanmar's Sittwe port. The project is implemented by India under the Aid Grant Scheme and is fully funded by Delhi.

(3) The Middle East: an increasingly important new partner

Between 2015 and 2021, official development finance in the Middle East (including donations from Middle Eastern countries and contributions from multilateral institutions such as the Islamic Development Bank) totalled $343 million per year. Saudi Arabia's development funding is mainly in the education sector, particularly through scholarships, which account for 91 per cent of all education projects funded in the Middle East countries in the region. These projects are funded by grants from the Saudi Development Fund or the Ministry of Education. The remainder of Riyadh's development funds is used for health projects, such as the construction of two university hospitals in Sebelas, Indonesia.

One third of Kuwait's development plan for South-East Asia is devoted to the energy sector, particularly to financing transmission lines in Laos. The other third is used in the agriculture, forestry and fisheries sectors, mainly in the irrigation infrastructure of Viet Nam and Laos. Almost all Kuwaiti projects are financed by the Kuwait Fund for Arab Economic Development and are provided in the form of concessional loans.

Through the Organization of Islamic Cooperation (OIC), Turkey maintains close ties with Southeast Asia's Muslim-majority countries – Indonesia, Malaysia and Brunei. Ankara invests one-third of its regional development funds in these countries, most of which is spent on education. In addition, Turkey has provided substantial humanitarian assistance to Myanmar, using 65 per cent of its development funds in Myanmar to respond to the crisis immediately.

Qatar is the smallest Middle Eastern partner in the region, accounting for only 1% of the group's official development finance payments between 2015 and 2021. The Qatar Fund for Development is responsible for two-thirds of Qatar's official development finance, mainly for humanitarian purposes, but also provides food aid during Ramadan, a Muslim-majority country.

In terms of size, the Islamic Development Bank (IsDB) is the most important development partner in the Middle East. Between 2015 and 2021, the bank disbursed $1.8 billion for official development finance, accounting for 65% of all Middle East development finance in Southeast Asia. The Islamic Development Bank supports seven of the 11 countries in the region, but 99 percent of its funding goes to Indonesia. Most of the funds provided by the Islamic Development Bank to Indonesia are in the form of non-concessional loans, mainly in the fields of agriculture and education.

▍Trend 3: Competition for infrastructure financing is fierce

Infrastructure in Southeast Asia, including transport, storage, energy, communications, water and sanitation, is the largest category of official development finance (ODF). Between 2015 and 2021, infrastructure development financing accounted for nearly 40% of total ODF, averaging about $11 billion per year. Infrastructure development is seen as a core priority for governments and ODF partners in the region. The region faces a large infrastructure financing gap and needs increased investment to support economic recovery, sustainable development and the fight against climate change. The infrastructure financing gap is estimated to be around 4% of GDP, including to combat climate change. The International Energy Agency estimates that developing economies in Southeast Asia will need to quadruple their investment in clean energy.

China's leading infrastructure financing has sparked competition among development partners. In 2013, the Belt and Road Initiative (BRI) prompted countries such as the United States, Japan, and Australia to launch infrastructure financing initiatives. The G7 launched the Global Infrastructure Investment Partnership in 2022 to raise $600 billion in financing.

About 90 per cent of the total ODF for infrastructure is spent on economic infrastructure, with transport and warehousing accounting for the largest share at 46 per cent and 41 per cent, respectively, while the communications sector accounts for a relatively low share of only 3 per cent. Water resources and sanitation account for 9% of total official infrastructure development finance. The vast majority of investments are concentrated in economic infrastructure, with more than 90 per cent of infrastructure ODFs provided in the form of loans, more than half in non-concessional loans and only 7 per cent in grants.

The scale of official infrastructure development financing

(1) Official development finance plays an important role in infrastructure construction

Despite the size of Southeast Asian economies, the total amount of infrastructure development financing they receive has had a significant impact on infrastructure investment in the region, and thus on their growth and development. Official development finance (ODF) has become an important source of financing for the region's smaller developing economies – Laos, Cambodia and Timor-Leste – compared to the size of individual economies, where ODF accounts for a certain percentage of their GDP. In Laos and Cambodia, official infrastructure development finance accounts for 67% and 74% of government capital expenditure, respectively. The Government of Timor-Leste is able to draw money from its large oil fund to invest in public infrastructure, where official infrastructure development finance continues to play an important role.

Infrastructure ODF as a share of GDP is relatively small in the region's larger economies, but in many cases it is still a large share of government capital expenditure. In Indonesia, Vietnam, and Myanmar, infrastructure ODF accounts for about 10% or more of total government capital expenditure. In the Philippines, Malaysia and Thailand, infrastructure open-ended fund disbursements were smaller, reflecting problems in project implementation. However, when measured by project commitments, these countries account for 10% or more of government capital expenditure on official infrastructure development finance, comparable to other large emerging economies in Southeast Asia.

Official development of finance on infrastructure

(2) China's infrastructure investment is shaky ahead, but it faces competition

China is by far the largest provider of official infrastructure development funds in Southeast Asia. Between 2015 and 2021, China provided about US$28 billion in official infrastructure development funds to Southeast Asian countries, equivalent to about US$4 billion per year. This figure accounts for almost 40 per cent of the total amount of such financing in the region.

Japan is the second largest source of official infrastructure development funds, providing $2.5 billion per year. By comparison, the World Bank, the Asian Development Bank and South Korea each provide just over $1 billion a year. France and Germany are the second largest source countries, and together with the "European team" of other EU countries, they are the sixth largest source of official infrastructure development funds. This is followed by Australia, the United States, India and the United Kingdom, but with much less than $100 million a year.

Although China is the largest single source of infrastructure ODF, it is not always dominant in all sectors. For example, in the transportation and warehousing sector, Japan has slightly more official development financing than China. In the field of telecommunications, South Korea provides the same amount of funding as China, while the Asian Development Bank and the World Bank are also important players. China's relatively small role in water supply and sanitation reflects its focus on economic rather than social infrastructure. In contrast, traditional development partners are more focused on this area. However, in the energy sector, China does dominate, accounting for 50% of official development funds, followed by South Korea with 14%.

The proportion of ODF invested in infrastructure by countries and institutions in different sectors

The signed projects present a very different picture of China's role in Southeast Asia. With the exception of water and sanitation, China's overall role in the region is relatively small, but it dominates new infrastructure deals. Between 2015 and 2021, China's infrastructure foreign aid commitments averaged about $12 billion per year, three times that of Japan, its second-largest partner, and more than half of the region's total infrastructure foreign aid commitments. In terms of commitments, China accounts for about 65 percent of total projects in the transport and storage sector, nearly half of foreign aid commitments for energy, and nearly 40 percent in the communications sector.

Taken together, the scale of China's commitment in the region suggests that China's infrastructure financing potential in Southeast Asia is significant compared to other partners. Although China outperforms many traditional development finance providers in terms of project commitments, traditional providers remain a competitive alternative source of infrastructure financing in terms of actual delivery.

▍Trend 4: Climate-related financing is expanding rapidly, but the outlook remains uncertain

Southeast Asia will face more severe economic losses from climate change than the rest of the world. The Global Climate Risk Index shows that Myanmar, the Philippines, Vietnam and Thailand in ASEAN are among the countries most affected by extreme weather events. Today, Southeast Asian countries have recognized the risks of climate change and are taking steps to address them, but they need economic assistance to achieve their plans, and climate development finance is not growing fast enough to meet regional needs.

(1) The scale is stable and rising, but the outlook is mixed

From 2015 to 2021, Southeast Asia disbursed an average of US$8.3 billion annually in climate development finance, totaling more than US$58 billion, accounting for 29% of ODF disbursements in the region. There are more items marked as "important" than "major". 2021 had the largest number of major projects, demonstrating the importance that the international community attaches to climate action. During this period, climate development finance increased by 59%, but the main increase came from important projects. Both the number and proportion of major projects declined. Climate-related ODF disbursements increased, but new commitments fell by 18%. Loans account for more than 80% of payments for climate-related projects, while concessional loans account for only 44%. Laos, Myanmar and Timor-Leste have debt financing ratios of 89 per cent, 49 per cent and 30 per cent, respectively. China, Japan, and the ADB are the main lenders, while Germany, the United Kingdom, and Australia are the main providers of grant financing.

Proportion of climate-related development finance

Indonesia is Southeast Asia's largest economy and the largest recipient of climate development finance, receiving more than US$16.5 billion between 2015 and 2021. The Philippines and Vietnam followed with $11.1 billion and $10.3 billion, respectively. Laos received $6.6 billion, while Timor-Leste and Malaysia lagged far behind, with $1.2 billion and $650 million, respectively.

Financing for climate development in Southeast Asian countries

In recent years, Indonesia has received a significant increase in funding in 2016 due to loans for two projects. The Philippines received additional climate finance in 2017 to implement social service projects. Vietnam's average annual payments are just under US$1.5 billion, a slight increase since 2019. Malaysia's climate development finance has fallen back after a surge in 2017. Laos was the third largest recipient in 2015, but the amount of financing continued to decline.

Assessed on a per capita annual income basis, Laos leads the way in spending on climate-related development finance per capita at US$883. Malaysia has the lowest per capita expenditure at just US$36. Myanmar is the poorest country in the region, with a GDP per capita of just $1,209 and relatively little per capita funding of $4.30 per year. Although Indonesia is the largest destination for climate development finance, it spends only US$8.62 per capita per year due to its large population.

(2) Challenges in financing the energy transition

Climate development funds are mainly invested in the energy sector, promoting the construction of central transmission grids and hydroelectric power plants. Investment in the energy sector peaked in 2017, thanks to large-scale projects in China. Since 2017, energy-related financing has dominated climate-related initiatives, despite a decline. Transport and warehousing are the second largest areas for climate-related payments, with a focus on rail infrastructure, such as the Bangkok Mass Transit System project. The sector dedicated to adaptation, while important, receives less than $700 million per year.

Financing for climate development by sector

Despite global efforts to advance the low-carbon energy transition, development funding for non-renewable energy projects in Southeast Asia is still higher than that for renewable energy projects. Since 2015, the region has received $12.3 billion in financing for non-renewable energy projects and $7.6 billion for renewable energy projects. China is the main financing partner, followed by the World Bank and South Korea. Financing for both energy projects has declined significantly in recent years.

Financing energy development in Southeast Asia

The Asian Development Bank, Japan's Energy Policy 2021, and others no longer fund new coal-fired power generation or natural gas exploration in Southeast Asia. Japan has pledged to stop public funding for uncut fossil fuel projects by the end of 2022. China has announced that it will no longer build coal-fired power plants overseas. The World Bank halts investment in upstream oil and gas and provides zero financing for new fossil fuels. However, progress in supporting greater regional energy demand while significantly increasing renewables has not been enough to drive the region's transition to a low-carbon, resilient future.

▍Trend 5: Climate-related financing is expanding rapidly, but the outlook remains uncertain

Over the past 50 years, Southeast Asia has been one of the most economically dynamic regions in the world. Together, Southeast Asian countries have built strong and resilient economies that have lifted millions of people out of poverty. These countries provide assistance to each other bilaterally and multilaterally to address the challenges together.

Although intraregional development finance accounts for a relatively small proportion of Southeast Asia's overall development, intraregional liquidity reached US$86 million in 2021, an increase of 14%. Disbursements related to COVID support, as well as the implementation of infrastructure projects, led to a significant 45% increase in development finance in the region in 2020 to US$106 million.

All ODFs are provided in the form of grants, with the exception of infrastructure projects in Thailand, which are financed through concessional loans. About one-third of the region's development funds are allocated to infrastructure projects, with a focus on road transport and coal-fired power plants. The emphasis on infrastructure is in line with the development priorities of Thailand and Vietnam. If these two countries are excluded, development financing in South-East Asia is largely focused on health and humanitarian assistance.

Each ASEAN member state makes an annual contribution to the ASEAN Coordination Centre for Humanitarian Assistance (AHA) for Disaster Management, which aims to promote coordination and cooperation among ASEAN member states in disaster management and emergency response in the region. These contributions totalled $4.3 million, representing the majority of regional funding provided by Brunei, Malaysia, Myanmar and the Philippines.

When natural disasters occur in the region, ASEAN member states provide additional temporary funding to the ASEAN Humanitarian Association. For example, after the 2018 tsunami triggered by a magnitude 7.5 earthquake in Indonesia's Central Sulawesi Island, Southeast Asian countries provided significant funding to Indonesia through the AHA.

The scale of official development finance provided to each other by countries in the South-East Asia region

Thailand is Southeast Asia's largest regional development partner, accounting for the majority of development finance for three consecutive years, but its share is gradually decreasing. Other countries, such as Viet Nam and Singapore, have stepped up their aid. Laos, Myanmar and Cambodia are the main recipients of official development funds in the region, while international partners provide assistance mainly to Indonesia, Viet Nam and the Philippines. Regional economic integration is an important commitment of ASEAN aimed at reducing poverty and narrowing the development gap. Accelerating economic development in Cambodia, Laos, Myanmar and Viet Nam is a top priority, as these countries have the lowest GDP per capita, exacerbating the economic divide in Southeast Asia. Intraregional development cooperation focuses on the countries of the Latin American and Caribbean Economic and Monetary Union (EUROPE) and complements the development cooperation activities of other international partners.

Thailand's development cooperation program is the oldest and largest program in Southeast Asia, created in 1963 and mainly aimed at neighboring developing countries. In 2021, Thailand's Global Concessional Development Funding (ODA) reached US$72 million, most of which went to Southeast Asia. Since 2004, Thailand has established a specialized agency, the Thai International Cooperation Agency (TICA), which has shifted its focus from receiving aid to providing development cooperation. The Government of Thailand has identified the main interests of development cooperation as internal and external security. In Southeast Asia, Thailand prioritizes ODF in the Mekong subregion and then broader ASEAN, using development support as a tool to reduce poverty and strengthen political and economic cooperation. As a result, 96% of Thailand's regional support is directed towards Laos (58%), Myanmar (25%) and Cambodia (13%). As of 2021, these countries have the lowest per capita income in the region, bordering Thailand, and contribute to the twin goals of promoting regional prosperity and security.

Viet Nam is Southeast Asia's second-largest development partner, responsible for 13% of the region's ODF (US$68 million) in 2015-21. Hanoi was relatively late to the field of development cooperation, and the Department of Foreign Economic Relations of the Ministry of Planning and Investment (MPI) was initially mainly responsible for coordinating the ODF provided to Vietnam, and later gradually expanded its responsibilities to provide development cooperation to neighboring countries. During the period 2015-2021, Vietnam strengthened bilateral cooperation with Laos and Cambodia, with 99% of ODF going to these two countries, with a wide range of cooperation projects. More cooperation is expected in Vietnam in the coming years. It is noteworthy that in its five-year socio-economic development plan for 2016-2020, Vietnam emphasizes its intention to expand development cooperation as a means of engaging with the international community.

Cambodia and Timor-Leste are among the poorest economies in Southeast Asia, but rank fourth and fifth, respectively, in the ODF issued. Timor-Leste is the second most generous partner in South-East Asia, while Cambodia is the fourth most generous partner. Cambodia provides humanitarian support through donations to the African Humanitarian Aid Association, while Timor-Leste provides emergency assistance to ASEAN neighbouring countries in times of crisis. Indonesia has established a dedicated development cooperation agency, but its regional ODF is still very small, accounting for only 0.3% of intraregional funding. Singapore and Brunei have performed poorly in providing intra-regional ODF, accounting for only 2.6% of the regional combined. Singapore provided a small amount of ODF in the event of a natural disaster and expanded its assistance programme during the pandemic, donating medical supplies and COVID vaccines to the region. Brunei's ODF in the region has been low, with a total of less than $600,000 in aid provided to the region during this period. Most of Brunei's aid comes in the form of annual donations to the AHA, but the country also provided support to Laos when it was hit by floods in 2018.

Overall, the region presents a delicate dynamics with regard to ODF patterns. Although Thailand and Viet Nam are not as economically prosperous as other countries in the region, they are major donors to ODF in Southeast Asia, leading to a large flow of development funds to their immediate neighbours. While this approach provides a measure of support to the countries most in need, it has also exposed some gaps, as exemplified by Timor-Leste's lack of attention. On the other hand, the richest countries in the region are not generous enough in both absolute and relative terms.

This article is the eighth in the series "The Inside and Foresight of Countries in Key Regions", which was originally published on the website of the Lowy Institute in Australia and translated from the Southeast Asia Aid Map. The article only represents the author's point of view and is for readers' reference and analysis.