Sino influence in ASEAN’s energy: A double-edged sword?

The energy industry has played a vital role in ASEAN’s economic story to date. Countries like Indonesia and Malaysia have depended significantly on their abundance of energy related commodities – such as coal and oil – for trade and economic growth. And the role of the energy sector (as a driver of economic growth) is only set to expand. However, fossil fuel and non-renewable energy will no longer be the only constituent of ASEAN’s energy industry. Renewable energy (such as solar and wind power) is poised to play an important role in ASEAN’s future, and in line with this prediction, Governments across ASEAN are emphasizing the importance of shifting to sustainable sources of power.

In this interplay between renewables and non-renewables in the ASEAN energy sector, stands one very important stakeholder – the People’s Republic of China. It is widely known that China is playing an increasingly important part in ASEAN’s renewable energy – particularly solar energy – sector. But is that the only influence that China has over the region’s energy industry? Furthermore, is the influence that China exercises all (and only) good? In reality, the story is more complex.

There is no doubt that China has been a major investor in ASEAN’s renewable energy growth. Instances of China’s support can be seen across the region – from the 0.5 GW solar farm completed in 2019 in South Vietnam (financed by state-owned power plant builder PowerChina) to the US$ 10 billion investment (over a 15-year period) that Chinese solar energy firm Risen Energy has committed in Malaysia. And China’s footprint has not only been confined to the solar energy space. Just earlier this year, Vietnam Investment Review reported that 3 wind farms are being developed in the country’s Dak Nong province with a total investment capital of US$450 million, and the company developing these wind farms is majority owned (70% stake) by Sungrow Power, which – you guessed it – is a China based renewable energy group.

However, this increasing flow of funds from China (to ASEAN’s renewable energy industry) does not paint the full picture. In reality, Chinese investments in Southeast Asia’s more traditional sources of energy – such as coal – have far outpaced the investments made in the renewables space. According to an article by Nikkei Asia, dated December 15th 2020, China has 43 coal fired power plants under construction just in the countries of Vietnam, Philippines, and Indonesia. Furthermore, as per a quote from Ms. Isabella Suarez, a Philippines-based analyst for the Center for Research on Energy and Clean Air (CREA), China is definitely the main investor for coal in Southeast Asia. In fact, according to Ms. Suarez:

“If you look at overseas investment portfolio for Chinese coal, Indonesia and Vietnam
are second- and third-highest in the world.”

This strategy of offshoring coal financing and infrastructure to smaller neighbours, has enabled China to set ambitious carbon emissions targets for itself. But China isn’t the only Asian juggernaut that has adopted this strategy. Japan and South Korea have also been found to tread the same path. And unfortunately, this trend may not come to a halt anytime soon. According to an article by Yahoo Finance, the rapid increase in demand for power in ASEAN entails the need to build baseload plants – such as nuclear, coal and hydro plants – that can produce energy at a constant rate, unlike wind and solar farms which are smaller and produce output intermittently.

The unfortunate consequence of this is that emerging markets such as Indonesia, Vietnam and Philippines may find it difficult to set and meet aggressive carbon emission (decrease) targets. And, in addition, investment from China may arrive late to Southeast Asia’s renewable energy market, potentially worth US$ 205 billion over the next 10 years.

Whichever way you look at it, be it from a ‘renewables’ or ‘non-renewables’ perspective, the fact still remains that China has an exceeding degree of influence in the ASEAN energy market. And the direction that it takes with this influence, may dictate the direction that ASEAN progresses in.



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