Blockchain technology, first conceptualized by an anonymous entity known as Satoshi Nakamoto in 2008, has revolutionized the way we think about digital transactions and data security. Initially associated primarily with Bitcoin, blockchain has since evolved into a versatile technology underpinning a wide array of cryptocurrencies and decentralized applications. Over the past decade, its usage has surged dramatically, capturing the curiosity and interest of millions worldwide. One region where this growth is particularly pronounced is Southeast Asia.

The origins of blockchain technology can be traced back to 1991 when researchers Stuart Haber and W. Scott Stornetta introduced a system for timestamping digital documents using cryptography to ensure they couldn’t be tampered with or misdated. However, it wasn’t until nearly two decades later that blockchain found its first real-world application with the launch of Bitcoin.

Today, the adoption of cryptocurrencies is skyrocketing globally, with Southeast Asia emerging as a global hotspot for cryptocurrency adoption. This region’s progressive stance towards cryptocurrency markets, burgeoning digital infrastructure, and the relative scarcity of established banking institutions have created a fertile ground for high-growth startups in the cryptocurrency space. Characterized by its diversity and rising incomes, Southeast Asia is attracting investors and entrepreneurs keen on tapping into the dynamic market opportunities.

According to a recent report by venture capital firm White Star Capital, Southeast Asia is home to over 600 cryptocurrency and blockchain companies. The report highlights that a significant portion of the recent surge in venture capital funding in the region has been directed towards web3, blockchain, and cryptocurrency startups. In 2022 alone, these companies collectively raised more than $1 billion in funding. This trend pinpoints the region’s pivotal role in the global cryptocurrency landscape and its potential as a hub for innovation and growth in the blockchain sector.

As global nomads build new businesses straight from their phones, the impact of blockchain technology continues to evolve, transforming not only finance but also sectors like insurance, supply chains, healthcare, and transportation.

Country-Specific Insights

Singapore stands out as a pioneer in establishing clear and forward-thinking blockchain regulations, including those for tokenized securities. This clarity enables businesses to operate without regulatory ambiguity. The country serves as a key hub for the Asian blockchain industry, hosting the headquarters or holding companies of numerous Asian blockchain startups. Alongside other blockchain-forward regions like Dubai, Abu Dhabi, and Luxembourg, Singapore is solidifying its position as a central player in the global blockchain landscape.

Thailand leads Southeast Asia in cryptocurrency trading and investing. The country has a well-established middle class that is making substantial investments in digital assets. This robust investment climate positions Thailand as a significant player in the regional cryptocurrency market.

The Philippines has a vibrant Web3 community, with 20–30% of players of Sky Mavis’s Axie Infinity, a pioneering Web3 game, hailing from the country. This high level of engagement makes the Philippines home to one of the largest proportions of Web3 users globally.

Vietnam is emerging as a developer powerhouse and a notable leader in the Web3 space. The country has produced significant blockchain gaming startups like Sky Mavis, and its youthful, talented developers are expected to play a crucial role in the global blockchain ecosystem.

Indonesia, considered Southeast Asia’s elder brother and giant, has the fourth-largest population in the world and a rapidly expanding economy. The country’s potential is enormous, and it is garnering increasing attention over time. Additionally, Bali is praised as a crypto oasis in Southeast Asia, further highlighting Indonesia’s growing significance in the blockchain industry.

Malaysia is a true treasure in the blockchain world, home to prominent blockchain infrastructure and analytics companies such as CoinGecko and EtherScan, which are recognized worldwide. Malaysia’s contributions make it an important player in the global blockchain ecosystem.

Investors and demographics

As of 2022, NBC News estimates that 21% of American adults owned cryptocurrency, highlighting a significant interest in digital assets. Globally, India topped Chainalysis’s worldwide crypto adoption index as of September 2023, with Nigeria and Vietnam rounding out the top three, demonstrating the widespread embrace of cryptocurrency in diverse regions. Developing markets such as the Philippines and Indonesia also show a high number of adopters. In the United States, high earners are disproportionately represented among cryptocurrency investors; 25% of all crypto owners make $100,000 or more a year, compared to 15% of the overall population. Furthermore, a Morning Consult survey reveals a gender disparity in cryptocurrency ownership, with men making up over 70% of bitcoin owners despite representing only 48% of the overall population, while women constitute 30% of cryptocurrency owners.

Crypto Adoption Rates in Southeast Asia

The cryptocurrency market in Southeast Asia is anticipated to reach 1.79 billion dollars in 2024, with an annual growth rate (CAGR 2024-2028) estimated at 8.75%. This growth trajectory is expected to result in a total market value of 2.499 billion dollars by 2028. Southeast Asia continues to lead the world in cryptocurrency adoption, with countries such as Vietnam, the Philippines, and Thailand ranking among the top 20 in the 2023 Global Crypto Adoption Index. Singapore remains a standout leader in the Southeast Asian crypto landscape. In 2024, it maintains its position as a hub for crypto enthusiasts, with nearly 10% of its population actively holding cryptocurrencies, highlighting its influential role in the regional market. Vietnam and Thailand have shown significant progress in embracing decentralized finance (DeFi) technology, closely following the United States in adoption rates. This rapid uptake indicates a growing interest in innovative financial solutions within these countries.

Several factors are driving the expansion of the cryptocurrency market in Southeast Asia. Many countries in the region have a significant percentage of unbanked individuals and low levels of financial inclusion, making cryptocurrencies an attractive alternative. Nations like Singapore and Hong Kong have implemented advantageous policies that encourage the growth of the cryptocurrency sector. Additionally, numerous emerging technology funds across the continent are actively supporting and funding various cryptocurrency startups. The region boasts high internet access and smartphone penetration rates, facilitating the use of digital currencies. There is also a general skepticism towards traditional financial systems and fiat money, leading to a greater openness to adopting cryptocurrencies.

In support of this burgeoning ecosystem, the Central Bank of Singapore pledged $112 million last year to assist regional fintech initiatives utilizing cutting-edge Web3 technology. Additionally, through Singapore’s Project Guardian effort, regulators from both countries collaborated to create additional crypto testing activities.

Web3 Startups, Consumer-Facing Services, Decentralized finance (DeFi) platforms and Blockchain games (GameFi)

While a large portion of the deep, basic research and infrastructure development in the blockchain space still occurs in the United States, Southeast Asia is excellent for web3 firms offering consumer-facing services. The demographics of Southeast Asia are very favorable for web3. The populace is young, has an innate understanding of technology, and is more open to trying new things. People are highly motivated to join by the financial side of cryptocurrency because it is primarily a market for developing economies.

Decentralized finance (DeFi) platforms encompass a collection of financial services and products developed on decentralized blockchain networks without the use of intermediaries like banks or other financial organizations. With DeFi, anyone with an internet connection can access a more transparent and open financial system. Examples of DeFi services and products include decentralized exchanges, asset management, insurance, lending and borrowing platforms, and other financial services that can be accessed and managed via decentralized applications on a blockchain network. In 2024, the DeFi market is expected to generate a billion dollars in revenue, with revenue predicted to increase at a 10.60% annual rate (CAGR 2024–2028).

The DeFi market is experiencing rapid innovation and growth. One trend gaining traction is decentralized exchanges (DEXs), which allow users to trade cryptocurrencies without a central authority. Additionally, the integration of non-fungible tokens (NFTs) in DeFi is becoming more common, opening up new avenues for asset collateralization. The need for more inclusive, transparent, and accessible financial services than traditional finance is a major factor propelling the DeFi industry’s expansion. The DeFi market is expected to continue expanding, driven by the creation of new use cases and applications, growing acceptance of cryptocurrencies by mainstream investors, and the introduction of new DeFi platforms and protocols.

A new area of bitcoin and blockchain technology that combines gaming is called “GameFi,” or blockchain gaming. Through the use of NFTs, GameFi seeks to disrupt established gaming business models by granting players genuine ownership of in-game assets. The swift uptake of GameFi in ASEAN can be attributed to the socio-economic obstacles faced by the region’s populace, in addition to their keen interest in gaming. Numerous ASEAN nations face challenges such as a substantial portion of the populace without access to banking services, about 71% in the Philippines alone. Under these conditions, play-to-earn blockchain games offered an alluring way for consumers to augment their income, fueling GameFi’s rapid uptake.

Axie Infinity, a play-to-earn (P2E) game created by the Vietnamese startup Sky Mavis, is one of the most well-known use cases for GameFi. This game significantly impacted ASEAN society, particularly in the Philippines during its 2020–2021 peak. Even those with no prior gaming or cryptocurrency skills could earn cash through Axie Infinity. Players from across Southeast Asia could earn rewards and points in the game and exchange them for fiat money to meet basic necessities. As Axie Infinity’s popularity grew, the cost of in-game avatars, or Axies, skyrocketed, making it difficult for some to afford playing. However, P2E revenue was sufficient to sustain many people in ASEAN, acting as a helpful addition to their total income. Gaming guilds such as Yield Guild Games (YGG) stepped in to ensure that those with limited funds could still play the game by allowing them to rent gaming equipment at a discounted rate and return a portion of their profits to the guild.

The P2E industry has grown by an astounding 188% since 2021, attracting over 61,000 monthly searches. More developments and expansion are anticipated in the GameFi space in the coming times. A notable change in Southeast Asia’s GameFi scene is the growing interest of popular Web2 gaming businesses in Web3 and blockchain-based game creation. For example, Ampverse, a gaming and esports firm based in Thailand, recently created Ampverse Web3, a business division dedicated to the metaverse. With a significant presence in the local esports scene, Ampverse aims to develop a strong Web3 community by educating players about NFTs, P2E, and other GameFi-related topics.

Challenges and Opportunities

Asia is home to several of the world’s most important financial hubs, including China and India, as well as major economies like Singapore, Hong Kong, United Arab Emirates, and Japan. These distinct legal jurisdictions each have their own cryptocurrency laws. For example, trading and ownership of digital assets are permitted in Singapore, but retail cryptocurrency ads are not. Hong Kong has welcomed bitcoin businesses to maintain its status as a significant global financial center, while Dubai has been aggressively pursuing the adoption of digital assets. Japan has gradually relaxed token listing regulations and is becoming more accepting of cryptocurrencies. Conversely, China outlawed the mining and trading of cryptocurrencies in 2021, and while the government is striving to develop comprehensive crypto legislation, India has implemented strict crypto regulations.

Approximately 500 million individuals in Southeast Asia are anticipated to reach working age by 2030. The ten nations that make up the Association of Southeast Asian Nations (ASEAN)—Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam—already have economies that rank fifth in the world when taken as a whole. These economies are expected to grow at a rate of more than five percent annually over the next decade, which is significantly faster than the global average. A Google study predicts that 3.8 million new users will join the internet each month in Southeast Asia due to these favorable demographics. Based on approximately 50 billion dollars in investment, the internet economy in the region is expected to surpass 200 billion dollars in value by 2025.

While cryptocurrencies have made remarkable strides and holds a lot of promise in Southeast Asia, there are still certain obstacles to consider. Among them are cybersecurity and fraud. As cryptocurrency gains popularity, it attracts the interest of hackers, con artists, and other criminals. The region has seen multiple instances of ransomware attacks, phishing scams, hacking, and cryptocurrency theft. Users need to be more vigilant and cautious about their online security and privacy. Additionally, uncertainty surrounding regulations and compliance poses challenges. While some Southeast Asian nations have adopted a pro-crypto stance, others remain circumspect or antagonistic. The regulations and regulatory frameworks in the region are not uniformly clear or consistent, making it difficult for businesses and consumers of cryptocurrency to understand various requirements across different jurisdictions. Further, there is still a lot of misinformation, misconceptions, and mistrust surrounding cryptocurrency. Many people do not know how to use cryptocurrency properly or safely, or they do not understand its advantages and risks.

Despite these challenges, there are several benefits to cryptocurrency adoption. Protection against inflation is one of them. Many currencies lose value due to inflation, but many people believe that cryptocurrencies provide a buffer against this. For instance, the total quantity of Bitcoin is capped at 21 million coins. As the money supply expands faster than the amount of Bitcoin available, its price is expected to rise. This supply limitation mechanism also serves as a buffer against inflation. Another benefit is the speed of transactions. In the United States, for example, moving assets or funds between accounts or sending money to loved ones can take time but, cryptocurrency transactions can be completed in seconds. Moreover, cryptocurrency transactions can be economical, with negligible or even zero transaction costs for international money transfers, eliminating the need for third parties like VISA to validate transactions.

Cryptocurrencies represent a new decentralized money paradigm, helping to release money from governmental control and combat currency monopolies. This decentralization means no government agency can determine the value of a coin or its flow, making cryptocurrencies safe and secure. Additionally, cryptocurrency investments offer variety and can help diversify portfolios. Cryptocurrencies have shown significant growth over the last decade, and their market pricing activity appears unattached to conventional markets such as equities or bonds. This can result in more consistent returns when combined with assets that have lower price correlation. Cryptocurrencies are also accessible, requiring only an internet-connected computer or smartphone to open a bitcoin wallet, without the need for identity verification, credit checks, or background checks. This ease of use facilitates online transactions and money transfers.

End Note

Southeast Asian nations are making significant strides in adopting blockchain, AI, and cryptocurrency technology, quickly positioning the region as a hub for these advancements. According to Chainalysis’s 2023 global crypto adoption index, countries like Vietnam, the Philippines, and Thailand are poised for a transformative shift in the cryptocurrency industry. Thailand leads the region in applying blockchain technology across various sectors, while Singapore, known for its Web3 leadership, proactively supports financial solutions. In 2023, Singapore’s central bank allocated $112 million to support regional fintech projects leveraging advanced Web3 technologies. Prominent cryptocurrency platforms such as Coinbase, Blockchain.com, Circle, and Crypto.com have applied for licenses to operate in Singapore. As we embrace the Fourth Industrial Revolution, the ASEAN economies are brimming with potential. To fully capitalize on these opportunities, businesses must adopt digital technologies and become more agile, making digital transformation essential to harness the region’s economic power. Preparing for Industry 5.0, ASEAN is poised for a bright future where embracing digital changes will be key to success.

In an increasingly interconnected global landscape, regional conflicts reverberate far beyond their immediate theaters. The ongoing Russia-Ukraine conflict has drawn significant attention and resources from Western powers, particularly the United States. Simultaneously, the Middle East simmers with volatility, with actors such as Israel, Hamas, Hezbollah, and the Houthis edging closer to war. In this turbulence, China sees opportunities to assert its dominance in the South China Sea (SCS), potentially destabilizing Southeast Asia and testing U.S. security commitments in the region.

The Middle Eastern Powder Keg

The Middle East, a region historically marked by geopolitical strife, finds itself at a critical crossroads. Since the surprise attack by Hamas on Israel on October 7, the Israeli-Palestinian conflict has escalated dramatically. The situation is further complicated by the threat posed by Hezbollah in Lebanon, backed by Iran, to Israel’s northern settlements.

Meanwhile, the Houthis in Yemen, also backed by Iran, have disrupted maritime traffic in the Red Sea, adding another layer of complexity to the already volatile situation. With the prospect of war seeming imminent, Israel hopes for a swift victory through a blitzkrieg, but U.S. officials foresee a protracted conflict that could bog down the region and threaten long-term peace.

In light of these escalating tensions, the U.S. has offered significant assurances to Israel. Senior U.S. officials have reassured their Israeli counterparts that if a full-scale war breaks out on Israel’s northern border with Hezbollah, the Biden administration is fully prepared to back its ally. This assurance comes amidst increasing cross-border attacks between Israel and the Iran-backed Hezbollah, heightening fears of another full-fledged conflict in the Middle East.

However, U.S. officials have serious concerns that in the event of a full-blown war between Israel and Hezbollah, the Iran-backed militant group could overwhelm Israel’s air defenses in the north, including the Iron Dome system.

In recent meetings, U.S. and Israeli officials discussed potential “off-ramps” to de-escalate tensions along the Blue Line separating Lebanon and Israel.

The potential conflict in the Middle East also impacts U.S. strategic plans. While the U.S. has been attempting to pivot towards Asia, escalating tensions in the Middle East could hinder these efforts. The U.S. has been reshuffling its warship deployment in the region to maintain dominance, but a wider war in the Middle East could force the U.S. to focus more on this region, potentially affecting its strategic commitments elsewhere.

Russia-Ukraine Conflict: A Preoccupation for the West

The conflict in Ukraine grinds on, marked by intense fighting as Ukrainian forces launch offensives to regain lost territory. Despite a recent peace summit in Switzerland, the path towards resolution remains daunting. The summit yielded a “Joint Communiqué on a Peace Framework,” supported by a majority of attendees, pledging concrete steps on critical issues like nuclear threats, food security, and prisoner exchanges. However, Russia’s absence cast a long shadow, with its spokesman Dmitry Peskov dismissing the talks as irrelevant.

These developments highlight the conflict’s protracted nature and the difficulty of finding a solution without all parties at the table. The United States and its NATO allies have committed billions of dollars in aid and military support to Ukraine. As of mid-2024, the U.S. has provided over $40 billion in military assistance. This substantial investment indicates a preoccupation that might detract from the U.S.’s ability to respond robustly to crises elsewhere, particularly in the Middle East and the Indo-Pacific region.

The South China Sea: A Brewing Storm

As the U.S. grapples with simultaneous conflicts in Ukraine and potentially the Middle East, China perceives a strategic window to advance its interests in the South China Sea. The sea is a crucial maritime route, vital for international trade and regional economies, particularly those of Southeast Asian nations like Vietnam, the Philippines, and Malaysia. China’s aggressive territorial claims and militarization of artificial islands have long been sources of regional tension.

Recently, China has ramped up its activities, including constructing military bases on disputed islands and increasing naval patrols. The U.S. has responded with freedom of navigation operations (FONOPs) to assert the principle of international waters. However, with the U.S. potentially distracted, China might escalate its activities, pushing the boundaries of its influence and testing the resolve of Southeast Asian nations and their security alliances.

Implications for Southeast Asian Nations

The potential for increased Chinese assertiveness in the South China Sea (SCS) poses significant risks for Southeast Asia. Economically, the region heavily relies on the stability of maritime routes for trade. Over $3.37 trillion worth of international trade passes through the SCS annually. Any disruption, such as those potentially caused by China’s growing assertiveness, could have cascading effects on global supply chains, impacting economies already strained by the pandemic.

Security-wise, Southeast Asian nations find themselves in an increasingly precarious position. The Philippines, a key U.S. ally, has experienced direct confrontations with Chinese vessels in its own Exclusive Economic Zone (EEZ). In response to Chinese incursions, the Philippines has condemned China’s actions and asserted that such aggressive maneuvers will not prevent it from carrying out rotation and resupply missions to its troops in the West Philippine Sea. Philippine Former Foreign Secretary Teodoro Locsin Jr. called for stronger U.S. involvement back in 2021, stating, “We need the Americans. We need their presence in the South China Sea.” Today, the call for American presence in the South China Sea resonates even more powerfully, reflecting the escalating tension and the urgent need for stability in the region.

Moreover, China’s recent military exercises simulating an invasion of Taiwan have raised concerns about its intentions and the potential for escalation in the region. These exercises, which included mock missile strikes, have put Taiwan and other regional powers on high alert, highlighting the broader security implications of Chinese military assertiveness.

Similarly, Vietnam has fortified its own claims and sought closer security ties with the U.S. and other regional powers.  Its newly elected President To Lam is keen on gradually expanding security and defense relationships with the United States. The aim is to enhance collaboration in fields like cybersecurity, counter-terrorism, and combating transnational crimes. This move is a part of Vietnam’s strategic approach to maintain balanced relationships with the world’s major powers.

The web of alliances and rivalries in Southeast Asia means that any significant disruption in the South China Sea could lead to broader regional instability, with profound implications for both regional and global security.

U.S. Security Commitments: A Test of Resolve

The U.S. has long maintained a security presence in the Indo-Pacific, highlighted by its alliances with Japan, South Korea, and the Philippines, and its strategic partnerships with nations like Singapore and Vietnam. However, the strain of managing conflicts on multiple fronts—Ukraine, potentially the Middle East, and then in the South China Sea—could test American resolve and capability.

The U.S. Indo-Pacific Strategy, however, emphasizes a “free and open Indo-Pacific,” with commitments to deter aggression and maintain regional stability. Yet, a perceived or actual reduction in U.S. military presence and engagement in Southeast Asia could embolden China, altering the regional balance of power. Admiral John C. Aquilino, commander of the U.S. Indo-Pacific Command, has stressed the importance of maintaining U.S. presence, stating, “The security environment is becoming more complex, and we must be prepared to respond to threats in multiple theaters” .

The viewpoint of the U.S. public towards foreign interventions is a crucial factor. Recent polls indicate a growing reluctance among Americans towards military involvement abroad. If this sentiment continues to intensify, it could influence U.S. strategic considerations. The impact of this domestic pressure on the U.S.’s determination to uphold its security commitments in the Indo-Pacific and the Arab world remains to be seen.

 China’s Strategic Calculus

China is likely to perceive the U.S.’s preoccupation with other global conflicts as an opportune moment to consolidate its position in the SCS. Beijing has historically sought to avoid direct military confrontation with the U.S., opting instead for incremental gains through strategic maneuvers. Should the U.S. appear overstretched, China might intensify its activities in the SCS, including more aggressive patrolling, establishing further military outposts, and pressuring Southeast Asian nations diplomatically and economically.

Yan Xuetong, a prominent Chinese scholar of international relations, asserts that China’s strategy aims to secure regional dominance and protect maritime interests. He advocates for enhancing “comprehensive national power” through a balanced approach: strengthening control over the SCS while avoiding direct conflict with the U.S. This strategy combines military readiness with diplomatic engagement to manage tensions without provoking a full-scale confrontation.

Diplomatic engagement plays a crucial role in China’s strategy. Beijing seeks to divide and weaken the unified stance of ASEAN countries by offering economic incentives to some while isolating more vocal opponents like Vietnam and the Philippines. China’s Belt and Road Initiative (BRI) exemplifies this, as Beijing leverages economic investments to expand its influence across Southeast Asia. Nations such as Cambodia and Laos, heavily reliant on Chinese investments, might find it challenging to oppose Chinese ambitions in the SCS. Chinese Foreign Ministry spokesperson Zhao Lijian has reiterated China’s stance, asserting, “China has indisputable sovereignty over the South China Sea islands and their adjacent waters”.

China’s diplomatic efforts are complemented by its participation in regional forums and international organizations, where it aims to shape the narrative and build support for its claims. This multifaceted approach allows China to advance its strategic objectives while managing the risks of direct confrontation. As the U.S. navigates conflicts in Ukraine and the Middle East, China’s opportunity to consolidate SCS claims heightens, reshaping Southeast Asia’s geopolitical dynamics.

End Note

The web of global geopolitics suggests that a wider conflict in the Middle East would have profound implications beyond its immediate vicinity, potentially destabilizing Southeast Asia and altering the strategic dynamics of the South China Sea. For Southeast Asian nations, the challenge lies in understanding this complex landscape, balancing their security needs with economic realities. For the U.S., maintaining its security commitments in the Indo-Pacific while addressing crises elsewhere will be a formidable test of its global leadership and strategic resilience. As the world watches developments in the Middle East, the stakes for Southeast Asia and the broader Indo-Pacific region cannot be overstated.

The Belt and Road Initiative (BRI), launched by President Xi Jinping in 2013, represents China’s ambitious effort to connect East Asia and Europe through extensive infrastructure projects spanning roads, railways, and ports, with extensions into Africa, Oceania, and Latin America. This initiative, often dubbed the New Silk Road, involves over 140 countries, encompassing about 75% of the world’s population and more than half of its GDP. The BRI aims to enhance global connectivity and stimulate economic growth by developing economic corridors, transportation routes, and digital infrastructure. Key projects include the China-Pakistan Economic Corridor and Southeast Asia’s inaugural high-speed railway in Indonesia.

Despite its potential benefits, the BRI has encountered significant criticism. Critics point to issues such as lack of transparency and concerns over creating debt dependency among participating developing nations, which China disputes. As of early 2024, the initiative has secured over 200 cooperation agreements with more than 150 countries and 30 international organizations, underscoring its widespread influence and reach.

Origins & Ambitions

The BRI comprises six land corridors for urban growth, connected via road, rail, energy, and digital infrastructure, alongside the Maritime Silk Road focused on port development. Initially introduced as the “Silk Road Economic Belt” by President Xi Jinping in 2013 during a visit to Kazakhstan, the BRI seeks to revive historic trade routes. Despite criticism regarding environmental impact and sustainability, efforts toward a greener BRI have emerged. Initiatives like the 2018 Green Investment Principles (GIP) mandate climate risk mitigation and promote green investment targets. However, challenges remain, with ongoing coal projects like the Labota No. 7 coal plant in 2024 and proposed ventures in Gwadar, Pakistan, drawing scrutiny. Despite setbacks, investments in sectors like mining, technology, and renewable energy are expected to drive future growth.

Economic Benefits

China has reaped substantial economic benefits from the BRI, by enhancing trade and securing vital resources such as oil, gas, and minerals from partner countries. Trade between China and BRI nations has surpassed $19.1 trillion over the last decade, significantly enhancing China’s exports and economic resilience amid global uncertainties. Despite concerns over increased CO2 emissions, BRI investments aim to promote sustainable development. However, issues such as debt accumulation and global economic shifts pose ongoing challenges.

Challenges & Failures 

The concept of “debt-trap diplomacy” gained prominence following Sri Lanka’s experience with China, making it a critical case study. The conventional narrative suggests that China extended loans to Sri Lanka to construct the Hambantota Port on the southern coast, anticipating Colombo’s debt distress. This, the story goes, allowed Beijing to take control of the port, ostensibly for strategic purposes, including potential use by the Chinese navy. Indian analysts argue that the BRI is a tool for China to advance its strategic interests in South Asia, with ambitions such as establishing a Chinese naval outpost, a strategy described as ‘salami-slicing’. US analyst Constantino Xavier summarizes this view, noting that China typically finds a local partner, accepts financially detrimental investment plans, and uses the resultant debt to either acquire the project or gain political leverage.

The fate of the Hambantota Port, leased to a Chinese company for 99 years, has been a focal point in debates over the BRI. Western analysts and media have cited Hambantota as evidence of China’s debt-trap strategy, intended to seize control of critical infrastructure. The port was envisioned to alleviate pressure on Colombo and serve as a logistics hub for ships needing refueling, maintenance, and supplies. Initially, Sri Lanka sought Indian financial support for the port, but India deemed the project commercially unviable. Subsequently, in 2006-07, Sri Lanka negotiated a commercial loan with China, which was initially unable to fund the project due to other commitments. The Export-Import Bank of China eventually agreed to finance 85% of the first phase with a $306 million, 15-year loan at 6.3% interest, including a 0.3% administration fee.

Financing for the second phase, negotiated post-2008 financial crisis, saw significantly lower rates, around 2%, given the then-low LIBOR rates. Sri Lanka, faced high-risk premiums due to ongoing internal civil conflict, secured this funding without Chinese pressure or incentives for new borrowing at lower rates. The Sri Lanka Ports Authority managed Hambantota from 2012 to late 2014, with minimal traffic and failed bunkering services due to a lack of international partnerships. The port’s inability to generate sufficient revenues was compounded by poor governance, limited commercial activities, and failure to attract vessels, leading to a $304 million loss by 2016.

Following a government change in January 2015, which halted port activities, Sri Lanka faced increasing pressure to meet IMF conditions. In July 2017, the government entered a public-private partnership with China Merchants Port Holdings, not a debt-equity swap, to restructure the port’s operations. The Hambantota port’s failure was largely due to Sri Lanka’s emerging economy status, inadequate managerial skills, and lack of international collaboration. Once these issues are addressed, the port’s future will look promising. Despite regional and multilateral reluctance, China’s financial support exemplified the spirit of the BRI.

A New York Times report suggested that China lured Sri Lanka into a debt trap through the BRI, but historical records show that the port project began in 2007, predating the BRI’s 2013 launch. The lending was not part of a strategic plan. While the BRI aims to enhance economic cooperation, facilitate production flows, and optimize resource distribution, it has faced criticism from vested interests and malicious actors. The narrative around Hambantota has often been distorted, casting China in a negative light.

BRI in 2024

The Belt and Road Initiative (BRI) in 2024 remains a beacon of global development despite facing significant challenges and criticisms. China continues to drive the BRI forward with resilience, emphasizing sustainability and strategic initiatives aimed at fostering international cooperation and connectivity.

China’s commitment to greening BRI projects underscores its proactive stance towards environmental sustainability on a global scale. By prioritizing green energy solutions and enhancing infrastructure efficiency, China aims to reduce carbon footprints associated with BRI developments. This approach not only aligns with global environmental goals but also enhances China’s reputation as a responsible global stakeholder.

Trade facilitation under the BRI is poised to make substantial strides, with projections suggesting improved transportation infrastructure that could reduce travel times along key corridors by 12% by 2030. Such enhancements are expected to lower trading costs, benefiting participating nations and boosting regional economic integration.

Pakistan stands as a notable example of BRI’s impact, with initiatives like the China-Pakistan Economic Corridor (CPEC) driving significant advancements in infrastructure, including the ambitious ML-1 railway project. These developments are poised to modernize Pakistan’s trade routes and stimulate economic growth by improving connectivity between seaports and economic zones.

Despite its transformative potential, the BRI faces criticisms and obstacles, particularly concerning debt sustainability in participating countries. Critics often raise concerns about the so-called “Chinese debt trap,” accusing China of burdening developing nations with unsustainable loans. However, a closer examination reveals that while China’s involvement in some projects has contributed to debt burdens, its role is often exaggerated. Reports indicate that China’s share of debt in countries like Sri Lanka is relatively small compared to other international creditors.

Moreover, China has taken proactive steps to alleviate debt burdens in various countries through debt relief programs and loan forgiveness initiatives. For instance, China has forgiven significant debts, including notable cases in Africa and Asia, demonstrating its commitment to supporting sustainable development and fostering equitable partnerships under the BRI framework.

End Note

Despite facing substantial challenges, the fate of the Belt and Road Initiative (BRI) rests on its ability to effectively confront these obstacles, prioritize transparency, and implement sustainable management practices. Issues such as difficulties in local labor integration and resulting social tensions are formidable but not insurmountable. The future success of the BRI hinges on how well these lessons are acknowledged and applied.

To ensure the BRI continues to have a positive impact, Chinese companies must deepen their engagement with local communities, comply rigorously with local labor regulations, and invest significantly in training programs for local workers. These actions are crucial not only for overcoming immediate challenges but also for building trust and fostering stronger community relations. Moreover, enhancing transparency in project implementation and decision-making processes is essential. This will address concerns regarding economic fairness and ensure that the benefits of BRI projects are equitably shared.

Despite its hurdles, the BRI is far from a doomed endeavor. It remains a pivotal force in shaping global infrastructure and economic connectivity. By learning from past setbacks and actively tackling its challenges, the BRI has the potential to evolve into a more inclusive and sustainable initiative. This evolution will enhance its credibility, effectiveness, and positive impact on global economic development and international relations.