By: Zaw Oo

This paper was written in November 2024 prior to the inauguration of President Trump, and as such does not reflect or account for the changes that have occurred in the development space since then due to the second Trump administration's ongoing policies. 

Introduction

Southeast Asia, with nearly 700 million people, continues to face critical development finance gaps, particularly in its least developed countries (LDCs) such as Cambodia, Laos, and Myanmar. These nations are grappling with infrastructure deficits, healthcare challenges, climate adaptation needs, and educational shortfalls. The urgency for enhanced development finance in post-COVID-19 recovery is evident in these economies; yet, limited access to long-term financing sources exacerbates these challenges. A trilateral cooperation framework with the Association for Southeast Asian Nations (ASEAN), China, and the United States would offer an opportunity to address these issues and leverage each partner’s strengths for the benefit of the LDCs in Southeast Asia.

Post-COVID-19 economic recovery has been uneven across Southeast Asia, particularly affecting Cambodia, Laos, and Myanmar. These countries face geopolitical tensions that complicate development efforts, especially with ongoing strategic competition between China and the United States. Additionally, access to long-term financing remains limited. Despite efforts from multilateral development banks (MDBs) including the Asian Development Bank (ADB), the World Bank, and the Asian Infrastructure Investment Bank (AIIB), funding gaps persist. National governments in these LDCs often struggle to maintain fiscal stability while trying to finance key infrastructure and social projects, placing added pressure on already strained public resources.

ASEAN, along with MDBs and other regional bodies, is pushing for more sustainable finance mechanisms that promote long-term growth while addressing environmental and social risks. Intra-regional development assistance has also been on the rise, with Thailand leading the way by providing 85% of such support to its LDC neighbors.¹ This type of regional collaboration signals an increasing trend toward intra-ASEAN financing, offering a potential solution to bypassing dependency on external powers.² However, despite the principle of “ASEAN centrality,” most development assistance is still channeled through bilateral or multilateral arrangements at the national level, rather than through regional institutions such as ASEAN, limiting the region’s collective bargaining power in global finance initiatives. These dynamics suggest a growing need for coordinated financial efforts to address both immediate economic recovery needs and long-term development goals.

Modalities of Development Finance

China has emerged as the world’s largest provider of development finance; its share of total development finance flows covered “20,985 projects across 165 low- and middle-income countries financed with grants and loans worth $1.34 trillion over a 22-year period” from 2000 to 2021.³ China directed $48 billion of its official development finance toward 25 East Asia and Pacific (EAP) countries between 2000 and 2016—"95% of which was squarely focused on the infrastructure sector.”⁴ Among them, two LDCs of Southeast Asia—Cambodia and Laos—received the highest amount of official finance in per capita terms at $9.08 billion and $4.75 billion, respectively, while Myanmar, another LDC of the region, received $1.88 billion in the same period.⁵ Focusing primarily on the projects under China’s Belt and Road Initiative (BRI), Lowy Institute’s Southeast Asia Aid Map also suggests that China’s infrastructure investments in Laos and Cambodia have played a key role in both domestic and regional connectivity; many of these projects are largely implemented by the state-owned enterprises of partnering countries under long-term project loan mechanisms.⁶

Despite its concentration in “hard” infrastructure projects, China is also diversifying its development finance to include digital infrastructure in other parts of Southeast Asia. This shift is particularly significant as ASEAN aims to boost its digital economy, which is projected to unlock $2 trillion in value by 2030 under the proposed Digital Economy Framework Agreement (DEFA).⁷ Both China and ASEAN vowed to build “a sustainable and inclusive digital ecosystem” by signing a joint statement on a digital ecosystem in October 2024.⁸ China's contributions to this sector are poised to enhance regional financial inclusion and digital growth in the LDCs.

In contrast to China’s model of financing projects, the U.S. development finance approach is more private sector driven, with agencies such as the U.S. Agency for International Development (USAID) and the Development Finance Corporation (DFC) focusing on human development, governance, and sustainability. As such, U.S. development assistance has traditionally focused on improving governance, transparency, and sustainable development through grants and private sector partnerships. Despite ASEAN’s relative importance to the United States as its fourth-largest trading partner, the United States did not prioritize aid to the region. In 2022, the United States budgeted $70 billion in foreign aid, out of which only $2 billion was allocated to East Asia and Oceania compared to $17.7 billion for sub-Saharan Africa.⁹

Moreover, the United States has expanded its focus to include green energy and climate resilience projects. This emphasis on sustainability complements China’s infrastructure investments, offering a balanced development approach. Both powers view Southeast Asia as a strategic partner; therefore, Southeast Asia’s LDCs have an opportunity to collaborate under trilateral partnerships in areas such as digital transformation, climate change mitigation, and inclusive growth.

Key Sectors and Trends

In 2022, Southeast Asia received approximately $2 billion in official development assistance (ODA) from the United States, marking a gradual decline from previous years.¹⁰ In fact, the United States committed $2.19 billion to East Asia and Oceania regions in 2019, or 4.5% of the total foreign assistance, which gradually declined in the region during the pandemic years.¹¹ Post-pandemic economic recovery and geopolitical tensions have strained development finance flows, with climate finance also dropping 15% despite U.S. policy under the Biden administration. In a similar fashion, Chinese development finance into Southeast Asia’s LDCs dropped significantly in 2022, with Cambodia receiving the most—$386 million, followed by Laos at around $291 million, while public records of Chinese ODF support to Myanmar has ceased, although financing is likely still flowing.¹² However, per capita aid distribution highlights disparities among the three countries, with Laos and Cambodia receiving $130 per person and Myanmar receiving only $21 per person in 2022.¹³

China’s BRI has transformed the infrastructure landscape in Laos and Cambodia in particular, improving physical connectivity within these nations as well as with China. In Laos, China's BRI has been a dominant force, with major investments in hydropower and transportation infrastructure. For instance, China funded more than half of Laos's 60 dams on Mekong River tributaries, with a $1 billion loan for the Nam Ou River Hydropower project. Furthermore, China’s $6 billion investment in the China-Laos railway has connected Vientiane with Kunming in Southwestern China.

On the other hand, the U.S. Blue Dot Network, launched in 2019, promotes transparency and sustainability in infrastructure projects through a rigorous certification process. Other initiatives, such as the Mekong-U.S. Partnership, are aimed at addressing transboundary challenges in the Mekong River Basin, including water resource management and infrastructure development. This partnership aims to compete with China’s Mekong-Lancang Cooperation, emphasizing sustainable development while addressing ecological and social impacts.

According to the Lowy Institute’s Southeast Asia Aid Map (2024), Southeast Asia received more than $22 billion in Chinese infrastructure investments compared to $2.7 billion from the United States between 2015 and 2022, reflecting the imbalance in the roles that these two powers play in driving infrastructure growth.¹⁴ Joint financing initiatives, such as public-private partnerships (PPPs), could increase funding for critical U.S. infrastructure projects and also bolster standards in Chinese projects, ensuring both economic growth and environmental responsibility.

Meanwhile, climate change poses a significant threat to Southeast Asia, with LDC economies, including that of Myanmar, ranking among the most vulnerable to natural disasters. Joint investment in climate change resilience and green infrastructure could bridge the climate finance gap. China’s infrastructure financing and U.S. expertise in sustainable development projects provide a solid foundation for collaboration in addressing climate change challenges. Southeast Asia’s annual climate change adaptation financing needs are estimated at $210 billion, but the region received only $8.1 billion in 2022, underscoring the need for expanded and diversified climate finance sources. Collaborative investments from China and the United States could play a critical role in closing this gap.¹⁵

Southeast Asia’s digital economy is projected to grow exponentially, unlocking up to $2 trillion.¹⁶ However, digital infrastructure gaps remain, particularly in Cambodia, Laos, and Myanmar. Co-financing digital infrastructure projects—such as broadband expansion to underserved areas—could accelerate digital inclusion across the region. Fixed broadband access per 100 inhabitants shows significant differences between developed ASEAN countries and LDCs such as Cambodia, Laos, and Myanmar, which do not surpass 3 subscriptions per 100 inhabitants, highlighting the urgent need for infrastructure development. Collaborative efforts between China and the United States in this sector could significantly boost digital penetration in these LDCs.

Finally, the COVID-19 pandemic highlighted the importance of robust healthcare systems. A trilateral approach to health financing could support the development of resilient healthcare infrastructure, pandemic preparedness, and vocational training for healthcare workers. Both China and the United States have strengths in this area, with China’s focus on large-scale health infrastructure coupled with U.S. emphasis on transparency and governance in health financing. In 2022, U.S. development finance from government institutions including USAID and other agencies allocated 30% of its contributions to human development, focusing on health and education, compared to China’s 3%.¹⁷ This indicates a potential area where the United States could lead collaborative efforts to improve health systems in Southeast Asia’s LDCs.

Aftermaths of Assistance and Anticipated Adjustments

China’s BRI has significantly improved regional connectivity in Southeast Asia, particularly through infrastructure projects such as railways, ports, and highways. The China-Laos Railway, for example, has increased trade opportunities and transportation efficiency by connecting Laos with China and other ASEAN countries. Similarly, U.S. efforts through DFC have strengthened small businesses and promoted private sector growth, which is key to long-term sustainable development. By focusing on sectors such as clean energy, healthcare, and digital technology, U.S. investments have provided a diversified approach to development finance.<

However, concerns about debt sustainability continue to plague several BRI projects. Laos, for instance, is at risk of falling into a debt trap, owing nearly 50% of its external debt to China.¹⁸ Additionally, many BRI projects have been criticized for uneven implementation, often leading to delays, cost overruns, and social or environmental issues. Some hydropower projects have raised alarms over ecological degradation and displacement of local communities. On the U.S. side, while financial assistance has been impactful, its reach is often limited compared to China's larger infrastructure investments, which sometimes leaves gaps in Southeast Asia’s broader development needs.

Both China and the United States have important lessons to take forward. Greater transparency and inclusiveness in project planning, particularly around debt agreements and environmental impacts, are crucial. Projects under the BRI, for instance, have often lacked scrutiny due to opaque contracts, leading to a call for more open and sustainable practices. There is also an increasing need for infrastructure development to focus not only on economic gains but also on the long-term social and environmental well-being of the region.

ASEAN countries, aware of the strategic risks involved in aligning too closely with either China or the United States, are cautiously engaging both powers. Laos and Cambodia have benefited from China’s infrastructure development projects but are also wary of becoming overly dependent on Beijing. To manage this, many ASEAN nations are increasingly looking to balance Chinese investments through partnerships with the United States and other international stakeholders, navigating the geopolitical tensions carefully to ensure long-term growth and stability

At the same time, ASEAN countries expect a shift toward more technical assistance in project preparation from China to ensure better planning and execution of infrastructure projects. This includes more emphasis on transparent financing arrangements, addressing concerns around "hidden debt" and potential debt traps. China is also anticipated to offer more equitable terms of investment, mitigating previous issues where projects disproportionately benefited Chinese contractors over local economies. In response to environmental concerns, ASEAN countries hope China will adopt more sustainable practices, minimizing environmental damage caused by large-scale projects including dams and railways. Additionally, stronger job creation for local populations is expected to become a greater priority, as Chinese-backed projects have often been criticized for relying heavily on imported Chinese labor.

Prior to the Trump administration taking office, ASEAN anticipated that the United States would increase its financial footprint in infrastructure projects to compete with China’s BRI. The United States was expected to take a balanced approach by incorporating human rights and governance standards into its development assistance while delivering tangible economic benefits. U.S. development finance, particularly through the DFC, was also expected to focus on providing long-term capital for projects, especially in clean energy and digital sectors. Furthermore, the United States was expected to continue its efforts in supporting democratic governance and anti-corruption measures, aligning with its broader Indo-Pacific strategy that emphasizes transparency and good governance. In sum, Southeast Asia would like to balance the approaches from both China and the United States, leveraging their respective strengths while mitigating risks related to sovereignty, environmental sustainability, and equitable development.

Policy Recommendations and Conclusion

Trilateral cooperation among ASEAN, China, and the United States would provide a strategic mechanism to address the pressing development finance needs of Southeast Asia’s least developed countries. By leveraging their respective strengths, these partners can foster inclusive, sustainable growth across the region, enhancing infrastructure, climate resilience, digital economy inclusion, and healthcare systems. Both Washington and Beijing stand to gain from a collaborative framework with ASEAN, which would balance economic benefits with the need for sustainable and transparent development finance, while still allowing ASEAN member states to avoid overdependence on any one major power, diversify their financing sources, and address pressing development needs. In particular, this paper proposes the following recommendations for trilateral cooperation among China, the United States, and ASEAN to address some of the outstanding development challenges and financing gaps for the LDCs of Southeast Asia.

Infrastructure Development

• Joint Financing Initiatives: Collaboration between China’s BRI and the U.S.-led Blue Dot Network can improve regional connectivity. These initiatives would combine China’s large-scale infrastructure financing capacity with the U.S. emphasis on transparency, sustainability, and governance. Such cooperation can lead to the funding of high-quality infrastructure projects, which would boost trade and economic integration across Southeast Asia.
• Public-Private Partnerships (PPPs): By creating frameworks for PPPs, trilateral cooperation can attract private sector capital for critical projects such as transportation corridors, energy infrastructure, and digital networks. This would enhance project efficiency, technology transfer, and local job creation, while also mitigating the risks of corruption or unsustainable debt burdens.

Climate Change and Sustainable Development Goals (SDGs)

• Green Infrastructure: Joint investments in renewable energy and green infrastructure can align with ASEAN’s sustainability agenda from which its LDCs are lagging, particularly in energy transition. This includes supporting solar, wind, and hydropower projects to meet regional energy demands while reducing the carbon footprint. The combined efforts of China’s expertise in renewable technologies and the U.S. focus on environmental governance can drive Southeast Asia toward achieving its SDG commitments.
• Climate Resilience and Disaster Preparedness: Southeast Asia is highly vulnerable to climate change–related disasters such as typhoons, floods, and rising sea levels. Trilateral cooperation can support ASEAN’s efforts to strengthen climate resilience such as flood mitigation or drought resilient infrastructures that safeguard vulnerable communities and disaster preparedness programs funded by multilateral sources

Digital Economy and Financial Inclusion

• Co-Financing Digital Infrastructure: Expanding broadband access in underserved regions, including rural and remote areas, can be a focal point of trilateral investment. China’s experience in deploying large-scale digital infrastructure combined with U.S. technological innovation can improve digital connectivity, which is crucial for economic growth in the post-pandemic era.
• Promoting Digital Payments and E-Commerce: Trilateral efforts can focus on building robust digital payment systems and expanding financial inclusion. This collaboration can provide micro, small, and medium enterprises with access to global markets, digital tools, and secure payment platforms, enhancing the economic participation of ASEAN’s underserved populations.

Health and Education Financing

• Health Infrastructure and Pandemic Preparedness: In light of the COVID-19 pandemic, ASEAN countries need enhanced healthcare systems. A coordinated investment strategy by the United States, China, and ASEAN can strengthen health infrastructure, focusing on human resources and skills training in healthcare industries, improving telemedicine infrastructure and services, and creating pandemic preparedness frameworks.
• Vocational and Technical Training: Investment in education systems, particularly in technical and vocational training, can help ASEAN develop a workforce aligned with its industrial needs. With the United States leading in education innovation and China contributing to technical skills development, this partnership can bridge skills gaps and support ASEAN’s long-term economic growth.

In conclusion, trilateral development cooperation among China, the United States, and ASEAN offers an effective path to regional growth, infrastructure development, and sustainable practices. By combining their strengths, these powers can create a mutually beneficial environment for Southeast Asia’s LDCs to catch up with their peers within ASEAN as well as other development partners outside of the region.

End Notes

[1] Thailand International Cooperation Agency (TICA) has given 499.10 million baht (nearly $15 million) worth of official development assistance to countries in the world. The top four countries of bilateral development cooperation are Thailand’s neighbors: Cambodia (131.9 million baht), Laos PDR (65.7 million baht), Myanmar (59.3 million baht), and Vietnam (13.8 million baht) in 2018. TICA also entered into trilateral collaboration with OECD countries and organizations, including USAID, to provide development assistance to a third country such as Myanmar. See https://tica-thaigov.mfa.go.th/en/page/overview-on-oda-2018?menu=5f4772….

[2] Infrastructure Asia, "Green Finance in Emerging Asia," Insights, accessed October 18, 2024, https://www.infrastructureasia.org/Insights/Green-Finance-in-Emerging-A….

[3] Bradley C. Parks et al. (2023), Belt and Road Reboot: Beijing’s Bid to De-Risk Its Global Infrastructure Initiative. Accessed October 18, 2024, https://www.aiddata.org/publications/belt-and-road-reboot.

[4] Samantha Custer and Michael Tierney, M. (2019), “Financier of First Resort: China’s Bid to Be Lender of Choice for the Developing World.” Accessed October 18, 2024, https://www.aiddata.org/blog/financier-of-first-resort-chinas-bid-to-be….

[5] Custer and Tierney, “Financier of First Resort.”

[6] Lowy Institute Southeast Asia Aid Map, see https://seamap.lowyinstitute.org/map/.

[7] Kristina F. S. Leng (2024) “The DEFA Treads a Fine Line to Be Successful in Driving Digital Services Trade in ASEAN,” Fulcrum, Institute of South East Asia Studies (ISEAS), Singapore, October 10. Accessed October 18, 2024, https://fulcrum.sg/aseanfocus/the-defa-treads-a-fine-line-to-be-success….

[8] ASEAN (2024), “ASEAN-China Joint Statement on Facilitating Cooperation in Building a Sustainable and Inclusive Digital Ecosystem,” ASEAN Secretariat, Indonesia. Accessed October 18, https://asean.org/wp-content/uploads/2024/10/2.-2024-ASEAN-China-Joint-….

[9] Wilson Beaver and Sydney Hudson (2024), “Leveraging U.S. Foreign Assistance in Southeast Asia,” Issue Brief. The Heritage Foundation, Washington, DC, December 16. Accessed January 15, 2025, https://www.heritage.org/sites/default/files/2024-12/IB5367.pdf.

[10] Beaver and Hudson, “Leveraging U.S. Foreign Assistance in Southeast Asia.”

[11] Data extracted from USAID’s foreign assistance website. Accessed January 15, 2025, www. Foreignassistance.gov.

[12] “Cambodia,” Lowy Institute Southeast Asia Aid Map, https://seamap.lowyinstitute.org/country/cambodia/#5.721/104.97/12.407; “Laos,” Lowy Institute Southeast Asia Aid Map, https://seamap.lowyinstitute.org/country/laos/#4.709/103.714/18.063; “Myanmar,” Lowy Institute Southeast Asia Aid Map, https://seamap.lowyinstitute.org/country/myanmar/#3.558/95.933/19.89.

[13] Lowy Institute Southeast Asia Aid Map, see https://seamap.lowyinstitute.org/map/.

[14] Lowy Institute Southeast Asia Aid Map, see https://seamap.lowyinstitute.org/map/, p. 2.

[15] Lowy Institute Southeast Asia Aid Map, p. 2.

[16] Leng, “The DEFA Treads a Fine Line to Be Successful in Driving Digital Services Trade in ASEAN.”

[17] Lowy Institute Southeast Asia Aid Map, p. 2.

[18] Alastair Mccready (2023), “Laos Debt at 'Critical Level' with China Payments Still Opaque,” The Nikkei Weekly, September, 22. Accessed October 18, 2024, https://asia.nikkei.com/Economy/Laos-debt-at-critical-level-with-China-….