Developing Asia will need to invest USD 2.4

trillion per year in infrastructure until 2030

to maintain its growth momentum1. Rising

urbanisation, shifting demographics and

increasing affluence are key trends that will

continue to push infrastructure development

in Asia. Although each country has different

needs, a pan-Asian integrated infrastructure

network can deliver rich benefits for the region.

Studies show that countries that have better

infrastructure are also the ones that have higher

economic growth, employment opportunities and

living standards. Infrastructure gaps are a bottleneck

for growth as it increases transport costs, reduces

market access and hence lowers the trade volume.

Post the 1997-98 Asian financial crisis,

countries that had invested heavily in

infrastructure recovered faster. In fact, Asia’s trade

competitiveness vis-à-vis the world depends on

efficient and reliable infrastructure.

CURRENT STATE OF AFFAIRS ---------------The quality of infrastructure varies significantly

across Asia. The 2018 Global Competitiveness

Report2 clearly highlights this disparity with most of

the region’s infrastructure still below average except

for a few that can boast world class standards.

Nonetheless there have been improvements

over the past decade; emerging Asia has built

more infrastructures across all sectors than other

developing regions. For example, between 2001

Asian Infrastructure Connectivity: Building for prosperity

CONNECTION SERIES: 2 OF 4

Fig. 1: Risk-Return profiles of infrastructure investments in relation to traditional asset classes3

Expected risk

Expe

cted

ret

urns

Fixed Income

Seasoned toll roads Social infrastructure

Electricity generation Gas processing Ports

Airports Desalination Rail infrastructure

Greenfield project New toll roads Merchant power plants Rail infrastructure

Equities

GreenfieldInfrastructure

BrownfieldInfrastructure

and 2010, emerging Asia’s road network grew at a

faster rate annually than OECD economies. Similarly,

its electricity generation capacity per capita saw

rapid growth during this time, albeit slightly below

the average versus other developing economies4.

There are also investments in high-tech

infrastructure. According to Michelle Qi, CIO of

Eastspring China, new Chinese infrastructure

such as 5G, high-speed rail, urban rail transit, big

data center, EV charging stations and artificial

intelligence, is expected to deliver stronger growth

and spill-over effects to other industries.

A major impediment to faster progress,

however, has been finance.

Government financing accounts

for 90 per cent of infrastructure

expenditure in Asia, compared to

70 per cent in emerging markets

and 40 per cent worldwide. But

given Asia’s growing needs, this

rate of government financing

is unsustainable5; public-private

partnerships need to be forged

to jointly shoulder the financing

requirements.

One way to involve the private

sector is to adopt a regional

integration approach whereby a

number of neighbouring countries

work together to achieve mutually

benefitting goals. Regional

integration has become a useful

development strategy for many

global and regional institutions.

Nevertheless, financing regional

infrastructure projects comes with risks and

uncertainties which may put off many private

players. Ultimately even those projects funded by

public-private partnerships still require some form of

government guarantee.

EXISTING REGIONAL INITIATIVES ---------------With the help of multilateral agencies, Asia

has pushed ahead with some sub regional

infrastructure programmes. The Asian Land

Transport Infrastructure Development established

in 1992 is one key initiative which comprises three

pillars: the Asian Highway, the Trans-

Asian Railway, and the provision of

dry and inland ports. An integrated

physical connection is critical to

support the complementarities

in the supply chain production

processes across the region.

There are many other regional

initiatives that aim to create

transnational economic corridors

through physical infrastructure. Over

in ASEAN, there are four flagship

regional initiatives covering the

ASEAN Power Grid, the Trans-ASEAN

Gas Pipeline, the ASEAN Highway

Network, and the Singapore-

Kunming Rail Link. Kunming,

China is being dubbed the central

transportation and communications

hub, as it constructs an advanced

network to connect with Southeast

Asia and South Asia.

90%

70%

40%

In ASEAN, there are four flagship regional infrastructure initiatives

The Trans- ASEAN

Gas Pipeline

The ASEAN Power Grid

The ASEAN Highway Network

The Singapore-Kunming Rail Link

1 2 3 4

China’s Belt and Road Initiative (BRI), launched

in 2013, aims to boost land and maritime

connectivity and intraregional trade by connecting

over 65 countries, over 60 per cent of the world’s

population and accounting for 30 per cent of

global GDP6. For now, one maritime and three

overland transport corridors are in operation, with

the rest under construction.

WHY IT MATTERS---------------Regional initiatives help make a positive impact.

Upon completion, the BRI initiative could

potentially reduce travel times along economic

corridors by 12%, increase trade between 2.7%

and 9.7%, increase income by up to 3.4% and lift

7.6 million people from extreme poverty7.

Similarly, a pan-Asian renewable energy grid

would see the power networks of Japan, South

Korea, China and Russia link up via Mongolia to

tap that country’s vast solar and wind resources.

By encouraging countries to link up their power

grids, regions with untapped renewables capacity

could attract much-needed investment, boost their

own supplies and export their surplus. Such a move

is also favourable to tackle climate change and help

reduce Asia’s dependence on fossil fuels.

Well-connected cross-border infrastructure

will also drive tourism; the number of airports,

number of air routes will all contribute positively and

significantly. Research estimates show that a 10 per

cent increase in the number of routes in either the

country of departure or destination country will lead

to an increase of international visitors by 7.4 percent8.

A LONG WAY TO GO---------------Asia’s infrastructure needs are significant, with

over 400 million Asians currently living without

electricity, 300 million without safe drinking water,

and over 1.5 billion without basic sanitation9.

Moreover, the region’s huge potential remains

untapped as many parts of Asia remain isolated

economically and geographically.

Infrastructure will also play a critical role in

facilitating the world’s biggest free trade pact, the

Regional Comprehensive Economic Partnership

(RCEP) between ASEAN, along with China, Japan,

South Korea, Australia, New Zealand and India,

when it is signed in the near future. This trade pact

not only links around half the world’s population

and a quarter of its exports10, but also promotes

investments and helps emerging Asia develop faster.

In the long run, the full benefits of Asia’s size

and diversity can only be harnessed by creating an

Asian market where goods & services, information

and people move freely. Building roads, railways,

bridges, power stations, and pipelines across Asia

should therefore be a priority for the region’s

policymakers.

Bangkok | Chicago | Ho Chi Minh City | Hong Kong | Jakarta | Kuala Lumpur | London | Luxembourg | Mumbai | Seoul | Shanghai | Singapore | Taipei | Tokyo

Sources: 1https://www.channelnewsasia.com/news/singapore/new-government-agency-launched-to-facilitate-regional-10855162. 2World Economic Forum, 2018. 3Russ and Foscari, 2010. 4Asian Development Bank: Meeting Asia’s Infrastructure Needs, 2017. 5https://www.straitstimes.com/business/economy/public-private-partnership-needed-to-address-infrastructure-financing-challenges. 6Reshaping the future world economy, HSBC 2017. 7https://www.worldbank.org/en/topic/regional-integration/brief/belt-and-road-initiative. 8Asian Infrastructure Investment Bank : Bridging Borders – Infrastructure to Connect Asia and Beyond, 2019. 9https://www.adb.org/news/ppps-can-help-fill-asias-infrastructure-gap-report. 10https://www.thestar.com.my/news/regional/2019/06/23/what-is-the-rcep-and-could-it-be-signed-this-year

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