Green Energy In Southeast Asia: Why The US Should Invest More – Analysis

By Jessica C. Teets, Katherine Michaelson, MacKenzie Van Mete and Marisa Jones

(FPRI) — Flowing from Tibet, the Lancang River goes through twelve Chinese megadams before reaching Laos as the Mekong River, a crucial freshwater source in Southeast Asia. A hydropower map from the Stimson Center shows 209 hydropower dams completed or under construction on the Mekong River, with 109 built by China and lower Mekong countries. The United States is concerned about how China will utilize its infrastructure investment to spread its influence across Southeast Asia.

Despite the growing Chinese influence in downstream countries, concerns over declining fish catches, crop yields, and water levels have prompted stakeholders to question the impact of Chinese-funded projects. In the past few years, through its US Agency for International Development (USAID) support to local and global nongovernmental organizations (NGOs), the US government has made some progress in raising local awareness of the detrimental effects of dam-building in the region. For example, the Stimson Center provides transparent data on the water flow of all dams along the Mekong River available through satellite imaging, which China refuses to provide to downstream countries.

Although a positive step, making water flow data during the dry season available is insufficient to counter China’s influence in Southeast Asia. To combat China’s influence in the Mekong, the United States and regional allies should significantly increase their foreign direct investment (FDI) in green energy technologies. Increased investment in Thailand and Vietnam can make the United States an effective alternative to China, allowing regional powers to not be solely dependent on China.

Southeast Asia’s Hedging Strategy 

“Hedging” is best described as a foreign policy strategy that combines cooperation and confrontation with great powers to maximize returns and minimize risk. This degree of ambiguity allows smaller states to maintain autonomy and achieve their objectives in the midst of great power competition.

Vietnam’s hedging strategy stems from its shared history and geography with China, in addition to the legacy of the Vietnam War. Vietnam is also a socialist country, but past incursions have shown that it cannot defend itself against China. Thus, Vietnamese leaders developed a policy of “assurance” toward China, prioritizing its relationship with Beijing and assuring its perception as not being “anti-China.” Vietnam has also worked hard to tighten its ties with the United States by joining the US-led Trans-Pacific Partnership negotiations and conducting joint military exercises with the United States and Japan. Vietnam classifies both China and America as “joint strategic partners,” the highest tier of diplomatic relationship. In his 2023 trip to Hanoi, former President Joseph Biden not only signed a strategic partnership agreement, but also explicitly identified Vietnam as a “new trusted technology partner” and vowed to increase US investment in the country’s high-tech sectors. Unfortunately, the signature multi-billion-dollar investment proposed by Intel failed to capitalize in 2024 due to the undersupply of reliable electricity in Vietnam.

Thailand’s foreign policy is similar to that of its eastern neighbor. It seeks to “bend in the wind” and remain flexible enough to adapt to a changing geopolitical landscape.  Thailand is a long-time ally of the United States and has held annual Cobra Gold joint military exercises with the United States. In the meantime, it has begun another annual joint naval exercise with China six years ago. The Thai government’s hedging strategy has spanned from military to economic areas. It has been proactively engaging both the United States and China economically. Thailand has been eager to accept economic investments in infrastructure projects along its Eastern Economic Zone, but it has remained skeptical of China’s true intentions in the region and has worked hard not to give too much influence to China by completing the projects on its own terms.

Broader Regional Variation in Alignment with China and the United States

Conversations with government officials and industry leaders in Vietnam and Thailand revealed that they tend to be pragmatic about their expectations, noting that both American and Chinese engagement in Southeast Asia is driven by self-interest. Thus, Vietnam and Thailand recognize the development opportunities that this great power competition brings. China offers economic opportunities in the form of infrastructure projects, such as motorways connecting Bangkok to rural Thailand and hydropower development. The United States, on the other hand, provides transparency and an important opportunity to hedge against China. This transparency is especially useful for both nations regarding national security and for NGOs, especially in Thailand, which fear the destruction of the river and its ecosystems as a result of the hydropower projects.

Vietnam may have warmed to the United States in recent years as tensions have escalated with China due to South China Sea disputes. But Vietnam cannot turn its back on China completely. One renowned researcher at the Institute of Foreign Policy at the Vietnamese Diplomacy Academy said that, specifically in the context of the Mekong, China is too big a player: “China is considered the ‘top boss’ of river…The Mekong region must find ways in relations to sustain development, keep relations with China, and have a practical conduct for the region.” He explicitly expressed that it was encouraging to witness the growing interest of the United States to invest, but he also acknowledged that it has become “difficult for Vietnam to maintain autonomy from the great powers as it is caught tiptoeing between two great powers.”

Stakeholders in Thailand shared similar hopes and concerns about engaging both China and the United States. The campaign director for the International Rivers NGO in Thailand pointed out that while the United States had begun to increase its investment in the region, China is more clever in its tactics. It chooses to act bilaterally, giving large grants to universities and institutions. The close ties with local research institutions have helped Chinese investors develop better strategies for the successful localization of their investments.

Current Assessment of Renewable Energy Investment from the United States

Vietnam has committed to ambitious climate and renewable energy goals aiming to decrease its reliance on coal and hydropower by 20 percent by 2030, looking to clean energy alternatives such as onshore wind and solar power to contribute a larger share of the country’s total energy production. In response to Vietnam’s clean energy commitment, G7 countries pledged $15.5 billion to aid the country in reaching these goals.

In 2023, US foreign direct investment in Vietnam totaled US$530 million, which was insignificant compared with China and other Asian investors such as Singapore, Japan, and South Korea. US investment in Vietnam focused on manufacturing and new energy infrastructure. These two sectors are not only the priority of the Vietnamese government, but also are mutually beneficial for the United States. After all, American high-tech companies cannot enter the economy if they are not assured of a stable electricity supply in Vietnam. This is evidenced by Intel’s decision to withdraw its multi-billion-dollar investment in semiconductor manufacturing in Vietnam in 2023 due to the large-scale power outage in that year. About fifteen American businesses, including semiconductor companies, have signaled a willingness to invest US$8 billion in Vietnam’s clean energy sector, conditional on the progress made in renewable energy policy adjustments by the Vietnamese government. By the end of April 2024, US corporations had invested over US$12 billion across 1,300 projects. A lecturer at the Hanoi University of Science and Technology revealed that a potential problem could arise given Vietnam’s reluctance to accept foreign investment in certain forms of renewable energy due to national security concerns such as offshore wind farms that require mapping of the seabed. The current regulation requires that foreign firms purchase electricity from state-owned Vietnamese electricity companies. Vietnam’s Ministry of Industry and Trade is implementing a USAID-assisted direct power purchase agreement pilot scheme, enabling renewable energy producers to sell electricity directly to consumers, thereby attracting more foreign investment. These initiatives underscore the growing role of US investments in advancing Vietnam’s renewable energy landscape.

Despite the recent US push for investment in Vietnam, China has outcompeted it. In 2023, the combined FDI from both China and Hong Kong reached US$9 billion. Vietnam’s energy sector has been key to recent Chinese investment. For example, the Chinese power construction corporation PowerChina has been building fifty energy-related projects in Vietnam, including what it claims will be Southeast Asia’s largest solar energy park.

Given Vietnam’s ambitious energy and development goals, the United States must focus on continued investment and collaboration with the private sector. More importantly, the United States should fill the current gap in Vietnam’s renewable energy sector, as China’s dominant role in financing and constructing hydropower projects on the Mekong River has already caused severe climate and environmental-related problems. Investment in green energy infrastructure to support Vietnam’s manufacturing industry would be a wise policy choice by the US government. Not only would it encourage Vietnam to move away from hydropower and toward more sustainable energy sources, but it also would strengthen America’s influence and position in the region. Against the backdrop of the heightening US-China tit-for-tat tariff war and consequently   US firms’ relocation of manufacturing base from China to Vietnam, including Intel and Apple, this green energy infrastructure investment will become a win-win strategy for both countries.

US Strategy to Counter China’s Economic Influence in Thailand

In 2023, China was the leading investor in Thailand, contributing nearly one quarter of Thailand’s total FDI, primarily in the electronics industry and automobile production. This trend is expected to continue due to Thailand’s focus on technology and electric vehicles. Tax exemptions of three to thirteen years were given to the electric vehicle sector by the Thailand Board of Investment, and Chinese companies like BYD Auto have invested heavily in Thailand. While Thailand has been a long-term security partner of the United States, the 2014 coup and subsequent reduced engagement with America have led to a stronger bond between China and Thailand. The two governments are increasingly collaborating in the security domain, and there are high levels of Chinese investment.

The Eastern Economic Corridor (EEC) Development Plan positions Thailand as the “gateway to Asia,” a global investment hub for companies in the Asian marketplace. One large project is the development of a railway from Bangkok to Yunnan, constructed by the China Railway Construction Corporation (CRCC), but Thailand’s regulation of Chinese construction projects in infrastructure and sustainability has frustrated the CRCC. Thailand prioritizes sustainable development and international standards without compromising key values for Chinese investment. Our interviews with Thai government officials show that they still favor Western investments and are actively seeking quality investments from the United States and similar countries, just as seen in Vietnam.

China has consistently emerged as the top investor in Thailand’s economy over the last few years, with multiple infrastructure projects including new motorways out of Bangkok and a high-speed rail that connects the nation’s EEC. America’s investment is currently dwarfed by China’s, but according to the Thai Bureau of Investment, Thailand currently wants to attract investment in green energy projects to improve its grid system and move toward other green sources of energy, such as solar, wind, and biomass. The United States and its regional allies can provide high-quality and sustainable investment for green energy projects. This is good for US companies and increases American influence in the region by offering an alternative to China.

A strength of the United States is its close ties with many NGOs that have developed effective approaches to pursue community-based initiatives and raise awareness among the Thai people of the detrimental effects of Chinese hydropower and other infrastructure projects. The US government and NGOs have been critical of China’s BRI projects for their large carbon footprint and disregard for environmental degradation, critiques that have spread to local communities in Thailand and Vietnam. However, the window for the United States to compete with more transparent, greener infrastructure is closing as the BRI focuses more on greener projects, coined “small and beautiful projects.” Such initiatives are smaller scale, focusing on more environmentally friendly projects, and are more community-based.

To counter China’s soft power grab in the Mekong region, the United States and its allies must invest more in green technologies and sustainable projects, providing viable alternatives to Chinese initiatives. The United States has a strength in providing reliable green technology, such as solar and wind farms, both onshore and offshore. In addition to pushing China to be more transparent, the United States should lean into its advanced green technology strengths and invest in developing the next generation of clean energy technologies like green hydrogen and more efficient batteries. The United States must act now. As Beijing shifts its focus from large projects to smaller initiatives aligned with local needs, America’s window to challenge Chinese influence is closing. As Southeast Asia becomes a focal point of geopolitical competition between the United States and China, it is imperative that the United States adopts a timely and strategic approach to green energy investment to safeguard and advance its regional influence.

About the authors:

• Jessica C. Teets is a Professor at Middlebury College and China Program Fellow at the Wilson Center. She previously served as a 2023 Templeton Fellow with the FPRI Asia Program.
• Katherine Michaelson is a senior at Middlebury College majoring in International Global Studies with a focus on East Asia.
• MacKenzie Van Meter obtained her Master of Arts in International Trade and Economic Diplomacy with a concentration in French from the Middlebury Institute of International Studies at Monterey. 
• Marisa Jones received her Master of Arts in International Trade and Economic Diplomacy from Middlebury Institute of International Studies and now works for Global Trade Compliance at Zoll Medical.

Source: This article was published by FPRI