Belt and Road Page 14
In May 2018, Luhut Pandjaitan, the Indonesian maritime affairs minister, described the Belt and Road as a “Chinese proposal,” from which Jakarta should try to keep some distance: “We do not want to be controlled by the Belt and Road. We would like it to link to our maritime policy, of a global maritime fulcrum.” Addressing a Delhi audience, Luhut suggested that the port of Sabang at the westernmost point of Indonesia and just 700 km from Indian territory could be leased to India. China’s acknowledgement of Sabang’s strategic value was reflected in a Global Times editorial, which reiterated the significance of the Malacca Strait to China’s “economic and energy security” and warned of “disastrous consequences” if India develops Sabang into a strategic base. “If India really seeks military access to the strategic island of Sabang, it might wrongfully entrap itself into a strategic competition with China and eventually burn its own fingers. A misconception by India in terms of outbound investment is that it always sees China as a rival that it pits itself against. But this idea will get India nowhere because China always sees the big picture when seeking investment overseas and aims for reciprocity and mutual benefit.”7
Thailand is taking the lead in creating a regional fund with its neighbors, Cambodia, Laos, Myanmar and Vietnam, to back infrastructure and other development projects and to lessen reliance on Chinese investment. In June 2018 the Vietnamese government requested the National Assembly to postpone the bill on Special Economic Zones, saying it needed more time to ensure that it meets the aspirations of both legislators and the public among concerns about the potential undermining of national security and violation of sovereignty if foreign investors, especially Chinese, are allowed to rent land for up to 99 years in these areas. Myanmar is now seeking to take on no new loans from China to complete the Kyaukpyu Special Economic Zone and would offer the developer no sovereign guarantees to mitigate risk if it does, according to the project’s new chairman, U Set Aung. “Hence, the project will not force the Myanmar government to bear the debt burden,” he said. China International Trust and Investment Corporation won the bid to develop the economic zone in 2015. The shareholders agreement struck under then-President Thein Sein gives China an 85 per cent stake in the project and Myanmar the rest. The new government, led by the National League for Democracy, has been trying to double Myanmar’s stake to 30 per cent.
Australia and New Zealand, in the meantime, have been caught up in a vortex of suspicion and recrimination about what they increasingly see as illegitimate Chinese attempts to gain political influence inside the two countries. In September 2017, it was reported that Yang Jian, a leading member of parliament from the National Party in New Zealand, had a military intelligence background in China that he failed to disclose when he immigrated to New Zealand and that he has pursued close ties with the Communist Party in Beijing. Faced with similar cases of heavy-handed interventions in local politics, Australia approved a wide-ranging package of foreign interference laws designed to force new levels of disclosure from people acting for other countries. At the end of 2017 one of Australia’s most prominent public intellectuals, Clive Hamilton, argued that the Chinese Communist Party was inserting “agents of influence” at all levels of Australian political life. Damagingly, the book containing his claims was initially cancelled by its publisher amid fears Beijing would bankroll endless legal suits against it.
These controversies were bound to contaminate public perceptions of the Belt and Road. Increasingly the view in Canberra and Auckland is that companies should feel free to participate in the initiative but any form of political support to the Belt and Road carries high risks and no potential rewards. New Zealand and Australia see themselves primarily as members of a Western community of liberal democracies. To become too close to the Belt and Road would sow confusion and, in the case of conflict, force them into the kinds of choices they have worked hard to avoid.
Early reactions in Delhi and Tokyo, once outliers in their skepticism of the Belt and Road, now appear closer to the norm. Collectively, these developments suggest the initiative may bring together China’s competitors rather than dividing them. But the key question is whether converging reactions can be turned into a coordinated response and, of course, how China will respond in that scenario.8
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So far China has shown considerable adaptability in the way it manages the process. It realized early on that it needed at least formal support from Russia and it succeeded in obtaining it. Having Russia on board gave Beijing the green light to develop the initiative in Central Asia, one of its privileged areas. In Pakistan support for the Belt and Road goes very deep across the whole political establishment. When Prime Minister Nawaz Sharif was forced to resign over corruption charges in 2017, many predicted that China would have to restart its Belt and Road efforts anew, but in fact not much seems to have changed. The initiative may have to be adapted to changes in Pakistan’s political landscape—an election result bringing a new party and political program to power will call for corresponding changes—but by that very token it now appears as part of the permanent institutional structure of the country.
The case of India is considerably more delicate. At first, the Chinese authorities seem to have made the calculation that, once Russia had joined the initiative and many of the countries in South and Southeast Asia were fully committed to it, India would have no choice but to follow suit, leaving China in a position to dictate the terms. The gambit proved to be misguided. India felt it was being cornered and reacted by turning explicitly against the initiative. Public opinion in the country became familiar with the Belt and Road, but its views are overwhelmingly negative. What is worse, Delhi was able to influence other countries, most notably the United States, and bring them closer to its views.
For China to continue ignoring or dismissing India’s interests and positions might turn out to be a gross miscalculation. As Raffaello Pantucci argues, India is in a position to create insurmountable difficulties for China as it strives to implement the Belt and Road in its more ambitious version. In the competition for global markets, Indian consumers offer a decisive prize for Chinese companies as they try to overcome their American and European rivals. Stability in Pakistan is of course impossible without a measure of cooperation from Delhi, so Beijing may end up regretting it if India and Pakistan continue on their downward spiral of mutual hostility. Nepal and Bangladesh will always find themselves tied to India thanks to cultural, ethnic, and historical affinities. The same is true of Sri Lanka and the Maldives. “The nations of South Asia, unlike their Central Asian counterparts, have a clear alternative on offer in India. This is the trump card that New Delhi could play against China. It is one that Beijing has failed to consider adequately.”9
The swing state in the great contest between different integration projects is, of course, India. As Andrey Kortunov puts it, “without the participation of Delhi, or even more with resistance from the Indian leadership, neither the American nor the Chinese vision can be fully brought to fruition.”10 Without India, the United States might be able to preserve its pattern of alliances in Asia, but its ability to compete on the scale of the Belt and Road would collapse. As for China, it can hardly claim that its “community of shared destiny” represents the image of the future world order if India were aligned with an alternative vision. And thus we are led to the current situation, where India, aware if its central importance, is in no hurry to make its choice.
If the initial calculus had been wrong, China was nonetheless able quickly to correct course. In February 2018, in a move that surprised analysts, it stayed neutral as Pakistan was put back on an international terrorism financing grey list, three years after it was removed from it. In April, just ahead of Indian External Affairs Minister Sushma Swaraj’s visit to China, Beijing proposed the building of an economic corridor between China, Nepal and India that would cover ports, railways, roads, aviation, electricity and communication. India has yet to offer any kind of formal support for the Belt and Road,
but seems mollified in its approach. Any talk of working with the United States to establish a Belt and Road alternative has been downplayed. An April 2018 summit between Modi and Xi aimed to reset the relationship between the two countries and discussed the possibility of joint infrastructure development cooperation in Afghanistan, albeit likely outside of the Belt and Road framework. Shortly before Modi’s meeting with President Xi, India excluded Australia from participating in the Malabar naval exercises. Later, on the margins of the Shanghai Cooperation Organization summit in June, the two leaders settled a dispute over the flood-prone Brahmaputra river that flows from Tibet to Bangladesh in a sign of growing cooperation between them.
The way different countries have been responding to the Belt and Road can be organized in a relatively simple matrix. First, participant countries. Some of them may be only potential and others may have been quite reluctant to open their economies to Chinese economic interests, but discussions have been held and agreements signed with what must now be close to a hundred countries. Second, geopolitical rivals. The United States has been excluded from the initiative on the plausible grounds that the Belt and Road is a direct challenge to American power. Views in Washington were once more or less indifferent, but it remains difficult to imagine that they could ever become positive or that we could see China and the United States working together on major global initiatives. The same may perhaps be said of Canada, which Chinese authorities tend to regard as an American political and economic dependency.
Between these two extremes, we find a number of interesting variations. India, as we have seen, is perhaps best interpreted as a country whose exact place in the scheme is yet to be determined. As for Japan, it offers the fascinating possibility of a country intent on being both in and out of the initiative. While actively involved in developing Belt and Road alternatives, Japan has signalled its willingness to cooperate with China in infrastructure and industrial projects in third countries. In May 2018, for example, government representatives of China, Japan and Thailand announced their intention to pursue business collaboration in the Eastern Economic Corridor, a special economic zone along Thailand’s eastern seaboard which is being heavily promoted by the military junta. Another candidate project in Thailand is aimed at extending the Bangkok Mass Transit System, which currently links Phaya Thai Station in central Bangkok with Suvarnabhumi Airport, to another airport in a suburb 50 kilometers distant. Finally, a project to construct a high-speed railway between Suvarnabhumi Airport and a city in the central part of Thailand is also under consideration. Japan and China held their first meeting in Beijing in September 2018 to discuss economic cooperation projects in third countries. The committee is headed by Hiroto Izumi, a special adviser to the prime minister on the Japanese side and Ning Jizhe, vice chairman of the National Development and Reform Commission, on the Chinese side.
Japanese Prime Minister Shinzo Abe, while addressing Japanese and Chinese executives in Tokyo in December 2017, alluded to the possibility of Japanese participation in the Belt and Road. “I believe Japan will be able to cooperate well with China, which has been putting forward its One Belt One Road initiative,” he said. To oppose the Belt and Road is to embrace an economic and political confrontation with China for which Japan is hardly prepared. It might also be unnecessary, if the goal is to avoid increasing its dependency on China. One can benefit economically from having access to the Belt and Road, provided other alternatives are developed, thus ensuring China has no monopoly over the future networks of infrastructure and economic integration.
On 21 May 2015 Abe announced that his government, together with the Asian Development Bank will jointly provide approximately $110 billion to support “quality” infrastructure investment in Asia over the next five years. The initiative, baptized “Partnership for Quality Infrastructure,” is meant to compete directly with China’s Belt and Road on the basis of a differentiating mark: while Chinese plans are seen to emphasize quantity and speed, Japan relies on higher standards, where these are understood to extend from accounting, financial planning and procurement practices to the durability, environmental sustainability, and safety of the finished infrastructure projects. Finally, appropriate terms and conditions of loans should be set in accordance with best practices and rules taking into account the repayment abilities of recipients. In 2016 the initiative was expanded to provide up to $200 billion globally over five years. It remains the only direct rival to the Belt and Road. Its dedicated projects include the Mombasa Port development project in Kenya, the Nacala port in Mozambique, the Mumbai-Ahmedabad high-speed railway in India, the Thilawa special economic zone in Myanmar, the Matarbari port and power station in Bangladesh, and the digital grid project in Tanzania. It is part of Japan’s strategy of ambiguity not to actively promote its projects, so they often fly under the radar, although many actually exceed their Chinese rivals in scale and ambition.
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At the other end of the Eurasian supercontinent, the European Union is if anything even more unsure about what to do about the Belt and Road. Though the initial focus of the Belt and Road is naturally on China’s immediate periphery, Europe lies as its final goal and main justification. That has been conjured by the very reference to the ancient Silk Road, whose associations remind us of the old trade networks linking the Atlantic to the Pacific.
In the first two years of the Belt and Road there was simply no reaction from Europe and the initiative remained for the most part unknown. That started to change in 2015. The EU-China summit in June that year highlighted the mutual interest in China’s bold infrastructure projects. The European Union was at that time busy implementing its own infrastructure investment strategy, the Juncker plan, and hoped China could support it with a significant contribution. During the years of the eurozone crisis, China had played a stabilizing role in many of the countries most in need of inward investment flows. Unsurprisingly, there was much goodwill left. A Connectivity Platform was created to ensure that investment projects approved by both sides could benefit from the highest synergies and interoperability.
Many of the arguments heard in Brussels at the time underlined that China seemed to have converted to the European Union model. Was not the Belt and Road a variation of what the EU offered, a multilateral and multinational project of economic integration? And if that were the case, any meaningful strategy had to encourage those efforts. As an influential report put it in May 2016, “simply by embarking on broad, multilateral integration efforts, the Chinese and the Russians have chosen to compete on the EU’s terrain. European policymakers need not fear cooperating with these initiatives.” When it comes to economic integration projects, it concluded, no one can beat Europe, so “the EU should respond by absorbing these projects into an inclusive order, bounding the competition with cooperation, and making the competition about what the EU does best: negotiating the nitty-gritty of complex frameworks of cooperation that are the sinews of multinational integration.”11
EU-Asia trade in goods is by far the most important flow axis in global trade, peaking at $1.8 trillion in 2013, consistently more than double Transpacific trade and as much as three times Transatlantic trade, depending on the years. This is all the more surprising as it is precisely along the Eurasian axis that obstacles and barriers to trade are most significant, from poor infrastructure to tariffs and other trade barriers. Eurasian and Transpacific policies are still much less friendly than Transatlantic policy, with almost twice as many protectionist announcements. Though the gap has narrowed, Eurasian trade links remain less developed than Transpacific ones, so the potential for growth is highest in Eurasia.12 Europe acquires enormous significance for China in the exact sense that it offers a vision of great power relations that Chinese policymakers wish could be made universal and whose dynamics they have tried to replicate in relations with the United States, knowing full well that this is impossible: a deep economic relationship supporting China in its rise to the zenith of the world economy without the tickin
g clock of a coming geopolitical conflict. The fact that legally and politically the relationship is in its earliest stages also promises that China can play the main role in its final definition.
The initiative was originally well received by Europeans. If there were clouds gathering on the horizon, they had to do with the so-called 16+1 format launched by China in 2011, an initiative aimed at intensifying and expanding cooperation with eleven EU member states and five Balkan countries in the fields of investment, transport, finance, science, education, and culture. From the outset it was feared that the group would make it difficult for the EU to reach common positions on China, a concern that has only grown since the first summit of the group in 2012 in Warsaw. One obvious case is Hungary, where Chinese support seems to have provided political capital to the Hungarian government during its recurrent clashes with Brussels. In 2014, while serving as Europe Minister in the Portuguese government, I had an exploratory conversation with Fu Ying, then China’s deputy foreign minister, on whether Portugal would be interested in leading the creation of a second group of countries benefitting from a permanent cooperation platform with China: the 6+1, including Portugal, Spain, Italy, Malta, Cyprus and Greece. Although the idea came with a number of perks—Lisbon could hope to be the location for the inaugural meeting, like Warsaw in 2012—we concluded that China had most to gain from splintering the negotiating power of the combined EU. We abandoned the opportunity and the idea was also dropped by Beijing.