Belt and Road Page 15
China has become ever more entrenched inside Europe and the question at present is whether and how European countries can regain some measure of control over the mechanisms of Chinese influence. As a recent report puts it, China remains convinced that it is Europe which stands at risk of leaving itself stranded in a world where even the United States may be moving away from the liberal world order. Increasingly isolated, the European Union will try to avoid conflict at all costs. Europe will have to come around to the essential goals and values of the Belt and Road or face isolation, not the reverse. As the initiative is gradually implemented, the EU’s ability to shape it in a particular direction will tend to disappear.13
Geographically, the sixteen countries in Central and Eastern Europe with which China has been developing closer ties form the last link in the complex future network linking Asia and Europe. The focus on infrastructure shows that China considers Central and Eastern Europe a full part of the Belt and Road, that is, as part of a new Chinese order, while countries like Germany and France tend to be seen as guardians of the old order. Central and Eastern Europe offer a number of other attractive possibilities for China. Still deficient in basic infrastructure, they can be enticed by cheap Chinese loans; in return, they will be expected to convey China’s views and interests in Brussels. Many of these economies have become deeply integrated with German-led value chains. Competition between China and advanced European economies will hinge on who can ultimately attract these smaller economies to their orbit.
In an interview with a weekly magazine in June 2017, Angela Merkel, the German Chancellor, said Europe ought to be wary about opening its markets to products that had been developed with public subsidies in China and should demand reciprocity on access to public tenders. China’s economic might allows it to pressure weaker European Union members, she added, in what seemed a reference to a veto by Hungary and Greece of a European Union statement criticizing China’s human rights record earlier that month. “Seen from Beijing, Europe is an Asian peninsula.” That was the new rallying cry coming from Berlin: Europe now ran the risk of being reduced to peripheral status. Whether the danger should be addressed through greater engagement, retreat or confrontation remained unclear. In September 2017, Sigmar Gabriel, the German vice-chancellor and foreign minister, called on Beijing to respect the concept of “one Europe” adding: “If we do not succeed for example in developing a single strategy towards China, then China will succeed in dividing Europe.” The words were intriguing. They seemed to contain a thinly veiled reference to the “one China policy,” the principle that there is only one country of China, despite the fact that the government in Taiwan also carries that name. Gabriel was wading into dangerous waters.
In July 2016, Hungary and Greece fought hard to avoid a direct reference to Beijing in an EU statement about a court ruling that struck down China’s legal claims in the South China Sea. In March 2017, Hungary derailed the EU’s consensus by refusing to sign a joint letter denouncing the reported torture of detained lawyers in China. In June 2017, Greece blocked an EU statement at the UN Human Rights Council criticizing China’s human rights record, which marked the first time the EU had failed to make a joint statement at the UN’s top human rights body.14 As a source in the Foreign Affairs Council told me in 2017, China had become the main obstacle to the regular workings of the body.
Since 2015, many EU member states kept developing privileged links to the Belt and Road. The bloc as a whole took a decidedly more lukewarm approach, which is hardly surprising. As the initiative acquired a more practical orientation and its impact started to be felt, it became abundantly clear that China expected to remain at the helm. That would always be difficult to accept for the European Union, with its own plans to shape the global regulatory order and imprint its own values and procedures outside its borders. The clash, when it arrived, had a marked technocratic character.
In early 2017 the European Commission triggered a probe into a planned 350 km high-speed railway between Belgrade and Budapest, a flagship scheme under the Belt and Road. European officials told the Financial Times that the investigation was assessing the financial viability of the $2.89 billion railway and looking into whether it had violated European Union laws stipulating that public tenders must be offered for large transport projects. No contract for the $1.8 billion Hungarian section of the railway appears to have been made public.15
Gathered in Beijing for the first Belt and Road summit in May 2017, European Union countries declined to sign a joint statement on trade, uncomfortable with its omission of social and environmental sustainability, as well as imperfect transparency requirements, particularly in the area of public tenders. At the summit China received widespread support for its proposals, so the European dissent stood out, even threatening to mar the overall success of the gathering. “We felt this language was going backwards” from what China had previously agreed to, said one European official, who suggested Beijing had drafted the statement to benefit Chinese companies in future Belt and Road contracts. “It’s about selling their stuff,” the official said.16
In the immediate aftermath of the clash, both sides tried to play down the difficulties, arguing that the joint statement had been presented too late in the talks, making it impossible for an inclusive solution to be found. That this was not the root of the problem was made abundantly clear by developments over the following year. European governments and business associations have a long track record of complaining about lack of market access in China. It was inevitable that the same concern would be applied to the Belt and Road, where Chinese authorities were creating a similar range of barriers and obstacles. Establishing an open and transparent market system is from this perspective the only way to ensure a level playing field where the same rules would be applied to Chinese and foreign companies and where they would have equal opportunities to bid for lucrative contracts along the Belt and Road.
In a report made public in April 2018, twenty-seven ambassadors from the EU—Hungary declined to participate—wrote that China wanted to shape globalization to suit its own interests. They warned that European companies could fail to win good contracts if China is not pushed into adhering to the European principles of transparency in public procurement, as well as environmental and social standards. Whenever European politicians travel to China nowadays they’re put under pressure by their hosts to sign agreements for the joint expansion of the Silk Road. “This bilateral structure leads to an unequal distribution of power which China exploits,” the report said.
In parallel, Chinese investments in Europe have acquired greater and greater salience in the effort to control China’s influence and avoid Merkel’s peninsular fate. Supporters of stricter investment screening claim that the EU is currently allowing China to take its liberal system for a ride. Concerns include the possibility that Chinese investors may benefit from Chinese subsidies that put them at an unfair advantage, or that they may be acting on behalf of Beijing to seek control of strategic technologies, with no transparency as to who is really behind these acquisitions and investments.17
Mostly at the initiative of the German and French governments, lawmakers in Brussels are finalizing legislation that will give national governments more discretion to review and authorize Chinese investments. While claiming that the EU’s openness to foreign direct investment will not change, the new regulation argues that openness has to be accompanied by vigorous and effective policies to, on the one hand, open up other economies and ensure that everyone plays by the same rules, and, on the other hand, protect critical European assets against investment that would be detrimental to legitimate interests of the Union or its Member States. In determining whether a foreign direct investment may affect security or public order, Member States and the Commission should consider all relevant factors, including the effects on critical infrastructure, technologies, including key enabling technologies, and inputs which are essential for security or the maintenance of public order. In that regar
d, Member States and the Commission should also take into account whether a foreign investor is controlled directly or indirectly by the government of a third country, including through significant funding.
Placed against the matrix of possible responses to the Belt and Road, the European Union seems to offer a final variation. As opposed to the United States, the EU has neither the tools nor the disposition to enter a new great game of geopolitical confrontation. As opposed to Japan or India, it does not enjoy the tactical flexibility of changing its position with each new development. What the EU wants is to participate in the Belt and Road while sharing with China managerial responsibilities in the initiative. It is placed in the difficult position of not being able to oppose an international project of economic integration while being equally incapable of joining it as a mere participant. It feels a natural inclination to tell China how the initiative should be organized and led, even if those suggestions will never find a receptive ear in Beijing. As one European diplomat told me—the lack of awareness is extraordinary—the European Union can have a very positive “scrutinizing role” in the initiative.
In September 2018 the EU presented its long-awaited strategy on “connecting Europe and Asia,” immediately billed by some as Europe’s response to the Belt and Road. As expected, the document is eminently technocratic, offering vague commitments to diminish or eliminate technical obstacles to greater connectivity in such areas as aviation, ports, railway or internet regulation. No new funding lines were announced and the relevant sections make clear that Asia will not be a priority for EU international investment. The core of the new strategy is the renewed insistence that the prerequisites for businesses to develop and promote EU-Asia connectivity are a level playing field in terms of market access and foreign direct investments and fairness and transparency in public procurement. The principles of sustainable, comprehensive and international rules-based connectivity inform the strategy. Through this approach, the EU will enhance regulatory quality and allow companies to compete fairly against each other, drawing inspiration from its own internal market. The superiority of EU rules and solutions seems to be presented as self-evident, based on a sort of epistemological judgment, and in no need of being actively supported and promoted against powerful alternatives.
From the perspective of Brussels and the main European capitals, China must fulfill its declared aim of making the Belt and Road an open platform which adheres to market rules and international norms in order to deliver benefits for all and to encourage responsible economic behavior in third countries. In the long term, it is perhaps inevitable that the two sides will negotiate a broad free-trade agreement reducing the growing tensions between the two integration projects, but that day still lies very much in the future.
As the French President Emmanuel Macron put it during his first state visit to China in January 2018, “by definition, these roads can only be shared. If they are roads, they cannot be one-way.” In practice that means that rules have to be balanced between the interests of all sides. “After all, the ancient Silk Roads were never only Chinese,” Macron told an audience of academics, students and business people at the Daming Palace in Xian. “These roads cannot be those of a new hegemony, which would transform those that they cross into vassals.”
5
THE WORLD AFTER THE BELT AND ROAD
Trees grow on buildings here, planted on the roof, sprouting from the balconies, hanging from the walls, and so they called it Forest City. Throughout mankind’s history cities have been hacked out of the jungle or reclaimed by the jungle when their time was up. In Forest City, the jungle and the city co-exist as one—you know you have arrived when the trees take over. My hotel stands in the middle of an immense construction site. The buildings around, hundreds of them, bedecked with cranes like giant winged insects, keep rising. When the night falls, they keep rising. Sometimes a skyscraper will be finished in as little as a week.
There are other peculiarities about Forest City. Its inhabitants are just starting to move in, and they are almost all Chinese. Shop signs are written in Mandarin, and the restaurants serve food from Sichuan and Yunnan. But the city is being built in Malaysia, not China. Forest City offers an early glimpse at a world reshaped by China, a world built according to Chinese rules and furthering the goals of a Chinese civilization unhampered by national borders. Not the old China—but the China of the new science fiction being created by Chinese millennials. The world of Forest City resembles that of Chinese science fiction author Hao Jingfang’s Folding Beijing—with a splash of Plato’s Republic.
From the moment you arrive it is impossible to miss that there are four separate social strata in the city. First, the residents: wealthy Chinese from the mainland, who may be looking for a new life outside China or at least a safe haven protected from undesirable developments at home. Second, those providing them with professional services of all kinds, from health to education and entertainment. They tend to be Chinese, although in some cases—like in the posh preparatory school opening in August 2018—Europeans or Americans may be preferred. Third, the guardians: Nepalese security guards, polite and distant. Fourth, the workers: Bangladeshi and Indian, responsible for construction and cleaning.
The city’s scale is hard to compute. There is a very large hotel and a shopping mall at the center. But the city is still growing, the buildings under construction are only a small portion of the whole island that will one day be reclaimed from the sea. And this island will be joined by three others in the near future, and then by an extension on land, bringing the total area of the city to about half the size of Manhattan. The first resident will move in August 2018. But in ten years close to a million people are expected to live here.
I take a walk on the beach. There are numerous warnings against swimming. Forest City sits on one of the busiest shipping lanes in the world, and the heavy construction is not helping keep the waters clean. Fishing boats have all disappeared, replaced by construction trucks parked on the sand. I walk all the way to the end of the artificial island. Across a narrow channel there is still an old mangrove and then in the distance the port of Tanjung Pelepas, one of the largest in Asia. Just a couple of miles across the Johor straits lies Singapore. On a good day you can drive from Forest City to the Lion City in less than half an hour. “When Shenzhen was just a jungle,” a sales agent tells me, “no one would have bought a house there. But it was across from Hong Kong and now everyone wants a house in Shenzhen. So why not buy a house across from Singapore?”
Forest City is a $100 billion joint venture between China’s giant homebuilding company Country Garden from Guangdong Province and the Sultan of Johor, the sovereign ruler of the Malaysian state where Forest City is rising. Forest City’s sales representatives proudly advertise the links to power as a guarantee that the project has political support. And the Sultan—so fabulously wealthy he owns a gold Boeing 737—has indeed delivered. The problems the city will experience will likely come from the capital Kuala Lumpur, where the newly elected Prime Minister has compared Forest City to Singapore at the time of its establishment by the British—given away to foreigners in exchange for almost nothing.
The best image of the Belt and Road is not the trains crossing the Eurasian supercontinent, or the ports and industrial parks opening up along the way. It’s the cities being built up from scratch. These are what will change the physical and human landscape of the planet, creating new ways of life, new ideas, new adventures.
This is where the real competition between states and between political models will happen. It is not about territory; the economy is what matters. Nor is it about who has the biggest companies; those can relocate or be disrupted. It’s really about ecosystems: collections of companies, workers and consumers—clusters of culture, social life and economic activity. In other words: cities. And in Forest City, China is betting that those can be built as easily as a new app or a gadget.
I had flown to Malaysia from San Francisco, where I had met te
ch people who are thinking about how to build technologically optimized cities and realize the old dream of the founders of Google: “give us a city and put us in charge.” They seem to regard it as the natural next step for those who have already mastered building social networks on the internet. And so, the race is on—between two Bay Areas in San Francisco and the Pearl River Delta.1
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What will the world look like after the Belt and Road? In the first Belt and Road summit in 2017 Xi Jinping hailed it as the “project of the century.” If all goes according to plan, the Belt and Road will change the shape of the world economy and world politics, returning us to a time when China occupied, if not the center, at least a central place in global networks. Many of the features of the contemporary world that we take for granted would change rather dramatically as a result, but every future scenario must start by seeking answers to two questions: will the Belt and Road succeed? And what does success mean in this context?
Among the most common and most plausible criticisms of the initiative—one that comes naturally to Western commentators—is that the very logic behind the Belt and Road encourages decision-makers and companies to take undue risks, moving too fast and neglecting concerns about the sustainability of investments whose final justification is after all strategic. Impatience might turn out to be the initiative’s worst enemy. China needs to show that the Belt and Road can succeed. This is not just because of the needs of an avid domestic and international audience, but because of the very ambition of its objectives. As it needs to be propelled forward against mounting obstacles, success—especially early success—is its vital fuel. Like every grand political project, it is fighting against inertia and entropy and therefore its leaders are bound to become impatient. Impatience, however, brings with it great danger. We know from bargaining theory that the most impatient player will tend to lose out, and China has multiple, endless negotiating processes ahead. Impatience is also responsible for tunnel vision, the tendency to think that everything that is not essential can be done later and that every other goal should be sacrificed to the main project. One obvious example is the fate of China’s state-owned companies. Return on equity fell by more than half over the last decade, but many of the political incentives to poor performance—pressure to accept investments or strike deals that make political but not business sense—will be reinforced by the Belt and Road, with Xi calling state-owned companies its “essential forces.” And finally, impatience is a powerful incentive to make mistakes, to shoulder too many risks and to neglect negative outcomes.