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The CDF Team presents the March and February 2018 Trends Report

4/3/2018

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February and March 2018 Trends

During February and March, we noticed two major trends in Chinese development finance. First, China released a white paper outlining the state's Arctic policy, leading to speculation surrounding China's geopolitical ambitions in the region. Second, we saw heightened backlash and skepticism surrounding China's Belt and Road Initiative.


The Polar Silk Road


In the month of February, we saw a lot of articles about China’s Arctic Policy, dubbed the “Polar Silk Road.” As a result of global climate patterns, new maritime routes and deposits of natural resources have opened up in the Arctic, and China’s desire to increase its presence in the region has the potential to reshape economic development and reorder the balance of power. China claims that the “Polar Silk Road” will lead to increased maritime trade, infrastructure development, and regional cooperative governance, among other things. However, some countries like Japan and the United States are worried that China’s ambitions could lead to greater geopolitical tensions and possibly spark an arms race to militarize the Arctic.


Belt and Road Backlash

We saw a shift in the comments and analysis surrounding the Belt and Road initiative in March. The optimism of multiple countries for the Chinese-led infrastructure project gave way to skepticism and doubts. We saw an increase in articles highlighting Europe skepticism, while Australia, Japan, India and the United States are discussing a potential partnership to balance Chinese growing influence.

Reaction to the Center for Global Development Report

In early March, the Center for Global Development released “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective.” After analyzing the likelihood of debt problems in the 68 countries identified as potential BRI borrowers, the recent report highlights backlash to the BRI through a major argument: the BRI raises the risk of debt distress. Eight countries in the study are found to be especially vulnerable to potential debt crisis.

India's Economic Times pointed out that four of these eight nations are neighboring nations of India and increasing debt will lead to increasing political costs in India. Analysts have termed the financial strategy exhibited by the BRI as the “debt trap”, claiming that China can effectively limit India’s economic and political power by getting hold of India’s neighboring countries.

European skepticism

Growing anxiety surrounding China’s Belt and Road initiative arose in European Parliaments in February and March, centering around the potential for Europe to suffer an acute loss of influence in the global economic system established at the end of WWII.  In February at the Munich Security Conference, former German Minister of Foreign Affairs Sigmar Gabriel stated that Western nations should begin developing countermeasures to the BRI. Gabriel pointed out that China is currently the only country with a global geopolitical strategy, and its ideals are vastly different from Western values of democracy, freedom, and human rights. The economic advisor to the European Commission, Jens Bastian, fears the EU could lose some of its influence with member states to China if it doesn't come up with a clear strategy towards the New Silk Road Initiative soon.

In response, Chinese Foreign Minister insists that One Belt One Road is inclusive and the goal is to achieve common developments in countries along the line and that China will never seek to establish a state-led rule. However, European anxiety has the potential to retard China’s ambitious development project, as the success of the BRI is contingent on China being able to access foreign export markets. Growing backlash erupting in European parliaments related to Chinese investment flows could incentivize the PRC to further liberalize its own economy and make FDI more symmetrical in the future.

An Indo-Pacific alliance

In the latter half of February, we observed heightened tension and backlash amongst Australia, Japan, India, and the United States. The nations are responding to increased Chinese involvement in East Asia and the Pacific and are discussing a potential Indo-Pacific alliance to counter China’s BRI. From a general perspective, the individual viewpoints of Australia, Japan, India and the United States are as follows:
  • Australia expressed a belief that China’s involvement in the Pacific is to build influence. Outspoken government officials accuse China of constructing buildings and roadways without purpose.
  • Japan is involved in the BRI, but is cautious in its dealing. They maintain involvement under the condition that its connection and investment in the project is beneficial to Japan.
  • India holds a similar stance to Japan. While it goes largely unspoken, many speculate that India’s caution in dealing with China stems from a large amount of Chinese development in Pakistan and internal backlash to financial ties with China.
  • The United States desires to contain China’s spreading influence in the Pacific, and wants to discuss the creation of Indo-Pacific strategy that would incorporate its allies in the region.
The concern opens dialogue focused on controlling China’s growing influence through a new Indo-Pacific alliance. We expect to see many more articles revealing worldwide caution towards China’s Belt and Road initiative in the future.
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