Conflicting views of China’s global influence
President Xi has proclaimed that China is on the verge of becoming a great global power, thanks to its economic growth. Despite this, China is still the largest recipient of loans from several multilateral development banks (MDBs), including the World Bank and ADB. It is argued that China still requires the loans to make up for the structural issues of its domestic banks, which keep them from providing sufficient credit for public projects.
Additionally, it is said MDBs need China to absorb financial assistance since smaller and poorer countries do not have the capacity to absorb too much capital. All of this contradicts China's self-proclaimed economic power, especially displayed in its leadership in the Asian Infrastructure Investment Bank (AIIB) and the BRICS Development Bank. As China continues to rise, it has to decide whether it will continue to play by its own rules, acting as both a borrower and a lender, or if it will follow the actions and norms of the world's other nations. Read more here.
The U.S. is concerned about changes in China's geopolitical influence and military power over the past five-years. The main cause for this rapid growth in geopolitical influence is China's use of infrastructure investment and trade. In response, Trump stated in the National Security Strategy released in December 2017 that the U.S. will increase its four-way cooperation with Australia, Japan, and India with a focus on infrastructure plans. Jonathan Hillman, a researcher at the Center for Strategic and International Studies, advised the U.S. to not focus on implementing policies to counter China's OBOR. Hillman also stressed that the U.S. needs to cooperate with countries in Eastern and Central Europe. Despite India and Japan's current skepticism of China's OBOR, the U.S. is concerned that as long as projects are in line with international standards, neighbouring countries of China will all join the OBOR. Read more here.
Counter to the One Belt One Road?
Spectators speculate that the U.S., Japan, Australia, and India are increasingly looking toward a "Indo-Pacific Strategy" to counter China's One Belt One Road initiative. This speculation comes ahead of the Washington D.C. summit between Australian Prime Minister Turnbull and U.S. President Trump scheduled for February 23. Read more here.
Further, according to an anonymous U.S. official, there is discussion of a joint infrastructure project among the U.S., Australia, India, and Japan that has a purpose of controlling China's growing influence. The plan has not yet been officially announced, because it is not mature enough. He added that it is an alternative to China's One Belt One Road initiative rather than a competitor. Read more here.
Observers expect Japanese Foreign Minister Taro Kono to report the 2017 white paper on its Office of Developmental Aid at a Cabinet meeting on Friday. As part of the plan, Japan is expected to provide Southeast Asian countries with patrol vessels and related equipment to help strengthen their ability to enforce maritime law. These measures are part of Japan's "free and open Indo-Pacific" strategy. Read more here.
Concerns over the Polar Silk Road
China's plans to create a "Polar Silk Road" as a component of its overarching Belt and Road Initiative has sowed concern and discontent in Japan, especially as China's northern ambitions reflect its increasingly expansionist posture in the East China Sea and Arctic Ocean. Beijing has made it clear that it plans on utilizing the "Polar Silk Road" in order to accomplish key national objectives such as accessing maritime routes, natural resources, and fishing zones. Japan has become concerned that this economic ambition could translate into a security dilemma, similar to that in the South China Sea. China could expand its military presence in the region in order to protect its economic interests, which would bring China's military ever closer to Japanese shores.
The Asian Infrastructure Investment Bank
The Investment and Operation Bureau of the Asian Infrastructure Investment Bank, Pan Yuen, claimed that the bank has received positive responses from the international community since its establishment. He highlighted that the AIIB is similar to other multilateral development banks, following strict disciplinary principles and systems to maintain a neutral position in project decisions.
According to him, the AIIB is not created for China’s political purposes. He also pointed out that the AIIB has financed over 4.2 billion USD in development projects in just two years of establishment, showing good potential and highlighting the significant financing demand in the Asia market. Further, he claimed that the AIIB will never invest “white elephant” projects, which are associated with huge resources but low practicality. The Bank conducts extensive feasibility studies before make any investment. Finally, he said “as a Singaporean, we are efficient, transparent, systematic, and neutral, and I will keep these Singaporean spheres in my work in AIIB.”
The Asian Development Bank
ADB is loaning 100 million USD to Nepal for the Rural Connectivity Improvement Project. The project aims to improve rural road infrastructure through weather resilience and better connection for the agricultural sector. ADB is also separately providing 1 million USD to Nepal to restructure the Department of Local Infrastructure Development and Agricultural Roads.
The ADB-backed Infrastructure Preparation and Innovation Facility (IPIF) has contracted the first of three consulting packages to support Philippines infrastructure projects worth over 11 billion USD. The first consulting package was made between the Philippines' Department of Public Works and Highways (DPWH) and Ove Arup & Partners Hong Kong Ltd (Arup). Arup will support DPWH in preparing and designing inter-island infrastructure. The remaining two contracts, concerning DPWH's flood management projects and Department of Transportation projects, will be finalized shortly. IPIF, along with a recent 5 million USD technical assistance grant, will support Philippine operating and management abilities in the infrastructure sector.
Laos, in collaboration with the ADB, has been working on marketing and promotion initiatives in order to boost Laos’ and the city of Vientiane’s tourism industry. Focused primarily on developing an infrastructure for the project, the ADB published a two year Destination Management Plan. In doing so, ADB and the country of Laos hope to generate more jobs, increase income, and improve the overall Laotian economy. This tourism initiative marks a rare collaboration between the government, the private sector, and non-government organizations in the region.
The European perspective of Chinese development finance
With the development of the One Belt One Road, China's trade relations with European nations are rapidly developing. The constantly improving trade channels and trade methods have led to a rare opportunity for the development of China Railway Express (CR Express). There are currently three "iron silk roads" between China and Europe and these three routes have helped reduce the distance needed to transport trade goods.
German Foreign Minister Gabriel Sigmar expressed his concern of the One Belt One Road. He views China's rise as a huge threat to Europe, claiming that China and Russia are trying to "test and destroy" the balance of the liberal western world. He called for unity in Europe and stressed the importance of cooperation between Europe and the US. 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.
State Grid Corporation China is about to buy 20 percent of the north German network operator 50 Hertz. The Berlin company operates a "critical infrastructure," providing power to all of east Germany and Hamburg. Read more here.
In northern France, the Franco-Sino relationship has been reinforced. Through a partnership with the Zhejiang, the region of Hauts-de-France now has the base for an increasing economic cooperation, especially in the context of the One Belt, One Road.
At the recent MedPorts Forum held at the Port of Marseille Fos, France, the Port of Algeciras was signed into incorporation in MedPorts. Members also discussed the role of Mediterranean ports as the middleman for European-African interactions and the evolving incorporation of the One Belt, One Road initiative in the Mediterranean. Liu Yuli a representative of the Ministry of Foreign Affairs of the Republic of China attended the forum pushing for stronger relations between China and Mediterranean countries. Read more here.
China’s Relations in Latin America and the Caribbean
Following recent changes in the investigation of the presale of oil to PetroChina, the Ecuadorian comptroller confirmed signs of apparent financial misconduct. The deal under investigation cost the PetroEcuador oil company 47.8 million USD, the company did not receive 26.2 million USD from PetroChina and 21.6 million USD from UNIPEC, both Chinese corporations. The investigation indicates that the deal involving PetroEcuador, Finanzas, PetroChina, UNIPEC, and the Chinese Development Bank was hastily performed with vague terms that caused injury to Ecuadorian finances, and may lead to revelations about corruption involving Ecuadorian officials.
Venezuelan officials, Ricardo Menéndez, Manuel Quevedo, and Simón Zerpa, met with representatives of the China Development Bank, the China National Petroleum Corporation (CNPC), Shandong Kerui and Honghua Groups, and the Chinese ambassador. The meeting included reviewing progress of joint projects and evaluating opportunities for future joint projects.
China's optimistic and aggressive foreign development agenda is swaying many countries to accept deals with the nation. Recent works in Panama are exemplary of this new economic diplomacy. China is currently managing and building ports on both sides of the Panama Canal and building the fourth bridge over the isthmus. The bridge is estimated to cost 1.5 billion USD. China's business in Panama exceeds 5.2 billion USD and draws questions about infamous corruption related to Latin American infrastructure projects. Recently, the Odebrecht corruption scandal shook the continent as a result of large bribes were uncovered. With large price tags on new projects, deals with Panama must be evaluated to determine legitimacy.
Chinese investments in Africa
China saw its investments in Africa rising above 100 billion USD in late 2016, becoming Africa's first partner. This follows a growth of 10 percent over the last decade. In this context, the Chinese diplomacy is very active on the continent with over 79 visits in 48 countries in 10 years. The most visited countries are South Africa, Tanzania, and Zambia. In Africa, China fully deploys its strategy of “guanxi”, where interpersonal connections organize political and business relations.
According to The Citizen, China will finance the construction of an university, specialized on transportation, in Tanzania. The Chinese participation is expected to be around 62 million USD.
Following an economic partnership established in February 2018, China is going to support development projects in Togo. This bilateral cooperation begins with more than 16 million USD in Chinese financial. This seems to be key partnership at a moment when a political crisis is shaking the African country's economy.
In other news...
Chinese altruism in Iran
The Chinese embassy in Tehran signed a certificate with the United Nations World Food Programme (WFP) to signify the end of a 1 million USD refugee aid project. China donated funds to buy food for refugees in Iran, mainly from Afghanistan and Iraq, for the project which started in August 2017. The WFP used the donation to purchase 1,200 tons of food for 30,000 refugees.
Chinese influence in Sri Lanka
Recent local elections in Sri Lanka marked the victory of the Sri Lanka People's Front led by former President Mahinda Rajapaksa, a staunchly pro-China politician. While the ruling political establishment in Sri Lanka has generally leaned towards India and the West, Rajapaksa's victory could challenge that as he advocates for closer economic ties with China. Sri Lanka has already been a large recipient of Chinese aid and is home to numerous Chinese-led development projects. However, some in Sri Lanka are concerned that this increasing dependence on China and Chinese projects could exacerbate financial problems in the country. The Sri Lankan rupee has fallen to a record low over the political uncertainty, and the island nation is also 65 billion USD in debt, equal to 70 percent of GDP. 8 billion USD of debt is owed to China, and as Sri Lanka continues to receive loans from Chinese development banks, this could promote a cycle of dependence and worsen Sri Lanka's debt problem.