Beijing’s economic colonisation

Belt and Road met with resistance in Eurasia

The Belt and Road is an important Chinese economic diplomacy initiative which should boost development and reduce risks of terrorism in partner countries. Some have called it ‘China’s Marshall Plan’, likening the initiative to the multi-billion-dollar US aid programme which helped rebuild western Europe after the second world war. China’s total investment in the Belt and Road over the next decade is expected to reach $1.6tn.

Many have welcomed China’s bold initiative, which promises to address Asia’s massive infrastructure deficit and could provide a boost to economic growth through market integration. But according to some analysts, countries should avoid China’s infrastructure investment model.

Poorly managed infrastructure investments are one of the main causes of China’s current economic problems. Unless China shifts to a lower volume of higher-quality investments, the country is likely to suffer an infrastructure-led financial crisis.

The rating agency Fitch has highlighted the risks to China’s banking sector emanating from the Belt and Road plan. The agency notes ‘there is a risk that projects could fail to deliver expected returns’ and questions whether China’s banks can identify profitable projects: ‘Chinese banks do not have a track record of allocating resources efficiently at home, especially in relation to infrastructure projects.’

The asymmetries of size and power between China and the participating countries present further challenges. As countries like the Philippines, Vietnam and Japan have discovered, disagreements with Beijing can lead to reduced market access and diplomatic exclusion. China’s assertive behaviour in the East and South China Seas has made Belt and Road partners suspicious of Beijing’s motives.

The upgrade of Sri Lanka’s deep-sea port in Hambantota provoked street protests and opposition by legislators because of the perceived generous concessions to China. When the port became a loss-making burden, the Sri Lankan government entered into a debt-to-equity swap granting state-controlled China Merchant Holdings 85% of the port and a 99-year concession to develop its operations. There are reports of the Chinese navy using this commercial port for visits by military submarines.

Landlocked Kazakhstan could benefit from infrastructure improvements that open the country to Europe. But citizens are protesting against reforms that would allow foreigners to rent agricultural land for 25 years. There is widespread feeling that this would not bring benefits to Kazakhstan, especially since China would import Chinese workers for such projects.

The China-Pakistan Economic Corridor (a $44.5bn package of investment projects) is facing security troubles from the Pakistani Taliban and other militant groups that threaten construction and trade. Meanwhile, provincial administrations and the central government are arguing over the allocation of investment.

As India’s former defence minister, Pallam Raju, remarked, there is a need for more information sharing. ‘China is not necessarily a benign power, and it should be more transparent,’ said Raju. Indian government officials have criticised China’s unilateral, rather than co-operative, approach.

During a 2015 visit to Beijing, Indian Prime Minister Narendra Modi reportedly told Chinese leaders that the China-Pakistan Economic Corridor is ‘unacceptable’ because it passes through Pakistan-occupied Kashmir, an area claimed by India. India fears that Pakistan’s port of Gwadar could become a Chinese naval base, rather than a commercial hub, and understandably fears encirclement in the Indian Ocean by Chinese-financed ports. At the same time, Modi has not offered his neighbours any meaningful alternatives to China’s Belt and Road initiative.

According to Paul Keating, former Australian Prime Minister and now adviser to the China Development Bank, ‘What we’re going to see is a reasonably obvious economic colonisation of the 50-odd states between the western border of China up to at least western Europe.’

Beijing may be able to get some of what it wants by buying the influence of administrators suspected of corruption. But Keating may be underestimating the force of public opinion and popular opposition to China’s perceived colonial ambitions. To realise its goals, the Chinese government will have to take greater account of the concerns and sensitivities of local populations.

John West is Executive Director of the Asian Century Institute and a Member of the OMFIF Advisory Board.

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