The dragon has officially risen. But as China spreads its reach and influence beyond its borders through the Belt and Road Initiative, implementation concerns will call out China’s ascendancy as anything but responsible.
This is the thirty sixth part in the series The China Chronicles.
Read all the articles here.
“The Chinese nation … has stood up, grown rich, and become strong — and it now embraces the brilliant prospects of rejuvenation … It will be an era that sees China moving closer to centre stage and making greater contributions to mankind.” So declared Xi Jinping as he inaugurated the Chinese party 19th congress. He ushered in a “new era” of Chinese power and outlined a roadmap that leads China into becoming a “global leader in terms of composite national strength and international influence” by the end of its second centenary.
The Belt and Road Initiative (BRI) is the primary tool in Xi’s arsenal that has begun the process of institutionalising Chinese power beyond its borders. While Xi highlighted his trademark initiative as a means to pursue international cooperation and an open global economy during his speech, the BRI also responds to the economic priorities, laid out in Xi’s speech, of lowering domestic overcapacity and moving up the manufacturing value chain. Moreover, the connectivity initiative will be the prime vehicle to export China’s developmental model that Beijing is offering for emulation in the developing world.
But how “responsible” will China’s rise be on the global stage? Will it indeed “continue to play its part as a major and responsible country,” as Xi stated in his speech? The implementation of the BRI is already giving us clues. “There seems to be a considerable gap between the perception of how beneficial Chinese investments abroad are, and the reality,” noted journalist Juan Pablo Cardenal, who has examined the impact of Chinese investments in the developing world.
Worrisome as the five factors laid out below are in their individual instances, the broader institutionalisation of these governance flaws under the increasing scope and reach of BRI will sound the death knell for “win-win” cooperation and render hollow claims of benign Chinese development and China as a responsible world power.
The BRI has thus far been a tale of Chinese companies, Chinese materials, Chinese labour, and Chinese profit.
The BRI is supposed to spur economic development in partner countries as it leads China to regional and global power. It is indeed helping fill the $1.7 trillion-per-year infrastructure gap that currently exists in Asia-Pacific countries. “There are certain countries, like Kyrgyzstan and Tajikistan, where the BRI is literally keeping the lights on,” as discovered by Tom Miller, author of China’s Asia Dream, during his travels to BRI countries. Pakistan’s energy deficit costs the country four percent of its GDP and expects to see it redressed by the China-Pakistan Economic Corridor (CPEC). Yet a number of uneven gains are increasingly evident.
Chinese loans are primarily being used to pay Chinese contractors and companies to build the infrastructure with China-sourced materials and even manage them. For instance, the BRI will increase demand for Chinese steel by 20 per cent by 2020. In the meantime, the non-competitive bidding process sidelines local companies from the work being generated.
Beyond a build-operate-transfer model that prioritises Chinese economic objectives, a rampant presence of Chinese companies will prove detrimental to local industries, and particularly to smaller and younger businesses in these industries. For instance, underscoring fears Pakistani businesses have expressed of being out-competed by more cost-effective and preferentially treated Chinese ones is the fact that no Pakistani company has reportedly been invited to set up shop in the nine Special Economic Zones being established under CPEC in the next two-three years. <1>
Local labour is not better served. At the Belt and Road Forum in May, Xi claimed that in its first three years of implementation, 180,000 local jobs had been generated. An estimated 85 million low-skill jobs in total are expected to be relocated from China to lower-income countries with increasingly greater labour-cost advantages. Yet workers in industries that are no longer competitive will be marginalised in the presence of Chinese businesses in industrial parks and free zones. Moreover, projects in the pipeline are not seeing as felicitous numbers. Take, for example, BRI’s flagship project, CPEC. First, there is a lack of official numbers for most CPEC projects, though these are beginning to emerge. Second, transparency is absent not only on the ratio of Chinese to Pakistani labour where employment numbers are popularly cited, but also what kind of jobs Pakistani citizens are likely to get. This merits scrutiny as Pakistanis are largely being employed to protect Chinese citizens and Chinese investments. Residential complexes are being built to accommodate an incoming wave of 500,000 Chinese professionals in Gwadar; by comparison, “thousands of jobs for people in the province” is the closest estimate available for Pakistani employment at Gwadar. The recently-released “much-awaited” statics of local employment at the Gwadar Free Zone cite “55% local employment” without providing actual numbers; 40,000 jobs at this free zone is another figure kicked around, but again, with little clarity on how many will go to Chinese and how many to Pakistanis. Indeed, a general sense of uncertainty prevails over how many actual and potential local jobs CPEC will generate — estimates range from one million jobs from now until 2030 to 2.32 million jobs in the next two years.
Revenue generation is another area where uneven gains — and losses — are evident. Big-ticket infrastructure projects, like the Gwadar port, will be seeing China rake in the lion’s share. Pakistan will receive only nine per cent of revenues from terminal and marine operations, and 15 per cent from free zone operation. Trade and transportation fees would go solely into Pakistani coffers. Where projects that do not meet local needs are built, and subsequently remain unused or underutilised, China’s BRI partners are going to be saddled with white elephant projects that further stress their capacity to repay debt. The Sri Lankan Hambantota port, and surrounding infrastructure projects, are illustrative cases. The deep-water port, built at a cost of over $1 billion, has lost over $300 million since it opened in 2010; traffic on the highway leading to Hambantota comes from wild elephants; the nearby cricket stadium remains unused; the neighbouring Mattala international airport is the world’ emptiest, handling no more than three outbound flights per day.
China may be sacrificing returns on its investments at the altar of political or strategic gain — the Gwadar port, for instance — but projects that do not meet local needs will end up proving financially and politically unsustainable for poorer countries along the Belt and Road.
The UNESCAP report released earlier this year laid bare how unviable Chinese-led infrastructure projects, or those built on high-interest loans (to the tune of over 6 per cent), could be financially unsustainable for poorer, higher-risk countries. Sri Lanka remains the prominent case in point from India’s neighbourhood. It currently owes 10 per cent of its debt — more than $8 billion — to China. Pakistan, Bangladesh, and Nepal following in the same footsteps is a real worry, especially since Chinese investments account for large proportions of the GDP of these countries. The $24 billion China-Bangladesh agreement signed last October is equivalent to almost 20 percent of Bangladesh’s GDP, for example. Chinese high-interest loans and any unwanted or unused infrastructure development — on top of weak trade balances, underdeveloped financial markets, poor debt management, and low foreign exchange reserves — worsen the country’s capacity to pay China back.
Multiple consequences follow: countries now more open to Chinese political suggestions; debt turning into equity that gives China control over national assets and critical infrastructure; and/or debt that is passed on from generation to generation.
The argument is that poorer regions of BRI countries (Balochistan in Pakistan; the Northern Province in Sri Lanka; the Rakhine state in Myanmar) and their peoples will become better off through the BRI, much like China’s efforts to do the same with its own Xinjiang province. Yet a number of problems are being encountered on the ground that point to adverse effects.
For example, land grabbing. In Myanmar, more than 20,000 people could lose their livelihoods because of land being acquired to create an SEZ at Kyaukphyu. Already marginalised communities could be further sidelined: the Hazaras in Pakistan were highlighted in the UNESCAP report. In Sri Lanka, opposition to Chinese investments turned violent earlier in the year as citizens protested against being turned out of their homes and off their lands for the creation of an industrial zone near Hambantota. Concerns of uneven development persist: Pakistan continues to face inter-provincial tensions due to concerns of unequal distribution and pace of BRI projects, even after the Chinese Embassy in Pakistan clarified the share of CPEC projects in each province last October.
Moreover, the Chinese staunch belief that development, particularly economic development, will bring security in unstable regions is being tested as well. Not only is increased social unrest a possible result of exploitative Chinese investments in already restive parts of India’s neighbourhood, disenfranchised individuals and extremist groups attacking BRI infrastructure development, as in Balochistan, will effectively increase insecurity.
Even as Xi proclaims a national anti-corruption campaign hard at work in “fighting tigers, destroying flies, and hunting down foxes,” there is far more ethical laxity being seen in investments abroad. Bribery as a Chinese business strategy is well known; anecdotal evidence exists of Chinese investments propping up preferred political parties and leaders. Several countries participating in the BRI rank high in corruption. Chinese money and company practices, as well as a Chinese penchant for fast-paced project work, will likely worsen this governance challenge.
In South Asia, Sri Lanka’s Hambantota is a poster child of this problem. CPEC regularly faces criticisms and concerns of corruption, given Pakistan’s recent track record on ready display.
Earlier this year, work on the Chinese-financed $3.6 billion Myitsone Dam in Myanmar was suspended amid protests over concerns, among other things, of damage to the river and fish stocks. In Sri Lanka, habitats of the 400 elephants that live outside national parks are in danger. The UNESCAP report mentioned the CPEC route passing through, and ruining, cultivable land in western Pakistan.
Infrastructure development will inevitably introduce changes in air and water quality, and land use. China has not been known for environmentally conscious infrastructure construction; it faces its own air pollution battles in its urban cities. There also exist targeted concerns of China exporting its pollution (think coal-fired plants to be built under CPEC); by one estimate, investments under the BRI umbrella will be one-third green, and two-thirds black. <2>
Developing countries remain in want of Chinese money to fund their development agendas. Myanmar, for instance, facing governance challenges that are preventing it from providing urgently needed services, is trying to understand how BRI could complement national objectives. Sri Lanka remains enthusiastic: Chinese investments worth $5 billion in the next three-five years that could create 100,000 jobs are potentially in the pipeline.
However, these states will push back if they grow increasingly disenchanted with Chinese investments that impinge on their sense of sovereignty. Alternatives are already emerging on principles of people-centric connectivity, consultation, responsible financing, transparency, skill and capacity creation, rule of law, and good governance.
China has invested $60 billion thus far; it will spend $600-$800 billion more in the coming five years. There is still time for Xi and China to understand the above-discussed concerns and problems, and discipline implementation to more comprehensively make the BRI a “win-win” for all those involved. Whether China has the capacity to course-correct is a further question to explore. Critically, how China pursues the BRI will betray its intent as an emerging leader and power.
<1> Jabin Jacob, presentation at Institute of Chinese Studies roundtable, June 7, 2017.
<2> John Seaman, presentation, IFRI_OCPPC roundtable, September 18, 2017.
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Ritika Passi works at the intersection of economics and security. Her research focuses on regional connectivity initiatives and power shifts in global economic governance. She ...
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