China’s “One Belt, One Road” to Where?

During visits to Central and Southeast Asia in 2013, Chinese President Xi Jinping unveiled Beijing’s aspiration to create what it called the Silk Road Economic Belt and the 21st-Century Maritime Silk Road.  Both would entail the construction of new infrastructure to better connect the present-day countries along what was once the ancient Silk Road between China and Europe.  The former would do so over land with roads, railways, and airports; the latter across the ocean with seaports.  China’s two-part aspiration is now commonly referred to as its “One Belt, One Road” initiative.

China One Belt, One Road Initiative

At the time of Xi’s unveiling, China was near the zenith of its economic power.  Not even the 2008 global financial crisis seemed able to derail China’s economic ascent.  Some saw the “One Belt, One Road” initiative as a way for China to extend not only its economic, but also its political reach across Eurasia.  India had begun to worry about what it considered to be China’s “string of pearls,” a series of Chinese-built seaports across the Indian Ocean.  Others viewed the initiative even more broadly as an ambitious effort to reorient global commerce towards China.

But since then the air of invincibility surrounding China’s economy has dissipated.  China’s engines of growth—export manufacturing and infrastructure construction—have sputtered, as the debt that fueled them and the overcapacity that they created have ballooned.  Over the last year and half, Chinese leaders have been forced to repeatedly “fine tune” their economy to keep it growing.  They boosted China’s government spending, devalued its currency, cut its interest rates six times, lowered its bank reserve ratio seven times, and even directly intervened in its stock market.  Still, China’s economy continues to slow.

That slowdown has spurred Chinese leaders to seriously begin to shift their export and infrastructure-led economy to one that is driven by consumers.  How successful that transition will be is uncertain.  But one thing is clear, the “social stability” so prized by the Chinese Communist Party has begun to fray.  Popular unrest is on the rise.  The number of labor protests in China has soared from about 100 in 2010 to almost 2,500 in 2015.[1]

Thus, Beijing has every incentive to keep its giant manufacturing and infrastructure-construction state-owned enterprises (SOE) humming, as its economy makes the transition.  Seen in that light, China’s “One Belt, One Road” initiative looks less like a well-planned strategy and more like a scramble to keep the order books of its SOEs full.  New infrastructure contracts abroad would help do that; and once built that new infrastructure might help Chinese manufacturers export at a lower cost.

One can see China’s push to build more infrastructure projects from Indonesia to Pakistan.  In September, a Chinese-led consortium won approval from Indonesia to build a $5.5-billion high-speed railway in Jakarta.  But the consortium won only after it agreed that the Indonesian government would not have to guarantee the Chinese loans needed to finance the railway’s construction.  While that concession may have secured the approval, it also increased the potential financial losses that the consortium would have to bear if anything goes wrong.  With such large and complex construction projects, it is hard to ensure that will not happen.

Surely, China expected a different outcome after its construction companies built a port at Gwadar for Pakistan in 2007.  Despite a total investment of over $1 billion, the port has remained virtually idle.  Now China is doubling down on the Gwadar project.  It has promised $45.7 billion in fresh financing to build the China-Pakistan Economic Corridor, a series of energy, road, railway, and pipeline projects that will more closely tie Gwadar to China.

Of course, China can still benefit from such infrastructure projects even if they turn out to be unprofitable.  The new road, rail, and pipeline routes through Pakistan will enable China to import strategic resources, like oil, natural gas, and minerals, from the Middle East without being reliant on sea routes through the Indian Ocean.  The projects could also deepen China’s “all-weather” friendship with Pakistan by creating new constituencies within Pakistan that benefit from the economic activity that the trade routes to China could foster.

Other land-based links to China could do the same. The Kunming-to-Bangkok railway is another example.  The portion of it in China is already finished; the portion in Laos broke ground in December; and the final portion in Thailand is slated to begin construction in May 2016.  Given the massive scale of Chinese trade, even if a small portion of it is redirected over the railway, it could reshape the economic interests of a small country like Laos.  Indeed, China may hope to use the railway to pry Laos away from its traditional ally, Vietnam, and gain another friend in ASEAN.  On the other hand, China would not benefit to the same degree from Chinese-built seaports and airports that are not directly connected to it.  While they may boost trade in the host country, the course of that trade could be redirected elsewhere, if trade with China does not evolve as expected.

That is now a real possibility.  If the Chinese economy continues to soften, it means that China will need to import fewer raw materials and export fewer finished goods.  In the second half of 2015 China’s monthly imports fell 10 to 20 percent from a year earlier; and its exports slipped too.  Unless global demand revives or Chinese consumers pick up the slack, Beijing might well expect its “One Belt, One Road” initiative to yield more long-lasting political than economic benefits.

[1] “Number of strikes and worker protests in China hits record high in November,” China Labour Bulletin, Dec. 3, 2015.

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The Big Chill: Domestic Insecurities and Sino-Japanese Relations

China and Japan sparred once again, this time at the United Nations.  Last week, China’s ambassador for disarmament affairs charged Japan with amassing excessive amounts of sensitive nuclear materials, notably 1,200 kilograms of highly-enriched uranium and 48 tons of separated plutonium (of which about a quarter is stored on Japanese territory).  That is sufficient, he claimed, for Japan to make 1,350 nuclear warheads.  Japan’s disarmament envoy shot back that his country’s nuclear program has safely operated under the International Atomic Energy Agency’s safeguards for more than 50 years.  He added that over that time Japan has consistently demonstrated its peaceful intentions and would not pose a threat to other countries.[1]  Given that he directed his response at China’s ambassador, one may have also taken it as a reminder of China’s recent aggressive behavior in the East and South China Seas.

Shinzo Abe and Xi Jinping at APEC 2014

The pointed exchange marked another episode in the downward path of relations between China and Japan.  It was not so long ago both countries got along.  Throughout the 1990s and 2000s, they enjoyed ever closer economic ties.  Many blame the current deterioration in Sino-Japanese relations on the tensions that arose over Senkaku Islands (or Diaoyu Islands in China) in 2010 or Tokyo’s purchase of them from private Japanese owners in 2012.  Certainly trade between the two countries has fallen ever since then.  (See table.)  But the dispute over the islands was just the spark.  China and Japan have substantially changed over the last two decades, both in absolute and relative terms.  Both countries have developed domestic insecurities that led them to view each other with greater concern.

On the surface, China does not seem to have any cause for insecurity.  Its ruling Chinese Communist Party (CCP) is ostensibly at the pinnacle of its power.  The government at which it is the head has presided over a 35-year economic expansion that has made China the envy of the developing world.  It is even doling out largesse under the auspices of its “One Belt, One Road” initiative and through the Asian Infrastructure Investment Bank (AIIB) that will likely expand its influence across Asia and Africa.

Yet the CCP has reason to be anxious.  In its headlong push for economic growth, it often ignored public ire over government land grabs, pollution, and workers’ rights.  The party’s widespread corruption further dented its credibility.  Hence, despite the CCP’s best efforts to eliminate organized dissent, the number of public protests has recently risen.[2]  Meanwhile, China’s fast-rising economy, once the CCP’s shining achievement, is losing its luster amid sagging exports, bursting property bubbles, and rapidly mounting debts.  Seen in that light, China’s “One Belt, One Road” initiative and AIIB begin to look more like a worried search for growth abroad (and work for its infrastructure-building companies) than a coherent strategy to connect Eurasia’s economies.

Adding to the CCP’s unease is the ever-smaller number of true believers in its Marxist-Leninist ideology.  Chinese President Xi Jinping’s efforts to promote Marxism have fallen flat.  So, the CCP has returned to nationalism to bolster its popular appeal.  A big part of that has always been showcasing the CCP as China’s savior from Japanese occupation (while largely omitting the role of Taiwan’s Kuomintang).  The CCP seems to believe that its ceaseless criticism of Japan proves that it still faithfully stands watch against any revival of Japanese militarism that could threaten China.

Linked to that narrative, the CCP has tried to show how much stronger China has become under its rule.  That was made clear in September when China celebrated the 70th anniversary of the end of World War II (and China’s victory over Japan) with a massive military parade in Beijing.  The martial display conveyed the message to the Chinese people that they should be confident in the ability of the CCP to not only defend China, but also govern it.  On the other hand, that Beijing felt the need to use such demonstrations of strength to dispel doubts about its political legitimacy probably worried its neighbors.

Meanwhile, across the Yellow Sea, Japan has grown insecure too.  It can no longer rest easy as Asia’s dominant economic power, a title that it lost to China a decade ago.  It is increasingly aware of its national vulnerabilities.  Japan’s population is ageing fast and shrinking.  That demographic shift not only has implications for every aspect of Japanese society, but also will make economic growth harder to achieve.  That is doubly concerning for Japan, which is still struggling to break free from a quarter century of economic stagnation.

Japanese leaders are all too well aware that China’s rise is remaking the regional hierarchy in Asia.  They realize that Japan cannot afford to remain forever quiescent, if it is to avoid being consigned to a subordinate role in the new order.  That has compounded Japan’s sense of unease, because Japan knows that it must keep the power gap between China and Japan from growing wider, even though it now has fewer resources with which to do so.  Fortunately for Japan, other Asian countries have begun to feel the same way.  India, the Philippines, and Vietnam have all embraced Japan.

Tokyo has taken advantage of that sentiment and become far more diplomatically active across the region, if only to prevent China from consolidating its power there.  As Xi has pushed China’s “One Belt, One Road” initiative, Japanese Prime Minister Shinzō Abe has never been far away.  Abe has travelled to Southeast Asia numerous times to ink economic, political, and even a few military cooperation agreements.  Last week, Abe began a five-country tour through Central Asia, which lies at the heart of China’s “One Road.”  A week earlier, the Japanese Maritime Self-Defense Force dispatched a destroyer to participate in naval drills with India and the United States in the Indian Ocean for the first time.

Meanwhile, there has been a generational change in Japan.  Older Japanese who had been willing to accept Japan’s diminished international stature as penance for its militarist past are passing from the scene.  Younger Japanese who have no connection with that past believe that their country has proven itself to be a responsible actor in world affairs.  Today, a majority of Japanese believe that Japan has sufficiently apologized for its military actions during the 1930s and 1940s, which China relishes reminding Japan of at every turn.  Unsurprisingly, recent polls showed that only 7 percent of Japanese viewed China favorably (down from 55 percent in 2002).  Even more telling, China’s very unfavorable rating in Japan climbed to 48 percent.[3]

The domestic insecurities of China and Japan are unlikely to abate soon.  China’s insecurities, bound up with those of the CCP, will grow if the Chinese economy continues to slow.  Japan’s insecurities are tied to its long-term demographic trends.  Both sets of insecurities continue to drive a wedge between the two countries.  Even the non-governmental Beijing-Tokyo Forum, whose primary purpose is to improve Sino-Japanese relations, has found it harder to reach a consensus.  The forum, which invites high-level former government officials from both countries, has always managed to eke out a joint statement, even during particularly testy times in Sino-Japanese relations like 2012.  This week it concluded without managing even that.  For the moment, relations between China and Japan are on ice.  The region should be grateful that the latest row between the two countries occurred inside the United Nations and not out in the East China Sea.

[1] “China Slams Japan’s Plutonium Stockpile, Frets About Nuke Armament,” Japan Bullet, October 21, 2015.

[2] See China Labor Bulletin.

[3] Pew Research Center, “Global Opposition to U.S. Surveillance and Drones, but Limited Harm to America’s Image,” July 2014; Pew Research Center, “America’s Global Image Remains More Positive than China’s,” July 2013.

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In China: “A Peaceful Democratic Transition?”

China

Nothing appears by accident in the Global Times, Beijing’s mass-circulation tabloid owned by the People’s Daily and run by the Communist Party. So I was astonished to read there, in an editorial feature this past March 9, the following sentence:  “The West has never thought that China will have a ‘peaceful democratic transition,” [西方從未想過中國將有’和平的民主過度]. Even a year ago such words would have been grounds for firing or worse. Yet there they were; they had passed through layers of editors and censors, and their meaning was unmistakable.

How to explain them? I think this sentence is one of the now regular but inconspicuous clues scattered in the media as to where China’s new and energetic President Xi Jinping 習近平 (1953-) seeks to take his country.

The article appeared in response to a piece by an American China specialist long known for his highly favorable views of Chinese communism but now suddenly turned pessimistic, foreseeing chaos ahead [David Shambaugh, “The Coming Chinese Crackup, Wall Street Journal, March 6]. The essay seems deeply to have insulted the Chinese authorities.

Why? As the Chinese author sees it, by insisting that the his people cannot rule themselves, but instead require the strong hand of dictatorship, with chaos as the only alternative, the regime’s most reliable American apologists are in fact suggesting that somehow, by nature or culture, the Chinese are simply unfit for or incapable of the sort of peaceful change that in 1994, for instance, saw Nelson Mandela (1918-2013) elected president in previously apartheid South Africa.

“No,” the newspaper is saying: “Americans, please realize that Chinese are not natural slaves and that we can and will change if necessary as many other countries have done.”

An unprecedentedly fierce attack on corruption even at the highest levels has so far been the hallmark of President Xi’s administration: He has put one corrupt official after another behind bars—“tigers” they are called in Chinese, laohu 老虎.  An example is Zhou Yongkang 周永康 (1942-), who among other things, is the controller of the whole national secret police and security apparatus. All have been so long in office as to have seemed permanent fixtures of the regime, having limitless power—and also fortunes, some in the billions of US dollars—at least partly secreted outside China.

Attacking such “tigers” head-on as Xi is doing is an enormous risk. He understands better than anyone that if they should somehow band together, they can easily topple him. Rumor has it that Xi has already survived six assassination attempts.

Nothing, however, unifies these “tigers” except individual greed. They have no ideology; if anything they are rivals. Furthermore, ordinary Chinese people are thrilled to see notorious criminal officials brought down. This writer’s observation is that the general Chinese community has not been so interested in politics since the 1980s, before their dreams of democracy drowned in the blood of the June 4, 1989 Tiananmen massacre. That Xi is playing a very dangerous high-stakes game cannot be denied. If it breaks against him and he is deposed, then China will almost certainly face chaos and internal conflict.

Suppose Xi succeeds, however? Some of his statements about rule of law, following the constitution, and so forth suggest that at a minimum he is aiming to make China what the Germans call a Rechtsstaat—not a democracy, but a polity ruled fairly, by laws. That is certainly conceivable.

Like Mikhail Gorbachev (1931-) Xi perhaps also believes that Communism can work if purified. Should he reach the rule of law stage, however, he will discover that is not the case, as Gorbachev did. Without intending to, the last Soviet ruler built the legal and constitutional fire-escape that allowed the Soviet people not to rebuild communism, but rather to file safely out before it collapsed on them. If things break his way, and the rule of the “tigers” is ended, Xi could well do the same for China.

Or even more. Perhaps it is as a signal of the ultimate goal that we should read that phrase, in an official communist newspaper, about China having “a peaceful democratic transition.”  Certainly the words were printed intentionally and chosen to convey some meaning. What else, realistically, could that meaning be?

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Contested Border: China, India, and the Asian Century

Chinese President Xi Jinping’s three-day visit to India last week was supposed to have breathed new life into ties between Asia’s two giants, China and India.  It was the first visit to India by a Chinese president in eight years.  Many hoped it would reboot what was once heralded as the “Asian Century.”  Implicit in that hope was the belief that good relations between the two countries would have to develop to realize the potential of such a century.  On that score, Xi assured his host, Indian Prime Minister Narendra Modi, that China believed its neighbors would be vital to its wellbeing, after all “a warlike state, however big it may be, will eventually perish.”

That assurance was needed, because during Xi’s visit to India, Chinese troops twice crossed into territory that India claims as its own.  One incident began near Chumar about a week before Xi’s arrival.  Chinese forces brought heavy construction equipment and workers into the area with the intention to build a new road there.  Indian troops confronted them and a standoff ensued.  Meanwhile, another incident developed at nearby Demchok, where over a hundred Chinese nomads gathered to protest India’s construction of an irrigation canal that they believed was on Chinese soil.  Thirty Chinese soldiers accompanied the protesters.  Local Indian authorities dispatched 70 border policemen to the scene.  That created a second standoff.  Both then escalated during Xi’s visit.  At their height, about 800 Chinese troops and 1,500 Indian troops were deployed to the areas.  No doubt, the incidents gave Modi something to talk about with Xi during their time together.

China India Asian Century - Border Dispute over Chumar and Demchok

In public, however, Modi and Xi tried to downplay the border incidents.  For Modi, the visit was a chance to attract Chinese investment into Indian infrastructure and manufacturing projects.  For China, it was an opportunity to pry India away from the overtures of Japan and the United States.  A number of agreements were signed.  The two sides agreed to jointly study improving India’s railway system, ease the trade imbalance between them, and cooperate on developing a new economic corridor through South Asia.  China pledged that it would invest $20 billion into India over the next five years, of which $6.8 billion would go into building two new industrial parks in Gujarat and Maharashtra.  In a speech at the end of his visit, Xi contended that “only when the China-India relationship develops, will a real ‘Asian Century’ emerge.”

Nevertheless, many issues still split the two countries.  Their disputed border is only one of them, albeit a particularly thorny one.  In the first nine months of 2014, India recorded 344 Chinese border incursions.  Seventeen rounds of negotiations between the two governments since the 1990s have done little to settle the issue.  But even without the border dispute, there were still other instances of friction between the two countries in just the last week that would have taken some of the shine off of Xi’s visit.

On September 15, India agreed to extend to Vietnam a $100 million export credit for defense equipment that Hanoi has been busily acquiring to counter China.  As if that was not enough, India’s state-owned national energy company, OGNC, signed an agreement with its Vietnamese counterpart, PetroVietnam, to expand their cooperation in oil and gas exploration in the South China Sea, most of which China claims as its maritime territory.  That prompted China’s foreign ministry to warn India against entering into any deals that infringe on China’s territorial claims in those waters.

Similarly, India remains suspicious of Chinese intentions regarding its neighbors in South Asia.  Over the last decade, China has financed and built a string of major port and airport infrastructure projects in places like Gwadar in Pakistan, Hambantota in Sri Lanka, and Kyaukpyu in Myanmar.  Now, China has announced its “Maritime Silk Road” initiative in the region, which echoes its “New Silk Road” effort in Central Asia.  Indeed, prior to arriving in India, Xi was pushing the new initiative in Sri Lanka and the Maldives.  India has naturally grown concerned that China might challenge it as the dominant power in the region.  Last week, the Maldives only fanned those concerns when it gave a highly lucrative contract to manage its international airport to a Chinese company, after taking it away from an Indian one in 2010.

During Xi’s visit, Modi suggested that their two countries should put the past behind them.  Unfortunately, the present looks little better than the past.  The twenty-first century may well be remembered as an Asian one.  But one should not assume that an “Asian Century” will necessarily lead to prosperity and renewal, as Xi implied.  Europe dominated the eighteenth and nineteenth centuries.  Both were known as much for the conflicts and rivalries among European powers as for their economic development.

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China and the Islamic State

The Islamic State in Iraq and Syria might seem far removed from China.  But the spread of its sort of Islamic militancy knows few boundaries.  On Monday, Indonesian authorities arrested seven men who had sought to meet Indonesia’s most-wanted Islamic terrorist.  Four of them, travelling on forged Turkish passports, turned out to be Chinese Uighurs.  Jakarta is now investigating whether the men are linked to the Islamic State.  That follows comments made this summer by the Islamic State’s leader, Abu Bakr al-Baghdadi, that a number of Chinese fill his ranks, and images that surfaced two weeks ago of a Chinese national who was captured while fighting for the Islamic State.

To be sure, Beijing has long been concerned about Islamic militants, particularly those in its far western province of Xinjiang.  Over the last two decades, there have been periodic episodes of violence by the province’s Muslim Uighur ethnic group against local Han Chinese (often followed by equally violent reprisals by the latter against the former).  Historically, however, those episodes have been mainly driven by specific grievances rather than jihadist fervor.  Most cases of unrest occurred after some perceived injustice, such as the detention of an imam or other local leader.  But in recent years, Uighur attacks have become more frequent and ranged far beyond the borders of Xinjiang.  Three major attacks occurred so far this year.  In March, knife-wielding assailants attacked a train station in Kunming, in central China, leaving 31 dead and 140 wounded.  Then in May and August, two more attacks occurred in Xinjiang.  Those attacks left another 127 dead and scores of wounded.

For years, Chinese authorities have tried to prevent such unrest with a three-pronged approach: boost the economic development of Xinjiang; encourage Han Chinese to migrate there; and tighten security across the province.  They largely succeeded on all three counts, but failed to end the unrest.  The biggest beneficiaries of Xinjiang’s economic growth turned out to be the Han Chinese migrants, not the native Uighurs.  That left the Uighurs feeling not only relatively poorer, but also brushed aside by the influx of Han Chinese.  Meanwhile, tighter security meant that Chinese police and security forces had been set on a hair trigger to react to any suspicion of Uighur unrest.  That led to routine security sweeps which have alienated even more Uighurs.

But whatever the internal situation, Beijing has always been quick to accuse exile Uighur groups for fomenting or supporting acts of terror within Xinjiang, particularly the East Turkestan Islamic Movement (ETIM).  While that may be true in some cases, most exile Uighur organizations were in no position to foment or support much of anything in Xinjiang.  Indeed, the activities of the ETIM have likely been exaggerated by not only Chinese authorities, but also the ETIM to aggrandize itself.  The well-funded Islamic State would be a far bigger danger should it ever reach China’s door.

But even before the Islamic State’s rise, China had begun to seek ways to keep militant Islam as far away as possible.  That was one of the key reasons behind why it, Russia, and four Central Asian countries created the Shanghai Cooperation Organization (SCO) in 2001.  Today, China sees its support for the SCO as a bulwark against the advance of militant Islam towards its borders and the Islamic State should it try to establish itself in Central Asia.  Last Friday, Chinese President Xi Jinping attended this year’s SCO conference in Tajikistan.  There, he urged SCO’s other leaders to do their utmost to prevent Islamic extremism.  He also elevated China’s ties with Tajikistan to that of a “strategic partner” and promoted China’s “New Silk Road” concept.  Earlier this summer, the SCO held its largest military exercise since the early 2000s.  About 7,000 troops participated in the exercise, with China providing the majority of them.

The advent of the Islamic State in areas where China has commercial interests had already endangered Chinese citizens.  Beijing evacuated over a thousand Chinese workers from Iraq in June, when Islamic State forces marched on Baghdad.  That evacuation followed others from Libya and Syria after conflicts consumed those countries.  While China has been so far unwilling to directly confront Islamic militants, China did agree to deploy a 700-man infantry battalion to a United Nations peacekeeping mission in South Sudan in September.  The battalion will be used to protect oilfields that are operated by China National Petroleum Corporation and threatened by civil strife.

All this may sound like the common concern over the Islamic State might have given China an incentive to work with the West, if only to protect itself and its economic interests in the Middle East.  But that is not quite the case.  Just because they agree on who is a threat does not mean they can agree on what to do about it.  The two sides still hold different visions of how the world should work.  That much was clear in China’s official response to U.S. President Barack Obama’s call for an international coalition to fight the Islamic State in Iraq and Syria.  Chinese Foreign Ministry’s spokesperson agreed that “The international community should jointly combat terrorism.”  But, she added, China would want to ensure the respect of the “relevant countries’ sovereignty, independence and territorial integrity in the international fight against terrorism.”  So, unless Syrian President Bashar al-Assad—a leader reviled in the West—approves of American-led air strikes against the Islamic State in Syria, China would not support such actions there.  (Russia holds the same position.)

For now, China can afford to walk that fine line.  It can expect that the United States and its allies will do their best to defeat the Islamic State or, at least, prevent its expansion.  But other dangers still lurk.  Already, China is concerned about the ramifications of the American withdrawal from Afghanistan.  Could Afghanistan or Pakistan’s tribal regions produce new Islamic militants who might incite even greater unrest in Xinjiang?  Hence, China continues to bolster its relationships with its Central Asian neighbors, in part, to create a buffer zone between it and whatever dangers lay beyond.  China’s “New Silk Road” fits nicely into that strategy.  Its economic benefits should help to cement the commitment of the elites from Central Asia’s countries as well as enable them to contain Islamic militancy in their countries.  But China should take care that its “New Silk Road” does not benefit those elites too much.  Not doing so could breed resentment against China among the rest of their populations.  Were that to happen, Beijing’s “New Silk Road” might also become a new path for Islamic militants to China.

 

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