HARPER: BELT AND ROAD--A MARSHALL PLAN WITH CHINESE CHARACTERISTICS

Beginning in 2013 with President Xi Jinping's speech at Astana University in Kazakhstan, China has embarked on a multi-billion dollar investment program stretching across Eurasia, into Africa, and South America.  Xi Jinping's signature Belt and Road Initiative, referring to maritime and overland transportation investments, has transformed economic relations impacting on more than half of the world's population.  Today, there are dozens of rail corridors linking cities in the heart of China with markets in Western Europe.  The Chinese investments have reduced both costs and travel times.

In a similar fashion, China has invested in port modernization from the Indian Ocean into the Mediterranean Sea.  Gwadar port in Pakistan, a new deep water port in Sri Lanka, port modernization in Djibouti, warehousing and industrial free zones in the Suez Canal and modernization of the Greek port of Piraeus have given China maritime access to the same European and African markets.

After the International Monetary Fund failed to make long-overdue reforms, giving greater voice to leading emerging market economies, Brazil, Russia, India, China and South Africa formed the BRICS alliance and established a New Development Bank to provide coordinated capital investments in infrastructure projects throughout the South.  China launched the Asia Infrastructure Investment Bank (AIIB), which now has over 80 charter member countries and an international staff and board that assure international lending standards are fully met.

At the time Xi Jinping launched what some have called "a new Marshall Plan with Chinese characteristics" the Obama Administration in the United States refused to participate and pressured allies to boycott the AIIB.  European governments refused to boycott, and only Japan among Washington's leading allies stayed out of the bank.  But recently Prime Minister Shinzo Abe has agreed to collaborate with China's BRI, while retaining strong security ties to the United States.

Critics of the Chinese global economic investment program have charged that China is employing "debt trap diplomacy"--lending to countries that cannot pay for the large infrastructure projects in order to exert future economic and political influence.  Others charge that the maritime "Silk Road" is linked to Chinese naval expansion, and the ports built up by Chinese investments will eventually house Chinese submarine and surface ship bases.

Belatedly and on an initially small scale, Washington is waking up to the fact that China has stepped into a vacuum created by the failure of Western nations to invest in urgently needed infrastructure projects throughout the developing world.  Where would the United States itself have been without the investments in canals, roads, the Trans-Continental Railroad, electrical power, including from more than 100 nuclear power plants, largely built during the 1950s and 60s?  Infrastructure investment is one critical component of national economic development and sovereignty.

Last year President Trump signed the BUILD Act, which merged the Overseas Private Investment Corporation with USAID's Development Credit Authority to form the U.S. International Development Finance Corporation, with $60 billion in initial capital.  It is a small first step towards the United States returning to the business of investing in overseas economic expansion.  Even if the U.S. initiative is taken to counter a "threat" from China, it is a step in the right direction.  

If there is legitimate basis for worry about China's BRI, then the best answer is to provide alternative financing for urgently needed infrastructure in the Southern Hemisphere.  An even better alternative is to join in the Chinese effort, to assure it does not become a Chinese geopolitical trump card.  Beijing has urged the United States to join the AIIB and participate in the investments, also proposing to invest China's $1 trillion-plus in U.S. Treasury holdings in a national infrastructure bank to redress America's crumbling infrastructure.

One way or the other competition, cooperation or conflict between the United States and China will frame the global future.

Comments

[walrus]

Thank you for your very thoughtful and clear exposition of the belt and road initiative. No matter which way you look at it, this is a win/win for the planet in terms of developing efficient transport infrastructure for the globe.

I will let others make the obvious comparisons to the Wests endeavors in this field. As far as I can tell we haven’t even understood rule#1: “when you are in a hole, stop digging”.

[jonst]

"One way or the other competition, cooperation or conflict between the United States and China will frame the global future". It may be so....but it does not have to be so. We need to stop thinking like we have been thinking since the Spanish American War, when we got hooked on Empire building. We are self sufficient in energy for the foreseeable future...we are self sufficient with food. We are nearly invulnerable to invasion, given our location. We are huge domestic market. All we have to do is start thinking like a Republic again. Admittedly, a huge turn around. But we are not Poland. We are not Germany. We are not eastern Europe or western Europe, for that matter. Our geography does not dictate our geopolitical strategy. If it is to be conflict or cooperation it is because we deem it so. Not because it must be. As to what will prompt this metamorphosis "only slightly less startling than Saul's on the road to Damascus" I don't know. But they happen. Ask Saul.

[turcopolier]

All

A couple of days ago a left coast commenter claimed that I never write about OBOR because the Pentagon has ordered me not to. That is actually funny. I asked Harper who follows this in detail to write this.

[walrus]

I know I am being flippant, but who other than the President and SWMBO would dare order you to do anything?

[ex-PFC Chuck]

"[US] Critics of the Chinese global economic investment program have charged that China is employing "debt trap diplomacy"--lending to countries that cannot pay for the large infrastructure projects in order to exert future economic and political influence."

Pot calling kettle black

https://michael-hudson.com/wp-content/uploads/2010/03/superimperialism.pdf

[blue peacock]

Harper

BRI is not all that its made out to be by the CCP. Its stated goals of bringing infrastructure and development to developing countries and linking Europe, Africa and Asia together bringing resources to China and manufactured goods to them is laudable.

But ...many of these countries are finding out that CCP deals don't really work out for them. They pay for the construction and take on debt through Chinese financing. The construction is all done by CCP linked companies including labor. When they can't service the debt, China takes over the asset. This is not a Marshall Plan!

Here's some examples:

Tanzania:

The port in the Tanzanian town of Bagamoyo was worth $10bn and would have been the largest in east Africa.

But financing terms presented by the Chinese were “exploitative and awkward,” said John Magufuli, Tanzania’s president.

“They want us to give them a guarantee of 33 years and a lease of 99 years, and we should not question whoever comes to invest there once the port is operational,” said Mr Magufuli. “They want to take the land as their own but we have to compensate them for drilling construction of that port.”

https://www.telegraph.co.uk/news/2019/06/27/tanzania-suspends-10-billion-port-project-new-blow-chinas-belt/

Pakistan is cutting funding for BRI projects.

"The budget cuts come amid a growing recognition by Beijing of the complications involved with Pakistan and other nations incurring heavy debt to finance BRI projects.......Said Kugelman of the Wilson Center: "Given Pakistan's growing indebtedness to China, both sides have a strong interest in Pakistan upping its share of CPEC costs. Austerity measures, however, make this a tough sell."

https://asia.nikkei.com/Spotlight/Belt-and-Road/Pakistan-slashes-annual-funding-for-Belt-and-Road-projects

One fly-in-the-ointment for CCP currently is that BRI requires lots of USD that they're short. They're draining reserves to fund USD debt redemption. Like with everything about China, their dollar liabilities are also opaque. However when you see extreme volatility in SHIBOR and PBoC actions in recent months you know there are some issues.

https://www.bloomberg.com/opinion/articles/2019-01-06/china-s-dollar-debt-is-surging-and-that-spells-trouble

If Trump was serious about our real adversaries, instead of being Bibi & MbS's pool boy, he would end financing of CCP entities by US investors including banks. No more fraudulent listings by CCP businesses on US exchanges. This would be the perfect time to give the CCP credit house of cards a nudge.

[MP98]

WARNING !! Off topic
Army Lets Slip That It's Conducting Secret Operation Around D.C.

Read more at: https://www.bloombergquint.com/politics/army-lets-slip-that-it-s-conducting-secret-operation-around-d-c

Anyone got any idea of what this is ???

[Poul]

It is not just infrastructure were China is becoming an alternative to the West but also in higher education. We could see a large section of the African educated youth having a more positive view on China than the USA/West.

https://www.wsj.com/articles/u-s-investment-in-african-university-fails-as-china-advances-11563706802

The University of Copenhagen has reaped some solid advantages with good connection to Chinese biotech research due to a key Chinese researcher having gotten his Ph.D in Copenhagen.

https://en.wikipedia.org/wiki/Yang_Huanming

[Aka]

US stepping on to this is good. I say, less colour revolutions and more infrastructure loans.

These countries do not take loans from China because they are in love with it. They take it from where they can.

[Mathias Alexander]

I wonder why.

[casey]

All true, but I suspect the authors is underplaying the BRI's importance in driving Eurasian integration, which we all know was Mackinder and Brzezinski's mortal fear, in that it threatens the Rhodes plan. I think it is also important to give the Russian-Chinese strategic partnership its due. While China builds out the largest infrastrucure development project in human history, Russia provides Atlantic and Pacific ports and also provides the vast energy resources to power the BRI, including Power of Siberia, Nord 1 and 2, TurkStream, etc, as well as the arctic LNG and arctic BRI route route, as well as Rosatom having 80 percent market share of world nuclear power construction, and now, as of 2016, Rosatom has also solved the Fast Breeder Reactor, which is fueled by u238, not 235, and also allows the use of reprocessed spent u235 cores to be used as fuel, which greatly reduces hazardous waste issues. And now, last week, Putin says that Rus is working toward a fusion-fission reactor as part of a national energy policy. Based on Mr. P.'s 2018 revelation of hypersonics and nuke-powered hypersonics, in serial production, which, if I understand correctly, no one in the War Department and State thought was possible, I'm guessing P wouldn't put that goal out there if they weren't well out of R and D and into prototype. In short, Rus and China have made gigantic strides toward historic integration and have built parallel political structures (AIIB, SCO, ASEAN, SWIFT alternatives etc.).

Meanwhile, back the old NYC, we are working hard to make sure men can use the women's toilet, and women can use the men's toilet. And the US is unable to secure its southern border. Oh, and our energy policy consists of fracking, a titanic money loser that comes with the added benefit of packing all the pollution caused by 200 years of coal mining into 20 years.

[ISL]

Thanks Harper, I think context is needed in terms of crumbling US infrastructure and the vast investment at home, too, by China (and Russia and other peers.

I say 10% charity abroad 90% at home but right now we have near zero at home and tons of infrastructure building in Afghanistan, Iraq and the other 1000 bases globally.... Most of it already falling apart.

We have had many presidents and nothing changes and nothing is done and US infrastructures looks developing world compared to our peers.

China put in 18000 miles of high speed rail in the last decade and the Max737 cant fly and the US has zero miles of high speed rail and new Chinese MagLev are as fast as an airplane.

We are AWOL on infrastructure and a re-org of a few bank loans is not changing a bloody thing.

[andrew wilson]

BRI/OBOR and related efforts are a long term, civilisational matter. Short term concerns are not going to distract from the long-term implementation. The planners will expect that there will be speedbumps. This is a multi-generational project to create a network of interdependent, mutually beneficial opportunities in many states. The ultimate goal, apart from the decrease in conflict and increase in wealth for all participants is to move away from a dependence upon oceans for mass transit of most goods to land based transport.

By moving to land as the emphasis for transport, all participants benefit from the increased security that comes from divorce from U.S control over international shipping. Landlocked states will gain access to logistics that will revolutionise their mercantile endeavours.

[Jack]

Speedbump?

"They want to take the land as their own but we have to compensate them for drilling construction of that port.”

This is the quote from the Tanzanian president. How long before other heads of state recognize the intent of Xi?

[Jack]

"...proposing to invest China's $1 trillion-plus in U.S. Treasury holdings in a national infrastructure bank.."

China needs those dollar reserves to fund their dollar liabilities. Especially if offshore dollar funding continues to tighten. They can print renminbi and grow bank and shadow bank assets in renminbi. They can't print dollars however. If the dollar continues to strengthen the stress grows.

https://www.scmp.com/economy/china-economy/article/3015049/chinas-concern-over-possible-us-dollar-shortage-risk-forcing

And to those who say that the CCP can crash the US Treasury market by selling their reserves as another form of warfare, note that they've sold hundreds of billions over the past years and yet yields have declined.

[confusedponderer]

walrus,
I think that the chinese have some good reason to build and devolp safe transfer corridors for their exports, in particular the land based routes along the lines of the old silk road.

That makes some strategical sense but there also is a very specific economical interest.

If the recent ship (detention/attack) games between Iran and for one the UK are an indication, the chinese have good reason to want to avoid the open seas in the indian ocean, pacific or mediterranean if possible.

This likely also explains their interest in sub north pole routes (shorter, and not US controlled).

Even if, say, the UK or the US had some two thousand more destroyers ... these would be very impractical in the mountain areas of china or the east or central asia land masses, or north of Russia's coast.

What can a type 23 frigate or an arleigh burke destroyer do against a train in, say, the hulun buir desert or near Samarkand, or a ship north of Russia? Not much. First they'd have to find it.

That sort of transfer route safety is certainly a keen interest of china, esppecially in the current age of spontaneous (and perhaps spontaneously suspended) war penal tarrifs. Belt and Road is a lot about safety and reliable trading routes.

I think that also explains their intense focus on Xinjiang, and they likey are not particularly happy about Eric Prince operating a training camp in Xinjiang. They'll likey ask themselves: "Train? For what?"

https://www.theguardian.com/world/2019/feb/01/blackwater-founder-erik-prince-to-build-training-camp-in-chinas-xinjiang

For similar reasons they likely are also not exactly happy with US bases in central asia.

In terms of holes and digging, the chinese build bridges over such holes with Belt and Road.

[blue peacock]

BRI is not just overland transportation links but also maritime. Gwadar in Pakistan & Hambantota in Sri Lanka which was handed over to the Chinese after Sri Lanka defaulted on its debt, are massive ports.

[Philippe Truze]

Maybe Russia should not be excluded from the USA/China game. Today Russia and China are allied mainly because the existence of a common adversary. But objectively, China could enter into opposition with Russia, at least on 2 issues : the huge and unexploited resources of Siberia and other remote russian territories; and the control of the arctic North East Passage, today entirely under the control of Russia. At a deeper level, are Russians an European or an Asian people (I know that the introduce themselves are Euroasian people, but how possible and realistic is such "synthesis" ?). Maybe this is the strategic mission of Europeans to solidify the european leg of the Russian people, since this kind of alliance is not in the current US agenda. (PS : I am old enough to remember the russian-chinese conflict along the Amour River (60' 70'??)).

[John Minehan]

I wonder if OBOR doesn't have more to do with internal politics in the PRC than international economics?

Does it give "Young Emperors" with family money behind them a chance to seek their fortunes and (foreign brides) along the "New silk Road" rather than causing instability in the PRC?

Encouraging settlement by people from the Chinese heartland in new areas has been a Chinese trope since The Warring States period and the Ming Dynasty turned a bind eye towards the emergence of the "Oversees Chinese," so it is nothing new.

[John Minehan]

Per Browning, "Our times are in His hand
Who saith "A whole I planned."

[John Minehan]

But what is the better alternative? Is there one?

[John Minehan]

I think the "Eurasian" identity is inevitable given the new economic realities. If OBOR/BRI works, how else would you see it?

[The Twisted Genius]

John, it's more than economic realities that support a Eurasian identity for Russia. The old saying "scratch a Russian and you'll find a Tatar" is very apt. Consider that "fly over" Russia and the east coast is far more Asia than Europe. Until Peter the Great, Russia didn't look towards Europe for identity.

[Jack]

Why are US investors funding CCP fronts? BRI funding is different in that CCP linked businesses borrow dollars from Western investors and banks and those dollars get recycled into BRI projects with Chinese financing the construction with the developing country taking on the debt for the construction. Why are we doing this?

CCP has engaged in an economic war with us for three decades. Sure Wall St made a lot of money and the Party of Davos made out like bandits. It's seriously high time we joined the economic battle against the CCP. Sanctioning top CCP officials would get them right in the pocket book as they've spirited most of their illicit loot to the west. How many apartments does Wang Qishan have just in NYC?