Chinese President Xi Jinping at the 2018 BRICS summit in Johannesburg, South Africa. Photo: Mike Hutchings/Reuters
The readers of this publication are undoubtedly familiar with the historical trade route known as the Silk Road, which carried silk, spices and other exotic goods from the Qing Empire via Persia, Samarkand and Bukhara to the Levantine provinces of the Roman Empire. Recent developments in Chinese foreign policy indicate that this artifact of our history may provide inspiration for contemporary Chinese foreign policy and perhaps an additional cause for competitors to be wary of an expanding China.
President Xi has promised to make China great again, also known as the “China Dream”. This dream is meant to contrast with the “century of humiliation” in which foreign powers carved up zones of influence in China using gunboat diplomacy tactics. The China Dream envisions China at the center of global affairs both in wealth and prestige, and is the root of many Chinese foreign policy actions. For example, Chinese island-building in the South China Sea done in clear violation of the international laws of the sea, is reminiscent of ancient Chinese tributary expeditions that ranged as far as Zanzibar, which also serves as a pointed reminder to the modern reader of why that body of water is called the South China Sea and not the South Asian Sea.
In addition, the PLAN (People’s Liberation Army Navy) is builds and testing aircraft carrier technology that will not only enhance Chinese power projection, but also serve as a powerful symbol of Chinese prestige. Perhaps most disturbing for Taiwan, its neighbor and “rebel province,” Chinese troops rehearse the storming of Taiwan’s presidential palace in the Gobi desert. Disturbing as this saber rattling is, underlying these aggressive moves is a pernicious stratagem that attempts to ensure a more peaceful–and even more complete–domination.
The project known as the “Belt and Road Initiative” has within its sights the creation of a new Silk Road. Its design has two components: a set of land routes west through Central Asia to Europe and south through the Himalayas to the Pakistani port of Karachi, and a set of sea routes connecting China with Africa and Europe through new ports in Sri Lanka, the Arabian Peninsula, and East Africa.
To achieve these objectives, the project has two main institutional vehicles. The first is the AIIB (Asian Investment and Infrastructure Bank), a multilateral investment bank similar to the World Bank but with several key distinctions. First, the AIIB has far less capital than the World Bank does, amounting to only $100 billion USD. Second, AIIB precludes the membership of Japan and the United States. Third, AIIB endeavors to promote the renminbi as a reserve currency globally through denominating its loans in renminbi as opposed to USD (this is an ambition, as the AIIB currently lends in USD). Additionally, the BRI (Belt and Road Initiative) promotes development of the Chinese interior, which has lagged behind developmentally despite massive growth on its coast. In this way, the stability of the Chinese regime will be furthered by lessening the attraction to Tibetan and Turkmen separatists by those displeased with economic conditions in the west of the country.
This institution was conceived of and acts as a direct challenge to the Bretton-Woods derived World Bank, which the US has a veto on and whose board is dominated by North American and European countries. The AIIB is viewed as a direct challenge to the World Bank’s legitimacy, if not a work-around for states who do not wish to abide by the US-led West’s lending rules. While this challenge is unlikely to be dramatic any time soon, as the AIIB grows capital and expertise in managing projects, countries looking to borrow might be able to use the AIIB as a bargaining tool to weaken the borrowing and social improvement terms that World Bank currently stringlently dictates despite its overall concessional lending terms (low interest rates).
The second vehicle by which this project is pursued is the Silk Road Fund. The Silk Road Fund is funded by the Chinese sovereign wealth fund, Chinese foreign currency reserves, and state-controlled Chinese banks, such as the Import-Export Bank of China. In short, it has full Chinese diplomatic and financial backing. The Silk Road Fund is accountable to the Chinese government and states its explicit goal is to facilitate the Belt and Road Initiative. However, it still remains the AIIB’s junior financial partner in the BRI, as its authorised capital is only around $40 billion USD and (100 billion renminbi in nominal terms), but its institutional support is far deeper.
It must be noted that there is a clear, non-subversive rationale for the creation of such institutions. Globally, there is a massive shortfall in infrastructure investment. This lack of investment is especially evident in rapidly emerging countries where population growth is higher than that of developed countries. Increasing emerging economies’ stake in global development can definitely have positive consequences, including lessening their long term dependence on Western funding. However, to assume that Chinese foreign policy is guided solely by charitable and altruistic motives would be a naïve misapprehension of the strategic choices states make.
Sri Lankans protest against transfer of 6000 acres, including the port of Hambantota, to the Chinese in January 2017. Photo: Stringer/Reuters
An excellent illustration of how Chinese goals are furthered in the name of global development, is the development of the Sri Lankan Hambantota deepwater port. This port was constructed by Chinese contractors at the behest of the Sri Lankan government, using money loaned out under the auspices of the Belt and Road Initiative. However, because the port was situated within reach of a more established port, and not competitively positioned near major trade lanes,the project generated substantial losses that left the Sri Lankan government unable to meet its debt obligations. The Chinese government then proposed a deal in which the state-run Chinese port operator would make payments to Sri Lanka to operate the port on a 99 year lease instead. In practice, the Sri Lankan government was forced to cede effective control of its territory, including a strategic asset.
Whether or not this end was intentional or not is difficult to ascertain, but it has been met with a number of reactions. The Japanese government has since protested that such facilities could be used to support and base Chinese naval vessels. Instead of denying this possibility, the Chinese foreign ministry has suggested that such facilities were for “resupply” and not for permanent basing. Even if the Chinese claim were true, this would make a string of such ports reminiscent of mid 19th century US Navy coal bases in the Pacific; while these bases had no offensive purpose as such, they extended the range andenhanced the operability of naval vessels which in themselves have offensive potential. Port development and operation seem to be the leading edge of the Belt and Road Initiative.
There are other signs of Chinese expansion which are found closer to key US interests such as Chinese investment in the Piraeus, the port of Athens. Greece’s financial perils are well known, and it’s understandable why, after intense castigation by the EU, the IMF and international financiers, Greece would seek other sources of financing. However, for China to control or operate even a portion of a central port of a NATO ally does not bode well for the US-Greek strategic relationship. Given a parallel road project in Montenegro and planned road and rail links through Central Asia to the Levant, the Piraeus could become China’s gateway into Europe, in the process upending Rotterdam and Hamburg while making Greece a Chinese (as well as IMF and ECB) debt hostage. In the context of this Chinese shopping spree Foreign Policy reports:
European Commission President Jean-Claude Juncker last fall warned specifically about foreign purchases of assets like ports, though without singling out China by name. The commission is working on new ways to screen foreign investment in sensitive areas.
However, given the new distance between Washington and its European NATO partners, a coordinated response seems to be unlikely, even at a time when it is most necessary.
Fundamentally, in order for Bretton Woods Institutions to survive as more viable and attractive alternatives to new Chinese ones, their institutional efficiency must be improved, which primarily means that the US will have to authorise increases in the core capital of these lenders. The US has, since the last financial crisis, held up any changes to the funding of these institutions for two reasons. Firstly, any increase or change in the distribution of a quota in the IMF/WB means a redistribution of voting power, and because the US is the only country with an effective veto, it naturally resists this change. Additionally, since an increase in funding is a matter of the US budget, it must be voted on by the House of Representatives, and since arguably the change would amount to an amendment to a treaty, the it must also pass the US Senate. Thus, as a consequence, this matter that comes to the core of the long term viability of US hegemony comes down to whether or not the American voter is willing to elect officials who are able to recognize and prioritize strategic goals over short-term, frenzied political tides. One hopes they choose wisely.