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China’s Silk Road Looks to Revive its Economic Fortunes

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On January 18 a locomotive with 34 carriages pulled into Barking Rail Freight Terminal in London’s east end. Normally, this would not be in any way out of the ordinary. This particular train, however, had travelled 7,456 miles to reach its destination. Departing from Yiwu, China, the journey took 16 days and travelled across eight different countries to deliver its goods to the UK market.

The Yiwu-London route is just the most recent development of China’s One Belt, One Road (OBOR) policy; a massive international infrastructure development program which spans Eurasia and aims to remove the divide between separate European and Asian trading blocs. This investment program is the brainchild of current president Xi Jinping who sees it vital to the success of his presidency and China’s future economic prosperity.

A Slowing Economy

As Mr. Xi succeeded the outgoing Hu Jintao in 2013, it became clear that the country as a whole was also beginning to transition. China has been the engine of world economic growth for the last several decades due to its large manufacturing sector, powered by an almost unlimited supply of cheap labor in a constant human stream moving from rural areas to urban ones. This job powered movement has been described as the greatest migration of people in human history. The parallel construction of factories and accommodating infrastructure helped China achieve double digit economic growth rates during Mr. Jintao’s decade long presidency.

This remarkable growth started to slow as Mr. Xi took office partly due to the increasing wages and gradual aging of the working population. With an annual growth rate of 6.7% in 2016, the lowest in 25 years, concern has started to spread. Foreign owned factories began looking towards other regions to build their facilities. Countries like Vietnam have seen an increase in investment both in their development and in migrants working across the border in China for smaller wages. Worldwide commodity prices have tumbled at any rumor of a slowdown of the Chinese economy. Additionally, the 2008 economic crisis brought with it a massive debt burden. Currently nearing 44% of debt to GDP, China’s borrowing has not slowed, which makes it susceptible to another 2008 style crisis.

Mr. Xi’s answer to the economic slowdown came in the form of a throwback to China’s Golden Age; a time when a romanticized silk road linked the European and Asian markets in a constant stream of merchants, goods, and ideas. Much more than a romanticized notion, the economic benefits of an infrastructure and capital injection of a scale not seen since the post-war Marshall Plan, could rejuvenate a faltering economy and make Beijing a center of world trade and diplomacy.

Silk Road Redux

OBOR, at its heart, is a trade infrastructure investment program which aims to build or upgrade existing overland and maritime trade routes. The official figures associated with OBOR are so impressive that it is difficult to find a historical precedent which matches it in scale (apart from the aforementioned Marshall Plan). There are roughly 900 projects currently underway according to official state media. This puts a total valuation of both overland and maritime routes at approximately $890 billion. The Chinese ambassador to the UK even boasted that OBOR would include 60 different countries with about two-thirds of the world’s population. Clearly these figures should be taken with a grain of salt, but if they are anywhere close to reality, then it would be plain to see that China is tying much of its economic and strategic future to OBOR.

Individual projects include a planned dam in Pakistan, a new railroad in Uzbekistan, a transport hub in Germany as well as a stake in Greece’s second largest port, among many others. The Chinese government finances these projects through its sovereign wealth fund as well as through an investment bank created specifically for OBOR, called the Asian Infrastructure Investment Bank (AIIB). These combined funds currently provide a startup amount of about $140 billion. Additionally, private enterprise is encouraged to take part with Chinese regions and companies attempting to connect to the Silk Road network.

The increased activity of Chinese construction companies is a central facet of OBOR as the country looks abroad for economic opportunity. As part of its attempt to reign in state credit lending and debt, China is trying to offset the increasing production costs associated with Chinese goods with lower transportation costs to European and Asian markets. It also stands to make Chinese banks attractive to foreign lending as they standby to lend increasing amounts of currency in the form of Yuan to Silk Road countries to finance OBOR construction. Naturally, there are also some soft power incentives for Chinese officials as well. At a time when the struggles for influence over Central Asia, the Middle East, and even parts of Europe dominate the headlines, a potential finance power like China could consolidate its influence over these regions through strategic lending. If managed correctly, OBOR could be a multi-pronged approach to ensuring long term economic and diplomatic success for China.

If managed incorrectly, however, China could potentially be in a more precarious economic situation. As discussed previously, the $140 billion raised through the sovereign wealth fund and the AIIB is far short of what is needed for an $890 billion valuation of the projects. There has been little mention of how China may go about funding the rest of OBOR, but if the decision is made to risk borrowing the required funds, the world’s second biggest economy will be disappointed with anything short of complete success. The situation may become more unstable when taking into account the endemic corruption and potential for default of many of OBOR nations. Also, any nation involved in such an extensive undertaking would be in untested waters. Would Chinese construction companies and banks be capable and flexible to manage diverse projects in dozens of countries? And finally, the lack of clear framework and timeframe for completion leaves plenty of ambiguity for what a completed Silk Road may look like.

The One Belt, One Road development program is still in its initial stages. What becomes of it is still entirely up in the air with plenty of variables, moving parts, and agreements still to be made. The program’s ambition, however, cannot be doubted. If nothing else, an attempt to seamlessly link European and Asian markets is a noble one in terms of diplomacy. Economically, China has much riding on OBOR’s outcome. Its economy will not return to being what it once was, nor do most Chinese want that to happen. With new environmental regulations and a growing middle class, China seeks a new more modern way to prosperity. The foreign adviser to Mr. Xi, Yang Jiechi, who is also closely tied to OBOR, outlined China’s aims of being a well-off society by 2020 and a strong and prosperous one by 2050. If China’s future reality matches its present ambitions, then it is extremely likely that Mr. Yang’s aims will be realized.

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East Asia

Reducing Dependence on China

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Ties between UK-China have witnessed a steady deterioration ever since the outbreak of covid19. UK like many other countries has been seriously working towards reducing its dependence upon China, for imports of essential commodities, as well as Chinese technology (UK’s intelligence agencies, MI5 and MI6 had warned the Boris Johnson administration, that UK needs a serious rethink vis-à-vis China in the context of economic ties, and needs to be especially watchful with regard to Chinese investments in sensitive sectors) .

 The Boris Johnson administration is laying emphasis on shifting pharmaceutical production to UK, and focusing on reducing its dependence on China, not just for medical supplies, but for all other essential commodities. An initiative codenamed ‘Project Defend’ will focus on the above tasks.

UK’s proposal for a D10 and its efforts to strengthen ties with countries in the Asia Pacific region

In May 2020, UK had also proposed a group of democracies D10 (G7+ South Korea, India and Australia) to work jointly for developing alternatives to Chinese technologies – especially Huawei’s 5G network.

It would be pertinent to point out, that UK has also hardened its stance vis-à-vis Huawei, while in January 2020, UK had given a go ahead to Huawei’s participation in its 5G network — with security restrictions a market cap in January 2020 — post the pandemic it had stated, that it will reduce participation of Huawei to zero by 2023,. More recently, Boris Johnson stated that Huawei will be viewed as a ‘hostile state vendor’ (after tensions between both countries over China’s decision to impose the national security law in Hong Kong).

Given the changing geo-political and economic environment, in the aftermath of the pandemic, Britain which is focusing on strengthening ties with the Asia-Pacific region is also likely to sign an Free Trade Agreement (FTA) with Japan to bolster bilateral economic ties, and to become part of the 11 member CPTPP (Comprehensive Progressive Agreement for Trans Pacific Partnership).  If Britain were to join the grouping, CPTPP’s global share of GDP would be an impressive 16%. Both these steps will enable Britain to be less dependent upon China.

Further deterioration of ties between China and Britain

In the aftermath of the covid19 epidemic, ties between London and Beijing had already soured. China’s decision to impose the national security law in Hong Kong, which according to Britain is a violation of the Sino-British joint declaration signed in 1984 (which guaranteed Hong Kong’s sovereignty through its unequivocal thrust on a ‘one country two systems’ agreement) has exacerbated tensions between Britain and China.

 Hong Kong is governed by a mini-constitution titled ‘Basic Law’ which apart from the thrust on the ‘one country two systems’ principle, also upholds Hong Kong’s ‘liberal policies,  system of governance, independent judiciary, and individual freedoms for a period of 50 years from 1997’. Britain has argued, that the imposition of the National Security Law is in violation of the above principles.

The British government has announced, that it will offer 3 million residents of Hong Kong (much to the chagrin of China) the option to come to the UK for a period of 5 years.  3,50,000 British passport holders and 2.6 million others who are eligible will be provided this option.

China’s reaction

 China’s Ambassador in UK, Liu Xiaoming warned that UK’s offer of citizenship to Hong Kong residents, and a boycott of Huawei’s 5G network would significantly dent the bilateral relationship. He went to the extent of stating, that Britain should avoid treating China as an enemy. Britain and China share close economic ties, and Chinese students are the largest group within international students pursuing higher education in the UK. It would be pertinent to point out, that China has taken strong economic measures vis-à-vis Australia, due to Canberra’s demand for an inquiry into the origins of covid19, and it remains to be seen if it will take similar steps vis-à-vis Britain.

Conclusion

With the US, Australia, Britain, Canada and India adopting a strong posture vis-à-vis Beijing, China is certainly on the backfoot . The tone of publications like the Global Times, a mouthpiece of the Chinese government, clearly indicates, that China is carefully watching policy measures being taken by countries in Europe and Asia to reduce economic dependence on China in the aftermath of covid19. Beijing has also got unsettled by the resistance to its hegemonic designs and aggressive actions by not just the US, but Britain as well.

What is also evident is that Britain is seeking to revive its importance in the geo-political context by strengthening economic ties with Asia Pacific countries, and promoting groupings like D10. Britain’s firm stance vis-à-vis China after the imposition of the National Security Law in Hong Kong has also reiterated the point that in the aftermath of covid19, it is unlikely to kowtow to China in spite of close economic linkages.

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East Asia

India and China in the clash for Ladakh

Giancarlo Elia Valori

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On June 15, 2020 the People’s Liberation Army (PLA)shot some Indian soldiers dead – approximately 20 – in Galwan, a valley and a river of the Ladakh region.

 The territorial issue in that region is still very difficult to settle: the 1993 Line of Actual Control (LAC) has included 60 square kilometres of ancient Indian territory into the China-controlled area. The control of the DSDBO – Darbuk, Shyak, Daulat Beg and Oldi, the 225 kilometre road that connects the Ladakh region and the Galwan Valley with the outside world – is still to be defined.

For India, in the north of Ladakh, there is also the possibility of a simultaneous war on two fronts, with Pakistan in the Siachen glacier and with China in the rest of the North.

 China has also shown it is not interested in five different peace agreements – in 1993, 1996, 2005, 2012 and 2013 – defined as early as the 1962 war between India and China.

 The “forgotten conflict” that John Fitzgerald Kennedy did not use in the global confrontation with Communism, later choosing – and ill became of it – the confrontation with the Vietminh in South Vietnam.

In 1993 China asked India to stop the extension of the DSDBO and also the return of the Indian troops into the northern area of Ladakh. India, however, is blocked by considerable internal terrorism and by the strong tensions in Jammu-e-Kashmir, as well as by the traditional policy of opposition to Pakistan and finally, by the new maritime trends in the South and the ever more difficult coexistence between Hindus and Islamists.

 Certainly, the People’s Liberation Army (PLA) can fight three modern wars simultaneously: the cyber-warfare, the space and finally the electromagnetic wars.

 In conventional terms, China can currently fight a limited regional war and a larger global war, again simultaneously.

Hence what does China really want from India? Firstly, hands free on a border, like Ladakh’s, which is vital to the already started New Silk Road.

 Many Indian leaders have long been asking China to make the BRI corridor cross Kunming in Southwest China up to the port of Kolkata, where it could reconnect to the maritime “Silk Road” through the Bay of Bengal.

 Or China and its Silk Road could enter Uttakharand, via Kailash Manasarovar in Tibet to later reach the port of Mumbai. This is one of the real issues of contention.

Hence China, with its BRI, should not cross the valleys of Kashmir, but the Indian areas.

 India has also quickly pulled out of the Regional Comprehensive Economic Partnership (RCEP), the large free trade area established in 2012. An implicit favour to China.

Hence what does China really want? Firstly, to use the Ladakh region and Kashmir as bases and criteria to control Tibet.

 The area below, where the Indian army is stationed, south of the Brahmaputra river, is still an easy target for the Chinese missile launches.

 If we consider the Chinese troops in Ladakh and those already present in the Tibetan autonomous region, currently the People’s Liberation Army is actually master of the scene.

However, if the Indian President, Narendra Modi, shows clear signs of India’s realignment on the U.S. strategy in the region, its strategic closure to the North will become inextricable. And very dangerous, not for a war, but for the strategic and geo-economic effects of the closure in the North.

 The Indian troops on the Ladakh border, however, are not a target for China.

 Apart from the Galwan Valley, China is ready to negotiate hard on everything else.

 This means that China wants full security of the lines around the Tibetan Autonomous Territory and the discontinuity-control of the Pakistani forces on the Indian-Chinese border, as well as the maximum mobility of its forces, and finally the guarantee that there will be no military dangers hosted on the Indian territory.

 Jihadist dangers or not. Therefore, China does not need to wage war on India insofar as it can force the Indian government to do what China wants.

 China also wants to reaffirm mutual neutrality between China and India, while it thinks that Narendra Modi has above all nationalistic aims in the Himalayan region and in the arc of the Three Borders.

 Moreover, China did not like the strengthening of relations between India and Australia, as well as the Indian repeal of Article 370 of the Jammu-e-Kashmir Statute, i.e. the “special administrative status” of the Indian State with a Muslim majority.

This has led to the creation of the Union Territory of Ladakh in the Indian legal system. Currently some Chinese maps already draw the territory of Aksai Chin – where China, India and Pakistan meet – with borders that, according to China, show that India is expanding illegally.

 In essence, Modi’s India has chosen on which side to stand in the next andin any case – already started “cold war”. The U.S. side and the side of strategic contrast with China.

 The Sino-Indian territorial tension currently stretches from Lake Pangong and the Galwan River valley, as well as from the Gogra region, to Naku La in Sikkim.

 Neither side, however, recognizes the extent of their respective claims in the LAC area and around Lake Pangong.

The Chinese soldiers in the region come from the 362nd Border Regiment and are quartered in Fort Khurnak, north of Lake Pangong and Lake Spanggur.

Moreover, there is a Chinese base in Gongra and a squadron of boats on Lake Pagong.

Approximately 600+1500 units. To the northwest, there are other Chinese troops from the 6th Mechanized Division.

 The base is in the Taklamakan Desert, but they are mainly reserves from Xinjiang.

An important Chinese strategic goal is to avoid porosity of a border that directly affects Xinjiang.

Therefore, for the Indian Leader, Narendra Modi, there are two choices to make, an economic and a strategic one: to launch India as a global competitor of China, by absorbing the many future “third” processing activities- hence an active control of borders and a regional war even with China becomes rational – or India could join China via the “New Silk Road” and the Sino-centred globalization.

 It is a choice still in fieri, despite the old talk about Chindia a few years ago.

 In terms of economic and trade wars, the issue becomes even more complex.

In the first quarter of 2020 the People’s Republic of China recorded a GDP of 20.65 trillion yuan, equivalent to 2.91 trillion U.S. dollars.

A 6.9% reduction compared to the GDP of the previous year. A significant reduction, but certainly lower than in many Western countries.

 China’s imports fell by 8.5%. A situation that does not enable anyone to start a war, not even a regional or local war.

 In the first half of 2019 alone, China’s tariff war with the United States cost as much as 35 billion to China.

 For China, fighting with India would mean losing 74.72 billion dollars from the rich and wide Indian market.

 Pakistan, a sure ally of China, is in the midst of an economic crisis and cannot afford a war. Therefore, only the tiny Nepal remains, on which you cannot certainly rely for a “long lasting war”.

 On a strictly military level, China is far more efficient than India.

 104 Chinese missiles could hit every part of the Indian territory.

 12 DF-21s missiles are targeting New Delhi directly. The DF-31s missiles are deployed in Beidao, Gansu Province. Some DF 21 and 31 missiles are deployed in Xining, while other DF-21 ones are deployed in Korla, Xinjiang and others in Yunnan.

 For India, ten “Agni” missiles can reach the entire Chinese territory.

Eight additional Agni II missiles can reach the centre of China. But there are 51 aircrafts – the real key to India’s nuclear defence – that can fly over targets in Chinese territory.

 But, above all, Tibetan and Xinjiang targets.

 Only the Indian missions in Tibet could exploit a strategic surprise effect. In other regions the Mirage 2000, Jaguar IS and F-35s missiles would not be particularly successful, considering the level of Chinese anti-aircraft fire.

Currently the Indian forces available for a clash with China in the North are approximately 225,000.

 This also includes the T-72 tank base in Ladakh and a series of Bramhos cruise missiles, stationed in Arunachal Pradesh.

 The three Indian Armed Forces commands that oppose the respective three Chinese commands have 270 aircrafts and other equipment at their disposal.

 China also have high altitude air bases in Tibet, Xinjiang and the Northern Ladakh region.

 This means that the Chinese aircrafts have to leave with only part of their cargo.

Hence the Chinese decision-makers immediately think of a missile attack on Indian positions, without an initial air “passage”.

Obviously it must also be noted that India is strongly opposed to the China-Pakistan Economic Corridor, which crosses Kashmir and the Gilgit-Baltistan area, a project that India has tried to stop with the U.S. help.

On the other side, India has built a lot of infrastructure in its part of Kashmir.

As already noted, there was the economic closure of India, a real gift for China.

Meanwhile, India has asked Russia to quickly send the S-400 and Sukhoi SU 30 MKI missiles quickly, but Russia has no interest in mediating between China and India.

In the background there is also a hardening of bilateral relations between Russia and China, which could leave room for manoeuvre to Russia, not for mediation between the two countries, but for rebuilding the old link between the USSR and India, which was also one of the reasons for tension between Maoist China and Soviet Russia.

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East Asia

China’s reputation in the West is crumbling

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During the past two decades China’s steep economic growth and investments in Europe and the United States have failed to produce an image of the country that would at least correlate with that growing influence. With projects ranging from airport and seaport investments to infrastructure construction, China claimed its rightful place as a global player in world economy. We should, however, point out the two major reasons behind China’s weakness to cultivate a positive appearance on western world.

First and most important factor is China herself. Despite admirable efforts such as the Confucius Institute, the increasingly generous scholarships given to foreign students to study in China’s top universities and collaborations on fields of arts and culture; despite the rich history and the influence it will forever exert upon the minds of intellectuals, ranging from military tradition to philosophy and religion; and despite the rapidly growing influence through modern works that become worldwide success in the fields of literature and cinema, the Asian giant hinders its own efforts to create a positive image by failing in the most important field. The field of politics and political influence.

Reading some of the most prominent news outlets in Europe or the United States, one would think that China has infiltrated the political scene so much that simply pulling some strings would turn the world around. I have most recently read opinions of almost conspiratorial magnitude hosted on some of the most respected news platforms, that present China’s ability to politically influence entire countries as an underground infiltration doctrine. A doctrine that has even recruited apps of the most insignificant and immature content such as “Tik Tok” to spy and control!  However, truth and diplomatic reality show something entirely different. The unparalleled ability of the United States to determine the foreign affairs of dozens of states (either by presenting themselves as their most trusted ally or by intervening in bilateral relations and by dictating their foreign policies, often enough even through direct threats and by imposing sanctions and penalties to countries that do not want to go along the American guidelines), has yet to meet a significant resistance from China.

Admittedly, the United States have shown great skill in political meddling even before the second world war and had the time to perfect its strategies and determine its goals. On the other hand, China is not only new to this kind of game but even when it does involve herself with it, she does so in defense and usually in a crude fashion. We have recently witnessed it again and again during the Hong Kong crisis, where regardless anyone’s stance and views on political matters, the United States have involved themselves with the internal affairs of a foreign state and managed to establish themselves as the morally superior nation against the weak responses from China that nonetheless appealed to reason. This type of defensive approach, response tactics and reasonable compromising may have a fair value in the interior of the country but falls easy prey to foreign diplomatic moves and in the end damages China’s image in the exterior.

Furthermore the positive image of China cannot be cultivated through political action not only due to lack of experience and clear goal of how to utilize it but also due to actual unwillingness to involve herself with local affairs of other countries. A more active involvement from China’s part would be an outright provocation and would disturb the status quo of international politics where the United States and its ruling elite, are the absolute master. Such direct confrontation is deemed risky and unnecessary from Beijing’s part. Meanwhile a positive thought is prevalent that feeds political inactivity. That alongside economic influence, China will gradually and by default, acquire its rightful share in political affairs.

On the other side, China’s image in the west is crumbling due to a carefully planned propaganda campaign. Half-truths and outright lies have been consistently presented as news. For the past couple or more years an interesting phenomenon is becoming more and more prevalent. News networks that on one page present the great economic deals with Chinese companies and on the next attack China’s immoral behavior towards minorities, Muslims, blacks and more recently Hong Kong. It vividly comes to my mind an article from probably the most circulated and credible newspaper of Greece that claimed that Han Chinese were stationed among Uighur families to make sure they eat their ration of pork as  a method to deradicalize their Muslim faith! This type of “news” of course has no traceable or credible source to which one can refer to. In the best case the source is an unverified testimony or a satellite photo of a removed Muslim site. Yet they are tools, acceptable and useful in the political race that has been ongoing after the official recognition of China as a new, independent, and powerful player in the international scene. The more outrageous these news are, the more circulation they enjoy. The more circulation they enjoy the more smear they achieve upon China. A constant attempt to tarnish China’s image is an undoubtful fact; regularly presented as immoral, untrustworthy, and malicious. The recent Covid-19 crisis has been the battlefield upon which China suffered yet another political defeat and a stain on her image among the Western countries.  In many cases this smear campaign was unleashed even through governments and officials such as President Trump and Mike Pompeo.

This political game is leading to more and more countries slowly or more rapidly turning against China, and while Chinese money is welcome, China’s influence is diminishing until entirely ousted from any grasp on geopolitical affairs.

Morally right or wrong, it matters not. China achieved once again in her long history to be one of the dominant powers of this world and deserves a share of dominance in the international political affairs as well. But no one will simply hand that share for free. China must earn her place and to earn that place she needs to up her game. Show the West a better image, gain a better reputation and if needed, fight the same way the West fights her.

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