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The strategic thinking behind the EU-China investment deal

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Washington was understandably perplexed that a China-EU investment agreement was concluded a few weeks before the Biden administration, especially a  president who has been advocating for multilateralism and the restoration of trust and an alliance with the EU.

Some analysts argue the agreement is a big win for China by breaching the transatlantic partnership, while some scholars contend that Beijing has made historical concessions to Brussels, indicating the future lucrativeness of European business in China. Both are valid to some extent, but the strategic thinking of Beijing and Brussels behind the pact may have been overlooked.

Beijing’s strategic thinking

The EU has always been the favoured target for Beijing. Despite numerous rebrandings, the Belt and Road Initiative (BRI), the admittedly core economic, infrastructure and diplomatic policy proposed by President Xi in 2013, was initially intended to connect with the EU, facilitating Eurasian economic integration. According to Hellenic Institute of Transport, there was no regular direct freight service between China and Europe in 2008, whereas in 2019, 59 Chinese cities and 49 European cities in 15 countries have been linked by the BRI.

Also, although the EU is situated within Western democratic thought, the views of EU members regarding China are diverse and relatively different from the US and other English-speaking countries. Germany and France, the key pillars of the EU, still allow the usage of Huawei, whereas the US, Australia, Canada and the UK have variably banned it. Italy is the only one to endorse the BRI in the G7, a group of major Western democracies. The summit of China and Central and Eastern European Countries, known as “17+1”, has been held since 2012, gaining certain support from some EU members, in spite of Brussels’ aversion.

Probably, in the Chinese diplomats’ perceptions, the post-Brexit EU may become much more approachable and pragmatic to China, a mysterious rising land from the East, in that European continent nations with different linguistic and cultural backgrounds have been living together for millennial generations, leading to a more diverse and pragmatic approach to Beijing.

As for compromises Beijing has made, some of them, such as various reforms of state-owned-enterprises, would have been the essential component of the Chinese economic agenda, but the intriguing point is the timing and astonishing scope of concessions. After seven years of drawn-out negotiation, Beijing suddenly started pushing this pact at the beginning of 2020, when the Covid-19 broke out globally, and the Sino-American trade war further exacerbated, leading to China’s reputation plummeting in the West.

Through Sino-American relations, I doubt that Beijing may have noticed, as Professor Susan Shirk, former Deputy Assistant Secretary of State during the Clinton administration, pointed out, that even the American business community, benefitting enormously from the Chinese market, has not really “stepped forward to defend US-China relations, much less defend China”, which is rare in bilateral history.

Recently, President Xi Jinping even wrote a letter to encourage Starbucks’ former chairman Howard Schultz to repair Sino-American relations. Having observed this, Beijing thus decided to show a high level of sincerity and openness to European business elites, not only by economic reforms but also by promising to work on labour rights. The latter may not be a priority in Beijing, but Beijing conspicuously notes the ideological concerns of EU politicians in order to win the hearts and minds of Brussels.

Brussels’ strategic thinking

As for the EU, China has unquestionably been an attractive market. Calculated by purchasing power, China’s GDP has been de facto the largest economy for years. As the only positive-growth nation in 2020 among G20 members, China has the largest middle class, signifying potent consuming ability. Recent Chinese economic reforms primarily aim to promote consumption, which is the icing on the Chinese market’s cake, and this is also embedded in European views of China and the US.

The Pew Research Center has shown that more countries in Europe viewed China rather than the US as the world’s leading economy in 2019 and 2020. Also, more residents in Germany and France regarded US power and influence as threatening than China in 2018. Even with the new Biden administration, EU leaders anticipate a renewed trans-atlantic partnership but do not expect a sudden revolution of EU-American trade war, as bilateral trade disputes are structural and beyond Trump’s presidency.

More realistically, what is one of the major external concerns EU members face today? Back in the Cold War, the western expansion of the Soviet Union deeply disturbed European security, necessitating their consistent alliance with the US.

However, as Jonathan E. Hillman, a senior fellow at Center for Strategic and International Studies, wrote: “Russia has nuclear weapons but also a one-trick economy focused on energy exports, a rusting military, and a declining population.” In particular, Russia has been increasingly challenged to maintain traditional influence in Ukraine, Belarus and Central Asia, not to mention any comprehensive aggression to EU.

Furthermore, geographically, China is distant, and the EU does not have fundamental military interests in South China Sea but rather seeks to maintain peace and freedom of navigation for their shipping and trade, notwithstanding Brussels’ political friction with Beijing. But the large-scale uncontrolled migration from Africa and the Middle East may well be the EU’s main worry. However, regardless of some Western media ostensibly branding China as a neocolonialist in Africa, China has essentially supported the African economy via the BRI investment, creating local employment and purportedly discouraging the flow of a certain amount of immigrants to Europe. So, realistically, by signing the pact, the EU may keep the door open to cooperate with China in Africa.

On the flip side, if the EU sides with the US to the exclusion of China, what will happen to the EU? Certainly, Brussels will be praised by Washington politically, while the business sphere may be a different story. The recent Sino-Australian trade disputes indicate that “in the world of international commerce, democratic and strategic friends are often the fiercest rivals”, argued Professor James Laurenceson from the University of Technology Sydney, as Chinese tariffs against Australian goods have brought opportunities to businesses in America and New Zealand. So, US corporations in China must be delighted to see business space left by the EU companies because of possible EU-China trade skirmishes.

Sensibly, the EU is adopting an independent foreign policy to maintain autonomy between China and the US. More notably, as a third party during the Sino-American power competition, having signed a deal with Beijing, Brussels may possibly request Washington to offer more, thus maximizing its geopolitical and commercial interests.

Conclusion

To conclude, both sides made pragmatic decisions to sign the pact. Professor John Mearsheimer, at the University of Chicago, argued a few years ago that liberal dreams are great delusion facing international realities. China has executed a realist foreign policy since Deng Xiaoping’s reform, and this time, the EU may have woken up, because this deal signifies that geopolitical calculation has overtaken ideological divergence.

Author’s note: First published in johnmenadue.com

Yuan Jiang is a Chinese PhD student currently studying at the Queensland University of Technology, Australia. He is affiliated with the QUT Digital Media Research Centre, focusing on the Belt and Road Initiative. He completed his master’s degree in political science at Moscow State Institute of International Relations as a Russian Speaker and bachelor’s degree of law at Shanghai University. He served as an Account Manager of ZTE Corporation and special correspondent in Asia Weekly and The Paper/Pengpai News, both in Moscow. His writing has also appeared in The Diplomat, The National Interest, South China Morning Post, Russian International Affairs Council, Australian Outlook- Australian Institute of International Affairs, China Brief-The Jamestown Foundation, Global Times (English Edition), Modern Diplomacy, US-China Perception Monitor, Southern People Weekly Magazine, People’s Daily (Overseas Edition), Caixin and Kanshijie Magazine. As a Chinese student and journalist, he was invited to comment on Financial Times, Russia Today and some Russian TV and radio talk shows several times. He tweets at @jiangyuan528. For more information, please refer to his LinkedIn https://www.linkedin.com/in/jiangyuan528/

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Iran has an integral role to play in Russian-South Asian connectivity

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Iran is geostrategically positioned to play an integral role in Russian-South Asian connectivity. President Putin told the Valdai Club during its annual meeting in October 2019 that “there is one more prospective route, the Arctic – Siberia – Asia.

The idea is to connect ports along the Northern Sea Route with ports of the Pacific and Indian oceans via roads in East Siberia and central Eurasia.” This vision, which forms a crucial part of his country’s “Greater Eurasian Partnership”, can be achieved through the official North-South Transport Corridor (NSTC) and tentative W-CPEC+ projects that transit through the Islamic Republic of Iran.

The first one refers to the creation of a new trade route from Russia to India through Azerbaijan and Iran, while the second concerns the likely expansion of the China-Pakistan Economic Corridor (CPEC, the flagship project of China’s Belt & Road Initiative [BRI]) westward through Iran and largely parallel to the NSTC. W-CPEC+ can also continue towards Turkey and onward to the EU, but that branch is beyond the scope of the present analysis. The NSTC’s terminal port is the Indian-backed Chabahar, but delays in fully developing its infrastructure might lead to Bandar Abbas being used as a backup in the interim.

CPEC’s Chinese-backed terminal port of Gwadar is in close proximity to Chabahar, thus presenting the opportunity of eventually pairing the two as sister cities, especially in the event that rumored negotiations between China and Iran result in upwards of several hundred billion dollars worth of investments like some have previously reported. The combination of Russian, Indian, and Chinese infrastructure investments in Iran would greatly improve the country’s regional economic competitiveness and enable it to fulfill its geostrategic destiny of facilitating connectivity between Russia and South Asia.

What’s most intriguing about this ambitious vision is that Iran is proving to the rest of the world that it isn’t “isolated” like the U.S. and its closest allies thought that it would be as a result of their policy of so-called “maximum pressure” against it in recent years. While it’s true that India has somewhat stepped away from its previously strategic cooperation with Iran out of fear that it’ll be punished by “secondary sanctions” if it continued its pragmatic partnership with the Islamic Republic, it’s worthwhile mentioning that Chabahar curiously secured a U.S. sanctions waiver.

While the American intent behind that decision is unclear, it might have been predicated on the belief that the Iranian-facilitated expansion of Indian influence into Central Asia via Chabahar might help to “balance” Chinese influence in the region. It could also have simply been a small but symbolic “concession” to India in order not to scare it away from supporting the U.S. anti-Chinese containment strategy. It’s difficult to tell what the real motive was since American-Indian relations are currently complicated by Washington’s latest sanctions threats against New Delhi in response to its decision to purchase Russia’s S-400 air defense systems.

Nevertheless, even in the worst-case scenario that Indian investment and infrastructural support for Iran can’t be taken for granted in the coming future, that still doesn’t offset the country’s geostrategic plans. Russia could still use the NSTC to connect with W-CPEC and ultimately the over 200+ million Pakistani marketplaces. In theory, Russian companies in Pakistan could also re-export their home country’s NSTC-imported goods to neighboring India, thereby representing a pragmatic workaround to New Delhi’s potential self-interested distancing from that project which could also provide additional much-needed tax revenue for Islamabad.

Iran must therefore do its utmost to ensure Russia’s continued interest in the NSTC regardless of India’s approach to the project. Reconceptualizing the NSTC from its original Russian-Indian connectivity purpose to the much broader one of Russian-South Asian connectivity could help guarantee Moscow’s support. In parallel with that, Tehran would do well to court Beijing’s investments along W-CPEC+’s two branch corridors to Azerbaijan/Russia and Turkey/EU. Any success on any of these fronts, let alone three of them, would advance Iran’s regional interests by solidifying its integral geo-economic role in 21st-century Eurasia.

From our partner Tehran Times

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The phenomenon of land grabbing by multinationals

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Since 2012 the United Nations has adopted voluntary guidelines for land and forest management to combat land grabbing. But only a few people know about the guidelines, which aim to protect small farmers particularly in Third World countries.

When multinational investors buy up fields for their huge plantations, the residents lose their livelihood and means of support and will soon only be sleeping in their villages. If they are lucky, they might find work with relatives in another village. Many also try their luck in the city, but poverty and unemployment are high. What remains are depopulated villages and the huge palm oil plantations that have devoured farmland. People can no longer go there to hunt and grow plants or get firewood. The land no longer belongs to them!

Land grabbingis the process whereby mostly foreign investors deprive local farmers or fishermen of their fields, lakes and rivers. Although it has been widely used throughout history, land grabbing – as used in the 21st century – mainly refers to large-scale land acquisitions following the global food price crisis of 2007-2008.

From 2000 until 2019 one hundred million hectares of land have been sold or leased to foreign investors and the list of the most affected countries can be found here below:

Such investment may also make sense for the development of a country, but it must not deprive people of their rights: local people are starving while food is being produced and turned into biofuels for export right before their eyes.

In 2012, after three years of discussion, the UN created an instrument to prevent such land grabbing: the VGGTs (Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security:

Detailed minimum standards for investment are established, e.g. the participation of affected people or how to safeguard the rights of indigenous peoples and prevent corruption. Formally, the document provides a significant contribution to all people fighting for their rights.

The document, however, is quite cryptic. The guidelines should be simplified and explained. Only in this way can activists, but also farmers and fishermen, become aware of their rights.

Others doubt that much can be achieved through these guidelines because they are voluntary. After all, the UN has little or no say in the matter and can do no more than that. If governments implemented them, they would apply them as they will.

In Bolivia, for example, there are already laws that are supposed to prevent land grabbing. In the Amazon, however, Brazilian and Argentinian companies are buying up forests to grow soya and sugar cane, often with the approval and agreement of corrupt government officials. Further guidelines would probably be of little use.

At most, activists already use the guidelines to lobby their governments. Together with other environmental and human rights activists, they set up networks: through local radio stations and village meetings, they inform people of the fact that they right to their land.

Nevertheless, in many countries in Africa and elsewhere, there is a lack of documentation proving land ownership. Originally, tribal leaders vocally distributed rights of use. But today’s leaders are manipulated to pressure villagers to sell their land.

The biggest investors are Indians and Europeans: they are buying up the land to grow sugar cane and palm oil plantations. This phenomenon has been going on since 2008: at that time – as noted above – the world food crisis drove up food prices and foreign investors, but also governments, started to invest in food and biofuels.

Investment inland, which has been regarded as safe since the well-known financial crisis, must also be taken into account. Recently Chinese companies have also been buying up thousands of hectares of land.

In some parts of Africa, only about 6% of land is cultivated for food purposes, while on the remaining areas there are palm oil plantations. Once the plantations grow two or three metres high, they have a devastating effect on monocultures that rely on biodiversity, because of the huge areas they occupy. There is also environmental pollution due to fertilisers: in a village, near a plantation run by a Luxembourg company, many people have suffered from diarrhoea and some elderly villagers even died.

Consequently, the implementation of the VGGTs must be made binding as soon as possible. But with an organisation like the United Nations, how could this happen?

It is not only the indigenous peoples or the local groups of small farmers that are being deprived of everything. The common land used is also being lost, as well as many ecosystems that are still intact: wetlands are being drained, forests cleared and savannas turned into agricultural deserts. New landowners fence off their areas and deny access to the original owners. In practice, this is the 21st century equivalent of the containment of monastery land in Europe that began in the Middle Ages.

The vast majority of contracts are concentrated in poorer countries with weak institutions and land rights, where many people are starving. There, investors compete with local farmers. The argument to which the advocates of land grabbing hold -i.e. that it is mainly uncultivated land that needs to be reclaimed – is refuted. On the contrary, investors prefer well-developed and cultivated areas that promise high returns. However, they do not improve the supply of local population.

Foreign agricultural enterprises prefer to develop the so-called flexible crops, i.e. plants such as the aforementioned oil palm, soya and sugar cane, which, depending on the market situation, can be sold as biofuel or food.

But there is more! If company X of State Y buys food/fuel producing areas, it is the company that sells to its State Y and not the host State Z that, instead, assigns its future profits derived from international State-to-State trade to the aforementioned multinational or state-owned company of State Y.

Furthermore, there is almost no evidence of land investment creating jobs, as most projects were export-oriented. The British aid organisation Oxfam confirms that many land acquisitions took place in areas where food was being grown for the local population. Since local smallholders are generally weak and poorly educated, they can hardly defend themselves against the grabbing of the land they use. Government officials sell or lease it, often without even paying compensation.

Land grabbing is also present in ‘passive’ Europe. Russia, Ukraine, Romania, Lithuania and Bulgaria are affected, but also the territories of Eastern Germany. Funds and agricultural enterprises from “active” and democratic Europe, i.e. the West, and the Arab Gulf States are the main investors.

We might think that the governments of the affected countries would have the duty to protect their own people from such expropriations. Quite the reverse. They often support land grabbing. Obviously, corruption is often involved. In many countries, however, the agricultural sector has been criminally neglected in the past and multinationals are taking advantage of this under the pretext of remedying this situation.

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No let-up in Indian farmers’ protest due to subconscious fear of “crony capitalism”

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The writer has analysed why the farmers `now or never’ protest has persisted despite heavy odds. He is of the view that the farmers have the subconscious fear that the “crony capitalism” would eliminate traditional markets, abolish market support price and grab their landholdings. Already the farmers have been committing suicides owing to debt burden, poor monthly income (Rs. 1666 a month) and so on.”Crony capitalism” implies nexus between government and businesses that thrives on sweetheart deals, licences and permits eked through tweaking rules and regulations.

Stalemate between the government and the farmers’ unions is unchanged despite 11 rounds of talks. The farmers view the new farm laws as a ploy to dispossess them of their land holdings and give a free hand to tycoons to grab farmers’ holdings, though small.

Protesters allege the new laws were framed in secret understanding with tycoons. The farmers have a reason to abhor the rich businesses. According to an  a  January 2020 Oxfam India’s richest one  per cent hold over four times the wealth of 953 million people who make up the poorest 70 per cent  of the country’s population. India’s top nine billionaires’ Inc one is equivalent to wealth of the bottom 50 per cent of the population. The opposition has accused the government of “crony capitalism’.

Government has tried every tactic in its tool- kit to becloud the movement (sponsored y separatist Sikhs, desecrated Republic Day by hoisting religious flags at the Red ford, and so on). The government even shrugged off the protest by calling it miniscule and unrepresentative of 16.6 million farmers and 131,000 traders registered until May 2020. The government claims that it has planned to build 22,000 additional mandis (markets) 2021-22 in addition to already-available over 1,000 mandis.

Unruffled by government’s arguments, the opposition continues to accuse the government of being “suit-boot ki sarkar” and an ardent supporter of “crony capitalism” (Ambani and Adani). Modi did many favours to the duo. For instance they were facilitated to join hands with foreign companies to set up defence-equipment projects in India. BJP-ruled state governments facilitated the operation of mines in collaboration with the Ambani group  just years after the Supreme Court had cancelled the allotment of 214 coal blocks for captive mining (MS Nileema, `Coalgate 2.0’, The Caravan March 1, 2018). Modi used Adani’s aircraft in March, April and May 2014 for election campaigning across the country.

“Crony capitalism” is well defined in the English oxford Living Dictionaries, Cambridge and Merriam –Webster. Merriam-Webster defines “crony capitalism” as “an economic system in which individuals and businesses with political connections and influence are favored (as through tax breaks, grants, and other forms of government assistance) in ways seen as suppressing open competition in a free market

If there’s one”.

Cambridge dictionary defines the term as “ an economic system in which family members and friends of government officials and business leaders are given unfair advantages in the form of jobs, loans, etc.:government-owned firms engaged in crony capitalism”.

A common point in all the definitions is undue favours (sweetheart contracts, licences, etc) to select businesses. It is worse than nepotism as the nepotism has a limited scope and life cycle. But, “crony capitalism” becomes institutionalized.

Modi earned the title “suit-boot ki sarkar” when a non-resident Indian, Rameshkumar Bhikabhai virani gifted him a Rs. 10 lac suit. To save his face, Modi later auctioned the suit on February 20, 2015. The suit fetched price of Rs, 4, 31, 31311 or nearly four hundred times the original price. Modi donated the proceeds of auction to a fund meant for cleaning the River Ganges. `It was subsequently alleged that the Surat-based trader Laljibhai Patel who bought the suit had been favoured by being allotted government land for building  a private sports club (BJP returns ‘favour’, Modi suit buyer to get back land, Tribune June21, 2015).

Miffed by opposition’s vitriolic opposition, Ambani’s $174 billion conglomerate Reliance Industries Ltd. Categorically denied collusion with Modi’s government earlier this month. Reliance clarified that it had never done any contract farming or acquired farm land, and harboured no plans to do so in future. It also vowed to ensure its suppliers will pay government-mandated minimum prices to farmers. The Adani Group also had clarified last month that it did not buy food grains from farmers or influence their prices.

Modi-Ambani-Adani nexus

Like Modi, both Adani and Ambani hail from the western Indian state of Gujarat, just, who served as the state’s chief for over a decade. Both the tycoons are reputed to be Modi’s henchmen. Their industry quickly aligns its business strategies to Modi’s nation-building initiatives. For instance, Adani created a rival regional industry lobby and helped kick off a biannual global investment summit in Gujarat in 2003 that boosted Modi’s pro-business credentials. During 2020, Ambani raised record US$27 billion in equity investments for his technology and retail businesses from investors including Google and Face book Inc. He wants to convert these units into a powerful local e-commerce rival to Amazon.com Inc. and Wal-Mart Inc. The Adani group, which humbly started off as a commodities trader in 1988, has grown rapidly to become India’s top private-sector port operator and power generator.

Parallel with the USA

Ambani and Adani are like America’s Rockefellers and Vanderbilt’s in the USA’s Gilded Age in the second half of the 19th century (James Crabtree, The Billionaire Raj: a Journey through India’s New Gilded Age).

Modi government’s tutelage of Ambanis and Adanis is an open secret. Kerala challenged Adani’s bid for an airport lease is. A state minister said last year that Adani winning the bid was “an act of brazen cronyism.”

Threat of elimination of traditional markets

Farmers who could earlier sell grains and other products only at neighbouring government-regulated wholesale markets can now sell them across the country, including the big food processing companies and retailers such as WalMart.

The farmers fear the government will eventually abolish the wholesale markets, where growers were assured of a minimum support price for staples like wheat and rice, leaving small farmers at the mercy of corporate agri-businesses.

Is farmers’ fear genuine?

The farmers have a logical point. Agriculture yield less profit than industry. As such, even the USA heavily subsidies its agriculture. US farmers got more than $22 billion in government payments in 2019, the highest level of farm subsidies in the last 14 years, and the corporate sector paid for it. The Indian government is reluctant to give a permanent legal guarantee for the MSP. In contrast, the US and Western Europe buy directly from the farmers and build their butter and cheese mountains. Even the prices of farm products at the retail and wholesale levels are controlled by the capitalist government. In short, not the principles of capitalization but well-worked-out welfare measures are adopted to sustain the farm sector in the advanced West.

Threat of monopsonic exploitation

The farmers would suffer double exploitation under a monopsony (more sellers less buyers) at the hands of corporate sharks.  They would pay less than the minimum support price to the producers. Likewise, consumers will have to pay more because the public distribution system is likely to be undermined as mandi (regulated wholesale market) procurement is would eventually cease to exist.

Plight of the Indian farmer

The heavily indebted Indian farmer has average income of only about Rs. 20000 a year (about Rs. 1666 a month). Thousands of farmers commit suicide by eating pesticides to get rid of their financial difficulties.

A study by India’s National Bank for Agriculture and Rural Development found that more than half of farmers in India are in debt. More than 20,000 people involved in the farming sector died by suicide from 2018-2019, with several studies suggesting that being in debt was a key factor.

More than 86 per cent of India’s cultivated farmland is owned by small farmers who own less than two hectares of land each (about two sports fields). These farmers lack acumen to bargain with bigger companies. Farmers fear the Market Support Price will disappear as corporations start buying their produce.

Concluding remarks

Modi sarkar is unwilling to yield to the farmers’ demand for fear of losing his strongman image and Domino Effect’. If he yields on say, the matter of the farm laws, he may have to give in on the Citizenship Amendment Act also. Fund collection in some foreign countries has started to sustain the movement. As such, the movement may not end anytime soon. Unless Modi yields early, he would suffer voter backlash in coming elections. The farm sector contributes only about 15 per cent of India’s $2.9 trillion economy. But, it employs around half its 1.3 billion people. 

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