The recent announcement of USD 113 million in new regional investments focused on technology, energy and infrastructure for the oddly named “Indo-Pacific” region by US Secretary of State Mike Pompeo sounds suspiciously like a US version of China’s Silk Road, or Belt and Road Initiative, albeit on a much more limited – and some might say synthetic – scale.
Among the new investments outlined by Pompeo, which builds on President Donald Trump’s ‘Indo-Pacific’ strategy, the US will invest USD 25 million to expand US technology exports to the region, and nearly USD 50 million this year to help countries produce and store their energy resources, and create a new assistance network to boost infrastructure development.
The announcement, during a speech to the US Chamber of Commerce, comes at a time of escalating tit-for-tat trade tariffs between the US and China that continue to threaten vital transpacific trade and indeed dampen the global economy.
Leaving Trump’s well known geographic gaffs aside, ‘Indo-Pacific’ has become known in diplomatic circles as shorthand for a broader and democratic-led region in place of ‘Asia-Pacific’, which to Team Trump is said to represent a region with China too firmly at its core.
Despite the seemingly obvious desire to ‘disrupt’ the influence of China’s new-found Silk Road, a senior US official denied that the investments were aimed at countering China’s Belt and Road Initiative (BRI), which consists of generous loans and infrastructure projects linking Asia and parts of Africa to Europe.
The BRI is based loosely on the original Silk Road, which was an ancient network of trade routes beginning in the Han dynasty (207 BCE–220 CE) that connected the East and West both economically and culturally.
In a nutshell the BRI aims to strengthen infrastructure, trade and investment links between China and some 65 other countries that account collectively for over 30 per cent of global GDP, 62 per cent of population, and 75 per cent of known energy reserves. Key to this is the fact that up to USD 1 trillion dollars has been promised, but virtually all of it is in the form of interest bearing loans.
But in terms of the modern-day Silk Road, a senior policy adviser to Pompeo, Brian Hook, told reporters in the US: “It is a made-in-China, made-for-China initiative”. He continued: “Our way of doing things is to keep the government’s role very modest and it’s focused on helping businesses do what they do best.”
Indeed, Pompeo himself said: “These funds represent just a down payment on a new era in US economic commitment to peace and prosperity in the Indo-Pacific region.” The official media release continued this theme saying the initiative represents, “a strategic investment in deeper engagement with the Indo-Pacific while growing our own economy and creating jobs at home.” America first, of course.
That emerging Asian economies are in dire need of capital to build infrastructure is beyond question. The Asian Development Bank estimates emerging Asian economies need USD 1.7 trillion annually in infrastructure development to maintain growth, tackle poverty and respond to climate change.
Pompeo’s speech also touched on another sensitive issue, saying the US, “will oppose any country” which seeks to dominate the region in what appears to be a veiled reference to Beijing amid heightened tensions in the South China Sea.
“Like so many of our Asian allies and friends, our country fought for its own independence from an empire that expected deference,” Pompeo said. “We thus have never and will never seek domination in the Indo-Pacific, and we will oppose any country that does,” he added.
The US first outlined its strategy to develop the Indo-Pacific economy at an Asia-Pacific summit last year and Pompeo’s recent comments came before a scheduled trip to Southeast Asia, where he visited Malaysia, Indonesia, and Singapore. During that visit Pompeo announced another USD 300 million to reinforce security cooperation throughout the region.
Critics of Belt and Road
Critics of Beijing’s BRI, say it is more about establishing China’s influence and luring developing countries with easy money that will become burdensome debts, deepening a dependence on China. Beijing on the other hand argues it is simply a development project that any country is welcome to join.
While there may well be a magnanimous impulse, one aspect cannot be ignored: China has over the last few years needed to find an outlet for its massive industrial complex that has slowly idled as projects in China have come to a close as the country’s infrastructure has rapidly developed. And, not forgetting its still voracious appetite for minerals and raw materials out of countries like Africa.
And evidence so far seems to point to a recurring modus operandi: In the vast majority of the infrastructure projects undertaken thus far under the BRI, close to 100 per cent of the labour and material all came from China, meaning there was very little in spin-off benefits to local economies and virtually no skills transfer.
If its claims on and rapid land reclamation and military build up in the South China Sea are not enough, China has also been accused of buying support from developing nations like Laos and Cambodia in a bid to blunt criticism by showering them with low interest loans and infrastructure projects.
In return, Cambodia for instance, mutes criticism of China’s moves in the South China Sea in Association of Southeast Asian Nations (ASEAN) pronouncements. China has also developed a strong relationship with some of the hardline leaders in the region, leveraging the rifts that exist with the US, namely Hun Sen in Cambodia and Rodrigo Duterte in the Philippines.
Critics also argue that China has used its carrot and stick strategy in Europe with Hungary and Ethiopia in Africa. In the Ethiopian example, 12 direct flights for Ethiopian Airlines to China were given the green light, only weeks after Ethiopia publicly supported China at a time other African countries were criticising it. The end result: Ethiopia is now the main hub for Africa-China flights.
While much of the BRI involves sea and land transport investments with virtually nothing in the way of airport initiatives, the aegis of the BRI is clearly as flexible as it is broad and perhaps also insidious.
On the insidious front, critics point to what has become the poster child for Belt and Road abuse – Sri Lanka’s strategic port of Hambantota which in December 2017 was handed over to China on a 99-year lease after the country could no longer bear the cost of paying its debt to Chinese firms that build the port. Sri Lanka is estimated to owe more than USD 8.0 billion to state-controlled Chinese firms.
A similar situation is now also playing out on the horn of Africa, in Djibouti. The small impoverished country is projected to take on public debt totalling a whopping 88 per cent of its GDP, the majority owned by China. Last May, the USD 590 million Doraleh Multipurpose Port was completed through a project co-funded by Chinese government-owned companies.
Doraleh was operated by China until the government of Djibouti seized control of the container terminals, a move that was ruled illegal by a London arbritration court. And perhaps they should take care as a Chinese military base is located only 10 km from the port.
Rethinking the projects
But there is some movement to re-think initial agreements that a number of countries have made. The most recent example is Malaysia where a sharp change in government following the surprise election of Mahathir Mohamad as Prime Minster has thrown a spanner into the works.
A recent visit to Beijing saw Mahathir pull out of some of the most expensive and questionable multi-billion dollar Chinese-backed infrastructure projects including the USD 20 billion East Coast Rail Link and two natural gas pipelines worth USD 2.3 billion. This should clearly not be seen as nod towards the US as Mahathir has long been critical of US policy, but then again, this is politics.
But a pittance
Many are also quick to point out that the US offer of assistance – at only USD 113.5 million – is but a mere drop in the bucket compared to China’s regularly bandied-about figure of USD 1.0 trillion. But most analysts agree, China has come no where close to disbursing that mammoth figure.
There is also a slightly broader picture to consider. Japan and Australia are joining the US in a trilateral infrastructure investment initiative. “The United States, Japan, and Australia have formed a trilateral partnership to mobilise investment in projects that drive economic growth, create opportunities, and foster a free, open, inclusive and prosperous Indo-Pacific,” Australia said recently in a statement released by its Ministry of Foreign Affairs.
Indeed Japan has a significant head-start in this game, perhaps because of its proximity and certainly due to its astuteness gained from a long history of strategically deploying development assistance in the region. In 2015, Tokyo announced the Partnership for Quality Infrastructure in Asia, likely a result of its early and clear understanding of China’s long-term game as far as the BRI goes.
There is an increasingly held view that the Sri Lankan debacle has set a sort of early-warning precedent for other developing countries on what snuggling into bed with China could really mean. With more and more examples of what the true long-term costs of these generous loans are, and the potential ramifications should they default, many countries are taking a serious second look.
And lets not forget India in this equation. Seeing what took place within spitting distance of its own shores, something that is surely perceived as a threat not just to its regional influence, but its overall security as well given the fractious history the two countries share, India has partnered with Japan to develop a port on Sri Lanka’s eastern coastline and has also entered into talks to invest in an airport near (China’s) Hambantota port.
What’s wrong with loans?
To be fair, it certainly could be argued that there is not an insubstantial difference between what China is doing with its infrastructure loans and what the World Bank and the International Monetary Fund have done for decades. How many developing countries were nearly laid to waste, held at the unrelenting mercy of these international financial institutions after over-leveraging and paying the price of interest for decades?
The key difference here though, it must be said, is in the marketing. China is presenting the BRI in the robes of magnanimity, a helping hand from a friendly giant and then more recently (at least since the last US election) as some sort of saviour from the irascible fickleness of Trump’s America.
But for Trump and his foreign policy ambitions, it is probably far too late to have any significant impact with his ‘Donald’ version of China’s Belt and Road. Since Trump became president, he has rolled back Obama’s ‘pivot to Asia’ policy and introduced protectionist economic measures which saw the US pulling out from the Trans Pacific Partnership (TPP) agreement, that while China was not party to it, much of Southeast Asia was. And then of course. the ongoing tariff tiff.
If it’s any consolation, at least this latest development is a sign that US hasn’t completely forgotten about this dynamic region and the help that it needs. Lets hope some good comes out of China’s initiatives and for sure it’s a learning experience for all involved and hopefully at not too great a cost. But for Trump, it’s looking much more like a Polyester Road than a Silk Road.