US Doesn’t Have The Money To Match Beijing’s “Belt-and-Road” Initiative (#GotBitcoin?)
Xi Jinping, looking to expand global program—and responding to criticism—invites multilateral input. US Doesn’t Have The Money To Match Beijing’s “Belt-and-Road” Initiative (#GotBitcoin?)
China has unleashed easy credit for more than five years to fuel its ambitions to build global infrastructure, heaping debt upon itself and other developing economies.
President Xi Jinping is now adjusting that strategy, pledging to reformulate his Belt and Road Initiative with greater emphasis on market principles and sustainability.
The U.S. and other countries have warned that aspects of the program pose financial risks to borrowers, alleging a lack of transparency and graft in deals that primarily benefit Beijing.
China doesn’t intend to go it alone, Mr. Xi said in a speech on Friday. He referred repeatedly to “Belt and Road cooperation,” inviting foreign and private-sector partners to play a bigger role.
“Going ahead, we should focus on priorities and project execution,” Mr. Xi said, “just like an architect refining the blueprint.”
His pledges at a Beijing forum, where he hosted three dozen foreign leaders, marked the highest-level acknowledgment that China’s efforts to export its speedy, government-led brand of development carry risks for participating countries, and itself.
While many developing countries have embraced Mr. Xi’s infrastructure program since its 2013 launch, doubts have festered over whether the primarily Chinese-funded and built projects are always worth the money.
In Pakistan, heavy debt associated with Chinese projects helped sway an election, while the cost of a highway in Montenegro has threatened to devour its budget. Kenya has argued that Chinese infrastructure building hasn’t created many jobs for locals, while Malaysia recently negotiated a one-third cut in the price of a railway project its officials suggested originated due to graft.
Those challenges are mounting amid pushback from the U.S. about how Beijing wants to reshape the global order and as China’s debt-heavy domestic economy faces new trouble.
Far from abandoning an initiative he has enshrined in his Communist Party’s governing charter, Mr. Xi outlined a more expansive definition of Belt and Road, stretching it beyond infrastructure-building into areas including international cooperation in education and media.
‘We need to pursue open, green and clean cooperation,” he said in his Friday speech.
Mr. Xi also called for more multilateral and commercial funding for infrastructure projects, a contrast to his pledges of Chinese financing in a similar speech two years ago.
Beijing is fine-tuning Belt and Road, according to Zhang Zhexin, an analyst at Shanghai Institutes for International Studies. Its initial presentation was too broad and too loud, he said, and participating countries—often in distress—saw the program as a source of easy money from China.
“China just doesn’t have the resources to fulfill everyone’s demand,” Mr. Zhang said.
First pitched in 2013 as a platform to spur global development, the Belt and Road Initiative has pushed China’s massive construction, telecommunications and shipping companies to go global as a cooling domestic economy reduces business at home.
But as the program ballooned beyond infrastructure construction, Western officials—including from the U.S., which snubbed the Belt and Road forum—blamed it for advancing opaque financial deals that give Beijing political leverage by burdening countries with debt to China.
As criticism built over the past year or so, Beijing de-emphasized big-ticket infrastructure projects in its Belt and Road publicity and stepped up pledges to ensure sustainable lending and fight graft.
“Everything should be done in a transparent way and we should have a zero tolerance for corruption,” Mr. Xi said Friday.
As part of the oversight effort, Chinese officials have been negotiating with foreign governments to draw up lists of official Belt and Road projects, people familiar with the matter said, a move that would curb misuse of the Belt and Road label.
Ahead of Mr. Xi’s speech on Friday, Chinese officials appeared at side seminars to stress their attention to financial risks in the program and their desire to attract private-sector money.
“A country’s total debt capacity should be taken into account,” Yi Gang, governor of the People’s Bank of China, told a seminar on Thursday. “Private lending should be the mainstay” in financing projects to achieve sustainable development, he said.
International Monetary Fund Managing Director Christine Lagarde welcomed the shift in tone, telling the forum after Mr. Xi’s speech that the initiative could “benefit from increased transparency, open procurement with competitive bidding and better risk assessment in project selection.”
Some observers don’t expect China to slim down the Belt and Road program, despite Mr. Xi’s pledged adjustments.
Recalibrating Mr. Xi’s signature foreign policy is a welcome move but also “a big ask,” said George Magnus, an economist at Oxford University’s China Center. “To change its structure by incorporating Western ideas and values including the rule of law, full and open accounting, and market-based transparent lending standards and terms is most likely a bridge too far.”
China is adapting to current circumstances, but its long-term goals remain unchanged, said Kishore Mahbubani, a former senior Singapore diplomat who was in the audience for the Chinese leader’s speech. “They’re still rich in capital.”
Beijing’s more circumspect public messaging belied its highhanded approach when negotiating with some foreign diplomats during preparatory meetings for the forum, people familiar with the process said.
In meetings to draft a joint statement for Mr. Xi’s Saturday summit with foreign leaders, a Chinese diplomat chastised some negotiators, particularly European officials, after they pressed for references to best practices in business and investment, as well as human rights, the people familiar with the process said.
Guo Xuejun, a deputy director-general at China’s Foreign Ministry who chaired the meetings, accused the negotiators of showing disdain for Mr. Xi and China. He dismissed European requests for references to reciprocity as “American language,” referring to similar U.S. demands in trade talks with China, the people said.
“Remind me to disinvite your president,” Mr. Guo said at one point, according to the people, who said Chinese officials lodged diplomatic complaints against countries that sought amendments it disliked. China’s Foreign Ministry didn’t respond to a request for comment.
China Touts Its Belt-and-Road Effort As Collaborative, But Foreign Companies Feel Left Out
Beijing ‘is offering the financing, the building, the equipment—even the labor,’ an EU Chamber of Commerce official says.
Roughly seven years after Beijing launched a high-profile transcontinental infrastructure program aimed at building goodwill abroad and boosting economic cooperation with the rest of the world, some foreign companies say they are being left out of those projects.
Not only have a minuscule number of foreign companies been invited to participate in China’s Belt and Road initiative—a trillion-dollar flagship foreign-policy effort—but Beijing has also undercut its message of cooperation by keeping many partner nations at arm’s length, a new study by the European Union Chamber of Commerce in China argues. The initiative focuses mainly on infrastructure projects.
“China is offering the financing, the building, the equipment—even the labor,” said Jörg Wuttke, president of the Beijing-based European trade group. “That is a very closed system.”
China has framed the Belt and Road initiative as a way to more closely integrate its economy with those across Asia, Africa, Europe, the Middle East and Latin America, primarily through infrastructure projects. That has earned it comparisons to the Marshall Plan, under which Washington gave billions of dollars to help rebuild swaths of Europe and which placed the U.S. at the center of the postwar economic order.
During the first 11 months of 2019, Chinese companies signed 6,055 contracts in 61 countries as part of Belt and Road with a total value of $127.67 billion, an increase of 41.2% from the same period a year earlier, according to China’s Commerce Ministry.
The Belt and Road effort, however, has attracted criticism alleging that it lacks of transparency on financing, leading to charges of corruption, waste and out-of-control debt. President Xi Jinping has responded in part by recalibrating his signature program, pledging more transparency and financial sustainability.
However, the European Chamber, in its report published Thursday, said some apparently successful Belt and Road projects relied on large Chinese subsidies to stay afloat, quoting one logistics company that detailed handouts that heavily distorted market prices for freight traffic between Western China and Europe.
The trade group counted that just 20 of its 1,700 member companies in China had participated in the initiative. Those that did so joined because of existing relationships with the Chinese government or to lend technology expertise that couldn’t be supplied by Chinese companies, the chamber said.
Most of the participating companies did so through joint ventures with Chinese state-owned companies and in almost all cases held a small minority share in the project. Others had bid on Belt and Road-related projects, though very few were awarded the project, said the report, which pointed out the lack of an office or even a phone number for the initiative.
Geng Shuang, a Foreign Ministry spokesman, dismissed the European Chamber’s report as biased, saying the initiative was launched in a spirit of openness, inclusiveness and transparency.
Under the Belt and Road initiative, “Chinese and foreign companies follow the market rules and principle of fairness,” Mr. Geng said Thursday. He listed Germany’s Siemens and Deutsche Post’s DHL business, as well as France’s Schneider Electric, as examples of participating European businesses.
Siemens, which was among the first Western companies to work with Chinese companies on Belt and Road projects, opened an office in 2018 to oversee its involvement in the plan.
While some U.S. companies have shown interest, few have gotten directly involved. Most notable among them is General Electric Co., GE -0.25% which has partnered with Chinese state-owned enterprises on power-plant and grid projects in Africa. In July, Larry Culp, GE’s chairman and chief executive, met with Hao Peng, chairman of the body that oversees China’s state-owned assets, to discuss the Belt and Road initiative.
Some of the Belt and Road’s advertised participants had been only retroactively labeled as joining the effort, the European Chamber said. When a Chinese consortium won a bid in 2018 to build a bridge in Croatia as part of an EU-funded initiative to create transport, energy and digital connections between Europe and Asia, the Chinese news media were quick to laud it as a part of the Belt and Road initiative.
China’s Trillion-Dollar Campaign Fuels A Tech Race With The U.S.
Beijing plans to spend $1.4 trillion in the next five years in sectors including 5G, artificial intelligence and data centers.
China has embarked on a new trillion-dollar campaign to develop next-generation technologies as it seeks to catapult the communist nation ahead of the U.S. in critical areas.
Since the start of the year, municipal governments in Beijing, Shanghai and more than a dozen other localities have pledged 6.61 trillion yuan ($935 billion) to the cause, according to a Wall Street Journal tally. Chinese companies, urged on by authorities, are also putting up money.
Under a plan outlined earlier this year by China’s Ministry of Industry and Information Technology, these efforts would contribute to at least $1.4 trillion in investments during the next five years in artificial intelligence, data centers, mobile communications and other projects.
At China’s annual legislative meeting last month, China’s Premier Li Keqiang said the campaign was a top priority of the Communist Party and would give the country a “new-style infrastructure.”
That marked a subtle shift from months earlier, when Chinese leaders played down their previous industrial policy, known as Made in China 2025. The Trump administration has pointed to that previous policy as evidence of Beijing’s intent to subsidize national champions and tilt the playing field against foreign companies.
A key aspect of Made in China revolved around replacing foreign tech components with local products, said Caroline Meinhardt, an analyst at the Mercator Institute for China Studies in Berlin. That goal hasn’t changed, even though the new plan doesn’t explicitly call for a similar push, she said.
China’s program is likely to add heat to the U.S.-China technology race as Beijing seeks a global edge in construction of superfast cellular networks known as 5G. It could also serve as an important source of economic stimulus to cushion the impact of the global coronavirus-related slowdown.
“China is still a heavily planned economy,” said Lester Ross, policy committee chairman at the American Chamber of Commerce in China. “Such plans are a significant driver of economic policies.”
The new campaign has a similar thrust to Made in China 2025, but is both more targeted at cutting-edge technologies and broader in its ambitions. It focuses on upgrading technology throughout the Chinese economy and relies mostly on investment from the private sector and local governments instead of national government spending.
Unlike utilities and roads, new-style infrastructure investments such as vehicle charging stations offer better returns for private investors, Sun Guojun, a senior official with China’s cabinet, the State Council, said at a news conference in late May. The central government would provide policy support to the campaign, partly as a bid to increase domestic demand, Mr. Sun said.
This week, Chinese cities Beijing and Guangzhou announced new spending and projects related to the plan. Beijing aims to build 13,000 new 5G base stations by the end of 2020, while Guangzhou officials said they would increase spending to 500 billion yuan, up from 180 billion yuan announced previously, according to the city’s government work report.
The government is pushing hardest for investment in building new 5G networks. Supercharged 5G mobile connections are expected to underpin a whole new world of next-generation connected devices, collectively known as the internet of things, that businesses believe could revolutionize daily life and manufacturing alike.
China hopes to more than triple the number of 5G base stations to 600,000 by the end of the year, according to the state-run Xinhua News Agency. In 2019, Bernstein Research said the U.S. was on pace to install 10,000 5G base stations by the end of that year.
In March, China’s three national telecom carriers collectively promised to invest about 220 billion yuan to build 5G base stations.
The rest of the money is slated to flow into the building of new data centers and intercity rail networks, development of homegrown artificial intelligence chips, smart factories, electric-vehicle charging stations and ultrahigh-voltage power facilities.
Local governments have rushed to announce their investments. Shanghai’s government said this April it would pump 270 billion yuan on artificial intelligence, the industrial internet of things and other advanced technologies. Neighboring Jiangsu province said it plans to invest 182 billion yuan in its own new infrastructure projects.
Tencent, which runs China’s popular do-everything app WeChat, said last month it would invest 500 billion yuan during the next five years in new infrastructure technologies like cloud computing and cybersecurity. Its rival, e-commerce giant Alibaba, pledged 200 billion yuan in similar outlays over three years.
In his work report last month, Mr. Li said the government planned to issue 3.75 trillion yuan in bonds and spend another 600 billion yuan to support the digital infrastructure push, as well as accelerate urbanization and upgrade traditional infrastructure like roads and bridges.
Preferential policies favoring Chinese companies mean foreign companies are unlikely to see much of a windfall from the campaign, foreign business groups said.
“Such an unfair playing field may exacerbate the current trend of global decoupling of supply chains and increase protectionism,” the European Union Chamber of Commerce in China said in a statement.
Continuing trade friction with the U.S. could hinder the rollout of the new Chinese plan, at least in the short term, as many of the Chinese companies involved still rely on the U.S. for critical components. That includes China’s dominant maker of 5G equipment, Huawei Technologies Co., which has been placed on a U.S. export blacklist.
Chinese leaders also have a track record of allowing political goals to skew industrial plans, leading to overspending in areas where there’s little demand, according to analysts.
“Demand for 5G in China isn’t quite there yet,” said Dan Wang, a technology analyst with research consultant GaveKal Dragonomics in Beijing. “For now, it remains a solution looking for a problem.”
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