Archive for May, 2021

How the West can best respond to China’s belt and road

Posted: May 27, 2021 in South China Morning Post
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Been working on a few too many different projects of late: some large, some small, some with some really excellent co-authors (whom I beg forgiveness for being slow at the moment). As I chug along, penned a short article for the South China Morning Post which tries to set out some ideas on how (and if) the west should respond to China’s Belt and Road Initiative. Not vastly new ideas, but the topic is going to get a lot of airtime during the upcoming G7 session so it seemed the right moment to put the ideas out there.

How the West can best respond to China’s belt and road

  • Competing with China dollar for dollar is pointless as Chinese banks and state-owned firms are driven by different concerns than their Western peers
  • Building up governance capacity in developing countries will help them better manage and push back when Chinese firms step over the line
Illustration: Craig Stephens for South China Morning Post

In a barely veiled reference to the Belt and Road Initiative, the recent Group of 7 Foreign Ministers final communique called on China to end its “coercive economic policies and practices”.

It is not the first time the G7 and its individual members have targeted the initiative, but it is unclear what they would offer instead. Rather, the project has become a whipping boy in the broader geopolitical confrontation with China.

The first thing the West should remember when responding to China’s strategy is that it is not seen the same way globally. While Western countries might view Beijing’s investments in developing countries as exploitative, coercive and attempts to entrap nations in debt, they are sometimes simply the latest round of funding from a wealthy foreign power to come knocking with their own list of requirements.

Some will take China’s strategy at face value and do not care much about the requirements that follow, interpreting them as equal to Western nations’ requirements.

This is a crucial point to consider; while Western powers might attach a certain set of values to Chinese investments, this is not necessarily how they are seen. Most developing countries will accept investment wherever it comes from, and have such deep needs that they will take what appears to be the best value.

That is why competing with China dollar for dollar is pointless.

Part of the reason concerns the institutions involved. Chinese state banks and state-owned firms, often the main implementers of belt and road projects, are driven by a different logic than their Western counterparts. Their considerations centre around activity, employment and continuity rather than short-term profit.

This is not to say they want to lose money, but they are willing to look at projects with a different timeline. They will also, in some contexts, take on a project because the state wants them to. This is not the same for most Western companies, which answer to shareholders.

State-run institutions in China must also take account of the fact the Belt and Road Initiative is a main part of President Xi Jinping’s foreign policy vision and has been enshrined in the constitution. Thus, implementation of the vision is likely to be put above other considerations.

This is also different from in the West, where institutions may have political links, and Western banks might prefer to work with national firms, but there is little binding companies to specific national foreign policies. Rather, most try to avoid overt political links, knowing it can spell trouble.

This highlights a difficult policy area for Western governments. If they want to compete effectively, they have to start considering policies which would clash with the liberal market principles they claim to advocate.

This already happens, but it is often done quietly. Western capitals might need to start being more explicit about it.

One answer is to offer alternatives to critical decisions or infrastructure being targeted as belt and road projects. This is likely to differ from case to case, but the key will be to cooperate with like-minded allies to focus on specific projects.

One idea could be to develop a list of specific areas – no doubt technology would be top. But there is a danger such a list could become unwieldy, especially considering how many areas of society have some technological component. Embassies on the ground could be encouraged to work together, but this would be a complicated process.

A more effective strategy would be to focus on building up the governance capacity in developing countries. This is the real route to success in managing Chinese investment.

For example, rules in contracts for belt and road projects are not always followed or the contracts themselves have exemptions built in.

Chinese companies can fail to perform or implement feasibility studies, find ways around contractual obligations and are sometimes in a hurry to get things done, tending to operate as they are used to doing at home. This can create problems for host countries, which are left to clean up afterwards.

The best way for Western countries to tackle such issues is not by complaining but, rather, to build up local capacity to hold Chinese firms to account. In everything from infrastructure and technical standards to data storage, if the local authorities have stronger powers and capabilities, they will be able to better manage and resist when Chinese firms step over the line.

This recognises what seems the biggest gap in Western thinking. It is true that corruption can sometimes tip the scales, but the answer to that is not more investment, a bidding war or threats about taking Chinese money. Rather, it is empower locals to deal with corruption and ensure local governance can better manage investment.

None of this easy. Many investors, aid agencies and international financial institutions have been trying to do as much for years, which highlights another issue worth remembering.

That is, China does not have a magic wand to make all these problems go away. Arguably, in the belt and road, it has created a tool that could exacerbate issues. So, while China might be able to keep its projects on course for now, that may not be the case indefinitely.

As China becomes more embroiled in problems around the world, it will find itself hitting many of the brick walls that Western powers have experienced over time.

All this highlights why the West should worry less about belt and road projects per se and focus more on strengthening developing countries so they are able to manage whatever investments come their way.

Raffaello Pantucci is senior associate fellow at the Royal United Services Institute (RUSI) in London

Bumps on the Digital Silk Road

Posted: May 10, 2021 in Straits Times
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A week and a bit later, finally posting my most recent piece for local paper Straits Times. This one explores the Digital Silk Road, something I have been looking at a growing amount for this larger RUSI project I have been working on which has a specific cyber and digital strand to it. In other words more on this to come, though more likely from the policy angle than the technical one which I am continually learning about.

Bumps on the Digital Silk Road

Chinese tech giants are superb builders but feared for their prowess and government links. But what if the greater risk lies in these firms themselves?

A potentially bigger problem the Digital Silk Road faces comes from within China.PHOTO: BLOOMBERG

At the height of the Sino-Indian Himalayan border clash last year, New Delhi suddenly slapped a ban on dozens of Chinese mobile phone apps on security grounds. Most prominent among them was TikTok, the video-sharing app which has taken the world’s teenagers by storm.

The Indian ban came amid a wider wave of pushback against China’s digital and technology companies, led by the United States but taking effect globally in different ways, creating bumps in the building of China’s Digital Silk Road (DSR).

India has always been a major point of interest for Chinese technology firms. With a market size potentially the same as China’s, it offers an opportunity for exponential growth right next door. For TikTok, before the abrupt cut-off, India was its biggest market outside China with some 200 million people on its platform and proof that a Chinese company could take on America’s Big Tech in new markets.

Hardware companies such as Xiaomi and Huawei have long listed India as a major source of growth. In 2018, Huawei announced an “India first” policy and started to establish a growing volume of its manufacturing for the market in the country itself. In 2017, Xiaomi’s sales in India topped US$1 billion (S$1.3 billion), while in the first quarter of this year (notwithstanding political tensions and Covid-19 economic slowdowns) it shipped some 38 million units to Indian customers, accounting for 26 per cent of the smartphone market with an impressive 23 per cent year-on-year growth.

On the software side, Bytedance (TikTok’s parent company) had bet heavily on India prior to the banning, hoping to grow its user base with a local team of around 2,000 staff. Mr Jack Ma’s Alibaba is reported to have invested some US$2 billion in the Indian market since 2015.

This push into India was the realisation of the vision of the DSR, a concept first laid out by Beijing in a 2015 White Paper. At the time, the DSR was somewhat ignored except in specialist circles as it seemed to be the latest variant of the Silk Road nomenclature in the wake of President Xi Jinping’s 2013 Belt and Road speeches in Astana and Jakarta.

Yet this rather dismissive view belies the potential impact of the expansion of the DSR, which sees China, through its technology firms and state loans, helping recipient countries build their telco networks, e-commerce, mobile payment, smart city and other high-tech infrastructure. Chinese technology companies are paving parts of the world’s digital future.

In the global market, China’s technology firms are more than holding their own. Huawei and Xiaomi phones are affordable and of good quality. Huawei is increasingly the only firm that is manufacturing the infrastructure needed by countries to upgrade their next-generation Internet network. Huawei and ZTE are among the dominant providers of telecoms hardware in the countries surrounding China, while firms like Hikvision or Dahua are offering new technologies at accessible rates.

Chinese online payment applications and fintech are at the cutting edge, while across growing swathes of Asia, Alibaba, Taobao and JD.com online sales platforms are competing robustly against Amazon and other online marketplaces. The easy access to cheap Chinese products makes them very attractive.

An entire sub-economy has emerged of local entrepreneurs in countries such as Kyrgyzstan and Indonesia who create websites in local languages that provide people with access to the Chinese platforms. Across Asia (and more widely), these online middlemen set themselves up as interpreters of Chinese platforms to those who are unfamiliar with the language but want access to the bountiful and cheap products on offer.

In some ways, this is a classic win-win. The countries get affordable technology, investment and access to the Chinese market.

DATA SECURITY CONCERNS

Yet there is another side to it which India was trying to address with its abrupt closure of a whole raft of Chinese apps. Part punitive and part defensive, India’s pushback was amongst the sharpest that China had yet encountered as it paved its Digital Silk Road.

Concerns about privacy, access to data and espionage have increasingly dogged Chinese technology firms. Former president Donald Trump’s White House was aggressive in calling out the dangers of Chinese technology, though his scattershot approach did not always deliver the impact that was intended. Chinese firms and the government have repeatedly denied the accusations levelled against them.

Notwithstanding the Chinese denials, there are areas of concern. In 2017, Huawei removed a Wi-Fi module in a surveillance system sold to police in Lahore when it was discovered by locals. The discovery of the module, which provided an option for remote control that the company had not advertised, caused consternation in Islamabad. Not enough, however, to stop the Huawei chief executive from meeting Prime Minister Imran Khan in 2019 and signing a memorandum of understanding for the company to build a giant cloud data centre in Pakistan. And there have been repeated reports that Chinese-installed technology in the African Union’s headquarters in Addis Ababa have been used to send information back to China.

Separately, TikTok has come under fire in various jurisdictions for censoring data, in part to adhere to Chinese government concerns. In Europe, the Italian government is suing the company for not having adequate protection for children’s data.

The biggest fear at the moment, however, is data collection and access. Driving this is the fear that the Chinese government could in theory demand that any Chinese company hand over whatever data it might have on foreign nationals using its application.

The reality, however, is far more complicated than this. In response to different data protection requirements of the countries they operate in, Chinese tech companies have built data centres around the world to store client information. Singapore, for example, is a particular beneficiary of this trend in Asia, offering a secure location outside China in the heart of Asia. Such centres should be beyond the Chinese government’s reach, though, of course, it can be difficult to monitor this.

But this is not the most interesting aspect of this data collection. Far more important is the volume of information this provides Chinese firms to hone their technical capabilities.

The current rush in new technology is to develop new artificial intelligence tools. In order to train these tools, you need massive amounts of data for them to learn from – something these Chinese behemoths are increasingly gathering in vast volume from around the world and particularly in Asia.

For countries leery of China’s ambitions, this advantage makes the growth of Chinese tech companies not only a potential national security threat, but also an economic threat that could stymie if not kill off rival plans to develop similar tools.

Given all of these concerns, it is not surprising that India decided to block Chinese penetration of its market. For India and others, the worry is not just the DSR burrowing too deeply into their local economies but also the longer-term risk of taking over their digital futures and exposing them to unknown future problems.

VULNERABLE GIANTS

For all that, a less discussed but potentially bigger problem the Digital Silk Road faces comes from within China. The abrupt defenestration of China’s most famous tech entrepreneur, Mr Ma, after he had carried Beijing’s flag for tech growth and innovation around the world, highlighted how vulnerable Chinese private companies really are. Not even China’s biggest tech company, Alibaba, is immune to political censure and punishment.

So far, it appears a chastened Mr Ma is having his wings clipped for challenging China’s domestic lenders too brazenly. His future remains unclear, but the slapdown halted what would have been the world’s largest-ever initial public offering of Alibaba’s payments off-shoot, Ant Financial.

While the scenarios are speculative at this stage, some questions about the relationship between the central government and Chinese tech companies need looking at. What are the implications for contracts or activities run by these companies should they fall foul of the government? What if the Chinese government was to abruptly nationalise or take over parts of Alibaba’s global empire? Countries could find themselves suddenly facing a situation where their entire online payments system was in fact owned by a foreign government.

In other words, the Digital Silk Road’s greatest dangers may not necessarily lie in the possibility of Chinese firms secretly accessing private data or the Chinese state using the infrastructure to hack people around the world, but the political vulnerabilities these firms face back home. If they are less stable than they appear and given the world’s growing reliance on digital economies and infrastructure, the unravelling of key parts of this silk road is a far graver threat than meets the eye.

Raffaello Pantucci is a senior fellow at the S. Rajaratnam School of International Studies and has a forthcoming book looking at China’s relations with Central Asia.

China’s Presence in South Asia

Posted: May 5, 2021 in Diplomat
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The wonderful Katie Putz of the Diplomat was kind enough to invite me to do an interview with her excellent publication – covering a wide range of China in South and Central Asia questions, though mostly looking southward with a bit of a focus on Afghanistan. Have not posted it all here as behind a firewall at the moment, but will hope to later. Am posting after it a podcast recording that I did with Suzanne Raine of Cambridge University (and formerly of the Foreign & Commonwealth Office) looking at how terrorist threats are evolving.

Raffaello Pantucci on China’s Presence in South Asia

The U.S. withdrawal from Afghanistan highlights the importance of South and Central Asia to China.

Pakistan and Chinese soldiers take part in a joint exercise in Jhelum, Pakistan Thursday, Nov 24, 2011.
Credit: AP Photo/B.K.Bangash

As the United States embarks on its withdrawal from Afghanistan, some wonder what China will do given the country’s critical interests in South and Central Asia. Chinese President Xi Jinping’s Belt and Road Initiative is merely the latest articulation of a strategic narrative that imbues the South and Central Asian region with critical importance to China. As Raffaello Pantucci, a senior fellow at the Royal United Services Institute (RUSI), explains in the following interview, China has long-running interests in the wider region. While Beijing is not poised to follow the Soviet Union and now, the United States, into the “graveyard of empires,” those interests remain important to China.

What interests in the wider South and Central Asia region most draw Beijing’s attention?

China is most worried about security problems it perceives as being based in South and Central Asia which might threaten domestic stability. Principal amongst these is a fear that the region might become a staging ground for Uyghur dissidents or militants to create instability in Xinjiang. A secondary group of concerns emanates from a fear of threats to Chinese economic investments and interests in the region. In Beijing’s conception these investments are also linked to Xinjiang as well, as their success is in part linked to prosperity and growth in Xinjiang, which China sees as the key to longer-term stability within its borders.

At a wider strategic level, China is worried that the region could be used by adversary powers, like the United States, as a place from which to foment instability within China. This has most recently been tied by the Ministry of Foreign Affairs directly to Afghanistan, but is a persistent fear that has always lurked in the back of Chinese minds. From their perspective, the region is their backyard and directly linked to some of the most sensitive parts of their country.

Finally, this region is the cradle of Xi Jinping’s foreign policy vision, the Belt and Road Initiative (BRI). The concept was launched in the Kazakh capital, then-Astana (now Nur-Sultan), and the China-Pakistan Economic Corridor (CPEC) is called the keynote project of the vision. This gives it a particular importance conceptually to Beijing as failure here would be tantamount to failure of his vision. The economic interests that are linked to BRI in the region are important to China, but are often overstated as the priorities for Beijing’s concerns. The economic interests are important to the specific firms involved; the strategic aspect comes in terms of the impact they might have on domestic growth and stability, in particular in Xinjiang.

Read more here.

Also, am posting the podcast discussion with Suzanne Raine for the Centre for Geopolitics at Cambridge University.

How US withdrawal from Afghanistan offers promise and peril for China

Posted: May 3, 2021 in South China Morning Post
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Some more late posting on a subject been doing a lot of work on this year China in Afghanistan, this time for the South China Morning Post. Have a longer paper on this landing soon, and there is a whole chapter in my upcoming book which draws on some time I spent there a while ago. This is going to be an important year for Afghanistan, let us hope things go well for everybody there.

How US withdrawal from Afghanistan offers promise and peril for China

  • The balance in Afghanistan seems weighted more towards opportunity than challenge for China as the geopolitical equation changes
  • Beijing might believe it knows how to avoid pitfalls, but history is littered with powers that were confident they had sway over the Eurasian heartland
US Marines patrol as they clear improvised explosive devices in Trikh Nawar on the outskirts of Marjah, Afghanistan, on February 21, 2010. Photo: AFP

US President Joe Biden’s decision for the US to leave Afghanistan is both a challenge and an opportunity for China. On the opportunity side, China rids itself of worrying US military bases near its border. On the challenge side, it leaves open the question of who will deal with the instability that might grow in Afghanistan.

China still lacks the hard power to do this itself, and it is unclear whether Afghan forces can deliver such security assurances. None of this is new for Beijing, but the balance now seems weighted more towards opportunity than challenge.

China has long worried about instability from Afghanistan, but more indirectly than directly. This is based on an understanding of the region – the Taliban has not been known to attack north into Central Asia and are wary about irritating supporters in Pakistan – as well as the fact that Afghanistan’s border with China is remote and fairly firmly secured.

There is always the fear that Afghanistan could be a base from which trouble can brew, though. Militants who want to launch attacks elsewhere might see Afghanistan as a convenient home from which to operate. We have seen this play out with al-Qaeda and are seeing hints of it with Islamic State forces. China is worried Afghanistan might become a staging point for Uygur militants.

Since President Xi Jinping’s visit to Xinjiang in 2014, there has been an increase in Chinese security attention on the border with Afghanistan to mitigate this risk. This was in part driven by the declaration that the US was leaving Afghanistan.

Beijing has supported border forces in Tajikistan and Pakistan, and it has worked with Afghan security forces to strengthen their side of the Wakhan Corridor. It has developed deeper relations with Afghanistan’s security apparatus, strengthening political links and providing support to build bases.

From Beijing’s perspective, this is a relatively small and tight seal at the moment, though complacency in these cases is lethal.

Afghan security officials appear conscious of these concerns. They continue to refer to the East Turkestan Islamic Movement (ETIM) as a potential danger, to soothe Chinese worries and as a snub to the US, which has removed the ETIM from its list of terrorist organisations.

In other words, Afghan leaders are referring to a specific threat the US says does not exist. Additionally, the Taliban has shown itself willing to engage with Beijing and mentioned a willingness to provide protection for infrastructure being built in Afghanistan.

Having covered security up to a point, China has the opportunity side to consider. The often overplayed economic opportunities are not the biggest prize, as basic economic geography dictates that China will be a major beneficiary of Afghanistan’s resources. Their slow uptake so far is a reflection of Afghanistan’s complexities rather than Chinese appetite.

From Beijing’s perspective, the removal of a US military base from its backyard as relations with the US become testier is a relief. There was always secret gratitude that the US was in Afghanistan, dealing with the Taliban and other worrying groups, but this was balanced by Beijing’s principal adversary operating in its backyard.

Now that this is gone, China has a clear sweep across the Eurasian heartland. With Iran and Russia as anti-American brackets on the other side of Central Asia, Beijing has geopolitical sway over the entire region. With India and Pakistan growing closer and New Delhi willing to step back from the brink along the Sino-Indian border, China finds itself comfortably placed in Eurasia.

The Shanghai Cooperation Organisation (SCO), which includes these countries as members or observers, celebrates its 20th anniversary this year. The SCO has been derided as a do-nothing entity, but the American withdrawal leaves a hole the China-led grouping is well-placed to fill.

This is not to say the SCO will deploy in force. Instead, it provides China with an existing framework to play a role in determining the region’s future.

The problem for Beijing is this role comes with responsibilities and issues that China has repeatedly failed to figure out how to address. The Taliban is not a responsible player and, like everyone else, Beijing will be sceptical about any assurances it receives.

At the same time, none of the other SCO members are enamoured by Chinese power or aspire to it; rather, they fear it. Governance by fear might be effective, but it leaves you exposed if those powers are presented with other options. Russia and Iran, for example, would probably turn on China if the West abruptly shifted its posture towards them. 

None of this appears to unduly concern China. It is focused on highlighting American behaviour and spreading conspiratorial narratives about the US using Afghanistan as a base to mobilise Uygurs to attack China.

It is going to get dragged into regional geopolitics in the longer term, though, and while China has managed to avoid such clashes so far, it will eventually have to make some hard choices.

Beijing might believe it knows how to avoid such forks in the road, but history is littered with powers that were confident they had sway over the Eurasian heartland. China might enjoy the American withdrawal from Afghanistan but, in the longer term, the scales might tip more towards challenge than opportunity.

Raffaello Pantucci is senior associate fellow at the Royal United Services Institute (RUSI) in London

West needs ‘grey zones’ not red lines in Ukraine and Taiwan

Posted: May 2, 2021 in Financial Times
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Into a new month, and a few things left over from the last one to publish. First up a short letter for the Financial Times which got a surprising amount of resonance, which reflects the fact that size is not everything I suppose!

Am also using this moment to do a media catch up which I have not done in a while. At the bottom of this post am putting a podcast I did with Veerle as part of a project I have been working on with RUSI (and partnering with Chatham House) which looks at trying to develop an agenda for a Transatlantic Dialogue on China.

This aside, spoke to RFE/RL about China in Afghanistan and separately about the Belt and Road; to the South China Morning Post about what the withdrawal from Afghanistan means to China, how China characterises its counter-terrorism program in Xinjiang, why ISIS has not talked much about China, what China is doing in Afghanistan, and China-Japan; to CNN about the China policy that Biden inherited; to the Mail on Sunday about Jack Ma; and on the other side of my work, to the Telegraph about 10 years on since bin Laden’s death; to The National about UK air strikes on ISIS in Syria; and, finally, to Australian ABC about the excellent work of the Unity Initiative.

Letter: West needs ‘grey zones’ not red lines in Ukraine and Taiwan

From Raffaello Pantucci, Senior Associate Fellow, Royal United Services Institute, London SW1, UK

A Russian navy ship is seen during navy drills in the Black Sea on April 14, 2021. © AP

Gideon Rachman (“Why China and Russia will now test Biden”, Opinion, April 20) is right to identify Taiwan and Ukraine as places where the US (and its allies) will find themselves tested by China and Russia.

Setting red lines, however, is not necessarily the answer. It might instead create a series of tests which Beijing and Moscow feel compelled to probe in creative ways.

The challenge of setting red lines is that people will tend to run towards them. Knowing exactly where the lines in the sand are drawn provides adversaries with a target. And once they have reached the line, they explore ways in which they can softly undermine it — using the very “grey zone tactics” that Rachman identifies as being key weapons in Beijing and Moscow’s toolboxes.

The net result is further confusion. If they have not clearly crossed the line by using deniable cyber tactics or proxies, what is to be done?

It may take time to clarify. But for the moment, the discussion will be about whether they crossed the line or not — with the mere debate about it suggesting they did and the west did nothing about it. No good comes of this beyond seeming to undermine western commitments.

The question is not are China and Russia adversaries in these situations. They clearly see themselves as such and continue to act as though they are. Rather it is a question of whether the west is committed to helping Ukraine and Taiwan. So far, the west has remained resolute in its support for both countries — President Joe Biden is sending delegations of close allies to Taipei while his most recent round of sanctions suggests a willingness to confront Russian behaviour. Both countries continue to be recipients of US military aid.

The only additional benefit a clear red line would contribute would be to suggest the throwing down of a gauntlet after which presumably the west will have to reply with harder force.

Far better to keep a deniable grey zone on the west’s side as well, which keeps adversaries wondering how we might respond and how far they can go. A jockeying may seem to leave things open for miscalculation, but is also likely to be the best we can hope for, short of open warfare in a geopolitical context of great power conflict.

Raffaello Pantucci
Senior Associate Fellow
Royal United Services Institute

And now for some links to other media outputs which are online that have popped up in the past period. First up is the podcast referenced above which is part of the bigger Transatlantic Dialogue on China project Veerle and myself are working on at RUSI.

Next up a panel discussion with Turkish TRT Television looking at what Biden’s pledges towards NATO mean for Europe and international security in particular, with former NATO policy planner Dr Jamie Shea CMG and Dr Thomas Sutton from Baldwin College.

And finally, another panel with TRT, this time looking at what the UK’s new Integrated Review means with the Evening Standard’s Defence correspondent Robert Fox and former Foreign Office Permanent Under Secretary Sir Simon Fraser.