Archive for the ‘Financial Times’ Category

Got a bit of catch-up posting to do, and now another atrocity in Barcelona. Here is something from yesterday’s Financial Times taking a longer view of the terrorist threat in general.

Terrorism will always be with us

Once we have dealt with the Islamist strain, it will morph into a new form


AUGUST 15, 2017

by: Raffaello Pantucci

Most organised human societies are plagued by terrorism. Within any structured system there will be a political spectrum, and at the ends of this spectrum there will be extremes populated by people who feel the rest of the society is not hearing a political message they need to be awoken to.

Last week, Jonathan Evans, the former head of the UK security service MI5, said he believes that Britain will have to confront Islamist terrorism for at least another 20 years. And the reality is that once we have dealt with that strain of the virus, it will simply morph into a new form.

To get to the origins of violent Islamist terrorism, one has to go back far beyond the spectacular attacks on the US on September 11 2001 to 1979, a year that rocked the Muslim world. The Iranian revolution, the Soviet invasion of Afghanistan and the siege at the Grand Mosque in Mecca by a group of fanatics all showed the violent force of fundamentalist ideas and their power to upend the established order. These three events showed how violent political movements inspired by Islamic theology could threaten superpowers. This was the lesson drawn by the architects of al-Qaeda’s confrontation with the west that culminated on 9/11. Isis is in many ways simply an evolution from that.

The attacks on New York and Washington DC almost 16 years ago were not the first time that terrorism had been visited on the west, of course. Before 9/11, Europe had endured successive waves of terrorist violence. Those responsible included right and leftwing groupuscules, separatist outfits such as the IRA and Eta, Middle Eastern networks often linked to the intelligence services of hostile states, and (in the case of France in particular) violent Islamists linked to Algeria and the conflict in Bosnia.

The US, for its part, saw numerous violent groups active throughout the postwar period — from white supremacists through leftist organisations such as the Weather Underground to the rightwing “patriot” movement to which the Oklahoma City bomber Timothy McVeigh had connections.

But all this was superseded by the 9/11 attacks. They transformed our understanding of terrorist violence. Overnight, Islamist terrorism became the main concern of western security services. And with good reason — al-Qaeda’s organisational effectiveness and ambition, demonstrated by the 9/11 attacks, was like nothing that had been seen before.

Previously active movements appeared to fade away or retreat, their activity dwarfed by the magnitude of what al-Qaeda had done. But they did not disappear. While some turned to the negotiating table, very few gave up. Leftwing groups continue to wage letter-bombing campaigns in parts of Europe, while the extreme right is enjoying a renaissance across the west. Eta and the IRA have for the most part given up violence, but Irish-related terrorism remains a major concern for British security services. And many other groups continue to exist in reduced but still active forms. Terrorism, it seems, never quite goes away.

More salient, the individuals involved do not go away. Some die fighting, some move on and some are incarcerated, but others stay free and continue the struggle even as they grow older. The recent attack at London Bridge showed how a specific group, al-Muhajiroun, continues to pose problems over 20 years after it was launched in the UK.

Older preachers talk to younger acolytes, creating a self-supporting structure in which followers eventually become leaders and in turn find their own recruits. This self-generating cycle means that eradicating these groups is a lengthy process that only really comes to an end when one ideological wave is overtaken by another.

For that to happen, an ideology must first wear itself out. But there are no signs of that happening with the current wave of violent Islamism. Al-Qaeda is reconstituting itself on the battlefield in Syria, while its affiliates in north Africa, Yemen and east Africa continue to thrive. Isis may be losing its capitals in Syria and Iraq but, as continued attacks around the world show, it retains some potency.

Terrorism did not start with Isis or al-Qaeda. Nor will it end with them. The current reigning Islamist ideology and groups may be overtaken by events, but they will undoubtedly be replaced by others. And, as Mr Evans pointed out, the long tail left by generations of followers means that security services will be watching people warily for some time yet.

The writer is director of international security studies at the Royal United Services Institute

Another short piece from this weekend in the wake of the atrocity in London Bridge this time for the Financial Times. Will catch up on other posting as soon as possible, though things at the moment are quite busy.

The Chilling Effect of a Brutally Simple Style

London attack comes as Isis is losing territory, making life harder for security forces

Back in May 2013 two radicalised young Britons ran a car into an off-duty soldier outside his London barracks, leapt out and butchered Lee Rigby as he lay in the street. Brutal in its simplicity and effectiveness, this has become a style terrorist groups champion as they seek to bring horror to our streets. It was used in Saturday’s London attack, in which at least seven were murdered — and has made security agencies’ lives markedly harder.

As low-tech attacks have proliferated, the terror threat facing the UK has escalated. Since Khalid Masood staged his car and knife offensive on Westminster in late March, there have been two successful attacks and five failed ones.

The Manchester suicide bomb last month and the London attack appear to have been produced by conspiracy rather than lone individuals. This is a worrying development given that until recently the analysis of the threat picture suggested the latter were the greatest concern. The use of a sophisticated device in Manchester suggests Salman Abedi had contact with others before killing himself and 22 others at an Ariana Grande concert. The London atrocity involved at least three people — the suspected attackers killed by police.

Looking abroad, terrorist groups have been pushing people to launch attacks whenever and however they can — particularly in this holy month of Ramadan. Isis pumps out a stream of messages, exhorting the use of knives, cars or other tools to kill “crusaders”. In a recent post, the group told people to wear fake suicide vests to confuse authorities — just as the London attackers are reported to have done.

Two weeks ago Hamza bin Laden — the son of Osama bin Laden, who is trying to reinvent himself as the leader of al-Qaeda — issued his own advice for “martyrdom seekers” in the west. They need not use “a military tool. If you are able to pick a firearm, well and good; if not, the options are many”.

All this comes as Isis is losing territory and it is becoming harder for prospective jihadis to travel to such battlefields. This denies terrorist groups space to plan but also creates two new categories of concern: returnees who have fought on these battlefields and blocked travellers who retain the radical impulse. These categories are added to the long list of individuals already of concern to security agencies. In the UK there are 500 under investigation, according to Ben Wallace, security minister, and 3,000 of active interest. There are a further 20,000 in a wider ring including people on the fringes of investigations going back years. In other words, security agencies are managing a roster of dangerous extremists from which it is almost impossible ever to remove names. Individuals such as Masood, investigated a decade ago on the edge of plots, may return to strike years later so agencies must stay alert to them.

A successful attack is by definition a failure by security agencies. In the case of London and Manchester, it is not yet clear whether we are looking at a lack of analysis, intelligence or capacity — or whether the threat has suddenly grown more acute and overwhelming. Whatever the answer, the question will become central to political debate, particularly given the proximity of the attacks to the general election.

Prime Minister Theresa May has pointed to the need to deal with ideology and “safe space” — online and offline. There will also be ever-louder questions about whether the security agencies have the resources to manage an engorged threat — as well as how they manage sometimes fraught relations with allies in Washington and Europe.

But it is clear that the current strategy — seeking to deal with the threats through a four-pillar approach of “prevent, pursue, protect and prepare” — is merely managing a problem that appears to be getting worse.

The writer is director of international security studies at the Royal United Services Institute and author of ‘We Love Death As You Love Life’

New piece for the Financial Times excellent Beyond BRICS blog, this time providing an evaluation of the links between the Asian Infrastructure Investment Bank (AIIB), the Silk Road Fund and Xi Jinping’s ‘Belt and Road Initiative.’ A lot more on this general topic on my parallel China in Central Asia site. This aside, spoke to the Telegraph about the recent terror attack in Quetta, Pakistan.

China’s Development Lenders Embrace Multilateral Co-operation

aiib-inaugural-mtg

There has been much speculation on the role of the Silk Road Fund (SRF) and Asian Infrastructure Investment Bank (AIIB) in China’s outward investment push.They are both instruments created by Beijing to provide economic firepower and bring international credibility to the ‘Belt and Road’ vision that has become President Xi Jinping’s keynote foreign policy concept. But in reality they have both undertaken a series of investments that, while substantial and linked to ‘Belt and Road’ countries, pale in size next to China’s overall outward investments.

While the AIIB has quite clearly been subsumed into the ‘Belt and Road’ project, the SRF has so far largely focused on commercial projects which are focused on profit rather than national strategy.

AIIB has so far made two sets of project announcements. The first were announced on June 24, 2016 and included a $165m loan for a power distribution project in Bangladesh, a $216.5m loan co-financed with the World Bank for a national slum upgrade in Indonesia, a $100m loan co-financed with the Asian Development Bank (ADB) and UK’s Department for International Development (DFID) to finance the Shorkot-Khanewal section of the M-4 motorway in Pakistan and a $27.5m loan for the Dushanbe-Uzbekistan Border Road Improvement Project in Tajikistan, co-financed with the European Bank for Reconstruction and Development (EBRD).

A second set were announced in September, including a $300m loan for Tarbela 5 hydropower project in Pakistan, co-financed by the World Bank and a $20m loan to finance a 225 MW power plant in Myanmar, a project which is set to possibly receive a further $58m from the International Finance Corporation (IFC) and $42.2m from the Asia Development Bank (ADB).

Of these projects, the only one that is uniquely funded by the AIIB is the power grid project in Bangladesh. All of the others are co-financed, or more accurately, the AIIB has bought into existing projects. Another significant detail is that with the exception of the Indonesian project, all of the projects are ones that can be captured under the broader ‘Belt and Road’ vision – which has three principal strands pushing out across Eurasia: China-Pakistan Economic Corridor (CPEC), Silk Road Economic Belt (SREB), and Bangladesh-China-India-Myanmar Economic Corridor (BCIM).

Of the $829m the bank has invested so far, $400m has been invested into projects which fit under CPEC, $27.5m into SREB, and $185m into projects which could fit under the BCIM.

In other words, almost 75 per cent of the AIIB’s first projects have been steered towards existing Chinese economic visions. And in many ways, the Indonesian project could also be captured under this banner, given the fact that Indonesia fits into the under-developed 21st Century Maritime Silk Road concept as well (and was the country in October 2016 that Xi announced the concept in the first place).

There is very little distance between the AIIB and Beijing’s ‘Belt and Road.’ And in fact, the parts of the ‘Belt and Road’ it is feeding are those parts which are going to ultimately have a resonance on China’s most under-developed regions that are the ultimate focus of the ‘Belt and Road.’ It is therefore hard, on the basis of its first projects, not to consider the bank as a tool of the ‘Belt and Road’ rather than a new independent financial institution advancing general regional development goals.

The Silk Road Fund is a more obvious tool than the AIIB. With a total capital of $40bn, the first $10bn was made up with money from the Chinese State Administration of Foreign Exchange (SAFE), which accounted for 65 per cent of the initial funds, Export-Import Bank (accounting for 15 per cent), China Development Bank (accounting for 5 per cent) and the China Investment Corporation (accounting for 15 per cent).

Established specifically to ‘promote common development and prosperity of China and the other countries and regions involved in the Belt and Road Initiative,’ the Fund is a commercial entity that is focused on projects that will generate returns.

Having laid out this logic, the Fund’s first investments have followed these principles, starting with an investment of $1.65bn in April 2015 to build the Karot hydropower project in North East Pakistan.

In September 2015 it announced it would purchase 9.9 per cent of the Russian Yamal liquefied gas field for $1.2bn, and more recently it was revealed it had explored putting almost $2bn into buying Glencore’s Vasilkovskoye gold mine in Kazakhstan.

It ultimately lost that deal to another pair of Chinese buyers. Outside these obvious ‘Belt and Road’ deals, the Fund has also invested in ChemChina to purchase Italian tire maker Pirelli, invested $100m into the China International Capital Corp (CICC) a state investment bank that prior to its initial public offering (IPO) in November 2015 was seen as taking losses internationally, and finally pledging some $300m to the IPO of China Energy Engineering Corp (CEEC) an international power plant construction firm.

To understand the ‘Belt and Road’ logic of the CEEC-Silk Road Fund investment, it is instructive to look at Mr Xi’s visit to Serbia in June 2016, seven months after the IPO announcement. Mr Xi was present at the signing of an MOU between the CEEC, the Silk Road Fund, China Environmental Energy Investment Ltd and the Serbian Ministry of Energy and Mining. The MoU laid the foundations for CEEC to undertake further energy projects in Serbia, joining already advanced CEEC projects in Lithuania and Bosnia-Herzegovina.

Taken as a whole, the Silk Road Fund is a heavier investor in ‘Belt and Road’ projects than AIIB. While the AIIB’s announced deals add up to $829m, the SRF’s amount to at least $3.25bn (not including the Pirelli deal, the exact numbers of which are not immediately available). In addition, the Fund has been reported as considering an investment of between €5-10bn into the European Fund for Strategic Investments, or the so-called Juncker Plan.

But all of this pales next to China’s overall outward investment numbers. The Ministry of Commerce announced outward investment last year at $145.67bn and EY, a consultancy, has predicted that this year’s total will surpass $170bn.

Taken against this background, the SRF and AIIB are clearly minnows. But they are minnows which have focused on national interest, something that highlights the degree to which the broader ‘Belt and Road’ is aimed at advancing national interest rather than being a benevolent vision for Eurasia.

It also illustrates to outsiders that to properly understand how to connect with the ‘Belt and Road’, there is a need to understand China’s broader international ambitions under the vision.

Raffaello Pantucci is director of international security studies at RUSI, a think tank based in London.

Catching up on another late post, this time for the Financial Times Beyond BRICS blog looking in some detail at the question of how the ‘Belt and Road’ has had an impact on Xinjiang-Central Asia trade. Trying to look at this as a case study for the bigger question lots are asking. Am immensely grateful to the excellent Anna Sophia for doing some excellent digging to get the numbers for this. As ever a topic that will get more coverage as we go forwards, and check out China in Central Asia for more on this larger topic.

Xinjiang trade raises doubts over China’s ‘Belt and Road’ plan

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The vast Chinese northwestern frontier region of Xinjiang may serve as a useful early indicator of how Beijing’s much-touted “Belt and Road Initiative” (BRI) is supposed to work – and how successful it may become.

The region, which is home to several muslim minority peoples, has been wracked by ethnic turmoil for decades, prompting Beijing to seek to nurture social stability by driving economic development through hefty investments.

But for this strategy to gain traction, Beijing realised that it needed to boost development in the region around Xinjiang by building commercial corridors to neighbouring Central Asian countries such as Kazakhstan, Tajikistan, Kyrgyzstan, Uzbekistan and Turkmenistan. Thus, Xinjiang was key motivator behind the BRI concept.

But so far the results have been underwhelming. In the three years since the forerunner of the BRI was launched, Xinjiang’s trade volume has not increased and it still constitutes an unchanging portion of total Chinese trade with Central Asia (see chart). This discrepancy between action and results raises questions about whether the BRI is a turning point in Chinese economic policy or simply old wine in a new bottle.

The Xinjiang Uighur Autonomous Region government is an active player in the BRI. Under its auspices, Xinjiang’s major energy companies are expanding Chinese energy trade with Central Asia.

Following its promotion as one of seven national centers for the development of Chinese wind power in 2014, the Xinjiang-based wind turbine company Goldwind won contracts to build plants throughout Central Asia in 2015. In addition, the Tebian Electric Apparatus Stock Company, one of China’s major power transformer companies located in Xinjiang, announced in 2015 plans to build a power transformation line in Kyrgyzstan and a power station in Tajikistan.

Xi Jinping, the Chinese president, called the power station in Tajikistan a symbol of the growing “friendship” between China and Tajikistan, highlighting Xinjiang’s importance to the political and economic objectives of the BRI.

In addition to this corporate activity, the Xinjiang Communist party leadership has represented Beijing in Central Asia. Zhang Chunxian, Communist Party Secretary in Xnjiang, has formalised trade partnerships initiated by Mr Xi with Tajikistan and Kazakhstan. These include deals on agriculture, infrastructure and trade with Tajikistan after Mr Xi’s 2013 visit and a $2bn trade deal with Kazakhstan. Thus, Xinjiang is serving to implement the leader’s vision.

These BRI deals, however, do not in fact represent a departure from Xinjiang’s trade history. Special trade relationships with Central Asian states existed before the initiative was announced, and energy and commodities were already important in its regional trade.

The Kashgar Special Economic Zone was established in 2010 and is intended to deal primarily in regional commodities exports. Likewise, plans for the Kazakhstan Khorgos Border Cooperation Center, where duty-free trade between Kazakhstan and Xinjiang could occur, were already announced in 2011, though construction did not begin until 2014. The point being that many of the projects now tagged as BRI are in fact pre-existing projects that are being re-branded.

The lack of change in Xinjiang’s trade volume since the BRI was announced calls the connection between the broader vision and the deals into question. In 2015, Xinjiang’s trade volume with Central Asia declined more rapidly than the national volume, while experiencing a reduction in trade with every Central Asian country aside from Turkmenistan, which was involved in building a new pipeline to the region.

Xinjiang’s textile exports have increased in 2016, according to the Global Trade Review. However, textiles were already a significant part of Xinjiang’s trade to Central Asia, so the rebound may merely be the result of a weak 2015 base.

The discrepancy between Xinjiang’s visibility in the BRI and its steady proportion of China’s total trade with Central Asia suggests that – so far – the initiative is simply publicising trade relations that existed before, instead of changing China’s trade patterns.

If this pattern holds, it will be important for countries that deal with China to look beyond the visionary rhetoric of the BRI and engage instead with concrete and bankable projects. This requires a focus on what made sense before the BRI was announced.

Raffaelo Pantucci is director of international security studies and Anna Sophia Young is a research intern at the Royal United Services Institute (RUSI), a think tank based in London.

It has been a busy week after the sad events in Brussels. A lot of links and posting to catch up on, but am on the road so not so easy to do. For the time being, here is my preliminary thoughts on the attack for the Financial Times. More to come soon.

Brussels Attacks Show That Terrorists Can Strike at Will

The surveillance problems can no longer be described as Belgian alone, writes Raffaello Pantucci

Brussels cops post attack

It is still unclear exactly what Brussels has faced just prior to Easter. The random nature of the date and targeting suggests a plot that may have been brought forward, while the scale of the attack suggests it must have been in the pipeline for some time. The Isis network, also linked to November’s Paris attacks, has claimed responsibility. The bigger issue, however, is not who is to blame for this atrocity but rather how much Europe will warp to address an acute terrorist threat, with cells apparently able to launch large-scale atrocities on an increasingly regular basis.

The first questions raised will focus on Belgium’s response to the problem on their home ground. Authorities may have scored a victory by capturing Salah Abdeslam, one of the Isis-aligned plotters linked to the Paris attacks, but they missed a network planning an atrocity with heavy weapons and explosives. This suggests gaps in the understanding and surveillance of the terrorist threat. Given that Brussels sits at the political heart of Europe, this points to a problem that can no longer be described as Belgian alone.

While for some the terrorist atrocities in Paris was a wake-up call, for security forces it had been expected for a while. Terrorist groups, from al-Qaeda to Isis, have long sought to launch a terrorist attack in the style of the 2008 Mumbai attacks, and a string of plots have been disrupted or launched from a francophone network emanating from Brussels. The Paris attack was the realisation of these fears from a depressingly predictable place.

The networks of radicalised individuals with links to Isis have grown as the group continues to hold sway on the battlefield and send back peopleand plots to their original bases in western Europe. Given the tempo of attacks and the ease with which the networks appear able to acquire weapons and move freely around the continent, Europeans will ask themselves how much longer they will face this threat. Is this the start of a regular diet of such atrocities or the breaking of a wave? Given that terrorist groups have been able to launch three big, ambitious plots in Europe in the past year and half, the sense will be that we are in the thick of this threat with no end in sight.

The choice of targets is predictable. Terrorist groups have long fetishised aviation as a target, both as a way of visibly lashing out against the globalised political establishment but also for the high impact. Mass transport systems by their very nature have to be open to the public, which makes them tempting targets as they offer an easy opportunity to strike at the heart of a society. Questions will be asked about ramping up security levels but this will bring costs and further inconvenience to the daily lives of citizens. Think of the ramifications of a plot in 2006 where a cell planned to use liquid bombs on a series of transatlantic flights. Liquids are still banned on aircraft today.

The Brussels attacks will also play badly against the backdrop of Europe’s migration crisis. It will not be entirely surprising if elements close to the recent attacks found ways of slipping into the country alongside refugees from the Middle East. An already tense situation in Europe will grow more fraught, and this will have inevitable political ramifications too.

This is the biggest problem with which security planners will have to contend. It is often said that the best response to a terrorist threat is to keep calm and carry on. This is sage advice but in the face of a network that appears able to strike with impunity, and a political environment growing more toxic by the day, it will be ever harder for security forces and politicians to ensure that Europe maintains its values in the face of the terrorist threat from within.

The writer is director of international security studies at the Royal United Services Institute and author of ‘We Love Death As You Love Life: Britain’s Suburban Terrorists’

Starting the new year with a splash and a piece for the Financial Times BeyondBRICS, this captures an idea I have been working on for a while and am hoping this year to finally really develop. Lots more on my work with Alex in particular on our joint site: http://www.chinaincentralasia.com

Guest post: The route to better relationships with China lies along the Silk Road

Jan 8, 2014 9:26am by guest writer
By Raffaello Pantucci of the Royal United Services Institute

A gentle rapprochement is under way between China and the United Kingdom. After almost two years in a diplomatic freeze, David Cameron visited Beijing last month and made an effective play for more trade. For the UK, this is a moment to recalibrate its relationship and play a role in coaxing China towards becoming a responsible international stakeholder. One route to that end is through understanding and working with China’s ‘march westward’ strategy, which has at its heart the re-activation of the ancient Silk Road linking China to Europe.

Coined by prominent Chinese academic Wang Jisi back in 2011, the ‘March Westwards’ strategy is the external component of the ‘Develop the West’ strategy that Beijing advanced to bring prosperity and development to its historically underdeveloped and turbulent western provinces of Xinjiang and Tibet. Long-standing sources of instability for the central government, the regions were racked by particular violence in 2008 (Tibet) and 2009 (Xinjiang). The brutality of the Xinjiang violence was a wake-up call, with more than 200 reportedly killed on the streets of Urumqi, the provincial capital, as the chaos forced then-leader Hu Jintao to leave an international G8 Summit in L’Aquila to manage the situation.

Since then, a series of measures have been taken to try to force the region to prosper. Richer coastal provinces have taken responsibility for counties in Xinjiang, putting a percentile of their GDP and staff to work in the region. Chinese companies have been encouraged to invest in the province, while a local trade fair has been transformed into an international China-Eurasian Expo that has attracted regional heads of state, senior Politburo members and former leaders of the stature of Tony Blair. The Xinjiang government has made an active play in trying to court foreign investment into the region, undertaking trade missions around Europe while also building trade parks targeted at regional players such as Turkey.

But all of this investment will achieve nothing if Xinjiang has nowhere to trade with. This explains China’s push into central Asia. Once a bit player in the region, China is the ascendant power across central Asia with Chinese businessmen and workers crowding the streets of Bishkek, Dushanbe and Almaty. In Tajikistan, international financial institutions report that tenders for contracts are increasingly competitions between Chinese firms underbidding each other to rebuild the mountainous country. In Turkmenistan, the economy is focused on exporting its hydrocarbon wealth to China, the one country that has shown the agility and capacity to unlock its mineral wealth and is willing to engage with the authorities on their terms. Across the region, Chinese work-teams are rebuilding roads, railways and other infrastructure to re-wire the region’s infrastructure so that all roads lead to Beijing.

But the ultimate goal of all this is to reconnect China to Europe across the Eurasian landmass and to strengthen the physical link between Chinese producers and European markets. As Wen Jiabao affirmed in his speech at the 2nd China-Eurasia Expo, China’s aim is to transform Urumqi once again into the ‘gateway to Eurasia’. And it is here that the UK can find its natural role as the anchor at the other end of this route.

Sitting in Urumqi last year, a Xinjiang official who had been sent to the province from Beijing as a footsoldier in China’s regional strategy, told a visiting British delegation that Urumqi was ‘the closest big Chinese city to Europe’. From a Chinese perspective, a key part of this solution to Xinjiang’s problems is to nurture the economic link and encourage Europe to participate more actively.

This is an opportunity for British businesses to get into one of the underdeveloped parts of the Chinese economy, as well as tapping into a growing boom in central Asia. In some fields this will mean competing with Chinese companies but, in others, finding niche specialisms or technologies that British companies have and Chinese companies lack offers an opening into markets in both China and central Asia. Several British companies have found Xinjiang to be a profitable market. Some are providing equipment for energy companies, others are developers helping cities re-design themselves, others supply heavy building equipment to support China’s infrastructure boom across the region. Chinese competitors may exist in these fields but ‘brand China’ continues to be seen in a negative light both within and beyond the country. When other brands are available, people tend to prefer to go for them if they are affordable. And doubtless other opportunities exist.

There is of course an important human rights component to this discussion that needs to be addressed. Many object to China’s disregard for human rights in its ‘counter-terrorism’ strategy in Xinjiang, a concern only further heightened in central Asia. While care needs to be made, this also offers a further angle for British engagement. The UK’s CONTEST counter-terrorism strategy may have its faults and deficiencies but is a widely emulated model whose division between pre-emptive and reactive measures offers a useful structure through which to try to engage with political violence. Clearly, the approach and relative weighting of different aspects of the strategy needs to be carefully calibrated in every situation – but the Chinese are in the midst of a re-structuring of their counter-terrorism response with Xinjiang at the heart of their concerns. Engaging now offers a moment to influence the situation positively.

The UK’s history with China has been dominated by the seas. Hong Kong was the final bastion of British seafaring dominance of China, a history that still hangs heavy in the Chinese mindset. A new approach is needed that instead looks to China’s Eurasian heritage to rebuild a British, and European, policy towards China.

Raffaello Pantucci is a senior research fellow at the Royal United Services Institute.

 

A post for Financial Times Beyond Brics on China and Afghanistan, focusing in particular on the experiences of the two biggest Chinese investors there. For more on my work on China in Central Asia more broadly, please be sure to check out mine and Alex’s project site: http://www.chinaincentralasia.com. Thanks to Andrew for reading an early draft of this.

Guest post: China in Afghanistan, a tale of two mines

December 4, 2012 4:00 am by beyondbrics
By Raffaello Pantucci

Facing a heavy domestic agenda and growing foreign policy tensions in the seas to the east, it is unlikely that Afghanistan is going to be a major priority for incoming Chinese leader Xi Jinping.

Unfortunately, this does not mean the problems are going away. The contrasting fates of China’s large extractive projects in Afghanistan highlight a number of growing issues for the new administration in Beijing as the 2014 deadline for American withdrawal imposed by President Obama looms ever closer.

Up in the north, CNPC has started to extract oil from the ground in its project in the Amu Darya basin, while southeast of Kabul at Mes Aynak, the giant copper mine run by Metallurgical Corporation of China (MCC) and Jiangxi Copper has been put on hold while the Chinese firms reassess their ambitious plans for a project described by President Karzai as ‘one of the most important economic projects in Afghan history’.

This state of affairs is quite a contrast to earlier this year, when it emerged that CNPC was facing difficulties on the ground with reports of Chinese engineers being harrassed on site. This was despite the generous terms of the deal for Afghanistan: CNPC is paying 15 per cent royalty on oil, a 20 per cent rate of corporate tax and will give 50-70 per cent of its profits to the government, on top of building a new refinery. CNPC went into the deal with the Karzai family-linked Watan Group as local partner. All in all a very careful approach to investing in a risky country.

So the difficulties at the site and the staff harassment were a setback. In response, President Karzai’s Beijing visit in June included talks with CNPC, and also opened up discussions about developing a new pipeline to get CNPC’s gas out of Turkmenistan. CNPC is keen to develop another route to get gas out of South Yolatan, one of the world’s largest fields, possibly through northern Afghanistan and Tajikistan.

With the news that the field in Afghanistan is now producing, it looks like CNPC has cemented its position as a key investor in Afghanistan. The 25-year contract the company has signed has it extracting 1.5m barrels per year, and it is currently looking to extract 1,950 per day.

In contrast, the news from south east Afghanistan at Mes Aynak in Logar province is not nearly as positive. There, China Metallurgical Group Corporation (MCC) and Jiangxi Copper, the two Chinese state owned enterprises, were recently revealed to have withdrawn some of their operatives from the site. The reason given was security concerns with engineers reportedly spooked by a series of rocket attacks. Two weeks after these stories surfaced in the press, MCC president Shen Heting visited Kabul, meeting with Karzai and Minister of Mines Wahidullah Shahrani. In official read-outs from the meetings, security concerns were high on the agenda.

The picture may, however, be more complex than this. The Chinese companies have been accused of dragging their feet on the project, concerned about what is going to happen to the country after America officially withdraws in 2014. The important Buddist acheological remains at Mes Aynak are the subject of several campaigns, with researchers demanding more time to preserve the remains before mining commences. And the long-awaited rail line seems to be ever more distant.

Compensation for locals displaced by the site and the various ancillary projects alongside it has been slow to materialise. MCC also complained of Afghan partners being corrupt and inefficient, as documented in a US diplomatic cable revealed by Wikileaks.

All in all, it seems as though the Chinese companies were questioning their initial decision to invest. Looking back at the initial bids, it is clear that the Chinese bid high: offering a total investment $2.9bn (a figure that has been reported in fact as being as high as $4bn), $0.5bn more than the next offer. There were generous provisions for the Afghan government: a maximum royalty of 19.5 per cent and a bonus of $808m to the government as a signing bonus (the next closest was $243m).

MCC is concerned, along with others in the mining sector, about new legislation concerning mineral exploitation that is to be ratified by the Afghan government. Beyond Afghanistan, MCC has had other problems – its stock price in Shanghai has fallen from a high of over Rmb6 in 2009 to around Rmb2, and it recorded a net loss of $29m in the first half of 2012.

The contrast with CNPC’s experience in Amu Darya is stark. While CNPC is now producing from its site, the earliest possible production date now reported for Aynak is 2016. Clearly geography is something that has played in CNPC’s favor: northern Afghanistan is a relatively safe area compared to Logar province where Aynak lies.

The bigger question for China’s incoming leaders is how they are going to address Afghanistan once the US and Nato withdraw their primary responsibility for the country in 2014. China is not expected to take on a larger security role in the country: the PLA has little experience in such environments and such an aggressive approach is a world away from China’s non-interference policy.

China’s primary foreign policy tool is investment, mostly in Afghanistan’s natural resources: something it knows how to do very well from years of experience in frontier markets. However, this does not seem to be working in Afghanistan, with the government reportedly asking MCC to stay in Afghanistan. According to the Wikileak cable, Heting told American diplomats in October 2009 that ‘the Chinese government was urging the company to honour its commitments’.

The CNPC project may now be working, but the initial problems show that generous deals are no guarantee of a smooth passage. Beijing clearly has to re-think what it is going to do once 2014 passes. Afghanistan’s proximity to China and the potential knock-on implications in central Asia where China has invested a great deal make it is impossible to ignore.

China may not want to be dragged into Afghanistan’s interminable problems, but it seems impossible to imagine that they are not going to play some role. What this role ends up being is something that the new administration needs to calculate sooner than it wants.

Raffaello Pantucci is visiting scholar at Shanghai Academy of Social Sciences