Archive for the ‘Financial Times’ Category

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.

 

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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

A brief letter in the Financial Times, in reaction to this op-ed in the paper. I have a longer piece focused on what I am talking about landing soon, I think the issue of fighters going to Syria is something which is only going to increase over time.

When the moral card fails it’s time to get personal

From Mr Raffaello Pantucci.

Sir, Rhonda Roumani’s emotional appeal to regional states to muster western support to end the lethal stalemate in Syria pulls at heartstrings that have been tugged into numbness (“A conflict that is staining the conscience of the world”, October 15). As we enter the 20th month of fighting with little sign of much active western intervention, it is abundantly clear that such emotive appeals are not the solution. A more pragmatic line must be taken.

The key is to remind people of what happened in Bosnia in the 1990s, where a civil war developed into a proxy struggle with Iranian, Saudi, Russian and western proxies sniping on the ground while a sectarian conflict gradually adopted greater religious overtones. The net result of Bosnia was to create a cauldron into which religious extremists could pour their ideas and ply their trade – to come back to plague leaders across the world in the form of a network of extremists connected to al-Qaeda and its extremist ideas. All sides came out worse than they went in, with even Iran and Saudi Arabia ultimately suffering from the resurgent extremist feeling that they helped stoke.

The point is that as Syria continues to drag on, we are increasingly seeing a similar dynamic play out on the ground. No resolution one way or the other only proves to extremists that the narrative they believe is true, and stokes fires that will invariably come back to haunt us. This quite blunt practical reality is the key to persuading people that more must be done. The moral card has been played already and has quite clearly been ignored. Appeal to people’s sense of personal security and you might be able to get through.

Raffaello Pantucci, Associate Fellow, International Centre for the Study of Radicalisation, King’s College London, UK

 

Been unable to access this for a while, so catching up a bit on posting. This is a new one for an outlet I am quite pleased with, the Financial Times Beyond Brics blog. Looks at the 2nd China Eurasia Expo that I went to out in Urumqi, Xinjiang. More on that to come as part of my ongoing China in Central Asia work.

Xinjiang: Struggle to Revive Silk Road

September 4, 2012 10:41 am by beyondbrics

Picture from here

By Raffaello Pantucci

What do  you do about attracting investment if you are a remote corner of China, best-known internationally for your ethnic tensions?

If you are Xinjiang, you invest heavily in a blockbuster economic exhibition. Urumqi is this week hosting its second annual China-Eurasia Expo, opened this year by premier Wen Jiabao, a clear upgrade from last year’s star host, vice premier Li Keqiang.

Leaders and/or ministers from seven countries flew in, giving credence to Wen’s claim that the Expo aimed ‘to build a new bridge of friendship and cooperation across the Eurasian continent…and make Xinjiang a gateway.’ But it’s along way from prime ministerial declarations to the investment that Xinjiang badly needs.

The ‘China-Eurasia Expo’ with its cheery mascot – the animated horse Xinxin – is an evolution from the more cumbersomely named ‘Urumqi Foreign Economic Relations and Trade Fair’ that was held annually since September 1992. Upgraded to a more grandiose Expo as part of a raft of policies to try to help the province economically in the wake of brutal rioting in Urumqi in 2009 that claimed more than 200 lives, the event is part of a push to help build the region’s foreign trade links.

From outside China, Volkswagen has invested some €170m ($225m) into building a new production plant outside Urumqi. Volkswagen CEO Martin Winterkorn told reporters in January that they had been approached by Beijing to develop the plant in the region alongside their local partner SAIC.

The plan is for the plant to start production in 2015 with a target output of 50,000 cars a year.

VW joins a growing list of Chinese vehicle companies that have established plants in the region. The hope for VW is to reach the growing central Asian markets as well as the domestic Xinjiang market: in Urumqi alone the numbers of cars on the road doubled from 2009 to 2011 from 200,000 to 400,000.

According to Chinese customs figures, cross-border trade in vehicles with central Asia stood at $680m in 2011 – though over 80 per cent of this was in heavy trucks.

China is also eagerly courting Turkish investment – showcased at the Expo by the appearance of economic minister Ali Babacan. Turkey’s cultural proximity to the restive Uighur Turkic minority (the languages are mutually comprehensible) has led China to encourage Turkish investment in the hope it will be seen in a less suspicious light by locals who resent the Han Chinese presence in the province.

Key to this is the establishment of a Turkish-Chinese Industrial Park in Urumqi, which was first agreed in April 2011 between Turkish and Xinjiang trade officials. Located just south of Urumqi and offering low tax rates and financial support to encourage development, the park aims to attract Turkish textiles and food producers. Babacan said in his presentation that Turkey wanted to contribute to regional development and that he hoped to see a ‘new Silk Road from Istanbul to Beijing.’

Beijing’s aim is not just to draw in investors, but also to tie Xinjiang into a broader region through a network of roads, rail links and Special Economic Zones (SEZs) aimed at increasing the volume of trade between the province and central Asia.

Established in Kashgar and Khorogos (a border post with Kazakhstan) the uncompleted SEZs are key nodes in a recently-built network of roads and rail radiating out from Kashgar to Kyrgyzstan, Tajikistan, Afghanistan and Pakistan, and from Urumqi north to Kazakhstan.

Xinjiang recorded 10.7 per cent economic growth in the first half of 2012, 2.9 percentage points higher than the national growth rate, according to local officials. But it’s moving from a low base, in terms of income and investment levels.

There are limits to Expo’s ability to attract foreign investment. According to official figures $29.14bn of domestic investment was attracted through last year’s show, compared to only $5.5bn from abroad.

As well its domestic challenges, Xinjiang is hampered by the shortcomings of the generally underdeveloped countries in the surrounding region. Central Asian economies are remote and still farily poor,  while Afghanistan and Pakistan suffer from violence and instability.

Official figures for the first six months of 2012 show that Xinjiang’s foreign trade stood at $9.82 bn ($7.29 bn in exports and $2.53bn in imports), a year-on-year increase of 9.2 per cent. That was better than the national average of 7.8 per cent, but the growth rate was substantially slower than last year’s 33 per cent for the whole of 2011.

About 78 per cent of this trade was with the five central Asian countries (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) – meaning Xinjiang is reliant on trade growth with a region replete with serious problems. Something the fanfare of an international Expo is unlikely to change.

Raffaello Pantucci, is a visiting scholar at the Shanghai Academy of Social Sciences (SASS)