Posts Tagged ‘BCIM’

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.

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A short blogpost for a new outlet, the rather impressive China Policy Institute Analysis blog which is linked to the University of Nottingham. Touches on a couple of topics which are going to be a focus for the immediate future, the ‘Belt and Road’ and the BCIM in particular. As ever, much more on these topics to be found at China in Central Asia.

How New is the Belt and Road?

Chiang Sheng Yang, Presenter, Phoenix Satellite Television Holdings, Hong Kong SAR, Zhang Bingjun, Corporate Chairman, Tianjin TEDA Construction Group, People's Republic of China, Ian Bremmer, President, Eurasia Group, USA; Young Global Leader Alumnus; Global Agenda Council on Geo-economics, Jin Liqun, President, Asian Infrastructure Investment Bank, Beijing, Li Daokui, Dean, Schwarzman College, Tsinghua University, People's Republic of China; Global Agenda Council on Global Economic Imbalances and Benedikt Sobotka, Chief Executive Officer, Eurasian Resources Group, Luxembourg at the World Economic Forum - Annual Meeting of the New Champions in Tianjin, People's Republic of China 2016. Copyright by World Economic Forum / Sikarin Thanachaiary

 Copyright by World Economic Forum / Sikarin Thanachaiary

Written by Raffaello Pantucci. 

Back in the late 1990s, then-PRC President and Communist Party leader Jiang Zemin noticed that the country was facing an imbalance. Deng Xiaoping’s economic reforms had opened up the coastal cities, transforming them into beacons of international industry and development. Cities like Shanghai, Shenzhen and Guangzhou were on their way to becoming international hubs. And yet looking inland, the difference was stark, with parts of the centre or border regions with neighbouring Southeast, South and Central Asia remaining poor and underdeveloped. Seeking to rectify this, and in part to help Chinese companies go out, Jiang Zemin instigated a ‘Develop the West’ or ‘Great Western Development’ strategies.

Academics like Zheng Xinli came back from their travels along China’s borderlands with southeast Asia with ideas of developing multilateral institutions that would help address one of the key problems in the region, a lack of infrastructure to help accelerate trade between parts of the world that were already deeply economically interdependent. To China’s west, the problems were political and had a security bent to them thanks to the proximity of Afghanistan, historical conflicts with Russia and an angry resident Uighur population. As the Soviet Union fell apart, China accelerated a process of border demarcation going on between itself, Russia, Kazakhstan, Kyrgyzstan and Tajikistan into a process called the ‘Shanghai Five’ – named after the city in which they met. The priority was largely to define what China’s borders were, with a later attempt to move the discussion towards other economic and political goals.

To China’s south, the scenario looked different. In the absence of a collapsing superpower with which China had fought conflicts, Beijing instead found itself confronted by a series of underdeveloped nations (including ones with which it had fought conflicts in some cases) that nonetheless had deep economic and ethnic links back and forth across China’s equally underdeveloped borderlands. In August 1999, over one hundred academics and experts from China, India, Burma and Bangladesh gathered together in Kunming for a conference at the Yunnan Academy of Social Sciences (YASS). The outline for the conference was laid out as:

  1. Practical and strategically significance for the regional cooperation among China, India, Bangladesh and Burma;
  1. Feasibility of cooperation in the economic, trade and technological cooperation among China (Yunnan), India, Bangladesh and Burma (including industry, agriculture, tourism and finance);
  1. Study on the construction of communication channels and networks among China, India, Bangladesh and Burma (including the opening and reconstructing roads, air lines, water routes and railways);
  1. Prospect and basis for the economic cooperation among China, India, Bangladesh and Burma;
  1. Open-door policies and trade and investment environment for China, India, Bangladesh and Burma;
  1. Construct the framework for regional cooperation in China, India, Bangladesh and Burma.

Its conclusions were similar and thus was laid out the framework for the Bangladesh-China-India-Myanmar Economic Corridor (BCIM), or the ‘Kunming Initiative’. Focusing on improving infrastructure and opening markets, the BCIM was dreamed up as a way of developing China through opening of markets, building infrastructure, and enhancing cooperation between China and its border nations.

The vision was one that was actually suggested a few months earlier in March 1999 at the 9th National Party Congress in Beijing by President Jiang Zemin. Crystallized in speeches delivered later in the year and put on the front page of the People’s Daily on June 19 1999, the ‘Great Western Development Strategy’ was a vision that suggested the ‘time was ripe’ to speed up the development of the central and western regions’ and that this ‘should become a major strategic task for the party.’

In other words, the Chinese Communist Party was to throw itself into working to develop the left behind ‘western’ (put in parentheses as the logic of ‘west’ was substantially stretched to anything not on China’s coast), and the ‘Kunming Initiative’ was to push this concept out as a trade and economic corridor that swept through Myanmar and Bangladesh to India.

All of which sounds a lot like the current vision that is being advanced for the ‘Belt and Road’, where we see Beijing pushing out trade and economic corridors in every direction as a way of helping not only China’s companies go out into the world, but also to help develop China’s under-developed ‘western regions’, be this in central China, Xinjiang, Tibet or Yunnan. Given the problems in Xinjiang, it is maybe unsurprising that the Central Asian strand of the ‘Belt and Road’ – the ‘Silk Road Economic Belt’ that Xi Jinping christened when he visited Astana in September 2013 – has found itself front and center, but it is also the one which is building on a well-established political track which Beijing had been laying since the collapse of the Soviet Union.

There is an additional problem with the BCIM which is that it ends with a power, India, with which Beijing continues to have tense relations that are complicated by China’s intimate embrace through another strand of the ‘Belt and Road’ with India’s persistent enemy Pakistan (the $46 billion China-Pakistan Economic Corridor). This tension alongside the persistent problems of development, governance and criminality that are encountered in Myanmar and Bangladesh, all serve to illustrate why China has had a harder time of things in Southeast Asia.

But the BCIM and its history do serve to illustrate that the ‘Belt and Road’ vision that is on its way to becoming the signature foreign policy initiative of the Xi Jinping administration is not in fact as new as it may sound. Rather, it is a case of an old model being re-attempted in a new cast. And as the ‘Belt and Road’ continues to remain a nebulous vision rather than a specific project, its conceptual embrace becomes ever tighter and it drags in historical projects like the BCIM into its all-encompassing horizon. During their July 2015 meeting on the fringes of the joint SCO and BRICS meeting Russia hosted in Ufa, Presidents Narendra Modi and Xi Jinping confirmed the proximity of the two visions. As reported in the official Chinese read-out of the meeting:

‘Both countries should also join efforts to promote the construction of Asian Infrastructure Investment Bank (AIIB), New Development Bank (NDB) of BRICS nations and the Bangladesh-China-India-Myanmar Economic Corridor (BCIM), and discuss on effectively connecting China’s initiative of the “Belt and Road” with related initiatives of India, so as to achieve mutually beneficial cooperation and common development.’

The BCIM has therefore been brought into the broader ‘Belt and Road’ vision, highlighting the degree to which its goals are interchangeable with the approach being practiced by Beijing in the modern ‘march west’ strategy as laid out by Xi Jinping. Thus bringing in full circle the repetition that is inherent within the current vision and the historical one, and showing how this approach is in fact one that China has attempted before. Whether this one will succeed where previous have not is unclear at this point, but when one considers the vast sums that Beijing is able to muster and deploy under the auspices of the current approach, it seems that the current ‘Belt and Road’ will leave an indelible impression. One that may even help imprint the BCIM onto Southeast Asia in its wake.

Raffaello Pantucci is Director of International Security Studies at the Royal United Services Institute (RUSI). He is also the co-creator of http://www.chinaincentralasia.com and is currently working on a number of projects looking at the Belt and Road through a number of different lenses. Image credit: CC by World Economic Forum/flickr.