Posts Tagged ‘China and the world’

Catching up posting as ever, this another piece for South China Morning Post looking at China’s problems along the Belt and Road with reference to current tensions with India potentially being an indicator of what could happen more substantially.

China must get along with regional powers to make its New Silk Road plan work

Raffaello Pantucci writes that Beijing is seeking to increase its presence in regions where it is going to need more friends than enemies, including India

Geopolitics matters. As we move deeper into a multipolar world, the importance of grand strategy will only grow. Relations between states at a strategic, economic and even emotional level will all intertwine to create a complicated web that will require sophisticated diplomacy to navigate. For China this is a particularly important lesson to learn, given its keynote “Belt and Road Initiative” that requires an acquiescent and peaceful world to deliver on its promise of building a web of trade and economic corridors emanating from China and tying the Middle Kingdom to the world. China’s current stand-off with India highlights exactly how geopolitics can disrupt Xi Jinping’s foreign policy legacy initiative.

The details of the specific transgression within this context are not entirely important. China is asserting itself in its border regions and changing facts on the ground to solidify claims. Indian push-back is based on strategic relations with Bhutan that go back a long way and a concern about how this changes Indian capabilities on the ground.

It comes at a time when relations between China and India are particularly low, with suspicion on both sides. Most analysts do not seem to think we are going to end up with conflict, but it is not clear at the moment what the off-ramp looks like. But whatever this exit looks like, we are undoubtedly going to see China finding it tougher to advance its Belt and Road Initiative through India’s perceived or real spheres of influence in South Asia.

This is something which is already visible in the broader tensions between China and India over Pakistan. China has focused on the country as a major ally that it is supporting to develop its domestic economy and improve its strategic capacity for a variety of reasons. Yet this approach directly undermines Pakistan’s perennial adversary India’s current approach of isolating Islamabad on the international stage as punishment for cross-border terrorism.

Further, the CPEC route’s cutting through disputed territories in Kashmir provides a further spur to Indian concerns. At a more tactical level, China’s refusal to allow Jaish-e-Mohammed leader Masood Azhar to be included on the list of proscribed terrorists, and its blockage of Indian entry into the Nuclear Suppliers Group, all point to a relationship with which Beijing is clearly playing an aggressive hand. India has also shown itself to be a hardball player in this regard, making public shows of proximity to the Dalai Lama, a source of major concern to China.

Of course, such a posture is either capital’s prerogative. Past relations between China and India have been fraught. The two countries have fought wars against each other. Yet at the same time, the overall tenor between the two is often in a different direction: both are proud members of the BRICS grouping (arguably the two leaders of it), and both have embraced the Asian Infrastructure Investment Bank. India is keen to gain a slice of the outbound Chinese investment, while China is keen to access India’s markets. Both see the opportunities and recognise that as Asian giants they have an upward trajectory over the next few decades. Together they will undoubtedly be stronger than alone.

But this positive message is thoroughly buried under the negative news around the border spat in Bhutan. Rather than being able to build a productive relationship, the two countries now find themselves at loggerheads. This is a problem for both, but has an important lesson within it for China as it seeks to advance its Belt and Road Initiative globally.

To be able to credibly realise the Belt and Road Initiative, China is going to need to have positive relations with partners on the ground, in particular major regional powers. With plans to build infrastructure, expand investments and grow physical footprints on the ground, Beijing is seeking to substantially increase its presence in regions where it is going to need more friends than enemies. When looking across South Asia, this means having a productive relationship with India. Without this, Delhi will find ways of complicating China’s approach or, more bluntly, obstructing it. Given the importance of some of the South Asian routes to the development of some of China’s poorest regions, it is important for Beijing to make sure that these corridors related to the Belt and Road plan live up to their promise.

And this lesson is one that will be relevant outside a South Asian context. For Beijing to be able to deliver on the promise of the Belt and Road Initiative, it is going to need to watch the geopolitics. Similar problems may eventually materialise with Russia, or on the seas as Beijing seeks to turn the 21st Century Maritime Silk Road into a reality.

Without friends along these routes, China is going to find it very difficult to make these visions work no matter how much money they try to throw at the problem. With nationals, companies and interests broadening and deepening, China needs an acquiescent environment and countries that are eager to work with it. Geopolitics is a chess game of many different levels, and as power becomes more diffuse on our planet, Beijing is going to have to learn how to play these games if it wants to deliver on the promise of its grand visions.

Raffaello Pantucci is director of international security studies at the Royal United Services Institute in London.

This article appeared in the South China Morning Post print edition as: It’ll be tough going without friends on the New Silk Road

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LONDON, 19. MAY, 11:56

Chinese leader Xi Jinping trumpeted his foreign policy vision – the Belt and Road – to great fanfare this past week.

Yet a consistently discordant note was heard from European reporting around the event, with officials talking to press about their lack of understanding of the project. While some of their concerns were understandable, there was an element of missing the point.

  • The symbolic first arrival of a Chinese train in Germany (Photo: DB Schenker)

Xi Jinping may talk in terms of a project, but in reality what we are seeing laid out is a grand vision: one that Beijing is using to re-shape its engagement with the world.

For Europe, it is important to figure out exactly what this means. Otherwise, it could both miss out on an opportunity, and create a series of potential problems with a relationship that will continue to be important going forwards.

First, it is important to dispel what the Belt and Road is not. It is not a giant aid project. Nor has China particularly ever pretended that it was.

Leadership will get caught up in grandiloquent language about how the project is a great gift to humanity. However, in reality, it is a vision of re-connecting the world in a manner that will support Chinese trade flows and help Chinese companies go out into the world.

At its core, it is about helping to develop China’s underdeveloped regions – parts of the country that are deeply disconnected from its bustling ports.

Second, it is important to understand what is actually happening. Not all of the strands of the Belt and Road are new, nor are they all the same.

What has been happening in Central Asia for almost two decades, re-branded as Belt and Road, is not the same or as important domestically to China as newly advanced projects in parts of Africa or Eastern Europe.

At the same time, some corridors seem to be advancing far more slowly: the Bangladesh-China-India-Myanmar Economic Corridor (BCIM) is one that has been talked about since the late 1990s, but has only now actually moved into clear action across its entire route.

The point is, while the Belt and Road is discussed by Beijing in the same light, the reality on the ground is very different in each and every case.

Third, it is a vision with a long timeline. China is thinking to a very long horizon. In typical fashion for a centrally planned economy, it is considering things into the future and not the short- to medium-term eye-line with which most Western governments operate.

So, when the country looks to build train links across the continent that make little economic sense now, it could be that the lens we are looking at them through is too short.

Once China is able to develop its western regions and create industrial and manufacturing bases out there, it might suddenly become more economically sensible to put goods on trains across the continent.

Fourth, not everything is expected to work – this is a leadership vision and not a project.

The Belt and Road was first christened by Xi during a set of speeches in Astana and Jakarta. Laid out then, they were outlined as a pair of concepts that would slowly catch on and become the defining foreign policy concept that Xi Jinping would offer the world.

Conceptual Nature

The illogical nature of a Belt being over land, while a Road went to sea highlighted the conceptual nature of what was being laid out. In fact, the seeds of the concept could already be found in previous administrations – Jiang Zemin had his “Develop the West” concept, and Hu Jintao’s administration was the one that started up the idea of refocusing on Xinjiang and developing its relations with its neighbours.

Both of these served as ideological godfathers to the Belt and Road, which in essence took this model and internationalised it.

But the point is that none of these were specific projects. They were rather broad policy directives that were launched out of Beijing which were then followed up and pushed out by the many institutions in China, to varying degrees of success.

The BCIM was born under Jiang Zemin and went nowhere, and while the Hu Jintao initiative with Xinjiang and Central Asia was more successful, there are a few projects along the route that have failed to deliver as they were intended.

None of this is that surprising, as, ultimately, the leadership’s announcements should be assessed as a central policy direction rather than detailed plans.

Initially, when the speeches were delivered, there was no specific policy planning behind them.

Now that the concepts have firmly caught on, almost everything has become Belt and Road – in part this is because the concept is so broad (so everything fits under it), but also it is a way for everything to try to connect with the bright vision laid out by the leadership.

This includes ideas and projects that have a very limited connection to the actual Belt and Road – there is an almost inexhaustible list of Chinese regions that have defined themselves as the crucial points on the Belt and Road.

Within this, not everything is going to work (because it never does). But this is not a concern, as ultimately what has been offered is a concept rather than a project, meaning that it will not ultimately fail, as no specific parameter for success has been laid out.

EU Engagement

All of this is essential for European policymakers and thinkers to understand.

If they are to properly engage with the vision, they need to first understand it in granular detail – something that is eminently doable through the numerous reports that have been published, or by undertaking research themselves.

They then need to appreciate what the vision actually is and the timelines to which it is operating, and then finally focus on which aspects do correspond with their specific interests.

China’s biggest problem with this vision is that it requires considerable support, consent and contributions from the countries along and at the end of the routes, and those that are more likely to succeed are those with supportive partners.

Consequently, Europe can choose which aspects it wants to engage with and simply ignore the others. This will not necessarily stop them from happening, but they are not realities Europe has to engage with if it does not want to.

The key in all of this is for Europe to decide exactly what its strategy towards China is going to be, and what it is that it wants to do to engage with this century’s rising power. In the Belt and Road they are facing Xi Jinping’s foreign policy legacy.

Given that the conceptual outline is focused on the Eurasian continent, Europe has an opportunity to re-craft its relations with China in a way that connects with the leadership and potentially has a game-changing impact across the continent the two powers share.

It is not enough for European officials to simply tell the press they do not understand the Belt and Road – the vision is clear enough, but the point is to decide how to engage with it.

Raffaello Pantucci is director of international security studies at the Royal United Services Institute,a think tank in London

Back on my China in Eurasia theme, this time a piece timed to land at my institutional home RUSI to coincide with the big Belt and Road Forum taking place in Beijing. Lots more on this topic to come, and if you want more have a look at the China in Central Asia site.

Separately, spoke to the Times about returning foreign fighters to the UK from Syria, to Politico about Brexit and counter-terrorism, and the Mail on Sunday about Khalid Ali, the arrested Westminster terror plotter.

China: Understanding Beijing’s Belt and Road Initiative

A great deal of rhetoric is expended over China’s gigantic investment initiatives. Still, many of the economic projects are real, and Western governments will be well advised to understand their purpose.

The Middle Kingdom is asserting its centrality in global affairs by hosting the Silk Road summit this weekend. Aimed at showcasing President Xi Jinping’s ‘Belt and Road’ vision, the conference will bring together leaders, officials and experts from around the world.

Apart from the signing of some large deals and some affirmations about China’s eagerness towards free trade, the summit’s real importance is in the message it sends about China’s place in the world.

First announced in 2013 in a set of speeches in Astana and Jakarta, the One Belt, One Road (now renamed the Belt and Road Initiative) is at its root about putting a new name on a series of initiatives that built on existing Chinese investment and trade relationships.

The decision to first focus the initiative on Central Asia was a reflection of the fact that the region served as a conduit for China’s decades-long approach to investment around the world.

With a model of building infrastructure using Chinese firms deployed to deliver on loans provided by the country’s financial institutions to open up trade and markets, Beijing’s investments in Central Asia since the end of the Cold War provide a model for the globalised Belt and Road Initiative.

For countries along the routes, there is the difficulty of understanding and connecting with the Chinese investments in a manner that is useful to them, so that they are not simply roads passing through their territories.

For outside powers, such as the UK, there is the challenge of comprehending where they sit in the broader vision, as well as how they can connect with these projects along the routes.

To understand these issues better, there are three key aspects to remember. First, the concept is not a monolith. Each of the strands of the Belt and Road are different; at different stages of development, advanced to differing degrees and of variable importance.

In some cases, China is building on a long history of investment, while in others China is starting from a very low base of investment. It is important to distinguish between the rhetoric and the reality in each case.

Second, it is important to remember that this is not a giant aid project; China is making commercial investments in many cases. In some, the loans have been offered at reasonable rates and the implementing partner is contractually obliged to be Chinese. Looking at the Asian Infrastructure Investment Bank projects, they are in fact put out to open tender.

It is only in very few cases that the investment being offered acts as pure aid. China is still developing its aid profile, and this is key in understanding what China is doing under the Belt and Road.

The ultimate aim is to develop a series of trade and economic corridors using Chinese companies (thereby helping them go out into the world) to help China develop domestically. This is fundamentally a selfish vision aimed at advancing Chinese interests.

Third, it is important to think of the vision with a longer horizon that we are used to considering. At the moment, there is little economic logic to placing goods on trains from China to go to Europe: the route is far more expensive than going by sea and the highest value goods that need to get across land quicker need to travel by air.

Consequently, the much-vaunted trains which are travelling across the Eurasian landmass bringing goods between Europe and China are for the most part going full one way and empty back.

Furthermore, they are being subsidised by Beijing or the regional governments from where they depart. They do not currently make economic sense.

But it is possible that this is looking at them on too short a timeline. Seen from Beijing, the idea is to lay these tracks and develop these routes so that once China’s western regions become more developed and productive, they can take advantage of these routes.

Over time, what seems a short-term loss may turn into a longer-term artery of international trade. The point is that it is possible that the horizon with which the Belt and Road is currently considered is too limited.

In fact, it is something with a much longer timeline and is fundamentally, seen from Beijing, about re-establishing China as the centre of a global network of trade and economic routes that will help re-wire international trade.

These three elements are essential to bear in mind when outside powers are seeking to connect with the vision. It is important to understand each corridor in detail, to focus on the commercial opportunities that the corridors will create and to think with a longer horizon that most governments usually consider.

Once this learning has been absorbed and considered, it will be easier to understand how to connect with China’s vision – something that is as relevant to countries such as the UK at one end of the route as those that are along the routes.

For the Chinese investments are happening, notwithstanding the hyperbole that will be on display this weekend; money is being spent, and ground is being broken.

Banner image: The first goods train service from China to the UK arrives at DB Cargo’s rail freight terminal in Barking, East London. Courtesy of PA Images

New piece for the Lowy Institute of Australia’s Interpreter blog, drawing on a batch of Eurasian travel from the end of the year.

Central Asian connectivity: Going beyond China

Central Asia is experiencing a connectivity boom, with China’s ‘Belt and Road Initiative’ the most dominant vision for the region. Yet this dominance has started to worry Central Asian powers, leading to the emergence of a new narrative – that of diversification. With China becoming the region’s most influential economic actor, steadily increasing its role in local security and politics, Central Asian powers are seeking to broaden their engagement and bring to life a long-advocated ‘multi-vector’ diplomatic approach.

I was fortunate enough to spend the end of last year travelling the Eurasian heartland, with stops in Ashgabat, Astana, Beijing and Islamabad. It was a variety of different trips, covering different projects, but one overriding message about China shone through at every stop: the expansion of Chinese investment into its immediate neighbourhood is having a game-changing impact on the ground. This is positive, but it is also worrying those on the ground and is changing the way that Beijing is thinking about its external investments.

Talk to any Central Asian foreign policy planner and you will almost invariably hear about a ‘multi-vector’ approach to foreign relations. Sitting at the centre of Halford Mackinder’s ‘World-Island’, Central Asians envisage themselves as commanding vast power from the heart of the Silk Road. Yet it’s not always clear the degree to which they actually control the options on the table before them, or whether these great powers move around them to their own tune. Nowhere is this balance highlighted more acutely than in regards to foreign investment. Ideally, Central Asian states would want a multitude of options on the table before them, but while their FDI figures are more diverse than is sometimes given credit for, it is clear that Chinese money is increasingly the principal source.

This is increasingly the story across Eurasia, where everyone is both clamouring for Chinese investment and finding themselves uncertain about relying too heavily on a single investor. In Beijing, officials at state policy banks and private companies worry about the countries they are investing in and the fact they do not know the environments, yet at the same time find themselves under great pressure to deliver on Xi Jinping’s vaunted ‘Belt and Road Initiative’ through commercially viable projects. This leads them to trying to puzzle out how to deliver these projects effectively and seek partners to share the burden.

For landlocked Central Asians, however, the story is a different one. Trapped by geography between a sanctioned Russia, a still-recovering Iran and the disputed Caspian, they are only able to find China as a substantial and long-term investor and partner. India has tried and thus far not delivered, and while they discuss with Pakistan, Europe, Korea and Japan, projects as big as China’s have been slow in arriving. In contrast, Beijing signs contracts and infrastructure appears.

But all are aware of the dangers of having a single customer. In Ashgabat, they link Turkmenistan’s most recent push on breaking ground with the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline and alternate energy partners to a sharp slowdown in Chinese interest in their gas, as China’s economy slowed down. In Astana, President Nursultan Nazarbayev links Kazakhstan’s Nurly Zhol (Shining Road) economic vision to the Chinese Silk Road Economic Belt, in that the local strategy is intended to build on the Chinese infrastructure, showing how they are making the Chinese investment work for them.

But they also discuss the many other partnerships they are developing. Kazakhstan is planning a consulate in Bandar Abbas, the Iranian port city that provides Central Asia a different route to international markets. This was reinforced in Astana, where senior officials spoke of ‘connectivity being the number one point for Kazakhstan’ and that the country ‘will look in any direction with no discrimination’. At the same time, according to the Kaznex Invest Chairman Borisbiy Zhangurazov, China is set to undertake around 50 investment projects in Kazakhstan worth more than $24 billion, an amount almost equal ($26 billion) to all US investment in the country in the past 10 years.

In Pakistan, people worry about the degree to which they are becoming dependent on Chinese loans. Figures published earlier this year indicate that in Q1 FY17, net loan and FDI inflows from China were $1.1 billion (of which $700 million was a loan). Total FDI inflow is down from $192 million a year ago to $91 million this year. Trends that worry people who on the ground express a high level of concern about the transparency of the projects being undertaken as part of China-Pakistan Economic Corridor and the excessive reliance on Chinese investment.

What is interesting about Pakistan, however, is that it is clear that China is finding itself mired in as many problems as others have previously experienced in the country. As a Dawn editorial flagged at the start of this year, ‘for China, the year 2016 was when the country began to discover the complexities of doing business in Pakistan’. Beijing’s answer is to encourage others to become involved to share the burden. Russia is seeking a role. The UK is interested (an idea my institute is currently working on). Other parts of the Belt and Road, such as Kazakhstan, are equally keen. During my recent visit to Astana, senior figures intimated they were contemplating even going so far as opening a consulate in the China-Pakistan Economic Corridor’s crown jewel, the port of Gwadar in Baluchistan.

Connectivity remains the keyword in Eurasian geopolitics. Talk of Silk Roads continue to dominate regional conversations. Yet diversification will be essential to realise the visions that are being advanced. It will only work if it is a collective project, something even Beijing appears to be beginning to consider as well.

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.

And now a longer report with Sarah for our institutional home RUSI looking at the Tbilisi Silk Road Forum a conference we attended last year and are keen to try to engage with more. It sketches out some of the ideas to emerge from the event, and some ideas about how to take the project forwards. More on this general topic to be found on China in Central Asia. Finally, I also co-edited with Aniseh, this longer report looking at Iran’s relations with Syria for RUSI, as seen from a number of different angles. Am not re-posting it in its entirety here, as it was largely authored by others. But I would encourage everyone to read my colleagues excellent work!

Tbilisi Silk Road Forum: Next Steps for Georgia and the Silk Road

Raffaello Pantucci and Sarah Lain

RUSI Publications, 2 August 2016

baku-tbilisi_railways

This workshop report provides a number of recommendations which aim to capitalise on the success of the Tbilisi Silk Road Forum and place Georgia at the heart of Eurasian connectivity

The Tbilisi Silk Road Forum which took place 15–16 October 2015 – co-hosted by the Georgian and Chinese governments – was a clear endorsement by Georgia of China’s proposed Belt and Road policy. It also provided an opportunity to showcase Georgia’s position at the heart of a changing Eurasia. At a time when Iran is opening up, there is a surge of Chinese investment following the Belt and Road vision; numerous other proposals for Eurasian connectivity are being advanced by outside powers. As a country with strong connections to the east and west, Georgia is well placed to benefit from this web of connectivity and to offer examples of best practice to those nations that are still formulating their own responses to this regional development. This report details the key findings that emerged from the two-day conference, suggests ways in which it can move beyond being a one-off event and outlines some ideas for how Georgia can establish itself as one of the key hubs of Eurasian trade and commerce.

Some belated posting of which I have a bit to do, this one for the Telegraph about the furore around the Hinkey Power Plant deal and China-UK relations. A difficult topic which is still in a very complex phase. Been trying to finish some very delayed writing projects that is keeping me busy and has some angry editors after me. Apologies to them. A spate of China related material which reflects something there is going to be an increasing amount of over the next period.

How to avoid nuclear fallout and become equal partners with China

Last week’s announcement delaying the decision on the Hinkley C nuclear power plant project has turned into a running commentary on the changing nature of the UK’s relationship with China. While Downing Street has been at pains to highlight that the decision is not linked to Beijing, much has been read into statements through the public news agency Xinhua that seem to foreshadow a veiled warning about the UK’s “golden age” with China being under threat. These proclamations need to be tempered by reality, however, and a realization that China is a pragmatic actor which will continue to seek the best deal it is able to achieve rather than pursuing an entirely quixotic foreign trade and investment agenda.

This is not say that China is not prone to publicly punish countries that have displeased it. Norway has faced a barrage of mostly symbolic sanctions since in 2011 the Nobel Prize Committee gave an award to incarcerated dissident Liu Xiaobo. In the wake of David Cameron’s meeting with the Dalai Lama in 2012, the UK faced a similar slap-down with diplomats’ lives in Beijing made more difficult and the Prime Minister having a number of visits postponed. In 2010, a pair of German researchers undertook a study using UN data from 1991 to 2008 on the “Dalai Lama effect”, whereby they identified an 8.1 per cent drop in exports to China in the two years after a nation’s leader met with the Dalai Lama.

Yet these numbers do not appear to tell the whole tale. During the period of Norwegian “punishment” (which according to some accounts continues today), the majority government owned oil company Statoil was still able to explore shale gas projects in China, and opened a research center in Beijing. In the UK’s case, it is inconclusive whether there was a definitive drop in trade figures during this period, though it is noticeable that in the immediate week after the fateful meeting between the Prime Minister and the Dalai Lama, a deal worth £50 million was signed between the UK and China to export pig offal and trotters for consumption in China.

Some apparent attempts by China to impose economic punishments on countries that have displeased them have backfired. In 2010, there was a spat between China and Japan over a fishing boat captain whose ship crashed into Japanese vessels in disputed waters; China subsequently moved to make the export of rare earth minerals more expensive. It is a matter of speculation whether the point here was to support domestic industry over outsiders or whether this was specifically targeted at Japan, whose high tech industry relies heavily on rare earths which at the time were 97% controlled by China (or some combination of the two). Whatever the case, the result was that other rare earth sources became economically viable, destroying China’s previous market monopoly.

China is in fact a pragmatic actor in international affairs. When its companies have faced pushback due to domestic concerns, often they have continued forwards in other ways. China has quite rigid domestic restrictions about what industries outsiders can invest into, so finds it hard to overtly attack others for doing the same thing. Often the rhetoric does not match the action, and the new government in Downing Street would do well to understand this distinction and calibrate its response appropriately. The decision over a nuclear power plants is an important one with substantial national ramifications for years to come, and it makes sense the new government would want to take time to ensure they are happy with the deal. Going forwards, however, it is important to ensure that a productive relationship is maintained with Beijing, a power that is only going to grow in significance as time goes on.

In order to ensure a smooth engagement with China and Asia more broadly, a number of steps should be taken: first, the UK should be consistent and long-term. Wild oscillations in policy and approach are not appreciated by Beijing (or any other government). We should seek a relationship of working together as partners with China while setting parameters. Concerns over human rights should be raised – as they are already – and pushing back on China’s aggressive cyber activities should continue. As the United States has shown in its relationship with China, these issues can be raised whilst maintaining a productive overall relationship.

Second, it is important to realize why China likes to invest in the UK. As an open market, the UK is an attractive option for Chinese businessmen looking for opportunities overseas. According to figures published by the Mercator Institute for China Studies and the Rhodium Group, between 2000 and 2014 the UK attracted more FDI from China than any other European country. While the status of the UK market’s relationship with the EU is uncertain longer term, for the time being the UK will remain a major financial hub and discussions and deals continue. Reflecting this, the Financial Conduct Authority (FCA) and the China Securities Regulatory Commission (CSRC) met earlier this week to discuss how financial products can work between both jurisdictions.

Third, the UK should seek to engage with China in third markets like Pakistan, Central Asia or parts of Africa where the UK has strong historical economic and political interests and China is increasing its presence. In some countries in this category, Britain and China are competitors, but in others, there is an element of complementarity. Exploring these opportunities will help British business going global, as well as improving the quality and effectiveness of Chinese investments in parts of the developing world.

Fourth, the UK should raise its game and attention to East Asian security issues like the disputes in the South and East China Seas, or the ongoing difficulties with North Korea. Currently, Britain is seen as a part-time player, second fiddle to the US in this sphere. Establishing a distinct and comprehensive understanding of these questions, the relevant relationships, as well as expressing informed views about regional problems and backing them with diplomatic heft would go a long way towards balancing the UK’s approach to the region.

Handled badly, Britain’s relationship with China could suffer in the wake of the delay to the Hinkley Point deal. However, if care is paid to engaging China in ways that are of interest to Beijing and that advance British interests, it is possible to find a way forwards in which the UK can express its concerns while continuing to attract Chinese investment and trade. Beijing is seeking partners as much as the UK is, and in the current state of global uncertainty it would seem unwise to cut off relations with another G7 power. The trick will be to establish the contours of the relationship and make sure that both sides are telegraphing each other’s intent with clarity and with a view to the long-term.