Posts Tagged ‘OBOR’

Slightly delayed posting of a new piece for my institutional home RUSI looking at how the UK should connect with Asia in the new Trumpian world. It struck me as interesting that while the US elected a President who spoke of isolation and scrapping treaties, the Chinese Premier tracked the new Silk Roads in China’s ongoing burst of international connectivity. Separately, spoke to the Guardian about the latest possible death of Mokhtar Belmokhtar.

Britain and Asia in a Trumpian World: Only Connect

As the US appears set to limit its global involvement under President-elect Donald Trump and China intensifies its engagements across the world, an opportunity has arisen for Britain. It is one the UK government should seize.
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The contrast could hardly be greater: as the US voted in a president who has not committed himself to free trade and is keen on closed borders, Chinese Prime Minister Li Keqiang crossed the new Silk Road from China to Europe through Kazakhstan, Kyrgyzstan, Russia and Latvia, promoting precisely the opposite ideas.

And with concrete results. In Gwadar, Pakistan, Prime Minister Nawaz Sharif and Chief of Army Staff Raheel Sharif watched as the first load of products to make the journey down the China-Pakistan Economic Corridor from western China leave for the seas. As America closes in on itself, Eurasia is opening up ever more. And the British government, which has not missed these trends, needs to develop a more strategic approach if it is going to effectively position itself to take advantage of them.

In stark contrast to the apocalyptic vision of international relations which seems to be associated with US President-elect Donald Trump, China’s economy is pushing itself ever-more aggressively into the world. Chinese President Xi Jinping’s ‘Belt and Road’ concept has become an all-encompassing foreign policy vision, espousing trade and connectivity with talk of the ‘revival of silk roads’ and ‘connectivity’. Nowhere is this clearer than in Eurasia, where China is re-drawing the economic and geopolitical map, as it steers money, companies and people into re-establishing Eurasian continental links.

Li’s tour in many ways mirrored Xi’s in June, when he travelled to Serbia, Poland and then Uzbekistan. And while the announcement of the first load of trucks making it from Kashgar in western China to the coast in Baluchistan was actually far more symbolic than economically significant, it did show how ‘Belt and Road’ connectivity rhetoric was producing results.

It is on this divergence of global attitudes between a retreating US and a thrusting China that UK and other middle powers would do well to focus. A simplification, perhaps, but clearly something is fundamentally shifting and in a world of growing giants, the UK needs to focus on how it can best position itself against these shifting tectonic plates.

The answer for London is a need for greater and closer engagement. With the US, it is likely too early to decide on how to deal with a Trumpian America. However, with China, the answer is to find ways to connect with this surge of Eurasian connectivity. At the same time, London has also to find ways of engaging more seriously with other Asian partners by taking advantage of the broader global shift taking place. Asia is a story of multiple rising giants, and the UK is well regarded by many of them. Britain has long under-performed in its engagement in Asian strategic and security affairs and now is the moment to take a more substantial posture on the issues that preoccupy its partners there.

The current British government has already started to make noises in this direction: while Li was crossing the continent and the US was voting for Trump, Prime Minister Theresa May was in India and Chancellor of the Exchequer Philip Hammond hosted the latest Economic and Financial Dialogue with China in London. These moves need to be matched by a more serious engagement in regional strategic and security affairs.

Both China and India realise their growing weight in international affairs and want to engage with the UK as a serious power, but are often concerned that London does not take their strategic concerns seriously. This is likely less true for China than India. However, at the same time, the fact the UK has such an enhanced and visible engagement with China is having a detrimental knock-on effect on other Asian partners for whom China is a competitor and antagonist.

There are two important aspects from this for the UK to note. First, London needs to establish a more comprehensive and strategic dialogue with Asia. This means not just paying lip service to regional security questions, but playing a more forward role in engaging and understanding them. British diplomatic, analysis and security personnel across Asia and in government offices in London need to be enhanced and bolstered so that policymakers have a more substantial understanding of Asian dynamics and a demonstrable desire to engage in them.

Second, the UK needs to move forwards into playing a more engaged strategic role. Rather than continuing as a passive observer of regional dynamics, the UK should move into a position where it can build on its existing relationships to play the role of regional peace-broker.

To focus on Eurasia in particular: the current Chinese-driven surge of connectivity has the potential to be a collective net boon, but at the moment it is only partially working. Hiccups such as regional neighbours refusing to let products travel across their borders, or China being unable to resolve long-standing historical tensions, have hindered the smooth progress of the Belt and Road concept. If London stepped in to find a unique role as broker and diplomat between regional powers, it could help to encourage the aspiration of connectivity which serves a broader group of nations than just China.

Looking at South Asia, the UK’s relationships with both India and Pakistan place it in a unique position to try to lower tensions. Admittedly not an easy task, and one that has been attempted in fits and starts for some time, but a more focused effort on both sides of the border might help show a level of strategic seriousness that the UK is accused of missing in its current pursuit of trade deals.

By stepping forward to play this role – a position that may become vacant if Trump’s isolationist America happens – the UK will be able to carve a new role for itself in the world, one which benefits more from Asian growth without being too openly mercantilist.

The UK has been somewhat rudderless strategically since the referendum in June to leave the EU.

The election of Trump has further accentuated this perception, and there is a palpable concern about what might comes next. But the world has kept turning, and Chinese-driven Eurasian connectivity continues its inexorable surge. If the UK wants to truly benefit from this shifting world order, it needs to rapidly define where exactly it will sit and what it will bring to the table. Engaging more seriously and substantially in Asian strategic affairs would be an important place to start.

 

 

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

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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.

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.

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.

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

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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.

Catching up on some old posting, going to put out a few things at the same time. All looking at China in Eurasia, a topic that continues to be a major focus. Of course, all of my work on this is stored on the China in Central Asia site, and this particular piece is something that was undertaken with my excellent RUSI colleague Sarah Lain.
Proceedings of a workshop held in New Delhi in March 2016 to explore the challenges that China’s strategic Belt and Road vision to connect Central Asia hopes to address.

In March 2016, RUSI, in collaboration with the Vivekananda International Foundation (VIF) hosted a workshop in New Delhi to discuss the challenges of connectivity facing China’s strategic Belt and Road vision, which aims to connect Central Asia  and develop strategic economic corridors across the region.

The workshop covered the different economic corridor concepts initiated by China and India and their aim of enhanced connectivity in Central and South Asia, how such visions will be realised and how they could enhance the security and economic development of the region.

The report summarises these discussions and provides insights into co-operation between China and its regional partners.