The post virus era BRI and China’s new laws
Its virus has shattered the world’s economy and instead of nations begging China for succour (as Ping-pong had hoped), they are demanding accountability and debt relief. Almost all the over-130 BRI signatories are acting up (from China’s point of view).
America does not like monopolies, whether political or commercial. China does. The political monopoly is the Chinese Communist Party, and now all Chinese companies must abide by its ideology.
Concentrated power is the enemy of liberty.
Consumer interest is supreme in the free world, the ruling party is supreme in communism.
Till 1982, AT&T (owner of the Bell Group) was the sole provider of telephone service in the United States. The breakup of the Bell System in January1982 split it into entirely separate companies, nicknamed “Baby Bells”.
In December 2020, social media giant Facebook was hit with antitrust suits by 46 US states and the federal government that accused it of buying potential rivals (Whatsapp and Instagram) and freezing out small startups to choke competition.
There is an expression to signify hypocrisy in William Shakespeare’s The Merchant of Venice:
The devil can cite Scripture for his purpose
An evil soul producing holy witness
Is like a villain with a smiling cheek…
O, what a goodly outside falsehood hath.
I often wonder if old Bill was thinking about Communist China.
Prominent media tycoon and pro-democracy campaigner Jimmy Lai, 73, arrested in mid-2020 appeared in court in mid-december 2020, handcuffed, and chained, to face charges of colluding with foreign forces to endanger national security when he called for sanctions against Hong Kong authorities and China.
The Communist Party judge denied him bail till April 2021.
On 7 December 2020, a female Chinese citizen working for Bloomberg was detained for “engaging in criminal activities that endanger China’s national security”. She had apparently translated into English a Chinese article about the impact of the virus on BRI.
On 1 December 2020, China’s Export Control Law officially took effect, another tool for the Chinese Communist
Party to use economic relations to advance its (not national) interests.
Long distrustful of private companies (remember a once-darling called Jack Ma), Ping-pong’s new law seeks to ensure that all private Chinese firms tailor their businesses to achieve state goals and increases the number of Communist Party officials that would sit in the firm’s offices.
China’s new export law has extraterritorial jurisdiction. So, a Chinese-owned company operating in Pakistan must spy on that country if ordered to do so. Otherwise, the shoes that it manufactures in Karachi could be tantamount to compromising China’s national security.
Or if I ordered four shirts on Alibaba, the disgraced Jack Ma’s Amazon clone, and the company shipped them, it could run afoul of the new law if a low-level bureaucrat determined that the transaction exposed China’s massmanufacturing techniques (a state secret) to a foreigner. I am not joking.
When asked about the new law, a Chinese Commerce Ministry spokesperson said that the law was meant “to better carry out international obligations, meet the requirements of export control under new circumstances, and protect China’s national security and interests”, claiming that the law was a comprehensive update to existing regulations “for the control of nuclear, biological, chemical, missile, and military export[s]”.
There is a clear post-crisis backlash against China.
Amid indications that Chinese citizens are wondering why their country is so isolated internationally, an editorial in Xi’s mouthpiece Global Times (Chinese) of 14 December says that “values that the West cherishes— democracy, freedom, rule of law and equality—they are what Chinese society truly pursues”.
Western criticism of China seems to be hurting. The editorial goes on to acknowledge that “from the perspective of ideological competition, China is clearly on the defensive. In other words, we only just have managed to resist ideological attacks from the West, but we are far from having the ability to launch counterattacks on the West. Chinese people even lack intention in this regard.”
Wow!
The joker has truly lost his marbles, alternating between fantasy and reality.
Sophocles had said aeons ago: Whom the gods would destroy, they first make mad.
Having surreptitiously assisted rogues like Pakistan,
North Korea, Iran et al for decades to acquire nuclear weapons, the rogue of rogues, China, isolated and reviled internationally for its blatant disregard of all forms of accepted international behaviour, has suddenly become a model international citizen. Think of Pakistan.
For Pakistan’s citizens, who were always told how China was their most reliable friend in the world, it was a shock to discover that China was in fact a ruthless economic predator, gobbling up some US 600mn through costinflated power projects along the CPEC.
I do believe that China fully understands Pakistan’s slave mentality—constantly looking for a generous master. According to declassified records, when he was not yet President of Pakistan, Ayub Khan told a visiting US Army officer that “our army is your army…but we have to reach an agreement first”. And today Pakistan’s army is China’s army as long as the money keeps coming in. The Imran-bajwa flop show must go on.
I am a keen observer of Robert Merton’s law of unintended consequences, how purposive action (eg BRI) can have unforeseen negative outcomes.
Xi Jinping’s “One Belt, One Road” project announced in 2013, was to be the most significant international infrastructure development programme of the twentyfirst century. And since the Emperor had decreed, no apparatchik dared dissent or ask for more detailed assessments. A starry-eyed and resource-starved developing world (bristling at conditionalities imposed by international financial institutions) swallowed the Chinese con with a wide-open maw. But its virus has shattered the world’s economy and instead of nations begging China for succour (as Ping-pong had hoped), they are demanding accountability and debt relief. Almost all the over-130 BRI signatories are acting up (from China’s point of view).
The World Bank’s most recent Poverty and Shared Prosperity Report says (conservatively) that the pandemic could push some 100 million people into extreme poverty in 2020 alone, and lead to an increase in global poverty for the first time since 1998.
Primarily debt-financed, infrastructural assets such as railways, airports, ports, roads, telecommunication, and electricity grids are vital for a country’s economic and social development, but some BRI infrastructure projects (a magnificent palace for the dictator President or his wife’s personal helipad) had little regard for the host nation’s long-term needs. There are too many white elephants running along the BRI. Even before the Covid-19 pandemic, we were seeing tensions and fractures between China and several host countries in conceiving, developing, and executing BRI projects, largely because of the debt burden and related “asset seizures”.
Remember Hambantota Port in Sri Lanka? Xi’s acolytes emptied Chinese stores of mao tai to celebrate the capture of the port since Sri Lanka was unable to repay its debt. But other BRI beneficiaries were not amused. Cautionary tales gained currency, such as the Khorgos Gateway in Kazakhstan, the “highway to nowhere” in Montenegro and the Kyrgyzstan free trade zone (hundreds of acres of barren land), of indeterminate economic and social benefits.
Despite the welcome arrival of anti-chinese virus vaccines, all existing systems will suffer from post-crisis hysteresis, the effects of the virus remaining long after the immediate crisis is past.
China’s coronavirus represents both a demand and a supply shock to the global economy.
The BRI will be profoundly affected by the ravages of the virus and its aftermath since it focuses largely on physical infrastructure that is declining as a priority as the virus has given an unintended stimulus to digital versus physical connectivity. The BRI is massively dependent on the international transfer of Chinese personnel and managers to its projects and even before the virus was unleashed, this limited the direct employment of local personnel and the spill-over gains to the host country. But with virus-induced travel restrictions, China cannot find employment overseas for its teeming masses yearning to breathe free. The virus has accelerated the trend to rationalize global value chains (GVCS), decoupling from China, building flexibility (and alternative locations) into GVCS, holding more inventory and localization.
The effects of “working from anywhere” have a deeply negative impact because infrastructure depends largely on “working on site”. The “market for market transactions” already under pressure before the virus hit, faces permanent shrinkage.
BRI contracts, as is now increasingly clear, are clouded in secrecy. Even the IMF was unable to get full access to the China-pakistan Economic Corridor agreements when
Pakistan was applying for an IMF loan.
The Japanese government is encouraging Japanese companies operating in China to relocate back to Japan, and even to third countries. US firms are relocating away from China under domestic political pressure. Coronavirus has disrupted supply chains, and, to reduce risks, shorter and purely intra-regional or domestic value chains are emerging. EU countries are protecting themselves from Chinese takeovers of key firms by buying shares or introducing “golden shares” held by state bodies.
Ping-pong has gained unlimited political power, but China has lost the world.
BRI debt is repayable in foreign exchange (for ports, roads, rails, energy, water)— a debt-trap as the host economy must earn the foreign exchange to repay the debt. With sharper forensic analysis on the costs and benefits of the BRI in the resourcescarce, depressed world economy of the recovery period, China will not know where to hide.
Ping-pong’s China wants the world to acknowledge that it has arrived and is the main global player. His boasts about the supreme power of China has engendered a growing hubris about China’s self-perception as the main driver of global development, even claiming it as “the only splendid civilisation in human history with an uninterrupted record of more than five thousand years” (it used to be 3,000 years till a former Chinese leader visiting Egypt was told that the pyramids were built 5,000 years ago and promptly extended China’s antiquity by 2,000 years).
From such overestimation of its ability to shape the world order to finding itself ostracized for the devastation caused by the Wuhan virus, China’s attack on unarmed Indian soldiers in June 2020 was intended to send a global message that Pingpong would not be crossed. When India’s brave hearts fought back, the message back-fired disastrously.
Almost nine in ten Australians have a poor view of
China, especially when China calls their country chewing gum stuck to the boot of China. Beijing imposes serious tariffs and restrictions on imports from Australia. But when the world’s largest miner, an Anglo-australian conglomerate, jacks up the price of iron ore supplied to China, the China Iron and Steel Association feigns injured innocence, a fresh sign of Beijing’s growing frustration.
India strengthens ties with the US and reinvigorates the Quad. The growing recognition globally of India’s potential as an important player only add to China’s unease.
The type of infrastructure that will be welcomed postvirus is “soft infrastructure”—institutions that rely on human capital and services, including healthcare, financial systems, education systems, law enforcement and government services delivered direct to the public. All these rely on the human touch, that the Communists know nothing about. The export proportion of value chains is declining, and higher value-added activities are increasingly “reshored” in home countries.
China’s rising domestic unemployment, acknowledged by its Prime Minister in May 2020, is an immense problem, particularly in cities and among migrant workers and will lead to increasing social unrest and demands to spend at home in China, not abroad.
Investments in China’s massive infrastructure project in 2021 will fall “well short” of earlier levels as the coronavirus pandemic continues to cause financial strains in participating countries, according to Moody’s Investors Service. Quite a number of these are relatively small nations with concentrated economies, whether it is in commodities or tourism; some of them are also heavily dependent on remittances (such as Pakistan, Myanmar, Bangladesh)— and each of those has been severely hit by the Chinese virus. Chinese companies are balking at further debtfinanced foreign expenditure on infrastructure.
The BRI is gasping for breath. Where it was once welcomed as a God-sent engine for their development, China is now increasingly blamed in developing countries for its virus. Even its son-in-law, the goon who heads the World Health Organization, is uncharacteristically quiet. In his home Ethiopia, according to the World Bank, infections are rising rapidly, while its economy is severely affected.
More than half of households reported that their incomes were either reduced, or had totally disappeared by midyear. The sudden civil war in Ethiopia has historical underlying causes, but an immediate trigger is virusprovoked claims that the federal government in Addis Ababa has focused its meagre resources on a particular community.
Till Ping-pong calls the shots, Beijing will not “reverse course” on its BRI strategy, given the considerable financial outlay and political capital that the country has invested in the initiative, even as the ill-conceived BRI post-crisis will test the capacity and capability of the Chinese state to continue to increase incomes, employment and wealth at home while sustaining a major foreign economic power projection initiative overseas. However, the biggest obstacle is total mistrust in China’s intentions, and China has tied itself up into knots, unable to avoid mixing geopolitical rivalries with BRI projects.
When I was posted in Washington DC in the early 1980s, I shook hands with an avuncular Secretary of State, George Shultz. Now 100, he has just contributed a recollection piece to the Washington Post. He talks about the most important human value—trust.
Secretary Shultz writes: “Trust is fundamental reciprocal, and, ideally, pervasive… The best leaders trust their followers with the truth, and you know what happens as a result? Their followers trust them back. With that bond, they can do big, hard things together, changing the world for the better.”
Is there an equivalent of “trust” in the Mandarin spoken by the Chinese Communist Party?
On 12 December 2020, the Daily May (UK) wrote that loyal members of the Communist Party of China have infiltrated key British institutions. It claims to have accessed a leaked data base of 1.95 million registered party members that reveals how Beijing’s malign influence now stretches into almost every corner of British life, including defence firms, banks, and pharmaceutical giants. Some of these moles have solemnly sworn to “guard party secrets, be loyal to the Party, work hard, fight for communism throughout my life, be ready at all times to sacrifice my all for the Party and he people, and never betray the Party”.
The refrain of a famous Nazi martial song during the Second World War went: “Germany must live even if we must die”.
The Chinese Communist Party has some 95 million members. One in ten applicants is accepted. How long will the world dance with monsters, rabid wolves, intent on destroying freedom and democracy?
The last two wars China fought were with its Communist brothers, USSR (1969) and Vietnam (1979). Ideology does not matter to China (why else would it mollycoddle Wahhabi Pakistan?). What matters is domination. But it will not be easy. A retiring Chinese general reportedly lamented that he regretted not fighting in a war. This reveals the greatest weakness of China’s military. China’s military has an impressive high-tech arsenal, but its ability to use these weapons and equipment remains unclear.
People’s Liberation Army (PLA) must deal with an obsolete command system, rampant corruption, and training of debatable realism. Xi keeps lamenting this, urging his troops to learn how to fight a war (since they cannot win it without fighting—sorry Sun Tzu.). Yet he remains the effective military supremo without ever having fired a weapon.
Militaries that operate with minimal interference by political authorities have greater adaptability on the battlefield than forces whose decisions are made for political, rather than operational reasons. When told that revolts in Tibet had developed into a nearly full-scale rebellion, Mao Zedong is believed to have said: “More chaotic Tibet becomes the better; for it will help train our troops and toughen the masses”. So, when Prime Minister Le Keqiang says the Communist Party’s goal is to strengthen the political loyalty of the PLA, he acknowledges a core fragility.
China has a day to remember its “century of humiliation” by stronger foreign powers. It is intended to emphasize that the Communist Party ended that dark episode in Chinese history. And so, it puts up regular dog and pony shows to convince its domestic audience that it is now the global numero uno.
Today, China’s humiliation by the world is self-imposed, by the Communist Party Chinese weapons are like its bureaucrats. They don’t work and they can’t be fired.
Why is Ping-pong nervous? He had hoped to swallow some poor weak nations. Now his buddies, Lucifer, Mammon, Asmodeus, Leviathan, Beelzebub and Satan wait impatiently to swallow him.