China’s vast Belt and Road scheme could revolutionise world trade. So why is NZ so cautious about joining in?
China’s vast Belt and Road plan could transform world trade. So why is New Zealand so cautious about joining in, asks Liam Dann
I’m sitting in a small side room at the Hong Kong Belt and Road Summit, watching a procession of countries pitch for Chinese money.
Indonesia, Poland, Austria, France, Saudi Arabia, Thailand, Myanmar: one after another, deputy ministers and state-owned enterprise bosses put forward the business case for Chinese investment in their roads, airports, railways and ports.
What’s striking is the mix of rich and poor countries all making the case to be included in the US$1 trillion investment scheme which follows China’s historic trade routes across Asia to Europe, via the Old Silk Road, and down through southeast Asia.
Highway upgrades through Myanmar and Thailand are the stuff that China’s Belt and Road Initiative is famous for.
But an Austrian airport or a French port upgrade?
If these wealthy countries are keen, then why not New Zealand?
Could we use the Belt and Road to fast track a second harbour crossing? A four-lane highway to Whanga¯ rei or a fast train to Hamilton?
New Zealand was the first Western country to sign up to the Belt and Road Initiative (BRI) in 2017.
But so far, our support has been largely symbolic.
We don’t feature on most BRI maps — although there has been a business-led initiative to position New Zealand as a stop-over on the Southern Link route through to South America.
We signed a non-binding Memorandum of Arrangement with China, agreeing to work together “to develop a pathway for co-operation and exchanges to support the BRI”.
But we stopped short of signing on for any infrastructure projects, and that doesn’t look likely to change any time soon.
Like New Zealand, many of the countries which have now signed up to the BRI don’t need Chinese money.
They see more strategic reasons for getting involved.
Potential partnerships are expected to bring funding, expertise and eventually broader economic benefits as the Belt and Road network develops into something bigger — an inter-connected web of trading links.
Italy’s decision to join in April elevated the BRI to a new level, according to the geopolitical think tank Global Risks Insight.
As the first developed economy and G7 member to join, Italy’s move lent the project “symbolic legitimacy”. A total of 29 deals amounting to US$2.8 billion were signed in Rome in April, covering energy, finance and agriculture.
It’s all a long way from the original mission of the Belt and Road — to boost infrastructure in developing countries.
As pitched by Chinese President Xi Jinping in 2013, there was a simple, mutually beneficial goal.
China had capital to invest and wanted to boost economic growth in surrounding countries to enhance its potential trading partners.
But after a reset of the strategy at a BRI Forum in Beijing last April, what has now been dubbed Belt and Road 2.0 looks increasingly like a Chinacentric alternative to the traditional multilateral trading networks.
Chinese leaders have become increasing explicit about positioning the Belt and Road as an alternative to what they describe as a “bullying and unilateral approach” adopted by the likes of America.
In fact, at the opening of the Hong Kong Belt and Road Summit, delegates heard from five Communist Party officials all talking boldly about a strategic choice: a retreat to populist nationalism or a “new pathway” with Belt and Road central to global trade.
“The global economy is at a crossroad,” said Wang Bingnan, China’s Vice-Minister of Commerce.
That crossroad seems to be very much where New Zealand’s Belt and Road policy has paused.
In principle, there are now 155 countries on board the BRI. There were 55 countries at the conference, including Canada, Australia and Britain.
But New Zealand was not there. Belt and Road cynics warn that there are good reasons to be wary, even if it offers a compelling solution to our most ambitious infrastructure dreams.
Beijing-based American economist Michael Pettis is blunt about China’s economic motivation for the BRI.
“Foreign investment through the BRI can be seen mainly as a way of boosting the country’s trade surplus,” he writes on his blog. “To the extent that BRI financing causes an increase in net capital exports from China, it must also cause an increase in the Chinese trade and current account surpluses.”
The result of that is, for any given target level of GDP growth, China will be able to achieve it with a smaller increase in debt.
There’s no doubt China is running out of things to build within its own borders.
This month the South China
Morning Post noted a big fall in spending on railways, which have helped drive
[Belt and Road] is cited by critics as debt trap diplomacy, in which China gains influence by bankrupting its partners and bending them to its will. Sir Richard Shirreff
economic growth for more than a decade.
The big problem in expanding infrastructure investment beyond its borders, says Pettis, is the extent to which Beijing has difficulty recovering the financing it has extended.
That’s where things get politically difficult.
Most famously, the Chinese funded Hambantota Port in Sri Lanka (which technically pre-dates the BRI launch in 2013), but it ran into debt troubles and was eventually signed over to Chinese interests on 99-year lease in 2017.
“Like it or not, BRI is also seen in some quarters as a means of establishing Chinese hegemony,” says former NATO commanderturned corporate risk consultant Sir Richard Shirreff.
“BRI is cited by critics as debt trap diplomacy, In which China gains influence by bankrupting its partners and bending them to its will,” he warned delegates at the Hong Kong Summit’s session on geopolitical risk.
The issues go further than just the high-profile Sri Lankan example. Shirreff also cites
concerns about unmanageable debt with BRI projects in Malaysia, Montenegro, Nepal, Pakistan, Ethiopia and Djibouti.
“That BRI has got itself into this position is a measure of [the extent] that risk has not been understood,” he says. “One size does not fit all. However welcome Chinese money may be.
“BRI needs to be less a global grand gesture with a Chinese flag on top of it.”
It needs a more indirect, nuanced approach that takes account of specific risks and the needs of the partner countries and their communities, he says.
Shirreff notes promising signals from Chinese Communist Party officials, who have been welcoming the involvement of international professional services companies to help navigate cultural challenges.
That is effectively what Xi Jinping promised when he called for a reset and relaunch of the BRI at the Beijing Summit this year.
The official line is that China has recognised the initiative’s initial failings and is now keen to work with Western financiers to ensure more fiscal discipline and transparency.
Hong Kong’s position as Chinese territory with a Western legal system is pitched as an asset for its value in deal making and dispute resolution.
For all his warnings, Shirreff is keen to emphasise that “opportunity is the flip side of risk”.
He says the BRI’s potential to change the shape of the global economy shouldn’t be underestimated.
“The fact is that the economic centre of power is shifting from the West to Asia,” he says. “The balance of power is moving as America retreats from global leadership and China expands its influence.”
The re-emergence of China “as the sun sets on 400 years of the Westerncentric model” poses profound challenges that will require careful management, Shirreff says.
New Zealand Trade Minister David Parker is certainly being careful.
He attended the Beijing BRI Forum in April, shortly after the Prime Minister’s relationship mending meeting with Xi Jinping.
He returned home enthusiastic about the BRI’s potential, without making any further commitments.
Parker declined a request for an interview on the topic for this feature.
It is understood that government officials are still working through specific policy details, with a formal update due in the next few months.
But in June at the local BRI Southern Link Conference in Auckland, Parker effectively ruled out seeking any direct infrastructure investment in the short term.
“The question uppermost in my mind prior to the [Beijing] Forum was how the BRI, alongside the many other regional initiatives New Zealand is engaged in, could contribute to New Zealand’s sustainable and inclusive economic development.
“As an independent and developed economy, with an established plan for building and funding sustainable national infrastructure, we were not seeking the hard infrastructure that has been the focus of China’s BRI in developing countries.”
In a statement to the Herald ,a Ministry of Foreign Affairs and Trade spokesperson confirmed that position hasn’t changed. “We do not envisage undertaking any infrastructure projects in New Zealand under the BRI,” it said.
New Zealand recognises “that many countries in the region have significant development needs, and that China can support addressing these.
“We are engaging with the BRI in areas where China and New Zealand have mutual interests under the nonlegally-binding Memorandum of Arrangement .”
So is enthusiasm for the project waning?
There has been plenty of speculation that the relationship has cooled under this Government.
And to be fair, there have been worrying signs that the Chinese leadership is becoming more authoritarian — not least with Xi Jinping’s appointment as leader for life.
New Zealand’s approach is understandably cautious.
Business group the New Zealand China Council remains positive about the BRI and our place in it.
Chief executive Stephen Jacobi accepts that there are risks.
“We think that they are risks that can be mitigated,” he says. “China itself is already moving to strengthen the transparency. We think NZ could help in that regard.
“We have to be mindful of risks but also we have to be aware of the opportunity. So we see that we should take a cautious step forward with them.”
Jacobi recognises that New Zealand’s place in the BRI is still to be determined.
“It’s a bit of a moot point about whether we signed up or not,” he says. “What we signed up to was a process to explore BRI and to come up with a work programme and the official line on this is it’s still ongoing.”
There’s symbolism about that, says Jacobi. The Chinese certainly regard New Zealand’s signing up as putting us inside the tent.
The fact that Parker went to the Beijing Belt and Road Forum would tend to suggest we are, says Jacobi, and the minister has talked very positively about the initiative.
“But then there’s been no announcement about what the actual projects might be.”
From the China Council’s perspective, the Belt and Road remains an important framework for advancing key interests and projects with the Chinese, says Jacobi.
That includes the Southern Link, which has been pitched as an opportunity to hugely boost the numbers of Chinese business travellers and tourists going through Auckland International Airport.
Could New Zealand accommodate another 200 million tourists over the next two decades?
If we successfully position ourselves as a hub between China and South America, for both tourism and trade, then we should brace ourselves for that level of growth, Shanghai-based Professor Huang Renwai told the Southern Link conference in June.
Of course Auckland Airport would need to be five times its current size.
Could we see New Zealand at a BRI Summit in a few years pitching for investors to fund a massive upgrade?
It seems unlikely, with even Jacobi cool on direct BRI investment.
“I’ve always been very doubtful that direct investment in infrastructure would be the way NZ would participate,” he says. “There are plenty of other opportunities for Chinese companies to be involved in the infrastructure build . . . but they’ll have to foot that with other foreign investors.
“We have to get away from the infrastructure side and focus more on connectivity,” he says.
Jacobi is also wary of the BRI becoming an alternative way of managing globalisation. “We still believe in the WTO,” he says. “Belt and Road is another way of approaching those issues. It’s not an alternative.”
Belt and Road, though, provides another really important framework with which to work with China and other many other countries, he says.
“So why wouldn’t we want to be involved?”
But Jacobi remains under no illusions about New Zealand’s place in the grand scheme.
“It’s entirely up to us” he says. “They’re not waking up every night and saying ‘gosh, is New Zealand going to be involved?”’
Could we use the Belt and Road to fast track a second harbour crossing? A four-lane highway to Whanga¯ rei or a fast train to Hamilton?