PRC's Belt-Road Initiative: Masterplan or Boondoggle?

♠ Posted by Emmanuel in China,Infrastructure at 1/13/2019 07:36:00 PM

Bungling belies accusations of Chinese plans for regional / world transport domination.

There is some dispute as to whether China's plans to connect the Asia-Pacific region and beyond with PRC-contributed infrastructure is a grand hegemonic plan or just a poorly-thought -and -executed one. American Vice-President Mike Pence sees sinister intent in describing it as a debt trap intended to tie poor countries to China in servitude via "dangerous debt diplomacy China has been engaging in in the region." That version of events goes something like this:

The common perception is that President Xi Jinping’s flagship foreign policy initiative is an ambitious program deploying trillions of dollars on necessary infrastructure in emerging Asian and African countries where Western investors lack the animal spirits to tread.

A variant of this view suggests a greater level of Machiavellian foresight. By getting emerging-economy governments caught in debt traps when unviable projects like Sri Lanka’s Hambantota port go belly-up, China is methodically assembling a network of client governments in hock to Beijing and advancing its military ambitions.

But then again, it would be unwise to listen solely to the country most at risk of losing influence in Asia through Chinese infrastructure initiatives. Instead of the grand conspiracy, how about countries being loaned to becoming unable to pay China back for its help in building infrastructure simply because the initiative is half-baked instead of some malicious intent on the part of the Chinese?

Here’s a better argument for what Belt and Road is really about. Despite Xi’s close association with it, the initiative isn’t ultimately a connected master plan for Chinese global ascendancy. Instead, it’s better looked at as a somewhat chaotic branding and franchising exercise, a way for the country’s numerous provincial officials and state-owned companies to slap a presidential seal of approval on whatever project they’re seeking to pursue.

“Far from strictly following Beijing’s grand designs, much of the Belt and Road Initiative’s activity to date looks more scattered and opportunistic,” Jonathan Hillman, a senior fellow at the Center for Strategic & International Studies, wrote in an analysis last year.

To support this line of argument, consider Chinese involvement with the now-infamous Malaysian 1MDB. It seems the Chinese don't want to be associated with that fiasco, especially now that its main benefactor--former PM Najib Razak--has been disgraced:

Chinese officials offered to help bail out state-owned 1Malaysia Development Bhd., kill off investigations into alleged corruption at the fund, and spy on journalists looking into it in exchange for stakes in Belt-and-Road railway and pipeline projects in Malaysia, the Wall Street Journal reported Tuesday. If proven, that would offer the clearest link yet between the 1MDB scandal and Belt and Road, which is still seen by many as a more effective rival to multilateral investors such as the currently leaderless World Bank and Asian Development Bank. China has denied that money in the program was used to help bail out 1MDB.

So it cannot be a grand plan if it's all rather improvised--and not in a good way: 

The [Wall Street] Journal’s reporting suggests a scheme cooked up on the fly, with its key planks initially proposed by Malaysian rather than Chinese officials. By building the railway at a vastly inflated cost, Chinese state companies would be able to get their hands on spare cash and in return assume some of 1MDB’s debts.

If Malaysia’s Belt and Road projects were all part of a grand strategy hatched by China, the execution was incompetent. According to the Journal, former Malaysian Prime Minister Najib Razak did hold talks with Beijing about granting berthing rights to Chinese naval vessels – but the discussion never bore fruit. Then Najib was voted out of office last year, with his successor Mahathir Mohamad seeking to cancel or renegotiate projects he’s labelled a “new version of colonialism.”

OK, so maybe the Belt-Road Initiative is not entirely a fiasco at this point, but it certainly seems to be needing some direction since those China intended to court are increasingly becoming disillusioned:

Meanwhile, far from binding governments closer to Beijing, its investments in Malaysia, Sri Lanka and the Maldives have fueled backlashes that brought China-skeptical governments to power.

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High-Speed Rail: Venezuela's "Red Elephant" Project

♠ Posted by Emmanuel in China,Infrastructure,Latin America at 5/20/2016 08:19:00 PM

Paraphrasing Enya: Rail away, rail away, rail away.

They say that you may lend a country so much that you eventually end up owning it if it cannot pay, and this belief has interesting implications for modern-day Venezuela. It is estimated--no one knows for certain what the true amount is--that China has lent the Chavista-era socialist government $50B [!] in cash-for-oil deals. It supposedly signed up to yet another such deal recently, possibly staving of Venezuela's inevitable default under current leadership.

That said, the Chinese are not totally suckers in every respect. Sure, they may eventually "own" Venezuela with among the world's largest oil reserves--handy for when oil prices rise again in the future. But, for a "red elephant" project--a high-speed rail link in the country's even less-developed interior--the Chinese have already stopped work. Instead of being a "white elephant" project--a government vanity project which gobbles up public funding for not much public benefit, if at all--what we have here is a "red elephant" project: a communistic endeavor which ends up being of use to precisely no one:

As with many unfinished politically motivated projects dotting Venezuela — government critics call them "red elephants" — the decaying infrastructure contrasts with the railway's promising beginnings. A decade ago then-President Hugo Chavez dreamed up the Tinaco-Anaco railway as a way to populate the plains and attract development from long-dominant coastal areas.

Stretching 300 miles (468-kilometers), it was intended to move 5 million passengers and 9.8 million metric tons of cargo a year at speeds up to 135 miles (220 kilometers) per hour. Chavez turned to China, one of his closest ideological allies, for engineering and financing for the project, part of a $7.5 billion deal that has made Venezuela the world's top recipient of Chinese loans. A consortium of state-run companies led by China Railway Group Ltd, the world's largest train maker, was tasked with carrying out construction. 

At this rate, it's likely that nothing will become of it, to no one's real surprise:

But completion is four years overdue, and work, when it happens at all, has slowed to a crawl. At one barracks facility visited by The Associated Press, half a dozen workers huddled under the shade of a giant cement mixer, while two shirtless managers lounged at a control panel smoking cigarettes. Nowhere are the project's declining fortunes more visible than in Zaraza, a sweltering crossroads town of 75,000 where what used to be an arena-sized factory churning out concrete railroad ties was located.

In government news reels from 2013, the complex can be seen towering over manicured lawns and outdoor basketball courts where Chinese and Venezuelan workers socialized. Shortly after the last Chinese managers left in January 2015, a mob of local residents — some of them armed — ransacked the site and hauled away everything of value. First to go were power generators, computers and air conditioners on the back of pick-up trucks. Vandals then tore apart dozens of buildings to scavenge for metal siding, copper wiring and ceramic tiles, some of which are now on sale at roadside stalls. 

While the Chinese are not exactly shy about spreading state largesse to win friends and influence people, what could have led them to believe this project could ever amount to anything but a total waste of time and money?

Ah well, maybe it helped secure their chance to "own" Venezuela in the near future. In which case, it was just a rather costly bribe of sorts.

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Hi-Speed Rail Diplomacy: China vs. Japan

♠ Posted by Emmanuel in China,Infrastructure,Japan at 10/22/2015 11:30:00 PM

Coming to an Asian country near you...or will that be the Chinese equivalent?

With China eclipsing Japan as the world's second largest economy in 2007, the latter has been keen to maintain its global influence and prestige--especially here in Asia. While both countries compete in nearly all things that are even remotely exportable, the competition has been particularly fierce in infrastructure. Obviously, the Chinese see foreign markets as outlets for expertise gained in constructing massive domestic infrastructure projects, especially now that grandest ones at home are becoming fewer due to the PRC slowing down economically. Meanwhile, the Japanese have massive expertise and a desire to use this industry to build goodwill.

A few days ago, the Japanese were dismayed about losing out in constructing a high-speed railway line in Indonesia to the Chinese who offered highly concessional financing to go with the construction:

Jakarta dropped both Chinese and Japanese high-speed railway construction proposals early this [October], citing the high cost of each, and offered to consider instead a cheaper medium-speed railway. But [Indonesian planning minister Sofyan Djalil] told Suga that China recently submitted a new proposal to build the high-speed rail link between Jakarta and the West Java provincial capital of Bandung without requiring Indonesian fiscal spending or government debt guarantees.

Sofyan was visiting Japan as a special envoy of Indonesian President Joko Widodo...Suga doubted the feasibility of the Chinese proposal to build the railway without Indonesian funding. It is estimated to cost 78 trillion rupiah ($5.3 billion).

Cost estimates aside, the larger point is that China and Japan have been made to pony up considerable vendor financing as well in their efforts to outdo each other in selling high-speed rail.

Another case in point is that with Indian President Najendra Modi being keen on improving infrastructure for development like his Indonesian counterpart, the Japanese are now offering massive concessional funding again to pre-empt the Chinese this around for a Mumbai-Ahmedabad rail link:

Japan has offered to finance India's first bullet train, estimated to cost $15 billion, at an interest rate of less than 1 percent, officials said, stealing a march on China, which is bidding for other projects on the world's fourth-largest network. Tokyo was picked to assess the feasibility of building the 505-kilometre corridor linking Mumbai with Ahmedabad, the commercial capital of Prime Minister Narendra Modi's home state, and concluded it would be technically and financially viable.

The project to build and supply the route will be put out to tender, but offering finance makes Japan the clear frontrunner. Last month China won the contract to assess the feasibility of a high-speed train between Delhi and Mumbai, a 1,200-km route estimated to cost twice as much. No loan has yet been offered. Japan's decision to give virtually free finance for Modi's pet programme is part of its broader push back against China's involvement in infrastructure development in South Asia over the past several years.

"There are several (players) offering the high-speed technology. But technology and funding together, we only have one offer. That is the Japanese," said AK Mital, the chairman of the Indian Railway Board, which manages the network. 

The way things are going these days, just you wait for the Chinese counteroffer. At this rate they may be building high-speed rail for free as national pride is fierce in both countries not to lose out to each other. 

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PRC Infrastructure Battle: Japan Pledges $100B for Asia

♠ Posted by Emmanuel in China,Infrastructure,Japan at 5/21/2015 01:30:00 AM

Will the Japanese International Cooperation Agency of all institutions sink the ADB?

There is utterly fascinating news coming out of Tokyo that the Japanese are preparing to provide a hundred billion dollars in funding to Asian countries in need of infrastructure. Especially smarting from being overtaken as Asia's largest and the world's second-largest economy, Japan does not enjoy playing second fiddle to the Chinese (usurpers). I recently made a series of posts on the upcoming formation of the so-called Asian Infrastructure Investment Bank (AIIB)[1, 2, 3]. Notably, the US tried to persuade all and sundry of its allies not to join the AIIB. However, only Japan actually heeded the jealous Americans' call to stay out.

Now, however, we may have the latest round in Japan-China one-upmanship. For the AIIB, China is pledging a $50B initial contribution to be matched by the other members. Not to be outdone, the Japanese are saying they will pony up $100B for Asian countries to improve their infrastructure by themselves:

Japan will announce a $100 billion plan to invest in roads, bridges, railways and other building projects in Asia, a report said Tuesday, weeks after China outlined its vision for a new infrastructure development bank in the region. In the latest twist of a tussle for influence in the fast-growing region, Prime Minister Shinzo Abe is set to unveil the five-year public-private partnership this week, Jiji Press reported. The sum is in line with the expected $100 billion capital of the Asian Infrastructure Investment Bank (AIIB) that Beijing and more than 50 founding member states are establishing.

"The envisioned assistance is aimed at demonstrating Japan's stance to contribute to building up high-quality infrastructure in Asia through human resource development and technological transfers and showing the difference from the AIIB, so that Japan can keep a high profile in the region," Jiji said, without naming its sources.

The report comes after Japan's Finance Minister Taro Aso said earlier this month at an event hosted by the Asian Development Bank (ADB), a long-established body in which Tokyo plays a key role, that Japan was drafting a plan to boost investment in Asian infrastructure.

Aside from going one better than China all by itself, the Japanese may also want to show the rest of the world that its capabilities in building infrastructure exceed those of China. Which, of course, is entirely plausible. That said, Japan may also be following the lead of China in putting capacity for, well, infrastructure to good use outside of the home nation:

“The AIIB is motivated by multiple factors, one is geopolitical and one is purely economic Twitter , because once this bank exists, combined with the Silk Road Fund, it will begin to finance a lot of infrastructure, particularly railway infrastructure, in Central Asia, Western Asia and South Asia and even in the Middle East,” says Pieter P. Bottelier, a former senior World Bank official. “If that works, it will enable the Chinese to export excess capacity of large industry, such as the state-owned railway manufacturing industry.”

So Japan may have been reluctant to be second to anyone--especially to China--in addition to being more sensitive about US concerns. Still, I will be most interested in following if and how this $100B pot is disbursed. After all, the ADB is a multilateral institution, and the Japanese may choose to funnel money instead through its aid agencies:

The money reported Tuesday would come through government-affiliated bodies, such as the Japan International Cooperation Agency (JICA) and the Japan Bank for International Cooperation (JBIC), as well as the Asian Development Bank, Jiji said.

What happens to the ADB now if its largest shareholder undercuts it by funneling money bilaterally? Ironically, the AIIB may undermine the ADB not directly but by making Japan use it less in its goodwill efforts in Asia.

UPDATE 1: Japan Times notes that a majority of JICA's annual budget is already for infrastructure. Watch out ADB?

In the initiative, the government will extend yen loans to Asian countries through the Japan International Cooperation Agency and lend through the government-affiliated Japan Bank for International Cooperation. The government is also mulling greater financial assistance by the Asian Development Bank, to which it is the largest contributor.

The government hopes to encourage private-sector investments in Asia by reducing risks with the use of public funds. At present, Asia-bound yen loans through JICA total some ¥600 billion a year, of which 60 to 70 percent is related to infrastructure.

UPDATE 2 [5/22]: Somewhat anticlimactically, Japanese PM Shinzo Abe made the announcement public today, filling in a few more details and upping the stakes to $110 billion. Take that, China:

Japan unveiled a plan on Thursday to provide $110 billion in aid for Asian infrastructure projects, as China prepares to launch a new institutional lender that is seen as encroaching on the regional financial clout of Tokyo and its ally Washington. The amount of Japanese funds, to be invested over 5 years, tops the expected $100 billion capitalisation of the Asian Infrastructure Investment Bank (AIIB), the Beijing-sponsored lender scheduled to begin operations next year.

Japanese officials said the plan, announced by Prime Minister Shinzo Abe at a symposium of Asian officials and experts, represents a 30 percent increase over Tokyo's past infrastructure funding. Japan said it wants to focus on "high quality" aid, for example, by helping recipients tap its expertise in reducing pollution while building roads and railways. That's an implicit contrast with the AIIB, whose projects Washington has said may not adequately safeguard the environment. 

"We intend to actively make use of such funds in order to spread high-quality and innovative infrastructure throughout Asia, taking a long-term view," Abe said in a speech announcing the plan. About half the funds will be extended by state affiliated agencies in charge of aid and loans and the rest in collaboration with the Asian Development Bank (ADB).

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Building Roads: PRC Plot to Buy Off Pakistan?

♠ Posted by Emmanuel in China,Infrastructure,South Asia at 5/12/2015 01:30:00 AM

Follow the money trail on the mooted China-Pakistan superhighway.

The Chinese way to winning friends by buying off nations is formulaic by now: The first pillar of this diplomatic outreach effort involves unconditional lending of vast sums of money. To this end, the Chinese like to contrast their "mutual benefit" and "mutual respect" against the laundry list of conditionalities imposed by the likes of the World Bank, IMF or regional development banks. The second pillar consists of infrastructure: If the Chinese have gained experience in any particular area over the past few decades, it's in building structures. You name it--airports, power stations, roads, railways, seaports, even football stadiums--and the Chinese have accumulated vast experience constructing it. In particular, connecting to other countries enables either the smoother process of extracting raw materials necessary for China's massive manufacturing machine and the export of finished goods in the opposite direction.

Governance? Human rights? Quite frankly, China doesn't give a &*^% about any of those things. Hence the Chinese reading of the principle of "non-interference" in others' affairs.

In terms of being chronically hard-up, few countries in the Asia-Pacific come close to Pakistan. This repeat borrower from the IMF certainly chafes at the conditionalities imposed upon it time and again. And for what? The monies provided are not especially large. Into this picture comes China attempting to win friends and buy off nations. You don't need a PhD in economics or political science to figure out how to win the hearts of the Pakistanis after years of having to deal with the loathsome, self-important Yanquis and their assorted minions: shovel wads of cash with few to no strings attached. Build infrastructure while you're at it, too.

To no one's surprise, China is using both pillars in attempting to win over its neighbor:

The focus of spending is on building a China-Pakistan Economic Corridor (CPEC) - a network of roads, railway and pipelines between the long-time allies. They will run some 3,000km (1,800 miles) from Gwadar in Pakistan to China's western Xinjiang region. The projects will give China direct access to the Indian Ocean and beyond. This marks a major advance in China's plans to boost its influence in Central and South Asia, correspondents say, and far exceeds US spending in Pakistan.

Once more, Big Things are planned for Pakistani development:

Is Pakistan on the verge of becoming the Asian Tiger Prime Minister Nawaz Sharif said it would become when he was last in power in 1997? China plans to inject some $46bn - almost three times the entire foreign direct investment Pakistan has received since 2008. Many say Mr Sharif's penchant for "thinking big" and China's increasing need to control maritime trade routes may well combine to pull off an economic miracle in Pakistan.

But there are questions over Pakistan's ability to absorb this investment given its chronic problems with militancy, separatism, political volatility and official corruption. China is worried about violence from ethnic Uighurs in its mostly Muslim north-western Xinjiang region and fears hard-line separatists could team up with Uighur militants fighting alongside members of Pakistan's Taliban.

$46 billion! Even $4.6 billion a year would have been mighty impressive in light of the funds provided by the World Bank and other institutions of American hegemony. You have to wonder though if strife-torn Pakistan has the absorptive capacity to productively use so much capital being injected in so little time.

Given Pakistan's history of uncontrolled corruption and insurgency, it may ironically be this country that makes China more aware of the needs for good governance if it turns out that it is throwing away good money after bad on a country that's proven to be a bottomless money pit since its independence. In that case, it would begin to act like any other international lender.

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