China’s Global Power Projection Hit With “Strategic Overdraft”

Despite the tough challenges facing the Chinese economy, President and “core leader” Xi Jinping is going ahead with ambitious plans to project Chinese power worldwide including the landmark One Belt One Road (OBOR) initiative. Xi is expected to announce a new series of projects linking China with Asia, Central and Eastern Europe, the Middle East and Africa at an OBOR international forum scheduled for mid-May Beijing. Xi, who is personally supervising the scheme in via the Central Leading Group on OBOR Construction Work, apparently hopes to boost China’s agenda-setting capacity in global economic discourse. Xi and his colleagues have taken advantage of U.S. President Donald Trump’s nationalist and anti-globalization stance to emphasize Beijing’s eagerness to provide leadership in combatting protectionism and promoting free trade.

While OBOR is being given top billing across the gamut of state media, a small number of relatively liberal Chinese academics are raising misgivings about the viability and sustainability of Xi’s global undertaking. Foremost among these critics is Renmin University international affairs specialist Shi Yinhong (时殷弘), who is also a counselor or advisor to the State Council. In a late 2016 article entitled “China Must Guard Against Strategic Overdraft,” Shi pointed out that the Chinese Communist Party leadership must exercise caution regarding “strategic military” (sabre rattling by the People’s Liberation Army) and “strategic economics” (projecting power through economic means such has underwriting projects along the OBOR). He argued that China must “prevent excessive expansionism, which will result in ‘strategic overdraft’” (战略透支) (Phoenix TV, October 4, 2016; Lianhe Zaobao [Singapore], September 21, 2016). [1]

While Professor Shi is referring to President Xi’s overall foreign policy, which ranges from building air and naval bases on reclaimed land in the South China Sea to improving relations with developing countries by forgiving $60 billion of debt, the OBOR game plan could be the best example of what Western critics call “imperial overreach” (The American Interest, March 1). The OBOR consists of the Silk Road Economic Belt, which stretches from China through Central Asia to Eastern Europe; and the 21st Central Maritime Silk-Road, which extends from Southeast Asia through the Indian Subcontinent to Eastern Africa. Under the “big is better” principle, however, there is a tendency for the Xi leadership to subsume economic and infrastructure cooperation with countries throughout Europe, the Middle East, and Africa under the OBOR umbrella. As of early this year, 80 Chinese state-owned enterprise conglomerates are negotiating infrastructure and related items with government officials in over 65 countries (Sohu.com, April 10; HKTDC.com [Hong Kong], May 23, 2016).

There is no official estimate as to the funds involved in this gargantuan venture. However,  experts at McKinsey, a consultancy, estimate that comprehensive improvement of infrastructure in Asia and Africa alone could cost $2–3 trillion—roughly 12 times the financial outlay of the Marshall Plan for rebuilding Europe after WWII (Channel NewsAsia, April 22; Fortune, December 12, 2016). So far, a number of massive projects are already underway, including the $50 billion undertaking for building and improving port and railway facilities in eastern Pakistan, have been underwritten by Chinese financial institutions. Given that the so-called Chinese Economic Miracle came to an end early this decade, questions have been asked about whether Beijing has the means to sustain its ambitious programs. China’s foreign-exchange reserves, which peaked at $4 trillion in mid-2014, has dropped to $3 trillion early this year. With China’s state-owned banks already laden with non-performing loans, the Fitch credit rating agency warned that these institutions’ investments in OBOR could “create new asset-quality risks for [China’s] banking system” (CNBC, January 16).

There is also the question of whether, in return for its magnanimous commitment to helping developing countries in Southeast Asia, South Asia, and Central Asia, China will garner a commensurate level of good will. As Professor Shi noted, supposed beneficiaries of Chinese largesse all have their “long-term interests in areas of sovereignty, self-reliance, and security.” He warned that if OBOR strategies do not take full consideration of these sensitive matters, Beijing investments could “ignite nationalism-oriented political controversies in the internal politics of [beneficiary] countries.” It is notable that countries such as Sri Lanka and Myanmar have requested renegotiations of Chinese infrastructure investments largely due to opposition raised by nationalists in each two country (Times of India, February 16; Transnational Institute [Amsterdam], July 18, 2016).

Apart from using economic means to bond China with a host of developed and developing countries, Beijing is also confident that OBOR would showcase not only Chinese technology but also Chinese companies’ compliance with global standards. However, quite a few of China-financed projects could suffer from similar problems that have adversely affected previous mega-investments made by SOE conglomerates in Southeast Asia and Africa, namely that these projects are built on guanxi (“political connections”) rather than globally accepted terms in fields including fair competition, open bidding, Western-style auditing and overall transparency.

Early this year, the European Commission announced that it was investigating the 350-kilometer high-speed railway connecting the Serbian capital of Belgrade to Budapest in Hungary. The state-owned giant, China Railway Corporation will be the main contractor and provider of technology. The Commission is looking into the long-term financial viability of the $2.89 billion railway, and more importantly, whether this project had gone through public tenders stipulated by EU laws (Asia Times, April 4; First Financial News (Shanghai), March 1; Ming Pao (Hong Kong), February 2). The Belgrade-Budapest railroad is part of an ambitious China-Europe Land-Sea Fast Transport Route that will link western Chinese cities all the way to the Greek port of Piraeus, which is partly owned by Chinese interests (English.Gov.cn, February 8; China Daily, February 8). Cui Hongjian, a Europe expert at the Ministry of Foreign Affairs-administered China Institute of International Studies, has indirectly attributed the investigation to Brussel’s political distrust of China. Cui argued that the European Commission “harbors a relatively contradictory mentality regarding Chinese participation” in large-scale infrastructure projects in the EU (Ta Kung Pao [Hong Kong], February 22; Global Times, February 21).

According to a People’s Daily commentary By Zhou Hanmin (周汉民), the OBOR is not only an effort to “tell the China story well and spread China’s message properly” but also an attempt to build up a “community of destiny” with nations, particularly those in the developing world. The commentator also noted that the OBOR was intimately connected with President Xi’s Chinese Dream, one of whose key goals is that the country would emerge as a superpower by 2049, the centenary of the establishment of the People’s Republic of China (People’s Daily, April 6). There is no denying, however, the fact that the overarching ambition evinced by the OBOR scheme has raised the suspicion of rich and poor countries alike that it is primarily a Chinese exercise in self-aggrandizement of unprecedented proportions. Moscow is said to be unhappy that thanks to Beijing’s generous financial and technological aid to Central Asia, China is about to displace Russia as the dominant influence among several former client states of the Soviet Union. In the eyes of New Delhi, Beijing’s investments in civilian and military ports in Sri Lanka, Bangladesh, Pakistan, Myanmar and the Maldives constitute a “string of pearls” containment policy against India (South China Morning Post, March 6; Asia Times, February 2, The Asan Forum [Korea], December 16). Western Europe politicians have expressed misgivings about China’s apparent “divide and rule” tactics toward the EU, which could be accomplished through its tight embrace of the 16 Central and Eastern European countries (European Council on Foreign Relations, December 14, 2016; European Institute for Asian Affairs, January 2014).

Security Overstretch

Apart from OBOR, the most obvious area where Beijing may have gone overboard in power projection is its pugilistic posture in the South China Sea and the East China Sea. The construction of air and naval bases on reclaimed South China Sea islets whose sovereignty is contested by several ASEAN members has raised the possibility of at least small-scale skirmishes between the Chinese armed forces on the one hand, and those of the U.S. and its Asian allies on the other. According to Shi Yinhong, a balance must be struck between upholding sovereign rights and maintaining stability. The respected academic argued that from 2012 to late 2014, Beijing successfully focused on projecting military power in regional flashpoints. “If [the PLA] did a lot in upholding [sovereign] rights in the earlier period, we should in the forthcoming period do more in maintaining stability,” Shi noted. “[Beijing] needs to prevent the rapid development of strategic competition and confrontation between China and the U.S.,” he warned, adding that the Chinese leadership should continue to improve relations with ASEAN members that have oceanic interests.

There are, however, no indication that the CCP leadership will tone down its aggressive military posture. While meeting the commanders of 84 newly reconstructed PLA units in mid-April, Xi, who is Chairman of the policy-setting Central Military Commission, called upon officers and soldiers to “prepare for warfare at any time” and to “uphold [high] standards of combat power.” That commander-in-chief Xi is determined to use military means to buttress the country’s global geopolitical putsch was demonstrated when he went in late April on an inspection trip to a Dalian shipyard that was building China’s second aircraft carrier (Ming Pao, April 23; Ministry of Defense, April 18).

Conclusion

That China’s reliance on the no-holds-barred flexing of military and economic muscle might not go down well with established powers particularly in the Western world is demonstrated by the fact that only one government leader from Europe –Italian Prime Minister Paolo Gentiloni—will be attending the OBOR international forum. This is despite the fact that Beijing has issued invitations to the leaders of more than 100 countries to attend what Chinese media call China’s biggest show for 2017 (Zhejiang Economic Net, April 19; VOA news, April 18). Since coming to power in late 2012, Xi has repeatedly spun out bold and all-encompassing visions and schemes such as the Chinese Dream, the OBOR game plan, as well as a 65- point directive on “comprehensively deepening reforms.” While these grand strategies have enabled Xi to amass power at unprecedented speed, the onus is on the “core leader” to prove that he can actually deliver on both his domestic and international pledges. After all, “strategic overdraft” could mean not only more indebtedness for government coffers and banks but also result in stoking the flames of the “China threat” theory in countries ranging from India and Japan to ASEAN members with territorial rows with China.

Dr. Willy Wo-Lap Lam is a Senior Fellow at The Jamestown Foundation. He is an Adjunct Professor at the Center for China Studies, the History Department and the Program of Master’s in Global Political Economy at the Chinese University of Hong Kong. He is the author of five books on China, including “Chinese Politics in the Hu Jintao Era: New Leaders, New Challenges.”

Notes

1. See also Shi Yinhong, “Prudence Crucial for the One-Belt-One-Road Initiative,” in Shao Binhong, ed. Looking for a Road: China Debates Its and the World’s Future, Brill Books, 2016, pp 203-210.