Belt and Road actors brace for coronavirus shock

The epidemic is already disrupting some BRI operations but SOEs are getting prepared for more long lasting impacts

By Ma Tianjie and Tom Baxter

Up to the point of writing, the entire country of China has been at war with a disastrous outbreak of a novel coronavirus (2019-nCov) for three weeks, with no end in sight. The epidemic has infected more than 35000 people and killed more than 900. The virus has already claimed more lives than SARS, and the numbers are still growing rapidly.

The immense disruption to all aspects of life in China is clear for anyone to see. Wuhan, the epicenter of the outbreak and a city of 11 million, is in total lockdown, as its hospitals are overwhelmed by patients seeking medical attention. The rest of the country is half-paralyzed by travel restrictions and neighborhood seal-offs that keep most of its citizens confined at home. Schools are holding classes online and businesses are struggling to keep themselves afloat.

China’s overseas operations, from power plants to railway constructions, are also not immune to what’s going on at home. According to a tally kept by the Chinese National Immigration Agency (NIA), 128 countries have installed border control measures against Chinese citizens or people who have visited China. These measures range from Indonesia and Singapore’s strict ban on entry or transit of non-nationals or non-residents who have been in China within the last 14 days to the milder measures of the UK, where direct flights from Wuhan are to be checked. The disruption to the international movement of both people and goods is already sending shuddering shockwaves to China’s expansive presence across the globe.

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A quarantine space at a Power China overseas camp. Image: Power China

Scrambling SOEs

The outbreak derailed what would otherwise look like a brilliant start to 2020 for the Belt and Road Initiative. From January 17-18, President Xi Jinping made a state visit to Myanmar. His handshake with State Counsellor Daw Ang Sang Suu Kyi delivered a basket of key outcomes for the BRI that some media claimed would “remake the country”. Among them, the signing of the Letter of Intent for Yangon New City and the handover of Feasibility Study Reports of Mandalay-Tigyaing-Muse Expressway & Kyaukpyu-Naypyitaw Highway Projects are important progress for China Communications Construction (CCCC), one of the largest state owned enterprises (SOE) operating on the Belt and Road, specializing in building ports and roads.

Two days after the celebratory meeting between the leaders, on Jan 20, the coronavirus situation in Wuhan escalated into a national emergency, when top Chinese experts alarmed the country of human-to-human transmission and infected medical workers. And a national response was required. By Jan 29, CCCC was in a war posture to combat the outbreak, with units across the company’s massive organizational chart all mobilized to “win the war against the epidemic”. The company’s public records were not without worries. At a Feb 5 meeting, top executives instructed that the company should “minimize the impact of the outbreak” and come up with concrete counter measures to protect overseas projects with national strategic importance.

CCCC is not the only SOE scrambling to respond to the sudden deterioration of the situation. Power China, a major contractor for constructing power plants globally, provides a snapshot of the virus’s impact. The company immediately implemented traffic controls at its overseas bases, freezing holiday plans of all staff members on site while running health checks on anyone who had travelled to China two weeks before. Quarantine spaces were created and safety supplies such as facial masks were distributed at the bases. Moreover, the company also mobilized its overseas teams to source safety gears in their respective countries and ship them back home. In some cases, such as Bangladesh, the company worked closely with the Chinese embassy and the local authorities to collect and report the whereabouts of staff members and follow quarantine procedures. In other cases, such as Cambodia, the company went further to help communities living near its base camp to implement basic prevention measures such as sterilizing public spaces.

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Power China staff helping Cambodia neighborhood to disinfect door handles Image: Power China

Contract worries

The SOEs’ concerns go beyond just inconvenience at their overseas bases. The severe chokehold on the movement of personnel, goods and supplies is already threatening to delay project progress and trigger non-compliance clauses in project contracts.

In more than one case, SOEs referred to such risk in their instructions to staff. Power China reminded its legal departments to study local laws and contract terms to “get prepared for ensuing compensation claims.” CEEC, another big energy infrastructure contractor, asked its Philippines project company to start initial communications about potential compensation claims.

On 7 February, a Beijing law firm published an article outlining a few scenarios where the coronavirus outbreak may transform into legal risks to Chinese overseas projects. One obvious risk is the inability to send a large number of Chinese laborers overseas in the short term. The lawyer advised that Chinese companies should consider switching Chinese sub-contractors to local suppliers of services such as construction in order to avoid delaying project progress.

Some projects are already experiencing such difficulty. Bangladeshi media has reported that thousands of Chinese workers and engineers are now stuck at home after going back for Chinese New Year holiday, unable to return to work on a few priority projects such as the Padma Bridge and Payra Thermal Power Plant. The Bangladeshi government has already announced that this will lead to delays on a number of priority infrastructure projects, including postponement of the commissioning of the Payra coal power plant, which was supposed to begin commercial operations in early February. Similar situations have also been reported at Indonesian coal plants and nickel smelters with Chinese SOE involvement.

Another risk, according to the law firm, is “quarantine at anchorage” rules imposed by destination countries that may affect maritime routes. Such rules would not allow crew members to disembark before obtaining a quarantine officer’s permission. Malaysia is one of the countries that has implemented such measures. The risks of delayed or failed delivery of goods and equipment, and the ensuing costs at ports are something Chinese companies have to grapple with now.

A tricky aspect is that even “force majeure” clauses, already invoked in three contracts by CNOOC, according to a recent Reuters report, might not shield Chinese companies from legal liabilities unless such events as an epidemic outbreak have already been specified in contracts.

“Friend in need”

Commercial considerations aside, the outbreak appears to have become a litmus test of countries’ friendship with China, potentially redrawing the diplomatic friend/foe map across the globe.

In a telling episode, the BBC reported that China’s Ambassador Liu Xiaoming complained to Stanley Johnson, father of the UK’s Prime Minister, about his son not sending a personal message of condolence to President Xi.

With the government facing massive public discontent over its handling of the Wuhan situation at home, it is actively seeking international recognition and endorsement of its response to the epidemic to buttress its legitimacy. The effort has developed into an all-out diplomatic campaign that is two-pronged: 1) proactively seek messages of support from various levels of a foreign government; 2) scalding or threatening those who Beijing considers as “over reacting”.

The World Health Organization is an apparent target of such effort, with its Director General, Dr. Tedros Adhanom Ghebreyesus, placing lavish praises on China’s efforts to contain the epidemic. China’s ambassadors across the globe are also, like Liu Xiaoming, working hard to secure more such messages of support. Ambassador to the Philippines, Huang Xilian, sent back a message from Davao City Mayor of being confident that China will prevail over the disease under the leadership of the Chinese government. Li Jiming, Ambassador to Bangladesh, passed back praises from Bangladeshi ministers, commending China’s “responsible and transparent stance over the issue.” Probably the most impressive of all, is the message delivered in person, by Cambodia’s Prime Minister Hun Sen, who paid a visit to President Xi in Beijing and to the epicenter, Wuhan, on Feb 6.

Some countries, in contrast, are at the receiving end of China’s ire. Ministry of Foreign Affairs spokesperson Hua Chunying’s lambasting the US for implementing travel bans got a lot of media coverage last week. Lesser noticed was the stern words of China’s Ambassador to Indonesia, Xiao Qian, to the Indonesian government on certain trade restrictions the country has introduced. Speaking of Indonesia’s potential import ban on Chinese food and beverage, the Ambassador warned publicly:

“This kind of overreaction will harm the two countries’ normal trade relations and possibly give rise to serious consequences that neither side would wish to see for the two countries’ relations and future cooperation.”

Indonesia has since backpedaled from the position, claiming that the proposed ban only applies to live animals. But given China’s past practice of using economic leverage to punish “unfriendly” behavior from another country, the scuffle’s impact on the future of China-Indonesia relations, particularly Belt and Road projects in Indonesia, is worth watching.

In its hour of greatest need, just how well did China’s Belt and Road allies show up? And how will they be judged on their performance?

So far there is still no clear sign that the epidemic is going to be under control very soon. Dr. Zhong Nanshan, China’s top expert advising the State Council on the coronavirus, told reporters on Feb 11 that a turning point “might be expected in late Feb” but “no one can be certain.” Facing mounting pressure to reignite the frozen economy, the central government is cautiously loosening some confinement measures in non-epicenter regions. But this creates new uncertainty over whether it could slow or negate some of the earlier gains of containing the disease. A black swan event of epic proportions, the coronavirus outbreak is affecting almost every corner of Chinese politics and economics in the first six weeks of 2020. In what shape will BRI come out of this situation depends on how prolonged China’s war against the epidemic will be and how countries realign themselves in this war.

Author: TJMa

A blogger at large. My areas of interest include China's overseas footprint, environmental governance and online public opinion. Twitter: @TJMa_beijing

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