Author: TJMa

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

Empty trains on the modern Silk Road: when Belt and Road interests don’t align

China’s provinces are sending empty freight trains to Europe. Chinese media explains why.

China is sending empty freight trains to Europe through one of its key Belt and Road Initiative (BRI) projects: the China-Europe Railway Express. The bizarre phenomenon caught the attention of Depth Paper (等深线), a Chinese online news platform. In a rare move by a Chinese media outlet in today’s media environment, Depth Paper probed critically into one of the BRI’s most visible “connectivity” projects, uncovering the perverse incentives that are luring China’s local governments and companies to create huge “bubbles” of ostensibly flourishing rail routes that run tens of thousands of kilometers across the vast landmass of Eurasia.

The revelation partly confirms what some observers have suspected all along: that China’s central government lacks the ability to keep BRI strategically tight and coordinated. Sub-national stakeholders, as they do in other policy areas, have the incentives to bend the initiative to their own narrowly defined interests and in the process undermine the overarching strategy, if such a strategy indeed exists at all. The curious case uncovers some important dynamics playing out among Belt and Road’s diverse stakeholders.

China Railway Express
Depth Paper uncovered the perverse incentives that are luring China’s local governments and companies to create huge “bubbles” of ostensibly flourishing rail routes that run tens of thousands of kilometers across the vast landmass of Eurasia.

The China-Europe Railway Express

Transporting goods between China and Europe through railroads is not a common choice for traders. Up to now, it only makes up 4.8% of the total bilateral trade volume, far behind commodities moved by sea (68%) and air (19.4%). For many years, the China-Europe rail routes were interrupted by the fragmented customs, quarantine and taxation regimes of countries along the way. As a rail transport agent in west China told Depth Paper, sending cargo to Germany through rail was unimaginable as recently as 1997. “Central Asia was as far as we could go.”

But, according to the report, things changed about a decade ago. Years before the advent of the Belt and Road Initiative, the instigator of this change was in fact the American computer company Hewlett-Packard. In 2009, as the computer giant negotiated a major investment deal with Chongqing, the city on the upstream Yangtze River with no easy access to a sea port, it included a condition that it should be able to transport its products to the European market by train: westbound directly from the city, instead of first going east to the sea. The Chongqing government accepted the condition and after two years, the Chongqing to Duisburg rail route was made navigable, allowing HP to ship to Europe in a relatively low cost (compared to air transport) and speedy way (compared to shipping by sea).

Before 2013, the year when BRI was formally announced, a few other freight rail routes were made possible by such bottom-up commercial interests. The city of Wuhan in central China, a major base for car manufacturing, developed Wuhan to Europe routes upon which half of its car outputs now depend for transportation. Similarly, Yiwu, the light industry powerhouse of Zhejiang province, opened up its own rail route to ship large quantities of small commodities, from garments to needles, to Europe. Ironically, those early trials, mostly developed by landlocked Chinese municipalities, received little central government support around that time. According to Depth Paper, China’s railway administrators even charged a fee for the extra burden those freight lines created. Its attitude toward such initiatives would make a 180 turn after BRI came into being.

2013 saw the creation of BRI and the incorporation of China-Europe rail links under the umbrella of Xi’s signature initiative as a key connectivity component. As China’s 2015 Vision and Strategy document for the BRI declared the intention of building the rail routes into a “brand name service”, the number of routes began to explode. Dozens of Chinese cities, including those on the east coast with easy access to ports, joined the bandwagon of rail transportation.

China Europe train routes
Planned train routes from China to Europe through Central Asia/Russia, source: NDRC

Growing bubble

In 2016, the National Development and Reform Commission (NDRC) laid out a five year plan for the expansion of westbound rail routes. And China’s railway planner published a blueprint document on building up the brand reputation of China Railway Express. China State Railway Group Corporation, which used to be the railway ministry, began to highlight the growth of Europe-bound voyages as a major achievement.

The elevation of the freight service in political importance created powerful incentives for players to “rig the game”. Depth Paper reveals two groups of schemers in the game:

Provincial and local governments: As the number of freight trips to and from Europe become a measurable indicator, local governments, particularly those sitting at key railway hubs, saw a clear opportunity to boost their visibility under the BRI (and probably to the leadership). At their disposal were subsidies to lower the cost of freight services and make them competitive with cargo ships.

The Ministry of Finance provides a guiding subsidy ceiling of 0.8USD/container/kilometer. But ambitious local governments circumvent it by inventing all kinds of additional rewards to lure businesses to their train terminals, sometimes even compensating for the extra mileage of truck transportation to bring containers from thousands of kilometers away. According to a chart collated by Sino Trade and Finance, many municipal government offer around 3000USD per container for a one-way Europe bound trip and a whole train could receive a total of 123,000USD worth of subsidies per trip. These local governments also use tax rebate and land use subsidies to sweeten the deal for freight service companies.

International railway service companies: Competition with each other and pressure from local governments eager for BRI visibility has incentivized the companies who actually run the numerous rail routes to Europe to increase the number of train trips. Every month these companies have to book planned trips from the railway regulators and get what is called a “route slip” that permits them to run those trains. The ratio of actual trips to the applied number is called  “realization rate” that regulators use to monitor rail capacity utilization.

The interplay of these incentives drives both groups to boost indicators that make them look good in this game, creating scenes that are outright bizarre. The government of Xi’an is one of the most active players starting from 2018. The city, 1000 kilometers to the west of Beijing and the former capital of Tang Dynasty more than a millennium ago, considers itself the “starting point of the ancient Silk Road” and strives to restore its glory in the Belt and Road era. With full support from its provincial bosses, it is the most generous with subsidies, dwarfing other provinces by a wide margin. “Subsidized per container transportation price from Xi’an is constantly below RMB 8500, while it costs over 20000 RMB from Shandong,” a trade agent told Depth Paper.

The subsidies are of the scale that they bend the gravity of trade. In the most extreme cases, traders in the far west Xinjiang Autonomous Region, which already borders Central Asia and is itself a Belt and Road rail hub, would move their cargo thousands of kilometers to the east to capitalize on the Xi’an government’s free handouts before transporting west across the Eurasian continent. Similarly, traders in coastal Shandong provinces would truck their goods all the way to Xi’an and load them onto trains, as it is cheaper even after taking into account the 5000 RMB per container transportation cost by truck (for which the Xi’an government also partially remunerates). The result is that Europe-bound freight train trips from Xi’an grew by a whopping 536.6% in just one year from 2017 to 2018.

The railway service companies, on the other hand, blow up their trip numbers even when they have very little to ship. Before Xi’an arrived on the scene in 2018, the competition between Chongqing and Chengdu, two nearby cities, was so fierce that the two cities would refuse to merge cargo loads back from Germany despite neither being able to fill a whole train themselves. When the pressure (and reward) to be the top railway service company facilitating “Belt and Road” trips to Europe becomes huge, the companies simply start loading empty containers to their trains. They must ensure that each train meets the regulator’s 40-container minimum before it leaves the station, but there is no obligation and no ability (for lack of demand) to fill those containers.

In the most extreme case, one train carried 40 empty containers and just one full container all the way to Europe. This makes the China Railway Express’s impressive growth number highly dubious, and most certainly a “bubble”. Even with all their tricks, companies can barely fulfill their promise to regulators: they have overbooked railway resources. In Q2 of 2019, Chongqing’s “realization rate” dipped to as low as 64% for some routes.

BRI undermined

Artificially enabled transportation routes are more of a disruption to than facilitation of trade, as China’s policy makers are slowly but painfully beginning to realize. Subsidies are both unsustainable and capricious: “Sometimes a city changes a Party Secretary and the new boss has other priorities for his budget.” This makes it hard for businesses to make long term plans and build China Railway Express into their logistic strategies.

Heavy subsidies also encourage opportunistic behavior that runs against the original intention of the policy. “[Subsidies] are supposed to help first-time users overcome initial transition difficulties and cultivate user acceptance of freight rail as a reliable means of transportation”, says one anonymous Liaoning provincial official to Depth Paper. “[But] what Xi’an does can hardly nurture real needs. Traders will go back to sea and air as soon as subsidies disappear.” The official also warns that such unpredictability and fluctuation would hurt the China Railway Express’s reputation overseas and permanently scare clients away.

The Ministry of Finance is reportedly determined to pierce the bubble by enforcing a schedule for phased subsidy reduction. Subsidies by local government are to be no more than 40% of a route’s total cost in 2019. The ceiling will be further lowered to 30% in 2020 and zero by 2022. The Ministry is hoping that by then the trains running up and down routes would be completely market driven and China Railway Express will stand on its own two feet.

The episode reveals the fundamental difficulties for China’s central leadership to implement its vision by reducing it to seemingly measurable indicators and supposedly workable incentives that mobilize local players to participate in a central government cause. Distortions and outright undermining of central government agenda happens with GDP numbers, air pollution targets, and other domestic issues. BRI is no exception.

It also calls into question a key underlying assumption of the BRI, that the power and “deep pocket” of the Chinese state can overcome problems that the market cannot solve when left alone. Trade flows, it turns out, are not easily bendable by the sheer will of the state. It is a rare occasion for a Chinese media outlet to so directly call out systemic problems in Xi Jinping’s signature initiative. As China embarks on other overseas adventures that premise on the ability of state capitalism to shift the center of gravity of global trade (through new ports and rail hubs), the troubles of China Railway Express should serve as a cautionary tale of the limits of state power.

Additional food for thought… when personal guanxi is more important than national strategy

CDBCaixin
Caixin’s frontpage story about the corrupt deeds of disgraced former CDB president Hu Huaibang

In another example of Chinese media exposing the “underbelly of BRI” , on August 3, Caixin Media published a frontpage story about the corrupt deeds of China Development Bank’s former President Hu Huaibang, who was recently investigated by the disciplinary arm of the Communist Party. The report, which has since been taken down from Caixin’s website, contains jaw-dropping, mind-boggling details of how recklessly senior officials of China’s largest policy bank (and a major instrument of the BRI) pursued their own interests at the expense of the bank’s financial health.

Hu’s tenure at the CDB (2013-2018) overlaps with the inception of the BRI. But according to Caixin, he was never much into the bank’s international adventures, which got expanded substantially under the leadership of Hu’s predecessor Chen Yuan. Hu reportedly shrank the bank’s international presence by cutting its commercial banking businesses overseas and only involved the bank with overseas financing when directed to by the top leadership (e.g. at deal signing ceremonies during state visits). The revelation somewhat shatters outside impression that CDB has been masterminding China’s BRI financing strategies, as one source told Caixin: “CDB almost never proactively sought overseas financing opportunities under Hu.”

Instead, Hu concentrated his political resources on two major clients: HNA Group and CEFC, both were offered exceptionally generous credit lines from CDB (at least 80 billion RMB for HNA Group, 42 billion RMB for CEFC). In both cases, Hu Huaibang rammed the deals through the bank’s internal risk management and gatekeeping mechanisms. In the face of resistance, he did not hesitate to replace officials who dared to disagree. The payback to his family members and political allies was fat, which, at one point, supported Hu’s unsuccessful bid to take the helm of China’s central bank.

As both companies later got embroiled in scandals in 2018 (CEFC founder Ye Jianming was detained in January and HNA Group’s chairman Wang Jian died in France in July), CDB faced the prospect of tremendous loss. HNA Group is reported to have accumulated 40 billion RMB of overdue loans to the bank, while the exposure to CEFC would cost CDB at least another 20 billion. Whether this will dampen the bank’s appetite for increased BRI involvement is unknown. But the Caixin report opened a rare window into the inner workings of arguably the world’s most powerful policy bank, and what it depicts is troubling.

With Belt and Road a top priority in Chinese foreign policy, space for calling out its flaws and problems is inevitably being curtailed. That makes reports such as Depth Paper’s and Caixin’s all the more remarkable, and all the more valuable for Belt and Road Watchers.

 

Following China’s footsteps from Andes to Amazon: advice from a Colombian journalist

Andres Bermudez Lievano, who has covered China for a Latin American audience from Beijing and Bogota, shares his views about how China reporting in the region can improve

China and Latin America exist largely in a commodity-centered relationship that is defined by a distinct close-distant paradox, bound together by increasing volumes of trade but separated by physical and psychological distance.

For Andres Bermudez Lievano, the relationship is both the cause and consequence of inadequate reporting about China’s involvement in the continent. As a veteran China reporter from Colombia, Andres has been following China’s footsteps from Beijing, where he ran a news service for Latin American publications, to Bogota, where he tracks Chinese companies and bird watchers to help readers make sense of a China presence that they hardly understand.

Besides being a reporter, Andres also spent two years working in the government office in charge of negotiating one of the world’s most historic peace deals, between the Colombian government and an armed rebellion group (FARC), that ended a half-century armed conflict. The experience equips him with particular insights into conflicts and how they should be covered by media. A great number of China-related stories in Latin America are conflict-filled, from communities resisting Chinese extractive industries in areas devastated by violence to countries caught in the crossfire of US-China trade disputes. These social and environmental conflicts often lend themselves to simplistic, dramatic presentations that Andres has a bone to pick.

Panda Paw Dragon Claw recently interviewed Andres on the side of a workshop in Yangon, Myanmar, another country grappling with conflicts complicated by a large inflow of Chinese interests. Andres shared his views on how to better tell stories about Chinese overseas footprint in Latin America and offered invaluable advice to peer reporters around the world who are trying to cover the expanding Chinese presence for their own readers and audiences.

Andres
Andres (right) with villagers of Caquetá, a conflict-stricken department of Amazonian Colombia where the activities of Chinese oil companies have stirred up controversies.

Panda Paw Dragon Claw (PPDC): Could you give us an overall picture of Chinese involvement in Latin America, particular in relation to the Belt and Road Initiative?

Andres Bermudez Lievano (A): Latin America has not had a historically significant relationship with China, beyond maybe one or two immigration booms more than a century ago and some ideological connection in the 1950/60s. It’s only since the early 2000s that the relationship started to warm up again due to China’s growing appetite for resources and commodities that Latin America could offer in large quantity.

Now everybody has to face the political and economic reality that China is already Latin America’s second largest economic partner, leading the third by a wide margin. And it has already become the number one partner for significant economies like Brazil, Chile and Peru. Despite the closer economic bond, you still have that simple understanding of China reduced to clichés, in government, academia, civil society and in media. This is made worse by the fact that there is almost no presence of Chinese actors on the ground, except for a couple of Confucius Institutes.

This is characteristic of a commodity-centered relationship which is transactional by nature. You don’t have a long-term China presence that people can relate to. Therefore, we have a big gap between close economic ties and true understanding.

BRI in LatAm

PPDC: How is this reality manifested in media coverage about the BRI and Chinese involvement in Latin America?

A: There are generally two prevalent frames adopted by media reports on China. One is the perception that China is a dangerous actor, that they are taking away everything, they are so strange, you never know what they are really here for.

The second frame is more of a fantasized China. One common argument among many businesspeople who want to do business with China from Colombia and wider Latin America is “there are so many millions of them, it’s obviously a good deal”. But when they come to China, they immediately hit the wall. They do not understand the market and the Chinese consumers. They have never figured out Chinese taste and what ticks the Chinese people. Our understanding of China does not go far beyond the fact that “it has many people”.

This results in a very simplistic coverage about China. It’s already not very often that media in Latin America cover China. Even when they do, they often get it wrong or they get it in a very black and white way. You have a lot of stories about social conflicts distilled into very simplistic narratives (e.g. small communities against monstrous Chinese corporate giants). You have a lot of reporting about trade numbers without even explaining what those numbers mean. When media report on “trade deficits with China,” for example, nobody bothers to explain why it exists or what goods are being traded both ways, leaving the impression that China is invading with cheap imports. However, deficit is not a problem in itself: it’s the nature of the traded goods that matters. Costa Rica manages to sell value-added products like computer microchips to China in large volume. And that tends to be an underreported story.

As the US relationship with China sours there is a new trending coverage, which is how our relationship with China can affect our ties with the US, which it shouldn’t. Unlike a marriage, you actually can have mature relationships with two different countries. Serious countries like Chile, Costa Rica and Peru would argue that they have successful and well-negotiated Free Trade Agreements (FTAs) with both the US and China. Why not?

PPDC: What is the consequence of such simplistic coverage of Chinese footprint?

A: The consequences are manifested on a conceptual level. First of all, we have no nuanced view of the socio-economic or environmental footprint of the Chinese presence. China’s involvement in the continent is complex and multi-dimensional. For example, I have reported on how wealthy Chinese bird watchers create opportunities for conservation efforts in Latin America. And yet a very respected conservation biologist that I know simply couldn’t wrap his mind around that idea as he has been so deeply influenced by the image –which is sometimes also true- of China as a biodiversity “bulldozer”.

When our analytical framework of China is entirely oriented towards commodities, we cannot understand China on a more complex level. We focus our attention on selling oil, soybean or beef to China and think little about value-added products or a more evolved relationship. Moreover, we tend not to see the impact behind the trade numbers. An increase of soybean exports can have a direct or indirect result of deforestation in Latin America. The interactions between those two factors are already complicated and usually there are more factors in play. But in a commodity-driven analysis these other factors do not come in.

Equally importantly is the pervasive inability to understand the internal complexity of China and its many players that are active in Latin America. Lately there has been a lot of discussion in Ecuador about problems with the Coca-Codo Sinclair hydroelectric project funded by China and built by a Chinese company. When cracks appeared in the structure soon after its completion, one major newspaper ran a story titled “Chinese company Harbin will weld cracks in dam”. They didn’t know that Harbin is a city in China, different to state-owned Harbin Electric International Company. This was a story about THE most important China-related project in Ecuador and they couldn’t get the company’s name right.

This is not restricted to Ecuadorian media. We confuse the China actors all the time. Very few major economies have such an intertwined web of companies and government. To understand the entire State-owned Enterprise (SOE) system is not easy. But without that we easily confuse the Chinese government, SOEs and Chinese private companies. And that affects how reporters cover a situation. Contrary to what many believe, Chinese private companies are sometimes more obscure than an SOE when they operate abroad. And they face LESS public scrutiny. A Chinese SOE blundering abroad is a much larger story as they are better known economic players back home and dispense with what’s considered publicly-owned funds. Knowledge like this will help a reporter gain a nuanced understanding of the vulnerability and strength of key Chinese players in their stories.

PPDC: What does your experience with researching and covering conflicts tell you about reporting on Chinese projects in Latin America?

A: You know conflict is one of the areas that I cover the most, so I tend to reflect more on this. Social conflict or socio-environmental conflict caused by infrastructure and extractive projects is an area we are not reporting properly. Seeing the conflicts after they erupt is already a bit too late. But at least we are seeing them. What reporters really need to do is to lift the rug and look underneath.

There are fundamental social fabrics to the conflicts in our societies that aren’t necessarily created by China, but tend to emerge when Chinese-invested projects go wrong. For instance, respecting the rights of ethnic minority groups is an area we are not doing very well. Non-compliance with such rights, especially the right to free prior informed consent (FPIC), is a major issue. Colombia struggled with it. But when I went to Ecuador, I found that many projects literally never complied with it. You can see how in a series of Latin American countries they end up going around rights that are constitutionally protected. Chinese companies can exacerbate this existing situation in our societies because this is part of China’s reality: China has a complicated relationship with its own ethnic minorities and this probably make Chinese companies less sensitive and less likely to understand the importance of compliance.

Another common problem underneath those conflicts is the scarce availability of public records in many Latin American countries. Everything from contracts, relocation plans to environmental impact assessments (EIAs) are very difficult to access, leading to a strong sense of secrecy and mistrust among affected communities. And even when they are available, we as journalists and civil society have another challenge of not having the skills to read many of these documents properly. For example, in an infrastructure deal between China and a recipient country, is it really better for that country to have more equity share in that project than letting China have more? What is the risk-ownership ratio that will bring the most benefit to the country? These are not issues we can properly interpret for our readers unless we have access to the files and can digest them properly.

Another reality that is fundamental to understanding many confrontations surrounding projects is the sophistication of community resistance. Across Latin America, communities have understood that it’s better for them to fight cases legally, as we have relatively serious legal systems, with strong constitutions and well-respected constitutional or supreme courts. Communities are currently winning major cases in courtrooms. This has caught many governments and corporates unprepared. Communities are more legally empowered than before and sharing their legal strategies with peers.

PPDC: On a micro level, what do you look for in a conflict situation? What exactly lies “underneath the rug”?

A: Relationships among different actors involved in a controversial project are entangled. More often than not, it is not the simple equation of A vs. B. Sometimes projects are approved on a national level, but even local governments are kept in the dark. So in a conflict seemingly between a company and a town, there might be a hidden central government and a sympathetic local government involved, let alone a set of secondary players: public “ombudsman” institutions, private security companies, military or police forces, legal and environmental NGOs, indigenous organizations…

Plus, people don’t usually understand that conflict is a process. They don’t just happen in one specific moment but over a long period of time. Part of doing good reporting on conflicts is to understand how they really began and how they play out over time. If you look carefully, you will find that there are usually a lot of myths around the origin of a conflict. All of this helps us understand how tensions escalated and what are the future possible scenarios. 

A good piece of journalism about a social conflict or an environmental conflict should be able to show all the sides involved, the different things at stake, and whether there is space for real dialogue. Actors involved in a tense conflict situation often have a “race-horse syndrome”, limited by a narrow tunnel vision. Our reporting is supposed to render a more complete picture of the problem, and it can potentially, one would wish, enable actors to better reflect on how to deactivate a social crisis.

PPDC: What would be your advice to peer reporters who are keen to shed light on some of the same dynamics around Chinese projects in their own regions?

A: For stories specifically related to Chinese interests, it is important to incorporate the Chinese actors’ point of view.

And in this regard we are oftentimes guilty of not making enough of an effort to contact them. Even though we know they are not likely to answer or they have to refer the request to headquarters in China, it’s important we continue seeking answers from them. If anything, doing so builds pressure on them. And ultimately, the Chinese side need to realize that it does them more harm to not have their side of the story reflected in the coverage.

We need to enhance skills for reporters to understand key documents such as project contracts and loan deals. And we should also be able to fact-check claims from all sides, including the affected communities themselves. I have encountered communities instrumentalized by NGOs and radical groups that shout slogans like “they take our water!” without any specific facts that proves it. Often groups in conflict will emphasize more extreme positions (thinking these are more convincing), when in fact the more interesting nuggets of information emerge when you get past these simplistic and crowd-pleasing soundbites.  

And finally, we reporters need to follow up on projects over time, understanding them as evolving processes. There is a large Chinese mining company in Peru that carried out a huge, ambitious and well-publicized relocation of a local community which was considered a successful case in the industry. For many that was the end of social conflicts and of the journalistic story. At the exact sixth anniversary of the relocation plan we teamed up with a Peruvian outlet to revisit the place. What the reporter discovered on the ground was completely unexpected: instead of a poster child relocation case, it had developed into two different conflict situations. On the one hand, some people still refused to relocate, which meant the original conflict was still there. On the other side, the new town turned out to be not functional. It looked beautiful on photos, but shop owners did not have customers and their living stand had diminished, meaning a new conflict had emerged.

In infrastructure projects we tend to only follow up when something bad happens. “The Chinese built this road or bridge which now has a crack”, we realize. But few journalists come back to check if the bridge is actually being used or if the dam really provides as much energy as the developer says. Going back to check the utility of the infrastructure project is as important as checking the problems it is having.

Special Monthly Round-up: BRI 1.5

The 2nd Belt and Road Forum in Beijing ended with a set of software patches to BRI 1.0

The 2nd Belt and Road Forum ended on Apr 27 with one message that everyone watching seemed to have picked up: change is needed. In the official parlance of the Chinese government, change is expressed in terms of traditional Chinese painting: from a big stroke, impressionist approach (大写意) to a style of precision and craftsmanship that focus on minute details (工笔画). In the words of Christine Lagarde, the head of IMF, change means “BRI 2.0”, with a focus on increased transparency, open procurement with competitive bidding, and better risk assessment in project selection. And in the words of Pakistan’s Prime Minister Imran Khan, a recipient country leader, change points to a new phase of the signature China-Pakistan Economic Corridor (CPEC) that places “greater emphasis on socioeconomic uplift, poverty alleviation, agricultural cooperation, and industrial development.”

BRF2

International coverage of the high-profile event depicts such rhetoric as a sign of China “allaying fear” of the BRI or “rehabilitating” the initiative’s image. Indeed, President Xi’s keynote speech at the forum indicates that China is responsive to external views of the initiative and its policies in general. In fact, the second half of his speech was widely read as sending messages to the West on key trade-related issues. In that sense, the shift can be regarded as an operational system upgrade responding to customer demand. But rather than a major upgrade as Lagarde’s 2.0 metaphor suggests, the changes made are far from a complete overhaul or reinvention.

For one thing, contrary to what leading BRI pundits and think tank experts have been advocating, there is still no sign that China is going to develop an actual “operating system” (permanent institutional structure with explicit mandates/rules) for the trillion-dollar initiative. Those advocates argue that the “under-institutionalized” BRI will be too easily hijacked by narrow economic interests of players involved. And the only thing close to an institutional upgrade coming out of the Forum is a set of recommendations made by the international advisory board to the Belt and Road Forum, which suggests China to consider turning the liaison office of the Forum into a full-blown secretariat for the BRI, or following the examples of G20, OECD or the Financial Stability Board to set up inter-sessional mechanisms to ensure coordination and continuation during intervals of the biannual Forum.

Absent of a major shift of the BRI’s modus operanti, the dozens of initiatives announced at this year’s Forum are more like patches to fix “bugs”. Below are some of those patches.

Framework for debt sustainability

Among the outcomes of this year’s Forum, the Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative published by China’s Ministry of Finance is probably the most obvious attempt to fend off criticism of the BRI, in particular accusations of it pushing excessive debt burdens onto other developing countries.

The new analysis framework was developed based on the IMF and World Bank’s Debt Sustainability Framework for Low-income Countries (LIC-DSF). It rates a country as low, moderate, or high in terms of its risks of being in debt distress, taking into account its debt coverage, macroeconomic projections, debt carrying capacity, among other factors.

Despite being modelled on the IMF-World Bank framework, the MoF tool applies some customization to the methodology that carries a distinct “BRI signature”. For example, when it comes to the relationship between public investment, economic growth and debt, the MoF framework is distinctively bullish about the potential for productive public investment to drive up economic growth in the long run, “while increasing debt ratios in the short run.” In comparison, the IMF, in a 2017 Guidance Note about the LIC-DSF, sounded more cautious on that same topic:

“Proponents of scaling up public investment maintain that productive investment, while increasing debt ratios in the short run, can generate higher growth, revenue, and exports, leading to lower debt ratios over time. At the same time, high economic returns of individual projects do not always translate into high macroeconomic returns. DSF users should therefore carefully assess the impact of a scaling-up of public investment.”

The view that large-scale debt-driven infrastructure investment is “worth the buck” is at the center of a Chinese developmental model that is being promoted through the BRI. And it is not without its value as Bretton Woods institutions like IMF and World Bank moved away from large-scale infrastructure building, leaving a gap in the developing world. And China’s engagement with established multilateral financial institutions is in fact less antagonistic than conflict-filled news reports tend to depict. In April 2018, the People’s Bank of China launched a capacity building center in collaboration with the IMF, providing training for leaders and officials from countries involved in the BRI. One of the training courses the Center offers is on managing debt sustainability. According to the People’s Bank’s website, countries responded very positively to the course, in particular those that are already using the LIC-DSF: Bangladesh, Cambodia, Ghana, Ethiopia, Djibouti, Tajikistan, Uzbekistan, Myanmar and Vanuatu.

But like other patches that are offered at the Forum, the MoF’s framework is a voluntary tool. It is not clear how the analysis can be integrated into lending decisions in the future, except for the possibility that a Multilateral Cooperation Center for Development Finance might adopt it.

Environmental governance of the BRI

Another area where the Forum is clearly responding to external pressure is how it handles the BRI’s massive environmental footprint. “Green” elements were given very little attention two years ago at the first BRI Forum. But the situation is noticeably different this time, as “green” elements were reflected in both the leaders’ speeches and the final ‘list of deliverables’. While criticism of China “lacking real will to address the challenge of climate change as it relates to the Belt and Road” still abounds, climate factors are being incorporated into initiatives announced at the Forum, albeit (again) on voluntary basis.

The “Green” updates rolled out this time include the formal launch of the International Coalition for Green Development on the Belt and Road and the signing of the Green Investment Principles.

The controversial Coalition, first conceived by the Chinese Ministry of Ecology and Environment in collaboration with the UN Environment, was one of the green highlights this year. Consisting of 26 countries, 8 international organizations, 65 non-governmental organizations and academic institutions, and 30 businesses (as of Apr 2019), the Coalition is an “open, inclusive and voluntary international network” to ensure that the Belt and Road brings “long-term green and sustainable development” to all concerned countries, according to the UN Environment’s description.

China’s environmental policy for the Belt and Road has been criticized for being vague and rhetorical. The formal launch of the Coalition at least provides some articulation on what aspects of “green” is China considering for the BRI. According to a Terms of Reference (ToR) circulated to participants of the Forum, the Coalition’s main mission consists of the creation of 3 platforms: a platform for policy dialogue, a platform for environmental information, and a platform for green technology transfer. The activities (divided into core and thematic) are mainly facilitative in nature: policy dialogue workshops, sharing best practices, publishing regular “BRI green development reports”. The structure of the Coalition, with its 10 thematic partnerships, opens a channel for external stakeholders to influence the environmental governance of the BRI on issues from climate change to biodiversity. After all, China’s Minister of Ecology and Environment is its co-chair. But actual mechanism for it to give policy inputs or affect project decisions is unclear. As one participant puts it: “All the measures will probably lead to more green projects, but not necessarily less bad projects.”

BRIGC
Structure of the International Coalition for Green Development on the Belt and Road, from the Coalition’s Terms of Reference

The Green Investment Principles, co-developed by the China Green Finance Committee and the City of London, and signed at the Forum, follow the same facilitative style. According to a People.cn report, the initiators of the Principles will establish a secretariat that offers services for the signatories, which has the China Development Bank, China Exim Bank and Silk Road Fund among them. The services include a database for green projects under the BRI, a carbon emission calculator for development and investment projects, and a knowledge sharing platform.

Project portfolio

One of the most direct tests of all the upgrades and safeguards would be an examination of the actual portfolio of projects that China is supporting in the countries involved. The 2nd Belt and Road Forum provides a glimpse of where BRI is heading in this regard, even though it is understandably too soon for all the initiatives announced at the Forum to translate into tangible influence on project decisions.

Wang Yan from Greenpeace’s China office created a nice list of project deals signed during the Forum. Not surprisingly the list tilts heavily towards conventional infrastructure, comprised of mostly energy projects (concentrated in coal and hydro), railway and urban complex development. It is worth pointing out, though, that within the full list of outcomes, items do show renewable energy projects in the pipeline (e.g. a trilateral cooperation agreement signed among China, Ethiopia and Sri Lanka on renewable energy development).

The thing with infrastructure is that their long shelf life means projects built today will have long lasting effect for decades to come. Well-intentioned policy initiatives and safeguards are only useful if they kick in as early as possible in a project’s lifecycle. Five years and hundreds of projects into the BRI, we are getting a major update from the App provider that will likely only fix bugs of future features if components of the update get activated in a timely fashion.

Monthly Round-up: The Summit

What we know about the second Belt and Road Summit in April 2019?

On Jan 7, a note appeared on an obscure website for exhibition-related information saying that the National Conference Center in Beijing would clear its schedule for the entire April. Events that had booked the Center for April dates would have to give way to a major one associated with “the Party and Nation’s economic and diplomatic strategy.” The 2nd Belt and Road Forum for International Cooperation (hereafter “Belt and Road Summit”) is finally coming.

Dubbed the most important “home-field diplomatic event” of the year, the Belt and Road Summit has sucked up much oxygen from China’s diplomatic and propaganda space as soon as clock started ticking for 2019.

On Mar 8, at a press conference held during the annual National People’s Congress sessions, Foreign Minister Wang Yi highlighted three features of the Summit: higher level (more heads of state compared to the first one); bigger crowd (thousands of participants from 100 countries) and more activities (12 sub-forums and a gathering for entrepreneurs).

While the Summit will certainly be presented as a huge success domestically, the world would probably judge it with a difference set of standards. The information that is available so far can provide some guidance as to what to expect from the Summit.

BRIForum
The Belt and Road Summit’s official website still displays information from 2017. No information of next month’s Summit is available yet.

Roll call

As Wang Yi’s press conference has shown, the number of leaders attending is a key indicator of the global political support the Belt and Road Initiative (BRI) has garnered and will be keenly watched by observers around the world.

29 heads of state (and heads of government), not including President Xi himself, attended the 1st Belt and Road Summit in 2017. This year’s Summit will very likely beat that record given the fact that in the 2 years since 2017, more countries have signed up to the BRI. At the time when the 1st Summit was held, 39 countries or international organizations were on board. According to the National Development and Reform Commission (NDRC), now 123 have formally reached understanding with China with regard to their involvement in the BRI. A portion, if not all, of the new sign-ups will certainly translate into head-of-state participation in the Summit.

But quantity is one thing, some guests are more equal than others. For a BRI that has been dogged by negative media coverage internationally on its setbacks and a “hidden agenda”, high-level participation by certain countries has the narrative busting effect that would define how the Summit is viewed from outside.

Based on existing Chinese language media reports, the leaders who have confirmed attendance include Russian President Vladimir Putin, Philippine President Rodrigo Duterte, Ethiopian Prime Minister Abiy Ahmed, and Kyrgyz President Sooronbai Jeenbekov. While these “old friends of China” can be seen as usual suspects and do not change the dynamics of the Summit, other participants are more interesting. Malaysian Prime Minister Mahathir Mohamad, for example, has accepted the invitation despite his rollback of China invested pipeline projects. The Prime Minister’s renegotiation of Belt and Road deals that his predecessor had reached with China was widely interpreted as an indictment of BRI as pushing unsustainable debt burdens onto other developing countries. His presence at the Summit will help assuage some of the concerns that Malaysia is backing out of the BRI.

Another interesting guest is Italian Prime Minister Giuseppe Conte, whose government’s recent decision to formally endorse the BRI with an MOU drew pressure from Germany and the United States for undermining a Western united front, particularly the G7 group. Italy was reportedly frustrated with the EU’s inaction about its trade deficit with China.

It is worth noting, however, that both Mahathir and Conte’s predecessors were represented in the first Belt and Road Summit 2 years ago. Their appearance this time help to consolidate the BRI’s reception by their respective countries. But at this time of increasing global questioning of the BRI, particularly from the US, what China needs more is probably a breakthrough that resembles Britain’s surprising signing-up to the China-led Asia Infrastructure Investment Bank (AIIB) in 2015. But a polarized us-versus-them atmosphere around on the initiative would make such a breakthrough extremely challenging.

An evolving agenda

Beyond the political symbolism, what the Belt and Road Summit can actually achieve is another question that observers will be asking. For example, Will Mahathir use the occasion to determine the fate of the controversial East Coast Rail Link project that has been hanging in balance ever since his election?

China has its own criteria to gauge success. Dialing back to 2017, the first Belt and Road Summit produced two key documents, a Leaders’ Joint Communique and a List of Outcomes that contains 5 categories, 76 items and 279 action points. NDRC has apparently been tracking the completion of those action points. By Jan 22, 2019, 96.4% of them had either been completed or incorporated into the routine workstreams of the Chinese government.

The List of Outcomes provides a framework of understanding how the Summit’s substance is conceived and organized. The five categories (strategic and policy coordination, infrastructure connectivity, investment & trade expansion, finance cooperation, and people to people connection) correspond to the “5 Pillars” of the BRI. And the 76 items help translate those grand ideas into concrete, measurable steps:

BRIoutcome

Reuters recently got hold of a draft of the MOU that is being negotiated between China and Italy, which illustrates with a concrete example how “strategic and policy coordination” is being formalized at bilateral level. The draft is notably broad stroke but gives a prominent nod to sustainability, Paris Climate Accord and environmental cooperation, invoking an image of “high quality Belt and Road” that Beijing has been touting. While the basic framework of the MOU follows the 5 categories above, Environmental Cooperation is remarkably given a standalone place in the document, no longer a part of the “people to people connection.” The green message is more salient when compared to earlier MOUs China signed with other countries. A 2015 MOU with Poland, for example, was much more rigidly modelled on the “5 Pillars” with a heavy emphasis on infrastructure/investment and no sustainability component.

Some recipient countries have also been pushing to redefine BRI on their own terms. Indonesia, for one, recently laid out four conditions for its BRI projects, which include use of environmentally friendly technology, maximize hiring of local labor, technology transfer and added value for local industry. It is a sign that countries are maturing in their approach to BRI by voicing their own demands and conditions, which may find their way into the BRI agenda reshaped by bilateral and multilateral interactions.

Minister Wang Yi’s press conference also indicates that this year’s Summit might run with an “evolved agenda” by going beyond the original “5 Pillars” and providing more air space for topics that were grouped together before. At the first Summit, 6 parallel sessions corresponding to the 5 Pillars plus one on think tank collaboration were organized. This year, besides the main forum and the Leaders Roundtable which Xi will preside over, 12 sub-forums plus one entrepreneurs convention will also be offered. Information from the Ministry of Ecology and Environment seems to suggest that an ecological sub-forum is definitely being planned. Other topics of sub-forum might emerge in the coming weeks. The general trend appears to be for the Summit to go more granular on issue topic discussions.

Green Belt and Road?

The general elevation of green issues in official rhetoric, MOUs and forum agenda begs the question if any concrete outcomes on the green governance of the BRI will come out of the 2nd Summit.

At the beginning of this year, Minister of Ecology and Environment Li Ganjie announced that the International Coalition for Green Development on the Belt and Road (hereafter “Coalition”) would be formally launched in 2019. The Belt and Road Summit will be an ideal occasion to do that. The Coalition has been at the center of a controversy involving the United Nations Environment Program (in particular its former head Erik Solheim who was forced to resign for violating UN codes of conduct), the United States and China. The UN agency was questioned for its appeared coziness with the strategic initiative of a single member state. Whether China will successfully rollout the Coalition despite the setback is worth watching at the coming Summit. According to Solheim’s vision for the Coalition, which he laid out just before his departure, it should take up the roles of promoting green finance, creating basic principles and standards, and bringing in third parties to help countries along the Belt and Road achieve green development.

It is unclear at this moment whether specific environmental issues will be given a spot in the agenda. For example, China’s involvement in fossil fuel projects along the Belt and Road has received much global spotlight lately. Any institutional development under the BRI on climate change beyond a rhetoric nod will be significant progress toward harmonizing the initiative with the Paris Climate Accord. We have seen some concrete developments on the issue of desertification, where Chinese institutions have mobilized finance, technology and civil society support for afforestation projects along the Belt and Road. The Belt and Road Summit can benefit from an articulation of China’s commitment to “ecological civilization” in the implementation of the BRI.

Interview: What’s missing in the conversation about China’s expanding global presence?

Longtime Belt and Road observer Zhang Hong shares her insights about the historical evolution of China’s “Going Out”

ZhangHong
Former Caixin journalist and George Mason University PhD candidate Zhang Hong (Stella)shares her observations about China’s “Going Out”.

Within the Chinese journalistic community, a “foreign correspondent” is a rare species. Unlike their Western counterparts, Chinese media do not have a long history of dispatching reporters globally to cover events from where they are unfolding. Due to resource constraints and, more crucially, a lack of strong domestic demand for news thousands of kilometers away from home (with the exception of a handful of countries such as the United States), media organizations in China invest grudgingly into overseas operations. The situation differs between state-owned outlets (such as Xinhua News Agency and China Global Television Network), which in recent years have increased their global presence, and more independent outlets (such as Caixin). For the former group, the need to establish Chinese image overseas, more than the improvement of Chinese understanding of foreign affairs, has been the driving force of its global expansion. For the latter group, with all the intention of doing better international reporting, the lack of state support in setting up a stronger footing in foreign countries cripples its international ambition.

Zhang Hong (Stella) was, in her own words, one of the first-generation foreign correspondents working for a non-state Chinese media organization. Stationed in Europe and North America for Caixin Media between 2009 and 2014, she filed stories for Caixin’s readers on topics ranging from reforms in Poland to the Crimean crisis. She described her years in London and Washington as “drifting”, having to conduct journalism in a foreign land without much institutional support from home. While reporting from one country to another, she picked up an emerging theme that later became her research focus as a PhD candidate at George Mason University: the growing presence of China beyond its border and its political and economic implications.

In an interview with Panda Paw Dragon Claw, Stella shared her observations about China’s “Going Out” from both her standpoint as a journalist and a researcher. She believes a “China model” is indeed discernible from the practices of China’s state capital overseas, even though it doesn’t entirely fit the predatory image that Western media are accustomed of depicting lately.

Panda Paw Dragon Claw(PPDC): When you were a foreign correspondent for a Chinese media outlet, what was your mission?

Zhang Hong (Z): My intention was to write stories with more independence than what we usually saw in Chinese state media. I always believe that international news reporting should help our Chinese readership, citizens of a great power, to obtain an understanding of the world that matches China’s global status. A citizenry without empathy for its peers around the globe would become dangerously self-centered and hubristic.

But I found that I couldn’t do what I intended to do and was affected by a sense of powerlessness. Compared to Western foreign correspondents, we did not have the kind of institutional history and tradition that guide our operation overseas. Most non-state Chinese media only began to dispatch correspondents to other countries in the second half of the last decade, after a relatively liberalized period built up their coffer and ambition. When we were stationed in a foreign country, most of us did not have an office and had to build our sources and network from scratch. Since we were not part of China’s official media establishment, we were excluded from correspondence from Chinese embassies and consulates. We were largely “on our own.”

Situation of state media colleagues were slightly better, even though they were very much shaped (and constrained) by the nature of their outlets. Many of them couldn’t do reports that were at odds with the domestic and foreign policy agenda of the Party. And they were often stationed there to spread China’s own voices, more than they were required to do high-quality reporting about that country. For example, state media reporters were sometimes tasked to publish op-eds in local media, a not unimportant part of their job description.

PPDC: What kind of China “Going Out” stories did you cover when stationed overseas?

Z: I left journalism in 2014, and before that I was mainly based in Europe. It was before the Belt and Road Initiative (BRI) became an international spectacle. The pre-BRI stories about China’s “Going Out” that I ended up covering were mainly about Chinese companies shopping for European businesses and assets that were on sale after the debt crisis of 2009. The image of China around that time was that of a “nouveau riche” foreign investor. The Europeans were a bit skeptical of the Chinese’s ability to well manage what they had acquired. And that was the main discussion about China’s overseas adventures.

PPDC: Understandably, that story changed with the BRI…

Z: The BRI focuses very much on infrastructure building, with the Chinese state, not just Chinese companies, at the center of it. The level of Chinese overseas involvement (and the stake) is much higher now than when I was covering the space.

PPDC: With the BRI now so prominent on the global agenda, and popular narratives about it being reinforced by talks of “debt traps” and US-China arm wrestling, what do you think are elements missing in the current conversation?

Z: I think the first element that is not well understood and covered is the historical aspect. BRI should be viewed in the context of China’s multi-decade political and economic evolution. Modern China began its adventure into the global market in the 1990s, and not until 1999 was the concept of “Going Out” as a strategy first laid out. Major Chinese energy companies started to systematically move into other markets around that time. In preparation for the accession to WTO in 2001, a set of policies were also created to facilitate integration into the global market. The period laid the ground for an explosion of “Going Out” activities in the 2000s. On the one hand, China’s economic reform turned the country from a closed autarky to a world factory, driving up demand for resources from around the globe. On the other hand, Chinese companies, nurtured by strong domestic demand, ventured out for new markets and supplies. BRI is an extension to that two-decade journey. To some extent, China is almost driven by an urge to compensate for being absent from the global scene for too long. It is still retaking the globalization class.

Another aspect that’s worth emphasizing is that BRI reflects the “long view” that is embodied in the Chinese political system. China’s one-party system allows the ruling Communist Party to make long term plans and strategies. That’s why you find strong continuity from the “Going Out” strategy to BRI. This is not to say that Chinese leaders in the 1990s were particularly prescient. But it does appear that the approach of “crossing the river by touching the stones” works pretty well in China’s internationalization process, where later leaderships could build on the programs of their predecessors and adapt their strategies by studying the lessons learned.

In my opinion, the reason why stories of “debt traps” or China’s “predatory” behaviors become prevalent is that the international community does not fully understand this historical evolution. And the lack of transparency on the Chinese side is also to blame. When people cannot comprehend the seemingly “sudden” appearance of China on the horizon, they respond with fear and apply familiar narratives to make sense of it.

PPDC: Besides its historical context, what else is unique about the “Going Out” process? Is there a “China Model” being exported?

Z: What I’ve taken note of, as I have written in an article about Chinese investment in Sri Lanka, is the central role played by Chinese state capital in the “Going Out” process. Their prominence does speak to a powerful “formula” of economic growth in China, whether or not you’d like to call that a “model”. This formula is obsessed with infrastructure development, as this is where state capital has comparative edge over private capital. The vehicles of China’s state capital, the state-owned enterprises (SOEs), are a new class of international players in the global economic system that we have never seen before. Fed by a massive internal market and their monopoly status in key sectors, they have grown into gargantuan corporate conglomerates within a short period of time. With that much of capital on hand, they were able to take advantage of the vacuum left by the 2008 financial crisis and extend their tentacles to new places in the world, building and consolidating their access and control of world’s resources.

These conglomerates enjoy unique advantages in the current global economic structure. Backed with the state’s financial and political support, they are much more risk-tolerant than their Western competitors, which enables them to go into the infrastructure sector in developing countries with highly uncertain economic outlooks. Engaging in such strategic sectors in turn locks in long-term structural opportunities for China in these countries. For example, after building the standard-gauge railway for Kenya, Chinese companies will remain in Kenya for years to train the locals how to operate the system according to Chinese protocols; the next generation of Kenyan engineers will know more about how to build things according to Chinese technical standards than European ones.

PPDC: How does the Sri Lanka situation illustrate the model you outlined above?

Z: The Sri Lanka case demonstrates how certain elements of the “China Model” can indeed be exported through BRI. Under a strictly defined “market economy”, the construction of Hambantota Port does not make much sense. There is no natural demand supporting a major port built out of a traditional fishing village. But China’s state capital, coupled with its existing global network, may create demand to match the supply (a new port facility on the Indian Ocean). China Merchants Group, the state-owned Chinese conglomerate that will be running the Hambantota Port, could rearrange some of its global shipping routes to go through Hambantota, creating business for an industrial zone that is to be built adjacent to the port. With CMG’s global reach and resource allocation abilities, there is a fair chance that the Hambantota port may take off as a major trade node.

In this sense, China’s development model does have some “exportability”, even though China’s one-party system itself can hardly be recreated elsewhere.

PPDC: You speak of the Chinese leadership taking a “long view” when it comes to Going Out. Is exporting the China development model the ultimate goal?

Z: I guess the ultimate goal is the so-called “national rejuvenation”. As stated by the Chinese leadership, it is to build China into a real global superpower. Probably due to the Party’s Marxist ideology (which emphasizes the economic base as a determinant in all human activities), there seems to be a firm belief that the goal needs to be achieved through economic means rather than military means. Previous socialist regimes, such as the Soviet Union, never managed to plug itself so deeply into the global economy, let alone occupying structurally important positions. For China, becoming a global superpower in the new era means attaining a strategic, structural advantage in the global economy. And its SOE-driven state capitalism is an instrument to that end. In Party talks, there is already explicit language calling for SOEs to have “capabilities of global resource allocation” and “occupy a privileged position in the global value chain.”

PPDC: As you said, the understanding of those dynamics is still very poor outside China. Do you think there is a role that Chinese media, think tanks or others can play to help shape global perceptions of the BRI?

Z: There could have been a role for them to play, as theoretically speaking they should have better access to the Chinese actors participating in BRI, providing insights that outsiders often do not have. But in reality it is hardly the case due to the generally closed culture with regard to the press. It seems Chinese journalists (barring those from the state media tasked with propaganda) hardly have better access to Chinese companies and government officials than their foreign counterparts. This might also have to do with the fact that reporter tends to be an entry-level job in China; veteran reporters either get promoted to editorial roles (so they are no longer on the frontline doing reporting) or leave the profession after being disillusioned (I myself being an example). So you are left with young reporters who are energetic and passionate about doing good reporting, but without the necessary experience. Plus, Chinese media, when doing stories, still have the tendency of writing to the ears of the decision makers, hoping to have some influence there. So I am not quite sure the Chinese media as a whole is capable of shaping the conversation as part of the global civil society.

PPDC: In 2012, you’ve written a blog titled “the Cambodians who don’t want a dam”, which documented local resistance to a China-built dam and the rejection of China’s development-first mindset. Do you think Chinese media can play the role of safeguarding against the negative impacts of the Going Out process, as many have hoped?

Z: I’m not very optimistic that they can. Having left China’s media industry, I am not in a position to comment on my colleagues’ works today, as I understand that the room for independent reporting has shrunk even more compared to five years ago. However, I am a little disappointed that, for all the attention BRI is getting across the globe, we can think of very few cases of systematic and methodic reporting of BRI from the Chinese media that can draw wide attention. I get the sense that non-state media today are becoming more and more like their state media peers in reporting only one kind of BRI story: that of Chinese investment bringing benefits to other parts of the world. I understand the limitations Chinese journalists are facing, but for someone who used to have high hopes for the profession, this is disheartening.

PPDC: If media is not there as watchdogs, how should the Going Out process been governed given its massive political, social and environmental impacts?

Z: Scholars have described Chinese players as being more elastic with rules: they can follow higher standards when they enter developed markets but are more than happy to do the bare minimum when local governance is weak. At the end of the day, without strong regulation at home, adhering to high standards of corporate conducts is only “optional.” Paradoxically, for all my skepticism about Chinese state capital’s impact on the prospect of global human development, I think it might be easier to induce responsible behaviors in China’s SOEs than private firms in the short term. I think there is real appetite for it right now as the leadership wants China to be seen as a “responsible power.” SOEs are encouraged to take measures to protect the environment and provide services to local communities where they operate. Therefore, if the international community continues to push for these issues, they might gain enough traction in the political agenda, which can then be translated into requirements for SOEs’ overseas operations. That said, having the regulations is one thing, how they are implemented is another. To fundamentally create a system where Chinese players can be held accountable for their overseas activities, deeper governance reform and cultural change within China would be necessary.

Development blogging: understanding social media support for BRI

What a new genre in Chinese social media tells us about how the Belt and Road Initiative is perceived domestically

*Note to readers: I wrote this article originally for my other blog Chublic Opinion, titled “Anxieties of development: emerging voices in Chinese social media.” But the themes explored here are also relevant for readers who are interested in learning where China’s overseas initiatives sit in domestic public opinion.

In August 2018, an online post by “Shenzhen Ningnanshan” (深圳宁南山, hereafter “SN”) piqued the interest of Global Times chief editor Hu Xijin, who pointed his followers to the lengthy list of complaints about high property prices and education costs that, according to SN, threaten to sap the morale of an “urban middle class that has fundamental faith in China’s developmental trajectory”. Hu, who often presents himself as an interlocutor between the regime and the public, acknowledged the complaints’ “authenticity” and “sincerity”. In a published response, Hu reminded government officials to read SN’s article carefully, as it represents “the real worries of the People’s Republic’s hardworking constructors.” These people should be heard and shown the country’s future directions.

The exchange underscores the weight assigned to urban middle class voices by a political elite keen to monitor a constituency consequential to national progress and stability. But SN is no ordinary disgruntled working man. At the beginning of his post, he wrote that his articles were often read by “people up there”, meaning Party leaders and officials, and he hoped that this one reached them too. SN’s extraordinary influence in social media is part of a bigger story of development blogging‘s ascend in Chinese cyberspace. It has become a genre, fueled by the economic slowdown and heightened trade tensions with the United States. Microbloggers such as SN dedicate their social media space to big questions like China’s place in the world and if it can overcome the middle-income trap. And they find a growing audience, including “people up there”, tuned in to listen to their diagnoses of China’s ills and prescriptions for cures.

The escalation of the US-China trade tension in early 2018 became an assembly rallying cry for these online voices, who collectively shaped how the Chinese public perceived the clash between the two countries. SN’s Mar 24 post “Trade War: an interlude in China’s rise to surpass the US” was one widely read online analysis of what the trade war was really about. It distinguished itself from two kinds of “extreme voices”. On the left, Maoists were calling for China to go back to autarky, a state of non-trading economic self-sufficiency, while on the right, people were advocating for deep concessions that would surrender much of China’s industrial and technological agenda. SN’s views were essentially realistic nationalist, conceding that China was not ready to take on the US at this very moment but firmly believing in the inevitability of national rejuvenation through the conquering of technological commanding heights in multiple key industries.

The history of “online statecraft” by Chinese netizens dates to the dawn of China’s Internet age, as early users of chatrooms and BBS forums heatedly debated China’s geopolitical strategies and military posture. The perceived futility of such online discussions in a country with very limited political participation has been a subject of ridicule, as manifested in a popular online joke about a “basement-dwelling patriotic youth“, who preoccupies himself with questions of national security but can’t even guarantee his own personal safety against the intrusions of the state.

Different from the brand of juvenile statecraft that resembles an online projection of masculinity, the emerging development bloggers build their profiles to exude maturity and credibility. SN’s Zhihu page (Chinese equivalent of Quora) describes himself as a “middle class person moving bricks in Shenzhen” (“moving bricks” is a humorous online reference to making money). His Weibo account carries a tag line that says “re-recognizing our own country.” Although his true identity remains unknown, many believe that he works with supply chains in Shenzhen, giving him first-hand insights about the frontier of Chinese technological advancements. A Zhihu user tried to paint an imagined profile of him: “around 40 years old, grew up in a modest family, graduated from a top Chinese university, works at a major manufacturing company and earns 1 million RMB a year.” Some of SN’s peer bloggers are more upfront about their real-life identity. A group of Weibo accounts which frequently interact with and promote SN’s posts, self-identify as the Society of Wind and Cloud (风云学会), which is supposed to be associated with the University of Science and Technology of China (USTC). One of the key voices from the group, Chen Jing (陈经), is research director at Asia Vision, a company specialized in Optical Character Recognition (OCR). Beijing Saidong (北京塞冬, hereafter as Saidong), another popular development blogger who has friendly interactions with SN both online and offline, is a Peking University-educated computer scientist who works in the Internet sector.

Their technology/industry background gives them credibility when they write on issues related to China’s growing industrial might or its competition with other countries in developing next generation semi-conductors, even though their topic areas go way beyond their professional domains. Chen Jing, for example, writes extensively on microeconomics, trade, and… football. In 2016 he even published a book called “China’s government-organized economy” that claimed to have discovered the secret of China’s economic miracle: an economic model that is neither market nor planned, but run by multiple levels of the government using market-based approaches. The idea is not entirely new but it shows the appetite of typical development bloggers, who enjoy throwing out grand theories about China’s rise. They sometimes refer to themselves as the “industrial party”(工业党), people who firmly believe in a country’s industrial might as its passport to success.

The “industrial party” bloggers share a lexicon of terms such as “per capita GDP”, “demographics”, “supply chains” and “national fortune”, which reflects a tendency to think in aggregates and a competitive arena-shaped world view. Their interest in (obsession with) nations, their rise and fall, prosperity and poverty, fill their Weibo/WeChat pages with lengthy, data-heavy accounts of national competition and dominance. Popular posts written by SN in the past year include titles like “The competitiveness of China’s low-end industries“, “China’s development and the East Asian hell model“, and more bluntly, “Challenging white superiority: the competition a thousand miles away“. Collectively they depict a picture of a merciless ladder called “development” on which nations laboriously climb. At the top of the ladder sit countries with the highest per capita GDP, enjoying comfortable privileges, while other lower income countries fight to occupy favorable positions underneath. “Overall, the white world, Europe+North America+Australia/New Zealand+Israel, still makes up the top echelon of nations,” writes SN in a post responding to an IMF data release, “when per capita GDP goes above 40,000USD, only very few non-white nations can enter that area… Japan and a few ethnic Chinese economies, Hong Kong, Macau and Singapore managed to achieve that. We should have confidence in ourselves.”

The racial message is even more explicit in his wildly popular post on how China could break from the East Asian model. A sense of injustice oozes from the text when he observed how, in the past two decades, the 20 or so countries that surpassed Japan in per capita GDP were mainly European. “The life of Europeans is really laid back, while East Asians, whose intelligence and hardwork are universally recognized, have to endure intensive, hellish work hours.” He continued, “there must be a problem when a lazy people’s economic performance goes beyond a hardworking people’s.”

The problem, as SN saw it, was an “invisible hand that pinned East Asian economies on a few narrow and fiercely competitive industrial tracks”. Most of them lack vast agricultural lands or natural resources that support lucrative businesses such as agrochemicals or energy extraction, sectors dominated by Americans and Europeans. More importantly, he asserted that military shackles placed by the United States on East Asian states, particularly Japan and South Korea, suppressed their technological potential, as military-to-civilian transfer is a major pathway of technological innovation. He also maintained that Western capital had been extracting disproportionally high returns from investments in premium East Asian companies such as Samsung, exploiting their “capital superiority.” Those restrictions and suppressions limited East Asian states to a small number of industries such as semiconductors, forcing people in those countries to compete fiercely for a finite number of middle-class jobs generated by those sectors. China, free from the above constraints, could be the only East Asian nation with the potential to redefine an East Asian developed economy, he declared.

If this sounds alarmingly like a (milder) version of Japan’s complaint about a suffocating “Anglo-Saxon encirclement” prior to World War II, fellow bloggers only reinforce the impression by repeatedly invoking the imagery of shrinking “development space” for China. Only in this case, the “space” is not so much the physical territory that pre-war Japan was paranoid about, but rather the remaining seat at the table of developed economies in a game of musical chairs. The sheer size of China’s population makes some wonder how the current global order can accommodate another billion people to join the high-income club. “It took a world-class conglomerate like Samsung to pull 50 million of South Koreans into developed status. China has a population 28 times larger. How could the world absorb another 28 Samsungs?” wrote Weibo user Qingpuluo the day after Trump declared a trade war on China, using very rough mathematics. He believed that China would not reach developed status within the existing global framework by simply “trading with developed economies.” It needs new space.

This is also a theme that SN often explores, although his views are colored by a more ideological tinge. Again using back-of-the-envelope calculations, he asserted in one of his posts that 1.4 billion newcomers to the industrialized club would “completely change the face of “developed economies”, which currently cover just 800-900 million people. Racially speaking, Asians would replace Caucasians as the majority. Politically speaking, the West’s control over the world would be much diminished as China becomes the first developed Asian power that’s not subject to Western military control. Culturally speaking, the “cultural composition” of what it means to be “developed economies” would fundamentally change with China’s entry. He insisted that the white-majority developed world wouldn’t tolerate such tectonic shifts and would be prepared to stave off China’s rise.

In keeping with the industrial party’s manufacture-centric world view, some bloggers looked at the issue through a “global value chain” framework. Citing a recent report in Japanese media, Machinery & Engineering Strategy (机工战略), an industry voice represented on Chinese social media, observed how US companies took in as much as 40% of total global corporate profits (of 18,000 publicly listed companies from 100 countries).  Another blogger distilled the phenomenon into a globalization pyramid made up of 3 camps of countries: at the top are technology and capital providers, in the middle are labor providers and at the bottom are natural resource providers. China’s struggle to move from camp 2 to camp 1 and grab a bigger share from the highest tier of the value chain is considered a major uphill battle that the country has to fight. Saidong has found a real-life illustration of the battle in the global value chain of electronics, where China has evolved from an assembler to a major parts supplier and brand owner, chipping away, bit by bit, the economic cake from Apple, Samsung, and Japanese/Taiwanese manufacturers. “The extensive electronics value chain creates high-end R&D jobs, mid-level trade and logistics opportunities and low-end assembly line employments that can accommodate a huge and diverse workforce,” he argued, “it’s a godsent for any developing economy.”

The idea of “development space” shapes the thinking of development bloggers when they consider major strategic topics such as the Belt and Road Initiative (BRI). To be clear, unlike the way it is scrutinized and debated in the West and in recipient countries, the BRI is barely an issue on Chinese social media, likely due to its lack of connection with the day-to-day experience of ordinary Chinese netizens. One notable exception is the “industrial party”. Deeply concerned about China’s future position in the world, these bloggers quite often engage in intellectual exercises about China’s adventures overseas and what they mean for the country.

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Development bloggers are exceptions to a Chinese social media largely indifferent to China’s overseas endeavors. Image from an SN post discussing Chinese railway developments in Africa

In a recent long post for the Society of Wind and Cloud, Saidong did an extensive analysis of Africa’s future demographic changes and their implications for China. With multiple graphs, he highlighted the pyramid-shaped population structure of today’s Africa and marveled at how it resembled that of India 40 years ago. Based on a few bold assumptions, he calculated in a quick-and-dirty fashion, that Africa’s total population would reach 2.5 billion in 30 years while its GDP per capita would enter the 3000-4000 USD terrain. “We will witness the emergence of an Africa that’s 2.5-4 times the economic size of today’s India”, he predicted. By then, the continent would have produced a group of mega-population countries. Nigeria, Ethiopia and Egypt would all boast populations over 200 million. As he saw it, in 2050, these countries would still be relatively poor and not fully industrialized. Yet their vast internal markets would make ideal destinations for Chinese industrial products, infrastructure construction capacities (and overcapacities), and Internet services. “Africa, with its size and potential, represents a new market that a late comer like China can more easily access,” Saidong argued, apparently alluding to the resistance China may face when it enters existing markets with established players. At the end of the article he reminded his readers that in the 21st century, China’s “national fortune” would be decided by how it approaches the “6 billion people in African and Asian developing countries.”

When they apply such a world view inward to scrutinize China’s domestic developments, the development bloggers constitute a formidable force on the Chinese Internet, challenging some of the Communist Party’s most important policy agendas. Just as they are sensitive to demographic changes in other developing countries, they are keenly aware of China’s rapidly aging population and are some of the most vocal online critics of family planning policies. The perception of growing populations as a source of national strength and growth potential shapes their attitude toward the one-child policy. In a widely circulated Weibo post, SN took on China’s population control and real estate market at once. “Years of propaganda in our country treat population purely as a burden,” he wrote, “but a large and growing population can actually bring lots of benefits.” These benefits, in his mind, include a great number of entrepreneurial opportunities and the job creation ensued, cheap labor and service that propel new business models, and higher returns from property booms kept afloat by the continued urbanization process. Because of the depth of China’s domestic market, it has the guts to confront the United States without the fear of “economic collapses experienced by Turkey or Iran”.

In the same vein, development bloggers are perpetually worried about China slipping into the same  demographic predicament of its neighbors, Japan and South Korea. The abject lives of Japanese retirees and the country’s looming pension crisis are constant reminders of what China’s own fate may look like down the road.  At the beginning of 2018, confronted by China’s newly released birth statistics of 2017, Saidong warned that in 5-10 years China’s demographic atrophy would be as severe as, if not direr than Japan’s, thanks to 30 years of arbitrary acceleration of a natural process of lowering birth rates and other driving forces of an aging society.

In addition to their intellectual propensities on the population question, their own status as members of an upper-middle class rooted in China’s booming high-tech sectors seems to have made them advocates for certain middle-class-centric policies, all of them centered around child-rearing. The underlying message appears to be that, since high-tech manufacturing is the pillar of China’s next industrial revolution, people employed by such sectors need to be well taken care of by the state for them to concentrate on their excellent work. For instance, reforms in China’s pre-school system and primary education in recent years that tilt heavily towards burden-shedding for kids meet with heavy criticism from this group. Letting children off school at 3pm instead of 5 or 6 creates extra work for parents who need to find ways to fill those hours for which schools no longer bear responsibility. It also creates a massive extra-curricular education market that exploits parents who fear that their kids are not being given sufficient tutoring to prepare them for fierce future higher education competitions. The group also considers rising property prices in Chinese cities a major sore point for this social class and a drag on demographic improvements. Not only is living space being squeezed due to ever higher real estate prices, making it difficult to raise more kids under one roof, but also marriage and child bearing ages are being pushed back as young people have to work longer before accumulating enough capital to form families, if they do so at all.

Complaints like these, and the resonance they generate, tend to produce response from the likes of Global Times’ Hu Xijin. But as Hu himself reminded SN in his piece, the distribution of wealth in today’s Chinese society had made readjustments around issues like property price particularly challenging. While a city’s new comers may look for cheaper paths to property ownership, the city’s propertied class may, in contrast, hope for even higher real estate values for themselves. Measures favoring one side of the equation may stir discontent in the other.

Hu’s response highlighted the social class signature of SN’s brand of development blogging on which its critics often focus. Some of the more visible detractors claimed that, constrained by the narrow interest of their social class, policy prescriptions offered by SN and his peers are biased and could harm the nation as a whole. Maqianzu, a blogger associated with the left-leaning Guancha.cn, has argued that measures to lighten the burden on urban middle class, as SN advocates, would undermine overall social mobility. High property prices in big cities, as he sees it, are a way to continue funding infrastructure expansions in underdeveloped parts of the country and they will provide upward movement channels for the poor. He also has dismissed SN’s complaint about overburdened middle class parents, claiming that ultra-competitiveness in basic education is a result of more qualified students entering the system, another sign of positive, upward mobility in the society. “China has no hope if its middle class is allowed to have a laidback lifestyle,” he wrote provocatively. Instead, the country’s long-term prosperity depends on an over-worked mortgage-bearing middle class that’s constantly kept on their toes. For Maqianzu, the idea that the offspring of today’s middle-class are entitled to effortlessly inherit the social status of their parents is borderline reactionary.

More scathing criticism condemns SN’s writing as nothing more than a kind of “development porn”, using selective, misleading materials to depict an overly rosy picture of China’s economic prospects and industrial prowess, stirring up cheap nationalistic sentiments as its online predecessor, “military porn” often did.

Even if it is just another type of intellectual opium that the Chinese Internet routinely produces, if “people up there” are really paying attention to what the SNs are blogging about these days, they may find it reassuring that a not so small segment on social media is fully supportive of the leadership’s push to bring Chinese manufacturing to the next level against a strong trade headwind. They may be alerted by the intensity of frustration this group of people feel about the Party’s track record in managing the country’s population, education and property market. They may also be encouraged to find a reliable cyberspace ally more powerful in many ways than the official propaganda machinery in its ability to coalesce the hardworking middle class around an assertive agenda of Made in China 2025, Belt & Road Initiative and geopolitical adventures that reclaim China’s development space in the world.

December round-up: Reform, Opening, Belt and Road

As China celebrates 40 years of reform and opening up, the BRI needs to find its own place in and beyond Deng Xiaoping’s legacy

On December 18, 1978, the 3rd Plenary Session of the 11th Central Committee of the Communist Party began its four-day deliberation at the Jingxi Hotel in Beijing. These were the coldest days of a year. But Chinese history books often associate the meeting with the image of thawing ice. It marked the official launch of a grand transformation of China that has since been known as “Reform and Opening Up.”

The 40th anniversary of the historic event dominated the political and media agenda of last month. And it is worth noting how the Belt and Road Initiative (BRI) was presented against the backdrop of Deng Xiaoping’s legacy.

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The 3rd Plenary Session of the 11th Central Committee of the Communist Party marked the official launch of a grand transformation of China that has since been known as “Reform and Opening Up.”

At a high-profile gathering commemorating the anniversary on December 18, President Xi Jinping referred to the 1978 moment as a “great awakening of the Chinese Communist Party”. Whether or not the Party was asleep before that is debatable, but the significance of the historic watershed is unquestionable. In 1978, China waved goodbye to three decades of Maoist fanaticism and embraced a more pragmatic, common-sensical path toward development. The ideological restrictions on individuals, businesses and society were gradually loosened. The countryside quickly recovered from the shackles of collectivization. The private sector emerged and prospered. Foreign capital flowed in. And the result was a booming economy that lifted hundreds of millions out of poverty and enabled the Party to declare that a “national rejuvenation” was right around the corner.

The BRI naturally found its place in Xi Jinping’s speech that walked the audience through that journey again. It was presented as a logical extension to the decision to open up the country to the outside world, first through a few coastal special economic zones, then along the rivers that radiate inland. As China integrates into the global market, it’s time to go beyond its own borders and begin doing business around the globe. “We moved from letting in to going out,” as President Xi put it.

The idea of the Belt and Road as “Reform and Opening Up phase II” is not entirely new. Chinese experts had been making the argument ahead of the anniversary that BRI inherited and expanded the essence of Opening Up. In a narrow sense, one of the stated strategic objectives of BRI is to link China’s landlocked provinces to west-bound trade routes all the way to Europe through Central Asia. In a broader sense, BRI is seen as staying true to the reform’s key message of “integration”, fitting China into existing global institutions and frameworks such as the WTO.

At this point in history, emphasizing the continuity between BRI and the Opening Up would probably help remove some sharp edges of President Xi’s signature initiative in the eyes of external observers. But despite the insistence that BRI is the child of reform, it is undeniable that the initiative is not without tensions with Deng Xiaoping’s legacy. Its (perceived) geopolitical ambitions and challenge to existing international institutions and norms can be at odds with Deng’s teaching of “hide your capabilities and bide your time”. The dominating role played by state-owned enterprises (SOEs) in the initiative can also be read as a reversal of policies encouraging and nurturing the private sector.

Those tensions were tacitly touched upon in an earlier analysis by Chinese Academy of Social Science scholar Xue Li titled “BRI and the New Reform and Opening”. Xue argues that the BRI’s global impact is probably going to be larger than that of Reform and Opening Up. It continues on the path of opening the Chinese market (largely facing developed economies) but moves on to “unlocking others” (mostly developing economies). According to Xue, this is a departure from China’s traditional philosophy of “winning over others by perfecting one’s own virtues”(远人不服则修文德以来之). Instead, the new administration decides to go all the way to the distant “others” and help them with social and economic development.

He notes that China does not have the power/right to set development strategies for other countries and cannot force them into the BRI. The initiative is a “development strategy” for China, but can only be a “cooperation proposal” for the outside world. This leads to the elevation of “neighborhood diplomacy” in terms of strategic importance, another departure from reform-era diplomatic priorities that “put major power diplomacy, especially with the United States, at the absolute center.” The pivot towards neighboring developing countries, Xue contends, is a clear trend since 2016 and a response to the perceived shrinking/stagnating space for furthering diplomatic relations with more developed countries. His article also implies that China is no longer content with simply accepting the global frameworks and is making efforts to fix some of their flaws through negotiations rather than confrontations.

The analysis underscores the extent to which BRI needs to maintain a linkage to the 1978 legacy while distinguishing itself as an update and reinvention. And that need is not all externally focused (i.e. to placate Western critics). Internally, the public may also need some convincing that with a full-throttled push for the BRI, they are still on the Reform and Opening Up bus that they bought tickets for. One Weibo post captures the difficulty for the Chinese public to appreciate why they should be concerned with the development of, say, Africa or India. “40 years ago, our own opening up helped developed economies find an outlet for their capital and enterprises that their internal markets and free trade agreements within the OECD bloc could not provide.” Now, the Weibo commentator argued, it’s China’s turn to wanting that solution for its internal difficulties: employment, environment, etc, and the public should come on board with that logic in mind.

With all the talks of fixing the global order and “neighborhood diplomacy”, the celebration of the 40th anniversary was still largely a tribute to the past. One item of the program was the awarding of Reform Friendship Medals to 10 foreigners who had made distinguished contributions to Reform and Opening Up. They were American, Japanese, German, British, Swiss, Spanish, French and Singaporean. No one from the developing world received that recognition. It would be interesting to see if in 2028, when Reform and Opening Up policy turns 50, Pakistanis, Sri Lankans or Kenyans would be honored in the same manner for assisting China in its renewed quest for national glory.

What China’s new foreign aid rules can and cannot do

CIDCA’s proposed Measures open a new window into Chinese foreign aid, but stakeholders should manage their expectations

by Ma Tianjie and Zhang Jingjing

China’s newly established foreign aid agency (China International Development Cooperation Agency, CIDCA) recently released draft Measures for the Administration of Foreign Aid to solicit public comments. This move understandably attracts international attention as observers are eager to learn how the new agency would operate, and, more importantly, how any external stakeholders (recipient countries, contractors, civil society, etc.) may participate in and influence the aid process.

Expectations are high. Chinese foreign aid has long been known for its opaqueness. For years, external researchers and observers had to rely on infrequent white papers to get a glimpse of the scope of the country’s aid program. Piecing together fragmented information on Chinese aid to render a more complete picture has become an effort that entire research programs undertake. With the release of the new draft rules, hopes are that Chinese foreign aid may become more transparent and accessible.

But before people get too excited about the opportunity to reshape Chinese foreign aid, it is important to clearly understand what the draft measures can achieve and their limitations.

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External researchers and observers had to rely on infrequent white papers to get a glimpse of the scope of the country’s aid program. Source: china.com.cn

What the draft Measures do

As a new agency born out of the ministerial reshuffle earlier this year, the new Measures define CIDCA’s core business: the process of designing, implementing and reviewing foreign aid projects.

It is worth noting that even though CIDCA is new, the draft Measures are not. Before CIDCA became China’s coordinating government body for foreign aid, the Ministry of Commerce (MOFCOM) was the main aid distributor, while multiple other agencies shared bits and pieces of foreign aid responsibilities. The draft Measures are built on an earlier MOFCOM version, which was announced and went into effect in 2014, with new elements reflecting the agency’s expanded mandate.

Beyond taking over the supervision of four types of foreign aid projects previously overseen by MOFCOM (complete projects, material donation projects, technical assistance projects and capacity building projects), CIDCA also assumes an important strategic planning role, drawing up foreign aid strategies and plans at the national level. Plus, the multiple streams of aid-related finance, including grants, interest-free loans and concessional loans, will all be subject to CIDCA’s overall budgetary oversight. In the case of South-South cooperation funds jointly set up by CIDCA and other governmental departments, the agency will directly run and distribute those funds.

The draft Measures distills CIDCA’s mandate into a set of concrete policy items that will be created along the process of the agency’s fulfillment of its responsibilities. These include:

  •         A top-level foreign aid strategy (unclear frequency, possibly approved by State Council)
  •         A long-term to mid-term policy plan (unclear frequency, possibly approved by State Council)
  •         Country-by-country aid policies
  •         An annual foreign aid plan (possibly approved by State Council)
  •         A foreign aid management system
  •         Foreign aid international cooperation system
  •         An annual foreign aid budget
  •         Measures to manage the initiation and approval of aid projects
  •         A project evaluation system
  •         A credit rating system for project implementers
  •         Foreign aid statistics collection

Many details are missing from the draft Measures, and some items, such as the process of initiating and approving actual foreign aid projects, require their own stand-alone measures to be fully hashed out. But still, a skeleton of the policy framework that will govern Chinese foreign aid in the future is visible from the draft.

Understanding the constraints of the draft Measures

Promising as they are, the draft Measures have a few built-in limitations that would put clear boundaries around ways external stakeholders may interact with Chinese foreign aid.

The first and foremost limitation lies in its relatively low legal force according to the Legislation Law. The draft Measures rank as a “departmental rule” issued by a ministry/agency under the State Council. Within the hierarchy of the Chinese legal system, laws passed by the National People’s Congress are bestowed with the highest legal authority. Beneath them are regulations created by the State Council (the Cabinet). While rules promulgated by government departments and local provincial people’s councils are lower on the legal ladder.

In principle, lower-level regulations and rules cannot go beyond what higher-level laws authorize them to do. In the case of CIDCA’s draft Measures, as a departmental rule, their legal force is circumscribed by a few higher-level laws and regulations, including, but not limited to, China’s Law of Administrative Permission, Law of Administrative Penalty, State Council Open Governmental Information Regulation, and Law of Administrative Reconsideration. The draft Measures are also bound by the agency’s approved mandate and duties set by the State Council.

Those higher-level legal instruments erect a wall around the Measures. For instance, many would like to see more accountability built into the Measures by creating stronger penalties for violating rules set by the Measures. Yet, the Law of Administrative Penalty and related State Council rules set a RMB 30,000 ceiling for fines that government agencies can legally impose, which is adopted by CIDCA in the draft. The cap on fines is supposed to serve as a check against the abuse of administrative power. Nevertheless, RMB 30,000, a limit set by the State Council in 1996, is of questionable deterrent power today. In the same vein, CIDCA can only impose two types of administrative penalties: disciplinary warnings and fines. The agency is also not allowed to use the Measures as a vehicle to create new roles for itself. For example, even though stronger Environmental and Social Impact Assessments of Chinese aid projects could be a desirable development, without a State Council authorization for CIDCA to involve the Ministry of Ecology and Environment in the management of foreign aid projects, the agency won’t be able to take on the role on its own. To overcome some of the intrinsic weaknesses of the draft rule, CIDCA would need to muster enough political support to elevate the draft Measures to a higher level (such as a State Council regulation).

What can be improved

As a draft for comment, the draft Measures, in their current form, definitely have much space for improvement. One area that can be improved is information disclosure. And this is not an unreasonable ask. The State Council’s 2008 Open Governmental Information Regulation (China’s freedom of information act) constitutes the legal basis for demanding greater transparency from government agencies. Article 9 of the Regulation requires government agencies to proactively disclose information that “needs to be widely known and participated by the public.” Arguably, dispensing public resources to assist foreign countries deserves public knowledge and participation. In theory, many policy items listed above should be released publicly to keep the society informed of where foreign aid is going. Yet no disclosure related clause currently exists in the draft Measures.

The draft Measures by itself can’t impose criminal liabilities, but it indicates that anyone who violates Chinese Criminal Law and other laws during the licensing and implementation of foreign aid projects may be subject to criminal liabilities. Unfortunately the draft Measures doesn’t echo the second paragraph in article 164 of the Criminal Law, which states, “Whoever gives any property or benefit to a functionary of a foreign country or an official of an international public organization for any improper commercial benefit shall be punished according to the provision of the preceding paragraph.” This provision was added to China’s Criminal Law after China signed and ratified the UN Convention Against Corruption in 2005, but it has never been used to prosecute Chinese persons and legal persons for their foreign briberies. Some Chinese companies, including those who implemented or are implementing foreign aid projects, have been criticized for briberies in Africa and Latin America.

The draft Measures also lack an explicit grievance mechanism for external stakeholders, particularly those affected by Chinese foreign aid projects, to report wrongdoings and submit complaints. This appears to be a backtrack from its predecessor. MOFCOM’s 2014 measures at least included one clause that allows “any individual or entity” to report to the ministry when they find Chinese implementers in non-compliance. Besides pressing CIDCA to reintroduce such a mechanism into the rule, one may also find openings in Chinese administrative laws to challenge certain agency decisions. In theory, “administrative licensing” can be questioned on the basis of the Administrative Reconsideration Law, which grants citizens and organizations the right to plea for reconsideration of permissions that violate their interest. The draft Measures contain a few approval/licensing components. For example, approval of foreign aid projects in the draft Measures is an “administrative licensing” by nature. Whether third parties can trigger a reconsideration petition for such approvals on grounds of affected interest is subject to legal interpretation. But in the past, Chinese civil society groups have successfully used the legal tool to overturn government decisions, such as the greenlighting of problematic Environmental Impact Assessments. It will be interesting to see if such clauses can be activated to bring some accountabilities to Chinese foreign aid in the future.

(Write to Panda Paw Dragon Claw by clicking the “Contact” link at the top of our site if you have any question about the draft Measures.) 

Zhang Jingjing is a Chinese lawyer and Lecturer in Law at the Transnational Environmental Accountability Project, University of Maryland School of Law

November monthly round-up: caught in the crossfire

As US-China tension increases over the BRI, third-party actors find themselves caught in the crossfire.

If a butterfly in Nairobi flaps its wings, would it set off a tornado in Beijing?

Last month, what happened in the United Nations Environment Program (UNEP), headquartered in Nairobi, Kenya, certainly would alarm some policy makers in Beijing. On November 20, news broke that UNEP’s Director Erik Solheim resigned after a major scandal that threatened to undermine the agency’s legitimacy as the world’s leading multilateral environmental body. Most of the allegations against Solheim were not China related. An internal UN audit revealed his abnormally high air travel expenses (half a million US dollars in less than two years) and breaching of UN rules (allowing some staff members to work from Europe when they need to be based in Kenya). But the Guardian report also highlighted a side complaint. The United States, and some UNEP employees, had raised questions about his perceived coziness with the Belt and Road Initiative (BRI).

As recently as Nov 5, Solheim was in Beijing celebrating achievements of the International Coalition for Green Development on the Belt and Road. “China could share its green development experience with other countries through dialogue,” he said, and envisioned three roles for the Coalition: promoting green finance, setting up basic principles and rules for BRI, and serving as third party facilitators for green development in host countries. Ironically, it turned out that the Coalition was at the center of American misgiving. According to the disclosed list of questions posed by the Permanent Mission of the US to the UN in April this year, the US questioned the relationship between the agency and the Coalition, especially the justification for “an organization under a universal governance model devoting its resources to promote a plan exclusive to an individual (country).”

The episode underscores the increasingly divisive international space wherein third-party actors need to navigate to position themselves properly vis-à-vis the BRI. The heightened tension between the US and China over the infrastructure program makes the balancing act especially challenging. During Solheim’s brief tenure at the agency, UNEP entered a partnership with China’s environment ministry to promote “Green BRI” and has helped soften the initiative’s international image. That’s probably why upon his disgraced departure, the ministry’s spokesperson had only nice words to say about him: “Mr. Solheim has paid much attention to and worked hard on south-south environmental collaboration and environmental protection in developing countries.”  

MEE on Solheim
China’s Ministry of Ecology and Environment praised Solheim upon his resignation from UNEP.

If the exchange around UNEP was just a skirmish (Solheim’s oust was largely self-inflicted), what happened at the Papua New Guinea APEC summit was almost an open confrontation. Immediately after Chinese President Xi Jinping’s address to the APEC CEO Summit promoting the BRI as “an open platform for cooperation”, US Vice President Mike Pence told the same audience that countries “should not accept foreign debt that could compromise their sovereignty.” He even went on and dubbed the BRI a “constricting belt and one-way road.”

For decades, the West has offered financing to developing countries on conditions of trade liberalization and market reform. For Pence to remind countries of the need to preserve their sovereignty, therefore, is a bit disingenuous. Nonetheless, the “debt trap” narrative sticks. Almost at the same time as Pence was warning against the BRI, the newly elected President of the Maldives, in his inaugural speech, blamed Chinese loans for his country’s “precarious” financial situation and signaled distancing from a relationship that his predecessor had cultivated.

APEC quickly became another victim of the US-China animosity. The annual Summit on Nov 18 failed to produce a joint communiqué, a disappointing departure from its 20-year tradition, due to US-China disagreement over languages about global trade reforms. A narrative quickly developed around how China sabotaged the whole thing, not just with its insistence on policy arguments, but also with its “aggressive, bullying, paranoid and weird” behavior at the event. In contrast, the Trump administration’s own position of dismantling existing global economic mechanisms such as the WTO and its possible contribution to the deadlock did not receive as much scrutiny.

Chinese response to the criticism was to reiterate its position that Asia-Pacific development is not to be a zero-sum game and a binary “win/lose” choice, and that disputes should be resolved under “mutually agreed rules”. Researchers and think tank specialists wrote articles on Chinese platforms trying to refute the “debt trap” accusation, using data from the IMF and CIA to argue that Chinese loans constitute minor portions of the debt burden of countries such as the Maldives and should not be scapegoated for their economic difficulties.

As third-parties struggle to (re)align themselves with the BRI, the landscape of international development finance is quietly being redrawn. Ahead of the APEC summit, the US, Japan and Australia announced a Trilateral Partners infrastructure fund that would support infrastructure development in the Indo-Pacific region that “adhere to international standards and principles for development, including openness, transparency and fiscal sustainability.” The fund is widely read as a counter-offer to the BRI. As a first step, a financing package for Papua New Guinea to expand electricity and Internet coverage, worth USD 1.7 billion, was unveiled on the day of the summit. If the BRI has redirected global attention to the developing world’s massive infrastructure gap, it could be one of its more positive effects. The question is if, as a price of accessing much needed funds, developing countries would have to pick sides in a fight they don’t want.

October monthly round-up: teacher/student complex

Shinzo Abe’s visit to Beijing sets the two countries on a path to collaborate along the Belt and Road

The key word of the past month was Japan.

On Oct 25, Beijing residents witnessed the rare scene of Chinese and Japanese national flags waving side by side near Tiananmen Square. And the public reaction was mixed. The two countries had been on pretty bad terms since the beginning of the 21st century, with sovereignty disputes over islands in the East China Sea and Japanese politicians’ visits to the controversial Yasukuni Shrine, which enshrines WWII war criminals, continuously overshadowing bilateral relations.

2018 saw the rapid thawing of a once icy relationship thanks to President Trump’s increasingly belligerent trade position against both China and Japan. The US has threated auto tariffs against Japan and has slapped punitive tariffs on Chinese goods worth hundreds of billions of dollars. In the face of a United States no longer committed to a global economic agenda that has largely benefitted manufacturing powerhouses like China and Japan, the two East Asia neighbors find it desirable to put their differences aside, at least for now.

The visit turned out to be quite consequential from a Belt and Road perspective. During his visit, Abe would put an end to four decades of Japanese foreign aid to China and start a new phase of China-Japan partnership along the Belt and Road.

To declare an end to Japanese Official Development Aid (ODA) during a friendly visit is a somewhat awkward task.  

Japan ODA
Chinese online commentators reacted to the end of Japanese ODA with mixed feeling.

Since 1979, after relationship normalized between the two countries, Japan has been a major donor and financier of China’s industrialization and modernization, in the forms of grants, concessional loans and technical assistance. According to a WeChat post detailing the history of Japanese ODA to China, the projects benefited from Japanese assistance include infrastructure projects such as the Beijing-Qinghuangdao railway, telephone networks in Shanghai and Guangzhou, and manufacturing projects such as fertilizer factories in six provinces. Total Japanese ODA to China amounts to 20 billion USD by the end of 2007, which wound down significantly after that point, when China surpassed Japan as world’s second largest economy.

Chinese reaction to Japanese ODA is not entirely of gratitude. Debates are still ongoing as to whether the assistance should be seen as a form of reparation for Japan’s WWII atrocities. China officially waived Japan’s WWII reparations (calculated at 120 billion USD) in 1972 as a generous gesture, when the two countries were negotiating reestablishing diplomatic relations. Some Japanese scholars and officials privately called its ODA a “semi-reparation” even though the Japanese government never acknowledges it.

Motivation aside, Japan’s ODA to China did play a unique role in China’s modernization beyond building up railroads and factories. It showed China how development assistance could be done to advance a country’s own economic agenda. Prof Debra Brautigam’s book about Chinese involvement in Africa documents how Japan introduced Chinese policy makers to the idea of “resource-backed concessional loans”, a formula that China would deploy competently later on in Africa and Latin America. Throughout the 1980s, Japan built infrastructure in China to unlock its coveted coal and oil resources, the sales of which would service the loans. The model opened China to the possibilities of “win-win” partnerships that would become a backbone of its own overseas development model in other countries.

In many ways Japan has been a modern-day teacher to China, a reversal of roles from pre-industrial eras when the Japanese culture absorbed and borrowed insatiably from its neighbor to the West. And now the teacher/student relationship is about to change again. In a press conference in Beijing, Abe declared that Japanese ODA has “fulfilled its historical mission,” and that from now on the two countries would become partners in driving global economic growth.

That partnership may take a very specific form. Before Abe’s visit, there were already expectations in the Chinese media that project-level collaborations in the Mekong region countries, including joint participation in Thailand’s Eastern Economic Corridor (EEC) program, would be on the table during the Prime Minister’s visit. The official term for that cooperation is “Third Party Market Cooperation,” a slightly more neutral name for what Chinese media often bluntly call “participation in the Belt and Road Initiative”. The idea is promoted partly to demonstrate that BRI is open for all countries and deflect the criticism that it is to exclusively benefit Chinese business interests. In state media coverage of the China-Japan Forum on Third Party Market Cooperation, a few cases of Chinese and Japanese business cooperation in a third country were listed, including a petrochemical project in Kazakhstan involving Sinopec and Marubeni and an offshore wind energy project in Germany jointly developed by CITIC and Itochu. 

As expected, Thailand “emerged as a major beneficiary” of the Forum, according to South China Morning Post, with multiple Thai-focused deals (smart city development, highspeed rail, etc.) included in the China-Japan agreement. The Forum also produced an agreement between the Japan Bank for International Cooperation (JBIC) and China Development Bank (CDB) to provide joint loans to infrastructure projects overseas.

Japan has been cultivating the Southeast Asia market for years, with its foreign aid, investments and business interests deeply engrained in many ASEAN countries. This blog has just highlighted, for instance, its deep involvement in Indonesia’s energy planning. As a relatively new comer, China is also eyeing the region as a key part of the Maritime Silk Road. Weeks before Abe’s visit to Beijing, the Chinese media watched with suspicion his summit with five Mekong region leaders, viewing Tokyo’s move to establish an “open and free Indo-Pacific region” a defensive posture against China’s presence. Quoting Thai Prime Minister Prayuth Chan-ocha, Guancha.cn, a Chinese nationalist news site, reminded Japan that Mekong region countries “would rather see Sino-Japan collaboration” that gives profits to each country.

With Abe’s successful China trip, it appears that collaboration will be the theme in the next chapter of the two sides’ complicated relationship.