Rising China in the eyes of its closest neighbors

What a collection of ethnographic studies about “neighboring China” can tell us about the Belt and Road

by Tom Baxter

At over 22,000 km, China has the world’s longest land border. Lined up along that border are a total of 14 countries, countless local communities and long histories of interaction and isolation, trade and suspicion. The Art of Neighbouring: Making Relations Across China’s Borders (pdf available for download here) is a selection of essays that look at the diverse experiences of living on China’s border from the perspectives of the communities who live with its presence on a daily basis.

From Laos to Nepal, to Mongolia and Vietnam, the regions along China’s long border are too often seen as peripheral, on both sides — the northern highlands of Laos and Vietnam border China’s mountainous Yunnan province, Nepal neighbors the Tibetan plateau. But as China’s economic, political and social presence and engagement across the Asian continent expands, not least via the official encouragement of China’s “going out” policy and the more recent Belt and Road Initiative (BRI), the experiences of these border regions are becoming increasingly important in understanding China’s role across the continent. At the same time, it is the communities on both sides of the border who often feel the most direct impacts of the increased interaction being encouraged by Beijing.

In attempting to understand and assess the impact and the on-the-ground reality of the BRI, this year celebrating its sixth birthday, it is important that we acknowledge those communities’ experiences and look at, in the words of the collection’s editors, Martin Saxer and Juan Zhang, the “smaller scale processes of exchange”, which are undergoing rapid change. Through a series of in depth, mostly ethnographic case studies, The Art of Neighbouring is a step in that direction.

The case studies in the book all date from before 2012. That is, from before the Belt and Road Initiative was announced in October 2013. Nonetheless, they reflect the impacts of a trend of China’s increasing presence outside its own borders which holds true both before and after Xi Jinping’s BRI speech in October 2013. Each chapter of the book focuses on a case study from a total of eight of China’s neighboring countries. Running through those geographically disparate case studies are couple of major themes which deserve highlighting.

art of neighboring

Reimagining histories

In a number of the book’s case studies the rapidly increasing interconnectivity with China is not a new phenomenon, but rather a revival of a historical norm. This is particularly evident in the case of Martin Saxer’s ethnographic study in northern Nepal where the trading relationships across a previously porous border was the basis of existence for borderland communities. It was only in the 1950s and 1960s that the border between China and Nepal became strictly demarcated and regulated. Where trade had once occurred wherever there was a passable valley, it now became limited to just six official border crossings. Before that, highland communities sought their existence as intermediary traders between the arid and harsh Tibetan plateau and the fertile lowlands of Nepal and India. Since the 1970s China’s increasing wealth and the renewed connectivity brought by new roads which link the borderlands to China much more directly and tightly than to Kathmandu revitalized this centuries old norm.

Along with these physically changing realities, local communities have also reimagined their place in the history of China-Nepal relations and understand their current occupations as following in the footsteps of their ancestors as borderland trading communities. “The new roads are primarily conceived of as ways back to what is remembered as prosperous trans-Himalayan exchange,” Saxer writes. In other words, in the eyes of local communities, a rising and more internationally present China is not so much a disruption of the world order, but is facilitating a return to normality after a comparatively brief interlude.

A case study of traders in Kyrgyzstan and Kazakhstan demonstrates a similar historical processes of a border region “under fuzzy sovereign rule” becoming closed borders during the Cold War to re-opening in the last thirty to forty years. Henryk Alff’s study of the traders reveals that they often attempted to rekindle (perceived) historical ethnic allegiances across borders with, for example, Hui Muslims in China. One Dungan trader from Kyrgyzstan states, “some of us had remote kinship ties with places in China where our ancestors originally came from.” In the post-Soviet and rising China period, traders have been able to take advantage of these perceived cross-border common identities to ease deals and partnership. It is another example of regional history re-imagined, which in turn informs how local people comprehend China’s growing presence and interconnectivity on the continent.

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A truck preparing to enter into China at Nepal’s border to Tibet in Rasuwagadhi, image by: Nabin Baral

China as threat / China as opportunity

Which leads on to the second major theme in the book’s case studies. Informed by local history and present day circumstances, communities all along China’s border are divided in their perceptions of China as a threat or an opportunity.

In Saxer’s Nepal case study he provides an example of an embracing attitude towards China’s presence. Moreover, it is a welcoming coming from local communities and a bottom-up approach, rather than via the top-down government initiatives involving state owned companies, banks and political MOUs through which we normally make sense of China’s presence abroad.

In 2010 a former member of Parliament and local to the northern border region of Humla pulled together local business people to form a Road Construction Committee which lobbied Kathmandu to provide funding to build a road through the lesser used Limi valley to China. They were successful and, after securing funding from Kathmandu, also managed to reach agreement with China to temporarily open the border through the valley for sales of diesel for the construction equipment. By the end of the year the first section of the road was complete, and a Chinese delegation even came to attend the inauguration ceremony.

In another example, a study conducted between 2009 and 2012 of Myanmar Muslim communities residing in Ruili in China’s Yunnan province by Renaud Egreteau reveals that to these communities China is seen as a refuge and a sanctuary compared to the situation they face at home. One of his Ruili-dwelling Myanmar interviewees even says “it’s paradise here!”

In contrast, the histories of Cold War suspicion, tension and conflict along China’s Russian and Vietnamese borders do not wash away overnight. Two case studies of these borderlands show that a perception of China as a threat persists through to this day. A Vietnamese border trader interviewed by Juan Zhang in her study of the Lao Cai – Hekou border crossing says, “even now the Chinese are not much better than before…One can never be too careful.”

Within countries there are of course also divided perspectives on China as threat or opportunity. These as yet unsettled perspectives played out in a number of high profile elections in 2018 in Malaysia, Sri Lanka and the Maldives. 2019 is likely to see more of this tension as more politicians, banks, constituents and other interest groups push back on some of the excesses of Chinese projects and work towards establishing national level strategies on how to interact (or how not to interact) with China and the Belt and Road. Elections in India and, in particular, Indonesia this year could display snapshots of this trend.

What can we learn?

The voices and the world views of communities experiencing and engaging in China’s increasing global presence are an important part of the Belt and Road “story” and the rapidly changing on-the-ground reality across Asia. For one, they represent world views that are often overlooked in mainstream coverage of China’s influence abroad and the Belt and Road. While media often seek comment from local communities on their attitudes toward a specific project, it is rare to hear their take on the larger scale shifting reality or on such big questions as whether China is primarily conceived of as a threat or as an opportunity. As narratives on BRI become more and more polarized between the Beijing story and the Washington story or the Brussels story, it is important not to forget the voices of those who are far more directly impacted by the, in some places, transformational, change BRI is bringing.

But these local community voices are not just “color” for media stories. They are also agents in and of themselves. Saxer’s fascinating case study of a local community proactively campaigning for infrastructure connectivity with China is a case in point. The agency of these local communities is also being played out at very local levels, in national elections and in the establishing of recipient country policies and strategies toward the Belt and Road. In a recent article on Euromoney, Djiboutian minister of finance, Ilyas Moussa Dawaleh, stated “we have problems with the current Belt and Road narrative”. His voice may represent that of a recipient country political elite, rather than the grassroots voices explored in The Art of Neighbouring, but it points to the same problem — the current narrative of the Belt and Road too often overlooks the diversity of agency playing out in its growth and development.

The Art of Neighbouring points a way towards a deeper and more complex understanding of China’s growing presence and engagement on the Asian continent and of the dynamics playing out along the Belt and Road. For these reasons it is useful for all of us in the emerging “Belt and Road watcher” community. Even better will be more recent ethnographic studies of local communities’ perspectives on China since the announcement of the Belt and Road in 2013. This watcher, for one, is waiting keenly for that.

Supply and demand: understanding Chinese involvement in coal projects overseas

China is shifting away from coal domestically but building many coal power plants overseas, why?

China’s involvement in building coal power projects in other countries has been the subject of much criticism. The increasing urgency to address climate change, as highlighted by the recent special report published by the Inter-governmental Panel on Climate Change (IPCC), casts such involvement under serious scrutiny. The IPCC report bluntly states that in order to keep global temperature rises close to the 1.5 degree threshold that scientists deem relatively safe, countries should basically cease using coal as energy for electricity by 2040. Global temperatures are already 1 degree higher than pre-industrialization levels, leaving humanity with very little remaining “carbon budget” to spend if it is serious about keeping climate change under control. As one of the most carbon intensive way to generate electricity, coal-fired power plants (CFPP) understandably rank high in the phase-out list.

To a large extent, Chinese actions in this area would determine the fate of the “black gold” and the global fight against climate change, due to the size of its economy which still relies primarily on coal for electricity. In comparison, coal only accounts for 17.8% of the US’s primary energy source. Alarmingly, as China shifts away from coal domestically, for air quality and economic structure considerations, it appears to be building coal power projects elsewhere in the world that will likely negate part of the decarbonization happening inside China while exporting pollution.

Elizabeth Economy, a China expert at the Council for Foreign Relations, encapsulates the criticism in her 2017 article on Politico, calling out China’s overseas CFPP involvement as “ugly” and “not in keeping with the spirit of (the Paris Climate) Agreement.”

At a recent workshop that I attended in Jakarta, co-organized by the Beijing-based Global Environmental Institute and Indonesian think thank IESR, a local CNN correspondent asked the panelists the same question: Does China’s building of CFPPs in Indonesia constitute a “double standard”?

This is a question that is likely going to be asked more in the future, as the urgency of climate change becomes ever more salient and China’s overseas involvement continues to deepen. The Jakarta workshop, which convened stakeholders from both Indonesia and China, provided an opportunity to do just that, taking a closer look at an issue ripe with contradictions. Discussions at the workshop suggest that there are at least three lenses through which the issue can be viewed: recipient country agency, multi-stakeholder playing field, and Chinese industrial policy.

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An IESR researcher presenting research findings at the workshop

The role (& responsibility) of recipient countries

Responding to the question from the CNN journalist, Professor Yuan Jiahai from the North China University of Electric Power, who was present at the event, argued that it was largely an outcome of recipient country demand and market competition: Indonesia’s power sector is in need of CFPPs and Chinese companies are coming in to capture the market.

According to the Indonesian officials, electrification remains a priority of Indonesia, the 4th most populous country in the world, of over 18,000 islands, where access to safe and affordable electricity in many areas is still all but unavailable. At the same time, on the supply side, the government is at pains to diversify its energy sources, ever since Indonesia became a net oil importer for the first time in 2004. Within a short span of 8 years (from 2009 to 2016), electricity generation from oil fell from 25% in the general mix to below 7%. while coal rose from 39% to 55%. These changes have been led by twosuccesstive administrations (President Susilo Bambang Yudhoyono and President Joko Widodo) who spearheaded the so called “Crash Programs” to accelerate installation of power capacities to ease the country’s chronic electricity crunch.

However, it has not been all smooth sailing. President Yudhoyono’s first Crash Program was known for its poor execution. Announced in 2004, it aimed to add 10,000MW of new capacity by 2009. Instead completion was severely delayed until 2014, and the resulting power plants that were built were of such low quality that they could not perform at their stated capacity.

President Joko Widodo’s new program, created in 2014, aims to add another 35,000MW to the grid by 2019, a goal that many consider unrealistic.

And it is here that China’s involvement dovetails, as Chinese companies pocketed the majority of projects under President Yudhoyono’s initial program. As opposed to outright ownership of the projects, the Chinese companies were mainly involved in design and construction through EPC contracts (Engineering, Procurement and Construct), which meant that they did not operate, maintain, nor own the power plants that they built. Apart from their engineering and construction prowess, favourable financing support for Chinese company involvement may have also played a key role for their winning of this job.

As a result of these developments in Indonesia’s Crash Program, Chinese companies, and by extension, China, came to occupy a primary role in Indonesia’s energy system. Indonesian media was rife with open speculation that favoritism toward China was part of why so many projects were granted to Chinese companies, pointing to the fact that project tender process had deadline submission requirements only China’s companies could meet. The speculations weren’t entirely groundless. Recently, Indonesia’s national power company (PLN) is embroiled in corruption scandals related to its coal power project.

More guests at the dinner party

It is worth noting, however, that China has not been the only outside player eyeing the Indonesian coal power cake. Japan is a key player and has been exerting its influence.

At the workshop that I attended, the below chart kept appearing in presentations from Indonesia officials. It illustrated Japan’s roadmap to assist Indonesia in building its “clean coal” power fleet through to 2025. Created by the Japan International Development Agency (JICA) as part of its development assistance to Indonesia, JICA stated that “the introduction of Japan’s CCT(Clean Coal Technology), which represents the highly efficient technology for coal-fired power plants, will help curb demand for coal and greenhouse gas emissions by making it possible to increase the output of power generation without increasing the use of the resource.” In the planning for the study, JICA also built in a step where the roadmap could be “incorporated into Indonesia’s national power source plan”.

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Roadmap of clean coal fired power plant deployment in Indonesia, created by JICA

Beyond the controversy of an external country’s involvement in domestic energy developments, Japan’s pushing of “clean coal” has raised the ire of many who believe it be a false solution to climate change. Ironically, JICA created the roadmap in close coordination with Japan’s Climate Change Program Loan to Indonesia, announced in 2008 as Japan’s first climate change-related Official Development Aid (ODA) loan to assist Indonesia in its effort to reduce emissions, strengthen adaptation to climate change and respond to cross-sectoral issues. This practice of marrying the promotion of Japanese coal technology and its climate finance has been controversial and subject to much criticism internationally.

But Japanese officials are unabashed when confronted with the question. As Japanese media reported, promoting Japan’s high efficiency coal power technology as a climate change solution is part of Japanese government’s efforts to “assist Japanese businesses against Chinese rivals for coveted overseas power plant contracts.”

To some extent, Japan’s efforts in Indonesia have paid off nicely. Of the  8 high-efficiency coal power plants  that are under construction,at least 3 projects, including the 2 largest (Jawa Tengah- Central Jawa and Jawa-4 – Central Jawa), are being financed by Japanese Bank for International Cooperation (JBIC) or built by Japanese companies such as J-Power and Itochu. And despite the controversy over the Jawa Tengah project for its land acquisition issues and environmental problems, Japan’s support for it continues, with one Japanese official telling the Nikkei Asian Review, that they wanted to make the Central Java project a showcase that will open the door to more projects.” Recent signs seem to suggest that there might be a rethinking of overseas coal financing from Japanese financial institutions.

Chinese industrial policy

Japan’s rather high-profile and coordinated activities in Indonesia to promote its coal interest provides a point of reference for Chinese efforts in the same arena.

If there is one component of the nebulous Belt and Road Initiative (BRI) that is relatively well defined, it is its function as an extension of Chinese industrial policy. The need for many Chinese industrial sectors to find new markets outside their home country is a powerful driver for China’s “Going Out” strategy which predates the BRI for more than a decade.

In the specific area of coal power, China, as its neighbor Japan, is keen to see its companies winning lucrative contracts overseas, a need accentuated by a slowing domestic market. According to Prof. Yuan Jiahai, China’s coal power sector is facing a severe overcapacity problem: “failure in power planning” (i.e. not foreseeing slowing electricity demand growth) makes many existing Chinese coal power plants badly under-utilized, spending a good part of the year idling. The situation prompted the Chinese government to apply the brake on new coal power plants, suspending new builds in 15 provinces.

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Prof. Yuan Jiahai’s presentation highlights the problem of overcapacity with China’s coal power sector by showing decreasing annual utilization hours of existing power plants

But the Chinese companies that over the years have excelled in building CFPPs need jobs. And the unique bond between Chinese state-owned enterprises (SOEs) and the state machinery (diplomatic, finance and industrial) makes China particularly well disposed to make concerted efforts to advance the interest of its industries. A 2015 State Council directive on “international industrial capacity sharing” lays out a blueprint for how the government would assist competitive Chinese industries to expand globally. Within its toolbox are instruments such as Chinese policy banks (China Development Bank and the China EXIM Bank) that tie their concessional loans with business deals for Chinese companies; and high-level bilateral government-to-government dialogues that secure “full package” deals for Chinese corporations. Premium Li Keqiang’s “industrial diplomacy” with Kazakhstan is celebrated as the origin of this model.

Power plant construction and operation is listed in the directive as one of the priorities for such state support, as it is a sector through which not just Chinese equipment, but also Chinese services and standards, can be exported. And the model plays out in Indonesia’s power market. Shenhua, one of China’s largest coal industry conglomerates, won the contract to build and run the Java-7 coal-fired power plant in Banten, another high efficiency CFPP listed in the CCT roadmap. The Shenhua-led Chinese consortium managed to beat 36 other competitors in the bid, and attributed the success to its premium clean coal technology and “low-cost, tailor-made financing” based on its strategic partner relation with China Development Bank.

This may give the impression of a formidable, highly efficient industry-policy complex geared up to take over any country’s power market. But in reality, Chinese efforts in promoting the export of its industrial capacities are far from seamlessly coordinated. Government red tapes and lack of service/support are among the many complaints Chinese entrepreneurs make. And in many emerging markets Chinese companies are still required to follow standards set by “Europeans, Japanese or South Koreans.” Chinese actors are barely catching up with experienced players in the arena (such as Japan) that have mastered the art of merging foreign aid, industrial policy and overseas investment into a strategically aligned whole. By and large, Chinese companies still predominantly compete for EPC deals, which is considered low-end and low-value in the global value chain.

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Majority of Chinese involvement in overseas coal power projects is through EPC contracts. Source: GEI

Shifting China’s overseas coal involvement

For anyone with an eye to engage and influence China’s overseas energy projects along the Belt and Road, the above should serve as a reminder of the intertwined forces that are collectively shaping the energy landscapes in those developing countries.

To shift the direction of such projects would require pulling multiple strings at the same time: without empowered and enabled host countries that are capable of envisioning their own energy future differently, investing countries alone would find it hard pressed to resist lucrative power deals that are being actively marketed; without a globally coordinated and aligned approach to public financing of fossil fuel projects, one country’s high-minded rejection of a project might simply become another country’s business opportunity; and without a conversation that could engage China’s industrial policy makers, the domestic economic agenda would continue producing strong momentums for Chinese companies to seek CFPP projects overseas, despite warnings from climate scientists.