The Belt and Road Initiative China in the World Economy, 2022 Questions from last time 1.Which transactions are captured by the current account of balance of payments? Questions from last time 1.Which transactions are captured by the current account of balance of payments? 2.Which go under the financial account? Questions from last time 1.Which transactions are captured by the current account of balance of payments? 2.Which go under the financial account? 3.Which are more volatile (=prone to sudden change?) Questions from last time 1.Which transactions are captured by the current account of balance of payments? 2.Which go under the financial account? 3.Which are more volatile (=prone to sudden change?) 4.Why is this a problem for a fixed exchange rate? Questions from last time 1.Which transactions are captured by the current account of balance of payments? 2.Which go under the financial account? 3.Which are more volatile (=prone to sudden change?) 4.Why is this a problem for a fixed exchange rate? 5.What other problem can it cause? Questions from last time 1.Which transactions are captured by the current account of balance of payments? 2.Which go under the financial account? 3.Which are more volatile (=prone to sudden change?) 4.Why is this a problem for a fixed exchange rate? 5.What other problem can it cause? ØFinancial instability – lack of capital, high interest rates, potentially bankruptcy of banks and other financial institutions Questions from last time 1.Which transactions are captured by the current account of balance of payments? 2.Which go under the financial account? 3.Which are more volatile (=prone to sudden change?) 4.Why is this a problem for a fixed exchange rate? 5.What other problem can it cause? ØFinancial instability – lack of capital, high interest rates, potentially bankruptcy of banks and other financial institutions ØChina mostly regulates the financial account because of this! Questions from last time •7. To what purposes can you use an international currency? Questions from last time •7. To what purposes can you use an international currency? •8. What are the advantages of controlling an international currency? Questions from last time •7. To what purposes can you use an international currency? •8. What are the advantages of controlling an international currency? •9. How does China strive to expand the international use of the renminbi? Questions from last time •7. To what purposes can you use an international currency? •8. What are the advantages of controlling an international currency? •9. How does China strive to expand the international use of the renminbi? •> Currency swaps – exchanging money with foreign central banks > giving them renminbi to purchase imports from China Questions from last time •7. To what purposes can you use an international currency? •8. What are the advantages of controlling an international currency? •9. How does China strive to expand the international use of the renminbi? •10. What is the purpose of the IMF? Questions from last time •7. To what purposes can you use an international currency? •8. What are the advantages of controlling an international currency? •9. How does China strive to expand the international use of the renminbi? •10. What is the purpose of the IMF? •> Global reserve of international currencies > balance of payments, debt and monetary crises Questions from last time •7. To what purposes can you use an international currency? •8. What are the advantages of controlling an international currency? •9. How does China strive to expand the international use of the renminbi? •10. What is the purpose of the IMF? •> Global reserve of international currencies > balance of payments, debt and monetary crises •10. What is the purpose of the World Bank? 1. Questions from last time •7. To what purposes can you use an international currency? •8. What are the advantages of controlling an international currency? •9. How does China strive to expand the international use of the renminbi? •10. What is the purpose of the IMF? •> Global reserve of international currencies > balance of payments, debt and monetary crises •10. What is the purpose of the World Bank? •> Provide investment to poor countries that are unable to attract private investors 1. Questions from last time •11) What is the purpose of IMF‘s quotas? Questions from last time •11) What is the purpose of IMF‘s quotas? •12) Why is China underrepresented in these quotas? Questions from last time •11) What is the purpose of IMF‘s quotas? •12) Why is China underrepresented in these quotas? •13) What criticisms of the international financial institutions does China have? The World Bank and BRI •> Since 1970s – shift from „hard“ investment towards policy advice and institutional reforms • The World Bank and BRI •> Since 1970s – shift from „hard“ investment towards policy advice and institutional reforms •Focus on alleviating poverty and illiteracy and mortality instead of GDP growth per se The World Bank and BRI •> Since 1970s – shift from „hard“ investment towards policy advice and institutional reforms •Focus on alleviating poverty and illiteracy and mortality instead of GDP growth per se •Liberal approach – let markets lead the economy, while the public sector provides basic welfare The World Bank and BRI •> Since 1970s – shift from „hard“ investment towards policy advice and institutional reforms •Focus on alleviating poverty and illiteracy and mortality instead of GDP growth per se •Liberal approach – let markets lead the economy, while the public sector provides basic welfare •Large scale infrastructural investment plays a much smaller role The World Bank and BRI •Foreign aid is miniscule compared to private investment • The World Bank and BRI •Foreign aid is miniscule compared to private investment •Private investors – unwilling to invest in developing countries – they are only going to lend money for a very high interest • The World Bank and BRI •Foreign aid is miniscule compared to private investment •Private investors – unwilling to invest in developing countries – they are only going to lend money for a very high interest •Conditional - high standards for environment, human rights etc. > bureaucracy The World Bank and BRI •Foreign aid is miniscule compared to private investment •Private investors – unwilling to invest in developing countries – they are only going to lend money for a very high interest •Conditional - high standards for environment, human rights etc. > bureaucracy •Highly concessional – presented as gifts from donors > economically fine, but can feel patronizing • The World Bank and BRI •China sees all of this as a problem The World Bank and BRI •China sees all of this as a problem •„The West is forcing poor countries to accept its neoliberal ideology and has no respect for their cultures“ The World Bank and BRI •China sees all of this as a problem •„The West is forcing poor countries to accept its neoliberal ideology and has no respect for their cultures“ •„It neglects their real needs – investment into physical infrastructure“ The World Bank and BRI •China sees all of this as a problem •„The West is forcing poor countries to accept its neoliberal ideology and has no respect for their cultures“ •„It neglects their real needs – investment into physical infrastructure“ •Donor – recipient relation – colonial mindset – it is better to have a cooperation among equals The World Bank and BRI •China sees all of this as a problem •„The West is forcing poor countries to accept its neoliberal ideology and has no respect for their cultures“ •„It neglects their real needs – investment into physical infrastructure“ •Donor – recipient relation – colonial mindset – it is better to have a cooperation among equals •„As a successful developing country, China has a better understanding of what poor countries need“ The World Bank and BRI •China sees all of this as a problem •„The West is forcing poor countries to accept its neoliberal ideology and has no respect for their cultures“ •„It neglects their real needs – investment into physical infrastructure“ •Donor – recipient relation – colonial mindset – it is better to have a cooperation among equals •„As a successful developing country, China has a better understanding of what poor countries need“ •„It is not greedy or imperialist, it respects everybody“ The World Bank and BRI •The AIIB and the Belt and Road Initiative – China‘s answer to what they don‘t like about the World Bank and other Western-led development efforts • The World Bank and BRI •The AIIB and the Belt and Road Initiative – China‘s answer to what they don‘t like about the World Bank and other Western-led development efforts •> focus on tangible progress and especially infrastructure • The World Bank and BRI •The AIIB and the Belt and Road Initiative – China‘s answer to what they don‘t like about the World Bank and other Western-led development efforts •> focus on tangible progress and especially infrastructure •= transport and energy • • The World Bank and BRI •The AIIB and the Belt and Road Initiative – China‘s answer to what they don‘t like about the World Bank and other Western-led development efforts •> focus on tangible progress and especially infrastructure •= transport and energy •Cooperation rather than aid (> equal relationship between developing countries) • The World Bank and BRI •The AIIB and the Belt and Road Initiative – China‘s answer to what they don‘t like about the World Bank and other Western-led development efforts •> focus on tangible progress and especially infrastructure •= transport and energy •Cooperation rather than aid (> equal relationship between developing countries) •No connection to political values • The World Bank and BRI •The AIIB and the Belt and Road Initiative – China‘s answer to what they don‘t like about the World Bank and other Western-led development efforts •> focus on tangible progress and especially infrastructure •= transport and energy •Cooperation rather than aid (> equal relationship between developing countries) •No connection to political values •Few requirements > less bureaucracy • • The World Bank and BRI •- this is how China presents the BRI The Belt and Road Initiative •A vaguely defined project • The Belt and Road Initiative •A vaguely defined project •Umbrella term for China‘s outward investment The Belt and Road Initiative •A vaguely defined project •Umbrella term for China‘s outward investment – including projects launched many years before BRI was even unveiled • The Belt and Road Initiative •A vaguely defined project •Umbrella term for China‘s outward investment – including projects launched many years before BRI was even unveiled •US and other Western countries – exaggerated perception of the BRI as a diabolical master plan to take over the world The Belt and Road Initiative •A vaguely defined project •Umbrella term for China‘s outward investment – including projects launched many years before BRI was even unveiled •US and other Western countries – exaggerated perception of the BRI as a diabolical master plan to take over the world •„Debt trap diplomacy“ – describes the results and assumes them to be the original goals The Belt and Road Initiative •A vaguely defined project •Umbrella term for China‘s outward investment – including projects launched many years before BRI was even unveiled •US and other Western countries – exaggerated perception of the BRI as a diabolical master plan to take over the world •„Debt trap diplomacy“ – describes the results and assumes them to be the original goals •The BRI has predominantly domestic goals presented as a grand global vision • BRI‘s evolution •„Silk road Economic Belt“ •„21st Century Maritime Silk road“ Obsah obrázku mapa Popis byl vytvořen automaticky BRI‘s evolution •„Silk road Economic Belt“ •„21st Century Maritime Silk road“ •„One Belt, One Road“ BRI‘s evolution •„Silk road Economic Belt“ •„21st Century Maritime Silk road“ •„One Belt, One Road“ •„Belt and Road Initiative“ BRI‘s evolution •„Silk road Economic Belt“ •„21st Century Maritime Silk road“ •„One Belt, One Road“ •„Belt and Road Initiative“ • •„Digital Silk road“, „Health Silk road“, etc. • BRI‘s evolution •Confusing and constantly changed names reflect how little defined the project is Goals of the BRI • Goals of the BRI •1) Find new outlets for construction SOEs Goals of the BRI •1) Find new outlets for construction SOEs •For years, these companies built China‘s infrastructure and real estate Goals of the BRI •1) Find new outlets for construction SOEs •For years, these companies built China‘s infrastructure and real estate •Now China has enough Goals of the BRI •1) Find new outlets for construction SOEs •For years, these companies built China‘s infrastructure and real estate •Now China has enough •Overcapacity Goals of the BRI •1) Find new outlets for construction SOEs •For years, these companies built China‘s infrastructure and real estate •Now China has enough •Overcapacity •> „let‘s build the same things elsewhere!“ Goals of the BRI •1) Find new outlets for construction SOEs •For years, these companies built China‘s infrastructure and real estate •Now China has enough •Overcapacity •> „let‘s build the same things elsewhere!“ •> focus on railways, highways, bridges, tunnels, pipelines, power stations and grid Goals of the BRI •1) Find new outlets for construction SOEs •For years, these companies built China‘s infrastructure and real estate •Now China has enough •Overcapacity •> „let‘s build the same things elsewhere!“ •> focus on railways, highways, bridges, tunnels, pipelines, power stations and grid •– things in which China is excellent + are built by SOEs • Goals of the BRI •2) Develop the poor and overlooked regions in the west of China Obsah obrázku mapa Popis byl vytvořen automaticky Goals of the BRI •2) Develop the poor and overlooked regions in the west of China •- ignored by foreign investment, unsuitable for overseas export Goals of the BRI •2) Develop the poor and overlooked regions in the west of China •- ignored by foreign investment, unsuitable for overseas export •> predominantly agricultural, with few opportunities for industrial development Goals of the BRI •2) Develop the poor and overlooked regions in the west of China •- ignored by foreign investment, unsuitable for overseas export •> predominantly agricultural, with few opportunities for industrial development •Connectivity and trade with Europe will create opportunities and jobs Goals of the BRI •2) Develop the poor and overlooked regions in the west of China •- ignored by foreign investment, unsuitable for overseas export •> predominantly agricultural, with few opportunities for industrial development •Connectivity and trade with Europe will create opportunities and jobs •Bring in natural resources from Central Asia Goals of the BRI •2) Develop the poor and overlooked regions in the west of China •- ignored by foreign investment, unsuitable for overseas export •> predominantly agricultural, with few opportunities for industrial development •Connectivity and trade with Europe will create opportunities and jobs •Bring in natural resources from Central Asia •After 2013 – the BRI concept was taken up by party leaders in western provinces • Goals of the BRI •These two goals are paramount and probably far more important than all the others Goals of the BRI •3) Find new outlets for investment Goals of the BRI •3) Find new outlets for investment •Previously – export earnings reinvested into US bonds •Now – necessity to diversify foreign assets Goals of the BRI •4) Find new outlets for subpar products Goals of the BRI •4) Find new outlets for subpar products •Developing countries can buy products that would be hard to sell in the West •Lifeline for trailing edge industries in the hinterland Goals of the BRI •5) Internationalize the renminbi •– through loans (AIIB) + China‘s domestic state-owned banks Obsah obrázku text Popis byl vytvořen automaticky Obsah obrázku text, bílá tabule Popis byl vytvořen automaticky Obsah obrázku text Popis byl vytvořen automaticky Goals of the BRI •6) Tie Xinjiang and Tibet and other far-flung provinces closer to the rest of the country • Goals of the BRI •7) Geopolitical expansion Goals of the BRI •7) Geopolitical expansion •Spread Chinese influence Goals of the BRI •7) Geopolitical expansion •Spread Chinese influence •Secure naval trade routes Obsah obrázku mapa Popis byl vytvořen automaticky Goals of the BRI •7) Geopolitical expansion •Spread Chinese influence •Secure naval trade routes •Isolate India Goals of the BRI •7) Geopolitical expansion •Spread Chinese influence •Secure naval trade routes •Isolate India •Lure away US allies Historical Silk road • Historical Silk road •…had almost nothing in common with the BRI! Obsah obrázku mapa Popis byl vytvořen automaticky Obsah obrázku mapa Popis byl vytvořen automaticky Historical Silk road •…had almost nothing in common with the BRI •Overland trade – carried out by independent foreign merchants – usually Arabs and Persians Historical Silk road •…had almost nothing in common with the BRI •Overland trade – carried out by independent foreign merchants – usually Arabs and Persians •Supported by some Muslim dynasties and city states in Central Asia Historical Silk road •…had almost nothing in common with the BRI •Overland trade – carried out by independent foreign merchants – usually Arabs and Persians •Supported by some Muslim dynasties and city states in Central Asia •The Chinese rarely travelled along the route themselves Historical Silk road •…had almost nothing in common with the BRI •Overland trade – carried out by independent foreign merchants – usually Arabs and Persians •Supported by some Muslim dynasties and city states in Central Asia •The Chinese rarely travelled along the route themselves •Cultural prejudice – trade is not worthy of the Confucian elite Historical Silk road •…had almost nothing in common with the BRI •Overland trade – carried out by independent foreign merchants – usually Arabs and Persians •Supported by some Muslim dynasties and city states in Central Asia •The Chinese rarely travelled along the route themselves •Cultural prejudice – trade is not worthy of the Confucian elite •The Chinese state never intentionally supported the trade route Historical Silk road •…had almost nothing in common with the BRI •Overland trade – carried out by independent foreign merchants – usually Arabs and Persians •Supported by some Muslim dynasties and city states in Central Asia •The Chinese rarely travelled along the route themselves •Cultural prejudice – trade is not worthy of the Confucian elite •The Chinese state never intentionally supported the trade route •Conquest of the western regions helped to make the Silk road safe – but that was not the intention! • Historical Silk road •Overland trade was tolerable – only a small trickle of extremely valuable luxury products for the elite Historical Silk road •Maritime trade with Southeast Asia and India – far more dangerous - less expensive products accessible to the wider population Historical Silk road •Maritime trade with Southeast Asia and India – far more dangerous - less expensive products accessible to the wider population •> Fear of foreign ideas (Islam, Christianity, Hinduism…) Historical Silk road •Maritime trade with Southeast Asia and India – far more dangerous - less expensive products accessible to the wider population •> Fear of foreign ideas (Islam, Christianity, Hinduism…) •Harsh crackdowns on overseas trade Historical Silk road •Maritime trade with Southeast Asia and India – far more dangerous - less expensive products accessible to the wider population •> Fear of foreign ideas (Islam, Christianity, Hinduism…) •Harsh crackdowns on overseas trade •„Chinese treasure voyages“ – brief attempt to show off and create new tributary relations Historical Silk road •Re-interpreted by propaganda as China‘s gift to the world – trade, cultural understanding, China‘s innovations Historical Silk road •Re-interpreted by propaganda as China‘s gift to the world – trade, cultural understanding, China‘s innovations • •Desire to frame new policies as rediscovered ancient wisdom, find old precedents Historical Silk road •Re-interpreted by propaganda as China‘s gift to the world – trade, cultural understanding, China‘s innovations • •Desire to frame new policies as rediscovered ancient wisdom, find old precedents • •This makes the program even more vague How the BRI works – legal aspects • How the BRI works – legal aspects •China signs a „cooperation agreement“ or „memorandum of understanding“ with the host country government How the BRI works – legal aspects •China signs a „cooperation agreement“ or „memorandum of understanding“ with the host country government •Soft-law – it is not legally binding! How the BRI works – legal aspects •China signs a „cooperation agreement“ or „memorandum of understanding“ with the host country government •Soft-law – it is not legally binding! •Memorandums – more detailed – signed with important partners •- bilateral How the BRI works – legal aspects •China signs a „cooperation agreement“ or „memorandum of understanding“ with the host country government •Soft-law – it is not legally binding! •Memorandums – more detailed – signed with important partners •- bilateral •The BRI is not an international organization, but a network of bilateral relationships How the BRI works – legal aspects •China signs a „cooperation agreement“ or „memorandum of understanding“ with the host country government •Soft-law – it is not legally binding! •Memorandums – more detailed – signed with important partners •- bilateral •The BRI is not an international organization, but a network of bilateral relationships •Forums – don‘t have any formal decision-making power How the BRI works – legal aspects •Followed by deals made between host states and Chinese banks and SOE How the BRI works – legal aspects • •Banks – Import-Export Bank, AIIB, New Development Bank – intended for foreign investment •SOEs – construction companies • How the BRI works – legal aspects •Followed by deals made between host states and Chinese banks and SOE •> these entities sign commercial contracts with the partner country – loans, construction contracts How the BRI works – legal aspects •Followed by deals made between host states and Chinese banks and SOE •> these entities sign commercial contracts with the partner country – loans, construction contracts •These are not international law and usually are not published > lack of transparency How the BRI works – legal aspects •Followed by deals made between host states and Chinese banks and SOE •> these entities sign commercial contracts with the partner country – loans, construction contracts •These are not international law and usually are not published > lack of transparency •Problematic clauses – collaterals, debt-for-equity swaps, arbitration • How the BRI works – legal aspects •Contrast this with the WTO – multilateral institution, all agreements are international public law, private companies have no direct access to it How the BRI works – legal aspects •Contrast this with the WTO – multilateral institution, all agreements are international public law, private companies have no direct access to it •The West – sharp division between the public and private sector – the WTO exists in the public sphere • How the BRI works – legal aspects •Contrast this with the WTO – multilateral institution, all agreements are international public law, private companies have no direct access to it •The West – sharp division between the public and private sector – the WTO exists in the public sphere •But aims to create rules that liberalize trade for the private sector • How the BRI works – legal aspects •Contrast this with the WTO – multilateral institution, all agreements are international public law, private companies have no direct access to it •The West – sharp division between the public and private sector – the WTO exists in the public sphere •But aims to create rules that liberalize trade for the private sector •China – state and business are interconnected How the BRI works – legal aspects •Contrast this with the WTO – multilateral institution, all agreements are international public law, private companies have no direct access to it •The West – sharp division between the public and private sector – the WTO exists in the public sphere •But aims to create rules that liberalize trade for the private sector •China – state and business are interconnected •Preference for government-to-government deals and reliance on SOEs, which do not have to act in a commercially profitable way • How the BRI works – legal aspects •China‘s preferred way of conduct – state to state on a flexible bilateral basis •> no legal commitments for China, possibility to change the deal later on, supremacy of the state over the market • How the BRI works – legal aspects •Only small oversight by the Chinese government itself! How the BRI works – legal aspects •Only small oversight by the Chinese government itself! •“Office of the Leading Group on Promoting the Implementation of Belt and Road Initiatives” which is under the National Development and Reform Commission (NDRC) •Only created after the fact, struggles to control all the projects How the BRI works – legal aspects •The BRI label can be slapped on almost any project by a Chinese company in a third country How the BRI works – legal aspects •The BRI label can be slapped on almost any project by a Chinese company in a third country •As a way to legitimize it, get Party support, ensure the locals etc. How the BRI works – legal aspects •The BRI label can be slapped on almost any project by a Chinese company in a third country •As a way to legitimize it, get Party support, ensure the locals etc. • •> framing of decentralized activities of China‘s vast SOEs and banks as parts of great plan of the General Secretary How the BRI works – legal aspects •„Unofficial BRI“ – large infrastructural projects are accompanies by an influx of Chinese entrepreneurs who claim they are a part of it How the BRI works – legal aspects •„Unofficial BRI“ – large infrastructural projects are accompanies by an influx of Chinese entrepreneurs who claim they are a part of it •Often highly unscrupulous, legally dubious, business models – casinos, financial speculation etc. How the BRI works – legal aspects •„Unofficial BRI“ – large infrastructural projects are accompanies by an influx of Chinese entrepreneurs who claim they are a part of it •Often highly unscrupulous, legally dubious, business models – casinos, financial speculation etc. •> Wild West vibe How the BRI works – legal aspects •„Unofficial BRI“ – large infrastructural projects are accompanies by an influx of Chinese entrepreneurs who claim they are a part of it •Often highly unscrupulous, legally dubious, business models – casinos, financial speculation etc. •> Wild West vibe •A problem and a source of problems mainly in Southeast Asia – Malaysia, Cambodia How the BRI works – economic aspects • How the BRI works – economic aspects •Banks – give a loan to the host state or local enterprise How the BRI works – economic aspects •Banks – give a loan to the host state or local enterprise •Terms – mainly the interest rate •> more beneficial than commercial loans •> less beneficial than concessional loans from Western donors and development banks How the BRI works – economic aspects •The money must be used to hire a specific SOE to carry out the project How the BRI works – economic aspects •The money must be used to hire a specific SOE to carry out the project •If the loan is not repaid – collaterals, debt-for-equity swaps – some assets, like the infrastructure itself, must be handed over to the Chinese bank How the BRI works – economic aspects •The money must be used to hire a specific SOE to carry out the project •If the loan is not repaid – collaterals, debt-for-equity swaps – some assets, like the infrastructure itself, must be handed over to the Chinese bank •Not necessarily driven by Beijing! •Predatory (state) capitalism? „East India Company vibe“? How the BRI works – economic aspects •State guarantees – if the recipient of the loan is a private entity, the host state must nevertheless give the Chinese banks a guarantee that the loan is going to be repaid How the BRI works – economic aspects •State guarantees – if the recipient of the loan is a private entity, the host state must nevertheless give the Chinese banks a guarantee that the loan is going to be repaid • •For example – if a Chinese banks lends money to a power station or local construction company, the government must guarantee the loan will be repaid How the BRI works – economic aspects •Renegotiation pledge - if the economic situation changes, the Chinese can change the conditions and renegotiate prices How the BRI works – economic aspects •Renegotiation pledge - if the economic situation changes, the Chinese can change the conditions and renegotiate prices •The recipient must bound itself to accept this How the BRI works – economic aspects •The Chinese are insuring themselves against risk How the BRI works – economic aspects •The Chinese are insuring themselves against risk •Risks are objectively high in Third World countries •Because of political instability, unpredictable inflation, poor institutions, natural disasters etc. How the BRI works – economic aspects •Western private capital – demands high interest rates How the BRI works – economic aspects •Western private capital – demands high interest rates •Chinese state-owned capital is OK with low interests – but they want to insure their investment in other ways •> there are many conditions and strings attached How the BRI works – economic aspects •Debt •- can mushroom because of the renegotiated prices and guarantees How the BRI works – economic aspects •Debt •- can mushroom because of the renegotiated prices and guarantees •Covid > dropping exports > inability of many developing countries to repay BRI loans How the BRI works – economic aspects •Debt •- can mushroom because of the renegotiated prices and guarantees •Covid > dropping exports > inability of many developing countries to repay BRI loans •China participated in a 2020 debt moratorium How the BRI works – economic aspects •Debt •- can mushroom because of the renegotiated prices and guarantees •Covid > dropping exports > inability of many developing countries to repay BRI loans •China participated in a 2020 debt moratorium •2022 – debts of 17 African countries forgiven How the BRI works – economic aspects •China is not a member of the Paris and London clubs, which usually negotiate with debtors • How the BRI works – economic aspects •China is not a member of the Paris and London clubs, which usually negotiate with debtors •IMF – usually lends to debtors conditional on them making a deal with the Paris club • How the BRI works – economic aspects •China is not a member of the Paris and London clubs, which usually negotiate with debtors •IMF – usually lends to debtors conditional on them making a deal with the Paris club •Hesitation whether to lend to countries with BRI debts • How the BRI works – economic aspects •China is also not a member of the Development Assistance Committee, which sets standards for transparency in development lending • How the BRI works – economic aspects •Maintenance – once a company builds a piece of infrastructure, there is always a requirement, or even practical necessity, to use them for future repairs How the BRI works – economic aspects •Maintenance – once a company builds a piece of infrastructure, there is always a requirement, or even practical necessity, to use them for future repairs •> China is gaining a long-term economic foothold •Why would somebody accept a deal like this? How the BRI works – economic aspects •Developing countries: •– desperate need for capital How the BRI works – economic aspects •Developing countries: •– desperate need for capital •- often high levels of corruption How the BRI works – economic aspects •Developing countries: •– desperate need for capital •- often high levels of corruption • •> disregard for the environment etc. Geography of the BRI • Obsah obrázku mapa Popis byl vytvořen automaticky Geography of the BRI •Main corridor – through Central Asia, Russia, Poland and all the way to London Geography of the BRI •Main corridor – through Central Asia, Russia, Poland and all the way to London •Reality – mostly old Soviet railways Geography of the BRI •Main corridor – through Central Asia, Russia, Poland and all the way to London •Reality – mostly old Soviet railways •Necessity to change trains in terminals – because of different gauge Geography of the BRI •Main corridor – through Central Asia, Russia, Poland and all the way to London •Reality – mostly old Soviet railways •Necessity to change trains in terminals – because of different gauge •First change on China-Kazakhstan border, another at Belarus-Poland border Obsah obrázku obloha, exteriér, doprava, jeřáb Popis byl vytvořen automaticky Geography of the BRI •Main corridor – through Central Asia, Russia, Poland and all the way to London •Reality – mostly old Soviet railways •Necessity to change trains in terminals – because of different gauge •First change on China-Kazakhstan border, another at Belarus-Poland border •> increases cost •5 times more expansive than shipment! Geography of the BRI •Main corridor – through Central Asia, Russia, Poland and all the way to London •Reality – mostly old Soviet railways •Necessity to change trains in terminals – because of different gauge •First change on China-Kazakhstan border, another at Belarus-Poland border •> increases cost •5 times more expansive than shipment! •Faster, but is that useful? Geography of the BRI •Only profitable when subsidized Geography of the BRI •Only profitable when subsidized •What about the way back? •Europe does not export anything the other way around Geography of the BRI •Only profitable when subsidized •What about the way back? •Europe does not export anything the other way around •> either China will subsidize the return of empty wagons, or containers will accumulate in Europe How the BRI works – economic aspects •China does not care all that much whether the project will pay for itself How the BRI works – economic aspects •China does not care all that much whether the project will pay for itself •Even in China, this is not the point – the Party decides that a bridge is going to be built, and so it will be built, no matter the costs •Non-market, statist mindset How the BRI works – economic aspects •China does not care all that much whether the project will pay for itself •Even in China, this is not the point – the Party decides that a bridge is going to be built, and so it will be built, no matter the costs •Non-market, statist mindset •This becomes a problem when a developing country needs the project to be profitable to pay back the loan… Geography of the BRI •Southeast Asia and Indian Ocean •– desire to avoid chokepoints, isolate India, secure naval route to Europe Obsah obrázku mapa Popis byl vytvořen automaticky Geography of the BRI •Southeast Asia and Indian Ocean •– desire to avoid chokepoints, isolate India, secure naval route to Europe •Plans – canal through Malayan peninsula (in Thai territory), railway passage in Malaysia Obsah obrázku mapa Popis byl vytvořen automaticky Geography of the BRI •Southeast Asia and Indian Ocean •– desire to avoid chokepoints, isolate India, secure naval route to Europe •Plans – canal through Malaysian peninsula (in Thai territory), railway passage in Malaysia •Malacca gate port Geography of the BRI •Southeast Asia and Indian Ocean •– desire to avoid chokepoints, isolate India, secure naval route to Europe •Plans – canal through Malaysian peninsula (in Thai territory), railway passage in Malaysia •Malacca gate port •Sihanoukville port •Sri Lanka – main port leased to a Chinese company for 99 years Obsah obrázku mapa Popis byl vytvořen automaticky Geography of the BRI •Pakistan Obsah obrázku mapa Popis byl vytvořen automaticky Geography of the BRI •Pakistan •Most important project, largest amount of investment! Geography of the BRI •Pakistan •Most important project, largest amount of investment! •Only truly new BRI project, flagship of the whole Initiative Geography of the BRI •Pakistan •Most important project, largest amount of investment! •Only truly new BRI project, flagship of the whole Initiative •Railway and road connection from Tibet through Kashmir to Karachi and Gwadar – a new port Obsah obrázku voda, exteriér, linkovaný, pobřeží Popis byl vytvořen automaticky Obsah obrázku obloha, exteriér, země, pláž Popis byl vytvořen automaticky Geography of the BRI •Pakistan •Most important project, largest amount of investment! •Only truly new BRI project, flagship of the whole Initiative •Railway and road connection from Tibet through Kashmir to Karachi and Gwadar – a new port •Connects the Belt and the Road – the western regions and the Indian ocean sea lanes Obsah obrázku mapa Popis byl vytvořen automaticky Obsah obrázku mapa Popis byl vytvořen automaticky Problems •Most countries which began as enthusiastic supporters of the BRI are becoming more lukewarm, or outright sceptic Problems •Most countries which began as enthusiastic supporters of the BRI are becoming more lukewarm, or outright sceptic •A large percentage of projects have been canceled, or scaled down, or delayed, etc. Problems •Economic problems become mixed with geopolitical anxieties and xenophobia •Almost every country in Southeast Asia has a history of anti-Chinese racism and even violent pogroms aimed at local Chinese minorities Obsah obrázku mapa Popis byl vytvořen automaticky Obsah obrázku plavání Popis byl vytvořen automaticky Problems •Economic problems become mixed with geopolitical anxieties and xenophobia •Almost every country in Southeast Asia has a history of anti-Chinese racism and even violent pogroms aimed at local Chinese minorities Problems •Malaysia, Maldives – opposition to BRI as an election topic •Cambodia, Myanmar – fear of Chinese encroachment, xenophobia between Han Chinese and locals •Kazakhstan – protests over debt + Uighurs •Pakistan – decreasing ambitions •Balkan nations – belated realization that BRI will make it hard for them to enter the EU Obsah obrázku mapa Popis byl vytvořen automaticky Problems •Peak of investment – 2016! Problems •Perhaps the result of a naive approach? Problems •Perhaps the result of a naive approach? •Will China pivot towards a softer strategy like the West did…? Is BRI a form of imperialism? • Is BRI a form of imperialism? •Not from a perspective of a centralized empire with a single will (Mordor, USSR etc.) Is BRI a form of imperialism? •Not from a perspective of a centralized empire with a single will (Mordor, USSR etc.) •But many cases of modern imperialism are far more decentralized, spontaneous, gradual, organic • Is BRI a form of imperialism? •Not from a perspective of a centralized empire with a single will (Mordor, USSR etc.) •But many cases of modern imperialism are far more decentralized, spontaneous, gradual, organic •= led by many small actors rather than one master plan Is BRI a form of imperialism? •Not from a perspective of a centralized empire with a single will (Mordor, USSR etc.) •But many cases of modern imperialism are far more decentralized, spontaneous, gradual, organic •= led by many small actors rather than one master plan •= caused by huge gaps in economic and technological and military capability rather than a political decision • Is BRI a form of imperialism? •Example: British imperialism in Asia •1) Individual and corporate ambition and greed Is BRI a form of imperialism? •Example: British imperialism in Asia •1) Individual and corporate ambition and greed •2) Collaboration of local elites • Is BRI a form of imperialism? •Example: British imperialism in Asia •1) Individual and corporate ambition and greed •2) Collaboration of local elites •3) Local resentment > punitive expedition • • Is BRI a form of imperialism? •Example: British imperialism in Asia •1) Individual and corporate ambition and greed •2) Collaboration of local elites •3) Local resentment > punitive expedition •4) Saving face – „We are not going to go away now that we‘ve conquered this place, are we?“ • • • Is BRI a form of imperialism? •Example: British imperialism in Asia •1) Individual and corporate ambition and greed •2) Collaboration of local elites •3) Local resentment > punitive expedition •4) Saving face – „We are not going to go away now that we‘ve conquered this place, are we?“ • •China – currently at point 2 • • • • Is BRI a form of imperialism? •Example: British imperialism in Asia •1) Individual and corporate ambition and greed •2) Collaboration of local elites •3) Local resentment > punitive expedition •4) Saving face – „We are not going to go away now that we‘ve conquered this place, are we?“ • •China – currently at point 2 •Historically did not expand militarily – will this assumption hold? • • • Is BRI a form of imperialism? •Example: British imperialism in Asia •Official policy – small entrepots and economic privileges • • Obsah obrázku mapa Popis byl vytvořen automaticky The main idea •China is not a truly unitary actor The main idea •China is not a truly unitary actor •Both good and bad outcomes sometimes come from decentralized processes The main idea •Overall, the Belt and Road Initiative is a best understood as an umbrella term for all of China‘s foreign ventures •Likely driven by China‘s own economic needs •Beijing‘s strategic oversight and malicious intentions are probably overrated by Western observers •Which does not mean the BRI cannot be harmful! •See you in seminar next week J