Simone Gao: I mean in the history of the world, very few power or no power has been able to dominate both land and sea, you know, at the same time. But China, through belt and road initiative is trying to do that.
John Sitilides: One of the benefits of having a command economy is you can plan out what your objectives are and then order your corporations, your banks, your lending institutions, your industrial leaders to undertake the policies you need to achieve the goals under a command economy.
Narration: Huawei has secured 5G contracts with over 60 countries around the world, many of which are U.S. allies, despite American warnings over cybersecurity concerns.
John Sitilides: China probably has its single most effective lobbying operation in Brussels, than anywhere else in the world.
Simone Gao: What do you think China’s final goal is in the South China sea and what is America’s plan on China?
John Sitilides: They’ve been very open about this. It is to ultimately manage Asia’s commerce by controlling the South China sea and deciding what economic activities take place in the South China sea and to be able to use control over the South China sea to potentially thwart economic activities or political activities that are made or conducted by Japan, South Korea or Taiwan, that China feels are against its interests.
Narration: At the height of the grand conflict between the U.S. and China, a discussion with John Sitilides, geopolitical strategist at Trilogy Advisors. What are China’s global ambitions? How are they executed and most importantly what do they mean to the world?
Host: I am Simone Gao and you are watching Zooming In.
Does China Want to Take Over the World? Part Two: The Belt and Road Initiative
Narration: The Belt and Road Initiative (BRI) is a global development strategy adopted by the Chinese government involving infrastructure development and investment in 152 countries and international organizations in Asia, Europe, Africa, the Middle East, and South America. The BRI has caused wide-spread concern that it is a push for Chinese dominance in global affairs with a China-centered trading network. Even though debt-trap-led loss of sovereign assets have been seen in many countries that have embraced BRI, others are still signing onto the initiative for easy credit.
In May 2017, the Chinese state-owned firm COSCO Shipping completed the acquisition of a 51 percent stake in Piraeus Port in Greece, one of the biggest shipping ports in Europe. Two years later, In November, 2019, Cosco plans to invest around $1 billion more in Piraeus to help turn the site into a main entry point for China’s exports to Europe.
In March 2019, General Secretary of the Chinese Communist Party, Xi Jinping and the Italian government signed a non-binding agreement for Italy to join the Belt and Road Initiative. The agreement includes 29 deals worth $2.8 Billion dollars across a number of sectors.
On October 23, 2019, Daniel Andrews, Premier of Victoria, Australia, signed the state up for the BRI in Beijing. Andrews says the latest deal will allow Victoria’s engineering and design firms to bid for contracts for BRI infrastructure projects around the world.
In the past 18 months, however, the growth of the BRI slowed down significantly as Beijing’s access to funds available for overseas investment diminished. The value of new overseas construction projects has also declined.
Simone Gao: So let’s talk about Belt and Road. I think part of Australia and Italy just signed on to the belt and road initiative. Meanwhile the belt and road initiative has slowed down quite a bit because Beijing is running out of money. So what is your assessment of the status of the belt and road initiative right now?
John Sitilides: Yeah. It’s a fascinating geopolitical construct that the Chinese government has put together in the last decade or so, but really consolidated again with the rise of Xi Jinping to power in Beijing. So what’s interesting about the belt road initiative is it’s not actually a formalized construct, right? There’s no document that states, “this is what we’re doing and this is everything that fits under it and whatnot”. It seems very nebulous and I believe deliberately so. It’s probably the most comprehensive and ambitious infrastructure and economic development project or series of projects, when taken together, in the history of mankind. So we’re talking now about 60 to 70 countries that are now part of a series of economic development projects that connect Chinese markets through central Asia, through South Asia, the South China sea, the Indian ocean, the African continent, all the way to Europe and increasingly even in Latin America and the Caribbean sea, here in the Western hemisphere where the Chinese government has been able to utilize state owned banks and lending institutions to provide maybe not just hundreds of billions, but upwards of a trillion to $2 trillion to promote these economic development projects that on the surface seem very benign.
John Sitilides: Who’s against economic development? Especially for those countries that can’t access international credit markets. But what we see happening increasingly is what is now being called either debt diplomacy or predatory lending, where these Chinese institutions are lending to countries often with very opaque agreements that no one knows the terms of until there’s a bankruptcy or a failure to deliver, to payback the terms of the loans…often with corruption taking place and outright bribery of local officials for projects of dubious merit that don’t use local workers or local materials, but really are almost at the exclusive advantage of Chinese lending institutions, Chinese industrial overcapacity, Chinese labor excess with ultimate Chinese political control strategies and objectives over many parts of the world. And so I think when you look at it in its totality, it’s an increasingly concerning, if not perilous development in global geopolitics, in the last five years, and even where there have been some setbacks in terms of the ability or the willingness of Chinese institutions to fund some of the projects as well as push back from a number of countries that have seen what’s happened in Sri Lanka and Bangladesh in the Maldives and the like, and are now looking to renegotiate the terms of these economic development agreements. China has made tremendous progress in being able to secure far greater political influence in dozens of countries around the world than anyone would have imagined five to 10 years ago, largely through belt road.
Simone Gao: The number I think is, in two years, in the last two years, the belt and road growth dropped 20%, almost 20%. So you are saying it’s still worth worrying about.
John Sitilides: Absolutely. Look, China has made vast inroads into African countries where one might look at the future of global supply chain value and especially the degree to which supply chains are moving out of China. There are a number of areas of the world that we’ll look to see might replace China as the world’s factory floor, but a lot of that may happen in Africa and we can talk about that. And China is the leading international investor in Africa. There are also the kinds of votes that all of these African countries are able to produce for China or to mute criticism of China in the United Nations or in terms of belt road investments in Europe, in the European Union or the IMF or the World Bank or any of these multilateral institutions that might otherwise be critical of China. Now, much of that criticism has been muted because of this Chinese political and economic and investment influence in all of these markets.
John Sitilides: You just mentioned, Australia, Australia is one of the most important Western security allies in the Indo Pacific region, but they have to balance out their security needs and imperatives of that partnership with the United States with the fact that their largest trading partner is China, right? Simply by geographic proximity. We should the same thing playing out in Europe now where Italy has opened up not only the port of Genoa, but the port of Triest, to the belt road initiative. And this comes after China has invested $800 million to develop the port of Paraeus in Greece and may invest another $600 million in the next several years. So China now is moving into a number of ports with minority participation in about 14 European ports, almost all of which are destined to be enlarged and upgraded by the Chinese government in the years to come to increasingly penetrate and increasingly influence these European partners of the United States. So there may be a short term setback in terms of the very aggressive rise of investments in the belt road initiative around the world. But those footholds have been established and now China has a very long term strategy to increase its level of influence in all of these countries around the world (both) developed and under developed, in ways that at least on the current trajectory, will likely bring greater diplomatic and international benefits to China and to the achievement of its objectives around the world.
Simone Gao: In a sense, I think this is almost unprecedented. So I wonder if this is still too aggressive of a geopolitical political strategy. I mean in the history of the world, very few power or no power has been able to dominate both land and sea, you know, at the same time. But China, through belt and road initiative is trying to do that. And now Beijing seems like they’re running out of money. What will happen?
John Sitilides: Well, they’re attempting to dominate the land and sea routes across and around the Eurasian supercontinent for lack of a better phrase, right? That combines the fastest growing area in the world economically, right? The Asian Pacific Rim and South Asia. Along with the vast economy of the European Union as a comprehensive trading block and also the rapid rise of many African countries, especially in an area that’s going to double in population… The African continent, in the next 20 years. So again, one of the benefits of having a command economy is you can plan out what your objectives are and then order your corporations, your banks, your lending institutions, your industrial leaders to undertake the policies you need to achieve the goals under a command economy. And so that’s what the Chinese communist party has done with its command opportunities.
John Sitilides: But the problem is this first of all. Not everyone is simply letting China do what it wants to do. Even when you have now an Alliance between China and Russia for instance. Russia has its own geopolitical ambitions along its periphery in Europe, in the Black Sea region, in the middle East and central Asia. It’s very concerned about what China is doing in Russia’s own backyard in central Asia. And the fact that you have not only major railways, but highways and bridges and economic development projects that are diminishing Russia’s influence in these countries is of concern to Vladimir Putin and to the ruling regime in Moscow. Let alone the fact that in 20 or 30 years, you can envision a situation where China is viewing the vast Timberlands and natural resources of Siberia and Eastern Russia, which is very underpopulated with Russians and increasingly populated with Chinese nationals, as the potential for an outright acquisition of that territory or a Russian-Chinese war along that border.
John Sitilides: But that’s projecting out five or 10 or 20 years. But a number of other countries are looking askance at what China is looking to do because their own interests are at stake here. And even when we talk about Made in China 2025. The European country that’s most threatened by this of course is Germany, which is an industrial and technological leader in the European union and therefore on a world stage. So China I think, was on a smarter trajectory prior to the rise of Xi Jinping, when they spoke about the quote unquote peaceful rise, and didn’t proclaim its objective so openly…just allowed the economy to rise, but kept a lower international diplomatic profile. And almost all of this has been upended by a very aggressive, very muscular leadership style of General Secretary Xi Jinping in ways that force other countries, either recipient countries that have now lost sovereign assets, ports, highways, airports, potentially, too Chinese institutions because they’ve been able, they’ve been unable to pay back the very expensive, very onerous repayment terms under these opaque agreements and putting other countries on notice, “Hey, that deal you entered into with China a year or two ago, you better review those terms of agreement because you may wind up bankrupting these projects and having to surrender your sovereign territory and sovereign assets to China”.
John Sitilides: So I think the way in which China has done this publicly in the last several years has been detrimental to China’s own interest in certain parts of the world. And in other parts of the world, like in Europe, the Europeans or certain European countries, especially mostly in Eastern Europe, the 17 plus one countries have made it very clear they can’t get access to credit at favorable terms on the open market. They’ll go to China to get those. And the Chinese have very smartly and very practically taken advantage of these opportunities.
Bumper: Coming up, can Blue Dot Network counter the Belt and Road Initiative?
Part 2: The Blue Dot Network, an Alternative to the BRI?
Narration: The U.S. Overseas Private Investment Corporation (OPIC) recently unveiled a program called Blue Dot Network, in an effort to counter China’s multibillion-dollar Belt & Road Initiative. The network will vet infrastructure projects to ensure transparent and financially sustainable development in the Indo-Pacific region and around the world. OPIC will work in cooperation with the Japan Bank for International Cooperation and Australia’s Department of Foreign Affairs and Trade.
John Sitilides: Well, we have the vacuum where there was no real alternative to the belt road initiative. I mean, you talk about a country like Greece, that’s a very important ally of the United States and they’ve taken in $800 million in Chinese investment to develop this port that really allows for Chinese goods to be able to enter European markets on a much faster supply chain network than would otherwise be the case, having to go all the way through the Mediterranean and up to Rotterdam or to Hamburger to other Northern and Northwestern European ports. But just of course comes at a price. So we’ve had the Greek government already inside the European Union voting against criticism of human rights problems in China, from the EU. Well on the other hand, the Greeks when they were in a financial calamity, eight or nine years ago said, “Where else are we going to go to be able to access this kind of credit, hundreds of millions of dollars for economic development projects in Greece.
John Sitilides: So the U S wasn’t able to provide any type of support. The IMF certainly did not. The IMF was part of the very punitive Troika against the Greek government and the Greek society. And the world bank is not going to get involved in a developed economy inside the European union. So there’s really been no systematic alternative to belt road for a number of countries without the ability to access credit on favorable terms. Now you have the Asian development bank really, which is a Japan centered institution that is now being encouraged by the U S to take a more active role. And you may see billions or tens of billions of dollars being made more readily available to these types of countries around the world for vital economic development projects. And now we have the announcement from Washington in conjunction with Japan and Australia, I believe, of the Blue Dot Network.
John Sitilides: Now, this is not going to be providing any type of financial support on the scale of belt road initiative. But what it does do is it elevates the level of quality and standards for how infrastructure projects are to be undertaken around the world. I don’t know that it’s really going to take hold though in underdeveloped parts of the world. If you are Cambodia, if you are Myanmar, if you’re a Pakistan, if you’re Zambia, if you are Botswana, you know, maybe you will cut corners on the quality of infrastructure, If it means that you’re able to access billions of dollars from China or hundreds of millions of dollars from China as opposed to the inability to secure that kind of assistance from Japan or Australia or the U S. So the Blue Dot Network I think is very important in terms of upgrading the quality of infrastructure that I think many of these Chinese built projects have left open to question. But in terms of access to cash, no one is really competing with China yet on any meaningful level. So we’ll see how this all plays out. But I think there’s an understanding that there has to be some type of a competitive institution that gives these underdeveloped economies another way to build a future besides dependence on Chinese lending institutions.
John Sitilides: Right now the most immediate need is the funding to be able to build these projects. Ideally they’d be built with the highest level standards and highest level of quality. But again, you know, reality being what it is, sometimes these officials will cut corners on access to materials, to labor pools, to the standards in terms of transparency and sustainability in order to get projects done. And then there’s unfortunately the very real human condition of corruption. And you know, we haven’t really figured out a 100% foolproof way to deal with those types of issues.
Simone Gao: So your conclusion is there is no real alternatives to the belt and road initiative, especially from the U S.
John Sitilides: I’ll say that there’s nothing that competes with the scale of the belt road initiative. I mean, if the Chinese government is serious about what’s potentially a one, two or multi trillion dollar enterprise over the next five, 10 15 years, well, the facts are clear. There’s no one that’s competing on that level.
Simone Gao: What about the U S they don’t have the will or they don’t have the money?
John Sitilides: Well, the U S government certainly does not have the cash for that. Again, we’re running a trillion dollar deficit in terms of our annual budget right now, and we have a cumulative debt of $20 trillion. This is going to become an increasingly problematic political issue in the United States. So we don’t have that kind of cash. Our institutions don’t have that kind of readily accessible Capitol either. Not on the scale that Chinese state owned enterprises do. I mean, again, we’re dealing with a command economy. It’s capitalist and free market in many of its practices, but ultimately Chinese companies will do whatever they’re instructed to do by the Chinese communist party. There’s nothing comparable in the United States or elsewhere in the world on that scale. There simply isn’t. So we have to recognize…and we don’t want there to be, we don’t want to go to a command economy in the West.
John Sitilides: We want to enjoy a free and open and fair system. But we’re dealing with the reality that we’ve allowed the Chinese communist party to develop an economy of the vastness and scale and scope that China enjoys today and will likely enjoy for the foreseeable future. And this is really the great challenge for the U S and for the West going forward. How do we deal with the competitor the likes of which we’ve never dealt with before, that I think in many ways will be more complex and more dangerous than we dealt with regarding the Soviet union during the cold war. Because China combines a Leninist power structure with an enormous and growing economy and a military that continues to scale upwards and outwards in terms of capabilities. We’ve never dealt with a competitor on this stage at this level. So going back to belt road, there’s no definitive alternative, but we’re looking to see where there are smaller, lesser spaces where we can begin to fill some of those vacuums. But a direct competitor to Belt Road initiative? No, there’s no such thing.