Last month an important forum on China’s ‘One Belt, One Road’ was held in Beijing. Needless to say, Taiwan was not invited. But given the initiative’s many problems and setbacks, it might not be a bad thing for Taiwan to be left out.
In mid-May, Chinese President Xi Jinping received 29 heads of state, as well as foreign delegations from an even greater number of countries, in Beijing with pageantry worthy of imperial times. The foreign dignitaries were in Beijing to attend the biggest forum so far for the “One Belt, One Road” (OBOR) project, China’s attempt to revive the old trade routes of the silk road.
During the forum, President Xi pledged another US$124 billion in Chinese investment for OBOR, pushing total funding over the astronomical sum of US$1,000 billion, arguably making it the biggest political-economic initiative of our time. Xi has also invested a lot of personal prestige in OBOR. It was therefore no surprise when he said during the forum that his project would “add splendor to human civilization” by building a new era of harmony and trade.
Echoing his speech at the World Economic Forum in Davos earlier this year, Xi again emphasized China’s devotion to openness and cooperation, as well as its opposition to protectionism. In characteristically metaphorical language, the president referred to countries as swan and geese: birds that can “fly long and safely through winds and storms because they move in tandem and help each other as a team.”
Those ambitions were praised by heads of states. Pakistani Prime Minister Nawaz Sharif told the audience that he participated in the forum to “celebrate the remarkable success” of OBOR, a project, he said, that fosters inclusion and creates tolerance. Sharif also said his country admired China’s vision and ingenuity, even branding the initiative as a “powerful tool for overcoming terrorism and extremism.”
One reason for Sharif’s praise might be the Chinese development package of US$54 billion for the China-Pakistan Economic Corridor, potentially bringing jobs and much needed investments to some hopelessly destitute Pakistani areas. But the British Chancellor of the Exchequer, Philip Hammond, also gave endorsement to Xi’s “boldness and vision.” London was a “natural partner” in this project, he said, adding that he hoped it would raise the living standards of 70 percent of the global population.
The dark side of OBOR
Without a doubt, OBOR looks fantastic on paper. But just like many other large-scale projects, there is a huge discrepancy between ambition, diplomatic language and reality. As soon as OBOR was launched in 2013, concerns emerged regarding corruption, land rights, labor policies, social responsibility, ecological sustainability and a whole range of other issues that would might not receive top priority when China is making deals some of the world’s most established dictatorships throughout Asia and the Middle East.
It was indeed issues like this that made the 28 member states of the European Union decide not to support a statement on trade that was supposedly being prepared as a part of the forum’s ending statement. According to European diplomats, this document was presented to them only the week before the forum, together with a notice that the text could not be negotiated or altered in any way. (So much for tandem and teamwork.)
As the document failed to address European key concerns like transparency and environmental standards, the European diplomats, apparently to China’s surprise, stood united in their refusal to embrace it.
India, for its part, decided to scrap the forum altogether. In a statement issued on the eve of the event, New Delhi branded the project as a “colonial enterprise” that risked leaving debt and broken communities in its wake. Like the EU, India stated that connectivity initiatives should be based on “universally recognized international norms, good governance, rule of law, openness, transparency and equality.” It also expressed worries about sovereignty and territorial integrity.
And right off India’s coast, there is an example that arguably justifies many of its worries. Last week, the BBC reported from Sri Lanka, where trouble has been mounting over a port in the small town of Hambantota that has been almost totally unused since its completion seven years ago. The construction costs nonetheless exceeded US$1 billion; money that Sri Lanka borrowed from the Chinese government and is now struggling to repay.
Instead, Sri Lanka has signed an agreement to give away a stake of up to 80 percent of the port to China as a part of the payment. Also, China is negotiating to buy some 15,000 acres of land adjacent to the port to create an economic zone with offices and factories. This led to violent protests against the investment hub earlier this year. In a familiar pattern, farmers who didn’t want to leave their land for use by the Chinese government were dispersed with water cannons and tear gas, with some of them jailed for several weeks. (This time around, Sri Lankan police was doing the dirty job.)
In a familiar pattern, farmers who didn’t want to leave their land for use by the Chinese government were dispersed with water cannons and tear gas, with some of them jailed for several weeks.
For all the overwhelming rhetoric of Nawaz Sharif, protests also occurred in northernmost Pakistan while the OBOR forum was taking place in Beijing, as protesters in the self governing region of Gilgit-Baltistan took to the streets with placards saying “Stop Chinese Imperialism.” And earlier in May, a Pakistani newspaper leaked some sensitive details on the China-Pakistan Economic Corridor, including the lease of thousands of acres of land to Chinese companies, and a vast surveillance system across the country with 24 hour recordings of roads and marketplaces.
Those are far from being isolated examples. During the forum, several reports were published on OBOR projects going astray. A New York Times report from Kyaukphyu in the isolated Burmese state of Rakhine is a typical example. The construction of an oil and gas pipeline to China is described as “a tale of promises not kept, corruption and the trampling of farmers’ rights in the stampede for natural resources and profits.”
According to several witnesses, the Chinese construction company working on the pipeline destroyed mangrove trees and a dam in the process, flooding farmlands with salt water and destroying irrigation systems. Farmers are now having trouble planting any crops at all, while promises of compensation and job creation all turned out to be false. A local watch committee backed by two rights organizations has documented 102 similar cases throughout the country.
Yet another example highlighting potential problems with the funding model is a high-speed railway between the Laotian capital of Vientiane and southwestern China, with a price tag of about US$6 billion, or almost half of the annual economic output of Laos. Naturally, China is not donating hundreds of billions of dollars to the OBOR infrastructure projects; it is merely offering favorable, low-interest loans.
But skeptics are questioning wether the railway — whose high costs are attributed to its construction in remote, hilly terrain — will ever become profitable. And what will happen if Laos is unable to repay the loans? Will China, with the precedent set in Sri Lanka, overtake operations of the railway and perhaps also police the surrounding areas?
Moreover, this finance model is risky not only for the borrower, but also for the lender, primarily the China Development Bank. According to The Economist, Chinese businessmen in Central Asia are referring to OBOR as “One Belt, One Trap,” due to the problems of identifying potentially profitable projects.
There is a reason why countries like Laos, Myanmar and Turkmenistan are not granted loans of the same size and on the same conditions from other banks or international institutions, namely that of their bad credit rating. By nature, authoritarian leaders are prone to accept any large-scale loans on offer, since they seldom have legal or moral problems with letting future generations bear the brunt of the debt.
But this can backfire. For instance, Venezuela owes China some US$65 billion dollar. Venezuela, as we know, is on the brink of widespread starvation as well as full-scale civil war, and it is unclear if any new government would be willing to repay bad loans embezzled by previous socialist rulers. In fact, the elected governments of Sri Lanka and Myanmar are already demanding renegotiations — or even the outright cancelling — of projects approved by their authoritarian predecessors.
It is highly likely that OBOR will face even more problems in future. Therefore, Taiwanese authorities should perhaps not be too worried about being excluded from the project. It seems, in fact, that they are not. In a comment to Taiwan Sentinel, Taiwan’s National Development Council referred to OBOR as a project focusing on the infrastructure in developing countries.
Instead, the National Development Council highlights the New Southbound Policy as a crucial part of Taiwan’s economic and trade strategy. By reinforcing Taiwan’s partnership with the 18 countries targeted in the New Southbound Policy, the council strives for “bilateral or multilateral cooperation opportunities based on Taiwan’s strengths in medical care, culture, tourism, science and technology as well as agriculture.”
Indeed, the targeted countries might need technical know-how in those areas just as much as any top-down infrastructure investments. It is also an easier approach than taking excess capacity in steel, cement and other materials abroad. Taiwan will also be able to avoid angry accusations concerning colonial ambitions or of flooding local markets with cheap export goods.
As the controversy with OBOR increases with time, there is also a good opportunity for Taiwan to strengthen bilateral relationships with countries that feel alienated by the project. Already, Japan and India are teaming up to build multiple infrastructure projects in Southeast Asia, Africa and beyond, in what has been described as “pushback” against OBOR.