CHINA’S ONE BELT ONE ROAD HITTING POTHOLES

January 19, 2018 By Joseph P. Farrell

Mr. J.S. sent along this article, and it is highly significant for the coming years' geopolitical-financial landscape. As the article puts it, China's Silk Road project is running into a few "potholes":

China's new Silk Road hits political, financial hurdles

Let's zero in on the central issue(s):

From Pakistan to Tanzania to Hungary, projects under President Xi Jinping's signature "Belt and Road Initiative"+ are being canceled, renegotiated or delayed due to disputes about costs or complaints host countries get too little out of projects built by Chinese companies and financed by loans from Beijing that must be repaid.

In some areas, Beijing is suffering a political backlash due to fears of domination by Asia's biggest economy.

"Pakistan is one of the countries that is in China's hip pocket, and for Pakistan to stand up and say, 'I'm not going to do this with you,' shows it's not as 'win-win' as China says it is," said Robert Koepp, an analyst in Hong Kong for the Economist Corporate Network, a research firm.

"Belt and Road," announced by Xi in 2013, is a loosely defined umbrella for Chinese-built or -financed projects across 65 countries from the South Pacific through Asia to Africa and Europe.

Other governments welcomed the initiative in a region the Asian Development Bank says needs more than $26 trillion of infrastructure investment by 2030 to keep economies growing. Nations including Japan have given or lent billions of dollars for development, but China's venture is bigger and the only source of money for many projects.

Governments from Washington to Moscow to New Delhi are uneasy Beijing is trying to use its "Belt and Road" to develop a China-centered political structure that will erode their influence.

In other words, China has been attempting - with relative success - to play the USA's "World Bank/IMF economic hit man" game, but countries are balking at the geopolitical result of having to kowtow to the mandarins in Beijing.

So what does it portend? Beyond the obvious geopolitical-financial push-back, coming not from the USA but rather from the nations involved in the project themselves, we can - in my high octane speculative opinion - to expect two trends, one of which is dependent on Beiking's flexibility, and another not. With respect to the first trend, the article itself suggests what this trend will be: renegotiation of the ventures currently under way, for as the article points out, the Silk Road initiative is "not as 'win-win' as China says it is." Failure to renegotiate the terms and conditions of some of these projects is, in a certain sense, not an option for Beijing, for failure to do so could potentially lead to their complete demise, which, of course, Beijing does not want, and a case could be made that it cannot afford.

The other trend has been exhibited by the careful diplomacy that Russia, Japan, and the European powers, chiefly Britain, France, and Germany, have been doing. I've pointed out in previous blogs and in some interviews that Mr. Abe's Japan has been conducting very careful diplomacy with Mr. Putin's Russia to allow Russian access to Japanese technology and investment money for the development of Siberia, precisely as a geopolitical counterpoise to Chinese influence in the region. Mr. Abe and Mr. Putin have been able to set aside the contentious issue of the Kurile islands in order to achieve some significant steps forward. I thus suspect (in my high octane speculation sort of way), that this means that the projects that China has envisioned for its infrastructure development of the Silk Road, could conceivable be "renegotiated" by various countries with other principal powers than China. For example: Pakistan wants a dam, but doesn't want the undue Chinese influence that goes with it. Can Pakistan get better terms from a consortium of European powers, or a consortium of Russian and Japanese investors, or all the above?

The point here is that China has, in a sense, put itself in a difficult position: it must renegotiate, or lose the progress it has gained, lest others step in and offer better terms.

My bet is, China will renegotiate, but I suspect, in this and following years, that this will inevitably mean than the whole current structure of power relationships within the one belt one road initiative will change significantly.

See you on the flip side...