Japan’s Belt and Road

Abe and Modi in 2016

In light of a certain state visit ongoing in Tokyo, I nominate this as the fact of the day (emphasis mine):

While Japan’s “lost decades” and China’s rise have led most observers to overlook Japan’s role in Southeast and South Asia, the country has remained an important source of development assistance, public lending, and private investment across the region, particularly as Japanese companies have extended their supply chains deeper into Asia. At the end of 2016, Japan’s stock of foreign direct investment in major Asian economies (excluding China and Hong Kong) was nearly $260 billion, exceeding China’s $58.3 billion. It is undeniable that Japan has increasingly had to jockey with China for high-profile projects as China’s footprint across Southeast and South Asia has grown. But Japan’s longstanding relationships and its long record of private and public investment across the region make it a worthy competitor with China.

Japan’s Belt and Road, particularly with US backing, could give China’s massive trade and infrastructure strategy a serious run for its money. And Japan is still the world’s third-largest economy…

Silk Road to the Atlantic

Port of Sines Portugal

Portugal’s Port of Sines

The Belt and Road Initiative now stretches to the Iberian Peninsula, as Portugal has signed up to promote China’s multi-grillion-dollar mega-boondoggle:

Portugal signed two deals last week during a state visit from Xi Jinping that seemed to undermine efforts elsewhere in Europe to counter Beijing’s influence.

The bottom line: Portugal is not alone in playing nice with Beijing, but these instances show that China, with the promise of big investments, can poke holes in European or Transatlantic efforts to confront it.

Detail: With a wary eye on China, a deal was struck in Brussels last week for closer inspections of foreign investments in “strategic technologies and infrastructure such as ports or energy networks,” per Reuters, which noted there was opposition from countries including Greece, Luxembourg, Malta and Portugal.

The deal makes the Port of Sines part of the B&R. Sines, located on the Atlantic coast, handles about half of Portugal’s cargo.

Chinese trade with Portugal is rising and the European country now wants to “attract large-scale industrial investment, notably in the automobile and agro-food sectors”:

Chinese investment accounted for 3.6 per cent of Portugal’s GDP between 2010 and 2016, according to figures from Spain’s ESADE business school.

China now owns a 28 per cent stake in Portuguese energy utility EDP, the country’s largest firm, via China Three Gorges and China’s state-owned international investment company CNIC.

It also has a stake in Portugal’s biggest private bank, BCP, and its leading insurance company, Fidelidade.

America’s Belt and Road?

The US may be stepping up its game to counter China’s multi-trillion-dollar development strategy known as the Debt Trap Diplomacy–… sorry, the Belt and Road Initiative:

The US is preparing to create an agency that can invest up to $60bn in the developing world in an effort to counter what some in Washington describe as China’s use of debt to wage “economic warfare”.

In what observers say is the biggest shake-up of US commercial lending to developing countries in 50 years, the Overseas Private Investment Corporation will be folded into the new agency and allowed to invest in equity. At present Opic can invest only in debt, putting it at a disadvantage to European development finance institutions (DFIs).

Ray Washburne, president and chief executive of Opic, told the FT that China – by using what he called “loan-to-own programmes” – was “creating countries that have the shackles of debt around them”. That amounted to “economic warfare”, he said.

By more than doubling Opic’s lending ceiling to $60bn and allowing it to invest in equity, he said, it would be put on “an equal footing with other DFIs”.

According to the report, OPIC well be folded into the new agency, called the International Development Finance Corporation, and “The arrangement has been sold to the president.”

Of course, the US has other ways of creating potholes in China’s Belt and Road… This could get very interesting indeed. On a quasi-related note, China is ramping up its PR campaign in the US, according to Bloomberg reporter Jennifer Jacobs:

China Daily advertising supplement

Text of the full thread:

CHINA sends a message to Trump and Ambassador Branstad by taking over 4 pages of Des Moines Register. Advertising supplement has “news” on:

—China buying soybeans from South America due to “trade row”

—Xi Jinping’s “fun days in Iowa”

—“Beijing can set an example for the world.”

The advertisement, labeled as paid for by the “China Daily, and official publication of the People’s Republic of China” is like a 4-page tweet from the Chinese government. It calls the trade war with Trump the “fruit of a president’s folly.”

In 15 years of covering Iowa news, I cannot recall the Chinese making a play like this. Certainly unprecedented for China to take out a four-page advertisement in the DMR. [Emphasis added]

China uses this advertising format regularly—“news” inserts have appeared in Nepal, Australia, U.S., etc. per @kashishds, @lillebuen, @DavidMDrucker and others. Beijing seems to be talking straight to Trump with this Iowa ad on “China-U.S. economic interdependence.”

Newspaper advertorials are a relatively clunky way of getting the message out, and unlike, say, troll armies on social media, they aren’t plausibly deniable. Nevertheless, as much as Americans (and others) may roll their eyes at such obvious and heavy-handed PR efforts, the cumulative impact of China’s vigorous overseas messaging is likely to be non-zero.

Daily links: Geopolitics and Tom Cruise

US teams up with Japan and Australia to invest in Asian infrastructure projects. China’s Belt and Road Initiative has competition.

US Secretary of State Mike Pompeo announces $113 million in new technology, energy and infrastructure projects in emerging Asia as part of Trump’s “Indo-Pacific” strategy.

Generals from the rival Koreas meet at the border to ease military tensions.

But there’s still a long and difficult road ahead with North Korea. “Washington and Pyongyang, however, are not the only players. Racing against a clock of its own, Seoul will aim to drive Trump and Kim toward an early trilateral summit to declare an end to the Korean War as a first step toward peace, fueled by President Moon Jae-in’s determination to go down in history as the peacemaker.”

Professor Stephen Cohen points out that in early 1986, President Ronald Reagan met alone with Soviet leader Mikhail Gorbachev for about two and a half hours, during which they discussed abolishing nuclear weapons, paving the way for the Intermediate-Range Nuclear Forces Treaty which was signed a year later.

Behind-the-scenes on Tom Cruise’s HALO jump from a C-17 military aircraft at 25,000 feet for the latest Mission: Impossible movie. HALO means high altitude, low open (i.e. the parachute is deployed at below 2,000 feet).

Reminds me of this incredible scene from Moonraker.

Tom Cruise is “our last remaining movie star.”

End of the road?

Just a bump in the road, or is China’s global infrastructure drive really turning out to be a highway to nowhere? Only time will tell:

CHINA is facing growing controversy surrounding the debts associated with Belt and Road projects. Pakistani politicians are warning that if they are forced to go to the International Monetary Fund for assistance, the financing arrangements of the China Pakistan Economic Corridor will have to be fully disclosed.

At the same time Malaysia’s new Prime Minister Mahathir Mohamad has ordered a temporary halt to construction work on the East Coast Rail Link (ECRL), and wants to use a planned official visit to China in August to renegotiate some of the terms of the deal.

Meanwhile China has hit back at US media articles on the so called “debt trap” that it has allegedly created in Sri Lanka, with Foreign Ministry spokesperson Lu Kang saying that the reports are “a gross distortion of facts”, and are “either irresponsible or engineered by people with ulterior motives”.

These controversies are mirrored by similar concerns across Africa about the build-up of debt associated with the Belt and Road. Nonetheless, many countries still see the Belt and Road Initiative as an opportunity to spur economic development. China clearly views some of the hostile media coverage as something that has to be viewed in the context of the deteriorating relationship with the United States on trade issues.