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      in World Politics

      With the BRI, China Still Has a Long Road Ahead

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      To determine whether China can deliver a better Belt and Road Initiative (BRI), we must first ask whether Beijing is first of all capable of delivering a better BRI? Accusations of practicing debt-trap diplomacy and new forms of colonialism have had some impact on Beijing’s thinking, resulting in its pivot in 2018 to commit to a new, greener BRI, but the foundation of its “grand plan” for implementing the BRI basically remains similar to when it started in 2013.

      Beijing’s BRI Hubris Comes at a Price

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      President Xi Jinping and the Communist Party of China (CCP) have put some good-looking window dressing on the basic package, but so far, many BRI host country governments would say not all that much has changed since 2018, when Xi announced a pivot. Beijing is very good at saying one thing and doing another, as numerous governments around the world have learned. As a result, BRI host nations will inevitably believe that Beijing has had a real change of heart when they see it.

      Deaf Ear

      Part of Beijing’s problem is that it does not appear to be attuned to what the world is thinking. Perhaps it does not care. Reading Chinese media reports on the subject leaves one with the impression that the world is in unison and harmony with Beijing, its vision for the world and its performance thus far with the BRI. For example, according to  the CCP’s primary media outlet, the China Daily, a 2018 survey of 8,500 people in 17 BRI countries determined that “more than 70% agreed with the concepts of the “Chinese Dream,” the Belt and Road and “a community with a shared future for mankind.” But even this Chinese government-sponsored survey admitted that 64% of respondents believed that the BRI will confront many difficulties and challenges in the future.

      That concern was echoed by a 2019 survey by Singapore’s ISEAS-Yusof Ishak Institute, which polled more than 1,000 respondents in the government sector, the business community, civil society, academia and the media from across all 10 member states of the Association of Southeast Asian Nations. It found that fewer than 10% of respondents viewed China as “a benign and benevolent power,” 64% had little or no confidence that Beijing’s revised approach to the BRI will result in a fairer deal for their respective countries, and nearly 50% responded that they believed that Beijing possessed an intent to turn Southeast Asia into its own sphere of influence. That does not sound like a particularly inspiring foundation from which to try to turn things around.

      Beijing knows it has a long road ahead. To its credit, it has issued regulations intended to better monitor the conduct of state-owned enterprises and private Chinese businesses, mandating that they should pay more attention to environmental, social, integrity, financial and other risk factors. If a particular host nation’s laws are weak, these entities have been advised to ensure compliance with Chinese law, international treaties and conventions, and industry best practices. Reporting requirements, capital controls, and the regulation of overseas finance and investment have been tightened, which has contributed to the notable decline in new Chinese overseas loans and investments since 2017.

      Outside the Norm

      That said, Beijing has generally been reluctant to apply its laws to the activities of its entities overseas. In fact, State Council guidance requiring extensive disclosure of contracts for major construction projects expressly exempts overseas investment and foreign aid projects. Laws criminalizing the bribery of foreign officials have never been enforced. Although Chinese courts have heard cases related specifically to the BRI, unless a project contract contains explicit obligations for which performance is sought, enforcement of Chinese laws for overseas actions almost never occurs. Beijing appears to be banking on the fact that a great many of the BRI’s host governments have worse transparency and corruption ratings than China, which presumably makes their willingness to pursue Chinese entities engaged in corruption less likely in the first place.

      As long as Beijing continues to insist that only Chinese entities will provide financing for BRI projects, there is no way for external organizations to monitor transparency, corruption or adherence to international standards. That will, by itself, ensure that tension remains between Beijing, BRI host nations and the West, and signals to the world that Beijing is not in fact serious about reforming fundamental aspects of the initiative. Greater emphasis can be placed on taking some care not to blatantly violate national laws and international norms, allowing Beijing to proclaim that progress is being made, but that will continue to be on a relative scale.

      If practices were previously wholly outside the norm of internationally acceptable behavior but they are improved, they can remain outside the norm of acceptable behavior even though they have improved. More than minor tweaks are required to demonstrate that a true pivot has occurred. Beijing certainly has the ability to implement meaningful wholesale change to the BRI if it chooses to, but it has yet to do so. Based on its prior history of performance regarding its flagship initiative, such changes stand little chance of being implemented.

      *[Daniel Wagner is the author of “The Chinese Vortex: The Belt and Road Initiative and its Impact on the World.”]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      in US Politics

      Think 'sanctions' will trouble China? Then you're stuck in the politics of the past | Ai Weiwei

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      The Trump administration has floated the idea of sanctioning Chinese officials and members of the Communist party of China. Before we ask whether this is a good idea, let’s ask how Sino-US relations got to this stage.The US cold war with the Soviet Union was over ideology, but today’s standoff with China is different. The Chinese state has no ideology, no religion, no moral agenda. It continues wearing socialist garb but only as a face-saving pretence. It has, in fact, become a state-capitalist dictatorship. What the world sees today is a contest between the US system of free-market capitalism and Chinese state capitalism. How should we read this chessboard?The post-Mao dictatorship in China has lived by the principle of “repress at home and be open to the world”. It has imported knowhow from abroad. There are an estimated 360,000 Chinese students currently enrolled who have come through America’s open door. Over 40 years, at least a million have returned to China and fed their new technical knowledge into the existing authoritarian structures that have built the dictatorship. It might be the most momentous personnel transfer in history. When I applied to study in the US in the 1980s, I filled out a questionnaire that asked if I had ever been a member of the Communist party. The point of the question was presumably to avoid ideological risks. But it is beyond doubt that the Chinese students coming in with me included many party members who were headed to some of the US’s finest schools, often with scholarships. Americans generally assumed that these students would feel the appeal of liberal values, which they would then take back to China. What happened more often, though, was that Chinese students were quick to see the cultural differences between the two countries, and to draw the very logical conclusion that American values are fine for America but would never work in the Chinese system.If those US hopes for the exportation of values had panned out, much of China would have been won over by now. But what has actually happened? Returnees are now leaders in much of Chinese business and industry, but anti-American expression in China is as strong today as it has been since the Mao era.Washington bears much of the responsibility for what has happened. In the years after the Tiananmen Square massacre in 1989, administrations of both parties touted the absurd theory that the best plan was to let China get rich and then watch as freedom and democracy evolved as byproducts of capitalist development.But did capitalist competition, that ravenous machine that can chew up anything, change China? The regime’s politics did not change a whit. What did change was the US, whose business leaders now approached the Chinese dictatorship with obsequious smiles. Here, after all, was an exciting new business partner: master of a realm in which there were virtually no labour rights or health and safety regulations, no frustrating delays because of squabbles between political parties, no criticism from free media, and no danger of judgment by independent courts. For European and US companies doing manufacture for export, it was a dream come true.Money rained down on parts of China, it is true. But the price was to mortgage the country’s future. Society fell into a moral swamp, devoid of humanity and difficult to escape. Meanwhile, the west made their adjustments. They stopped talking about liberal values and gave a pass to the dictatorship, in which Deng Xiaoping’s advice of “don’t confront” and Jiang Zemin’s of “lie low and make big bucks” made fast economic growth possible.European and American business thrived in the early stages of the China boom. They sat in a sedan chair carried up the mountain by their Chinese partners. And a fine journey it was – crisp air, bright sun – as they reached the mountain’s midpoint. But then the chair-carriers laid down their poles and began demanding a shift. They, too, sought the top position. The signal from the political centre in China changed from “don’t pick fights” to “go for it”. Now what could the western capitalists do? Walk back down the mountain? They hardly knew the way.Covid-19 has jolted the US into semi-awareness of the crisis it faces. The disease has become a political issue for its two major political parties to tussle over, but the real crisis is that the western system itself has been challenged. The US model appears to others as a bureaucratic jumble of competing interests that lacks long-term vision and historical aspiration, that omits ideals, that runs on short-term pragmatism, and that in the end is hostage to corporate capital.Are sanctions the way to go? A foreign ministry spokesperson in Beijing recently remarked words to the effect that the US and China are so economically interlocked that they would amount to self-sanctions. The US, moreover, would be no match for China in its ability to endure suffering. And there he was correct: in dictatorships, sacrifices are not borne by the rulers. In the 1960s Mao said: “Cut us off? Go ahead – eight years, 10 years, China has everything.” A few years later Mao had nuclear weapons and was not afraid of anyone.The west needs to reconsider its systems, its political and cultural prospects, and rediscover its humanitarianism. These challenges are not only political, they are intellectual. It is time to abandon the old thinking and the vocabulary that controls it. Without new vocabulary, new thinking cannot be born. In the current struggle in Hong Kong, for example, the theory is simple and the faith is pure. The new political generation in Hong Kong deserves careful respect from the west, and new vocabulary to talk about it.“Sanctions” is a cold war term that names an old policy. If the US can’t think beyond them, the primacy of its position in this changing world will disappear. More

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      in World Politics

      The Mother of All War Crimes

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      As Americans once again struggle with the very idea of having a history, let alone reflecting on its significance, an article in The Nation originally published in 2015 marks the anniversary of the bombing of Hiroshima and Nagasaki. It offers its readers a reminder of an event that no one has forgotten but whose monumental significance has been consistently distorted, if not denied.

      Japan’s surrender in 1945 officially ended World War II. It marked a glorious moment in history for the United States. But most serious historians agree on one fact that everyone has insisted on forgetting. The war would have ended without the demonstration of American scientific and military prowess carried out at the expense of hundreds of thousands of Japanese lives.

      Interactive: The Story of World War II

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      If history has any meaning, humanity should have applied to August 6, 1945, the very words President Franklin D. Roosevelt used at the beginning of America’s war with Japan following the attack on Pearl Harbor on December 7, 1941. More than Pearl Harbor, August 6, 1945, should be remembered as “a date which will live in infamy.” 

      In the article originally published to mark the 70th anniversary of the events that led to the end of World War II, the author, Gar Alperovitz, reminds us that almost every US military leader at the time counseled against dropping the bomb. It cites the testimony of Admiral William Leahy, President Harry Truman’s chief of staff; Henry “Hap” Arnold, the commanding general of the US Army Air Forces; Fleet Admiral Chester Nimitz, commander-in-chief of the Pacific Fleet; and Admiral William “Bull” Halsey Jr., commander of the US Third Fleet.

      All these senior officers agreed that “the first atomic bomb was an unnecessary experiment.” Even Major General Curtis LeMay, who nearly 30 years later tried to push John F. Kennedy into a nuclear war with the Soviet Union during the Cuban missile crisis in 1962, agreed that “the atomic bomb had nothing to do with the end of the war at all.”

      General Dwight Eisenhower, the future president, also believed “that Japan was already defeated and that dropping the bomb was completely unnecessary.” But Eisenhower added this consideration of profound geopolitical importance, which directly contradicts the official pretext given by the government and repeated in the official narrative, that thousands of American soldiers would die in the final assault on Japan. “I thought that our country should avoid shocking world opinion by the use of a weapon whose employment was, I thought, no longer mandatory as a measure to save American lives,” he said.

      Here is today’s 3D definition:

      World opinion:

      The understanding people across the globe have of how a hegemonic power works for or against their interests, a phenomenon that hegemonic powers learn to ignore as soon as they become convinced of the stability and durability of their hegemony

      Contextual Note

      World War II marked a sea-change in geopolitics. It literally ushered in the era of technological rather than purely military and economic hegemony. The real point of the bomb was to provide a graphic demonstration of how technological superiority rather than mere economic and military clout would define hegemony in the decades to come. That’s why the US has been able to consistently lose wars but dominate the global economy.

      “President Truman’s closest advisers viewed the bomb as a diplomatic and not simply a military weapon,” Alperovitz writes. It wasn’t just about ending the war but modeling the future. Truman’s secretary of state, James Byrnes, “believed that the use of atomic weapons would help the United States more strongly dominate the postwar era.” He seemed to have in mind the “military-industrial complex” that Eisenhower would later denounce.

      Embed from Getty Images

      Eisenhower’s prediction about world opinion in the aftermath of the nuking of Japan was apparently wrong. Polls taken in 1945 showed that only 4% of Americans said they would not have used the bomb. Relieved to see the war over, the media and governments across the globe made no attempt to mobilize world opinion against a manifest war crime.

      On the basis of the letters to the editor of The Times, one researcher nevertheless reached the conclusion that, in the UK, a majority of “civilians were outraged at the atomic bombings of Hiroshima and Nagasaki.” This probably reflects opinion across most of Europe. The Vatican roundly condemned the use of nuclear weapons, even two years before the bombing of Japan and then again after the war, but it had little impact on public opinion.

      Focused on the drama of the Nuremberg trials rather than the mass destruction in Japan, the nations of the world very quickly adjusted to the fatality of living with the continued presence of nuclear bombs. They even accepted the bomb as a stabilizing norm in what quickly became the Cold War’s nuclear arms race. After all, the idea of mutuality in the strategy of mutually assured destruction seemed to keep things in some sort of precarious balance. 

      With history effectively rewritten in a manner agreeable to the hegemony-minded governments of the US, American soft diplomacy — spearheaded to a large extent by Hollywood — did the rest. The American way of life almost immediately became a global ideal, only peripherally troubled by Godzilla and other disturbing radioactive mutants.

      Takeshi Matsuda explained in a 2008 article in the Asia-Pacific Journal: “By the end of World War II, the U.S. government had recognized how important a cultural dimension of foreign policy was to accomplishing its broad national objectives.” Those “national objectives” had clearly become nothing less than global hegemony.

      Historical Note

      Post-World War II history contains a cruel irony. An inhuman nuclear attack on Japanese civilians became perceived as the starting point of a new world order under the leadership of the nation that perpetrated that attack. The new world order has ever since been described as the “rule of law.” 

      Because the new order relied on the continued development of nuclear weapons, it might be more accurate to call it a “rule of managed terror.” It was built on the notion of fear. Over the following decades, the vaunted rule became increasingly dependent on a combination of expanding military might, mass surveillance, technological sophistication and the capacity of operational weapons to strike anywhere with great precision but without human intervention.

      In his article, Gar Alperovitz quotes a pertinent remark in 1946 of Admiral William “Bull” Halsey Jr., who called “the first atomic bomb … an unnecessary experiment. … It was a mistake to ever drop it … [the scientists] had this toy and they wanted to try it out, so they dropped it.” But Halsey was mistaken. The scientists didn’t drop the bombs. The politicians — especially Harry Truman, with whom the buck was destined to stop — ordered it. And bomber pilots did the dropping. But Halsey’s intuition about the rise of technology as the key to hegemony was correct.

      Whether Truman understood what was happening, or whether he was an unwitting tool of a group of American Dr. Strangeloves (the former Nazis were already being recruited), no historian has been able to determine. Fox News journalist Chris Wallace, in his book on Truman and the bomb, claims that the president “agonized over it,” as well he should have. 

      The problem that remains for those who seek to understand the significance of our global history is that once the deed was done, Truman’s and everyone else’s agonizing ended. Shakespeare’s Macbeth famously “murdered sleep,” but America’s official historians, in the years following Hiroshima, succeeded in putting the world’s moral sense to sleep.

      Humanity is still on the verge of nuclear annihilation. Some of the bellicose discourse we hear today may be bluff. But the US military has elaborated concrete plans for a nuclear war with China, and preparations for that war are already taking place. As journalist John Pilger points out, US Secretary of State Mike Pompeo has been pushing hard to foment a war mentality among the American public, partly because it is part of Trump’s reelection strategy and partly because Pompeo is “an evangelical fanatic who believes in the ‘rapture of the End.’”

      World opinion, if our democracies knew how to consult it, would undoubtedly prefer the plain and simple annihilation of our nuclear capacity. But the dream of a democracy of humanity, in the place of competing nation-states, dwells only in an obscure political and psychological limbo, existing as something between an empty promise and wishful thinking.

      *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Click here to read more of The Daily Devil’s Dictionary on Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 88 Shares179 Views

      in World Politics

      Beijing’s BRI Hubris Comes at a Price

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      Despite more than 3,000 years of Chinese history, many of the world’s countries had little to no direct experience with China or Chinese investment prior to the launch of the Belt and Road Initiative (BRI). There was a presumption on the part of many governments that international best practices were well established and that China would be in compliance with those standards as it rolled out the initiative. As they now know, that often turned out not to be the case, but the fact that the Chinese business model is a mix of public and private sector participation, rules and regulations that are not necessarily logical or coherent and are often misunderstood has complicated matters.

      Is China’s Belt and Road Initiative Strategic Genius, Arrogant Overreach or Something Else?

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      For all concerned, the BRI has in many ways been a leap in the dark, since such an ambitious undertaking had never before been attempted. The Chinese government, and many of the nation’s companies active in the initiative, were, and remain, on a learning curve. The enforceability of Chinese regulations on private sector Chinese companies operating overseas can be inconsistent, and Chinese-built infrastructure has, at times, been found to be substandard. Regulations governing the practices of Chinese firms are frequently revised, leaving many organizations scrambling to keep up in the public and private sectors. It then takes a while for new guidelines to translate into practice abroad.

      BRI Financing

      BRI financing is highly dependent on loans from the China Development Bank, China Export-Import Bank and other state-owned commercial banks. China’s foreign exchange reserves are important sources of capital for these institutions. Although Beijing maintains the world’s largest aggregation of foreign currency, its foreign reserves have declined in recent years, which, when combined with its dramatically slowing economy, raises questions about the sustainability of BRI financing in the medium term.

      Under the presumption that foreign capital and support from multilateral financial institutions will be required to sustain BRI projects in the future, China’s Ministry of Finance established the Multilateral Cooperation Center for Development Financing with eight multilateral development banks and financial institutions. The center is expected to enhance the project financing process through a combination of better information sharing, improved project preparation and capacity building. The ministry has also developed the Debt Sustainability Framework for Participating Countries (DSF) of the BRI, collaborating with its counterparts from 28 partner countries. China’s DSF is virtually identical to the World Bank-International Monetary Fund DSF, which governs lending operations for the multilateral institutions and many bilateral lenders. That should increase its prospects for success.

      China’s effort is a significant step forward in guarding against the debt challenges associated with the BRI. Debt sustainability can only grow in importance for Beijing. As the BRI progresses, China will have no choice but to take steps to improve reporting transparency vis-à-vis financing, transaction structures and debt repayment. As for host governments that have become saddled with tens of billions of dollars of debt as a result of debt-trap diplomacy, their concerns have been widely shared with Beijing. Many of these nations have already become more discriminating BRI consumers. Although the trail of debt-related issues will certainly not diminish going forward, they will hopefully become less severe in time.

      The Chinese government has sought to integrate the BRI with its green growth agenda in an attempt to address criticism of its continued reliance on coal power and the lack of environmental oversight on Chinese infrastructure projects. Although Beijing has made great strides toward improving environmental and resource productivity, greater efficiency gains are vital to achieving a shift toward low-carbon, resource-efficient, competitive economies. Future progress will largely depend on the country’s capacity to integrate environmental aspects into the decision-making process for all its domestic and foreign policies to ensure that industrial and environmental policy objectives and measures are well aligned and mutually supportive.

      Reputational Risk

      At ongoing risk also is China’s reputation. The blowback it has experienced as a result of its rollout of the BRI from countries around the world has been unprecedented. The same may be said about its trade practices with the US and its response to COVID-19. Many of the world’s governments and people have simply lost confidence in Beijing, to the extent that they had confidence to begin with. The ball is squarely in Beijing’s court to raise the level of confidence the world may have in the future regarding what it says versus what it actually does. There is no better proving ground on that score than the BRI.

      A combination of hubris, a bulldozer approach to getting things done and a complete lack of sensitivity had worked well for the Communist Party of China at home for 70 years, and Beijing apparently believed that doing the same would work well overseas. While some aspects of Beijing’s original approach ended up yielding some positive results, President Xi Jinping’s move toward “BRI lite” in 2018 had to be taken with a grain of salt. He deserves credit for acknowledging some of the initiative’s pitfalls, but the Chinese government’s pivot must ultimately be considered too little and too late.

      If it wanted to more fully acknowledge the error of its ways, it would have offered to renegotiate every BRI contract that was clearly skewed in its favor rather than waiting to be asked to do so, award debt forgiveness on a broader basis and stop in its tracks any project under construction that is inconsistent with best environmental practices. That is clearly not going to happen.

      *[Daniel Wagner is the author of “The Chinese Vortex: The Belt and Road Initiative and its Impact on the World.”]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 150 Shares169 Views

      in US Politics

      The Guardian view on delaying elections: it’s what autocrats do | Editorial

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      Donald Trump’s suggestion that the 2020 US election could be crooked is a challenge to democracy itself Postponing elections is what autocracies do. On Friday, Hong Kong’s leader, Carrie Lam, announced a delay to September’s planned legislative council (LegCo) elections. Ms Lam cited the coronavirus public health emergency as her justification. Yet the real reason is Hong Kong’s political emergency. Hong Kong’s elections have been postponed because even with its very limited democracy, Ms Lam and the Chinese government are afraid the voters will choose a LegCo with greater sympathy for the protests.In spite of their very different systems, Donald Trump’s reasons for proposing the postponement of November’s US presidential election are essentially the same. Mr Trump also cites the pandemic. But his real motives are also political. He thinks he is losing the campaign. He thinks Joe Biden will be elected in November. He wants to stop him if he can, by fair means or foul. And he wants to discredit his own defeat. Continue reading… More

    • 100 Shares149 Views

      in World Politics

      The West Must Help Myanmar Escape China’s Embrace

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      On July 2, Myanmar became the only country in India’s immediate neighborhood to accuse China of interference in its internal affairs. Senior General Min Aung Hlaing, the commander-in-chief of the Tatmadaw or the combined armed forces of Myanmar, accused China of arming terrorist groups like the Arakan Army (AA) and Arakan Rohingya Salvation Army (ARSA) in an interview with Russian state-run TV channel Zvezda. He also sought international help to suppress them.

      Rohingya Refugee Camps Are the Next Frontline in COVID-19 Fight

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      Min Aung Hlaing’s statement is telling. It reveals that China is putting unprecedented pressure on its neighbors in the Association of Southeast Asian Nations (ASEAN). It is important to note that Min Aung Hlaing praised China as an “eternal friend” during a visit to Beijing in 2019. He thanked China for its support and for countering international pressure on Myanmar over its treatment of Rohingya civilians, a Muslim minority in Rakhine State.  

      The senior general has turned on Beijing at a sensitive time. China is facing international criticism for the spread of the COVID-19 disease, its detainment of Uighur Muslims in the Xinjiang region and for its aggression toward its neighbors. Yet it could be seen as part of a longer pattern in Myanmar.

      Turning Away from China Not Easy

      More than 10 years ago, the then-ruling military junta decided to reduce Myanmar’s economic dependence on China. At the heart of this decision was the goal of reducing China’s excessive influence in Myanmar.

      When retired General Thein Sein was president from 2010 to 2015, he ushered in initiatives to repair relations with India, the West and ASEAN. At first, these initiatives led to increased international aid, but it was short-lived due to the military crackdown on the Rohingya insurgency in the Rakhine state. Myanmar has faced international condemnation, isolation and sanctions since. By 2017, the brief “honeymoon” was over and China was back to its old games, with the West losing its window of opportunity in Myanmar.

      Embed from Getty Images

      China has been known to support the United Wa State Army (UWSA). The UWSA is an armed force of an ethnic minority that runs an autonomous region with little interference from central authorities. As per the Asia Times, the “UWSA’s relationship with China is a pillar of its autonomy.” China uses the UWSA to exert leverage within Myanmar. It also benefits economically because minerals from the Wa area are exported across the border to China.

      The UWSA is one of the many insurance policies Beijing uses to retain its eminence in Myanmar. Today, it has cultivated the ruling National League for Democracy (NLD) led by Aung San Suu Kyi, a Nobel laureate who was once the darling of the West. She wants to reverse Thein Sein’s decision in 2011 to suspend work on the Myitsone dam. Beijing’s State Power Investment Corporation (SPIC) was supposed to build this $3.6-billion dam at the source of the Irrawaddy River.

      The Myitsone area is said to be the birthplace of the Kachin people, after whom the state is named. They have fought the Tatmadaw since 1962, making itis one of the longest civil wars for a resource-rich region. The Kachin oppose the dam because it could put large parts of their region under water and threaten their livelihoods. As the BBC reports, Suu Kyi “needs to establish prosperity and peace if she is to convince the Burmese people of the benefits of democracy.” The dam might provide irrigation and electricity, boosting the ruling NLD.

      Suu Kyi is turning to China because the West has abandoned her. The days when former US President Barack Obama visited Myanmar and kissed her cheek seem distant. The Rohingya crisis has been roundly criticized by Western media and brought allegations of genocide.

      Chinese President Xi Jinping has stepped into the vacuum and visited Myanmar earlier this year. China has been planning the China–Myanmar Economic Corridor (CEMC) as part of its Belt and Road Initiative. It includes infrastructure such as railways and a deep-sea port at Kyaukphyu on the Bay of Bengal. This port will help China avoid the more vulnerable Straits of Malacca, where it fears being choked off.

      The West Must Change Tack with Myanmar

      Since 1990, Western powers have imposed sanctions on Myanmar for a variety of reasons ranging from human rights violations to lack of democracy. At the same time, they rushed to engage with China despite the 1989 Tiananmen Massacre. Myanmar became an outcast even as China won investments, joint ventures and a red carpet welcome to the World Trade Organization.

      Unlike China, which has had no election for 75 years, Myanmar has held three major elections in 1990, 2010 and 2015. A fourth is due in October this year. Suu Kyi’s NLD has won the past three elections.

      When it comes to the treatment of minorities, China has been worse than Myanmar. Its treatment of Tibetans has been terrible and its persecution of Uighurs makes daily headlines. Therefore, Min Aung Hlaing’s revelation that China is championing the Rohingya — a majority of whom are now sheltering in Bangladesh — is deeply ironic. China is supporting the Arakan Army and the Arakan Rohingya Salvation Army to destabilize Myanmar and win their support in the future. This policy of interference in Myanmar has implications for both India and Bangladesh. It is in keeping with the Chinese policy of destabilizing India’s northeast region.

      China’s strategy of destabilizing Myanmar even as it makes it an economic vassal has lessons for others. Western powers must provide Myanmar with much-needed investment. The Tatmadaw, led by Senior General Min Aung Hlaing, clearly wants to avoid Chinese domination. Suu Kyi is also no natural ally of China. They have both been pushed into Chinese arms by Western intransigence. Along with investments, a security arrangement involving many countries such as India, Bangladesh and Western powers would help.

      Currently, the Quadrilateral Security Dialogue (or the Quad) is the best vehicle to guarantee Myanmar’s security. It must thwart the development of CMEC. Otherwise, the Chinese navy will be sitting on India’s doorstep and the Quad would lose strategic advantage in the Indian Ocean. India has already been strengthening its relationship with Myanmar under its “Look East” or “Act East” policy. The relationship has been on the upswing since 2010 and is set to improve further.

      Yangon is sensitive to India’s strategic and security concerns. India has shown the same degree of understanding. For India, Myanmar is the archway to ASEAN and the far east. With the Chinese causing mischief at its borders, Myanmar has increasing strategic importance for India.

      The West must join India in its constructive engagement with Myanmar. In the October elections, Aung San Suu Kyi’s NLD is expected to win again. This victory could usher in an era of stability, economic progress and development. Myanmar’s civil and military leadership has no desire to embrace vassal status. It is up to the West to step up and give Myanmar a choice. With the Chinese menace rising by the day, failure to do so would be a historic blunder.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      in World Politics

      What Has COVID-19 Done to Small Businesses?

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      Small and medium-sized enterprises (SMEs) are businesses with revenues, assets or employees below a certain threshold. SMEs are important to the health of any country as they tend to form the backbone of the economy. When compared to large enterprises, SMEs are generally greater in number, employ far more people, are often situated in clusters and typically entrepreneurial in nature. They drive local economic development, propel job creation and foster growth and innovation.

      360° Context: How Will COVID-19 Impact Our Economy?

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      According to the World Bank, SMEs represent about 90% of businesses and 50% of employment worldwide. In the United States, 30 million small businesses make up 44% of GDP, 99% of the total businesses and 48% of the workforce, amounting to 57 million jobs. In India, the SME sector consists of about 63 million enterprises, contributing to 45% of manufacturing output and over 28% of GDP while employing 111 million people. SMEs in China form the engine of the economy comprising 30 million entities, constituting 99.6% of enterprises and 80% of national employment. They also hold more than 70% of the country’s patents and account for more than 60% of GDP, contributing more than 50% of tax collections.

      Different Countries Define SMEs Differently

      Though most experts agree on the crucial role SMEs play in any economy, the definition of an SME varies by country. In the US, the Small Business Administration (SBA) defines SMEs broadly as those with fewer than 500 employees and $7 million in annual receipts, although specific definitions exist by business and sector. Annual receipts can range from $1 million for farms to $40 million for hospitals. Services businesses such as retail and construction are generally classified by annual receipts, while manufacturing and utilities are measured by headcount. In June, the Indian government revised its SME definitions, expanding the revenue caps on medium and small enterprises from $7 million and $1.5 million to $35 million and $7 million respectively. In the United Kingdom, a small business is defined as having less than 50 employees and turnover under £10 million ($12.7 million), whereas a medium business has less than 250 employees and turnover under £50 million. 

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      Proper definitions matter. If SMEs are classified well, their access to capital and other resources can improve. They can apply for grants, get tax exemptions, collaborate on research with governments or universities or access other schemes. This gives SMEs better opportunities to survive and thrive.

      Since SMEs tend to be the biggest employers in most economies, a good policy to promote them creates jobs and develops worker skills. Furthermore, proper definitions enable governments to focus their efforts regarding SMEs and level the playing field for them vis-a-vis large corporations.

      Given the scale and nature of their business models, SMEs operate at the mercy of vagaries of the economy, geopolitical events and local policies. They battle competition from multinational giants, volatile cash flows, fickle customers, demanding suppliers and constantly churning employees. But the COVID-19 pandemic has crossed all boundaries. While the 2000 crisis was a dot-com bust and 2008 was a collapse of the financial systems, 2020 is clearly the SME crisis. It is Murphy’s Law at its extreme — anything that can go wrong has indeed gone wrong.

      The coronavirus crisis started off in early 2020 as a supply shock, which has now turned into a demand shock, impacting customers, employees, markets and suppliers alike. The consequences can be potentially catastrophic with the International Monetary Fund estimating that SME shutdowns in G20 countries could surge from 4% pre-COVID to 12% post-COVID, with bankruptcy rates in the services sector increasing by more than 20%.

      SMEs are bearing the brunt of the economic and financial fallout from the COVID-19 pandemic, not least because many were already in duress before the crisis. This could have a domino effect on the economy, given the pivotal role played by SMEs. Therefore, it comes as no surprise that most governments have sought to intercede legislatively with their fiscal might to ameliorate the predicament of SMEs.

      Indian and American Response

      It is instructive to note how different countries have responded to the economic crisis. India is a good country to start with. In early May, the government announced a 20-trillion-rupee ($250 billion) stimulus package called Atmanirbhar, equivalent to 10% of India’s GDP. It was a mixture of fiscal and monetary support, packed as credit guarantees and a slew of other measures. The centerpiece was an ambitious 3-trillion-rupee ($40 billion) initiative for SMEs, including instant collateral-free loans, subordinate debt of 200 billion rupees ($2.5 billion) for stressed micro, small and medium enterprises (MSMEs), and a 500-billion-rupee ($6.5 billion) equity infusion. Perhaps the largest component of the stimulus was the Emergency Credit Line Guarantee Scheme (ECLGS) that provides additional working capital and term loans of up to 20% of outstanding credit. 

      Although the scheme received positive feedback, the initial uptake was slow. On the supply front, bankers fretted about future delinquencies arising out of such accounts as the credit guarantees only covered incremental debt. On the demand side, SMEs were worried about taking on additional leverage when there is uncertainty about economic revival. Moreover, a 20% incremental loan may not suffice to service payrolls and operating expenses and keep business alive.

      Also, while this scheme addressed existing borrowers, the fate of those who are not current borrowers is unclear. While initial traction for the scheme was low, the recent momentum has been encouraging. The finance ministry reports that as of July 15, banks have sanctioned 1.2 trillion rupees ($16 billion), of which 700 billion rupees ($9 billion) have been disbursed largely by public sector banks, although private sector banks have joined in lately.

      Meanwhile, even the largest global economy has struggled with its SME relief program. In mid-March, US President Donald Trump approved a $2.2-trillion package under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help Americans struggling amid the pandemic. One of the signature initiatives under the act was the $660-billion Paycheck Protection Program (PPP) aimed at helping small businesses with their payroll and operating expenses. This program was distinct from its peers in its loan forgiveness part, in which the repayment of the loan portion used to cover the first eight weeks of payroll, rent, utilities and mortgage would be waived. 

      The program, though well-intentioned, has struggled with execution issues exacerbated by labyrinthian rules. Matters came to a head when the initial tranche of $349 billion ran out in April. The program had to be refinanced but, by June, it was closed down with $130 billion of unused funds in its coffers. The program was restarted again and extended to August by Congress.

      Worse, the program saw refunds from borrowers who were unclear about the utilization rules. Loan forgiveness would be valid only if the amount was utilized within eight weeks. This stipulation made SMEs wary because their goal was to use cash judiciously and optimize the use of the borrowed amount to last as long as possible. These rules have since been amended by the Small Business Administration. It now gives SMEs 24 weeks to use the borrowed funds and allows them more flexibility on the use of funds. In any case, questions have been raised about capital not reaching targeted businesses and unintended parties benefiting instead. 

      Despite the changes in SBA rules, the jury is still out on whether more SMEs will take out PPP loans. Some are lobbying for full loan forgiveness. However, dispensing of repayment requirements essentially creates handouts that could lead to the lowering of fiscal discipline and increasing incentive for fraud. A recent proposal by two professors, one from Princeton and the other from Stanford, suggests “evergreening” of existing debt, a practice that involves providing new loans to pay off previous ones. Though innovative, it is not quite clear how such a policy would provide better benefits compared to a loan repayment moratorium, especially when it comes to influencing future credit behavior. 

      In addition to the PPP program, the SBA has announced the Economic Injury Disaster Loans (EIDL) program. This offers SMEs working capital loans up to $2 million to help overcome their loss of revenue. The program was closed down on July 13 after granting $20 billion to 6 million SMEs. Maintaining equitability and efficacy in the distribution process has been a challenge, though.

      European Responses

      Europe’s largest economy, on the other hand, has fared relatively better. In early April, German Chancellor Angela Merkel announced a €1.1-trillion ($1.3 trillion) stimulus termed the “bazooka.” This constituted a €600-billion rescue program, including €500 billion worth of guarantees for loans to companies. The German state-owned bank KfW is taking care of the lending. The program also includes a cash injection of €50 billion for micro-enterprises and €2 billion in venture capital financing for startups, which no major economy has successfully managed to execute. Notably, the centerpiece of the German program is the announcement of unlimited government guarantees covering SME loans up to €800,000. These loans are instantly approved for profitable companies.

      Berlin’s relief measures were specifically targeted at supporting Germany’s pride, the Mittelstand. This term refers to the 440,000 SMEs that form the backbone of the German economy. They employ 13 million people and account for 34% of GDP. Many of these firms manufacture highly-specialized products for niche markets, such as high-tech parts for health care and auto sectors, making them crucial to Germany’s success as an export giant. Not surprisingly, these companies have seen a contraction in revenues, especially the ones that depend on global supply chains. 

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      The swift implementation of these initiatives, coupled with the resilience of the Mittelstand, is demonstrating that SMEs can survive and thrive in this environment. The Germans have also been preaching and practicing fiscal prudence in normal times, which has now worked in their favor. Germany can afford to inject capital and do whatever it takes to save its SMEs.

      Since its first stimulus, Berlin has followed up with an additional €130-billion package consisting of tax, SME loans and spending measures aimed at stimulating demand. This included a €46-billion green stimulus focused on innovation and sustainable projects such as e-mobility and battery technology. In keeping with the German tradition, the SMEs who make the Mittelstand have stayed agile as well. They are diversifying their customer base and pivoting their business models to more recession-proof sectors. 

      The UK, another major world economy, also launched an array of relief measures, including the Coronavirus Business Interruption Loan Scheme (CBILS) worth £330 billion ($420 billion). This was designed to support British SMEs with cash for their payroll and operating expenditure. It also announced the Bounce Back Loan Scheme (BBLS) focused on smaller businesses. This enjoyed a better launch than CBILS because the latter, with its larger loan quantum, required more vetting and paperwork.

      Loans from the CBILS initiative, although interest-free for a year, are only 80% guaranteed by the government. This makes banks less willing to lend during these troubled times because they are afraid of losing 20% of the loan amount. This slows credit outflow and starves SMEs of much-needed capital. As of July 15, less than 10% of the allotted capital had been utilized, which banks blame on an inadequately designed scheme. By mid-July, only £11.9 billion had been disbursed to 54,500 companies through the CBILS and £31.7 billion to 1 million smaller firms through the BBLS.

      Businesses have sought modifications from policymakers to existing schemes. These include hiking government guarantees for loans to 100% and waiving personal guarantees for small loans. The Treasury has agreed to some of these demands. Critics also point to structural deficiencies in the system. They believe the administrative authority for SME loans should be a proper small business bank instead of the British Business Bank, which was not designed for SMEs. Already, the UK government has warned that £36 billion in COVID loans may default. More drastic measures seem to be on the way, including a COVID bad bank to house toxic SME assets.

      Responses Elsewhere

      Economies around the world have been responding to disruption by COVID-19. It is impossible to examine every response in this article, but Japan’s case deserves examination. The world’s third-largest economy had been battling a recession even before the pandemic. Declining consumption, falling tourism and plunging exports were increasing the pressure on an aging society with a spiraling debt of over $12.2 trillion. The pandemic has strained Japan’s fiscal health further.

      In response to the pandemic, the Bank of Japan announced a 75-trillion-yen ($700 billion) package for financing SMEs, which included zero-interest unsecured loans. Additionally, the National Diet, Japan’s parliament, enacted a second supplementary budget, which featured rent payment support and expanded employment maintenance subsidies for SMEs.

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      The execution of these programs has been tardy. The government’s 2015 digitalization drive is still incomplete, impacting the distribution of subsidies and the implementation of other relief measures. Of the more than 400,000 applications for employment adjustment subsidies, only 80,000 companies received aid by mid-June. Application procedures are unnecessarily complex, adding to the woes of SMEs.

      Any discussion on SMEs in the global economy would be incomplete without examining China, which was the first country to deal with the COVID-19 disease. In February,  the government announced a 1.2-trillion-renminbi ($174 billion) monetary stimulus. Large state-owned banks were ordered to increase lending to SMEs by at least 30% in the first half of 2020. Three of these banks alone were supposed to lend 350 billion renminbi ($49.7 million) to small businesses at preferential rates. In addition, Beijing encouraged local policymakers to provide fiscal support to keep SMEs afloat.

      China’s stimulus seems more understated compared to other major economies and their own 2008 bailout package. After controlling the first COVID-19 wave in March, the Chinese have focused on restarting the economy and reopening businesses instead of relief measures and bailouts.

      In February, surveys in China showed that 30% of SMEs had experienced a 50% decline in revenue. Surveys also found that 60% of SMEs had only three months of cash left. At the end of March, almost half a million small businesses across China had closed and new business registrations fell by more than 30% compared to last year. The resumption of work has been an uphill struggle. In April, the production rate of SMEs had crossed 82% of capacity, but the sentiment had remained pessimistic. Notably, the Small and Medium Enterprise Index (SMEI) had risen from 51.7 in May to 53.3 in June, indicating that SMEs are slowly reviving.

      With the easing of lockdown measures, domestic demand in China has picked up, driving SME sales. In turn, greater demand is increasing production activity and accelerating capacity utilization, causing a mild rise in hiring. The green shoots of recovery of Chinese SMEs should encourage authorities worldwide. 

      Policy Lessons for the Future

      Governing nation-states is an arduous task at the best of times and especially so in a nightmarish year of dystopian proportions. No wonder governments worldwide have appeared underprepared to combat the COVID-19 crisis. Whilst predicting a global pandemic of this scale would be next to impossible, there were early warning signs that severe disruptions to global health care, supply chains and business models were imminent. Yet scenario planning and stress testing of economic models has been flawed, impacting the swift rollout of relief measures.

      The crisis has also underlined the importance of fiscal discipline when economies are doing well. Countries that do so can build a robust balance sheet to leverage during troubled times. This crisis also brings home the importance of evaluating and reevaluating the efficacy of the entities that deal with SMEs. Policymaking is an iterative process, especially when it comes to SMEs and bodies that oversee them must be overhauled periodically.

      Importantly, policies pertaining to SMEs must have inputs from those with domain expertise. Structures must take into account execution capabilities and speed of delivery. Instant loan approvals with suboptimal due diligence have to be constantly balanced against longer vetting but slower turnarounds. Similarly, policymakers have to analyze the various types of instruments, fiscal and monetary, that can be used for SMEs. What works in one country may not work for another. 

      It is important to remember the nuances of different policy measures, such as guarantees, forgiveness, monitoring and moratoriums. Guarantees are a sound instrument for relief but are potential claims on the government’s balance sheet and contingent liabilities. They also have little economic value if capital is not promptly delivered to SMEs. Forgiveness provisions have their own issues. They may be important in a crisis but could incentivize subpar credit behavior in the future. Similarly, monitoring is important but is impractical when millions of SMEs are involved. There is no way any authority can keep a tab on the intended usage of funds. Finally, moratoriums have their own problems. Businesses could misuse moratoriums, putting pressure on banks and making accounting difficult. They were cheered at the onset of the crisis but further extensions could be costly to the ecosystem. 

      Going forward, governments need to prepare for the long haul. The consequences of the COVID-19 pandemic will stay with us for the foreseeable future. What began as a liquidity crisis might well become a solvency crisis for SMEs despite the best attempts to avoid that eventuality. If that does happen, governments will need to plan for efficient debt restructuring. They will have to institute insolvency management processes while figuring out how to handle bad asset pools. In simple language, governments will have to make tough decisions as to distributing gains and losses not only among those living but also future generations.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More