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      Will Laos Become a Model for China’s Economic Colonialism?

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      The small Southeast Asian nation of Laos stands out as a success story in COVID-19 control. With only 23 confirmed cases, it has gradually lifted lockdown measures. Success on the medical front, however, will not be enough to carry the country through the economic whiplash that pandemic containment had on the informal economy. Laos’ reliance on remittances from abroad is not unique in the region, and while it has thus far averted a coronavirus-induced health crisis, its economy is expected to contract, according to World Bank estimates.

      Incomes from tourism, remittances and the informal gig economy are expected to be hit hardest by the pandemic. Director general of the Laotian Department of Labor Skill Development at the Ministry of Labor and Social Welfare, Anousone Khamsingsavath, has voiced concerns about exacerbated poverty under COVID-19. Migrant workers have been returning from abroad due to evaporated opportunities, and the sudden influx of job seekers, coupled with a precarious economy, makes countries like Laos particularly susceptible to economic — and thus political — influence from outside.

      With the BRI, China Still Has a Long Road Ahead

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      Against the backdrop of the pandemic, countries whose economies are large enough to weather the storm have a unique opportunity to extend their influence vis-à-vis their smaller neighbors. A case in point: China and Laos. Earlier this year, Beijing began to build diplomatic goodwill in Vientiane by sending supplies, health advisers and medical staff, as well as offering loans and development opportunities to help Laos recover from the crisis. Existing power imbalances between the two states will likely be exacerbated, and China is well positioned to further consolidate support for its ally.

      Golden City

      China was the first country to be hit by the pandemic, and its economy, the second largest in the world, is now showing signs of recovery. Beijing has already unveiled a 3.6-trillion yuan ($506-billion) stimulus package, suggesting that China intends to continue work on its existing projects, with the Belt and Road Initiative being the crown jewel among them. As part of this initiative unveiled in 2013, China has been working to extend its land and maritime transportation networks through infrastructure built with the agreement of partner countries.

      One of the initiative’s branches that has thus far received little attention is the China-Laos railway, which stretches from Mohan, in China’s Yunnan province, to the Laotian border town of Boten, before reaching the capital, Vientiane. Once adjoining railways are complete, the segment is projected to be part of a pan-Asian network that joins Yunnan’s capital Kunming with Bangkok, Kuala Lumpur and Singapore. The project has been underway since 2016. Laos is the only landlocked country in Southeast Asia, and due to the lack of ports that can offer counterbalancing sources of income and connectivity, it is particularly dependent on Chinese investment in towns like Boten. The town was designated a special economic zone (SEZ), its casinos drawing in massive numbers of tourists from mainland China, where gambling is illegal.

      Embed from Getty Images

      Touted by both governments as a partnership of mutual prosperity, local Laotians complained of the disrespect and one-sided decision-making from the new arrivals. This was the case when casinos in Boten were shut down in 2010 by the Chinese Ministry of Foreign Affairs over accusations of crime and prostitution. The town, whose economy centered around gambling, went into decline even as construction of the railroad continued. Two years later, however, Laotian officials decided to give the original sponsor of Boten’s failed project a second chance. The sponsor partnered with another industrial group and signed a new agreement to shift the town’s focus from gambling to commerce, rechristening “Golden Boten City” as “Beautiful Boten Specific Economic Zone.”

      It is unclear whether this new venture is a result of or is intended as an extension of the railway being constructed. What is clear is that China does not intend for the BRI to be an isolated transportation framework in Boten’s case. Railway construction naturally brings an influx of Chinese laborers who prefer Chinese goods and Chinese services, but an injection of Chinese cash into the local economy could also add to the local government’s incentive to cooperate with construction. The businesses and the railway can then form an economic feedback loop that justifies each other’s existence.

      Business Model

      This business model would not be so worrying if the local Laotian government retained significant regulatory power over the venture. However, the Chinese-funded Boten Economic Zone Development and Construction Group has been given the responsibility of charging taxes and building both utility and telecommunications infrastructure. This calls into question the sovereignty of the host nation’s government, and one of the group’s buyers stationed in Boten went so far as to say the company basically controlled the entire growing city.

      SEZs like Boten may become the next model of economic colonialism in Southeast Asia, where Chinese investors lease large tracts of land for a substantial period, import Chinese workers to build infrastructure around railway stations, and create economies that cater specifically to Chinese patrons and Chinese interests. This form of colonialism doesn’t have to be directly affiliated with the Communist Party, as China has more than enough corporations with deep pockets that can withstand the risk of investment and provide the much-needed capital to rural areas whose native government do not have the means for development.

      As COVID-19 ripples through Southeast Asia, countries in the region can be expected increasingly to look abroad for any kind of financial buffer that will help them survive the economic shockwaves. Even countries like Laos that have avoided a health crisis cannot avoid suffering indirectly from the economic contractions of their less proactive neighbors. Regional governments will be tempted to grant more concessions in the hopes of bringing more jobs to locals out of work, and capital from China will be alluring, even as it inevitably comes with economic dependence and the local influence of powerful Chinese corporations.

      Developments in little-known outposts with potential, such as Boten, rarely make the headlines. But make no mistake: China was already making its way steadily through Southeast Asia, and the ongoing pandemic is only likely to increase its pace.

      *[Fair Observer is a media partner of the Young Professionals in Foreign Policy.]

      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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      What Turkey Stands to Gain From Its Natural Gas Discovery

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      Turkey’s first natural gas discovery was undoubtedly breaking news. As the world focused its attention on the escalation between Ankara and Athens in the eastern Mediterranean over natural resources and maritime borders, President Recep Tayyip Erdogan made the announcement on August 21 that marked the end of Turkey’s unsuccessful quest for indigenous oil and gas. If confirmed, the discovery of a 320-billion-cubic-meter natural gas deposit off Turkey’s Black Sea coast will enhance the country’s energy security and could help shape Ankara’s foreign policy trajectory.

      For years, Turkey has been tirelessly looking for oil and gas. To do so, Ankara mainly relied on the expertise of foreign companies. Encouraged by the recent discoveries of significant gas fields in the eastern Mediterranean, Ankara stepped up its efforts in the region as well as the Black Sea. This time, however, the state-owned Turkish Petroleum Corporation (TPAO) decided to explore opportunities on its own. As a result, TPAO purchased three drilling ships — Fatih, Yavuz and Kanuni, all named after Ottoman sultans — between 2017 and 2020, and deployed them in both the eastern Mediterranean and the Black Sea. The plan worked: Fatih was instrumental in making the August discovery.

      Discovery of Natural Gas Exposes Turkey’s Political Rifts

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      The finding could alleviate Turkey’s energy import options and equip Ankara with a powerful bargaining chip in negotiations with traditional suppliers. It could also help to transform TPAO into a significant player in the industry. The petroleum company has already made strides in this regard. During the last several years, the TPAO has intensified its efforts in oil and gas exploration and production.

      The company has also taken advantage of rapprochement between Ankara and the UN-recognized Libyan government in Tripoli in order to resume projects halted in 2014. Back then, the TPAO announced the successful completion of wells in Sirte and Sebha. In April, partnered with Russian Zarubezhneft, TPAO signed preliminary deals to participate in its upstream sector and has made strides in Algeria by signing up to an onshore project together with Sonatrach and Zarubezhneft. Furthermore, Turkish authorities have been vocal about their intentions to invest in Somalia’s and Ethiopia’s oil and gas sectors.

      Given the complexity of deep-water drilling, TPAO’s inexperience when it comes to offshore projects and the costliness of such endeavors, the development of the Black Sea fields may require partnerships with more experienced companies. Turkish authorities have already mulled over a potential collaboration with Russian and Iranian companies, but it seems less likely given the state of Ankara’s relations with both countries. Ankara has diverging interests with Tehran and Moscow in Syria and is also trying to reduce dependence on both Russian and Iranian gas supplies. Therefore, Turkey will likely be reluctant to add another dimension to this complex web of relations by inviting a Russian or Iranian company to the project. It is more likely for Turkish companies to partner with companies from friendly states with experience developing such complex and costly projects.

      TPAO has already partnered with the State Oil Company of the Azerbaijan Republic (SOCAR) in upstream projects in the Caspian Sea. Given the fraternal relations between the two countries, which have only solidified in light of the recent fighting between Armenia and Azerbaijan over the disputed Nagorno-Karabakh region, SOCAR’s engagement in the project is not excluded. Ankara’s unequivocal support for Baku in the conflict with Armenia and Azerbaijan’s increasingly growing share in natural gas supplies to Turkey could be easily translated into cooperation in the oil and gas sector as well.  

      TPAO may also partner with Qatar Petroleum, which has extensive experience in managing such complex deep-water projects. Turkish authorities have already suggested such a possibility. In March, Turkish Foreign Affairs Minister Mevlut Cavusoglu stated that Ankara is considering a partnership with Malaysian, British and Qatari companies in the eastern Mediterranean. Qatar Petroleum has decades of experience in operating the North Dome, the largest natural gas field in the world. Turkey and Qatar may use the opportunity to capitalize on their political relations and channel the geopolitical alignment into cooperation in the business sector.

      If the findings are confirmed, aside from providing a strategic advantage in the energy sector, the deposits will be a crucial element in bolstering Turkey’s foreign policy efforts, such as the Blue Homeland strategy and the pivot to the Maghreb and the Sahel. TPAO’s recent expansion abroad, especially in Africa, indicates the prerogatives of Ankara’s foreign policy goals. Turkey already faces strong opposition from almost all eastern Mediterranean littoral states that have collectively aligned to resist Ankara’s endeavors. To cope with these challenges, Turkey will need to build geopolitical alliances and economic partnerships of its own.

      *[Fair Observer is a media partner of Gulf State Analytics.]

      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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      Taking American Carnage to the Next Level

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      It is a recent tradition among occupants of the White House, as they head out of office, to play a few practical jokes on their successors. The Clinton administration jesters, for instance, removed all the Ws from White House keyboards before handing over the keys to George W. Bush’s transition team. The Obama administration left behind books authored by Barack Obama for Trump’s incoming press team.

      Donald Trump has no sense of humor. His “gift” to the next administration is dead serious. With his recent foreign policy moves, the president is trying to change the facts on the ground so that whoever follows in his footsteps will have a more difficult time restoring the previous status quo. Forget about pranks. This is a big middle-finger salute to the foreign policy establishment and the world at large.

      The Next President Needs to Learn From Past Mistakes

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      Of course, Trump is not preparing to leave office, regardless of the results of the November election. But in his policies in the Middle East and East Asia, the president is attempting to change the very rules of the game just in case he’s not around next year to personally make more mischief. The man is not going to win a Nobel Prize for his efforts — despite the recent nominations coming from a pair of right-wing Scandinavians — but he’ll do whatever he can to achieve the next best thing: putting the Trump brand on geopolitics.

      It cost about $5,000 to replace all those W-less typewriters. The bill for all the damage Trump is doing to international affairs in his attempt to make his Israel, Iran and China policies irreversible will be much, much higher.

      Israel Up, Palestine Down

      For several years, the Trump administration promised a grand plan that would resolve the Israel-Palestine stand-off. According to this “deal of the century,” Palestinians would accept some economic development funds, mostly from Gulf states, in exchange for giving up their aspirations for an authentic state.

      The hoops Palestinians would have to jump through to get even such a shrunken and impotent state — effectively giving up Jerusalem, relinquishing the right to join international organizations without Israel’s permission — are such obvious deal-breakers that Jared Kushner and company must have known from the start that their grand plan was not politically viable.

      But finding a workable solution to the Israel-Palestine conflict was not the purpose of the plan. It was all an elaborate shell game. While the administration dangled its proposal in front of world leaders and international media, it was working with Israel to create “new realities.” Trump withdrew the United States from the UN Human Rights Council for its “chronic bias against Israel.” The administration closed the PLO’s office in Washington, DC, and eliminated US funding for the UN agency that supports Palestinian refugees. And in perhaps the most consequent move, Trump broke a global convention by moving the US embassy from Tel Aviv to Jerusalem. Until recently, only one country, Guatemala, had followed suit.

      But then came a flurry of diplomatic activity this fall as both the United Arab Emirates and Bahrain extended diplomatic recognition to Israel. The Trump administration also pushed Serbia and Kosovo, as part of a new economic deal, to include clauses about Israel: Serbia will move its embassy to Jerusalem and Kosovo will establish one there after establishing diplomatic relations with Israel.

      Astonishingly, the Trump administration has promoted this diplomatic activity as restraining Israel. In May, Netanyahu announced that he was moving forward with absorbing sections of the West Bank that already featured large Israeli settlements. He subsequently stepped back from that announcement to conclude the new diplomatic deals with the Gulf states. But it was only reculer pour mieux sauter, as the French say — stepping back to better leap forward. Netanyahu had no intention of taking annexation off the table.

      “There is no change to my plan to extend sovereignty, our sovereignty in Judea and Samaria, in full coordination with the United States,” Netanyahu said in mid-August. Some further to the right of Netanyahu — alas, they do exist — want to annex the entire West Bank. But that’s de jure. As writer Peter Beinart points out, Israel has been annexing the West Bank settlement by settlement for some time.

      Where does this leave Palestinians? Up a creek without a state. The Trump administration has used its much-vaunted “deal of the century” to make any future deal well-nigh impossible. In collaboration with Netanyahu, Trump has strangled the two-state solution in favor of a single Israeli state with a permanent Palestinian underclass. The cost to Palestinians: incalculable.

      Permanent War With Iran

      Strengthening Israel was a major part of Trump’s maneuverings in the Middle East. A second goal was to boost arms sales to Gulf countries, which will only accelerate the arms race in the region. The third ambition has been to weaken Iran. Toward that end, Israel, Bahrain and the UAE now form — along with Saudi Arabia — a more unified anti-Iran bloc.

      But the Trump crowd has never been content to contain Iran. It wants nothing less than regime change. From the get-go, the Trump administration nixed the Iran nuclear deal, tightened sanctions against Tehran and put pressure on all other countries not to engage Iran economically. In January, it assassinated a leading Iranian figure, Major General Qassem Soleimani of the Iranian Revolutionary Guard Corps. And this summer it tried, unsuccessfully, to trigger “snap-back” sanctions against Iran that would kill the nuclear deal once and for all.

      Even as the Trump administration was celebrating the diplomatic deal between the UAE and Israel, it was going after several UAE firms for brokering deals with Iran. Trump recently castigated the Iranian government for going through with the execution of wrestler Navid Afkari for allegedly killing a security guard during a 2018 demonstration.

      And US intelligence agencies have just leaked a rather outlandish suggestion that Iran has been thinking about assassinating the US ambassador to South Africa. According to Politico, “News of the plot comes as Iran continues to seek ways to retaliate for President Donald Trump’s decision to kill a powerful Iranian general earlier this year, the officials said. If carried out, it could dramatically ratchet up already serious tensions between the U.S. and Iran and create enormous pressure on Trump to strike back — possibly in the middle of a tense election season.”

      Hmm, sounds mighty suspicious. Sure, Iran might be itching for revenge. But why risk war with a president who might just be voted out of office in a couple of months and replaced with someone who favors returning to some level of cooperation? And why would the unnamed US government officials leak the information right now? Is it a way to discourage Iran from making such a move? Or perhaps it’s to provoke one side or the other to take the fight to the next level — and take off the table any future effort to repair the breach between the two countries?

      Cutting Ties With China

      At a press conference earlier this month, Trump laid out his vision of US relations with China. Gone were the confident predictions of beautiful new trade deals with Beijing. After all, Trump had canceled trade negotiations last month, largely because the Phase 1 agreement hasn’t produced the kind of results the president had predicted (in terms of Chinese purchases of US goods). Nor did Trump talk about what a good idea it was for China to build “reeducation camps” for Uighurs in Xinjiang (he reserves such frank conversation for tête-à-têtes with Xi Jinping, according to John Bolton).

      Rather, Trump talked about severing the economic relationship between the two countries. “Under my administration, we will make America into the manufacturing superpower of the world, and we’ll end our reliance on China once and for all,” he said. “Whether it’s decoupling or putting in massive tariffs like I’ve been doing already, we’re going to end our reliance on China because we can’t rely on China.”

      Embed from Getty Images

      As with virtually all things, Trump doesn’t know what he’s talking about. China has been largely unaffected by all of Trump’s threats and posturing. As economist Nicholas Lardy explains, “for all the fireworks over tariffs and investment restrictions, China’s integration into global financial markets continues apace. Indeed, that integration appears on most metrics to have accelerated over the past year. And U.S.-based financial institutions are actively participating in this process, making financial decoupling between the United States and China increasingly unlikely.”

      In fact, decoupling is just another way of saying “self-inflicted wound.” On the non-financial side of the ledger, the United States has already paid a steep price for its trade war with China, which is only a small part of what decoupling would ultimately cost. Before the pandemic hit, the United States was already losing 300,000 jobs and $40 billion in lost exports annually. That’s like a Category 3 hurricane. A full decoupling would tear through the US economy like a Category 6 storm.

      Geopolitical Carnage

      American presidents want to leave behind a geopolitical legacy. Bill Clinton was proud of both the Dayton agreement and the Oslo Accords. George W. Bush touted his response to the September 11 attacks. Barack Obama could point to the Iran nuclear deal and the détente with Cuba. Donald Trump, like the aforementioned twisters, has left destruction in his path. He tore up agreements, initiated trade wars, pulled out of international organizations and escalated America’s air wars.

      But perhaps his most pernicious legacy is his scorched-earth policy. Like armies in retreat that destroy the fields and the livestock to rob their advancing adversaries of food sources, Trump is doing whatever he can to make it impossible for his successor to resolve some of the world’s most intractable problems.

      His diplomatic “achievements” in the Middle East are designed to disempower and further disenfranchise Palestinians. His aggressive policy toward China is designed to disrupt an economic relationship that sustains millions of US farmers and manufacturers. His bellicose approach to Iran is designed not only to destroy the current nuclear accord but make future ones impossible as well.

      If he wins a second term, Trump will bring his scorched-earth doctrine to every corner of the globe. What he is doing to Iran, China and the Palestinians, he will do to the whole planet. The nearly 200,000 pandemic deaths and the wildfires destroying the West Coast are just the beginning. Donald Trump can’t wait to take his brand of American carnage to the next level.

      *[This article was originally published by Foreign Policy in Focus.]

      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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      What Can the Gulf States Learn from the Belarus Crisis?

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      It might come as a surprise that the Gulf states have more than a passing interest in events in Belarus. Beyond growing economic ties, the political drama provides valuable lessons for the region’s monarchies and their efforts to maintain standards of living for their citizens without compromising power and influence. The Belarus crisis also offers useful pointers for Gulf states in their dealings with Russia.

      Over the past three decades, Belarusian domestic politics has been defined by its predictability. Despite the emergence of opposition candidates around election time, President Alexander Lukashenko’s grip on power was such that there was only one outcome. Yet, as with so much of 2020, life as Belarusians know it has been turned on its head.

      Big Blow for a Stable Dictatorship: Major Protests Hit Belarus

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      While the veracity of past elections has been called into question, a mixture of political complacency and COVID-19-related turmoil has breathed new life into Belarus’ opposition movement. Beyond disputing Lukashenko’s winning margin in July’s poll, hundreds of thousands of ordinary Belarusians have taken to the streets calling for change. Mostly born after the collapse of the Soviet Union, this generation does not regard the stability offered by Lukashenko as an asset. As they see it, state control of Belarus’ economy and society is incompatible with their aspirations.

      Lukashenko’s response to what has effectively become a matter of life and death for his regime has fluctuated between incoherency and heavy-handedness. The president’s disappearance from the public gaze at the start of the unrest, coupled with the disproportionate use of force against demonstrators, suggests that he did not seriously consider the possibility of mass protests. Continued police brutality and opposition candidate Svetlana Tikhanovskaya’s flight into exile make it difficult to use “external forces” as justification for the crackdown.

      “Family” Comes First

      Much like Belarus, the Gulf states have relatively young populations, particularly Saudi Arabia, where over two-thirds of citizens are under the age of 35. Many have benefited from access to higher education systems that have grown exponentially since the early 2000s, both in terms of state and private universities. With this in mind, the region’s political elites can use the lack of meaningful opportunities for so many Belarusians to underscore the importance of their development plans and national visions.

      Embed from Getty Images

      Designed to meet the specific needs of Gulf countries, these strategies nevertheless have several objectives in common. In an effort to counter faltering prices and technological obsolescence, the region is attempting to diversify its dependence on oil and gas revenues by facilitating high-knowledge-content jobs in different industrial sectors. Doing so also requires the greater incorporation of indigenous populations into national workforces at the expense of expatriate workers. In this respect, Kuwait’s plans to drastically reduce its migrant population offers a glimpse into the future shape of the Gulf’s workplaces. While never explicitly mentioned in strategic documents, the Gulf states anticipate that encouraging their own populations’ development will offset opportunities for the type of political dissent that’s currently gripping Belarus and which rocked Bahrain almost a decade ago.

      The Gulf’s rulers have no appetite for an Arab Spring 2.0, a scenario that some warn is a distinct possibility thanks to COVID-19. Accordingly, local development opportunities will continue to be encouraged during these chastened times. When it comes to wider political participation, Kuwait will remain something of an outlier for the foreseeable future.

      The Gulf states’ responses to COVID-19 also merit consideration. Once dismissed by Lukashenko as an ailment that can be treated with saunas and vodka, Belarus was among the last in Europe to enact lockdown measures. While it remains to be seen what impact ongoing protests will have on infection rates, a spike in cases could be used by Gulf states to justify their no-nonsense approaches to tackling the virus. Qatar, for example, was one of the first to completely lock down all but the most essential public services. The country’s return to normal rests on the public’s strict compliance with a four-phase reopening plan.

      Don’t Annoy Next Door

      International reaction to the political crisis in Belarus has so far been muted, with presidents Vladimir Putin of Russia and China’s Xi Jinping leading the congratulations for Lukashenko’s re-election. For its part, the European Union’s response has been cautiously led by the likes of Lithuania and Poland. Their approach reflects two important points. First, the protests are highly internalized and not about pivoting Belarus further East or West. Second, direct support for the opposition risks a Ukraine-type scenario whereby Moscow directly intervenes to safeguard its interests.

      Point two is of particular relevance to the Gulf states, whose economic ties with one of Russia’s closest allies continue to grow. Cooperation between Belarus and the United Arab Emirates is a case in point. According to government statistics, the volume of trade between both countries amounted to $121 million in 2019, up from $89.6 million the previous year. Minsk has also made overtures to Oman regarding joint manufacturing opportunities and the re-export of products to neighboring markets.

      Saudi Arabia undoubtedly has the most to lose from antagonizing Russia in its own backyard. Last April, the kingdom sold 80,000 tons of crude oil to Belarus. This purchase, first of its kind, not only reflects Minsk’s determination to lessen its reliance on Russian supplies, but also happened against the backdrop of faltering demand and an oil price war between Moscow and Riyadh. Since then, both sides have brokered a fragile peace designed in part to ensure that OPEC+ members respect industry-saving production cuts.

      Accordingly, the “softly, softly” approach currently being employed by the EU’s eastern flank provides a blueprint for how the Gulf states should continue to manage their responses to the Belarus crisis. Not only does it offer the best chance of maintaining economic relations irrespective of the final outcome, but it also keeps regional oil supplies in still uncharted waters at a time of great uncertainty in global markets. Antagonizing Russia with even the most tacit support for Belarus is, put simply, too risky a proposition.

      Belarus’ unfolding crisis is ultimately about replacing an unmovable political leader and system that have dominated the country for decades. In a region defined by its own version of long-term political stability, a similar scenario among Gulf states is unpalatable. Fortunately, the region still has resources at its disposal to prevent this from happening and protect much-needed economic victories in new markets. While always important, the Gulf’s indigenous populations are increasingly being reconfigured as the most essential features of the region’s future prosperity and stability.

      *[Fair Observer is a media partner of Gulf State Analytics.]

      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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      The Unintended Economic Impacts of China’s Belt and Road Initiative

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      China’s footprint in global foreign direct investment (FDI) has increased notably since the launch of the Belt and Road Initiative (BRI) in 2013. That served to bring Chinese overseas FDI closer to a level that one would expect, based on the country’s weight in the global economy. China accounted for about 12% of global cross-border mergers and acquisitions and 9% of announced greenfield FDI projects between 2013 and 2018. Chinese overseas FDI rose from $10 billion in 2005 (0.5% of Chinese GDP) to nearly $180 billion in 2017 (1.5% of GDP). Likewise, annual construction contracts awarded to Chinese companies increased from $10 billion in 2005 to more than $100 billion in 2017.

      Interestingly, however, the American Enterprise Institute’s China Global Investment tracker recorded $420 billion worth of investment and construction in BRI countries versus $655 billion in other countries between 2013 and 2018. So China actually invested more in countries outside the BRI during the period, given that Chinese investment in developed countries tends to have larger market values, particularly for mergers and acquisitions.

      Additional Pain

      Based on other measures, however, Chinese investment in BRI nations was much larger as a percentage of its total investment for the period. For example, greenfield investment represented almost half of all investment in BRI countries, but only 13% in other markets. Chinese firms were awarded $268 billion worth of construction contracts in BRI countries versus $166 billion elsewhere. Greenfield investment and construction in BRI countries amounted to $340 billion versus $230 billion in non-BRI countries.

      The subsidies that Beijing contributes to its state-owned enterprises implies that many of the BRI projects actually cost it far more than the face value of the construction and investment, meaning that loan defaults — a common occurrence — add that much more additional pain to Beijing’s coffers.

      The BRI: Keeping the Plates Spinning on China’s Economy

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      Asia attracted the majority of BRI-related investment and construction contracts between 2013 and 2018, receiving just over half of such activity, with Southeast Asia taking 46% of that amount. Africa received 23%, followed by the Middle East at 13%. Overall, approximately 38% of total investments and construction contracts were targeted at the energy sector in host nations, with 27% ending up in transport and 10% in real estate.

      The largest BRI project as of 2018 was the China-Pakistan Economic Corridor, which links Kashgar in China’s Xinjiang province with the port of Gwadar in Pakistan. Investments and construction contracts worth nearly $40 billion had been devoted to the project, with total spending likely to reach in excess of $60 billion by the time it is finished, equivalent to about 20% of Pakistan’s nominal GDP. The country endured a large increase in imports of materials and capital as a result, which aggravated its trade imbalance. By 2018, its current account deficit had expanded to more than 6% of GDP from less than 2% in 2016.

      Expensive Membership

      While Pakistan’s economic challenges were not and are not entirely attributable to the BRI, the strains added to it by the BRI became highly problematic. That turned out to be a common byproduct of the initiative among the countries receiving the largest amounts of investment. Large debts in countries with limited financial resources and means of generating revenue often undermine governments’ ability to successfully manage their economies. Rather than benefiting from the infrastructure investments made by China, they sometimes end up perpetually treading water.

      Rising debt service often increases a country’s borrowing costs, can raise doubt about its solvency, contribute to a depreciating currency and increase the local currency value of the external debt burden. Consequently, the macroeconomic fallout of being a recipient member of the BRI “club” can be severe, particularly for the smallest and poorest countries.

      A 2018 study from the Center for Global Development has noted, for example, that in the case of Djibouti, home to China’s only overseas military base, public external debt had increased from 50% to 85% of GDP in just two years — the highest of any low-income country. Much of that debt consists of government-guaranteed public enterprise debt owed to China’s Export-Import Bank (EXIM).

      In Laos, the $6-billion cost of the China-Laos railway represents almost half the country’s GDP. Debt to China, Tajikistan’s single largest creditor, accounted for almost 80% of the total increase in Tajikistan’s external debt between 2007 and 2016 period. And in Kyrgyzstan, China EXIM is the largest single creditor, with loans of $1.5 billion, or about 40% of the country’s total external debt.

      It certainly does not appear that Beijing put sufficient effort into contemplating the likely economic impact of the BRI prior to commencing it, either upon host nations or upon itself, for all concerned have borne the consequences of excessive and imprudent lending. Could it be that that Communist Party of China did not care, and that all that mattered was rolling the Initiative out as quickly as possible once it decided to do so?

      It is truly surprising that Beijing did not do a better job of envisioning the multiplicity of potential outcomes. That is undoubtedly the overriding reason why the Chinese government decided to pivot in 2018 and adopt a seemingly more rational, moderate and achievable approach to unleashing the remainder of the BRI upon the world. It now realizes that its reputation and legacy are at stake, never mind the hardship it has placed on scores of developing countries around the world in the process.

      *[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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      Negotiating the End of Brexit

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      It is increasingly likely that, unless things change, on January 1, 2021, we will have a no-deal Brexit. That would mean the only deal between the European Union and the United Kingdom would be the already ratified EU withdrawal agreement of 2019.

      There are only around 50 working days left in which to make a broader agreement for a post-Brexit trade deal between the UK and the EU. The consequences of failing to do so for Ireland will be as profound — and perhaps even as long-lasting — as those caused by the COVID-19 pandemic.

      A failure to reach a UK-EU agreement would mean a deep rift between the UK and Ireland. It would also mean heightened tensions within Northern Ireland, disruptions to century-old business relations and a succession of high-profile court cases between the EU and the UK dragging on for years.

      How Global Britain Confronts the Asian Century

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      Issues on which a deal could have easily been reached in amicable give-and-take negotiations will be used as hostages or leverage on other matters. The economic and political damage would be incalculable. And we must do everything we can to avoid this.

      Changing the EU trade commissioner, Phil Hogan, under such circumstances would be dangerous. Trying to change horses in midstream is always difficult. But attempting to do so at the height of a flood — in high winds — would be even more so.

      The EU would lose an exceptionally competent trade commissioner when he was never more needed. An Irishman would no longer hold the trade portfolio. The independence of the European Commission, a vital ingredient in the EU’s success, would have been compromised — a huge loss for all smaller EU states.

      According to the EU’s chief negotiator, Michel Barnier, talks between the European Union and the UK, which ended last week, seemed at times to be going “backwards rather than forwards.” The impasse has been reached for three reasons.

      The Meaning of Sovereignty

      First, the two sides have set themselves incompatible objectives. The European Union wants a wide-ranging “economic partnership” between the UK and the EU, with a “level playing field” for “open and fair” competition. The UK agreed to this objective in the joint political declaration made with the EU at the time of the withdrawal agreement, which was reached in October 2019.

      Since then, the UK has held a general election with the ruling Conservative Party winning an overall majority in Parliament, and it has changed its mind. It is now insisting, in the uncompromising words of it chief negotiator, David Frost, on “sovereign control of our own laws, borders, and waters.”

      Embed from Getty Images

      This formula fails to take account of the fact that any agreement the UK might make with the EU (or with anyone else) on standards for goods, services or food items necessarily involves a diminution of sovereign control. Even being in the World Trade Organization (WTO) involves accepting its rulings, which are a diminution of “sovereign control.” This is why US President Donald Trump does not like the WTO and is trying to undermine it.

      The 2019 withdrawal agreement from the EU also involves a diminution of sovereign control by Westminster over the laws that will apply in Northern Ireland and thus within the UK. That agreement obliges the UK to apply EU laws on tariffs and standards to goods entering Northern Ireland from Britain — i.e., going from one part of the UK to another.

      This obligation is one of the reasons given by a group of UK parliamentarians — including Iain Duncan Smith, David Trimble, Bill Cash, Owen Paterson and Sammy Wilson — for wanting the UK to pull out from the withdrawal agreement, even though most of them voted for it last year.

      Sovereignty is a metaphysical concept, not a practical policy. Attempting to apply it literally would make structured and predictable international cooperation between states impossible. That is not understood by many in the Conservative Party.

      The Method of Negotiation

      Second, the negotiating method has proved challenging. The legal and political timetables do not gel. The UK wants to discuss the legal texts of a possible free trade agreement first and leave the controversial issues — like competition and fisheries — until the endgame in October. But the EU wants serious engagement to start on these sticking points straight away.

      Any resolution of these matters will require complex legal drafting, which cannot be left to the last minute. After all, these texts will have to be approved by the European and British Parliaments before the end of 2020. There can be no ambiguities or late-night sloppy drafting.

      The problem is that the UK negotiator cannot yet get instructions on the compromises he can make from Boris Johnson, the British prime minister. Johnson is instead preoccupied with combating the spread of the COVID-19 disease, as well as keeping the likes of Duncan Smith and Co. onside. The prime minister is a last-minute type of guy.

      Trade Relations With Other Blocs

      Third, there is the matter of making provisions for the trade agreements the UK wants to make in the future with other countries, such as the US, Japan and New Zealand. Freedom to make such deals was presented to UK voters as one of the benefits of Brexit.

      The underlying problem here is that the UK government has yet to make up its mind on whether it will continue with the European Union’s strict precautionary policy on food safety or adopt the more permissive approach favored by the US. Similar policy choices will have to be made by the UK on chemicals, energy efficiency displays and geographical indicators.

      The more the UK diverges from existing EU standards on these issues, the more intrusive the controls on goods coming into Northern Ireland from Britain will have to be, and the more acute the distress will be for Unionist circles in Northern Ireland. Issues that are uncontroversial in themselves will assume vast symbolic significance and threaten peace on the island of Ireland

      The UK is likely to be forced to make side deals with the US on issues like hormone-treated beef, genetically modified organisms and chlorinated chicken. The US questions the scientific basis for the existing EU restrictions and has won a WTO case on beef over this. It would probably win on chlorinated chicken, too.

      If Britain conceded to the US on hormones and chlorination, this would create control problems at the border between the UK and the EU, wherever that border is in Ireland. Either UK officials would enforce EU rules on hormones and chlorination on the entry of beef or chicken to this island, or there would be a huge international court case.

      All this shows that, in the absence of some sort of partnership agreement between the EU and the UK, relations could spiral out of control. Ireland, as well as the European Union, needs its best team on the pitch to ensure that this does not happen.

      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

      How Global Britain Confronts the Asian Century

      by

      On February 3, Prime Minister Boris Johnson laid bare his long-awaited vision of a “global Britain” in a world after Brexit. Speaking amidst the imperial grandeur of Old Royal Naval College in Greenwich, Johnson’s message was that the United Kingdom, liberated from the straitjacket of EU membership, would be free to carve out a confident, dynamic and outward-looking role on the world stage in a post-Brexit era — even as the first handful of COVID-19 infections took root on British soil.

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      Six months and a global pandemic later, Britain faces the unique and unprecedented challenge of redefining its place in a world that is in the midst of a historic watershed moment. The COVID-19 pandemic has served as a catalyst for deep-rooted trends that have long been evident to politicians, policymakers and analysts alike — none more so than the tectonic shift in the globe’s geopolitical center of gravity from West to East.

      Whether it be China’s much-publicized “wolf-warrior” diplomacy against states criticizing its initial response to the outbreak, or the initial success of East Asian states in confronting the pandemic using artificial intelligence and digital surveillance, COVID-19 has shown that the much-hyped “Asian century” is not merely a future prognosis but a present-day reality.

      Brexit Britain on the World Stage

      If the pandemic has served to boost Asia’s image on the world stage, the opposite is true for Brexit Britain. The UK’s bumbling response to the COVID-19 crisis has confirmed many of the suspicions of ill-placed grandeur held in foreign capitals since the referendum to leave the European Union in 2016.

      Despite Johnson’s boastful confidence in Britain’s “world-beating” response to the novel coronavirus (which causes the COVID-19 disease), fatal early errors by the government — notably the initial refusal to enforce a lockdown in a forlorn effort to preserve the economy — have resulted in Britain suffering the worst of both worlds. Not only is the UK facing one of the highest per-capita death rates and the worst economic fallout as a result of COVID-19 in the developed world, but the situation has been exacerbated by the looming threat of no post-Brexit trade deal being agreed with the EU by the end of 2020.

      In this context, a global Britain’s success in navigating the increasingly volatile “new normal” of the post-pandemic geopolitical order will hinge more than ever on the government’s ability to leverage ties with partners old and new across the Asian continent.

      Embed from Getty Images

      Johnson’s vision of a buccaneering global Britain on the world stage is fundamentally predicated upon two core pillars: trade and security. Whitehall is acutely aware that Britain’s ability to harness the ascendance of Asia’s emerging powerhouses hinges upon striking a fragile balance between these two, often inconsistent, objectives.

      On one hand, Britain’s strategic planners look hungrily toward contemporary geopolitical hotspots like the South China Sea as testing grounds for a new forceful security footprint in the Indo-Pacific region. Britain’s armed forces already possess a string of strategic outposts, from the Brunei-based Gurkha garrison to Royal Naval logistical hubs in Singapore and Diego Garcia. The recently formed UK Defence Staff (Asia Pacific) has outlined plans for a further base in Southeast Asia in a bid to affirm Britain’s commitment to upholding the regional security architecture.

      In a symbolic gesture, the scheduled deployment of the Royal Navy’s brand new state-of-the-art aircraft carrier, HMS Queen Elizabeth, to conduct “freedom of navigation” patrols in the disputed South China Sea during 2021 is indicative of a wholesale rejection of the strategic retrenchment from east of Suez that has typified British security policy in the Indo-Pacific since the 1960s.

      Beijing’s Sphere of Influence

      Nevertheless, such grandiose ambitions of a more assertive military and diplomatic footprint in Asia do not come without their costs. Given China’s increasingly assertive posture on the international stage since the outbreak of COVID-19, it is not unreasonable to expect the diplomatic blowback from Britain’s perceived meddling within Beijing’s sphere of influence to grow stronger in the post-COVID era.

      In July, after the UK offered citizenship to almost 3 million Hong Kong residents following Beijing’s implementation of a controversial new security law in Britain’s ex-colony, China issued a strongly-worded yet ambiguous threat of “retaliation.” China’s response is illustrative of the fact that Brexit Britain’s ability to fully harness the Asian century is dependent upon London playing second fiddle to the preferences of Tokyo, Beijing and New Delhi.  

      Despite Johnson’s lofty rhetoric hailing Britain’s post-Brexit transformation into a “great, global trading nation,” such a vision is not exactly conducive to geopolitical maneuvers that can all too readily be perceived as antagonistic by prospective partners. For instance, Whitehall’s backpedaling over the contracting of Huawei, a Chinese technology company, to construct large tracts of Britain’s 5G infrastructure over national security concerns does not bode well for a future UK–China free trade deal. Similarly, efforts to introduce restrictions on immigration via the adoption of an Australia-style points-based system have proved to be a sticking point in post-Brexit trade negotiations with India, the former “jewel of the empire” with whom Britain shares extensive historical, cultural and linguistic ties.

      As a global Britain seeks to navigate a post-pandemic order characterized by increased great power antagonism, retreating globalization and resurgent authoritarianism, Whitehall’s strategic planners must be prepared to make hard-headed compromises between geopolitical and economic objectives in Asia in a manner that has been sorely lacking from Brexit negotiations with Britain’s European partners. Cut adrift from Europe at a time when the global order is becoming increasingly fragmented into competing regional blocs, a rudderless Britain lacking a coherent, sustainable vision of how it seeks to engage with Asia’s emerging superpowers risks becoming caught in the middle of an escalating cold war between the US and China.

      Reason for Optimism

      Despite the gloomy prognosis for a global Britain standing at the dawn of the Asian century, there remains reason for optimism once the short-term shockwaves of the pandemic have receded. Britain’s elite universities retain a mystical allure for ambitious young Asians seeking a world-class education. China, India, Hong Kong and Malaysia account for four of the top five countries of origin for international students in the UK. In addition, with two leading vaccine candidates in development at Oxford and Imperial, a British breakthrough in the fight against COVID-19 would further bolster Britain’s reputation as a global hub of research and innovation.

      Such cutting-edge academic expertise — combined with London’s enduring status as a global financial center, post-2021 visa and immigration reforms targeting highly-skilled professionals, and the cultural imprint of large Indian, Pakistani, Bangladeshi and Chinese diasporas — ensures that even post-Brexit Britain possesses the latent potential not only to attract top-class Asian talent, but also to emerge as one of the Asian century’s biggest winners outside of the Indo-Pacific. Whilst Brexit has undercut the Blairite vision of Britain as a “pivotal power” bridging the gap between the US and Europe, the United Kingdom’s deep-rooted historical, cultural, linguistic and economic ties with Asia’s rising powers provide ample scope for recasting Britain as a pivot on a grander scale: as a global hub bridging East and West.

      However, such aspirations remain little more than wishful thinking unless British policymakers can formulate a coherent approach toward the Asian century, which has so far been absent. Nevertheless, tentative steps have been taken in such a direction over recent months. Whitehall’s merging of the Department for International Development with the Foreign Office is likely to deal a blow to British influence in less-developed corners of Asia, at least in the short term. Yet Johnson’s renewed commitment to spend 0.7% of GDP on foreign aid enables a more cohesive, long-term approach with developmental issues, allowing funding to be streamlined toward teams of world-class specialists, such as the UK Climate Change Unit in Indonesia or the Stabilisation Unit supporting post-conflict reconstruction in fragile states like Pakistan and Myanmar.

      Similarly, the Foreign Office’s recent adoption of an “All of Asia” strategy is indicative of a more comprehensive approach to forging partnerships across the continent, balancing conflicting security, diplomatic, trade, developmental priorities, as illustrated through the establishment of the UK’s first permanent mission to Association of Southeast Asian Nations (ASEAN) bloc in January 2020.

      Before It Sets Sail

      As the nature of post-pandemic global order emerges over the coming months and years, a global Britain will find itself navigating a turbulent geopolitical environment made infinitely more challenging by the aftershocks of the coronavirus. This includes a worldwide economic crisis, decreased globalization, declining faith in multilateral institutions and rising great power tension, all of which threaten to derail Johnson’s post-Brexit voyage into the unknown before it has even set sail.

      Whilst Britain and its Western allies have bungled their response to the public health crisis, Asia’s dynamic rising powers are already bouncing back from the pandemic and laying the building blocks to ensure that the 21st century truly is Asian. From Beijing’s “Belt and Road Initiative” to New Delhi’s “Make in India” to ambitious future vision projects such as Saudi Arabia’s Vision 2030, Vision of Indonesia 2045 or Kazakhstan 2050, Asia’s emerging powerhouses all champion integrated strategic frameworks to harness the unprecedented shift in global wealth and power eastward, which the COVID-19 pandemic has catalyzed.

      A global Britain’s greatest mistake would be to supplement such a long-term calculated strategy with the half-baked geopolitical gambits that have so far typified Brexit Britain’s approach to the world’s largest continent. Indeed, for the UK to truly unleash its full potential in the dawning Asian century, it must look to Asia itself for inspiration.

      *[Will Marshall is an intern at Gulf State Analytics, which is a media partner of Fair Observer.]

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

    • 113 Shares99 Views

      in US Politics

      What the weakening dollar means for the global economy

      by

      A near 10% drop in the value of the US dollar since its March high has given rise to two distinct narratives. The first takes a short-term perspective, focusing on how a depreciation could benefit the US economy and markets; the second takes the long view, fretting over the dollar’s fragile status as the world’s reserve currency. Both narratives contain some truth, but not enough to justify the emerging consensus around them.Several factors have combined to put downward pressure on the greenback (as measured by the DXY index of trade-weighted currencies) in recent weeks, resulting in a depreciation that has reversed almost half of the appreciation of the last 10 years within the space of months.As the US Federal Reserve has loosened monetary policy (actually and prospectively) in response to a worsening economic outlook, the income accruing to dollar-denominated safe havens, such as US government bonds, has declined. And with US-based investments having lost some of their attractiveness, there has been a shift in holdings in favour of emerging markets and Europe (where the European Union last month agreed to pursue deeper fiscal integration).There also are indicators of lower capital inflows into the United States. House purchases by foreigners appear to have decreased again, owing in part to the US government’s embrace of inward-looking policies and the weaponisation of trade and sanction measures.With the exception of Lebanon, Turkey and a few other countries that have experienced even sharper exchange-rate depreciations than the US, most currencies have strengthened against the dollar. But among those with appreciating currencies, the reactions to this generalised phenomenon have been far from uniform.Some countries, particularly in the developing world, have welcomed the reversal, because their previous currency weakness had been contributing to higher import prices, including for foodstuffs. Moreover, a weaker dollar provides them with greater scope to support domestic economic activities through more stimulative fiscal and monetary measures.But the reaction has been less welcoming in the other advanced economies. Japan and eurozone member states, in particular, fear that currency appreciation could threaten their own economic recovery from the Covid-19 shock. Also, the Bank of Japan and the European Central Bank now have to worry that they are not only reaching the limits of their policy effectiveness, but could also be putting their economies at greater risk of collateral damage and unintended consequences.In the US, meanwhile, the dollar’s depreciation has been welcomed as an overwhelmingly positive development for the economy, at least in the short term. After all, economic textbooks tell us that a weakening dollar boosts US producers’ international and domestic competitiveness relative to foreign competitors, makes the country more attractive for foreign investors and tourism (in price terms), and increases the dollar value of revenue earned overseas by home-based companies. That is also all good for US stock and corporate bond markets, which benefit further from the greater attractiveness of dollar-denominated securities when they are priced in a foreign currency.The longer-term consensus view is less positive for the US. The worry is that dollar depreciation will further erode the currency’s global status, which has already been weakened by the US policies of the past three years – from protectionism and weaponised sanctions to bypassing global standards and the rule of law.The more the dollar’s credibility is eroded, the more the US risks losing the “exorbitant privilege” that comes with issuing the world’s main reserve currency. A country in this position can exchange bits of printed paper or digital entries – currency creation – for the goods and services that other countries produce. It enjoys disproportionate influence over important multilateral decisions and appointments. And it benefits from others’ willingness to outsource to its own institutions the management of their financial wealth.Both of these (partly true) consensus narratives imply further significant dollar depreciation. While the immediate effects are theoretically positive, the practical situation is likely to be different, because so much economic activity is currently impaired by government restrictions and the reluctance of individuals and companies to return to previous consumption and production patterns. Around half of US states have now reversed or halted the process of economic reopening.Moreover, today’s positive market effects demand further qualification beyond the health crisis. Owing to the reliable and ample provision of liquidity, particularly by central banks, most valuations have already decoupled from economic and corporate fundamentals. Under these financial conditions, it is hard to imagine that a dollar depreciation will have any more than a marginal effect on real economic performance.As for the dollar’s role as a reserve currency, I am reminded of a simple principle I learned at university: it is hard to replace something with nothing. At this time, there simply is no other currency that can or will fill the dollar’s shoes. Instead, we will continue to see small pipes being built around the dollar. And, because none of these will be large enough to replace it, the eventual result will be a more fragmented international monetary system.As has happened before, the current consensus views on the dollar will probably end up overstating the long-term implications of short-term movements. Today’s dollar weakness is neither a boon to markets and the US economy nor an augury of the currency’s global downfall. But it is part of a larger, gradual fragmentation of the international economic order. The main factor in that process is the shocking lack of international policy coordination at a time of rising global challenges.• Mohamed El-Erian is chief economic adviser at Allianz. He served as chair of President Barack Obama’s Global Development Council and is a former deputy director at the IMF© Project Syndicate More