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Money and Muscle Pave China’s Way to Global Power


China Rules

They didn’t like the West’s playbook. So they wrote their own.

PART 3

Money and Muscle Pave China’s Way to Global Power

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Liu Ping, center, president of China’s state-owned Bright Food Group, sampling local yogurt at a dairy farm near Momchilovtsi. A Bright Food yogurt brand is named for the village.

Beijing is leveraging its commercial and military might to redraw the terms of trade, diplomacy and security, challenging the liberal democratic order.

By PETER S. GOODMAN and JANE PERLEZPhotographs by BRYAN DENTONNOV. 25, 2018

Under a merciless sun, a dozen Chinese construction workers survey an empty expanse of desert, preparing to transform it into the heart of a new Egyptian capital.

The workers are employed by China’s largest construction conglomerate through a $3 billion contract from an Egyptian company, with financing from Chinese banks. They are erecting a thicket of 21 skyscrapers, one as tall as the Empire State Building.

The presence of Chinese labor and largess on the sands of Egypt is a testament to China’s global aspirations. After centuries of weakness and isolation, China is reclaiming what its leaders regard as its natural destiny — supremacy in Asia, and respect around the planet. Through the ventures in Egypt and elsewhere, China is exploiting its formidable economic clout to expand its geopolitical influence, directing investment to woo governments that control vital assets.

A traditional ally of the United States, Egypt controls the Suez Canal, a vital shipping passage where a threat to access could impede China’s movement around the globe. In constructing a central piece of the futuristic capital, China is ingratiating itself with the canal’s ultimate gatekeeper, President Abdel Fattah el-Sisi, while rendering his grandest visions dependent on friendly relations with Beijing.

How China became a superpower

The American Dream Is Alive. In China.

How China Made Its Own Internet

How China Took Over Your TV

How China Is Rewriting Its Own Script

The World, Built By China

China’s reach for commercial expansion along with diplomatic influence guides an array of Chinese undertakings, from rail networks and highways taking shape across Africa and Latin America to ports and power stations being constructed in Eastern Europe and South Asia. In Southeast Asia, Chinese entrepreneurs are engineering a crop of web companies just as China projects growing military power in the South China Sea.

Little more than a decade ago, China’s forays beyond its borders were mainly about bringing home energy, minerals and other resources, often from countries forsaken by the West as pariah states like Iran, Sudan and Myanmar. In foreign policy, China pursued a sole obsession — peeling off diplomatic recognition of Taiwan, the self-governing island that Beijing claims as its territory. Even as China skirmished with neighbors over contested islands, it accepted the dominance of the United States Navy.

Those days are over.

Chinese banks are lending $3 billion to finance the first phase of the new Egyptian capital, which is expected to be completed in three years. A second phase is expected to cost $3.2 billion.

Chinese visitors at the pyramids of Giza in Egypt, which is using workers and financing from China to build a new capital city.

Under the muscular leadership of President Xi Jinping, China has cast off previous restraints, rejecting deference to an American-dominated global order as an impediment to national revival. In matters of commerce and national security, China is competing with the United States, even in traditional American spheres of influence.

From a Chinese perspective, this reordering is merely an overdue reversion to historical reality as Beijing demands consideration commensurate with its stature.

In the telling of the ruling Communist Party, China’s modern history is the story of Chinese mastery degraded by colonial depravity. China is the land that invented the compass, gunpowder, paper and printing, amassing stupendous wealth while Europe was still backward. Then came centuries of humiliation — Britain’s profiting from forcing opium on the populace, Japanese brutality, demeaning lectures about human rights from hypocritical Americans. Now, China is intent on securing its own fate.

“China wants to be a great power in the world,” says Paul Heer, a former chief national intelligence officer in East Asia for the United States, who now teaches at George Washington University. “They think the rest of the world owes them recognition, and a return to what the Chinese see as their rightful place.”

Nowhere are China’s designs clearer than in Asia. China has overtaken the United States as the leading trading partner with Asian nations while pushing back against American naval primacy in the South China Sea. China is disrupting American alliances in the region, from Japan to Singapore to Australia.

Beyond its backyard, China’s ambitions are boundless. It celebrates its Belt and Road Initiative, a vast collection of infrastructure projects around the world, as the means of recreating the Silk Road, the trails navigated in ancient times by merchants carrying goods between Asia and Europe.

“Xi Jinping is leading a China that has influences in all corners of the globe,” says Zhang Baohui, a professor of international relations at Lingnan University in Hong Kong. “The 2008 financial crisis in the West was the turning point for China. Beijing started to embrace a triumphal mind-set, and pursued global leadership with new confidence on the back of the West’s perceived flaws.”

China’s assertive role in world affairs is grounded in its domestic needs. It is at once spreading into new markets, generating fresh demand for its factory wares just as growth slows at home. It is projecting military strength and influence when the legitimacy of the Communist Party rests on bolstering economic fortunes and international esteem.

Among its neighbors, China’s rise provokes fears that an unwanted piece of history is being resurrected — the old tribute system that cemented China’s status as the Middle Kingdom. For centuries, other nations bowed in recognition of China’s imperial might, bestowing gifts on the emperor and accepting vassal status to secure trade and peace.

Beijing now confronts accusations that it is directing investments to ensnare partners in debt traps as a means of seizing their assets. Last year, Sri Lanka handed control of a port to a Chinese venture after failing to pay back Chinese loans. Malaysia recently canceled a pair of projects involving Chinese financing. Faced with pushback abroad and concerns about mounting debts at home, China is reassessing the breadth and cost of its global ventures, although the scope remains vast.

For the Western powers whose order has prevailed since the end of World War II, China poses a foundational challenge. The United States and its victorious allies erected institutions that were — at least rhetorically — designed to keep the peace by promoting trade and fair competition. The World Bank and the International Monetary Fund have dispensed aid with conditions, though frequently drawing accusations that they have failed to comply with their standards on protecting human rights and the rule of law.

China’s investments come with no such strictures. China bankrolls autocrats who control geopolitically valuable real estate. China demands only that its companies gain a piece of the action while recipients eschew criticizing Beijing.

China’s challenge to the Western-dominated order is amplified by the reality that its primary architect, the United States, is now led by an avowed nationalist. As President Trump wages a trade war and derides international cooperation, he has generated doubts about the perseverance of the liberal democratic philosophy the United States has long championed.

Mr. Xi has sought to fill the vacuum. He has cast himself as the leader of the rules-based international trading system, even as China faces accusations of stealing intellectual property, subsidizing state-owned companies and dumping products on world markets at unfairly low prices.

“What’s happening in the United States gives China this golden opportunity to portray itself as the defender of the international order,” says Jessica Chen Weiss, a China expert at Cornell University.

Threatening Competition and Cohesion

If the new Silk Road is in part about moving goods from Chinese factories to customers in the rest of the world, the trail seems certain to pass through Central and Eastern Europe.

Already, Chinese investment has turned the Greek port of Piraeus into the busiest shipping hub on the Mediterranean, a gateway to the rest of the European Union, with its 500 million consumers. China has promised to help finance the construction of a high-speed rail link from the Serbian capital, Belgrade, to the Hungarian capital, Budapest. It has also pledged to turn the region into a transportation corridor laced with highways, airports, rail, ports and power stations.

This reality frames the proceedings of the “16-plus-1” group, an economic bloc that China has forged with 16 Central and Eastern European nations. Its latest summit meeting convenes on a drizzly day in July in the Bulgarian capital, Sofia. Officials from the 16 governments — among them the newest, least-affluent members of the European Union — pose for photos with the delegation from China, the one nation wealthy and ambitious enough to finance their visions.

Leaders in the rest of the European Union construe the group as a stealth assault on the rules and cohesion of their bloc. In offering financing for infrastructure projects, China has positioned itself as an alternative to European Union development funds.

Europe’s money comes with rules protecting labor and the environment, while requiring that projects be awarded to companies on the basis of competitive bidding to ensure fair competition. China tends to distribute its funds with far simpler demands: Chinese companies must gain work, free of competition, while Beijing secures an international ally.

European Union officials are especially worried that Chinese money could weaken the pressure Europe is applying on members that have been breaching democratic norms. Europe has threatened to withhold development funds from Poland and Hungary as punishment for their turns toward authoritarianism. Both have packed courts with government-friendly judges and menaced the press.

“It’s a mutually beneficial cooperation based on mutual trust without any kind of attempts to interfere into domestic issues,” Hungary’s foreign minister, Peter Szijjarto, says in an interview before the summit meeting in Sofia.

Bulgaria has high hopes for Chinese investment on highway projects linking its ports. The Bulgarian government has broken with other European Union members in declining to join international statements condemning China’s human rights record. As Bulgarian officials prepare at the gathering to meet China’s premier, Li Keqiang, they plan to stick to business.

A Chinese noodle chef’s demonstration at a festival in Momchilovtsi, Bulgaria. Bulgaria is one of 16 Central and Eastern European nations that have formed an economic bloc with China.

Bulgaria’s plans to have a Chinese conglomerate run the airport in its second-largest city, Plovdiv, fell through this year.

“We are talking about different conversations, concrete conversations related to infrastructure, and other conversations related to the level of democracy and human rights in China,” Deputy Prime Minister Tomislav Donchev of Bulgaria says in an interview the day before the event. “It would not be polite and constructive if we try to merge them into one.”

The summit meeting convenes in a hulking convention center that harks back to era of Soviet domination. At a news conference, the Chinese and Bulgarian prime ministers offer assurances that the 16-plus-1 bloc does not aim to divide Europe.

Mr. Li seeks to allay European worries that China poses a challenge to its rules. He promises that Chinese-financed projects will be awarded on the basis of competitive bidding.

“There needs to be open and transparent tendering,” the Chinese premier declares.

But the Serbian prime minister, Ana Brnabic, has just undercut that assertion. Asked moments earlier about the high-speed rail from Belgrade to Budapest, she says Chinese companies have been promised construction work.

“China is a strategic partner,” she says. “We are not putting out tenders.”

Investing for the Future

As a currency crisis ravaged Indonesia two decades ago, angry mobs tore through West Jakarta, killing hundreds of ethnically Chinese merchants. Yet Cheng Tao, a Chinese software engineer turned venture capitalist, can look down from his high-rise office on the same neighborhood and see a tranquil center of Chinese life — grocery shops, restaurants and his own son’s school.

Mr. Cheng, 34, is part of an influx of young Chinese financiers, engineers and web designers who rent space in an area full of technology companies. He first came to Indonesia a decade ago with the Chinese telecom company Huawei. He and other veterans of large Chinese conglomerates are increasingly unleashing their own start-ups.

“Ten years ago, there were no mainland Chinese here,” Mr. Cheng says as he sips tea imported from China. “We see opportunities here that no longer exist in China.”

The thriving Chinese start-up scene in a neighborhood once devastated by anti-Chinese terrorism illustrates China’s deepening engagement in Southeast Asia. Only a few years ago, Chinese companies in the region were mainly focused on purchasing natural resources. Today, China is investing for the future, seeding innovative industries with money and brainpower.

Last year, Chinese investors participated in funding rounds for Indonesian start-ups that accounted for 95 percent of the value of those companies, according to a survey by Google and A. T. Kearney, a global management company.

“China is Indonesia’s Silicon Valley,” says Adrian Li, a venture capitalist who has a Stanford M.B.A. and moved to Jakarta from Beijing in 2014.

China’s place in Southeast Asia has proceeded deliberately, and just as the United States has ceded ground.

Programming notes written on a window of Tokopedia’s high-rise headquarters in Jakarta.

Engineers at Tokopedia, an online marketplace in Indonesia. Jack Ma, the founder of the Chinese e-commerce giant Alibaba, invested $1.1 billion in Tokopedia last year.

Back in 2003, the prime minister at the time, Wen Jiabao, addressed the yearly gathering of the Association of Southeast Asian Nations. A decade later, President Barack Obama did not attend the annual conclave, held that year on the Indonesian island Bali. It was a noteworthy absence given that Mr. Obama had spent time in Indonesia in his youth.

China’s new president, Mr. Xi, showed up. He even addressed the Indonesian Parliament, using the occasion to announce a new institution — what would become the Asian Infrastructure Investment Bank, now a rival to the World Bank.

While heads of state forge ties amid pageantry, Chinese businesses have been quietly yet persistently making inroads in Indonesia, guided by bottom-line concerns. At home, Chinese web companies are running out of new customers. Indonesia, a land of 260 million people, is adding more internet users than anywhere else on Earth.

Jack Ma, the founder of the Chinese e-commerce company Alibaba, was early to appreciate this reality, pouring major investments into local shopping start-ups, including $1.1 billion last year into Tokopedia, a thriving online marketplace. During the Muslim holy month of Ramadan this spring, the Tokopedia site drew 78 million people, a 70 percent increase from the previous month.

Such potential fortifies Mr. Ma’s determination to stay ahead of his biggest global competitor — Amazon. The American e-commerce company operates in Singapore but has yet to significantly penetrate Southeast Asia.

Alibaba has put more than $3 billion into a former regional competitor, Lazada. Its Alipay digital payment system operates across Southeast Asia. Mr. Ma sits on advisory boards in the region that will help set standards and shape consumer perceptions, expanding China’s traditional reach.

Military Buildup

Beyond money and clicks, China projects its power through a more traditional display of strength — military might.

Alex Pama has watched it unfold from uncomfortable proximity. In the 1990s, when he was a junior officer in the Philippine Navy, he saw Chinese boats landing on Mischief Reef, a glorified collection of rocks claimed by the Philippines in the South China Sea. Chinese crews erected shelters to mark the territory, then began pouring concrete for larger buildings.

The Philippines sought help from its former colonial overseer, the United States. But the Clinton administration demurred. The American Navy was still smarting over losing access to Subic Bay, its longtime base in the Philippines.

That decision was a historic turning point, says Mr. Pama, who would rise to become admiral of the Philippine Navy. From then on, the United States shrank from the region, relinquishing the seas to China.

“That’s when the appeasement started,” Mr. Pama says.

Two decades later, President Xi ordered the buildup of Mischief Reef and other outcroppings in the Spratly archipelago into islands bristling with reconnaissance gear, aircraft hangars, runways, deepwater harbors and, most recently, short-range missiles. Those bases and China’s maritime buildup have given Beijing effective control over one of the most heavily trafficked waterways on the planet.

Subi Reef, one of the outcroppings that China has built up in the Spratly archipelago to assert its presence in the South China Sea.Adam Dean for The New York Times

A security guard at the Indian Ocean port at Hambantota, which Sri Lanka handed over to Chinese control last year after failing to pay back Chinese loans.Adam Dean for The New York Times

“The U.S. should have been more assertive back then and now,” says Mr. Pama, now retired.

Dominating the South China Sea and unseating the United States have become central objectives in Mr. Xi’s bid to return China to glory. Last year, China for the first time staged aircraft carrier drills using advanced fighter jets in the South China Sea.

Chinese state-owned companies control two Chinese-built ports on the Indian Ocean, in Sri Lanka and Pakistan. Two more are on the drawing board for Myanmar and Bangladesh, helping China achieve its maritime strategy of a “string of pearls” stretching from the mainland to Port Sudan in Africa. Last year, China opened its first overseas military base, in Djibouti on the Horn of Africa.

China has presented these moves as defensive. But the United States and its Asian allies warn that Beijing has positioned itself to hold global trade hostage while diminishing the American presence. China’s emergence as the region’s dominant commercial power combined with its moves toward maritime supremacy has heightened the sense that a changing of the guard is underway.

“Over the long term, China’s power and influence will undoubtedly weaken and ultimately abolish U.S. dominance in the region,” says Shi Yinhong, a professor of international relations at Renmin University in Beijing, who advises the government.

The perspective gained momentum during the 2012 standoff at Scarborough Shoal, a horseshoe-shaped chain of reefs that is much closer to the Philippines than to China.

As the Philippine Navy challenged Chinese fishing boats, the Obama administration brokered a deal in which both sides would withdraw. The Philippine vessels departed, but some of the Chinese boats stayed.

China has controlled the shoal ever since. Emboldened, China began construction of seven artificial islands in the Spratly archipelago.

China appears reluctant to build a full-fledged military base on the shoal, lest it stoke nationalist anger in the Philippines, damaging relations with its pro-China president, Rodrigo Duterte.

“Any reclamation will outrage the Duterte government,” says Zhu Feng, the executive director of the Center for the South China Sea at Nanjing University. “China can’t afford to lose a good friend like that.”

But many Philippine officials fear that this is merely a pause before an inevitable Chinese expansion.

Two large maps of the South China Sea cover the walls of the office of Gary Alejano, a Philippine congressman and former marine. He shows visitors how the Scarborough Shoal sits on the edge of the Bashi Channel, the Chinese Navy’s entryway into the western Pacific. He points out the artificial islands in the Spratly archipelago. He notes Mischief Reef, where Chinese fighter jets have landed.

Unless someone confronts them, those jets will remain there, using the hangars China built, Mr. Alejano says. Philippine Navy vessels rarely patrol the area, he laments.

“Right now, you can feel that China controls the South China Sea,” Mr. Alejano says. “And the U.S. comes in and out.”

Owning the Choke Points

As China charts its global reach, six zones demand special attention: the maritime choke points.

The entryway to the Black Sea from the Mediterranean. The passageway from the Pacific to the Indian Ocean via the Strait of Malacca. The corridor separating Europe from Africa at the Strait of Gibraltar. Bab el Mandeb, off Djibouti in the Horn of Africa. The Strait of Hormuz in the Persian Gulf. Access to the Mediterranean from the Red Sea through the Suez Canal.

At any one, an outbreak of hostilities could imperil China’s free movement around the globe, jeopardizing its exports and access to resources.

These zones have historically been policed by American naval power, which has made China’s access dependent on peaceful relations with the United States. To liberate itself, China has been lavishing investment on governments that control the choke points.

Which is how China became financier and developer for the grandiose capital being constructed by President Sisi in the reddish-brown desert east of Cairo. Mr. Sisi craves investment and allies at a time when much of the world has recoiled from his brutal crackdown on dissent.

A Chinese worker in his bunk at a stone-quarrying company jointly owned by Chinese and Egyptian investors outside Cairo.

Egypt is using workers and financing from China to build a new capital city.

In an interview, Gen. Ahmed Zaki Abdeen, who heads the Egyptian state-owned company overseeing the new capital, railed against American reluctance to invest in his country.

“Stop talking to us about human rights,” he says. “Come and do business with us. The Chinese are coming — they are seeking win-win situations. Welcome to the Chinese.”

In backing the new capital, China has furthered an age-old aspiration for the Egyptian powers that be: taming the desert. The project aims to construct a city of 6.5 million people, replacing crumbling Cairo with a technological metropolis engineered to rival Dubai. Construction is expected to take 15 years while costing 200 billion Egyptian pounds, more than $11 billion.

Under a master agreement signed in October 2017, China Construction is building the capital’s central business district. A consortium of Chinese state-owned banks is lending $3 billion to finance a first phase expected to be completed in three years. Egypt is obligated to spend the money by hiring the China State Construction Engineering Corporation. A second phase is expected to run $3.2 billion.

Yu Wenchuan dons a yellow safety vest as he works security at the China Construction site. Born and raised in the southwestern Chinese province of Sichuan, Mr. Yu, 24, complains about the 100-degree heat and the conspicuous absence of spicy noodles. But he is resigned to spending the next eight years in Egypt.

“This is a good way to get experience,” he says.

Under the contract, 35 percent of construction materials can be brought from China. Even some of the 65 percent procured from domestic sources stands to enrich China, given the presence of entrepreneurs like Xin Zhu.

Seventeen years have passed since Mr. Xin landed in Cairo from his native Hubei Province. There, he oversaw a factory that processed slabs of granite and marble into flooring and countertops. He had heard that Egypt was rich with quarries full of high-quality, low-priced rock.

He took control of a lot in an industrial area outside Cairo. He endured terrible roads and power failures. “I was like a pioneer,” he says.

Today, Mr. Xin’s company employs more than 100 people, mostly migrants from China. He ships most of his production to China. But he aims to sell into the new capital, profiting as Beijing erects a veritable Pharaonic monument for Egypt’s authoritarian leader.

“I was looking for new opportunities outside China,” Mr. Xin says. “More development is good for our business.”

Peter S. Goodman, The Times’s global economics correspondent, spent six years in China as the Shanghai bureau chief for The Washington Post.

Jane Perlez is The Times’s bureau chief in Beijing, where she has covered China’s relations with the United States and Asia since 2012.

Design: Matt Ruby, Rumsey Taylor, Quoctrung Bui Editing: Tess Felder, Eric Nagourney, David Schmidt Photo Editing: David Furst, Craig Allen, Meghan Petersen, Mikko Takkunen Illustrations: Sergio Peçanha


https://www.nytimes.com/interactive/2018/11/25/world/asia/china-world-power.html

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