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SupChina: Analytical Articles on China

1. No evidence for debt trap diplomacy — American researchers

At the end of last week, as the Belt and Road Forum was concluding in Beijing, the New York Times published an opinion piece (porous paywall) by Deborah Bräutigam. She is the director of the China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies, and the author of The Dragon's Gift: The Real Story of China in Africa, among other books and publications.

Bräutigam addresses the accusations that China is using the Belt and Road Initiative (BRI) as a cover for “debt-trap diplomacy” or, in the words of U.S. national security adviser John R. Bolton, that China is making “strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands.” Bräutigam and other scholars say this just isn’t happening:

Yes, debt is on the rise in the developing world, and Chinese overseas lending is, for the first time, a part of the story. But a number of us academics who have studied China’s practices in detail have found scant evidence of a pattern indicating that Chinese banks, acting at the government’s behest, are deliberately over-lending or funding loss-making projects to secure strategic advantages for China…

The idea that the Chinese government is doling out debt strategically, for its benefit, isn’t supported by the facts. Many of the would-be borrowers gathering in Beijing this weekend are likely to carefully scrutinize the costs and benefits of Chinese loans; some may be poor, but that doesn’t make them unaware or unsavvy. China’s BRI isn’t debt-trap diplomacy: It’s just globalization with Chinese characteristics.

Researchers Agatha Kratz, Allen Feng, and Logan Wright of the Rhodium Group came to similar conclusions in a new reportbased on a review of 40 cases of China’s external debt renegotiations with the aim of understanding “the broad patterns of outcomes, and to explore whether asset seizures as occurred in Sri Lanka are typical or exceptional.” They summarize their conclusions thusly:

Debt renegotiations and distress among borrowing countries are common. The sheer volume of debt renegotiations points to legitimate concerns about the sustainability of China’s outbound lending. More cases of distress are likely in a few years as many Chinese projects were launched from 2013 to 2016, along with the loans to finance them.

Asset seizures are a rare occurrence. Debt renegotiations usually involve a more balanced outcome between lender and borrower, ranging from extensions of loan terms and repayment deadlines to explicit refinancing, or partial or even total debt forgiveness (the most common outcome).

Despite its economic weight, China’s leverage in negotiations is limited.Many of the cases reviewed involved an outcome in the favor of the borrower, and especially so when host countries had access to alternative financing sources or relied on an external event (such as a change in leadership) to demand different terms.

In related news, the world will soon have a new case study on how China deals with countries that owe it money, in the Republic of the Congo — the smaller Congo north of the Democratic Republic of the Congo. Agence France-Presse reports:

When the plunge of global oil prices in 2014 blew a hole in the Congolese government’s finances, it was China that stepped in to help. But despite the recovery of oil prices, the country, also known as Congo-Brazzaville, has had trouble getting back on top of its finances and has asked the IMF for help.

The IMF places conditions on its loans to force governments to take measures to boost their finances. Also, as the IMF can lend only if it judges that a country’s debt load is sustainable, a bailout may be accompanied by a restructuring of government debt.

“It’s certainly the first time China has found itself confronted with this kind of situation,” said a specialist in relations between China and Africa who asked her name not be used as the discussions with IMF were still under way. “The Republic of Congo is seeking IMF protection to avoid a possible default on its payments,” she said.

“China, which holds more than a third of its foreign debt, is not really comfortable with that.”

Congo’s debt is around $2 billion.

2. Racist garbage from a State Department official

The pro-Trump website Washington Examiner has a story featuring some racist garbage from Kiron Skinner, director of policy planning at the State Department:

State Department preparing for clash of civilizations with China

Secretary of State Mike Pompeo’s team is developing a strategy for China based on the idea of “a fight with a really different civilization” for the first time in American history.

“This is a fight with a really different civilization and a different ideology and the United States hasn't had that before,” Kiron Skinner, the director of policy planning at the State Department, said Monday evening at a security forum in Washington, D.C.

Skinner is leading an effort to develop a concept of U.S.-China relations on the scale of what she called “Letter X” — the unsigned essay by George Kennan, who assessed “the sources of Soviet conduct” in 1947 and outlined the containment strategy that guided American strategists for the rest of the Cold War. China poses a unique challenge, she said, because the regime in Beijing isn’t a child of Western philosophy and history.

“The Soviet Union and that competition, in a way it was a fight within the Western family,” Skinner said, noting Karl Marx’s indebtedness to Western political ideas. “It’s the first time that we will have a great power competitor that is not Caucasian.”

A comment on Twitter from self-professed conservative (but not of the Trump kind) economic strategist Patrick Chovanec:

I’m not sure that this is helpful, at all.

There are plenty of reasons to object to China’s direction and actions under the CCP. Or to stand up for U.S. interests vs Chinese interests. But to see an inevitable clash with the Chinese because they are fundamentally “different” is a betrayal of our own values.

It’s a return to the days of invoking the “Yellow Peril” and the worst ways of characterizing our fight with Japan in WW2.

It also abandons those Chinese who courageously and at great peril stand on behalf of the universal values we claim to champion.

3. Nobody trusts Huawei, but evidence of its misdeeds is scant

Here is the latest in the international saga that could be summarized as “Nobody trusts Huawei, for good reason, but evidence of its misdeeds is scant”:

Is the Vodafone backdoor story just hype? Yesterday, we noted a Bloomberg report (porous paywall) about Europe’s biggest phone company identifying “hidden backdoors in the software that could have given Huawei unauthorized access to the carrier’s fixed-line network in Italy.” Tech website The Register debunks the claims, arguing that “We all want to see hard proof of deliberate espionage. This is absolutely not it.”Huawei “seeks acceptance in the West, but its structure and value system — patterned after the Communist Party’s — could stand in the way,” says Li Yuan in the New York Times (porous paywall). This is very true. Huawei’s DNA is just like the Party: Its decision-making process is opaque, and it has real trouble communicating in an environment of free speech.The debate over who really owns and controls Huawei continues. The Financial Times reports that Huawei says employees control the company through ‘virtual shares’ (paywall):

China’s biggest telecoms equipment provider Huawei has said a trade union that holds a majority stake in the company is merely a legal convenience and the group is really controlled by its employees. In a press conference on Thursday responding to speculation about Chinese government control of the group, which the US has accused of spying, Huawei said about half of its 180,000-odd employees own “virtual shares” that pay dividends and give them voting rights at company-wide elections.

But because Chinese laws restrict the number of shareholders in a business, Huawei’s holding company uses a structure that places 99 per cent of its shares under the control of a “Trade Union Committee” rather than the employees themselves.

Those who previously believed Huawei was employee-controlled will be reassured. Those who do not believe will remain completely unconvinced.“Security officials from British telecoms operators are to meet with the leading U.S. diplomat on cybersecurity in London on Tuesday to discuss the risks of equipment made by China’s Huawei,” reports Reuters.Related: “Super Micro Computer, the California-based server maker at the heart of spy chip allegations last autumn, has told suppliers to move production out of China to address U.S. customers' concerns about cyber espionage risks,” reports Nikkei Asian Review (porous paywall).

4. Have the Canadians had enough of Beijing’s bullying?

Canada’s National Post reports:

Shelve any talk of a free trade deal; complain to the WTO; expel China’s Winter Olympic athletes. Kick out the ambassador himself. As China further tightens the screws on Canadian exports and expatriates, pressure is mounting on the federal government to do something to retaliate in what has been a largely one-sided conflict between the nations.

Two former ambassadors to Beijingand Conservative Leader Andrew Scheer are among those calling on the Liberal government this week to abandon its non-confrontational approach and take stiffer action, arguing the current strategy has achieved little.

Beijing is apparently ready to retaliate if Canada gets tough. CBC reports:

China has asked its regional governments to draw up a list of business dealings they have with Canadian firms in order to widen the scope of ways the superpower can strike back against Canada in the ongoing dispute over the arrest of a senior Chinese telecom executive, said former Canadian ambassador to China Guy Saint-Jacques.

See also this frothing at the mouth from nationalist rag Global Times: Rising calls for China to get tough on Canada, as Ottawa escalates diplomatic spat.

Australia is also suffering the wrath of Beijing. Bloomberg last week reported(porous paywall):

China will maintain a slowdown in coal imports from Australia until Beijing has assessed government policy in Canberra after federal elections in May, according to people with knowledge of the plan.

Chinese Customs in January told local officials to start controlling imports of Australian coal, without giving explicit instructions as to how or why. That’s resulted in delays to clearance at some ports and additional testing at others, prompting concern that Beijing is retaliating against Australia’s ban on Chinese telecommunications giant Huawei Technologies Co.

5. Two views of the May Fourth Movement

The May Fourth Movement (五四运动 wǔsì yùndòng), named after student demonstrations in Beijing on May 4, 1919, is being used by the Party to whip up nationalism. Naturally, only a carefully curated and censored history of the events one hundred years ago is permitted in China’s educational institutions and media.

Here are two visions of the May Fourth Movement — the Party view from Xinhua, and a take from regular SupChina contributor and author Eric Fish that is — dare I say — more rooted in real history:

Xi urges patriotism among youth, striving for brighter China / Xinhua1919 to 2019: A century of youth protest and ideological conflict around May 4 / SupChina

See also from Hong Kong and Taiwan:

‘Fed up, angry and about to explode’: Hong Kong May Day marchers call for improved labor rights and higher minimum wage. / SCMP
“Thousands of labor activists and protesters from rival political camps marched through the centre of Hong Kong in a series of May Day rallies to fight for a range of improvements to workers’ rights, such as a higher minimum wage, legal limits on working hours, and hiring quota for disabled workers.”6,000 workers march for improved rights on Labor Day / Focus Taiwan
“About 6,000 workers took to the streets of Taiwan's capital Wednesday in an annual Labor Day march, calling for more holidays and paid leave, as well as better labor rights protections.”

—Jeremy Goldkorn


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