The Belt and Road Initiative VS the Indo-Pacific Strategy in a world of trade wars-Sino-US


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The Belt and Road Initiative VS the Indo-Pacific Strategy in a world of trade wars
The Indo-Pacific ambition is nothing but a bumper sticker without substantial and sustainable funding resources when compared with the Belt and Road Initiative, and yet the latter is by no means flawless. The geopolitical rivalry between the two internationally highlighted initiatives stems from the increasingly strained Sino-US relations, the two countries need to remove their mistrust and enmity before any possibility of working together on creating a free, inclusive, prosperous Belt and Road or Indo-Pacific.
 
Secretary Pompeo attends annual ASEAN-centered ministerial meetings in Singapore to push for US vision of a free and open Indo-Pacific. Photo: US Embassy in Beijing
 
Myanmar has recently scaled back the Chinese-backed Kyauk Pyu port on its western coast out of fear that it might incur too much debt onto the cash-strapped nation, sounding a warning note to China’s “project of the century”--Belt and Road Initiative.
 
Belt and Road Initiative or BRI is made up of a “belt” of overland corridors and a maritime “road” of shipping lanes, encompassing the entire Eurasian land mass and parts of Africa, including Central Asia, Southeast Asia, South Asia, the Middle East, Europe, and North and East Africa.
 
The initiative, which has been enshrined in the Chinese communist party’s constitution, is intended to build widespread infrastructure to boost connectivity and cooperation among countries along its routes. The scale of investments anticipated under the BRI is massive. An eye-opening US$4 trillion of Chinese investment is expected to be disbursed over the course of the initiative.
 
The issue of Lemon projects
 
Blessed with state support and preferential loans offered by state-owned banks, Chinese individuals and private firms have embarked on an investment spree under the veneer of BRI but many of them turned out to be poor investment decisions. As their share of China’s portfolio grew, its aggregate returns dwindled. Chinese firms lack the knowhow of their Western counterparts who have their business ventures dating back to colonial times. Because of their lack of experience and penchant to follow the policy direction in countries concerned, Chinese firms may be more likely to take on “lemons” — projects deemed too unprofitable or risky by other investors, or those that are far outside their field of expertise. 
 
The low return rate and high risks of such investment have dampened the enthusiasm of Chinese investors. In 2017, Chinese firms made a total of non-financial direct investment of US$14.36 billion in 59 countries along the “Belt and Road”, down 1.2% year-on-year. 
 
The debt alarms
 
A debt alarm was sounded locally when the Sri Lankan government had to concede a port to a Chinese company for 99 years in exchange for a debt relief. Before that, in 2011, China wrote off an undisclosed debt owed by Tajikistan in exchange for 1,158 sq. km (447 sq. miles) of disputed territory. 
 
Such incidents have served as a cautionary tale for critics who accused China of using “debt-trap diplomacy” to extract strategic concessions. Governments from Malaysia to Pakistan are reportedly starting to re-assess debt risks and renegotiate BRI projects with China. 
 
Chinese infrastructure projects are often rolled out without sufficient calculation of financial returns. Recipient countries of Chinese aid often found themselves deeply in quagmire due to the debts they incur and ended up conceding the control of the infrastructure or disputed territory to Beijing. 
 
Earlier this year, the Center for Global Development issued warning that eight more Belt and Road countries have been struggling with the serious risk of defaulting on their loans. The affected nations - Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan, are among the poorest countries along the route and had over half of their foreign debt taken under the banner of BRI. 
 
During a recent visit to Hong Kong, International Monetary Fund Managing Director Christine Lagarde also raised alarm on the “problematic” amount of debt incurred by countries lavishing on BRI projects with China, admonishing that there is no such a thing as “a free lunch”. 
 
A competing alternative offered by US and its cohort
 
In a not so veiled effort to counter BRI, The United States, Japan, and Australia have announced this week to form a trilateral partnership of investment in projects that drive economic growth, create opportunities, and foster a free, open, inclusive and prosperous Indo-Pacific as it claimed. Different from China’s initiative, they claim to conform their investment to the robust standard of transparency, open competition, sustainability, while employing local workforce and avoiding unsustainable debt burdens.
 
Although the three countries all denied the latest move is aimed at China, when you take into account their earlier attempt with India to develop four-way security counterweight against China, their strategic intention of containing China’s expansion in the region speaks for itself. 
 
However, such ambition is not matched by actions on the ground. Trump’s “America first” policy had made him “stingy” with his overseas spending. The size of the investment proposed by Pompeo was too small to have an impact. As for regional allies, Australia and Japan are unlikely to take the lead. Although US Secretary of Commerce Wilbur Ross said the new initiative would focus on seeking private investment, private investors are very likely to be deterred by large investment, slow return and high risks related to infrastructure projects.
 
Without substantial and sustainable funding resource, the move is more of a diplomatic gesture to show the US is still committed to the region and lash out at “China’s predatory development finance models” for perceived lack of transparency and local engagement, and potential for creating debt traps. For now, the Trump administration just paid a lip service, and needs to do a lot to convince regional allies of the benefits of its Indo-Pacific strategy. The Indo-Pacific economic vision could claim resemblance to the Marshall Plan only if it is backed up by substantial resources. Otherwise it’s no more than a bumper sticker.
 
Despite the geopolitical rivalry, China shall respond to the challenge by adopting similar standard in its investment practice and seek cooperation with the 3 countries to jointly develop the area as China alone cannot provide the investment those countries need in the coming decades to ensure growth and reduce poverty. One estimate puts the amount for infrastructure projects at US$26 trillion, far beyond the planned investment from BRI. No country alone can provide such an astronomical amount for the purpose of dominance of the region. Since the United States, Japan and Australia have long been involved in developing projects in the region and are well versed in terms of quality of investment, loans based on each country’s need, high-skilled labor and the protection of the environment, China has much to learn from their experience and they also needs help of China’s financial power. A possibility of partnership should therefore not be dismissed. Before that could happen, China and the US need to put the Sino-US relations back on track to dispel current mistrust and even animosity between the two countries. 
 

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