China, explained.
Photo: Sean Gallup/Getty
Chinese chimera: the real concern with the BRI
Beneficiaries should be wary of the gap between Beijing’s rhetorical promises and the reality of its investments.
China, explained.
Photo: Sean Gallup/Getty
Beneficiaries should be wary of the gap between Beijing’s rhetorical promises and the reality of its investments.
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Chinese chimera: the real concern with the BRI Chinese chimera: the real concern with the BRI
There are at least two schools of thought vis-à-vis the ongoing debate about the perils and opportunities associated with China’s Belt and Road Initiative (BRI).
On the one hand, BRI hawks remain highly sceptical, focusing on supposedly nefarious geopolitical objectives behind China’s overseas infrastructure investments. Scholars such as Brahma Chellaney have eloquently articulated the “debt trap” threat embedded in Chinese investments, as debtor nations become ever more susceptible to extortion and coercion by Beijing.
China manages to extract major geopolitical concessions from host nations by overawing them with large-scale offers of technology and capital.
On the other hand, BRI doves have emphasised the more mundane economic reasons behind China’s investment drive, ranging from overcoming domestic overcapacity to globalising Chinese technological standards and enhancing development prospects in Chinese hinterlands through greater connectivity to international markets in the West.
Yet the real concern among a majority of beneficiary countries, namely middle-sized emerging markets, is what I call the “Chinese chimera”.
More than “debt trap”, what most targeted beneficiaries of the BRI should be concerned about is the yawning gap between China’s rhetorical promises of large-scale investments and the reality of its minimal substandard investments.
Yet, and this is where the real problem comes in, even with minimal investments, China tends to get more geopolitical bang out of its largely imaginary buck. It manages to extract major geopolitical concessions from host nations by overawing them with large-scale offers of technology and capital.
Moreover, the limited Chinese investments that come in tend to represent “corrosive capital”, which could crowd out domestic producers, enrich and strengthen corrupt officials, and undermine good governance and environmental sustainability in host nations with weak rule of law.
The Philippines under President Rodrigo Duterte is a perfect illustration of this threat. The tough-talking populist, who never misses a chance to lash out at Western nations for criticising his human rights record, has tapped China as a major partner for national development.
Under the so-called “build, build, build” program, the Filipino strongman has embarked on an ambitious $180 billion infrastructure spending bonanza. As Philippine Department of Finance (DOF) chief economist Karl Chua told me earlier this year, the government is looking at 75 flagship projects. And the country is desperate for better infrastructure.
Those investments are crucial to creating well-paying jobs for the millions of poor and unemployed Filipinos. According to an authoritative study by the Japan International Cooperation Agency (JICA), traffic congestion in Manila, caused by poor infrastructure, carried a daily price tag of P2.4 billion ($45 million) in 2012 – a figure that is expected to almost triple by 2030. According to the 2017 World Economic Forum’s competitiveness report, the Philippines ranked 97th in the world in terms of infrastructure.
In a separate report by the United Nations, the Philippines ranked 5th in Southeast Asia in terms of access to physical infrastructure. Unlike his predecessors, Duterte is ditching the Private–Public–Partnership modal in favour of larger reliance on government revenues as well as Official Development Assistance (ODA), particularly from Japan and China, as his main sources of infrastructure funding.
To support the new modality, Duterte has normalised relations with China, which has offered $7.3 billion in infrastructure investments, and Japan, which has been a leading investor in the Philippines for decades.
The Philippines’ robust credit rating, economic growth, and the sheer size of its Gross Domestic Product (GDP) insulate it from the prospect of a “debt trap”, which tends to affect poorer and smaller nations with weak credit ratings.
Yet Duterte’s drive for attracting Chinese investments has come at a self-inflicted geopolitical cost. To win Beijing’s goodwill, the Filipino president has downplayed the Philippines’ landmark arbitration award against China and, as the rotational chairman of the Association of Southeast Asian Nations (ASEAN) last year, actively guarded China against any criticism over its massive reclamation activities in the South China Sea.
Meanwhile, to China’s delight, Duterte has also downgraded security cooperation with the US, the Philippines’ sole treaty ally. However, in exchange he seems to have not garnered much from China. It looks like Duterte has been taken for a ride.
Actual figures show that China is yet to make any major state-driven investments in the Philippines, despite repeated announcements about a new “golden age” in bilateral relations. The bulk of investments in 2017 came from traditional trading partners, such as the US, Japan, and the Netherlands, as well as the city-states of Singapore and Hong Kong.
There is no trace of a major jump in Mainland Chinese investment in key sectors of the Philippine economy. In the first year of Duterte’s administration, Japan and the US led the way in investments. Japan out-invested China by a whopping 23:1 ratio.
The other concern with BRI-related investments in the Philippines is the competence and economic viability of Chinese contractors, a number of which have been blacklisted by the World Bank for their anomalous track record. As a study by the Philippine Center for Investigative Journalism (PCIJ) reveals:
Of the 22 firms that returned from China with agreements, eight had a paid-up capitalisation of less than PhP 15 million … With a few exceptions, the reported value of their deals dwarf the firms’ asset bases and turnovers by two or three orders of magnitude.
Not to mention concerns over exorbitant interest rates, China’s willingness to observe bidding competitiveness procedures, follow standard practices in good governance and environmental sustainability, and, above all, to provide jobs for the locals rather than relying on fully integrated Chinese supply of capital, technology, and labour.
Moreover, there are concerns that the Chinese investments, similar to those in Africa, Latin America, and Central Asia, will only reinforce undemocratic trends in the Philippines and undermine good governance standards, which in effect could strengthen autocratic tendencies in the Philippine leadership.
What’s of particular concern is that Chinese investments, or even the promise of them, tend to pick up in particularly inauspicious times for fledgling democracies, specifically when they are being gradually captured by either corrupt or/and authoritarian leaders – whether it’s in Sri Lanka (under Mahendra Rajapaksa) or Malaysia (under Najib Razak).
In short, the BRI may end up more as a chimera, falling several factors short of targeted countries’ infrastructure needs, and less a strategic trap for many its intended beneficiaries. However, even with its limited footprint, the BRI may have a disproportionately negative impact on beneficiary nations.
The article is partly based on a broader study, “The 21 Century Silk Road: The Perils and Opportunities of China’s Belt and Road Initiative”.
Richard Javad Heydarian
About the author
Richard Javad Heydarian
Richard Javad Heydarian is a Manila-based columnist, academic, and author.
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