In the Middle East and North Africa, there is increasing interest in collaborating with Chinese enterprises in investment and development of infrastructure. China is also keen to reorient the global economy to place China at the centre of world commerce through its Belt & Road Initiative.
The “Belt” is short for the “Silk Road Economic Belt,” the proposed network of overland routes for road and rail transportation. The “Road” is the “21st Century Maritime Silk Road” a network of ports and related installations throughout the world even including the polar Arctic (“the Polar Silk Road”).
These Belt & Road Projects all ultimately lead to and end in China. In recent years China has signed documents on Belt & Road Cooperation with 19 Middle Eastern countries. Besides establishing the Asian Infrastructure Investment Bank with authorized capital of $100 billion, 75% of which comes from Asia and Oceania, China has become the largest bilateral lender in the world.
The terms of the bilateral loans are negotiated in secret, often secured by assets including infrastructure, such as rights to a mine or port. The terms of China’s state lending have less onerous safeguards against official corruption than loans from the World Bank. While too often the projects prove to lack economic feasibility, they do enable development of prestigious showplaces for autocratic regimes.
Typically, the cash input ends up enriching the families and cronies of non-democratic strong man leaders.
This has led to accusations that China is engaging in “debt trap diplomacy” by intentionally extending excessive credit to a debtor country with the intention of extracting economic or political concessions from the debtor country when it becomes unable to honor its debt obligations.
For example, Sri Lanka’s President from 2005 to 2015, Mahinda Rajapaksa, obtained major loans and extensive assistance for an ambitious port project from his Chinese allies, even though feasibility studies said that the massive port project would not work. The project was undertaken by the China Harbor Engineering Company, one of Beijing’s largest state-owned enterprises.
The Hambantota Port Development Project failed, as predicted. With tens of thousands of ships passing by along one of the world’s busiest shipping lanes, the port drew only 34 ships in 2012.
After Mr. Rajapaksa was voted out of office in 2015, Sri Lanka’s new government struggled to make payments on the enormous Chinese debt Rajapaksa had taken on. Under heavy pressure and after months of negotiations, the Sri Lankan government essentially had no choice but to lease over the port and 15,000 acres of land around it to the People’s Republic of China (PRC) for 99 years from December 2018.
The transfer gave China control of territory just a few hundred miles off the shores of its geostrategic rival, India, and China now has a tactical foothold along a critical commercial and military waterway.
But for even nations that are not beholden to China through debt, the integrated nature of the Chinese régime can lead to exposure of forms of political and economic coercion as part and parcel of engagement with any PRC enterprise.
Whether a Chinese business partner is identified as a state or non-state enterprise, they all have Chinese Communist Party branches at the top of their corporate structure. The Communist Party leaders of each enterprise ensure that the enterprise prioritizes Party direction from Beijing over profit.
All enterprises serve the overall interest of the PRC as determined by the Chinese Communist Party’s plans for the PRC’s expansion of its national power at home and abroad. The PRC regime is an integrated Party, State Military Security Industrial Complex in which, as founding Chairman Mao Zedong put it, “Party, government, military, civilian, and academic; east, west, south, north, and centre, the Party leads everything.” This principle has been explicitly re-emphasized by current Party General Secretary Xi Jinping and codified in the Constitution of the Chinese Communist Party.
So, a Chinese enterprise like Huawei receives generous Chinese state subsidies which allows Huawei to underbid its competitors to install telecommunications software and equipment in most of the countries of the world.
But in return, the Chinese state gains the capability to the purloin data passing through the Huawei kit to serve intelligence purposes and the capability to do software updates to install kill switches in networks controlling key infrastructure.
In return, Huawei can benefit from Chinese military intelligence capability to get critical information on competitors’ research and development and on project bids. The efficiency of the integrated Party-statemilitary- security-industrial complex to coordinate its response to assert and defend China’s economic and political interests is impressive.
When the EU, UK, US and Canada sanctioned four PRC officials complicit in genocidal policies toward China’s Uyghur Muslim ethnic minority, the EU and the 3 allied countries also jointly sanctioned the Xinjiang Production and Construction Corps.
The reason for this was that the Xinjiang Production and Construction Corps, a quasi-military Chinese State institution, uses Uyghur forced labour to pick cotton in its massive farms.
Shortly thereafter, the PRC authorities retaliated against Hennes & Mauritz AB (H&M), a Swedish multinational clothing retail company, because H&M in March 2020 posted a statement on its website that it would stop buying cotton grown in Xinjiang. The Swedish retailer said it was “deeply concerned” about reports of forced labour there.
Immediately, all of China’s on-line retailers removed H&M outlets from its websites, all Chinese cell phones removed the H&M app from its app store and H&M outlets in China disappeared from on-line maps, search results for H&M return a “not found” message.
H&M was denounced for “eating China’s food while smashing its bowls.” The message was obvious that unless H&M renounced its rejection of Xinjiang cotton, it would be forever banned from the large and lucrative Chinese market.
Similarly, China is applying diplomatic and economic coercion in an attempt to force Canada to choose between the confl icting demands of the United States and of China on Canada.
In August 2018, the United States issued a warrant for the arrest of the Chief Financial Officer of Huawei, Meng Wanzhou. Ms. Meng is charged with committing bank fraud by providing false information to the Hong Kong and Shanghai Bank.
Despite being fully aware that there is a highly active extradition treaty between Canada and the United State, she travelled to Canada anyway. On arrival in Canada, Ms. Meng was detained at the Vancouver Airport in response to the inevitable US extradition request.
The PRC Embassy in Ottawa immediately issued a strong protest to the Government of Canada over this. The Chinese Government was shocked that Canada would dare to arrest a senior member of the Chinese Communist “red nobility.”
Their expectation was that Canada’s close engagement with the PRC would take priority over a treaty obligation to the US. Subsequently, the PRC engaged in diplomatic and economic coercion to force Ms. Meng’s release.
A Canadian diplomat on leave in China was taken away by the Chinese Ministry of State Security to a secret detention facility in Beijing and a Canadian entrepreneur travelling from Pyongyang to Seoul was detained while in transit through Dandong on the Korean border with China and sent to a similar detention facility there.
Both have been held in Chinese custody ever since. China has mostly denied Canadian diplomats consular access to the two men in gross violation of consular conventions.
Then, China banned import of Canadian canola seeds and other Canadian agricultural commodities on spurious false grounds that the Canadian shipments were contaminated.
The canola seeds were a $3 billion dollar annual trade. Finally, the PRC refused to release to Canada the Canada-China jointly developed CanSino vaccine that was proven effective against COVID-19, with no explanation.
This withholding of the key serum resulted in Canada having to cancel construction of a $44 million facility to manufacture this vaccine in Canada. This Chinese retaliatory action over the matter of the Huawei CFO’s detention has led to unnecessary tragic loss of life, particularly of elderly seniors in Canada. So it is evident that the People’s Republic of China is not a trustworthy business partner.
China’s promise of win-win strategic partnerships has proven to be unsustainable in the longer term. Larger PRC state agendas always trump reciprocal and fair contractual arrangements. There is no independent justice in China that a wronged foreign partner can turn to for legal recourse. Dealing with China can be complicated and hazardous.