Pandemics and power

During times of war and chaos, someone profits. As the world continues to reel from the coronavirus pandemic, businesses have shuttered, families have lost loved ones, and governments at the federal, state, and local levels have scrambled to provide adequate resources to the public. Meanwhile, after lying to international health organizations and governments around the world, China seeks to repair its public image and capitalize on a pandemic it allowed to wreak havoc on the world.

Beijing is positioned to recover faster than its competitors, including the United States. Why that is contains a lesson for America going forward, if we don't want to be back in this position again.

In 2013, Chinese President Xi Jinping announced a plan to expand China’s global footprint in infrastructure projects abroad called the “Belt and Road Initiative.” What followed was a series of projects aimed at connecting over 65 countries with access to financing in excess of $1 trillion. The relationships span the globe, even including ambitions to control the Arctic Circle. The initiative has given China significant access to resources, economic zones, and trade routes. According to the China Africa Research Initiative at Johns Hopkins University, from “2000 to 2017, the Chinese government, banks and contractors signed $146 billion in loan commitments to African governments and their state-owned enterprises.” Foreign Policy reports, “Djibouti, Tajikistan, Kyrgyzstan, Laos, Maldives, Mongolia, Pakistan, and Montenegro … owe more than 45% of their gross domestic products to Beijing over Belt and Road projects.”

And thanks to the Chinese Communist Party's lack of political or economic competition at home, it has been able to lend money on terms advantageous to Beijing — and only Beijing. Azeem Ibrahim, a professor at the Strategic Studies Institute at the U.S. Army War College, notes, “Beijing is becoming adept at translating outstanding debts into foreign assets.” The Belt and Road program largely relies on low-interest credit facilities collateralized by borrowing countries' infrastructure or natural resources. Due to the poor credit of the sovereign borrower or low expectation of performance of the asset in question, many call China’s practice a form of “neo-colonialism” or “creditor imperialism” through what’s called “debt-trap diplomacy.” The Institute for Security Studies has gone so far as to call China’s behavior a “predatory system designed to ensnare countries into a straightjacket of debt servitude.”

How this works in practice: Borrowers that are unable to fulfill their loan obligations cede tremendous bargaining leverage to the Chinese when they seek to restructure the debt. If they default, the Chinese government simply seizes control of the asset. For example, the Sri Lankan government entered into a credit deal with the Chinese for a port (which reports indicate was a shaky bet, financially, from the start). When the asset didn’t perform to the terms of the contract, Sri Lanka granted China a 99-year lease on the port, including over 150,000 acres of land surrounding it. Just like that, the Chinese Communist Party gained control over a major waterway of another country.

Other strategic advancements include a military base in Djibouti, an East African nation that sits at a crucial strategic location at the mouth of the Red Sea into the Arabian Sea, that state-run media outlet Xinhua assures us “has nothing to do with an arms race or military expansion" and that "China has no intention of turning the logistics center into a military foothold.” The Diplomat reports that the base will “support four other key missions: intelligence collection, non-combat evacuation operations, peacekeeping operation support, and counterterrorism.” Yet it’s notable, as Djibouti’s debt to China is nearly 100% of its GDP, and this base was brought to fruition “over the United States’ objections.” China already has over a billion dollars invested in the geographically strategic country, through the Doraleh Multipurpose Port, the Ethiopia-Djibouti Railway, and the Ethiopia-Djibouti Water Pipeline. Closer to home, Paul Angelo, a fellow at the Council on Foreign Relations, writes in the New York Times that China has infrastructure partnerships in place in 19 Latin American countries and that the number of these deals could increase dramatically if China’s “medical diplomacy” (sending masks and medical equipment to Latin America) pays off.

And this was all pre-COVID-19. Now, with a global economy in freefall, this dynamic is made much worse. The Wall Street Journal reports that the credit crisis exacerbated by COVID-19 has already had African governments “petitioning China for relief,” noting that some “Chinese envoys are citing provisions in loan agreements that would transfer collateral, in some cases strategic state assets, into Beijing’s hands.” Officials in Zambia have said that default has Beijing “demanding collateral in exchange for debt deferral or forgiveness,” meaning the delivery of copper mines to China. We also don’t know the extent of our strategic exposure, as most of China’s outstanding credit goes unreported, and the terms of the deals are highly confidential. What we do know, from work such as China’s Second Continent by Howard French and other research, is that many of China’s outstanding projects are in Africa and that in 2019, much of the developing world was in debt distress. And these are just the deals we are aware of; since China expelled reporters from Beijing, information has come out of China at a trickle.

This is strategically perilous for the U.S. Rob Asghar drew an apt comparison in Forbes by noting that the ambitions of modern China are not unlike those of the USSR at the height of the Soviet Union. Yet China “may well represent the sort of viable alternative to democratic norms that the Soviet Union never could hope to be,” and in this crisis, China could become the “formidable American rival that the USSR pined to be.”

On March 6, 2018, then-Secretary of State Rex Tillerson warned that Chinese investment in Africa “encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth.” China has, he said, “the potential to address Africa’s infrastructure gap, but its approach has led to mounting debt and few, if any, jobs in most countries.”

In his book On China, former Secretary of State Henry Kissinger described the Chinese geopolitical strategy in terms of “Go,” a game of encircling an opponent’s stones with your own. The game is complicated and requires battling on multiple fronts to avoid entrapment when pieces are removed from the board. From a leadership perspective, I typically hold the view that Xi’s priority has been to maintain power atop the Chinese Communist Party rather than play some long game for Chinese international predominance. However, in this time of global pandemic and economic crisis, early indications suggest those motivations may be in concert. The party sees a rare opportunity while the world is incapacitated to lay down as many stones as possible.

Fortunately, other countries are finally seeing the true threat to global security and economic autonomy posed by Chinese predatory investment and are taking corrective action. The New York Times reports that Nepal, Pakistan, and Myanmar all have stepped away from different hydropower projects with China after “beginning to realize the long-term costs of Beijing’s massive investment promises.” Business Insider tells us that Kenyan courts halted construction of a Chinese coal plant, and protests in Indonesia paused the building of a dam due to detrimental environmental impacts. Reports also indicate that India is deeply concerned with China’s growing strategic presence in the Indian Ocean and East Africa. Japanese Prime Minister Shinzo Abe has championed over $3.2 billion to “support domestic companies in decoupling their supply chains from China, especially those in high value-added manufacturing.”

Undoubtedly, as the dust settles and blame for the coronavirus falls squarely on China, more will follow. Yet the bargaining position for Beijing is even stronger now that the rest of the world is suffering economic calamity. As Quartz correctly noted recently, “China has responded to the debtors inconsistently and hasn’t followed best practices adopted by international lenders working with poor countries. Sometimes, the debt has been forgiven; other times, disputed territory or control of infrastructure has been demanded as recompense.” And the European Union’s economic competition chief, Margrethe Vestager, has urged bloc governments “to buy stakes in strategic firms to stop China from taking advantage of market turmoil to snap them up cheaply,” according to the Economist.

What can the U.S. do? In November 2019, long before the coronavirus outbreak, the Trump administration announced a plan to invest and trade more in Asia as a strategic countermeasure to China. This was a positive step, but Washington's resolve must now be even greater. It is imperative that the U.S. encourage and finance borrower-friendly restructuring efforts in strategic countries that allow American investors not to lose footing to the Chinese or cede control of assets to the country.

The U.S. must also reward and draw closer to its international friends and those alienated by China’s efforts to make the world into a giant Risk board. This means a meaningful push for raising Taiwan’s stature within the United Nations and other global bodies. We must also form a stronger partnership with India and be clever in negotiating across from the Chinese, creative in restructuring efforts, and benevolent with our approach to African countries that will feel the tremendous brunt of this global economic downturn.

This means creating a coherent strategy. During an interview, retired U.S. Air Force Brig. Gen. Robert Spalding told me that the U.S. must work in tandem with its allies and allocate funding to focus its effects on “specific countries dedicated to specific types of projects” tied to “democratic principles” rather than “peanut butter-spread money all over the place.” He argued U.S. spending toward development and combating the Chinese should be “more like the Marshall Plan and less like the wars in Iraq and Afghanistan — let’s build, not break.”

Spalding also stressed that “U.S. companies do not compete in the international space for development anymore; in fact, our engineering companies have really taken a beating … without a tie to the U.S. military, such that there’s not a lead-the-horse-to-water effort by the Department of Commerce to really bring these companies into the mix … so there’s no real incentive for U.S. companies to really work at cross purposes to the Chinese Communist Party because the system has really been coopted by them, and we've allowed it to happen.”

That must change.

Further, the Trump administration’s efforts to pivot U.S. manufacturing into securing tests, personal protective equipment, and hospital relief centers is a strong first step toward long-term initiatives to secure manufacturing autonomy. Those efforts must continue and broaden across multiple industries. We can’t be reliant upon a malevolent trading partner that hoards the antidote or disguises the disease.

Fortunately, President Trump’s trade war may have only been an opening gambit. What seemed disastrous or fruitless from a short-term economic gain perspective revealed one glaring hole in U.S. companies’ effectiveness: viable, secure, long-term manufacturing. During the trade war, U.S. companies began developing alternatives to resources and supply routes outside of China and Chinese control should another trade war flare up. In September, CNBC reported that Apple asked its suppliers to “assess the cost implications of moving between 15% and 30% of their production capacity from China to countries in Southeast Asia.” Other computer manufacturers, such as HP and Dell Technologies, are “moving up to 30% of their notebook production out of China.” While this movement was a step in the right direction, the coronavirus has exacerbated this need from a resource, supply line, and biosecurity perspective.

The beginning of the uncoupling may have been the trade war — a Trump phenomenon that, for better or worse, revealed how much U.S. farmers and companies rely on Chinese sales and support. The coronavirus has revealed how deadly that reliance can be.

Photo and link: https://www.washingtonexaminer.com/opinion/pandemics-and-power