China Belt & Road Projects under re-evaluation – how to deal with China?

A red container with "china" written on it and a blue container with "europe" written on it

Take-aways from the Belt & Road Conference in Warsaw in June 2019

This article re-evaluates the Belt & Road Initiative from China and presents some of the key-take-aways from the Belt & Road Conference in Poland recently.

Introduction

The Belt & Road Project is an ambitious global project for connectivity and infrastructure. Many see the Belt & Road Initiative (BRI) as part of China’s masterplan to increase influence in world politics (again) with new financial means and the overwhelming power of the Chinese global players in infrastructure who can built anything from schools to harbors, airports, railroads, power plants and highways.

China is fighting hard to push the BRI forward despite evidence of countries being caught in the debt trap. After a first wave in Asia and Africa, now China reaches out to East- and West European countries. China made a diplomatic effort to get the BRI accepted in Europe but faced quite some opposition by France and Germany. So, it was a big success when President Xi signed a deal with Italy and with that the first crack in the EU wall of solidarity was made. The main argument of the EU to not endorse the BRI in EU was and is based on unfair trade and finance practices by China.

Example of handling China – the case of Malaysia

Rather than just saying NO to the project and embarrass the stakeholders, the example of the East Coast Railway project (to be financed and constructed by Chinese companies) in Malaysia serves as a good example how things can be managed in a better way. The project was initially signed by the previous government of Malaysia and obviously overpriced and overdesigned – think 1MDB. When the new government under Dr Mahathir took over in May 2018 the project was quickly suspended. Against the background of extensive corruption in the previous government, Malaysia questioned the cost and financial terms of the engagement and Prime Minister Mahathir Mohamad was then quick to travel to China and renegotiate the financial terms. Malaysia could simply not afford to accept the burdens of BRI projects so important to China, which would lead Malaysia to financial distress. But it took the negotiation skills and deep-rooted links of Dr Mahathir to come back with a more favorable deal for Malaysia and to keep a face-saving relationship with China for the future cooperation of the two countries.

However, if there are leaders of countries willing to accept the hush money and hidden bribes, there is no way to escape the debt trap of these mega deals introduced by China. If you look at Africa and other places such as Sri Lanka the projects are not a showcase for China and the way it bullies local politics and gets access to important trade routes and natural resources. But if the deals are negotiated fair and square it is business development as usual and such agreements can be win-win-scenarios.

A chance to reconnect between East and West in times of tensions

In Europe the BRI is seen very critical per se and President Xi and his advisors are smart enough to sense the growing uneasiness with Chinas overseas expansion plans. It serves nobodies interest if the benefits of globalizations are being pushed backwards again but it is also time to acknowledge that China is a global player fighting for positions. China must be given credit for the achievements over the last decades and it is and will continue to be one of the top global players whether anybody likes it or not.

The present negotiation about trade and tariffs with the USA is surely also a benchmark for trying to reach a fair and square platform for future BRI engagement. It is really time for Europe to come up with a constructive counter proposal which enhances the BRI elements with such elements where the western countries/companies can add value. On simple brick and mortar projects nobody can compete but clever architects, smart designers, intelligent software and logistical concepts as well as green technologies from Europe are still having competitive advantages over China and the proper way is to merge these elements among all the stakeholders.

The countries which are signing up with China on the BRI are well advised to have a detailed and professional review of the technical, commercial and financial proposals and to install a proper project management with checks and balances. There must be close monitoring in the execution of projects to ensure that there is no meddling around after contracts have been signed.

Take aways from the Belt & Road Conference in Warsaw on 11th & 12th June 2019

In June GBP International was invited to be a panelist and speaker in Warsaw at the Poland & CEE: co-building the Belt & Road Conference, upon invitation by Poland Today, Frank Schuholz and Wolfgang Lehmacher. We express great thank you for the honor to be part of this great event. Our key takeaways to share with you are:

  • The BRI project by China has so many interesting interconnections and interlinks with all stakeholders, different industries and different technologies that it provides a platform for everybody to take part and play a constructive role. Just imagine that the total commitment by the Chinese government is around one thousand bn US$. That is around about twice the GDP of the Polish economy.
  • As hybrid travelers between East and West (Western Europe and Asia) we “forgot” how many exciting things are happening next to Germany´s doorstep in Eastern Europe. Despite all disagreement within the EU on issues such as immigration, our friends in Poland, Hungary, Slovenia and elsewhere have done a tremendous job in building a thriving and healthy economy.
  • The interest of China to do more business and trade with Europe along the Silk Road is genuine. In the words of today’s Tech Language, we believe the China government, and their State-Owned Enterprises (SOE) as the execution vehicles, provide the infrastructure platform to conduct more and easier business in future (think transaction costs perspective).  While the large infrastructure projects are (mostly profitable) projects by itself, at the end of the day, they are enablers for everybody who is and will conduct(ing) business in and with China.
  • The way China is looking at the world is – of course – China and Asian centric. The history of China in ASEAN (with a strong Chinese business community there) can be a good model to understand how it wants to manage the Eastern European engagements too. Here we can learn from experiences in countries such as Malaysia, Indonesia, Vietnam and Singapore.
  • The US-China trade conflict will go away – globalization is irreversible and the call for fair play is reasonable and justified as well. But do understand that it is important to safely face China and do not bully too much.
  • Finally, to mention, Mr. Peter Vesterbacka from Finland gave a lively talk on how he went from Angry Birds and Rovio to become the visionary strategist for Slush, and now for the Finestbay Project – a tunnel connection between Helsinki and Tallinn. How this project underwent a transformation from a crazy idea over dinner towards an icon of what can be done in Europe with private engagement was eye-opening. And you have guessed it too…Chinese money helps to finance the project!

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