MERICS Blog - European Voices on China en Brexit’s false eastern promise <span>Brexit’s false eastern promise</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Wed, 05/15/2019 - 12:51</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-05-16T12:00:00Z">2019-05-16</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/tom-bayes" hreflang="en">Tom Bayes</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span>The British Prime Minister seems determined to forge a “Golden Era” of UK-China relations, in the apparent hope that a free trade agreement with China can make up for the economic consequences of pending Brexit. But the wisdom of Theresa May’s course is being questioned domestically - the UK Parliament’s august Foreign Affairs Committee recently called for a re-think of what it views as Britain’s one-dimensional, trade-driven China policy.</span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-05/190515_May_in_China_Imagine_China_20160905_25005.jpg?itok=kwR-krSG 325w, /sites/default/files/styles/max_650x650/public/2019-05/190515_May_in_China_Imagine_China_20160905_25005.jpg?itok=JogmxcVN 650w, /sites/default/files/styles/max_1300x1300/public/2019-05/190515_May_in_China_Imagine_China_20160905_25005.jpg?itok=2oa7rYNb 1300w, /sites/default/files/styles/max_2600x2600/public/2019-05/190515_May_in_China_Imagine_China_20160905_25005.jpg?itok=zpERRXIN 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-05/190515_May_in_China_Imagine_China_20160905_25005.jpg?itok=kwR-krSG" alt="British Prime Minister Theresa May visiting China" title="British Prime Minister Theresa May on her visit to China in 2016. May seems determined to forge a “Golden Era” of UK-China relations. Image by ImagineChina. " typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span>Theresa May’s leaked decision to allow Huawei a part in 5G roll-out – in the face of opposition from the United States and some of her own ministers – indicates she is determined to chase a “Golden Era” of UK-China relations. Her early moves as Prime Minister suggested misgivings about this David Cameron legacy – hoping for more trade, his finance minister, George Osborne, declared Britain “<a href="">China’s best friend in the West</a><span><span>.</span></span>” But now she dares not put at risk what some in the UK think is a Brexit lifeline.  </span></span></span></p> <p><span><span><span>Bogged down in the Brexit process and facing disruption of existing political and commercial ties, May’s Britain has perhaps had little choice. Her pursuit of Brexit – departing the Single Market and Customs Union – and the Brexiteer’s promise of a UK-China free trade agreement as a Brexit selling-point have redoubled the mercantile logic already evident under May’s predecessor. </span></span></span></p> <p><span><span><span>But China has changed since Cameron and Osborne set out their decidedly one-dimensional approach. President Xi Jinping’s consolidation of power at home, his more assertive foreign policy, the militarization of the South China Sea, the abuses in Xinjiang, the tightening of control over Hong Kong – all have become hard to square with a whole-hearted and uncritical wooing of Beijing.</span></span></span></p> <h4><span><span><span>Parliamentary committee questions wisdom of seeking “Golden Era” of China relations</span></span></span></h4> <p><span><span><span>The wisdom of seeking a “Golden Era” was recently questioned by the House of Commons Foreign Affairs Committee. Taking a clear-eyed view of China under Xi and its challenges for UK foreign policy, a timely committee <a href="">report</a> called China “a force for order – but not liberal order” and  “a viable partner on some issues but an active challenger on others”. In the Committee’s view, the strategy “to build a deeper partnership with China” was “not sufficient as a single overarching goal”.</span></span></span></p> <p><span><span><span>The eleven committee members – five from the ruling Conservative party, and six from the opposition Labour Party and Scottish National Party – lamented that London had been “unwilling to face this reality”. They warned that “economic considerations [may] crowd out questions of UK strategic interests, values and national security” and called for the UK approach to be “recalibrated” through a new, public China strategy document, that the Committee wants published by 2020. </span></span></span></p> <p><span><span><span>May’s attempts to forge a golden partnership with China in the face of these tensions have made her already dysfunctional government – preoccupied with Brexit – look incoherent. Never more so than in the handling of Gavin Williamson, erstwhile Defence Secretary, recently fired for leaking the contentious, confidential decision about Huawei by the government’s National Security Council. </span></span></span></p> <p><span><span><span>In February, Williamson announced a Freedom of Navigation Operation (FONOP) in the South China Sea, prompting mockery in the UK and anger in Beijing. Golden Era architect Osborne spoke of “<a href="">gunboat diplomacy</a>” harking back to Britain’s imperial era. The barb drowned out any discussion about FONOPs and highlighted the prevailing view that China is a market to be wooed at all costs. May’s office conspicuously did not back Williamson, briefing journalists his was “an idiotic speech”. </span></span></span></p> <p><span><span><span>Beijing, meanwhile, responded by cancelling a planned visit by Osborne’s successor as finance minister, Philip Hammond. Beijing had punished previous UK FONOPs by declining to take part in the 2018 edition of the Sino-British Economic and Financial Dialogue, which had previously taken place annually. (Beijing finally agreed to the <a href="">next Dialogue</a> in reward for Hammond attending April’s Belt and Road Forum – and very possibly May’s cold response to Williamson’s FONOP announcement.)</span></span></span></p> <h4><span><span><span>UK is more susceptible to economic strong-arming by Beijing than ever before</span></span></span></h4> <p><span><span><span>Beijing knows the value ascribed to Chinese commerce by May and other politicians in trade deal-hunting Brexit Britain. As the FONOP furore showed, many in the UK see China ties purely through the <a href="">Brexit lens</a> – as a market to make up for lost trade with continental Europe. Williamson was widely criticized for endangering trade ties, showing that Osborne was not alone in internalizing Beijing’s message that economic opportunity is dependent on political good behavior. As a result, the UK is more susceptible to economic strong-arming by Beijing than at any time in living memory. </span></span></span></p> <p><span><span><span>But the UK would do well to remember that in the pre-Golden Era Cameron-Osborne years, trade with China grew while diplomatic exchanges were frozen after the Prime Minister met the Dalai Lama. For all Beijing’s use of its economic weight to discipline apparent transgressions by its international partners, the evidence is far from clear that displeasing the denizens of Zhongnanhai has a devastating economic impact. Brexit-induced mercantilism shouldn’t stop the UK from taking the nuanced and robust approach to Beijing called for in the report by the Foreign Affairs Committee. </span></span></span></p> <p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The UK would benefit from the public debate the Committee hopes to engender. It should focus on what a free-trade deal with China can and cannot promise in the Brexit context: Beijing will drive a hard bargain, and not allow the kind of market access that would have real impact on the UK’s trade outlook. Sadly, the paucity of public understanding in the UK of a changing China, and the preoccupation with Brexit leave little room for optimism that the Committee’s deadline will be met.</span></span></span></p></div> </div> </div> Wed, 15 May 2019 10:51:21 +0000 komprakti 9246 at Is ageing China facing a Japanese-style “lost decade”? <span>Is ageing China facing a Japanese-style “lost decade”?</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Mon, 04/29/2019 - 17:04</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-30T12:00:00Z">2019-04-30</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Lauren A. Johnston</p> <p><strong>Before we write off China’s economic dynamism for a decade, we should consider the significant ways in which it differs from Japan. Differences in the timing of demographic change in the two countries in particular suggest that China’s experience will not mimic Japan’s. With appropriately targeted polices, China will avoid a “lost decade.”  </strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=gW2w3olK 325w, /sites/default/files/styles/max_650x650/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=WfA4a1NA 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=oHifYqjZ 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=4BV1azPr 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190430_University_graduates_ImagineChina_bjl8825393_1.jpg?itok=gW2w3olK" alt="Chinese college graduates" title="China’s younger cohort are well-positioned to utilize their relative skills to maintain, if not increase, productivity levels. Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>China’s leaders have recently set a growth target for 2019 of 6 -6.5%, marginally lower than the target of 2018. Intensifying population ageing is one factor attributed to fears of an emerging Chinese ‘lost decade’, akin to Japan from the mid-1990s. The comparison is especially worrying in that like Japan then China today sits mid a trade war with its most important economic partner, the United States. Lesser obviously, like Japan then, China sits a few years past its peak workforce population share (Figure 1).</p> <h4>Population ageing and the economy  </h4> <p>An ageing population poses many economic challenges: rising labor scarcity in sectors and regions where labor was once bountiful; fiscal and corporate resources increasingly directed towards pensions; more human capital directed toward caring for the old. In other words, national resources are diverted away from more productive economic endeavors.  </p> <img alt="Figure 1" data-entity-type="file" data-entity-uuid="b719503c-cc7d-42e6-8ece-65dc0d600140" src="/sites/default/files/inline-images/Economic%20Indicators_Q1_2019_Figure%201_Blog_0.jpg" class="align-center" /><p>Demographers use several different definitions for population ageing onset. China passed all the leading such indicators between 1987 and 2002. China’s workforce population share has meantime been in decline since around 2011 (Figure 1) when the workforce peaked at some 925 million workers. Despite the onset of later stage demographic transition, however, China’s per capita income remains that of just a middle-income country.  </p> <p>Although China is old before it is rich, it hence retains <a href="">convergence growth potential</a>. GDP is still growing at some 6% annually (Figure 2). This means the resource envelope available to households and the government is also growing at a relatively fast rate. </p> <p>Japan, on the other hand, was already an advanced industrial economy when its population ageing intensified, amid a more established slower, steady state growth rate.  </p> <p>China experiencing demographic transition as a developing country in turn means the economic impact of population ageing is likely to be different to the Japanese case.</p> <img alt="Figure 2" data-entity-type="file" data-entity-uuid="5814aa09-10f4-4dec-9ed0-56dfd4e4bdd2" src="/sites/default/files/inline-images/Economic%20Indicators_Q1_2019_Figure%202_Blog.jpg" class="align-center" /><h4>Ageing in developed Japan vs developing China</h4> <p>Digging into the demographic data reveals other key differences. Whereas in Japan the older cohort dominated the economic agenda through their adulthood, in China the older generation have never – not even in their prime – been important drivers of consumption. Just as China puts greater emphasis on consumption as a new growth engine, it meets a newly enriched, higher-spending younger consumer class for whom a more affluent level of consumption has been a relatively norm from the get go. In Japan, in contrast, the lost-decades younger cohort feels less economically prosperous than the older population segment. </p> <p>In the same way, when the older Chinese generation leaves the workforce the impact will be different. Unlike in Japan where the education gap between generations is narrow and the human capital embodied in the older cohort deep, in China human capital is dramatically skewed in favor of the young. The lower fertility rate from the 1970s combined with rising household and national incomes means that over recent decades dramatically more resources have been invested in each child’s education. As China’s population share of workers falls, just maintaining output per capita requires improved productivity per capita. China’s younger cohort, at least theoretically, are well-positioned to utilize their relative skills to maintain, if not increase, productivity levels.  </p> <p>Finally, China’s dependency ratio, as measured by the ratio of youth (&lt;15 years) and elderly dependents (&gt;64 years) over the total working population (aged 15 to 64) will remain lower than Japan’s for some years to come. Both countries have persistent below replacement level fertility, but Japan’s demographic transition process began earlier and so the trends are more established. Japan moreover, has one of the longest life expectancies in the world, and is already home to some <a href="">70,000 centenarians</a>, ranking it among a handful of super-aged societies.</p> <h4>Ageing with Chinese characteristics</h4> <p>China may not be facing a “lost decade” akin earlier Japan, but it nonetheless must overcome its own challenges. As a developing country, it still retains pockets of poverty. Eradicating these requires consuming fiscal resources. It also awaits to be seen if the younger cohort are sufficiently educated to realize elevated national per capita productivity. </p> <p>Pension sustainability is also a major challenge. The 2019 Work Report promised to <a href="">reform</a> the management of aged-care insurance funds and guaranteed the payment of pensions on time and in full.  In March, the Ministry of Finance transferred a nearly <a href="">7% stake</a> in the People’s Insurance Company of China into the state pension fund. This is one step in what is expected to be a standard pattern as China sets aside assets to cover its emerging pension-related liabilities. <a href="">New opportunities in the sector are also emerging for foreign investors.</a>  </p> <p>Avoiding the downward pull of an ageing population will not be easy. In April China’s State Council released a set of Opinions on promoting the development of pension services, which set out 28 policy proposals for addressing a breadth of issues presently or imminently expected to affect ‘ageing’ China.  </p> <p>There are grounds for hope that, given the right policies, China will not suffer Japan’s recent fate. Whether it succeeds or not otherwise, only time will tell. </p> <p><em>This article is part of the<a href="/merics-trackers/economic-indicators-q1-2019"> latest issue of the MERICS Economic Indicators, </a>a project monitoring China's economic development. It is based on Johnston, L.A. (forthcoming). The Economic Demography Transition: Is China’s “not rich, first old” circumstance a barrier to growth? Australian Economic Review (to be published in a 2019 issue). </em></p></div> </div> </div> Mon, 29 Apr 2019 15:04:18 +0000 h.seidl 9176 at Big, empty, but full of promise? The Great Stone industrial park in Minsk <span>Big, empty, but full of promise? The Great Stone industrial park in Minsk</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Fri, 04/26/2019 - 11:40</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-29T12:00:00Z">2019-04-29</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/jacob-mardell" hreflang="en">Jacob Mardell</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong>Last week, over 30 heads of state and government attended the second "Belt and Road Forum" in Beijing. China's president Xi Jinping stressed that the Chinese initiative had already opened up new space for global economic growth and produced new platforms for international trade and investment. Our author Jacob Mardell is currently travelling countries that are already involved in the efforts to create a "New Silk Road." In this blogpost, which was first published by Berlin Policy Journal, he reports on the Great Stone industrial park outside Minsk - a place that currently feels like an empty monument to political ambition, but with increased involvement from Chinese investors and Beijing’s backing it still has potential. </strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190426_Great_Stone_Industrial_Park_Minsk_Imagine_China_20161213_23209.jpg?itok=5RIu8f0l 325w, /sites/default/files/styles/max_650x650/public/2019-04/190426_Great_Stone_Industrial_Park_Minsk_Imagine_China_20161213_23209.jpg?itok=X33yDbil 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190426_Great_Stone_Industrial_Park_Minsk_Imagine_China_20161213_23209.jpg?itok=9cVxIRFL 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190426_Great_Stone_Industrial_Park_Minsk_Imagine_China_20161213_23209.jpg?itok=5bc9Yelu 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190426_Great_Stone_Industrial_Park_Minsk_Imagine_China_20161213_23209.jpg?itok=5RIu8f0l" alt="The Great Stone Industrial Park outsite Minsk" title="The construction site of the China-Belarus industrial park Great Stone in Minsk, Belarus, in 2016. Image by ImagineChina." typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>Flags branded with the China Merchants Group logo flutter along wide, empty roads as we make our way from the administrative headquarters towards Great Stone industrial park’s new trade and exhibition center. The center has a floorspace of 22,000 square meters, and is populated by a security guard who watches over an exhibit detailing the park’s most noteworthy resident companies. As we tour the exhibit, the park’s press secretary explains that the center will host an international economic forum later that year. Prompted perhaps by the cavernous exhibition space, she adds, “we’re just at the beginning of our journey here.”</p> <p>Some commentators look at Great Stone, located just outside of Minsk and otherwise known as the China Belarus Industrial Park, and they see a bold idea struggling to convince investors. They talk about the personal interests of Belarus’ strongman leader, President Alexander Lukashenko, and describe a project that is more about ambition and politics than serious economic opportunity. The expensive-looking exhibition center certainly has a whiff of boondoggle about it, but, as with <a href="">many</a> projects undertaken by China, “big and empty,” always holds the uncertain promise of becoming “big and full.” During my visit to Great Stone, I asked employees whether the park was underachieving. The typical response was measured, yet believably candid: “It’s not as fast as we want, but, for such a huge process, it’s progressing at a good speed.” It doesn’t make for captivating headlines, but development is often slow—success a relative concept.</p> <p>Great Stone has been around as an idea for almost a decade. The park’s “journey” began circa 2010, when officials from Belarus became inspired by a visit to the China-Singapore industrial park in Suzhou. The stated purpose of Great Stone is to, as head of park administration Alexander Yaroshenko puts it, “concentrate industry in one convenient location, with priority given to biotech, electronics, new materials, etc.” During our interview, Yaroshenko is full of praise for Belarus’ good business environment (37th in the world) and “unique geography” between the two markets of the Russia-led Eurasian Economic Union (EEU) in the East, and the European Union (EU) in the West. Well rehearsed but with an edge of excitement to his voice, he tells me about the park’s potential as a testing ground for new Belarusian projects and brands.</p> <h4>A smart plan on paper</h4> <p>The MAZ-Weichai partnership is something of a poster child for this type of exciting new venture. In its heyday, MAZ supplied most of the Soviet Union’s heavy trucks and had a complete monopoly on certain models. MAZ is still a major state-owned manufacturer and a visible brand in Eastern Europe, but they rely on German engines for their automobiles. The new joint venture with Weichai, a Chinese diesel engine manufacturer, might not seriously change that dynamic, but it does mean that MAZ can fulfill its strategic objective of producing an indigenous engine— 10,000 of them a year by 2022, according to Yaroshenko.</p> <p>On paper, the plan looks like a smart one. As Belarus’ flagging state-owned enterprises become less viable sources of employment, the country will need new ventures like the MAZ-Weichai partnership to occupy future generations of workers. But reality rarely lives up to the ambitious plans of politicians, even ones as powerful as Lukashenko, whose personal advocacy of the project has been essential. The joint-stock entity behind Great Stone, Industrial Park Development Company, was signed into existence in 2012, but construction didn’t start until 2015, and nothing seriously kicked off at Great Stone until 2017.</p> <p>According to Olga Kulai, a Minsk-based analyst with first-hand experience of working with Chinese companies, the park initially faltered due to a lack of Chinese commercial interest in the project, which simply wasn’t “investment ready” at the time. The company that led the charge, Sinomach subsidiary China CAMC Engineering (CAMCE), also lacked experience in developing investment parks, and it wasn’t until China Merchants Group was brought into the equation that the park’s prospects changed direction. The park also slashed its capital requirements, providing easier access to incredibly generous tax and legal incentives attached to residency.</p> <p>Kulai is clear about why China Merchants made the move to Great Stone: “It was a political decision.” Belarus is incredibly proud of its close relationship with China—a country that provides Lukashenko with an attractive strong-state-strong-economy model as well as a powerful friend that isn’t Russia. By virtue of the discrepancies in size Beijing pays less attention to Minsk, yet the two countries’ “<a href="">comprehensive strategic partnership</a>” still means something to China. At least $110 million from China Development Bank and $170 from the Exim bank of China has been made available for the building of Great Stone, and the joint-stock company is 68 percent Chinese owned, with Sinomach taking 32 percent and China Merchants Group 20 percent. Having been blessed by a <a href="">visit</a> from President Xi Jinping himself and <a href="">declared</a> “a flagship project” of the Belt and Road Initiative (BRI), Great Stone is of clear political value.</p> <p>And so development of the park continues. It does so at a “good,” “reasonable,” or “not great” pace, depending on who you ask, but it continues nonetheless. In justifying the time it has taken for the park to get off the ground, the management points out that Great Stone is “a unique project” for Belarus, requiring a whole gamut of new regulations and business practices.</p> <p>When I visited Great Stone, I saw several large construction sites, swarming with hard-hatted workers. One of these sites was an R&amp;D center being built with a Chinese grant and by China 15th Metallurgical Construction Company. All of the workers were Chinese, and the park employees were happy to acknowledge that the majority of projects at the park are built by Chinese construction workers. I got the sense that this was an accepted condition of Chinese sponsored development—rather a facility built with Chinese labor than no facility at all.</p> <h4>Export uncertainties</h4> <p>Most of the 43 park residents are Chinese and Belarusian companies with very little online presence. None of those contacted have responded so far to questions about their involvement in Great Stone, including the handful that are touted as international investors, and so it is difficult to gauge their quality and level of commitment to the park. These residents have so far “invested” $1.1 billion in the park. Although Great Stone doesn’t have its hands on much of the money yet, the park assures me that this figure refers to contractual agreements rather than pledges or letters of intent. Ten companies have already begun operating, and more are scheduled to do so in the near future. One of the park’s more obscure international investors—an Israeli solar panel company called RecomBel—is due to finish construction and begin operations later this year. If it does so, it will join the other 10 companies in providing jobs that may not have existed were it not for the BRI and the international cooperation it is supposed to encompass.</p> <p>There are challenges ahead for Great Stone. Alexander Filippov, another Belarusian analyst, tells me that there is a question mark over export options for companies based in Great Stone. Although it has been listed as an EEU special economic zone, the bloc’s country of origin requirements may still create legal difficulties with exports to the EEU, while faltering negotiations with the EU also provide uncertainty for West-bound exports.</p> <p>Then there is the question of the financing for further developments. At the end of my tour I was shown round a 1:500 scale model of the park. Complete with high-speed rail line and residential facilities, the model is a highly optimistic version of what the park was supposed to look like in 2020. Asked how the park intended to finance the high speed rail, the press secretary referenced several international financial institutions. The Belarusian government itself is cash-strapped, exercising what Filippov calls “loan management finances.” The head of the European Bank of Reconstruction and Development (EBRD) in Belarus, Alex Pivovarsky, told me that financing the rail link was not out of the question, and in general spoke favourably about the park’s progress, but financing from institutions like the EBRD takes time, and they rarely finance projects in their entirety.</p> <p>That leaves the option of further Chinese money. Chinese investors and bank managers are not blind to profits—they are first and foremost business people—but they are also susceptible to political pressure. Great Stone possesses symbolic value as a project supported by Xi, and it’s unlikely that Beijing would ever let Great Stone flounder. The park has been slow to prove itself, but Great Stone’s “journey” has just begun and it has a powerful guarantor on the road ahead.</p> <p><em>This blogpost was originally published at the <a href="">Berlin Policy Journal on April 24, 2019.</a></em></p></div> </div> </div> Fri, 26 Apr 2019 09:40:32 +0000 komprakti 9156 at Worried about Huawei? Then worry about Chinese blockchains, too <span>Worried about Huawei? Then worry about Chinese blockchains, too</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Fri, 04/26/2019 - 14:56</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-26T12:00:00Z">2019-04-26</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Kai von Carnap</p> <p><strong><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The blockchain has become one of the key technologies flanking the Belt and Road Initiative (BRI). Innovative data management systems could soon give Beijing access to immense amounts of personal and company data from abroad.</span></span></span></span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=FFV6nH-S 325w, /sites/default/files/styles/max_650x650/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=Yy5cDnuu 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=Te4nxlmb 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=k3GLDYDq 2484w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190426_Blockchain_123rf_65642179_m.jpg?itok=FFV6nH-S" alt="Worried about Huawei? Then worry about Chinese blockchain, too" title="Imports from China are increasingly managed by blockchain technology. Image by Monsit Jangariyawong via 123rf" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>While the European Union is busy debating the risks of deploying Huawei’s telecoms systems, it risks overlooking a far more fundamental problem – imports from China are increasingly managed by blockchain technology, a software that could soon give the Chinese Communist Party (CCP) access to immense amounts of personal and company data from beyond Chinese borders, and open the way for legal clashes with Chinese companies.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Blockchains are encrypted and distributed data management systems that can handle vast amounts of information quickly and securely – an extremely useful administrative innovation for China as its global influence expands. Spurred by the Belt and Road initiative (BRI), Chinese companies are bringing infrastructure, trade, and investment to 130 countries around the globe. The products and services that are changing hands and crossing borders as a result create large and enormously complex amounts of data.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Shipping giant Yuanben, for example, says it tracks more than 50 million goods on its </span></span></span><a href=""><span><span><span><span><span>blockchain</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> that is kept on a distributed network of computers in China, Europe, and the US. And Alibaba uses its nascent blockchain ledger to let its Chinese customers track a plethora of goods from 50 countries – and the company is already using the technology to develop a <span><span>blockchain banking service</span></span> for the world’s two billion "unbanked" people.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Chinese companies doing business abroad are among the first in the world to put the power of the distributed data management to use, making blockchain one of the key technologies flanking the BRI. Blockchains allow fast, secure and immutable data management through clever cryptography and distributed computing, saving billions of dollars in customs procedures, and also increasing trust between counterparties. </span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Under the motto "</span></span></span><a href=""><span><span><span><span><span>One Belt, One Road, One Chain</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>", China’s Belt and Road Blockchain Consortium (BRBC) is working on standards to balance European demands with <span><span>those of Halal and Sharia law </span></span>– a third of BRI countries are Islamic. Meanwhile, Europe recently launched its latest “</span></span></span><span lang="FR" xml:lang="FR" xml:lang="FR"><span><span>international</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>” blockchain association (INATBA) - none of its 105 founding members were from China and there was no mention of a Chinese blockchain. </span></span></span></span></span></span></span></p> <p><span><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Not the chip off the old block</span></span></span></strong></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>However, the Belt and Road’s blockchains are changing. Alibaba has filed an “</span></span></span><a href=";Sect2=HITOFF&amp;d=PG01&amp;p=1&amp;u=%252Fnetahtml%252FPTO%252Fsrchnum.html&amp;r=1&amp;f=G&amp;l=50&amp;s1=%252220180285837%2522.PGNR.&amp;OS=DN/20180285837&amp;RS=DN/20180285837"><span><span><span lang="FR" xml:lang="FR" xml:lang="FR"><span><span>administrative intervention</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>” patent that allows third parties like government agencies to halt so-called smart contracts or to freeze an account; more recently and significantly, the Cyber Administration of China (CAC) published </span></span></span><a href=""><span><span><span><span><span>regulations</span></span></span></span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> that require Chinese blockchain companies to register with the CAC and submit users’ personal data.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>These centralizing interventions threaten not only to undermine a major reason to adopt the technology in the first place - trusting algorithms working in parallel on many computers rather than centralized institutions. The moves by Alibaba and CAC will also open legal gateways for Chinese authorities to monitor and control transactions and data, giving the CCP considerable political and economic leverage over Chinese blockchains.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Given the internationalization of Chinese companies and the BRI’s ever lengthening reach westwards, these regulations could also soon affect European consumers: On 3 March, the <span><span>CAC said</span></span> 197 Chinese blockchains had successfully registered. Though it did not disclose whether the data of foreign customers was registered, key actors along the BRI – including e-commerce giants Alibaba and JD – were among those on the list.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>As a result, consumers and companies in Europe must be aware of this: Any interaction with a Chinese company can produce an immutable footprint stored in digital ledgers that serve as potential gateways for Chinese authorities to access realms of private and enterprise data. Given the frenzy surrounding Huawei, the European Union remains oddly silent about this. </span></span></span></span></span></span></span></p> <p><strong><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Europeans wait and see as BRI key actors are registering Chinese blockchains</span></span></span></span></span></span></span></strong></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>The EU has adopted a wait and see approach towards blockchain to spur</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> innovation and entrepreneurial activity. Its hands-off stance is caused by</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> conceptual contradictions between blockchain and its data-protection rules. The EU’s </span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>General Data Protection Regulation (GDPR)</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> requires,</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> for example,</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span> clearly attributable responsibilities within a network, a regulation most blockchain systems are not compatible with.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Sadly, this lack of clarity on the part of the EU may cause a slew of European blockchain start-ups to shut their doors, while leaving ever more room for BRI-related blockchains to develop. Distracted by Huawei, confused by GDPR-compliance, and misled by false foresight about blockchain innovation, the EU is not only putting European data privacy on the line. It is running the risk that global blockchain standards will be made without it. </span></span></span></span></span></span></span></p> <p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>The New Silk Road's blockchains look set to raise the stakes in a debate that pits unprecedented logistical efficiency against real dangers to data protection and privacy. Soon the EU may have only two options: It could relax the GDPR’s rules and accept the influence of BRI-blockchains or ban data processing on BRI- or China-controlled blockchains - and in effect the imports they manage. The EU faces tough choices about Huawei - but should look ahead to possibly tougher ones on new technologies such as blockchain. </span></span></p> <p><em>Kai von Carnap is an intern in the Society and Media program at MERICS. He holds a Master's degree in Chinese-European Economics and Business Studies from Berlin Professional School.</em></p></div> </div> </div> Fri, 26 Apr 2019 12:56:13 +0000 komprakti 9171 at China is wary of energy transition undermining social stability <span>China is wary of energy transition undermining social stability</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Wed, 04/17/2019 - 13:37</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-18T12:00:00Z">2019-04-18</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/nis-grunberg" hreflang="en">Nis Grünberg</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Slow progress towards slowing climate change is also a reflection of the immensity of the physical and social change that reshaping energy systems requires. China, the world’s largest source of carbon emissions, is a case in point: Chinese officials are especially wary of threats to social stability, energy transition included. </span></span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190417_Coal_Power_Plant_Jiangsu_ImagineChina_pbu770200_13.jpg?itok=FEiUe8cU 325w, /sites/default/files/styles/max_650x650/public/2019-04/190417_Coal_Power_Plant_Jiangsu_ImagineChina_pbu770200_13.jpg?itok=5-1FTXb8 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190417_Coal_Power_Plant_Jiangsu_ImagineChina_pbu770200_13.jpg?itok=6OPg_EP7 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190417_Coal_Power_Plant_Jiangsu_ImagineChina_pbu770200_13.jpg?itok=bAEMkKJe 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190417_Coal_Power_Plant_Jiangsu_ImagineChina_pbu770200_13.jpg?itok=FEiUe8cU" alt="Coal power plant in Datong, Shanxi" title="A coal power plant in Datong, Shanxi province. Foto: ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>An active participant in the UN Climate Change Conferences and a signatory to the 2018 Paris Agreement, China has become </span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>serious about curbing pollution</span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> and </span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>climate change</span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>. Government reforms since 2016 have created more effective regulation through stricter environmental standards, harsher penalties, and even production caps and shutdowns in heavily polluting industries. </span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>And yet a </span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>report</span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> by a Chinese public research center recently warned China’s “stated policy scenario cannot comply with the Paris agreement.” Its current trajectory would see it fail in its ambition to keep the rise in average temperature to below 2°C against pre-industrial levels. According to the <em>China Renewable </em>Energy Outlook 2018, the main problem is systemic reliance on coal. <span>The observation is alarming, because without success in China, tackling the global challenge remains elusive.</span></span></span></span></span></span></p> <h4>China has not yet reached "peak coal"</h4> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>A little over a year ago, experts assumed China had </span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>reached “peak coal</span></span></a><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>”</span></span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>. But recent data show that, rather than declining, </span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>coal</span></span></a><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> consumption rose slightly</span></span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> in 2018. According to </span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Boom and Bust</span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>, a report on coal-power plant construction, and </span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Carbon Brief</span></span></a><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>,</span></span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> a coal-power tracking website, also the construction of coal-fired power stations has been picking up again. Both trends were enough to raise questions about China’s declared goal of achieving a fast energy transition. </span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>It is tempting to view this as a symptom of Beijing’s ignorance, deceitfulness or laziness in all matters regarding climate change. But a more thorough reading would also see it as an expression of the limitations of central-government power. </span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Some have argued that implementing an energy transition would be easier in authoritarian systems like China than in democratic countries.</span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> But even policy made in all-powerful Beijing can only work if it finds support at lower levels; Beijing has to work with – and at times against - local interests or constraints. Policy and implementation are a perpetual compromise between the demands of politicians and experts - and the competence of local officials.  </span></span></span></span></span></p> <p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>When local governments in northern China decided to meet implementation quotas on a “coal-to-gas” policy intended to cut pollution, a spike in gas consumption for heating quickly led to a shortage. Coupled with incomplete installation of both gas pipes and heating systems in some areas, and a ban on burning coal for heating private homes, this rocky implementation of central-government orders led to </span></span></span><span><span><span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>areas going for many weeks without heating</span></span></a></span></span></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>. </span></span></span></p> <h4><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Pollution has worsened in structurally weak regions</span></span></span></span></span></h4> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Such problems were most noticeable in structurally weak regions, in particular the northern Chinese Provinces of Shaanxi, Shanxi, and Henan, the heartland of coal and heavy industry. Regardless of Beijing’s ambitions, pollution in parts of these regions has worsened in recent years. This bucking of the national trend shows the gap between Beijing’s aims and the regional administrations’ means. </span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Minister of Ecology and environment</span></span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>, Li Ganjie, has admitted</span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> that, despite progress, the situation remains grim. He has warned the hardest parts of tackling pollution has yet to come. Despite Beijing’s ambition, China’s goal of a swift energy transition is blocked by technical problems - and by the political rationale of “social stability first”. Energy transition is no done deal. </span></span></span></span></span></p> <p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>Local officials often have to find a balance between Beijing’s ambitious targets, public pressure to clean up the environment, and socio-economic issues like employment. In areas dominated by mining, steelmaking and other heavy industries, officials have to enforce Beijing’s green growth policies, while also protecting local companies as important employers and taxpayers. </span></span></span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> </span></span></span></span></span></p> <h4><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Focus on social stability slows progress</span></span></span></span></span></h4> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>The National People’s Congress in March acknowledged the need for social stability. Given slowing growth and the challenges of industrial restructuring, Premier Li Keqiang emphasized the importance of stable employment. A new “Jobs First” policy allows officials to award factories grace periods before implementing environmental standards. Intended to prevent disruptions such as a heating crisis, such moves are also an invitation for environmental foot-dragging at the local level. </span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>Yet in other areas, officials enforce blanket bans on polluting industries, </span></span><a href=";mc_eid=990ede2b0f"><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>harming companies in </span></span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> forcing them to comply to environmental standards. This illustrates that poor local governance can cut both ways – and that Beijing is aware of the dangers of climate change and pollution. Still, Beijing knows energy transition can be painful for communities. Given the Xi administration’s focus on stability, perceptions of social risks will slow progress.</span></span></span></span></span></p> <p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>But, as the Renewable Energy Outlook shows, more ambitious targets are both possible and necessary, especially for offsetting coal.  Beijing needs to up its game and tackle deficits at local level, for example, by aligning the incentives of officials with Beijing’s policy. The effects of pollution and global warming are felt at the local level, so the fight against them has to take place there, too.</span></span></span></p></div> </div> </div> Wed, 17 Apr 2019 11:37:53 +0000 komprakti 9141 at EU-China rail freight: Trade infrastructure investment or propaganda tool? <span>EU-China rail freight: Trade infrastructure investment or propaganda tool?</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Mon, 04/15/2019 - 12:00</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-15T12:00:00Z">2019-04-15</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/jacob-mardell" hreflang="en">Jacob Mardell</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong>Subsidies are boosting rail freight along the New Silk Road, but it’s too soon to say if this expensive investment will pay off in the long run. <span>On his journey along the "Belt and Road", MERICS freelance researcher Jacob Mardell stopped in the Polish village Małaszewicze where the larger part of EU-China rail freight traffic passes through. </span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190414_Yiwu-Britain_Train_ImagineChina_pbu614617_08.jpg?itok=brCuxOdq 325w, /sites/default/files/styles/max_650x650/public/2019-04/190414_Yiwu-Britain_Train_ImagineChina_pbu614617_08.jpg?itok=8arq9sSb 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190414_Yiwu-Britain_Train_ImagineChina_pbu614617_08.jpg?itok=tSNWiEKk 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190414_Yiwu-Britain_Train_ImagineChina_pbu614617_08.jpg?itok=zKXzC2Qw 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190414_Yiwu-Britain_Train_ImagineChina_pbu614617_08.jpg?itok=brCuxOdq" alt="The first direct freight train running from Britain to China arrives at Yiwu West Station in Yiwu city, east China&#039;s Zhejiang province, 29 April 2017. " title="The first direct freight train running from Britain to China arrives in Yiwu city on 29 April 2017. Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>When the famous and <a href="">much vaunted</a> Yiwu-London freight train <a href="">arrived</a> in Barking, East London, fresh from its maiden voyage across the Eurasian continent, the implication was that the train itself had traveled all the way from China. In fact, the wagons had come from Duisburg, and before that, the containers had made an important stop at a small border village in Eastern Poland.</p> <p>On my journey East and before crossing the Belarus border, I stopped in this village, Małaszewicze, where I was shown around the local dry port facilities by Krzysztof Szarkowski, an accommodating intermodal manager at DHL Freight. The larger part of EU-China rail freight traffic passes through Małaszewicze, where containers must be transferred between the Soviet-standard 1,520 millimeter gauge tracks and the slightly narrower gauge used throughout most of Europe. This is done by hulking cranes that hover over parallel tracks and pluck containers from one track before setting them down onto adjacent wagons.</p> <p>There are four intermodal terminals at Małaszewicze, capable of processing 984 containers a day. In recent years, this infrastructure has had to cope with a marked rise in traffic as the number of freight trains traveling between Europe and China has boomed. Since then, the story of the “<a href="">Europe-China Express</a>” has quickly become one of the more celebrated tales told about the New Silk Road, and the Chinese news agency, Xinhua, still excitedly <a href="">announces</a> each new rail service between China and Europe.</p> <h4>Fueled by subsidies</h4> <p>That is largely because the Europe-China rail connection works so well as a metonym for the wider Belt and Road Initiative (BRI). Rail captures the East-West connective essence of the New Silk Road and trains function as an easily recognizable symbol of cross-continental commerce. Rail cars take the place of camels, Sogdian silk merchants become logistics managers, and China’s President Xi Jinping’s mythology of the “<a href="">Silk Road Spirit</a>” finds convenient historical continuity. But rail freight between China and Europe is representative of the larger Belt and Road in more ways than one: both are ultimately fueled by Chinese public money—the BRI in the form of government-issued loans and rail in the form of subsidies.</p> <p>In fact, subsidies for the Europe-China connection come from a mixed bag of sources along the route, largely from Chinese cities, and provincial and central governments. They also vary from train to train and are not particularly transparent. Still, most industry experts use words like “substantial,” “significant,” or “huge” to describe them, with some calculating that subsidies cover up to 60 percent of the costs. This issue is frequently picked up by critics who use the subsidies’ existence to argue that “new” rail freight routes to Europe serve a largely <a href="">propagandistic</a> function and show the <a href="">relative irrelevance</a> of EU-China rail freight. One think tank even <a href="">suggested</a> that the subsidies might be considered an “advertising budget” for the BRI.</p> <p>With “China Railway Express” literally described as a brand by Chinese state development plans, there is little doubt that the subsidies are justified from a political point of view—by local governments competing to host the largest number of routes, and by Beijing, keen to boast about trade along the New Silk Road.</p> <p>But European governments are not simple co-conspirators in Chinese propaganda—they too have their own agenda. For example, when Yiwu Timex Industrial Investments Co <a href="">extended</a> their Chongqing-Duisburg route to London for a demonstration service in 2017, it was a British trade minister who boldly <a href="">exclaimed</a>:“This new rail link with China is another boost for global Britain, following the ancient Silk Road trade route to carry British products around the world.”</p> <h4>Part of the “Go West” strategy</h4> <p>I was told a similar story in Lodz—a post-industrial city in the heart of Poland that has remodeled itself as a regional logistics hub. According to Tomasz Kaminski, an academic focused on relations with China, cooperation on rail freight with the Chinese city of Chengdu required a “political umbrella” to get it off the ground. Following the collapse of its lifeblood textile industry in the 1990s, Lodz was in desperate need of rebranding. The then Marshal of the Lodzkie region, Witold Stępień, saw cooperation with Chengdu as the perfect opportunity to transform the image of the city and region and played an active part in pushing the partnership. As elsewhere on the New Silk Road, Chinese money helps fuel local political ambitions.</p> <p>The Lodz-Chengdu example also illustrates the solidly functional core of EU-China rail freight. The logic of a freight train from Yiwu, on China’s eastern seaboard, to an island nation in the North Atlantic is dubious, but Chengdu to Lodz makes sense. Before the BRI was even announced, a Polish logistics company called Hatrans had founded a joint-venture in China with a view to connecting Dell, in Lodz, with its supplier, Foxconn, in western China. Or, as Hatrans told me matter-of-factly, it was “driven by the need to satisfy customers who required fast transportation between Central China and Central Europe for the fraction of the cost of air freight.” Ronald Kleijwegt, mastermind of an even earlier route between Chongqing and Duisburg, tells me that the entire Europe-China rail freight phenomenon was essentially a product of China’s “<a href="">Go West</a>” strategy—Beijing’s plan to develop poor interior provinces that had missed out on the East’s manufacturing boom.</p> <h4>Uncertain long-term viability</h4> <p>In the short term, subsidies might look like a BRI advertising budget, but throwing money at infrastructure first and waiting for development—the “build it and they will come” approach—is a defining characteristic of Beijing’s thinking on the BRI. In the mid-term, fast freight at subsidized prices helps raise awareness of rail as a viable option for customers. In the long term, subsidized trains might just help facilitate the development of inland Chinese provinces and continental dry ports—a central goal of the BRI.</p> <p>Also, like many BRI projects, empty trains and the subsidies that enable them have the secondary function of incubating Chinese companies and making them globally competitive. David Smrkorvsky, head of rail at JUSDA (the supply chain management service platform of Foxconn), tells me that several Chinese logistics companies have become highly competitive in Europe due to subsidized trade. He also comments that not a few European companies are “doing unbelievably well for themselves” out of the same subsidies.</p> <p>The key question is whether EU-China rail freight has a life beyond subsidies. Ronald Kleijwegt tells me that even the Chinese government realizes that one cannot build a long-term structural solution on subsidies. Indeed, the government is ostensibly in the <a href="">process</a> of phasing them out. David Smrkorvsky of JUSDA is dubious that market costs have been reduced enough to compensate, but Kleijwegt thinks it can be done by further improving the balance of trade between East and West and by forcing through further efficiencies.</p> <p>The long-term viability of continued growth for the rails is uncertain, and critics are right to question the commercial rationale behind the growth in traffic, but they are wrong to put a purely propagandistic value on the phenomenon. Like the BRI as a whole, Europe-China rail freight was driven by a purely economic logic that was doubled down on by Chinese government spending and political will. Whether this expensive strategy will be successful in driving future development cannot be ruled out, but neither is it guaranteed.</p> <p><em>This blogpost was originally published <a href="">at the Berlin Policy Journal</a> on April 10, 2019.</em></p></div> </div> </div> Mon, 15 Apr 2019 10:00:02 +0000 komprakti 9116 at A Franco-German China policy: The road less traveled <span>A Franco-German China policy: The road less traveled</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Thu, 04/11/2019 - 15:02</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-12T12:00:00Z">2019-04-12</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><span><span><span><span><span>An interview with <a href="">Mikko Huotari</a> and <a href="">Mathieu Duchâtel</a></span></span></span></span></span></p> <p><span><span><strong><span><span><span>The French think tank Institut Montaigne and MERICS jointly organized a Franco-German workshop on "Promoting a European China policy." In this interview, Mathieu Duchâtel, Director of Institut Montaigne’s Asia Program, and Mikko Huotari, Deputy Director of MERICS, discuss differences and similarities of German and French policies towards China. What are the limits of a convergence on China policy, and can this be translated into a more united European approach?</span></span></span></strong></span></span></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190411_Merkel_Macron_European_Council_2017_Image_Copyright_Europan_Union.jpg?itok=chsJO-wV 325w, /sites/default/files/styles/max_650x650/public/2019-04/190411_Merkel_Macron_European_Council_2017_Image_Copyright_Europan_Union.jpg?itok=h6JtjqOy 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190411_Merkel_Macron_European_Council_2017_Image_Copyright_Europan_Union.jpg?itok=qLZr7XNq 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190411_Merkel_Macron_European_Council_2017_Image_Copyright_Europan_Union.jpg?itok=fwkdybJ8 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190411_Merkel_Macron_European_Council_2017_Image_Copyright_Europan_Union.jpg?itok=chsJO-wV" alt="German Chancellor Angela Merkel and French President Emmanuel Macron" title="Image copyright: European Union" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><h4>What are the current priority issues on the China policy agenda of Germany and France? How have these priorities changed?</h4> <p><span><span><span><strong><span>Mathieu Duchâtel: </span></strong></span></span></span>The Gaullist moment of France’s China policy is clearly far behind us. Today, there are two priorities in France’s China policy. First, a rebalance in economic ties with our largest source of trade deficit (EUR 29.2 billion in 2018), and a country with which the lack of reciprocal market access and forced technology transfers are highly problematic from a French perspective. This goal will not be reached through bilateral commercial deals only, although they matter enormously for several strategic sectors of the French economy. What is needed is a rebalance at a systemic level and therefore, realistically, only the EU provides sufficient leverage. The game is partly about bargaining with China for greater market access and better protection of intellectual property rights, partly about internal change in Europe to build better protections against Chinese state capitalism and techno-nationalism.</p> <p>Second priority, France needs Chinese cooperation to preserve the multilateral system of global governance, currently under great pressure on multiple fronts. China provides rhetorical support for multilateralism, but there is a deep-rooted reluctance on the Chinese side to move beyond Beijing’s existing commitments, for example on the reform of the World Trade Organization. The track record is not entirely negative though. France values the important contribution of China in facilitating the conclusion of the Paris agreement and the negotiation of the Joint Comprehensive Plan of Action (JCPOA) with Iran. But, there is currently a stalemate across a wide spectrum of issues on the multilateral agenda.</p> <p>At the same time, France tends to see China as a problem rather than a solution when it comes to the future of the international order, leading to an upgrading of ties with other partners. France’s reluctance to give political endorsement to the Belt and Road Initiative, the regular French naval presence in the South China Sea, the emphasis on the Indo-Pacific narrative, and the development of defense relations with Australia, India and Japan should be seen in that light.<br /><br /><span><span><span><strong><span>Mikko Huotari: </span></strong></span></span></span>On the surface, there have been few changes in the priorities of Germany’s China policy during the past few years:</p> <ul><li>Deepening what is still largely seen as a beneficial bilateral economic partnership of two trading nations;</li> <li>Strengthening collaboration on a wider range of strategic issues and global challenges including climate;</li> <li>Developing a forward-looking positive agenda in new areas such as intelligent manufacturing or autonomous driving.</li> </ul><p>What has changed quite dramatically, however, over the past three years, are basic assumptions about China’s domestic reform trajectory and international ambitions. There is a growing recognition that core features of the Chinese system, a dictatorial and repressive Leninist party system, massive state interventions in the economy and an unlevel playing field for foreign companies (and civil-society actors) are highly persistent if not resurgent. Faced with ambitious Chinese industrial policies and a lack of progress in economic reforms measured against the targets that the CCP has set for itself, policymakers in Berlin are rebalancing their assessment of opportunities and challenges.<strong> </strong>They are also focusing more on ways to build leverage for achieving goals such as greater market access as well as on finding new tools to deal with market distortions and security implications related to Chinese economic practices.<br />  </p> <h4>Does this translate into a common China policy agenda? What are the limits of Franco-German convergence on China policy?</h4> <p><span><span><span><strong><span>Mathieu Duchâtel: </span></strong></span></span></span>France and Germany speak a common language on China. The two countries have similar assessments of domestic governance trends under <a href="">Xi Jinping</a> and the same understanding of the highly geopolitical goal that underpins Chinese foreign policy – become a <em>"global leader in terms of comprehensive national strength and international influence by 2050"</em>, as underlined by Xi during the 19th Party Congress.</p> <p>The two countries work well within the EU framework to respond to some of the challenges posed by China’s competition.The conclusion earlier this year of an EU-wide investment screening mechanism is a concrete outcome of a joint Franco-German effort to create a political momentum in Europe for better regulation of incoming foreign investment, to avoid unwanted technology transfers, political influence or excessive leverage. This would have been unthinkable only three years ago.</p> <p>But there are also several challenging areas where a Franco-German engine is almost entirely lacking. First, Europe has yet to come to terms with the emergence of China as a high-tech powerhouse and an innovative digital economy.</p> <p>At the minimum, this needs a much more ambitious effort to support European research and development. Second, there is no common Franco-German response to the transformation of China into a more interventionist foreign policy actor, an actor for which military options are in the policy toolbox. And third, France and Germany are neither sufficiently ambitious, nor sufficiently European in how they approach systemic competition with China when it comes to influence in third countries, despite the fact that this is the long-term strategic game.<br /><br /><span><span><span><strong><span>Mikko Huotari: </span></strong></span></span></span>Seen from Berlin, Germany and France have collaborated quite successfully on several critical policy issues in relation to China over the past few years. This includes coordination between Paris and Berlin (and Rome) on issues such as the "Market Economy Status" of China and ensuing reforms of the EU’s trade defense instruments as well as the recently formalized EU investment screening framework. Support by the German and French government was also essential for the more assertive and critical "repositioning" of the European Commission on China last month.</p> <p>Limits of this convergence are quite obvious: The profiles of their respective economic relationship with China but also their global affectedness in relation to strategic issues remain different and policy priorities will diverge accordingly (for instance on arms control and Africa). Paris and Berlin will also have different preferences on whether a Berlin-conditioned empowerment of Brussels’ institutions or a French-German avantgarde should guide this European China policy as well as on the role of transatlantic coordination in this. Finally, Berlin and Paris simply have a long way to go in overcoming limitations to China policy coordination beyond their respective ministries of foreign affairs and, the less pronounced, economic affairs.<br />  </p> <h4>What did France’s initiative to invite Chancellor Merkel and EU Commission President Juncker to Paris during Xi Jinping’s state visit achieve?</h4> <p><span><span><span><strong><span>Mathieu Duchâtel: </span></strong></span></span></span>The French initiative sent a powerful signal of European unity to China. On the positive side, it ensured that Xi Jinping would be in direct interaction with a set of European priorities clearly articulated around the concept of reciprocity: the conclusion of a bilateral investment treaty as a means to rebalance the investment relationship, change in the dynamics of technology transfers between Europe and China, access to public procurement markets in China, the willingness to work together in infrastructure projects overseas but without lowering European environment and corporate social responsibility standards, a clear request to contribute more to the reduction of carbon emissions. It also underlined the EU message that China is now seen as a "systemic rival" in Europe. The term is a response to China’s active ideological and systemic competition with the two main features of the European model, market economy and liberal democracy. This ideological competition is striking when one looks at Xi Jinping’s speeches and to pretend that it does not exist is not an option – clarity of language is therefore a welcome development. However, there is a risk that the echo of this message will be short-lived and what has been a demonstration of strength will be interpreted as a sign of weakness if Germany does not reciprocate.<br /><br /><span><span><span><strong><span>Mikko Huotari: </span></strong></span></span></span>At a minimum, the invitation to Paris was successful in signaling that a European China policy requires extraordinary measures. In that regard, the invitation can be seen in conjunction with plans to do a full-fledged EU-27-member state meeting with China under the auspices of the German Council presidency in 2020. The joint joined-up approach in Paris also helped to convey a few critical messages to the Chinese counterparts:</p> <ol><li>Key EU members are reassessing the balance of opportunities and challenges in their China relationship ("becoming less <em>naïve</em>").</li> <li>It is not easy to divide "Europe’s core" on China-policy issues.</li> <li>Paris and Berlin back the new Commission line with clearer requests vis-à-vis China and demand some "homework" to deal with persistent market distortions.</li> </ol><p>It is less clear whether with the focus on multilateralism and a comparatively cooperative tone in public statements, the meeting was also meant to signal to Washington that the EU and China can and will work together, despite US push-back. More suspicious voices in Berlin would even argue that the invitation served to avoid the impression that Macron was mainly in for special deals with China and wanted to avoid spoiling the newly emerging European agenda. Most importantly, the meeting has created distrust in other member states that France and Germany might push for a new European China policy agenda that does primarily reflect their individual interests.</p> <p><em><span><span><span>This blog post was originally published by <strong><a href="">Institut Montaigne</a></strong>, a Paris-based think tank dedicated to public policy in France and Europe.</span></span></span></em></p></div> </div> </div> Thu, 11 Apr 2019 13:02:47 +0000 h.seidl 9111 at China meets tougher EU at annual summit <span>China meets tougher EU at annual summit</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Thu, 04/04/2019 - 10:53</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-04T12:00:00Z">2019-04-04</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Rebecca Arcesati</p> <p><strong><span><span><span><span>When EU and Chinese leaders meet in Brussels next week at their annual summit, the EU needs to present a united front. That looks like a tall order, and it remains to be seen whether the EU will be able to put its relations with China on a more equal and principled footing.</span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/190404_Tusk_Li_2017_European%20Council%20President_via_flickr.jpg?itok=5EpsOjBQ 325w, /sites/default/files/styles/max_650x650/public/2019-04/190404_Tusk_Li_2017_European%20Council%20President_via_flickr.jpg?itok=oUK7Xue7 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/190404_Tusk_Li_2017_European%20Council%20President_via_flickr.jpg?itok=uYScWo10 1300w, /sites/default/files/styles/max_2600x2600/public/2019-04/190404_Tusk_Li_2017_European%20Council%20President_via_flickr.jpg?itok=ARvoIQsN 2048w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/190404_Tusk_Li_2017_European%20Council%20President_via_flickr.jpg?itok=5EpsOjBQ" alt="China&#039;s Premier Li Keqiang and European Council President Donald Tusk at the EU-China Summit 2017" title="China&#039;s Premier Li Keqiang and European Council President Donald Tusk at the EU-China Summit 2017. European Council President via flickr (CC BY-NC-ND 2.0) " typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span>The atmosphere around this year’s EU-China summit is dramatically different from previous years: in a balancing act, the EU has developed a new realism and a much keener awareness of both the opportunities and challenges presented by China. Frustrated with China’s market-distorting practices and predatory technological acquisitions, Brussels wants to push Beijing to curb industrial subsidies, </span><a href=""><span>open up</span></a><span> its market and commit to signing an ambitious bilateral agreement on investments by 2020. </span></span></span></span></p> <p><span><span><span><span>While the need to rebalance trade and investment relations will top the summit’s agenda, other key issues will also be discussed, including cybersecurity, climate change and potential synergies within the EU-China connectivity platforms. There are also hopes that human rights will not be </span><a href=""><span>sidelined</span></a><span> again.</span></span></span></span></p> <p><span><span><span><span>But it remains to be seen whether the EU will be able to present a united front and put its relations with China on a more equal and principled footing - both at the summit and, even more importantly, in its aftermath. While the EU arrives better prepared than ever to confront China on key issues, Xi Jinping’s European tour has made abundantly clear that Beijing still profits from the profound divisions that exist between member states.</span></span></span></span></p> <h4><span><span><span><span>EU demands set the tone for this year’s summit</span></span></span></span></h4> <p><span><span><span><span>With Brexit and a European election looming, the current EU Commission has become more assertive on China. In a remarkably blunt </span><a href=""><span>strategy paper</span></a><span> published in March, it labelled China “an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.” </span></span></span></span></p> <p><span><span><span><span>This represents </span><a href=""><span>a sea change</span></a><span> in the EU’s assessment of China’s – and its own – capabilities. Rather than imitating the US’ zero-sum approach, the paper acknowledges that China is an indispensable partner but also an aspirant leading power which needs to shoulder greater responsibilities. </span></span></span></span></p> <p><span><span><span><span>The ten-point action plan will frame the summit’s discussions, from fair competition, market access and WTO reform to the security of 5G networks – the Commission </span><a href=""><span>laid out</span></a><span> its recommendations last week. But what is most relevant is that the strategy also focuses on defensive policy changes to strengthen the EU from within, calling for a smarter use of Europe’s industrial, competition, public procurement and trade policy tools to address China’s state-induced economic distortions and boost Europe’s competitiveness.</span></span></span></span></p> <h4><span><span><span><span>China wants European integration but benefits from fragmentation</span></span></span></span></h4> <p><span><span><span><span>China, on the other hand, maintains an ambivalent position toward Europe. While it wants European integration to access the single market, balance against the US and demonstrate its own commitment to multilateralism, the reality is that Beijing also benefits from EU divisions. Xi’s visit to Italy was a big success for his leadership, as a G7 country </span><a href=""><span>endorsed</span></a><span> his chief geopolitical initiative, undermining Brussels’ efforts to devise a common European approach to the Belt and Road Initiative (BRI).</span></span></span></span></p> <p><span><span><span><span>Italian populists have already bent to China’s economic clout by abstaining from a </span><a href=""><span>vote</span></a><span> to introduce an EU-wide investment screening framework aimed at protecting the security of Europe’s critical assets. Italy is not alone. </span><span>Portugal, for instance, recently warned against European protectionism over Chinese investment. </span><span>Similar departures from a commonly agreed European line are weakening the bloc.</span></span></span></span></p> <p><span><span><span><span>The EU should expect Beijing to continue cultivating ties with individual member states and accession countries while simultaneously offering assurances and concessions at the EU level.  Premier Li Keqiang may have issued an </span><a href=""><span>assurance</span></a><span> that any trade deal with Washington would not undermine Europe’s interests,  and Xi </span><a href=""><span>stressed</span></a><span> his country’s support of European integration, but Europeans should know by now that they cannot take China’s commitments at face value. The </span><a href=""><span>rushed adoption</span></a><span> of its new foreign investment law and </span><a href=""><span>pledges</span></a><span> to curb subsidies to domestic industry resemble symbolic concessions rather than meaningful policy changes. </span></span></span></span></p> <p><span><span><span><span>While Beijing may have downplayed the ‘16+1’ framework – its cooperation format with Central and Eastern European countries – after it was criticized for dividing the EU and failing to deliver on hefty investment promises, there is no indication that its interests in the region have diminished. The fact that Greece will likely be </span><a href=""><span>invited</span></a><span> to join the summit in Croatia on April 11-13 suggests that the ‘16+1’ may not be dead just yet. </span></span></span></span></p> <h4><span><span><span><span>Europe needs a European-wide China strategy that lives up to its name</span></span></span></span></h4> <p><span><span><span><span>Given the current state of play, the EU must focus now on translating its newly found assertiveness into action. This will require a </span><a href=""><span>Europeanization</span></a><span> of its China strategy well beyond Paris and Berlin. Emmanuel Macron’s invitation to Angela Merkel and Jean-Claude Juncker to join him for his recent meeting with Xi will have sent a strong message to Beijing, but it is not enough for larger member states to show a united front in the absence of an EU-wide concert.</span></span></span></span></p> <p><span><span><span><span>Chinese state media continue to </span><a href=""><span>highlight</span></a><span> the opportunities China presents to “marginalized” economies in Southern Europe; France, Germany and the EU Commission must realize that such narratives still have traction. Suggestions such as EU Commissioner Günther Oettinger’s idea of a European veto over any Chinese infrastructure investment in the EU will hardly be well received by sovereigntist governments like Italy’s. Likewise, the Franco-German </span><a href=";v=2"><span>plan</span></a><span> for a European industrial policy, where China is the elephant in the room, fails to acknowledge the sharp divide between different European regions when it comes to innovation and the fourth industrial revolution.</span></span></span></span></p> <p><span><span><span><span>Brussels’ awakening to China’s growing power and influence is a very positive development. But larger member states must get more troubled economies on board. The Commission’s strategy rightly calls for the rapid implementation of financial support instruments for accession and neighboring countries. Beyond the rhetoric, only actions like these can assure a truly European China policy. </span></span></span></span></p> <p><em>Rebecca Arcesati is an intern in the Foreign Relations program at MERICS. She holds a double Master’s degree in China Studies from the University of Turin and Yenching Academy of Peking University.</em></p></div> </div> </div> Thu, 04 Apr 2019 08:53:38 +0000 h.seidl 9056 at Exploring the physical reality of the "Belt and Road" <span>Exploring the physical reality of the &quot;Belt and Road&quot;</span> <span><span lang="" about="/en/user/646" typeof="schema:Person" property="schema:name" datatype="">jheller</span></span> <span>Tue, 04/02/2019 - 11:14</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-04-02T12:00:00Z">2019-04-02</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/jacob-mardell" hreflang="en">Jacob Mardell</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong>MERICS expert Jacob Mardell has embarked on a journey to investigate how China’s Belt and Road Initiative is being implemented on the ground. His travels are taking him all the way from Brussels to Beijing.</strong></p> <p> </p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-04/JM_OntheNewSilkRoad1_cut.jpg?itok=Bwu4LnFL 325w, /sites/default/files/styles/max_650x650/public/2019-04/JM_OntheNewSilkRoad1_cut.jpg?itok=hB5sbry1 650w, /sites/default/files/styles/max_1300x1300/public/2019-04/JM_OntheNewSilkRoad1_cut.jpg?itok=TQWByTUY 1000w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-04/JM_OntheNewSilkRoad1_cut.jpg?itok=Bwu4LnFL" alt="Travelling along the New Silk Road. Source: Jacob Mardell." title="Travelling along the New Silk Road. Source: Jacob Mardell." typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>With China’s hugely ambitious Belt and Road Initiative (BRI), the Eurasian supercontinent is being rebuilt. To really see how this is having an impact on the ground, I’m following the path of this New Silk Road. The idea is to explore, on a country-by-country basis, the way BRI is being implemented right now.</p> <p>It’s been a full six years since the inception of this development strategy that spans from Europe all the way to China itself. The BRI, which has been <a href="">written</a> into the constitution of the Chinese Communist Party (CCP), has emerged as a defining foreign policy concept of the presidency of Xi Jinping.</p> <p>It has prompted <a href="">condemnation</a> from Washington and has divided Europe between those countries that officially endorse the initiative, including most recently Italy, and those that see it as an opaque venture launched by a country the European Commission now <a href="">considers</a> a “systemic rival.” The BRI has also been responsible for countless op-eds accusing Beijing of “<a href="">debt trap diplomacy</a>,” along with a deluge of articles outlining the strategic motivations behind what is variously described as a <a href="">USD 900 billion</a>, <a href="">USD 1 trillion</a>, and even <a href="">USD 8 trillion</a> initiative.</p> <h4>Local fabric</h4> <p>And yet, for an initiative so politically important, so vast in scope, and so frequently discussed, there is comparatively little consideration of the physical reality of the BRI and how it translates into action, into roads, bridges, or ports. BRI is a global initiative, but as a program that seeks to forge connectivity through infrastructure, its fabric is inevitably local. That’s why I’m traveling overland from Europe to Asia, investigating the local impact of Chinese-built infrastructure, and considering BRI through the prism of the individual countries.</p> <p>The idea is to see how the BRI, a concept so large and amorphous, manifests on the ground. While a handful of official policy <a href="">documents</a> outline the initiative’s scope, these are vast and imprecise, with individual projects left unspecified. Official documents and statements also elaborate on sectors and types of envisaged cooperation, but these range from energy transmission to tourism, essentially covering every sphere of possible human endeavor.</p> <h4>Utopian character</h4> <p>The clearest picture to emerge from these documents is that of the Belt and Road’s aspirational, almost utopian character. It is about ushering in a new era of common development and enhanced connectivity, and with Chinese help forging a “community of common human destiny.” The ideological element of the BRI is frequently overlooked, but it is ever present and not to be dismissed lightly.</p> <p>Of course, there are also non-altruistic forces at work behind the BRI. As well as forging a community of common destiny, it is more immediately about dealing with overcapacity and surplus capital at home—throwing a lifeline to the state-owned enterprises that ballooned during the boom years of China’s investment-led growth. Supported by <a href="">various</a> mechanisms of the Chinese state, many of these <a href="">companies</a> are also being helped to dominate their respective sectors as global champions.</p> <p>The success of Chinese companies in dredging, shipping, and the running of ports provides a solid case study of how the BRI works as something like a global industrial policy. In tandem with this effort to support Chinese companies, the BRI is also about the gradual internationalization of the renminbi and the promotion of Chinese <a href="">industrial</a>, <a href="">cyber</a>, and <a href="">legal</a> standards.</p> <p>Sometimes the BRI also involves a genuine attempt to <a href="">develop</a> overseas markets and industries with the aim of integrating countries into Beijing’s economic sphere, for example, <a href="">encouraging</a> Pakistan to help fulfill China’s agricultural needs through the BRI’s flagship China-Pakistan Economic Corridor.</p> <p>BRI has a political and strategic dimension too, as some projects help Beijing secure access to resources and lines of communication. And, like any development program, it is also about seeking the goodwill of neighbors and projecting a positive international image.</p> <h4>Many aims, one slogan</h4> <p>It is, in other words, an economic-cum-foreign policy concept that kills several birds with one slogan. Some observers have pointed out that many of these processes have been in play since the early 2000s.</p> <p>This is true. The BRI is essentially the merger of these ambitions under a single brand name—one that has a bigger budget and is tied to the identity of a newly powerful China. This new brand comes equipped with a fledgling ideological framework, promoting Chinese development and the “community of common destiny” as an <a href="">alternative</a> to paternalistic development aid from the West. That BRI is a concept, or Chinese brand, is clear when one considers the official list of <a href=";cur_page=5">129 BRI countries</a> (130 now, counting Italy). What unites them is not their geography or receipt of Chinese investment, but that they have endorsed the BRI or signed an Memorandum of Understanding with China on the initiative.</p> <h4>Identifying the BRI on the ground</h4> <p>In the absence of an official list of projects, identifying the BRI on the ground can only be done through the top-down process of considering the policy documents and guiding principles behind the initiative. That is part of the reason the debate about the BRI is dominated by the bird’s eye perspective. Even the process of identifying BRI projects can be controversial. Making the conceptual leap between global the BRI and the local BRI is even harder.</p> <p>Making this leap is, however, necessary. Without considering the effects of the BRI on a country-by-country basis, it is impossible to assess the merits, dangers, and success of the initiative as a whole.</p> <p>Although it seeks cooperation with the BRI through its own infrastructure initiatives, Brussels is nervous about China’s growing influence on the Eurasian continent—in Central Asia, in Eastern Partnership countries, in the Balkans, and even within the EU itself. But Brussels cannot hope to compete, or even know if and when it needs to, without understanding what the governments along the Belt and Road want from China and how the BRI is playing out in their respective countries.</p> <p>Over the next several months, I will be writing dispatches from along the Belt and Road. I’ll be talking to experts and policymakers in BRI countries and visiting projects, seeking to better understand these countries’ relations with China and reporting on the successes, failures, and peculiarities of BRI projects all the way from Brussels to Beijing.</p> <p><em>This blogpost was originally published <a href="">at the Berlin Policy Journal</a> on March 27, 2019.</em></p></div> </div> </div> Tue, 02 Apr 2019 09:14:45 +0000 jheller 9041 at Ageing China seeks opportunity abroad <span>Ageing China seeks opportunity abroad</span> <span><span lang="" about="/en/user/646" typeof="schema:Person" property="schema:name" datatype="">jheller</span></span> <span>Mon, 03/25/2019 - 16:08</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-03-25T12:00:00Z">2019-03-25</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Lauren A. Johnston</p> <p><strong><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span><span>In March, Italy signed an agreement pledging its support for China’s trans-continental Belt and Road Initiative. Rome hopes Chinese companies will invest in the country’s ageing infrastructure, while critics worry about China’s perceived geopolitical ambitions. However, Beijing's push has to be seen in a larger context:  an important driver of its outbound ambitions is the interaction of economic and demographic change at home. Faced with an ageing society, China is looking for investment opportunities in countries with younger populations along the BRI.</span></span></span></span></span></span></strong><strong><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span> </span></span></span></span></span></strong></p> <p> </p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-03/190326_pbu651079_01_ImagineChina.jpg?itok=SX8K_IwQ 325w, /sites/default/files/styles/max_650x650/public/2019-03/190326_pbu651079_01_ImagineChina.jpg?itok=17nBabk_ 650w, /sites/default/files/styles/max_1300x1300/public/2019-03/190326_pbu651079_01_ImagineChina.jpg?itok=6BO0lmYd 1300w, /sites/default/files/styles/max_2600x2600/public/2019-03/190326_pbu651079_01_ImagineChina.jpg?itok=Gx0ql1we 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-03/190326_pbu651079_01_ImagineChina.jpg?itok=SX8K_IwQ" alt="Ageing China" title="China&#039;s focus is now on providing for the needs of a growing number of pensioners and ensuring appropriate jobs are available for young people. Source: ImagineChina." typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Since launching its “reform and opening” agenda in 1979, China has re-shaped the world economy. For the first three decades, China’s industrialization was driven by a low-wage demographic dividend. Falling birth and mortality rates boosted the working-age population share and kept wages low. Chinese leaders took full advantage, and the export of low-cost manufactured goods led to an industrialization revolution.</span></span></span></span></span></span></p> <p><span><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">But that boom was always going to be temporary. As powerful as China’s leaders may be, even they cannot make China’s population structure youthful again overnight or undo the effect of rising education levels on wages. The first signs that the flow of low-wage migrant workers into manufacturing hubs was beginning to slow came in 2003 – and China’s working-age population share has been falling steadily for about a decade now. </span></span></span></span></span></span></p> <p><span><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Adding to these supply-side pressures on the labor market, demand for China’s exports never quite recovered from the shock of the global financial crisis of 2008, which itself coincided with a peaking workforce in many Western economies. Compounding this double challenge was over-investment: China’s mostly state-owned steel mills and selective other industry-intensive sectors now have spare production capacity. </span></span></span></span></span></span></p> <p><span><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">These pressures have shifted the attention of China’s leaders away from low-wage industrialization. Their focus is now on providing for the needs of a growing number of pensioners and ensuring appropriate jobs are available for young people. Not only are there fewer new labor-market entrants than forty years ago, they also have different skills and often top-quality university degrees. In principle, they should prove more productive – they will have to be, just to maintain output as the working-age population share continues to fall. But the transition to such higher-skilled jobs can be fraught. </span></span></span></span></span></span></p> <p><strong>Demographic pressure drives China's outbound engagement within BRI</strong></p> <p><span><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">These pressures help explain why China is encouraging Chinese companies to invest in labor-saving technology and innovative sectors at home and, crucially, in infrastructure and selective manufacturing industries abroad. The latter is in principle good news for any developing country that offers an investor-friendly business environment and a population structure that promises a demographic dividend – much as did China four decades ago. </span></span></span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">It happens that many countries around the shores of the Indian Ocean - Bangladesh, India, Indonesia, Tanzania - are, compared to other regions, relatively well positioned to <a href=""> take advantage of China’s new interest in investing abroad. </a></span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Many of these countries host key ports that also serve land-locked neighbors. And Indian Ocean countries are also home to more than two billion people, mostly young. It is the world’s youngest region, one in which newly paved roads and newly built bridges would boost economic output and demand. </span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">The logic of President Xi’s Belt and Road Initiative has <a href="">stirred debate since its launch in Kazakhstan and Indonesia in 2013</a>. In Indonesia, strategically important to both the Indian and Pacific Oceans, he spoke of a “Maritime Silk Road of the twenty-first century”. But beyond China’s history in the region, economic demography surely plays a role: Rapid population ageing across East Asia makes Indian Ocean countries a strategically located reservoir of low-wage workers - and a potentially vast emerging consumer market.</span></span></span></span></p> <p><strong>Countries are looking at the <span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">demographic-dividend window that China </span></span></span></span></span>already profited from</strong></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Some of the region’s largest economies – including India, soon to become the world’s most populous country - are looking at the kind of demographic-dividend window that China started profiting from in the 1980s. These countries, like China before them, will best make sure they also profit should foreign investors reap the dividends of investment and economic growth. To do so, they will need to develop policies and institutions according to their own conditions to deal with and profit from rapid economic change. </span></span></span></span></span></p> <p><span><span><span><a href=""><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">With China already investing in infrastructure and selective industries in a growing number of these countries</span></a><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">, economic rivalry with Western industrialized countries grouped in the Organization for Economic Development (OECD) is nascent. But the Indian Ocean region has started a nascent process of greater intra- and inter-regional cooperation through the Indian Ocean Rim Association (IORA). </span></span></span></span></p> <p><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">In addition to China, IORA dialogue partners include Egypt, France, Germany, Japan, the UK, and the USA. China’s interest in the Indian Ocean, now under the umbrella of the Belt and Road Initiative, is influenced by changes in its economic demography and development level. China’s demographics-related logic in the intended belts and roads might broadly be something for other countries also experiencing rapid population ageing to respond to as well, in their own style. Italy is among them.</span></span></span></span></p> <p> </p> <p><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Readers having enjoyed this blog can find further information here:</span></span></span></p> <p><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Johnston, L.A. (forthcoming 2019). The Economic Demography Transition: Is China’s ‘not rich, first old’ circumstance a barrier to growth? Australian Economic Review (to be published in 2019 volume)</span></span></span></p> <p><span><span><span><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB">Johnston, L.A. (2019) <a href="">An economic demography explanation for China’s ‘Maritime Silk Road’ interest in Indian Ocean countries</a>. <em>Journal of the Indian Ocean Region</em>, 15:1, 97-112, DOI: 10.1080/19480881.2019.1569326</span></span></span></span></p></div> </div> </div> Mon, 25 Mar 2019 15:08:16 +0000 jheller 9021 at