This article was written in collaboration with Bipasha Bhardwaj. Bipasha is the co-founder and COO of Intelligentsia Risk Advisors, a strategy consulting firm that aims to facilitate “ease of doing business” by managing and mitigating geopolitical, social, operational and security risks. She has more than a decade of experience assisting clients in making informed business decisions by identifying risks and opportunities to ensure business operability.
The messages coming out of the annual grand National People’s Congress (Chinese parliament held in the first week of March) are clear – China is taking the path of more authoritarianism internally and more belligerence in security and military affairs. Also, post-Covid, it seems that China is willing to weaponize trade and finance to an unprecedented level. The result will be further disruptions in critical regions and the world has few solutions to control these developments.
Moving on to key messages – Hong Kong should be ruled by “patriots”, Chinese defence spending sees an official increase of about 6.8% and Taiwan is a red line. The Chinese leadership has identified technological up-gradation as key and rolled out a road map of geopolitical and economic dominance over the US. China’s parliament has voted to approve changes to Hong Kong’s electoral system, including plans to grant Beijing veto power over candidates. This development comes in the background of the arrest of several pro-democracy leaders under the National Security Law imposed in June 2020 that has broken the back of the protests over democratic freedoms. Since last year as the world has been struggling with containing the pandemic, Chinese territorial aggression in the South and East China sea have increased. The Chinese PLA (People’s Liberation Army) has routinely breached Taiwan’s air defence identification zone, by some estimates the most intense Chinese aggression in 30 years.
Since President Biden assumed office in the US in January 2021, there has been a strong emphasis on getting together allies and partners through the Quadrilateral Security Dialogue (the “Quad”, an informal strategic forum between Australia, India, Japan and the US), through NATO and other traditional forums. Indo-Pacific has emerged as a key priority of the Biden administration to form a united front for “strategic competition” with China. But there are serious chinks in the armor and this priority will have to span multiple regions. China has the economic clout devoid of any moral/human rights issues to foster trade, aid, investment and economic relations with countries worldwide. From the Middle East to ASEAN, Central Asia to now Europe – China’s “money power” has divided key blocs making any joint action against their supposed transgressions difficult. China is seeking to use the Belt and Road Initiative’s logic to advance its strategic objectives. These include the use of economics for political dominance, a strategy of aid, trade and investment based on national priorities and personality of leaders and staying clear of values, regional rivalries, etc. So far, it is yielding results, but the risks are also materializing.
The Middle East region, one of the US’s most significant foreign policy conundrums, is a prime example. China has become the only power with political, trading and investment ties with every genre of often vastly opposed political actors in this region. Under the umbrella of the Belt and Road – China has brought Iranian oil and is investing in its Strait of Hormuz ports. Shiite paramilitary groups from Iraq to Syria (Asaib Ahl al-Haq) to Hezbollah in Lebanon have solicited Chinese investments. The “sworn enemies” (of Iran and Shia groups) – Saudi Arabia, UAE and Kuwait have hired Huawei to build their 5G telecom infrastructure, defying US pressure. Saudi Arabia under Prince Mohammad Bin Salman has particularly tried to re-align towards Asian powers – China and Russia as the West has criticized Saudi Arabia over the journalist Jamal’s Khashoggi’s murder and its involvement in the war on Yemen. A Chinese state-owned enterprise has a 25-year operational lease on the Israeli port of Haifa, which Israel has refused to submit to US requests for inspection. There are also indications that China is investing in Israel’s tech and manufacturing sector and deals in surveillance and cutting-edge technologies such as face recognition.
The Central Asian region is another key though less discussed example, where China has steadily increased its influence in the former Soviet Republics – Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan and now increasingly Afghanistan. This is perhaps a region where the complementarities of the Chinese leadership’s strategic goals and its BRI and the host countries’ priorities are maximum. Along with increased trade and connectivity via Central Asia to Europe and hydrocarbon and energy resources, the region is vital for China to control the Islamic fundamentalist groups operating and stabilize its western Xinjiang, Uyghur Autonomous Region. Chinese trade with the five Central Asian countries has increased significantly over the past decade (exceeded about $30 billion in 2016)) – outpacing Russia as a leading economic partner in some countries – Kyrgyzstan, for instance, where China accounted for almost 30% of trade in 2018. There have been investments in infrastructure and manufacturing facilities, including the Kazakhstan-China oil pipeline, natural gas pipeline, Pop-Angren in Uzbekistan, Uzen-Bereket-Gorgan through Kazakhstan, Turkmenistan and Iran, and the Khorgos dry port in Kazakhstan. But unlike the Middle East, what is evolving in this region is perhaps a glimpse into the already emerging future – with growing power and geopolitical influence, Chinese diplomacy is taking decidedly more complex security and military footprint in the area. With a known military base in Tajikistan, a supposed base in the strategic Wakhan Corridor in Afghanistan (which China denies) and counter-terrorism initiatives with Afghan forces – China has emerged as a major actor in the Afghan peace process and the larger restive region.
But what is a “feather in the cap” for the growing Chinese economic clout recently has been the inking of the Comprehensive Agreement on Investment (CAI) deal with the European Union at the end of December 2020. The European Union is a region with inherent contradictions between the perceived “European values” and how the Chinese business and economic relations operate. For many years now, despite deepening trade and investment ties, such linkages have been challenged on various fronts – Intellectual property issues, market access, subsidized dumping by Chinese-state owned enterprises (SOEs) and their impact on European security and sovereignty. The fact that the investment deal came on the back of the suspected Chinese role in the spread of the Covid-19 virus (dubbed by some the “Wuhan virus”), increased aggression in Asia, repression in Hong Kong and Xinjiang – that top EU lawmakers, including Angela Merkel and French President Macron, supported it, demonstrates the bloc’s willingness to compartmentalize economics and politics. The deal still may not go through the European parliament’s ratification process, with several MEPs (Members of the European Parliament) raising issues on China’s labor and human rights record, but the ball has started rolling. However, it is not all in China’s favor and while the risks are still subterranean, they are emerging and companies would be well advised to keep abreast of them.
There are four main areas to highlight:
1. As China has increased its investment footprint wider, the protection of critical assets will require an evolution from being just an economic provider (which is acceptable to everyone) to a geopolitical and security “broker”. Already stress points are developing between the “old power” Russia and “aspirant power” China in Central Asia and the Russian dominated Eurasian Economic Union. Ironically, the Chinese have benefitted from the US security umbrella in the Middle East and areas like Afghanistan and Pakistan. However, as the US re-orients its involvement strategy – China will not find it easy to circumvent the regional rivalries and a cocktail of ethnonationalism and fundamentalism inherent here.
2. Local-level distortions manifest in the Belt and Road scheme leading to anti-China sentiment. At the moment, the developments in Myanmar highlight the challenges that Beijing will face in supporting “authoritarian” governments that advance its politico-economic interests. In the protests demanding an end to the military coup in Myanmar, protestors have set fire to Chinese-funded factories and targeted the Chinese embassy, accusing Beijing of supporting the junta. For long, concerns of “debt overhang” leading to the Chinese takeover of strategic, national assets, local community opposition to Chinese projects and harsh financing terms and use of inferior technologies in some cases – have created geopolitical risks in countries. The consequences have varied from extreme instances of regime change, for example – Sri Lanka’s re-pivot from China to the larger Indian subcontinent in 2014 with a change in government and Myanmar’s re-orientation towards a civilian government in 2011 partly to wean away from Chinese influence. There have also been recent attempts by Kazakhstan to wean away from China partly due to economic reasons and its treatment of the Uighurs and the ethnic Kazakhs in China’s Xinjiang region. The impact has also included the cancellation of big-ticket projects to security attacks on Chinese infrastructure (especially the China Pakistan Economic Corridor). The financing and economic risks that this pendulum creates have not gone unnoticed by the senior Chinese leadership as they have sought to pressure states like Pakistan to provide a better guarantee and security cover for their projects.
3. Long lingering issues of technology transfers, cyber laws, unequal market access, etc. and their impact on security and sovereignty of nations will continue to stress relations with regions like Europe
4. How the US leadership pans out – President Biden has made the right start with the “Quadrilateral Dialogue” visualizing it as a broader platform for cooperation on economic issues, vaccine supply, open and free Indo-Pacific than just an anti-China grouping. He has reached out to the European allies and sought to make global forums the cornerstone of “strategic competition” with China. However, much more needs to be done to form a global coalition to take on China on crucial issues and temper it on areas of shared concerns such as climate change and conflict management in places such as Afghanistan. As the world recovers from the Covid-19 pandemic, it will be interesting to see how states balance their need for Chinese economic aid and investment with security risks, strategic sector autonomy and taking independent global stands. Rules of the game are changing, and the world has few united solutions to deal with China, and many actually do not want to confront China. Since the Covid-19 pandemic, many of China’s neighbors have gotten a taste of this “new normal” and the “Wuhan virus starting in China” controversy has met a dead end. China has barely paid any price for massive territorial aggression around its neighbors. It has signed trade deals with the EU and continued its support for authoritarian leaders in Iran and Myanmar. Yet disquiet at the more aggressive Chinese tactics, its actions in several countries and its willing disregard for international rules are now coming to the fore. The churning that these parallel developments will cause will require intensive risk mapping, mitigation and adaptation for all stakeholders involved.
Picture credits: The Project Twins / risingpowersproject.com