China is paying a lot of money for its “New Silk Road” project. But this is well invested: The first states have already succumbed to China’s financial dependence – and are now serving as loyal vassals of the communist dictatorship. Also in Europe.
The “New Silk Road” is the prestige project of the Chinese government. Never before has there been greater investment in infrastructure around the world: the People’s Republic is already financing infrastructure projects in 140 countries in Asia, Europe, Africa, South America and Oceania through this initiative.
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The aim is to build corridors for the People’s Republic by land and sea through roads, ports, airports and power plants through which goods can be exported from the country to the world and vice versa goods can be imported to China. In return, the People’s Republic grants loans to the countries through which these new infrastructure corridors run and promises to use the infrastructure built on these corridors in the future.
In order to be able to take part, states sign a “Memorandum of Understanding” that lays out the basis for the cooperation and lists the conditions for it. Beijing itself does not make public these memoranda and the list of countries that have signed them. Beijing also does not provide any information about the total budget the People’s Republic is spending on this initiative.
That is why there are only estimates of the amount of investment made: Since 2013, around 1 trillion dollars could have flowed. The new Silk Road has two main routes, one on land and one on water. The “Silk Road Economic Belt” is the route on land that leads through western China and Kazakhstan — a “landlocked country” without access to any of the world’s oceans — to Europe. The sea route, the “Maritime Silk Road”, includes important ports such as those in Piraeus, Nairobi, Kolkata, Colombo, Singapore and Jakarta.
Alexander Görlach is a Senior Fellow at the Carnegie Council for Ethics in International Affairs in New York. The PhD linguist and theologian teaches democratic theory in Germany, Austria and Spain as an honorary professor at Leuphana University. In the 2017-18 academic year, he was at National Taiwan University and City University Hong Kong to conduct research on China’s rise. He is currently researching new technologies at the University of Oxford’s Internet Institute and how they are used in democracies and abused in dictatorships.
For these infrastructure projects, Beijing gives loans to the respective countries, the terms of which are more favorable than those of private investors, but more expensive than loans issued by development banks, for example. These investments follow no discernible economic pattern, as countries as diverse as Venezuela and Iran are being promoted within this initiative.
Beijing is therefore not expecting an immediate “return on investment”. Rather, the Chinese leadership is relying on a long-term effect: they want to build a new transport infrastructure first and thereby create demand. The People’s Republic hopes to gain a strategic advantage above all from the investments on the new Silk Road on land, since this will eventually break the dependency on the sea routes and the associated costs for container freight.
This approach of investing massively first and hoping to attract customers is only possible through massive subsidies. At the same time, the People’s Republic was successful with such an attempt twenty years ago: At that time, satellite towns were built, which initially remained without residents and stood empty like ghost towns. Today, however, a number of these settlements are populated, Beijing’s calculations from back then paid off two decades later.
With the new Silk Road on land, the central government in Beijing is not only pursuing economic, but above all political and geo-strategic interests: some of the countries to which the People’s Republic has lent loans for their infrastructure projects can no longer service these loans. Among them is Sri Lanka, for example. According to the loan agreement with Colombo, the port of Hambantota would be transferred to the state-owned China Harbor Engineering Company should Sri Lanka fail to pay.
Hambantota Port is one of the projects that did not attract demand. Only 34 ships called at the port in 2012, according to a New York Times report. The People’s Republic is now leasing the port and 60 square kilometers around it for the next 99 years, analogous to the treaties that the colonial powers once made with the Chinese Empire. China now owns an object that is also suitable for military use. And that in close proximity to its rival India.
Sri Lanka is just one example. A number of countries that have borrowed money for projects via RBI are highly indebted to China. According to a listing by the Council on Foreign Relations, Mongolia, Tajikistan, Kyrgyzstan, Cambodia are in debt with over 20 percent of their GDP, Kazakhstan with 12 percent and Sri Lanka with 9.5 percent. The frontrunner is the African state of Djibouti, with a debt of more than 80 percent of its economic output. Djibouti is also in a geostrategic position, which is why Beijing has built one of its two military bases outside of China there (the second is in North Korea).
The People’s Republic has increased its engagement in Africa in recent years in order to gain access to the continent’s natural resources. On the continent, Nigeria is of particular importance for China: According to a forecast by the United Nations, the country will be one of the most important economies in the world by the end of this century due to its population growth.
Beijing’s arm also extends to Europe via RBI: countries such as Italy and Greece have been attracted by capital from China, and Hungary is not averse. The example of Serbia makes it clear how much Beijing hopes to indirectly have a say in Europe through its investments. Its vassal states have already begun to position themselves against human rights and for Beijing.
China’s geopolitical interests are the decisive criterion for the New Silk Road. The great jubilation about the project, which started in 2013 with a lot of fanfare, seems to be over. Some countries, including Malaysia, Myanmar, Pakistan, Sierra Leone and Kyrgyzstan, have scaled back or shelved RBI projects. What may have been the decisive reason for this cannot always be said: Pakistan, which sees itself as a close partner of the People’s Republic, indicated that the corona pandemic was the decisive factor for the delay in payment.
In the end, the RBI projects should ideally boost China’s economy, both internally and internationally. In the meantime, the countries that cannot service their loans and thus become dependent on the People’s Republic can be co-opted for China’s goals and may even be blackmailed into changing their policies, especially towards the democratic world, in the spirit of the Beijing dictatorship to change. China wants, no doubt about it, to call the shots anywhere in the world.