4 Sept 2017
Chinese Investments in Infrastructure Worldwide
By Penelope Marbler and Lea Shan, French Institute for International and Strategic Affairs (IRIS)
Chinese investments in infrastructure are mainly located in Africa and Asia
- Many Chinese infrastructure investments are directed to African countries.
Ethiopia has received three loans worth more than $380bn from the Chinese government and the Export-Import Bank of China for the development of infrastructure in the country (two road construction projects and upgrading the electric grid system). In December 2016, China has also partnered with Gabon to develop a 111-km highway project in the capital Libreville. The country seeks to further develop the relationship in infrastructure, minerals and technology. The development of ICT infrastructure is also present in Zimbabwe, where the government seeks Chinese funding and technology (partnership with Huawei Technologies notably).
- Asian countries see the OBOR initiative positively.
The Philippines is planning to borrow $3.4bn from China. At least three infrastructure projects have been agreed between China and the Philippines, especially for the irrigation, water supply and railway projects. The country has an ageing infrastructure and aims at developing its economy with a target growth rate of 8% and is willing to foster its relationships with China. Vietnam seeks infrastructure investments coming from the AIIB, with a total investment across of circa $50bn. Indeed, the country encounters traffic congestion, waste treatment and urban transport infrastructure issues. Thailand is also willing to develop infrastructure projects, especially the railway activity. In the Arab Peninsula, the United Arab Emirates (UAE, Dubai notably) wants to diversify its energy mix by developing a massive “clean coal” project worth $2bn. This project is backed by funding coming from Chinese banks and government ($1.4bn); the construction is expected to be built by Chinese workers and to be completed in 2023.
Geopolitical Conflicts And Risks
- Geopolitical conflicts arose from Chinese infrastructure investments.
Sri Lanka’s people protested in January 2017 against the construction of a port and an industrial zone by China in the southern part of the country (Hambantota). In fact, Sri Lanka concluded a 99-lease of the port to an 80% Chinese-owned company that will create an industrial zone. This project plans to move thousands of people, thus leading to conflicts between the local population and the government.
- Some risks can also be underlined.
For instance, India is not part of OBOR. At some point, the growing economic relationships between China and Bangladesh can be an advantage for India, as it can reduce poverty in Bangladesh and thus decrease the number of illegal Bangladesh migrants into India. But on the other hand, ignoring global trade through OBOR can be a challenge for India, as the country cannot ignore its foreign policy if it wants to become a global power. Indeed, OBOR aims at bolstering connectivity through infrastructure, new institutions and integrated market. Nevertheless, India seeks other alternatives, such as planning to start air cargo transportation between India, Afghanistan and Iran, which is a way to compete the China-Pakistan Economic Corridor.
- Plus, Chinese investments abroad can be negatively perceived.
This is the case in Australia, where the Chinese growing influence in Papua New Guinea brings uneasiness in the Australian local community. Indeed, Papua New Guinea signed a MoU with China to build a series of processing and manufacturing plants.
- OBOR can also face a technical risk.
For example, there is no interconnection between the different railway systems of the countries concerned.
- The aims of OBOR are diverse.
OBOR is first a Chinese economic tool to leave the surplus of domestic industrial overcapacity and give it to other countries in need; as well as a way for China to diversify its energy projects. This initiative is also a means for the country to accelerate the internationalization of the renminbi, shifting from a merchandise exporter to a capital exporter place. Secondly, OBOR has an external reason: foster trade connectivity and create an alternative to the trade rules imposed by Western countries (i.e. challenge the US, Europe and Russia activities in Southern and Central Asia). Indeed, one example can be the Chinese high-speed rail network, as it has become the world leader in just a decade. China is now exporting its railway knowledge as a diplomatic tool to spread its influence in the other countries (Ankara-Istanbul in Turkey, Jakarta-Bandung in Indonesia).
- OBOR can call into question the establishment of a new zone of influence, as the US appears to be no longer the guarantor of the global economic system.
OBOR is a way to shift the rules of world trade, as Pacific and Atlantic are historically dominated by the US. With the idea of linking three continents together, OBOR could allow China to extend its soft power both in the culture and in the economy.
- New forms of cooperation are also emerging with OBOR.
The International Finance Corporation (member of the World Bank Group) signed a master agreement to bolster investments in emerging markets projects, especially in Asia’s infrastructure sector.
- Plus, some policies will change, notably the place of Israel in the case of Europe.
Israel could be the mediator between the world’s leading powers in terms of economic and trade integration and cooperation, as Israel is in a very strategic place in the view of the OBOR initiative.
Chinese companies have completed some projected in Europe, such as the Ankara-Istanbul highspeed railway in Turkey. Nevertheless, Western countries are facing a dilemma: should they accept all the Chinese investments in infrastructure, or should they protect their national interests at all costs? Indeed, the China Investment Corporation has acquired a 61% stake in the British National Grid’s gas division, which worth £13.8bn. The presence of Chinese entities is seen more and more often, with leading investors such as Fosun.
- What appears challenging in the OBOR initiative is that there is no one definition of OBOR, as the action plan seems colossal.
The core of the action also remains vague, as it appears to be more a vision than an action. In addition, even if China has invested a lot in infrastructure all over the world, the IMF pointed out the urgency to invest in soft infrastructure, meaning to strengthen fiscal and monetary frameworks, to continue to reform SOEs, to develop a policy against financial risks and to improve macroeconomics statistics.
Nevertheless, the initiative of creating a new form of financing trade through the AIIB can be considered as a major change in the globe, as it can be viewed as a model that other countries should follow. Indeed, some journalists evoked the possibility of the creation of a Europe-led “Africa Infrastructure Investment Bank” (source: FT). This institution could lead to the development of the agriculture and the industry, as well as creating employment for the high number of African workforce. It is also advantageous to Europe as it has special historical bonds with Africa and that Europe has the capacities to create a win-win situation.
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