U.S., Aus, Japan, India Mull Belt and Road Alternative

The Australian Financial Review’s Phillip Cooley reports on discussions between Australia, the United States, India, and Japan on establishing a joint regional infrastructure plan to rival the controversial China-led Belt and Road Initiative. The BRI, a trillion dollar-plus, 65-nation trade and initiative, has raised a host of concerns over its potential to significantly expand Beijing’s political and economic influence abroad.

A senior US Official told The Australian Financial Review the plan involving four regional partners was still “nascent” and “won’t be ripe enough to be announced’ during Mr Turnbull’s visit [to the U.S., which begins this week], but was being seriously discussed.

He preferred to describe the plan as an “alternative” to the Belt and Road Initiative rather than a “rival”.

“No one is saying China should not build ,” the official said.

“China might build a port which, on its own is not economically viable. We could make it economically viable by building a road or rail line linking that port.”

[…] The US regards it as a vehicle for Beijing to exert its influence globally. […] [Source]

More context on the reported alternative, from CNBC’s Yan Nee Lee:

The project is widely seen as Beijing’s push to increase global clout. The plan at one point included 65 countries, which together accounted for one-third of global GDP and 60 percent of the world’s population, or 4.5 billion people, according to Oxford Economics.

Talks about an alternative infrastructure scheme have been brewing since last year. Secretary of State Rex Tillerson pitched for greater cooperation between the U.S. and to counter China’s strategy during his official visit to New Delhi in October 2017, according to the Hindustan Times.

The U.S. was also pushing to revive talks with , India and Australia to deepen security cooperation and coordinate alternatives to China’s Belt and Road project, Reuters reported, adding that the quartet held talks in Manila last November on the sidelines of the ASEAN and the East Asia summits. [Source]

Reuters reports a Japanese official’s comments on news of the four-way discussions, noting other cooperative security efforts between the four countries:

Japanese Chief Cabinet Secretary Yoshihide Suga, asked at a news conference about the report of four-way cooperation, said Japan, the , Australia, and Japan, Australia and India regularly exchanged views on issues of common interest.

“It is not the case that this is to counter China’s Belt and Road,” he said.

Japan, meanwhile, plans to use its official development assistance (ODA) to promote a broader “Free and Open Indo-Pacific Strategy” including “high-quality infrastructure”, according to a summary draft of its 2017 white paper on ODA. The Indo-Pacific strategy has been endorsed by Washington and is also seen as a counter to the Belt and Road Initiative.

[…] The United States, Japan, India and Australia have recently revived four-way talks to deepen security cooperation and coordinate alternatives for regional infrastructure financing to that offered by China.

The so-called Quad to discuss and cooperate on security first met as an initiative a decade ago – much to the annoyance of China, which saw it as an attempt by regional democracies to contain its advances. The quartet held talks in Manila on the sidelines of the November ASEAN and East Asia Summits. [Source]

At The Guardian, Ben Doherty reports that a rejuvenation and expansion of goals of “the Quad” will be a major point of discussion between Australian Prime Minister Malcolm Turnbull and U.S. President Donald Trump this week. Doherty notes that the four-nation security dialogue will likely be focused on issues of China’s expanding influence beyond the BRI, including China’s activities in the South China Sea, and its modernizing and globalizing military:

The Quadrilateral was formed in 2007 but Australia withdrew the next year, fearing the opprobrium of Beijing. However, “the Quad” has been revived in the face of continued Chinese expansionism in the South China Sea.

And it appears set to broaden beyond security, with the four countries reportedly seeking to create a joint regional infrastructure scheme as an alternative to China’s multibillion-dollar belt and road initiative.

[…] China has long opposed the Quad, seeing the group as an attempt to gang up against it.

But the Quad is representative, too, of the broader geopolitical landscape of the Indo-Pacific, and a demonstration of the tightrope Australia will increasingly find itself forced to walk, balancing relations with its traditional security ally, the US, and its dominant and rising trading partner, China.

Turnbull has confirmed discussion of regional security will be prominent when he meets the US president on Thursday: “It’s on the agenda every time I talk to Donald Trump.” [Source]

The China-Pakistan Economic Corridor, the planned link between the “belt” and “road” (i.e., land and sea components of China’s ambitious plan), has raised substantial security concerns, passing through an especially troubled region of Pakistan rife with ethnic conflict. The Financial Times this week reported that China has for five years engaged in secretive talks with tribal separatists in effort to protect their substantial investments in the project. At CNBC Justina Crabtree describes the CPEC in the context of both broader opposition to the BRI and the long-running China-Pakistan friendship:

China and Pakistan’s collaboration under the BRI spans a 1,864-mile-long corridor from the city of Kashgar in China’s western autonomous Xinjiang region to the Pakistani port of Gwadar. It includes the construction of motorways, railways and power plants, and will also make inroads into sectors such as communication and education.

[…] “The people of Pakistan believe that China came to Pakistan’s help when no-one was willing to invest in Pakistan due to security considerations, or due to the negative ratings on Pakistan,” he [Interior Minister Ahsan Iqbal] told Chinese state-run news outlet Xinhua. “But China proved to be a real friend.”

“After China decided to come, the perception of Pakistan’s economy changed,” he added.

But Shailesh Kumar, Asia director at Eurasia Group, does not think that China’s involvement will encourage other investors to park cash in Pakistan. “Chinese investment is largely strategic,” he told CNBC via email. [Source]

India has been perhaps the loudest voice of opposition to the BRI, and China recently offered them a seat at the table in CPEC discussions. At the Hindustan Times, president of the Centre for China Analysis and Strategy Jayadeva Ranade describes China’s plans to establish an international business dispute court for BRI related cases, urging that China’s CPEC offer be considered within this context:

China is also moving quickly on the ground to establish a dispute settlement mechanism for business along the Belt and Road Initiative. China’s official news agency, Xinhua, reported recently that Chinese President Xi Jinping, who is also Chairman of the Leading Group for Deepening the Reform of the Central Government, while presiding over a meeting of the leading group, delivered an important speech. Among other issues, the meeting emphasised the need for establishing a dispute settlement mechanism for One belt, One road and establishing an effective litigation, mediation and arbitration convergence mechanism to resolve the Belt and Road business and investment disputes in accordance with the law, protect the legitimate rights and interests of Chinese and foreign parties on an equal footing, and create a stable, fair and transparent business environment for the rule of law.

China’s Supreme Court is now setting up an international commercial court in Beijing, Shanghai and Xi’an. Giving an idea of the rules that will govern these courts, an official at the China Council for the Promotion of International Trade said “many business entities along the BRI do not adapt well to the current way of dispute resolution, which uses the common law of the US and European countries.” Separately, former Chinese Vice Foreign Minister, He Yafei, said, “China believes it is now time to offer our own ideas about global governance, [BRI] transcends ideology and national borders.”

China’s latest offer to India to discuss the China Pakistan Economic Corridor, which is the sixth of seven segments of the BRI, needs to be viewed in this backdrop. [Source]

At MERICS last week, Jacob Mardell further described Beijing’s proposed BRI dispute courts, warning that they are likely to heighten suspicions that the BRI will disproportionately favor China:

According to the proposal, the Supreme People’s Court will establish “international commercial courts” in three cities: the historic Silk Road city of Xi’an, to cover the cross-continental land portion of the BRI; Shenzhen, Guangdong’s booming seaside metropolis, to cover the BRI’s maritime routes; and Beijing, to serve as the courts’ headquarters. Alongside these courts, the China Council for the Promotion of International Trade (CCPIT) will also establish a “Belt and Road International Dispute Management Center,” which will assist arbitration centers like the one already set up in Qianhai.

[…] Focusing Belt and Road litigation within Chinese borders is unlikely to please investors and politicians who share a sense that BRI is already negotiated too much on Beijing’s terms.  On his state visit to China last month, French president Emmanuel Macron warned that the modern “Silk Road” could not be “one-way” and reminded his hosts that the ancient Silk Road was “never only Chinese.” Britain’s prime minister Theresa May made a similar (if less emphatic) point when she refused Beijing’s invitation to officially endorse the BRI.

China’s leaders know that the BRI’s success ultimately depends upon its acceptance by other countries. They are also keenly aware of the “western” perception that China is the main beneficiary of Belt and Road plans.

[…] Belt and Road detractors will view the establishment of the new dispute settlement mechanism as further proof that the initiative’s primary purpose is to increase Beijing’s oversight and to further the Communist Party’s ownership of the BRI narrative. [Source]

At his blog, legal scholar and China expert Jerome Cohen provides some historical perspective on Chinese attempts at setting up domestic dispute resolution mechanisms, concluding that domestic BRI arbitration may indeed further complicate an already tangled issue:

When Western foreign direct investment (FDI) began in earnest in China in 1979, there was a period of jousting as foreign companies sought to assure arbitration outside of China. No one dreamed of submitting to PRC court jurisdiction but some investors were agreeable to working out arbitration in China under mutually acceptable rules. In that brief period PRC negotiators were usually under orders to try until the last moment to persuade the foreigners to accept PRC arbitration but not to lose the deal because of their efforts.

In a few years, however, the PRC insisted that, if a project was to take place in China, any relevant disputes had to be arbitrated in China under PRC procedures, institutions and governing law, and such was the appeal of investing in China that the PRC usually had the bargaining power to obtain FDI on its dispute resolution terms. Some potential investors, however, refused to sign up, at least until subsequent years demonstrated a basis for relying on PRC arbitration.

[…] Construction contracts are hideously complicated to draft, apply and arbitrate. For example, a decade or so ago I presided for 12 days over an ICC hearing of a dispute between a South Korean investor and a Saudi Arabian company involving a joint venture factory investment in Saudi Arabia that went awry. I loved asking questions every day but then ruined the rest of my summer by having to draft a long award that would have benefited from greater knowledge of engineering than I or my two fellow arbitrators possessed. Things sometimes became even more complicated if, as called for in some international construction contracts in China and Taiwan, the hearing had to be conducted in Chinese and the award written in Chinese! [Source]