BRI Woos Pacific as U.S., Allies Sharpen Response

China’s controversial (BRI), the world’s largest investment scheme to date, has gained several new island members. Radio New Zealand reports that the latest countries to join BRI’s ranks include Fiji and the Cook Islands, while Chinese state-run media touted enhanced BRI ties with Brunei. Another new addition is Tonga, which received a five-year deferment on a concessional loan after it joined BRI’s ranks. Reuters and the Australian Broadcasting Corporation provide further details:

Tonga’s financial reliance on China dates back just over a decade to after the deadly 2006 riots in the capital of Tonga, Nuku’alofa, destroyed much of the small Pacific nation’s central business and government districts.

The Government rebuilt the city, in part, with Chinese financing provided in 2008 and 2010, and the roughly $90 million in China’s initial loans to the island now totals about $160 million, due to interest and additional borrowing.

This figure represents almost one-third of Tonga’s annual gross domestic product, budget papers show.

Mr Pohiva has been asking China to write off the for months, telling the ABC in August the country was in “ distress” and urging Pacific island leaders to collectively urge Beijing to waive repayments. [Source]

The BRI has raised worldwide concerns and prompted project cancellations, chiefly due to the potential for debt traps and political or military influence. , which has raised strident concerns about unsustainable debt levels, is one such recent example. Reuters reports on remarks made by the Maldives’ newly elected president on the nation’s ‘precarious’ financial state:

The new president of the Maldives has declared the state coffers to have been looted and warned that the country is in financial difficulty after racking up debt with Chinese lenders in an infrastructure boom.

[…] [Ibrahim Mohamed] Solih, a veteran politician, won the presidential election in September against the former president Abdulla Yameen, a strongman who steered the country closer to China and faced international pressure over imprisoning political rivals.

[…] The big worry for Solih’s team is the debt the country has run up with Chinese lenders for projects such as a mile-long sea bridge connecting the airport to the capital, the airport expansion itself and massive housing projects on reclaimed islands.

Solih’s transition team said it had been told the country owed $1.5bn to Chinese lenders but feared it could be much higher. Even a debt of $1.5bn would be more than a quarter of the country’s annual gross domestic product.

India, which has long been the Maldives’ main political and economic partner, had grown concerned that China’s expansive diplomacy was aimed at establishing an outpost on the islands. [Source]

Fiji, the Cook Islands, and Tonga all joined BRI’s ranks in time for the Asia-Pacific Economic Cooperation () summit in Papua New Guinea, where non-Chinese journalists were barred and bussed away last-minute from covering a meeting between President Xi and Pacific leaders who support the One China Policy. At the Australian Broadcasting Corporation, Natalie Whiting reports:

The meeting and the President’s visit come at a time when the strategic importance of the Pacific is growing, and multiple countries — including China and Australia — are vying for influence in the region.

Local and international media, including the ABC, had been invited to cover the Pacific Islander Leaders meeting, but when journalists and camera operators arrived at the hotel where it was being held they were told to leave.

Gorethy Kenneth from the Post Courier newspaper said Chinese officials from Beijing were initially angry with the presence of international media.

[…] Some local media described the reaction as a “slap in the face”.

[…] Last month the ABC and local station NBC were escorted off the airport runway [in Papua New Guinea] while trying to film the arrival of Chinese Foreign Minister Wang Yi. [Source]

To address rising concerns, the U.S. and other Western nations have continued to hone their responses to the BRI. In October, the U.S. responded by creating the United States International Development Finance Corporation under the Build Act, a move seen as creating a counterweight to the BRI. Last week, the U.S., Japan, and Australia announced they would provide joint financing in Asia for energy and communications projects that touch upon national security. Earlier, the Australian state of Victoria had sounded alarm bells when it became the only Australian state to enlist in BRI, not least because the Prime Minister’s office had been wholly unaware of the deal. The Japan Times reported yesterday that at the APEC summit, Vice President Pence and the prime ministers of Japan, Australia, New Zealand, and Papua New Guinea signed a $1.7 billion deal to increase the latter country’s electricity access from its current 13 percent of its population to 70 percent by 2030.

As The Guardian reports, the summit was ultimately punctured by competing speeches by Xi and Pence, and resulted in unprecedented failure for the 21 nations to agree upon a written statement. Pence was set to concretely lay out the U.S.’ Indo-Pacific vision and private-sector driven alternative to BRI at the summit. In an op-ed for Asia Times, Nile Bowie details why he believes this vision won’t gain as much traction with regional leaders:

Doubts about the strategy, seen by many as a vague move to counterbalance China’s economic heft, were rife among observers who compared the paltry amount pledged by Washington to Beijing’s US$1 trillion Belt and Road Initiative (BRI) infrastructure-spending drive.

[…] “We do not offer a constricting belt or a one-way road,” Pence told Apec summit attendees during a blunt speech in Port Moresby that, while not directly naming China, warned of opaque infrastructure financing practices that could burden nations with unsustainable debt loads.

[…] Michalak [senior vice president and regional managing director of the US-ASEAN Business Council] says the Trump administration’s trade policies and retreat from multilateralism have brought about “uncertainty” that has undermined American influence in the region. “Every time I talk with administration representatives at embassies or elsewhere, they are not talking about multilateral initiatives. It’s all bilateral.

[…] By pulling back from multilateral trade deals, however, “the US just risks being left behind as the rest of the world is moving forward with integration and trying to decide rules on the digital economy,” said Michalak.

Despite bipartisan consensus among US lawmakers for countering Chinese initiatives, countries in the region appear more preoccupied with maneuvering around Washington’s zero-sum approach to trade and worsening ties with Beijing. And with multilateralism in tatters, witnessed in the Apec debacle, it remains to be seen whether Trump’s Indo-Pacific vision will have many takers. [Source]

U.S. think tanks and policy recommendation bodies have also provided cautious assessments of the BRI. Last week, the U.S.-China Economic and Security Review Commission (USCC) recommended in its annual report that the U.S. create a fund that would assist countries vulnerable to Chinese influence—especially in the Indo-Pacific—with digital connectivity, infrastructure, energy access, and civil society/media-strengthening assistance. In a recent American Enterprise Institute (AEI) report titled “Be Wary of Spending on the Belt and Road,” scholars Cecilia Joy-Perez and Derek Scissors argue that private companies are beginning to reconsider BRI participation, and that the trade war may further deplete China’s foreign exchange reserves, jeopardizing Beijing’s ability to finance projects. Laura Zhou at the South China Morning Post cites two experts’ opinions:

Douglas Zhihua Zeng, a senior economist with the World Bank, said Chinese companies looking for belt and road opportunities should assess the risks before they take the plunge.

“The BRI is a proposal but it is the projects on the ground that are making profits, and companies should make adequate risk assessments before they take the next step,” Zeng said.

“For private companies, the top priority is to survive, so if the companies are under intense cash-flow pressure and are unable to get loans, they may cancel their overseas investment plans.”

Li Wei, a professor at prestigious Peking University, warned in an online article last month that Beijing, under trade pressure from the US, should be cautious about the risk of a “hard landing” of any belt and road projects.

“[We need to ensure] the soft landing of the BRI projects, and make strategic choices if necessary, to focus on key areas, countries and projects … to move according to our capabilities and in a cautious way, to make fuller assessments of each kind of risk, to ensure that the BRI won’t become a diplomatic and economic burden,” Li wrote. [Source]

For more research on the Belt and Road Initiative, read Joanne Lu’s digest of a recent AidData report from the College of William and Mary.