Illustration: Craig Stephens
This op-ed originally appeared in the SCMP, 8/19/19
Where in the world has the United States gone? The Trump administration’s retreat from constructive global engagement is like matter at the edge of a black hole – only accelerating. President Donald Trump, in just the past week or so, has suggested that US-South Korea military exercises were “ridiculous and expensive”, while praising a letter from North Korea’s Kim Jong-un, to whom he gave another free pass on continued missile tests.
He has largely ignored the chaos that is enveloping Hong Kong, until tweeting praise for Chinese President Xi Jinping’s leadership last Wednesday and then suggesting Xi could meet the protest leaders. Any former US administration would have at least stood up in principle for democracy. And while South Korea and Japan are waging low-level economic war on each other, the good offices of US diplomacy remain closed.
Even global assistance is withering under Trump as he threatens to eliminate US Agency for International Development funding. Beijing, meanwhile, continues a worldwide Belt and Road funding spree.
With global expansion comes a global bill. Funding a worldwide military force does not come cheap. While estimates vary, the US continues to outspend China by at least two to three times.
On the surface, it looks like China is ready to step into the void created by an isolationist Washington, but is Beijing really up to the task? The burdens are already mounting on China both politically and economically, making any attempt at global leadership less likely.Take China’s lending spree, for example. The promise of US$1 trillion makes for great soft power projection across much of the developing world. There are port and rail projects in Africa, the Middle East, South and Southeast Asia, and even Europe.
Two years into a development programme to rival any other in more than half a century and the easy money is already coming to an end. Loan defaults are piling up. An overseas backlash is brewing over the alleged importing of Chinese workers for massive construction projects rather than using domestic labour.
And other countries now see the effects of Beijing’s political influence campaigns focused on their domestic politics. The Wall Street Journal’s revelatory reporting on the Chinese government use of Huawei to help Zambia and Uganda spy on their political opponents will only raise more concerns of meddling.
The new China development “model” barely got off the ground before being grounded. Beijing is learning a hard lesson about ignoring loan-to-gross-domestic-product ratios that can lead to some knotty financing problems.
For years, Beijing decried the unfair lending practices and onerous restrictions imposed by the International Monetary Fund and World Bank. It turns out that global financing standards, even when developed by “Western” institutions, are not easily avoided.
Already, Chinese officials are talking about tighter lending restrictions and a more cautious approach to new projects. Countries that may have believed in a new China model for economic growth will be disappointed with new lending terms that look increasingly like the old.
China’s massive infrastructure funding programme in Pakistan is a case in point. With US$19 billion out of US$62 billion used or in use, Islamabad already had to negotiate a US$6 billion bailout package from the IMF in May. The IMF forecasts Pakistan’s real GDP to drop to 2.4 per cent in the 2019/2020 fiscal year, down from an estimated 5.5 per cent in 2017/2018. With that kind of weak activity, additional loans will almost certainly need restructuring.
Defaults are piling up elsewhere, from Kenya to Venezuela and Sri Lanka, with some countries rescheduling their debt or losing their collateral. In Colombo’s case, that meant giving up the strategically well-positioned Hambantota port that bridges South and Southeast Asia with the Middle East.
China Real GDP Growth (2010-2019)
China’s economy is also slowing as domestic debt rises and defaults loom. The days of unbridled lending will come to an end well before China spends US$1 trillion in belt and road money to claim the mantle of lender of first resort.Following a well-worn historical path, China’s growing commercial interests around the world are also being followed by an increased global military presence. At the urging of Trump, Beijing may start protecting Chinese ships transiting the Straits of Hormuz, a critical energy shipment choke point and site of multiple Iranian seizures of tankers.
China also has potential naval access to ports in Cambodia, Pakistan, Sri Lanka and Djibouti, with more expected. Last month, leaders from 50 African nations met in Beijing for the first China-Africa Peace and Security Forum, where China pledged to fund their military training. That same month, Wang Yi, China’s foreign minister, signed a defence and military cooperation agreement with the United Arab Emirates at an economic forum.
With global expansion comes a global bill. Funding a worldwide military force does not come cheap. While estimates vary, the US continues to outspend China by at least two to three times. The US was able to fund forever wars and military expansion through massive federal debt spending.That was possible because the US dollar dominated global financial markets. China’s tightly managed currency does not enjoy that kind of global access or appeal. While government bonds have opened up to foreign investors, concerns over currency restrictions and transparency continue to linger.
That China has not had to do much to displace the US in regional and international affairs should come as no surprise. Trump’s retreat from global leadership is a self-inflicted wound. But even with this wide opening to increase China’s global influence, Beijing will remain limited by its weakening domestic economy and a more sceptical world abroad.
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