Can The Health Silk Road intervention Save China’s Belt Road Initiative (BRI) From COVID-19 Geopolitical Fallout?

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By Andre Wheeler

The economic and humanitarian impact of the Coronavirus around the globe are plentiful. Volatility on trade markets is now the new normal, and the one time globalised market  has contracted at alarming rates. Whilst the polarising debate blaming the virus along nationalistic lines, China has initiated counter measures to keep the China Dream alive. This is an interesting dynamic considering that the geo-political make up of globalised markets is under close scrutiny.

With a fundamental review of globalisation and the efficacy of open borders currently evolving questions are being raised about the benefits of trade along the BRI, China has responded in a policy sense, with these policy settings to contextualise how Covid-19 has shown that the success of the BRI has exposed global supply chains to risk. Progress along the BRI has extended China’s influence and integration into the global economy.

The available data and commentaries project that the economic cost of the virus on the global economy as being US$1.1 trillion dollars. The Asia Development Bank has increased its projections from US$359 billion in March to US$4.1 trillion in April.  With China being a member of the G20, it has been called onto to make a contribution towards rectifying this decline. China’s contribution to the global recovery, like others, is to work towards stimulating it’s domestic market. This is no surprise as China was already introducing interventions before the current pandemic.

A prime indicator of this is the decline of outward domestic investment by 7.7% in January this year, to just US$8.33 billion. It is also a prudent measure as the China International Capital Corporation as projected that Covid-19 trade constraints will lower China’s GDP growth to only 2.6%. This is down from earlier projections of a 6.1% growth.

At a local employment level, China has realised that it needs to relax travel and trade restrictions and get people back to work in order to kickstart their economy.  Relaxation of these travel and movements within China has seen manufacturing recover to 65 % of capacity. Furthermore, China has committed US$344.1 billion in an economic recovery plan. Included in this plan are the raising of the fixed define ratio to GDP of stimulus from 2%, selling special government bonds and lowering the  social insurance contributions.

Furthermore, there appears to be a concerted effort by China to encourage inward foreign investment to assist with this economic repair. The recent banking regulation changes controlling shareholder requirements for JV banks as well as requirements for total asset holdings. It has also introduced new policy to support foreign trade and investment framework by reducing the negative white list and foreign trade loans. This appears to be working as we witnessed the signing of 152 new, major industrial projects in Shanghai on the 31st March, with a combined value of US$62.3 billion. Noteworthy is the US$16 billion invested by foreign entities.

However this recovery is dependent on the ability of China to repair the reputational damage caused by the Covid-19 outbreak. In particular, the focus has been to address trust issues around how China’s flagship project , the BRI. Not only has it stalled, but has raised questions as to whether the projects are underpinned by win-win and shared human destiny prognostications.  In particular it  raises questions around the efficacy of the development model underpinning the BRI, namely the use of migrant labour from rural parts to resource manufacturing plants and Chinese supplies into these projects. The convergence of COVID19 and the Lunar New Year created a perfect storm by stranding productive labour as Cities and transport shut down to contain the virus.

Issues have morphed from socio- economic considerations to that of questioning the geo-political intent of the BRI. COVID-19 has delivered an alternative project reality. Questions are being asked around the transparency and equality of gains of BRI projects.  Disruptions in projects has created a greater awareness of BRI project labour resourcing, equipment and machinery supplies, many of which are being sourced out of China. With 133 countries imposing entry restrictions, including  countries such Indonesia, Malaysia and Cambodia, scrutiny has shifted to a closer look as to the reasons for these project delays.  Examples of countries that have BRI project delays include Bangladesh, Cambodia, Kenya, Laos, Malaysia , Myanmar, Saudi Arabia and Sri Lanka.

Examples of the questioning of the efficacy of the BRI development model include:

In Indonesia, the China Railway International Group’s US$6 billion high speed rail project has slowed as is the Zheijiang Huayuo Cobalt mine. With 300 Chinese employees still stranded in China, questions now being asked is why cant they be replace by locals in these key positions that would enable progress? Why are there no local equipment suppliers?

The Cambodian Sihanoukville’s special economic zone is a project that includes 160 local businesses employing 20,000 locals. It is currently quiet, mainly because 60% of raw material supplies come from China, and these supply chains are now broken or at the very least suspended.

Soft diplomacy and people -to-people counter measures has become the focal point of China. This  no better encapsulated by the resurrection of Health Silk Road (HSR). Initially proposed eight years ago, the HSR was quarantined after rejection by world bodies. Besides being portrayed as China’s contribution to solving the Covid-19 pandemic through sharing their experience on epidemic control and treatment plans, it has also been reborn under the banner of the BRI.  The BRI infrastructure network is being showcased as the mechanism by which medical and humanitarian aid can be delivered, not just to BRI participant countries, but to all of those affected. They are quick to point out that the BRI infrastructure has enabled protection suits, face masks and test kits to being delivered to 54 countries in Africa, Italy and Spain.

The BRI is credited with enabling China to send 300 doctors, corona virus testing kits and ventilators to Italy. Emergency supplies are being delivered to Afghanistan, Bangladesh, Cambodia, Laos, Maldives, Mongolia, Myanmar, Nepal, Pakistan & Sri Lanka. The emergency supplies include, 1.8 million masks, 210,000 test kits, 36,000 protective suits, ventilators and thermometers.

Whilst these demonstrate China’s propensity to contribute and deliver on the corporate governance values encapsulated in the BRI, it is being done within the context that China is seen as merely fixing a problem that it created.  This has not been helped by the latest claims that test kits in Spain are unreliable or the masks sent to Italy are sub-standard.

Whilst the socio-economic impacts are severe, China will recover from these setbacks. However, the same cannot be said for the geo-political fallout that questions the shared human destiny claims made by China.

The real test comes if the soft diplomacy resurrection of the HSR can sell this message in an environment where there is increasing cynicism over China’s capacity to allow meaningful local community BRI participation when China controls important and necessary health supplies.

We are grateful to Andre Wheeler of Wheeler Management Consulting for contributing this commentary. Please contact him via linkedin.com/in/andre-wheeler-7a9a1a23 or via email at andre@wheelermanagement.com.au

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About Us

Silk Road Briefing is written by Dezan Shira & Associates. The firm provides strategic analysis, legal, tax and operational advisory services across Eurasia and has done since 1992. We maintain 28 offices throughout the region and assist foreign governments and MNC’s develop regional strategies in addition to foreign investment advice for investors throughout Asia. Please contact us at asia@dezshira.com or visit us at www.dezshira.com

 

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