As we wave goodbye to the American century, China is seizing its moment. It derides ‘Globalization’ as an American creation – a postwar order that entrenches capitalism and American values. In many ways, China’s Belt & Road Initiative (BRI) is their answer – a ‘Globalization 2’ remoulded along Chinese lines.
If this sounds grandiose, so it should. China’s leadership has reached deep into history and national folklore. When President Xi launched BRI in 2013 he cited the Silk Road and Marco Polo, and even the Ming Dynasty’s explorer Zheng He. Official maps explaining the plan show two giant pincers reaching out from China along those two routes, encompassing two thirds of global GDP. This grandiosity, what China calls “the largest infrastructure and investment project in history,” is now even incorporated into China’s constitution.
What is BRI? As with so much of official Chinese policy, it’s all-encompassing and ever-changing (during this pandemic President Xi has even started talking about a “Health Silk Road” targeting help at favoured nations). It’s certainly vast – analysts bandy about the word trillion a lot – there are “a trillion dollars of intended investments,” “trade in goods between china and BRI countries and China is (now)…1.34 trillion dollars.”
And a lot of countries are involved, though just how many is not clear – it could be “68,” or maybe “80”, or is it “138,” or even “200?” Maybe it’s safest to say it’s whatever number President Xi says it is today.
Some countries are surprising. When I asked a medical Professor why Covid entered Europe through Italy, he unhesitatingly replied “Belt & Road.” Forget San Francisco, the biggest Chinatown in the West is now Prato in Tuscany, where officials estimate around a quarter of the town’s population is Chinese. Trieste is a “special target” for China, seeing huge investment. Steve Bannon even warned his Italian populist allies to beware of China’s “British East India Company model of predatory capitalism.” Local politicians told voters “don’t worry – we’re not like Greece.”
Ah, Greece. As the New York Times observes “when Europe was busy squeezing Greece, the Chinese swooped in with bucket loads of investments.” When no one was buying “toxic” Greek government bonds, China was suddenly there. When the Greek government privatized the port of Piraeus, Cosco, the Chinese shipping conglomerate, bought a 67% stake. Meanwhile, Guo Guangchang’s Fosun International is building a luxury playground for 1.5 million Chinese tourists next to Athens airport – Greek Prime Minister Alexis Tsipras cleared two refugee camps to make room.
This “cheque book diplomacy” has its price. In 2017, an EU-wide motion censuring China’s human rights abuses was vetoed by Greece. The year before, Greece stopped the EU condemning Chinese aggression in the South China Sea.
In fact, there have been a large number of Chinese acquisitions of European companies. Investors might like to take a look at a list of these (Table 6 in the OECD’s BRI report). It’s wide ranging, everything from Pirelli Tyres in Italy to Weetabix Cereal in the UK (since sold on to Post).
It’s not just Europe. China is using similar tools in its fight with Australia: purchasing a 99- year lease on the Port of Darwin and attempting to peel off the state of Victoria with heavy investment. The Federal Government had to intervene this month. But it is in developing countries that this policy is most alarming. The World Bank’s chief economist Carmen Reinhart notes that 60% of Chinese banks’ lending is to developing countries. Loans negotiated in secret with real assets as collateral that has led critics to talk of “debt trap diplomacy.” Consider how China was able to pressurize debtor Tajikistan to hand over 1,158 km of its own territory? Pakistan, Mongolia and Laos, who all have major Chinese loans, should take note.
The opaqueness, and the sheer scale, of Chinese bank lending is daunting, and potentially destabilizing. In fact as the pandemic has wrought a global economic recession, the Financial Times cautions there is a real risk Chinese capital will dry up, causing “the wheels to come off” the whole BRI plan. Part of me hopes they do. Because BRI doesn’t just have geo-political implications, but major environmental ones. The Chinese love coal, and they are working hard to export this addiction across the globe.
Since 2000, the Chinese have supplied $6.5 billion of finance for coal projects in Africa. In fact by 2060, the very year China now promises to be carbon neutral, it is simultaneously financing a tripling of coal output in Africa. Indeed, just one month after Xi made that pledge, PowerChina flew 223 employees to Zimbabwe to “accelerate” the expansion of the coal-fired Hwange Plant. Zimbabwe wants to expand coal production from three million to fifteen million tonnes. The Ghanaian Government is busy working with Shenzhen Energy to build a 7,000 megawatt coal power plant. China is driving similar plans in Pakistan where the National Transmission Company is planning an additional 27GW of coal capacity between 2030 and 2047.
It’s not so much “The Silk Route” as “The Carbon Route.” China’s own central bank now calculates that by 2050 BRI countries’ proportion of global emissions will have gone from 28% to 66%, eclipsing reductions by the developed world. In fact what’s going on is so worrying that China has started to change its tune and call for a “’greening’ of the Road.” Two weeks ago it talked of introducing a new traffic light system to assess BRI projects’ green credentials.
Will China keep its promise?
Climate change is the main negative consequence of BRI, but there are plenty of other ESG considerations investors should worry about. Consider the working conditions exposed in China’s diamond mines in Africa. The appalling wildlife side-effects of mining coal in the Hwange national park (half of the world’s elephant population is potentially affected). The deforestation wreaked by China’s “Pan Borneo” highway. Or the 65,000 football fields of marine habitat wiped up by its port building programme.
Need I go on? Responsible investors should take a very close look. This is well underway in the States. Few US companies are involved (GE being a notable exception) but plenty of American capital is. One starts to better understand the US government’s actions against Huawei and TikTok. On December 1, the US also produced a “blacklist” of companies US investors should avoid (CNOOC shares immediately plummeted 14%). Professor Yi-Zheng Lian even argues we should worry about Zoom.
Similar scrutiny must take place by European investors. During a presentation of the World Economic Forum, China’s Song Zhiping discussed the major involvement of French multinational Schneider and of Germany’s Siemens. The Economist speaks of western firms “coining it” and lists ABB, Linde, BASF, DHL and Maersk Group. Invesco notes that the London Stock Exchange facilitated the raising of $80 billion of equity capital for BRI and $170 billion in debt capital.
Can responsible investors support this globalized self-harm?
Christopher Walker is a writer on business and politics. He sat for several years on the asset allocation committee of a major asset manager.