China’s Belt & Road Initiative – Blog #17

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(Image credit: srilankabrief.org)

This is the seventeenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (52 pg, 260 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #17 – How China Benefits – Telecommunications, Renminbi

GROWING DOMINANCE IN TELECOMMUNICATIONS

Other benefits to China from ‘Belt and Road’ include opportunities for expanded influence in telecommunications networks and acquisition of telecom technology.  China’s interests in becoming a major telecommunications player go well beyond laying cable in the Arctic.  The burgeoning smartphone market and e-commerce around the world will require significant infrastructure investment and China wants to provide and control a major share of it.  CITIC Telecom CPC, a large Chinese firm, has bought Linx Telecommunications, giving it access to Russia, Kazakhstan (and other ‘Stans’), the Baltic Sea area and Eastern Europe.[1]  In Southeast Asia, China Telecom, with Beijing’s backing, seeks to invest $5.3 billion in the Philippine telecom sector, which would break up the duopoly positions of Japanese and Singaporean firms in the Philippine market.[2]  Continuing its global push to gain interests in telecommunications, China Mobile bought an 18 percent interest in True Group, the telecommunications and broadcasting arm of Thailand’s Charoen Pokphand Group.

In late 2017, China acquired the Canadian firm, Norsat International, Inc., whose customers are mainly military, broadcast and maritime industries.[3]  This has raised national security concerns in both Canada and the U.S., as China acquires significant control not only of communications infrastructure and technology but also firms within the global communications industry. [4]

In South America, China used an economic ‘carrot’ of help to Argentina in obtaining a $10 billion credit swap to stabilize its currency in the midst of a financial crisis, in exchange for concessions that allowed it to build a closed satellite tracking station and to man it with Chinese military contractors.  Argentinian officials are permitted to enter the facility only two hours a day.  When current Argentinian President Antonio Macri, in response to American pressure, sought to convince the Chinese to close down their satellite base, the Chinese responded with pressure of their own, threatening to shut off their soybean imports from Argentina.[5]  China is reported to have obtained contracts with the Brazilian military to develop and install the SissGAAz naval radar system to defend Brazil’s lengthy  Atlantic coastline.[6]

China has launched several satellites to support its ‘Belt and Road’ initiatives and to provide ‘eyes in the skies’ to protect its economic interests and military positions around the world.  In July 2018, it launched two satellites for Pakistan that will “provide remote sensing information for the establishment of the China-Pakistan Economic Corridor, an extensive multibillion-dollar infrastructure development project between the two nations.”[7]

Expect to see an ongoing push by China for its BeiDou Navigation Satellite system and remote sensing satellite position and information services to displace GPS (US), Galileo (E.U.), and Glonass (Russia) moving from offers to train others in its use, to mandated use tied to Chinese contracts.  Achieving a dominant world position for BeiDou would facilitate any Chinese ambitions to monitor and even control global land, sea, air and space movements.

In addition to telecom company acquisitions, other recent activities by China, include laying new underwater cables and, reportedly, building “an underwater ‘Great Wall’ of seabed sensors that feed into fiber-optic cable stations on the same reefs housing the latest Chinese missiles…  If reports of the underwater Great Wall are reasonably accurate, then the system would give Beijing unrivaled information about submarine and surface vessel movements in the entire South China Sea. Like air defense identification zones, this system strengthens Beijing’s de facto control over its maritime claims—a key component of the idea that legitimacy is granted by facts, known as doctrinal unilateralism.” [8]

China has stated that it intends to intensify its use of satellite and other technology to monitor everything in the South China Sea and to enforce its disputed claims[9] to the waters, islands, and artificial islands it has created.  According to Chinese state media, by the end of 2019, China “intends to launch three new satellites with cameras and optical sensors, which will monitor shipping and surface conditions in the South China Sea.” [10]  The director of the Sanya Institute of Remote Sensing (part of the Chinese Academy of Science) has said: “Each reef and island as well as each vessel in the South China Sea will be under the watch of the ‘space eyes’…  The system will [reinforce] national sovereignty, protection of fisheries, and marine search and rescue.”[11]

RISE OF THE RENMINBI

The Bank of China has declared that ‘Belt and Road’ will make the renminbi the primary trading and investment currency in the ‘Belt and Road’ countries, and to that end, it requires contract transactions to be made in renminbi.[12]  Promotion of the renminbi is not just for Chinese prestige—it is to increase China’s ability to influence foreign exchange rates and, therefore, trade, foreign investment and other economic costs.  Chinese loan activity in ‘Belt and Road’ participating countries raises the visibility of the renminbi and Chinese and Chinese-affiliated financial institutions around the world.  China’s acquisition of well-known foreign financial firms like Delta Lloyd Bank in Belgium, also aids in raising China’s profile as a major financial player.

China recently achieved a major breakthrough in its efforts to insinuate the renminbi/yuan into Europe by setting up a financial payments network in Serbia that permits Serbians to use local credit cards overseas, as an alternative to Visa and Mastercard.  The system created by Chinese government-owned China UnionPay, is essentially “a parallel money-transfer system outside U.S. reach.”[13]Although this is a new development, China clearly hopes China UnionPay will take hold in other European countries.  China’s extensive infrastructure activity in Serbia and other Eastern European countries, including in neighboring Montenegro, will give it many opportunities to promote China UnionPay and the renminbi as an alternative to the U. S. dollar or the Euro.

In early 2018, European central banks indicated that they would move to include some of their foreign currency reserves in renminbi/yuan.  Generally speaking, however, increased use of the renminbi may be due more to Chinese requirements of its loan recipients and other economic partners than of a genuine growing acceptance in the world economy.  Its usage in international finance actually fell in 2017, compared to the year before. [14]  However, it will be important for all entities of global supply chains to stay abreast of renminbi developments in financial markets.  ‘Surprises’ could have sudden and adverse effects on their bottom lines.

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

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BRI Blog next Monday will be:

How China Benefits – Ports and Sea Lanes

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There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1]Wade, Geoff. Op. cit.  p10  https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/ChinasRoad

[2] Venzon, Cliff. “China Telecom’s proposed entry draws concern.”  Nikkei Asian Review.  14 December 2017.    https://asia.nikkei.com/Business/Companies/China-Telecom-s-proposed-entry-into-Philippines-draws-concern 7

[3] Wikipedia.  https://en.wikipedia.org/wiki/Norsat.  Accessed 28 July 2018.

[4] Sevunts, Leon.  “China’s Arctic Road gambit.”  Radio Canada International.  Eye on the Artic.  3 October 2017.    http://www.rcinet.ca/eye-on-the-arctic/2017/10/03/chinas-arctic-road-and-belt-gambit/

[5]Arostegui, Martin.  “James Mattis:  Latin American countries selling out their sovereignty to Russia, China.”  The Washington Times. 1 August 2018.  https://www.washingtontimes.com/news/2018/aug/16/james-mattis-south-american-countries-selling-sove/

[6] Ibid.  https://www.washingtontimes.com/news/2018/aug/16/james-mattis-south-american-countries-selling-sove/

[7] Clark, Stephen.  “China successfully launches two satellites for Pakistan.”    Spaceflight Now.  9 July 2018.  https://spaceflightnow.com/2018/07/09/china-successfully-launches-two-satellites-for-pakistan/

[8] Levick, Ewen.  “China’s Underwater ‘Great Wall’”.  The Maritime Executive – the Strategist18 June 2018.  https://www.maritime-executive.com/editorials/china-s-underwater-great-wall#gs.GFIOHeY

[9] Perlez, Jane.  “Tribunal Rejects China’s Claims in the South China Sea.”  The New York Times.   12 July 2016.        https://www.nytimes.com/2016/07/13/world/asia/south-china-sea-hague-ruling-philippines.htm

[10]  MAREX.  “China Builds Spy Satellites to Monitor South China Sea.” The Maritime Executive.  17 August 2018.   https://www.maritime-executive.com/article/china-builds-spy-satellites-to-monitor-south-china-sea#gs.TZNcnbA

[11] Ibid.  https://www.maritime-executive.com/article/china-builds-spy-satellites-to-monitor-south-china-sea#gs.TZNcnbA

[12] Wade, Geoff, p. 3. Op.  cit. https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/ChinasRoad

[13] Areddy, James T.  “Trophy Infrastructure, Troublesome Debt:  China Makes Inroads in Europe.”  The Wall Street Journal.  5 November 2018.  https://www.wsj.com/articles/chinas-newest-bid-for-influence-runs-through-the-wests-backyard-1541435003?mod=searchresults&page=1&pos=1

[14] Tan, Huileng.  CNBC.” China’s currency is still nowhere near overtaking the dollar for global payments.”   2 February 2018.    https://www.cnbc.com/2018/02/02/china-currency-yuan-the-rmb-isnt-near-overtaking-the-us-dollar.html

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.