China’s Belt & Road Initiative – Blog #19

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(Image credit: srilankabrief.org)

This is the nineteenth 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, 262 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 #19 – How China Benefits – Energy Security, Political Power

INCREASED ENERGY SECURITY

One of the primary drivers of the “Belt and Road Initiative” is China’s focus on its energy security situation.  China has long been concerned about its vulnerability to energy supply interdiction, most especially in the Strait of Malacca, its so-called ‘Malacca Dilemma.’  Eighty percent of China’s oil comes through the Malacca Strait;  hence, China’s push to move to natural gas to the degree it can, build pipelines for both oil and natural gas, engage in aggressive oil and gas exploration and extraction, build ice-class tankers to bring LNG down from the Arctic Circle, and build LNG facilities in ports it controls around the world—all strategies to reduce risk to its energy supplies.

INCREASED PRESTIGE AND POLITICAL POWER

China’s economic power through “Belt and Road Initiative” has increased its political clout, which it has used openly to advance its agendas.  Using its tightly-controlled media, publishing arrangements with newspapers in various foreign countries, and careful cultivation of local politicians and national leaders, China has succeeded in improving the odds of achieving its aims, even in the face of local public opposition.[1]  Australia is one of the few places where China’s ‘full court press’ has fallen short so far, and even there it looks like China has done a successful end-run around opposition to its plans, by getting a controlling position in the port of Darwin.

Brunei recently capitulated totally on its sovereignty claims against China for contested islands in the South China Sea, apparently to land a $6 billion Chinese investment in an oil refinery.[2]   China also induced the Philippines to drop its claims to contested South China Sea islands and reefs in return for $13.5 billion in Chinese infrastructure investment and loan pledges.[3]  These developments have raised great concern in India and several other Indian Ocean Region nations about China’s use of its economic might to intimidate other countries from engaging in actions and policies China sees as inimical to its interests.

Pressure by China to isolate Taiwan, another Chinese political goal, has been both tacit and blatant. Recently, China induced El Salvador to abandon recognition of Taiwan, apparently in return for China agreeing to fund an investment project that Taiwan had turned down, having deemed it too risky.[4]  In the E.U., Chinese pressure on Greece and Hungary encouraged these two countries to turn blind eyes both to predatory Chinese behavior in South China Sea disputes and to China’s human rights record.[5]  In the Czech Republic, China has assiduously worked for the support of Czech political and lobby groups and Czech President Zeman,[6] though so far the Czech Republic has stayed tight with the majority of the E.U. countries.[7]

The lure of money to be made from contracts for “Belt and Road Initiative” projects has been very effective.  So, too, is the hope of gaining easier entry into the massive Chinese market.  Even countries and companies in the developed world, including U.S. businesses, such as GE and Caterpillar, are eager to land pieces of the construction and management of the projects.[8]  Japanese companies have bid successfully for “Belt and Road Initiative” energy and infrastructure projects in Poland.[9]  Japan’s interests go beyond landing contracts; it also hopes  to use “Belt and Road” infrastructure to strengthen and expand its own supply chains.  “Many Japanese companies ship or sell automotive parts and electronic devices to manufacturing bases in Europe”[10] and connecting to the “Belt and Road Initiative” infrastructure makes sense for them.

The Chinese have used ‘Belt and Road’ project money for influence even when it is not Chinese money.  A bridge-highway project underway in Croatia is under contract to a Chinese SOE, the China Road and Bridge Corporation, but 85% is paid for by E.U. funds.  Large numbers of Chinese workers have arrived in Croatia to work on the project, creating some unease with the local population.  In a remarkable move, the Chinese have gotten local authorities to agree to joint Chinese-Croatian police patrols “to help resolve issues related to Chinese tourists.”[11]  The E.U. is concerned about the project because the Chinese wages are likely to undercut E.U. labor standards, the Chinese bid on the project was $100 million less than the nearest competitor, and the obvious question is how they could do this.  While the E.U. is unhappy with the way this E.U.-funded project has unfolded, the Croatians are simply happy that a long-sought project to unite the Croatian nation with a strip of Croatian land that was cut off from the rest of Croatia as a consequence of the Balkan wars, is finally underway.  China is leveraging the Croatian goodwill in every way it can, with a perceived intent to undermine the E.U. bloc, not just to get a foothold in the E.U..[12]

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 – What to Watch, What to Do

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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, p. 3   Op. cit.   https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/ChinasRoad

[2] Hunt, Luke.  “Has China Bought Brunei’s South China Sea Silence”?  The Diplomat. 14 February 2018.  https://thediplomat.com/2018/02/has-china-bought-bruneis-south-china-sea-silence/

[3] Chan, Irene.   Op. cit.  p. 48.   https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[4] Chin , Josh.  “Taiwan Loses Diplomatic Partner El Salvador to China. “  The Wall Street Journal.  21 August 2018.  https://www.wsj.com/articles/taiwan-cuts-diplomatic-ties-with-el-salvador-1534821829?mod=searchresults&page=1&pos=1

[5] ETNC,  “Introduction.” Op. cit. p. 13. https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[6] Furst, Rudolph.  Op. cit. pp. 41-42.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[7] Chaudry,  Dipanjan Roy.  “E.U.  envoys slam China’s Belt and Road initiative, says it will hit free trade.”   The Economic Times. 20 April 2018.  https://economictimes.indiatimes.com/news/defence/eu-envoys-slam-chinas-belt-and-road-initiative-says-it-will-hit-free-trade/articleshow/63839259.cms

[8] Bradsher, Keith.  “U.S. firms want in on China’s Global ‘One Belt, One Road’ spending.  The New York Times.  14 May 2017.  https://nyti.ms/2rePAic

[9] Masuda,  Yuri.  “Japan companies board the Belt and Road train. “ Nikkei Review.  16 July 2018.  https://asia.nikkei.com/Business/Business-Trends/Japan-companies-board-the-Belt-and-Road-train

[10] Ibid.  https://asia.nikkei.com/Business/Business-Trends/Japan-companies-board-the-Belt-and-Road-train

[11] Santora, Marc and Barbara Surk.  “For China, a Bridge Over the Adriatic Is a Road Into Europe.”  The New York Times.  11 October 2018.  https://www.nytimes.com/2018/10/11/world/europe/china-croatia-bridge-adriatic-sea.html

[12] Ibid.

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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.