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Tuesday, 18 November 2014 00:08 - - {{hitsCtrl.values.hits}}
China has long-criticised the existing IFIs on the ground primarily that they are dominated by the West, including the United States, Europe and Japan. Initially China has been able to only mobilise 20 other relatively small nations to join up for the launch at Beijing in October 2014. Most of these nations have been described by analysts as “virtual client states” of the People’s Republic of China.
The list of nations which turned up at the Great Hall of the People in Beijing for the launch is indeed revealing – India, the only really big economy other than China, Mongolia, Uzbekistan, Kazakhstan, Sri Lanka, Pakistan, Nepal, Bangladesh, Oman, Kuwait, Qatar and all of ASEAN other than Indonesia. Indonesia ducked the issue of joining at this stage because of recent presidential elections. Mongolia and the two ‘Stan’ states, Uzbekistan and Kazakhstan, are within China’s ‘near’ sphere of influence.
Sri Lanka, Pakistan and Bangladesh are China’s partners, in what has been described by a US naval analyst as the ‘String of Pearls’ strategy, the series of naval bases and airports being financed by China in these countries, including Hambantota (where the Chinese have leased four berths, permanently, it’s been claimed as a conditionality for the loans) and Colombo Port and Mattala Airport near Hambantota, Gwadar in Pakistan and Chittagong in Bangladesh, Djibouti and Lamu on Africa’s East coast. Indeed, there have been concerns expressed by India of visits by Chinese naval nuclear submarines and battleships to Colombo recently, ostensibly on the way to or back from antipiracy duties off the coast of Somalia.
Nepal shares a common border with the Tibet, a part of China. The three Gulf States of Oman, Qatar and Kuwait are huge natural resource (crude oil and gas) suppliers to China and have close trade links. India has concerns about China expanding her sphere of influence in the Indian Ocean and needs a seat at the AIIB desk to keep a tab on what and where China is putting her money into in the region. The ASEAN states are also concerned with Chinese expansionism, especially with their vulnerable domestic ethnic population of Chinese origin. So, none of these states can be coming into to the AIIB with altruistic reasons to support Asian Infrastructure Development and Investment alone!
China hopes that these other members would quickly contribute funds to push up the initial capital from China’s inaugural $ 50 billion to $ 100 billion. But some nations were awaiting the approval from the highest level of government for their participation. The Government of the USA, lobbied heavily against the AIIB initiative, and that was the reason, analysts say, that countries like Australia, Indonesia and the Republic of Korea did not show up, although approached by China.
In the event Australia also plays a huge role in the ADB, together with the USA and Japan, which is resented by some smaller nations, some of these and other players may play safe by joining up later. If and when the $ 100 billion target is reached, the AIIB will have nearly two-thirds of the assets of the Manila (Philippines) based ADB of $ 165 billion.
Developing the ‘New Silk Road’
Analysts have quoted Chinese economists in saying that the AIIB will initially focus on developing the ‘New Silk Road,’ which President Xi of China has been promoting. This is for the purpose of opening new trade routes to Europe for Chinese goods and also for imports from Europe, including a direct railway line from Beijing to Baghdad and beyond. A highway from Xian in China to Duisburg in Europe is also planned.
Already vast amounts of goods are being moved in and out of China westwards by train. This is partially driven by China’s fear that, the US Navy’s blue water naval capacity with its aircraft carrier groups, dominating the world sea routes, has the capacity to close up the southern sea route, past Dondra head in Sri Lanka through the Straits of Malacca, areas critical to China importing raw materials and export of finished goods to markets.
Politicians have been making a great song and dance about this ‘New Maritime Silk Route’ passing Dondra head, Sri Lanka’s southern most point. They would do well to study the history of Admiral Cheng Ho’s visit to Galle in 1410 and the plaque he left behind and also remember that the Admiral kidnapped the local Satrap, whose descendants still live in China.
Indeed, cynical analysts have pointed out that this whole ‘New Maritime Silk Route’ rhetoric is aimed at putting a positive spin to what was, for China unfortunately, branded as the ‘String of Pearls,’ an aggressive military strategy. It is essentially, some analysts say, a rebranding exercise to market anew under an innocuous name what is in actual reality is an aggressive military cum naval domination strategy, as a harmless trade and infrastructure development initiative. Some unfortunate, dim-witted, suckers (politicians and bureaucrats) seemed to have followed the dead rope rebranding exercise, hook, line and sinker!
Challenge to global economic order
Combined together with the BRICS Bank, which was launched during the Football World Cup in Brazil, at the BRIC nations summit, led by China and consisting of Brazil, Russia, India and South Africa, the AIIB is the first serious institutional challenge to the global economic order established after the conclusion of World War II at Breton Woods in the USA, which set up among other institutions the World Bank and the IMF.
Both the AIIB and BRICS Bank are led by China. Emerging and developing nations may welcome these new upstart institutions as they are unlikely to have the stringent environmental, procurement and human rights standards which institutions like the World Bank and the ADB compel borrowers to adhere to.
The Chinese think that the US opposition to the AIIB is to limit the influence of China over the rest of the world and to ensure US dominance. China’s former Vice Minister of Commerce Wei Jianguo says; “You could think of this as a basketball game in which the US wants to set the duration of the game, the size of the court, the height of the basket and everything else to suit itself. In fact the US just wants to exclude China from the game.”
Needless to say in countries in which there is highway robbery taking place, resources being raped by the rulers, corruption rampant, environments facing irrevocable abuse, citizens’ rights being systematically abused, these words of China’s rulers is music to the ears of the autocratic rulers, who are irked by ‘conditionalities’ imposed by the Breton Woods IFIs.
BRICS Bank
The BRICS Bank itself, set up when the leaders of Brazil, Russia, India, China and South Africa met in Brazil after the Word Football Cup final in Brazil this year, is also an attempt for the nations which feel they are ‘second class,’ not allowed to punch at their weight by world dominators such as the US, Europe and Japan, to assert themselves and put their money where their mouth wishes to be. Ironically or fittingly, depending on your point of view, the BRICS Bank was set up in Brazil days after the spectacular defeat of Brazil, the standard bearer of the BRICS, by Germany at the World Cup final, by a whitewash of seven-zero!
The BRICS Bank is destined to be dominated by China; the headquarters are in Shanghai, though India canvassed strongly for Mumbai. Further, analysts point out that there are serious issues constraining the BRICS Bank. The first is economic. Three of the five countries involved are in economic trouble – Brazil, Russia and South Africa.
India, after years of disappointing economic growth, is just after a landmark election at which the Modi-led BJP got an unprecedented mandate but has so far disappointed, barring the rhetoric. Only China is still growing but slower and amidst a massive crusade against corruption and other tendentious critical reforms. The shared economic dynamism which was supposed to underpin the BRICS Bank has gone the way of the Football World Cup defeat of Brazil!
The second difficulty is political. Their political systems are malfunctioning, several with election driven changes and confidence is at a low. The third is incoherence within the group. The BRICS claim to be a voice for the anti-Washington Consensus world; they are very dissimilar and disparate. China, an autocracy of the Communist Party, with exceptional Red Capitalist businessmen, such as Jack Ma of Alibaba, and loss-making State Owned Enterprises dominating the economy, is in a class by itself. India, a democracy of sorts of V.S. Naipaul’s ‘A Million Mutinies Now’ fame, whereas the former BBC’s Mark Tully famously said: “India has no full stops, only commas@”!
Brazil and South Africa are in a state of organised chaos, with huge populations of marginalised poor and serious law and order problems. Russia, under Vladimir Putin, is in the midst of deep and unique crisis both internally and its relations with NATO and Europe. But they all have lowest common factors – crime and corruption.
Murder cases by the dozen are headline news daily in South Africa, including the murder of the popular Captain goalkeeper of the National Football Team and the murder trial of the once famous but now infamous ‘Blade Runner’ Oscar Pistorius. India is on a rape tsunami binge. Brazil has to use military commandos to oust drug gangs from the Favela slums, which the gangs try to control, and to protect the Amazon forest from slash-and-burn agriculture and cattle ranchers.
Russia has its oligarchs who control business, industry, manufacture and natural resource extraction. Putin’s opponents have dubbed his United Russia Party as a “party of crooks and thieves”. All the BRICS countries have issues with corruption. Can such a disparate group of nations, with massive internal contradictions and problems, claim to speak with one voice at any international forum with credibility?
Washington Consensus and Beijing Consensus
Other analysts say that this is in fact just a single episode in the ongoing battle over the so-called “Washington Consensus” and the “Beijing Consensus”. The “Washington Consensus” is said to be what the Breton Woods IFIs and the USA, the European Union, Japan and the UN system among others are promoting- representative liberal democratic governance, separation of powers, protection of fundamental human rights and freedoms in line with the UN Charter, treaties, conventions and covenants, the Rule of Law, an independent judiciary and administration, a free media, limited state intervention in the economy with private enterprise in the driving seat, and promotion of foreign investment.
The “Beijing Consensus” on the other hand is a state-dominated autocracy, state-owned enterprises dominating the economy, media under the management of the state, a Confucian administration committed to the implementation of state policies and not autonomous, the Rule By Law, the judiciary and other arms of government – subordinate to the executive, rubber stamp legislatures at all levels, community, group and state rights taking precedence over individual fundamental human rights, placing controls on foreign investment.
The Singapore Consensus
In practice the dividing line between the two Consensus models is very fine. Take the case of Singapore. The People’s Action Party (PAP) dominated by the Lee Kuan Yew family has ruled Singapore since independence for decades, being re-elected, albeit with reduced majorities, at every consecutive election. Lee’s son is the current Prime Minister. Their civil servants are paid private sector salaries and given a free hand, subject to PAP policy domination of the political process.
State-Owned Enterprises have a huge role in the economy, partnering with private enterprise. Foreign investors play a big role. The media is not wholly free; the law of defamation is used by the rulers to bankrupt critics who comment negatively about them. The judiciary is free, but carefully managed, foreign lawyers’ appearances are controlled. The rights of the Republic of Singapore and Community rights have priority over individual rights.
Under this regime Singapore has bloomed from a Third World backwater to a first world oasis in a region dominated by Third World ‘basket case’ states. But is it Washington Consensus or Beijing Consensus? No, it’s just the Singapore Consensus – and it has worked. Pakistan’s Field Marshall Ayub Khan, when he took power in a military coup in the 1950s, criticised Pakistan’s then constitution and trumpeted that he would “find a system suitable for the genius of the Pakistani people”.
When he left power, the only difference was that, before him 12 families dominated Pakistan’s economy. After him it was 13 – his own had been added! Singapore has found a blend of the Washington and Beijing Consensuses, which suits the genius of the Singaporean people – the industrious work ethic of the majority Chinese (Babas) and the laidback Malays (Alis), which is what any sensible nation should do.
‘Begging bowl’ nations already salivating
Meanwhile the ‘begging bowl’ nations are already salivating, like Pavlov’s dogs, at the prospect of the AIIB’s concessionary funds. An official of one country, who thinks that they are a key link on the route, the effective ‘debt creators’ of developing nations, debts which his grandchildren will have to repay, was quoted recently that “the AIIB’s new lending would fund the construction of roads, power plants and telecommunication networks in the country at concessionary terms without attaching strings which will keep the country’s economy buzzing”.
He also made a prophecy that the WB and ADB would become more flexible in lending due to the presence of the AIIB. He said his country’s next phase of Chinese assistance would be from the AIIB, which would become operational in 2015, including international marketing of the infrastructure already developed, especially sea ports, airports and highways making his nation a regional hub for aviation, shipping and logistics located at a strategic position in the silk route.
The AIIB is expected to finance the ‘Silk Road Economic Belt’ and the Maritime Silk Road (sic) “re-establishment and nations on the routes will become one of its beneficiaries. China has already set up a $ 1.6 billion fund to take forward its ambitious ‘Maritime Silk Road (sic) plan’ to build ports and boost maritime connectivity with South East Asian and Indian ocean countries, Beijing sources have been quoted as saying.
Commercial lending converted to concessional lending
It’s really wonderful how gullible people can be suckered. Commercial lending is converted to concessional lending overnight, just because the AIIB has been launched. The established lenders with their traditional modalities will be converted into shivering wrecks offering virtual free money sans conditions, just because the new player has appeared on the block! A Maritime Silk Route has been converted into a (tarmac!) road over the sea! Borrowing nations which will be indebted and whose future taxpayers will have to pay these debts overnight become ‘beneficiaries’!
Cynical analysts have expressed the view that the AIIB is a front for the People’s Republic of China to fund the String of Pearls strategy, currently rebranded as the ‘Maritime Silk Route’. The AIIB and the BRICS Bank very well may put some pressure on the existing IFIs to not be too explicit in promoting the Washington Consensus and to relax strictures designed to curtain environmental degradation, corruption, transparency and the promotion of human rights. After all, at the end of the day, banks are banks – they have to lend and recover money at interest, albeit concessional or exploitative!
This may take the pressure off Third World dictators, but what of the poor citizens of those countries? The future will tell. Sri Lankans would do well to read up the history of Admiral Cheng Ho’s voyages and his exploits in Galle and thereabouts. History repeats itself for the illiterate – maybe with the eunuch Admiral’s successor being in the guise of a brand new IFI!
(The writer is a lawyer, who has over 30 years of experience as a CEO in both State and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)
