Er-Rafia on China’s OBOR and the Global Balance of Power
Fatima-Zohra Er-Rafia is a lecturer at HEC Montréal and Polytechnique Montréal, a consultant, and an independent researcher. She holds a Ph.D. in Business Administration with a focus on China and Japan. Dr. Er-Rafia specializes in cross-cultural management, international affairs, strategy and organizational behavior. Her focus is on Weberian sociology, politics, economics, and history, and she uses aspects of all these disciplines to study Asia.
Dr. Er-Rafia previously served as a Corporate Strategist at Desjardins Group and as a Management Consultant, Director of Operations, and a Strategy and Business Development Consultant at Stratégies Internationales. She provides training for Business Executives at the international level and regularly gives presentations about Asia’s geopolitics, and its business, management, and culture.
Dr. Er-Rafia is the recipient of several honors and awards and author of two book chapters on China and Japan, several articles and over twenty business case studies. She spoke to Foreign Policy Concepts about China’s One Belt
One Road (OBOR) initiative.
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What is China’s One Belt One Road (OBOR) Initiative and why this initiative?
OBOR is a geo-economic development strategy. It is a framework that focuses on connectivity and cooperation among China and Eurasian countries mainly through land roads on the one hand and China, African and Oceanic countries through maritime routes on the other.
OBOR is a means, among others, to achieve the realization of the Confucian strategic objective for China which is “China, the center of the world.” To do this, the Chinese do not invent anything new; they take back the methods that have given results to the Chinese dynasties in the past and improve on them. The OBOR initiative is a policy based on a historical practice of the Chinese empires. Since the Warring States period, China has been looking for itself and, since the founding dynasty of Qin, it is in the process of growth and continuous improvement. For more than twenty-three centuries, the Confucian, Legalist and Strategist values were incarnated in the different Chinese empires, enriching themselves with past experiences to improve the management of the empire. Thus, OBOR’s policy, without having the same name, was initiated during the Han Empire and improved during the subsequent Tang, Song, Ming and Qing dynasties.
During its historic March, China has been the victim of humiliations and occupation by Western countries. Like a Phoenix, China was able to rise through the tensions of modernism and realize its industrial revolution. After a period of turmoil, today, China, under the CCP, has resumed its inexorable march towards the realization of the Confucian strategic objective. It has once again become a center of World wealth production and is a major World player that is strengthening its position day after day through different strategies and initiatives.
These successful experiments are visible on the ground and summarized by the Great Wall of China that can be seen from the Moon. The foreign dignitaries visit the Wall, but for the Chinese leaders, imbued with their historiography, the Great Wall represents a referent written on the ground of China. China Intramuros is an insignificant part of present-day China. Foreign leaders, accepting this referent and its referral, accept that China today is larger than it was in the past and includes Tibet and Xinjiang as being the same as ancient China. The sinicization of the territories outside the walls of China becomes a common phenomenon that China has maintained by an ”OBOR policy” through the famous Silk Road for centuries.
How could the OBOR Initiative transform international trade and geopolitical balance of power?
It is important to understand OBOR’s modus operandi to seize its impact. Chinese cultural values shed an interesting light on China’s Foreign Policy. As said previously, the OBOR Initiative is based on a logic of Imperial experience that has been resumed and improved over time. The Chinese are pragmatic, and this pragmatism derives from the Confucian method of learning (trials and errors). They count on concrete and tangible things.
That said, China understands well the situation of the countries she deals with under the umbrella of OBOR. Today, China is competing with the Western world, Japan, and the BRICS. In this case, to stand out, it must offer a competitive advantage that allows it to capture a part of the World market and to assert itself as a great power, working to ensure a more harmonious world. Practically speaking, China protects its interests and takes charge of the other States interests in two ways: 1) China does not care about human rights in the countries with which it does business and does not interfere in their internal affairs. 2) China presents loans at very low rates that challenge all Western economic logic.
Since many of the OBOR countries are 1) autocratic countries or 2) in an unfavorable position regarding democracy 3) and reject Western values, China can seize opportunities in them. China knows that these countries prefer to ally themselves with the Middle Kingdom, which turns a blind eye to what they do at home and focuses mainly on the strategic economic and commercial aspects of any business dealings, without patronizing and criticizing them as the West usually does.
Moreover, since its accession to the WTO, China has begun to divert massive amounts of goods and resources that previously were sent to the West through usual channels (markets) or by shortcutting the latter ones. With the financial crisis of 2007-2008, this practice was reinforced. And with OBOR, China is continuing to drain more and more resources and goods. International trade and China are inseparable at a time where the World is closing in on itself with the rise of protectionism everywhere. In fact, with Trump in the United States, a Middle East in turmoil, a post-Brexit Europe that is trying to reinvent itself, a Russia that seeks to assert itself and reaffirm its position as a global power, we have a Multipolar world where each leading power has and needs a vital economic and political space of its own. And that’s what China is doing with OBOR.
Through this Initiative, the Chinese are building political and economic relations with nearly sixty countries on four continents. OBOR countries become China’s customers and are treated accordingly. With this patronage, the Chinese do everything to keep them satisfied by developing intimate political and diplomatic relations, which gives China an increasing geopolitical base at the expense of the other global powers who realized what was happening ex-post. This situation is not beneficial for everyone that tries to get a piece of the pie and hold its own, while China reinforces its position on the world stage and becomes more of a key geopolitical player with its OBOR Initiative.
Over the past decade and a half, both diplomatically and economically, the United States has had a dwindling footprint in Central Asia, the nerve center of OBOR. What is OBOR’s impact on the US trade interests in Central Asia? Is it a threat or a unique opportunity for American business interests?
Central Asia is indeed the nerve center of OBOR, and a strategic region at many levels such as the proximity to Iran, Iraq, and Afghanistan as well as the economic potential of its oil and gas reserves and other natural resources. Russia still has a hold there because of historical reasons while at Moscow’s expense China is gaining momentum, dominating the trade battle. Since the independence of the Central Asian countries, the US has tried to penetrate the region with a mitigated result and, after 9/11, the game changed and keeps changing to the present day.
That said, even if it is business as usual, we cannot separate economics from politics. We have to keep in mind that there are several unknown factors that can affect US trade interests in Central Asia. The US-Central Asian countries relations are not as good as they should be. The relations with Kazakhstan are a thriving exception while, for example, the ones with Kyrgyzstan are withering. There is the Trump factor which is a major one. We still do not know yet what his foreign policy is with regards to the region; it may be a game changer. Although the US Central Command’s latest posture in the region remains the same regarding military policy, will Trump focus on the region and see its full economic potential or will he ignore it? That remains to be seen! In addition to this, there is the Chinese factor to keep in mind. China’s suspicions towards US motives on OBOR and the whole region complicate things.
Economically speaking, several Bilateral Agreements, Preferences Programs, and Trade and Investment Framework Agreements are already in place between the US and Central Asian countries. The region represents a small market regarding trade and investment. The number of US exports to the region are insignificant and on the decline. The question is whether the US will overlook or no the current dire situation, the corruption that is plaguing these countries, the state of human rights, the paralyzing bureaucracy and security issues.
When the US interferes and tries to impose obligations such as human rights improvement, it remains a marginalized power in Central Asia. This allows China to keep its tentacles of control in every aspect of trade in the region. Thereby, OBOR is a threat to American Business interests. Then, the US tries to object to OBOR projects or initiatives such as what happened with AIIB implementation.
When the US overlooks all these “obstacles,” and its business interests outweigh its political concerns, the US gains a lot by being more actively present in the region like in Kazakhstan. For the US, Kazakhstan represents a bridgehead that must be fortified and defended against China’s OBOR. Strategically, Kazakhstan must play the role of a showcase for the US to lure the countries participating in the OBOR initiative. But as many OBOR countries have to deal with more pressing issues, they have no time to lose in a big power game. They are eager to seize the opportunities offered to them by China for reasons of proximity and similarity of political regimes. The American political model is not a useful model in the immediate future. It is like the case of the US presence in Kazakhstan would be analogous to the US presence at Guantanamo in Cuba, led by a Lenin-Castro regime fundamentally opposed to the US. Strategically, the US must occupy the premises (hence the presence in Central Asia), pending future changes that could upset the continental countries participating in OBOR.
Central Asian republics are growing markets for US exports and services, and strategic destinations for investment in sectors such as oil and gas, mining, manufacturing, and food processing. Therefore, OBOR is a great opportunity for American interests in the region. Moreover, the US supports OBOR initiatives in Afghanistan and Pakistan because they see the benefits that this can give them with neighboring countries. It’s a win-win situation.
The China-led Asian Infrastructure and Investment Bank (AIIB) is a key institution involved in funding OBOR-related infrastructure projects. The Japan-led Asian Development Bank (ADB) has had a similar role in funding infrastructure projects in developing countries. What are the overarching ideological differences between these two institutions? Could ADB assume a greater role in OBOR-related projects?
On one side, ADB is a Japan-America-led Regional Bank that was created in 1966 at a time when Japan’s reputation among the Asian countries was very bad. The US, fearing the red peril, pushed Japan to be its Foreign Policy pawn in Asia through ADB. Japan and the US are the largest shareholders in ADB followed distantly by China. Some compare ADB structure to the American legislature, where everything is done to ensure that US interests in Asia are protected and maintained.
Dr. Fatima Z. Er-Rafia
On another side, AIIB is a China-led multilateral financial institution dedicated to lending for infrastructure projects across Asia. It was necessary for China to set up a bank whose leadership is acknowledged as legitimate. This allows it to carry out its foreign investment policy for OBOR since it is the second largest economy in the world, not marginalized by Western countries and institutions. It was also very important to set up an institution that would be in sync with China’s values and vision of politics and economics, hence the creation of the AIIB that does not make decisions based on the register of human rights in the country applying for investment. China’s involvement in ADB as a shareholder has allowed it to gather experience in observing how it works and the complex intricacies of a large banking institution.
Both AIIB and the Chinese government are blind to human rights and political rights. This allows them to maintain the principle of non-interference in the internal affairs of states. The AIIB’s Articles of Agreement follow the operating guidelines of banks within the Bretton Woods framework, except interference in politics. For China, business is business, and the political sphere does not have to interfere in the economic sphere, especially regarding international cooperation. This is a very attractive advantage to a non-democratic country in need of funding.
Indeed, ADB, controlled by a democracy, is handicapped compared to AIIB, because human rights and political rights are taken into consideration in lending decisions. Even if Japan is indifferent to human rights and political rights, government positions are influenced in this case by the positions taken by Western democracies. ADB will find grounds for refusing loans by making excuses instead of raising political rights and human rights in the requesting country. In this case, the Chinese institution has the advantage over the Japanese institution, even according to the technical criteria of the loan (i.e. interest rate, repayment terms).
Another difference between ADB and AIIB is at the governance level. AIIB has a non-resident Board of Directors comprised of 12 members to avoid (apparently) unnecessary costs. That is frowned upon in the MDB (Multilateral Development Bank) community since a bank of this scale has Board points of contact at its headquarters. With AIIB gaining prominence, it may revise its policy and switch to a resident Board of Directors.
That said, ADB promotes accountability and focuses on transparency while AIIB seems to be concerned about safeguard policies and focuses on transparency, accountability, independence, and openness which is in line with international guidelines. However, let’s keep in mind that China’s corruption perception index is deteriorating year after year despite President Xi’s efforts to eradicate it. This means that AIIB’s activities will be scrutinized to make sure that it follows all the Articles of Agreement and the international laws. AIIB policies have been praised for meeting, and even exceeding, international standards that have been written by founding members, especially the UK. This is the theory; we will see how AIIB will deal with them in reality.
These concerns did not stop ADB and AIIB from signing a memorandum of understanding to co-finance Pakistan’s M4 highway project, a 64-kilometer stretch of the motorway connecting Shorkot to Khanewal in Punjab Province. Since China and Japan are two Confucian countries, they will start working in homeopathic doses, observing and evaluating each other, using trial and error methods to develop a better understanding of each other. This will allow them to get used to working together without political clash or power struggle in the background. Chi va piano va sano e va lontano (more haste less speed). ADB and AIIB won’t agree all the time on the policy safeguards or other policy preferences. There will be clashes. But at the end co-financing projects will be on the rise slowly, unless Trump decides something else with regards to its foreign policy in Asia and the US involvement in ADB. This is possible given that his entourage is wary of China and not known for being very knowledgeable about the Middle Kingdom. In that case, co-financing OBOR-related projects will be halted until the next US Elections.
In September of last year Canada—much to the chagrin of the US—sought membership in the AIIB. What voting right is Canada expected to have in AIIB? In what ways could Canada’s membership in AIIB impact its standing on the world stage and its economy?
As of March 23rd, Canada became a member of AIIB. When Canada ratifies its membership, it will hold under one percent of bank shares in exchange for a capital subscription of around one billion USD as reported by Canadian media. Canada can’t have more shares because it is not a founding member.
Over the next five years, Canada must pay only twenty percent of it. That is why, in the latest federal budget, Bill Morneau, the Minister of Finance, has allocated $256 million over five years while waiting to introduce legislation on Canada’s membership; a membership that will become official once Canada fulfills its domestic requirements and deposits the first installment of capital.That said, by seeking membership in the AIIB, Canada is following the lead of the other G7 countries who are already non-regional members, except the US and Japan, of course, who are opposed to it. Canada is right not to ignore AIIB and join it while it waits to see more clearly how it evolves. The policy of empty chair and observer from outside may undermine Canada’s credibility.
However, its presence will be significant, because Canada will defend the values that are common to G7. Canada recognizes the global power shift favoring China, and it is simply seizing the opportunity to get its share of the pie. Canada has exercised its sovereign right, which is, in no way, conditioned by the position of other Western democracies.Since it’s about the economy, Canada has found it useful to take its seat there because criticizing the bank as a member is different than criticizing it as a non-member. Being a sovereign country in the conduct of its economic policies, Canada does not have to fear foreign retaliation but must rather fear Canadian movements for the defense of human and political rights.
These movements can, through the parliamentary opposition, require the withdrawal of Canada from AIIB.With Canada joining the AIIB, it can give more credibility to the Bank and help ensure the respect of international standards and policies that regulate the sector such as transparency, labor rights, and CSR’s best practices. Knowing that OBOR projects will make an important positive impact on the Eurasian economy, the Canadian economy can benefit through infrastructure investments and expertise sharing.
Many in China’s national security establishment consider supranational terrorist groups and movements such as the Islamic State and al-Qaeda (as well as their myriad variations) a threat to the OBOR initiative and its implementation across the Eurasian landmass. Is this a legitimate concern?
Yes, it is a legitimate concern. The OBOR initiative is a large two-way highway where ideas, things, and people can enter and come out of China and the countries involved in it. China is on its guard throughout the country. It must also take care to eradicate the objective and social causes that constitute fertile ground for Islamist movements since there are Muslim communities in China who occupy a large and strategic part of the Chinese territory. That is the theory.
However, in reality, it is another story. On the one hand, there is a real struggle to control Islamist terrorism. The centers producing Islamist ideologies are not located in China but the Middle East and the Pakistan-Afghanistan bloc. They represent a focal point of permanent Islamist terrorism because of the aberrant interpretations of the Quran and Islamic traditions. Therefore, these centers, which are independent of one another, continue to produce the deleterious ideology for all Muslims, including the Uyghurs. These supranational terrorist groups and movements use, among other things, the Internet and social media to spread their ideology and to infiltrate all countries. Despite Beijing’s efforts to censor the Internet, the Great Firewall has its limits.
On the other hand, there is the Xinjiang issue. With the rising involvement of Uyghurs in terrorist attacks in Syria, Iraq, and Kyrgyzstan, it means that the Uyghur issue is going beyond China’s borders. Beijing’s strategy towards Xinjiang is pushing Uyghurs to resist the dilution by the Han ethnicity and migrate to the neighboring countries as well. This situation means that China’s internal issues are going global despite its efforts to contain them, and it will keep doing so with the Middle Kingdom’s growing influence in the world. With China being surrounded by several Muslim-majority countries, security and securing its interests become a high priority. It has been done for the China-Pakistan Economic Corridor (CPEC) and with multiple discussions with Afghanistan, Pakistan, and Tajikistan on developing cooperation mechanisms that focus on counterterrorism and intelligence. But it is not enough.
With the rise of terrorist attacks globally, the issue is a critical one. The outcome of Islamist terrorism is a global and transnational issue that China alone can only resolve with an international collaboration of which OBOR is a concrete manifestation. Today China is a world power with a seat on the UN Security Council, which gives it unique prestige. China relies on its Confucian wisdom, founded on harmony and moderation (choice of the middle way solution) for the settlement of world problems threatening peace. It makes world peace its objective and preaches and encourages dialogue among all parties in conflict. But the dialogue preached by China is itself inspired by the Confucian way of discussing and dividing an insoluble problem into several sub-problems and starting with the most urgent of them.
This approach to international relations through the policy of small steps based on dialogue is likely to enhance China’s prestige on the world stage and help it tackle more effectively the issue of global terrorism across the Eurasian landmass. The dilemma China will keep facing until the Xinjiang issue is resolved (a resolution that is not for the near future) is whether to focus and prioritize its global geostrategic goals of OBOR abroad or the security of Xinjiang and its harmonious “unity” at home.