Malmgren talks about China’s OBOR BRi and Its Impact on International Security

Malmgren on China’s OBOR and Its Impact on International Security

Dr. Philippa Malmgren is an economist and an internationally recognized thought leader on the world economy and geopolitical dynamics of international affairs. She is a bestselling author, public speaker and founder of the global consulting firm DPRM Group, a consulting agency that helps companies, investors and policymakers better understand how risk and prices move across the policy landscape.

Dr. Malmgren’s insights about markets and geopolitics inform her audience about important signals and investable trends. She serves on several advisory boards and working groups and is a frequent guest on the BBC, CNBC’s Squawk Box and Bloomberg. She is the author, of Geopolitics for Investors and, most recently, of Signals: How Everyday Signs Can Help Us Navigate the World’s Turbulent Economy. Dr. Malmgren is also Co-Founder of H-Robotics, a manufacturing firm that makes aerial robotics.

She spoke to Foreign Policy Concepts about China’s One Belt One Road (OBOR)–also known as Belt and Road Initiative (BRI)–and its impact on international security.


How is China’s OBOR impacting the international security order, and how is its impact viewed in Western capitals?

First, many Western business and political leaders have still never heard of OBOR. It’s quite amazing, but true.

Second, most Western political establishments are so preoccupied by their own troubles at home they have little time to think about China’s new foreign policy strategy. It’s much easier to continue to view the world through the old lens than to come up with an entirely new narrative demanded by China’s One Belt One Road One Circle strategy (OBOR), or as the Chinese call it, the Belt and Road Initiative (BRI).

Let’s understand what we are talking about here, whatever we call it. It’s China’s effort to strengthen its connections with the world by land, air and sea. It involves the construction of highways, railways and airports that start in Eastern China and link China by land through central Asia into the Middle East and into Western Europe. Call it the new Silk Road. The Chinese have just completed the world’s longest railway link, which runs from Yiwu in China to London.

The “One Road” portion of OBOR is a maritime Silk Road which involves the building of ports and canals that will allow China to access the globe by sea. It runs from Eastern China around India, into the Middle East and onto the Mediterranean and even the Azores in the Atlantic, where China is establishing a Special Economic Zone. The Maritime Silk Road also extends to the east coast of Africa from Djibouti down to Madagascar. It extends to Latin America where China is building ports in Mexico and Chile and a canal through Nicaragua.

Zigzagging the Globe

The Chinese have added an additional element which they call “One Circle”. It is the name of their strategy in the Arctic. They can now cross from Dalian in China to Rotterdam via the Arctic route in just 26 days. China is working with Finland to build the “Arctic Corridor” railway link that starts in the port of Kirkenes in the Barents Sea. Keep in mind that the Arctic is teeming with protein, which is easy to pick up on the way home. China’s icebreakers are faster than anybody else’s, so they won’t face any practical limits on fishing.

The Northern route completes the Southern maritime route that goes from Eastern China southward, around India and through the Suez Canal (which they are widening) and on to Western Europe through the Mediterranean. The above routes form a circle. Hence, “One Circle”.

Whatever we call it—The Belt, Road, Circle—it is both a commercial strategy and a strategic security initiative. The purpose is to secure China’s national interests as there are many of them. For example, the diplomatic goals. Many recipients of China’s largesse will soon announce they are no longer recognizing Taiwan, as it was with the case of Panama, which suited China’s interests.

OBOR BRI

There are commercial goals. For China, the BRI is an effort to create Special Economic Zones outside the country. The idea is to generate demand for Chinese excess industrial capacity. They are trying to create GDP abroad because there is a slowdown at home. OBOR is also about securing critical supplies, primarily food and energy.

Some will argue that the BRI is creating many military and strategic security “footholds” and relationships. Along the BRI we also find Chinese listening stations in places like the Coco Islands in Myanmar and new military bases such as in Djibouti. Then again, the US has a huge range of military and listening stations around the world. The Chinese would argue they are just catching up with the Americans.

Note who is not part of the plan: Russia, Singapore and India. The Chinese are effectively bypassing Russia. Yes, the road passes through it. The Circle passes by it. But the aim is to connect China beyond Russia.

As to Singapore, it was not invited to the recent celebration of the grand BRI strategy, which was held in May 2017. From China’s perspective, Singapore is a U.S ally and a security problem, given their interest in the South China Sea. That is why we should keep an eye on the Kra Isthmus in Thailand. China wants to build a canal through this part of Thailand. If Beijing succeeds, it will bring Singapore’s role as a port to an abrupt end. There will be no longer a need to pass through the treacherous Malacca Straights. China will shave days off the travel time to and from the West.

Singapore will have to find new ways to create GDP. That means it would have to diversify away from shipping. Law business could be a main focus for Singapore. Some suggest that in Hong Kong China is moving toward One Country, One System. If true, that creates an opening for Singapore to become point of jurisdiction in the region for trustable contracts.

OBOR Awakens India

OBOR BRI

India sees the BRI as a direct strategic security threat. Remember that the maritime Silk Road used to be called “the string of pearls”, because India and the US saw it as a necklace of ports that China was building or expanding. These developments would encircle and eventually choke India.

The land-based projects in BRI further surround and perhaps endanger India’s national interests. China is building two land corridors that encircle India: The China-Pakistan Economic Corridor (CPEC) to the West and the Bangladesh-China-India-Myanmar corridor (BCIM) to the East.

India is responding by building its own equivalent of the BRI. The North-South Transport Corridor (NSTC), which envisions a railway linking the West coast of India with Iran, and Russia. It will link to the Kazakhstan-Turkmenistan-Iran railway and speed up delivery of goods from India to Central Asia, Western Europe, and Russia.

Moreover, most of BRI projects are not new. The BRI and India’s NSTC both began 15 years ago. But as they convert from planning to implementation, security interests become foregrounded and reassessed. However, some aspects are new such as China’s interest in Mexico. The Chinese have registered that Mexico is the new China. Wages in Mexico are 30% to 40% lower than in China but quality control is American standard. Therefore, part of the BRI is to invest in Mexico’s infrastructure and diplomatic ties. China will lead the development of Mexico’s energy sector as well as the buildout of ports and railway links.

No one asks any questions about the growing presence of China and Russia in the Arctic. China and Russia can storm through the Arctic while Trump’s bluster takes all the media attention. In this sense, Trump is a gift to Russia and China.

Outer Space Rivalry

There is an “off grid” element to the BRI. The modern confrontations between China and the U.S don’t take place on land. The two countries spar for dominance in space, cyberspace and in extraterritorial locations. Competition is centered around space programs to dominate weapons systems from high altitude satellites. For both sides, cyberspace is an ongoing security issue. China thinks Google and Facebook represent the U.S Government. The U.S thinks China’s hackers are the government. But, the real contest is for dominance above and below the high seas. That is where the U.S and China continuously face off. That’s where we see near misses between American and Chinese planes, naval vessels and submarines. As long as each insists that it can be trusted to secure the safety of open spaces, there will be no mutual trust.

How does the Trump administration view China’s growing clout in international affairs generally and Beijing’s OBOR/BRI initiative specifically?

Trump doesn’t know or care about China’s grand infrastructure strategy. He’s a deal guy. But, he intuitively understands that the Chinese are spending a lot of money (a Trillion USD) and he wants some of it. There is this deal in Trump’s mind: swap North Korea for investment in US infrastructure.

Before you laugh, consider his thought process. North Korea is a real problem for the U.S, but the U.S doesn’t have the nouse or patience to deal with it. If China can solve the problem, Trump is prepared to let China effectively “soft annexe” North Korea, if that’s what they want. That’s been Trump’s approach to Ukraine and Syria, so this is not new. But, China’s leaders have their reservations. They want the territory but not the problematic 25 million North Korean people, who would be nigh on impossible to integrate into any economy. The fact that China and the U.S keep moving more troops to the border reveals everyone’s concern that this could turn into a refugee crisis from hell. Some speculate that U.S naval vessels are increasingly positioned off the two Koreas in preparation for war. I think they are there in preparation for a major refugee crisis.

You Scratch My Back, I’ll Scratch Yours

OBOR BRI

Trump will add conditions onto the deal. He’ll agree to withdraw his threat to name China a “currency manipulator” in exchange for the following: China stops being so aggressive in the South China Sea and agrees to bring the OBOR/BRI to the U.S. In Trump’s mind, it’s a match made in heaven.

He’s not wrong. The Chinese don’t want to hold Treasuries because they think the U.S is pursuing an inflationary policy as a means of dealing with its horrific debt problem. The Chinese would much rather own hard assets like ports, airports, building, and physical infrastructure. That’s exactly what Trump needs. Trump wants to upgrade U.S infrastructure without having to write a check. China upgrading JFK and Amtrak in exchange for effective control in North Korea? That’s a once in a generation deal for China. Access to North Korea’s resources and coastline are valuable beyond measure for them. North Korea is nothing but an irritating problem for the U.S. Having said that, Trump may have blown this deal by announcing the $1.42 billion arms deal to Taiwan. Trump does not appreciate that China viewed the Taiwan arms deal announcement as a deal breaker.

This “horse-trading” approach to foreign policy horrifies public policy experts everywhere. It’s typical of Trump’s style. Don’t forget that China likes his style, even if they are good at driving a hard bargain. Trump is doing things the way the Chinese prefer – using family and friends as the back channels. Note that Governor Branstad from Iowa, the new Ambassador to China, has been Xi Jinping’s close friend ever since they met 30 years ago when Xi went to America to study American agriculture. Also keep an eye on the dialogue between the Chinese Ambassador in Washington who might prefer talking to Trump family members, bypassing official diplomatic lines of communication. Chinese whispers are displacing formal diplomatic cables and the Chinese leadership welcome this.

With Trump’s withdrawal from the Paris climate accord, do you think China would leverage OBOR as an anchor to promote sustainable development?

In the end, U.S environmental policy is really conducted at the state level. Most American states and cities are more compliant with international treaties than most countries are. When Trump pulled out of the Paris accords, he said “I represent the people of Pittsburgh not Paris” not realizing that Pittsburgh is the most environmentally compliant and friendly city in the country! The optics are bad, but by pulling out of the Paris Accord, Trump has allowed Americans to show how committed they are to the environment.

Meanwhile, no one asks any questions about the growing presence of China and Russia in the Arctic. Russia is building many new military bases in the Arctic. China’s icebreakers will be increasingly harvesting assets in the Arctic and, according to some observers, disrupting the wildlife. Neither country is famed for their environmental controls. But, nobody thinks this is an issue. China and Russia can storm through the Arctic while Trump’s bluster takes all the media attention. In this sense, Trump is a gift to Russia and China.

Xi Jinping is cleverly taking advantage of the Trump factor. He can easily walk onto any stage and take up the mantle of “leading globalist” because the U.S isn’t there. The BRI reinforces the notion that China is the most internationally minded country. One wonders whether China’s interests are truly focused on the global commons. Then again, plenty of people have wondered how committed America was to the global commons well before Donald Trump. They certainly know America is not leading now.

How big of a threat is Wahhabi-inspired violent Islam to the implementation of OBOR?

Radicalized Islam is a general threat to commerce and governance. China’s leaders have decided to take a tough line, banning burqa, “abnormal” beards, headscarves and veils. They increasingly treat “religious extremism” with intolerance. It is not specifically directed at this one religion. Rather, it is part of a broader effort to calm, prevent, or supress dissent. There are separatist movements and dissenters everywhere in China now, especially now that the economy has slowed.

OBOR BRI

Populism exists in China too, whether from religious extremists or from citizens in general. Similar to other countries, people in China are questioning their political leaders. One response has been the introduction of the so-called Great Firewall, which is China’s efforts to slow or prevent their citizens from connecting to the world via the internet. It seems strange to pursue ever increasing physical connectivity to the world while preventing digital connectivity at home. The Chinese can no longer access some 3000 English language websites including Dropbox and DocuSign. Of course, China will push the rest of the world to interface over its own platforms from WeChat to Tencent. The question is whether China can maintain the necessary pace of innovation if its citizens are increasingly disconnected.

So, yes, the leadership have less and less patience with radical Islam. So, has the leadership in the US, the UK, Europe and most of the Middle East. In general, China’s leadership is impatient and intolerant about challenges to centralized authority.

Is there a fit between China’s OBOR and Russia’s Eurasian Economic Union (EEU)? To what extent are the two aligned geopolitically and geostrategically?

Are China and Russia aligned? I think not. Rumours abound that Russian organized crime gangs used to control most of the Russian economy East of the Urals. Now, it’s almost entirely dominated by Chinese organized crime. The border between the two countries is fast moving North. This is a problem for Russia.

The Shanghai Cooperation Organization is China’s equivalent of NATO, with an increasing Russian involvement in it. BRI connection to the EEU is a by-product of the fast-growing physical links. The Russian-Chinese alignment is not philosophical, but commercial.

As a show of strength in their geopolitical ties, China and Iran recently conducted joint naval exercises in the Persian Gulf. How do you interpret this development in the content of OBOR?

China has long been aligned with Iran, but it has also cultivated ties with traditional American allies. As the U.S has lessened it’s influence in the Middle East, it has created an opportunity for China to assert itself. Today Saudi sells more oil to China than to the U.S. That can change things.

Watch how China acts as the newly minted Saudi crown prince pursues a radical crackdown on his tribal cousins in Qatar. Saudi, Israel, the U.S and the Emirates have all agreed that Qatar must stop supporting radical Islam. Many were horrified when Qatar paid $1 billion in a ransom payment to ISIS in exchange for the return of a Qatari royal who was in falcon hunting party and, after his arrest, in ISIS custody. All perceive Qatar’s Al Jazeera as a platform that incites the wrong side of Islam and have wanted it quieted or closed for years. Now the full naval, air and land blockade of Qatar. My guess is that China will see this as a chance to secure natural gas supplies from Qatar at a reduced price.

In this latest row with Qatar, we will end up with the following setup: the U.S, Saudi, Israel and the Emirates on one side, and China, Russia, Iran on the other. But, the Chinese are not really interested in being a power broker. They just want to go about their business, which is securing commercial and energy routes and supply lines.

However, we can expect to see more joint military exercises between China and Iran. This is really driven by China’s need to sell arms and generate cash flow. It is also about China providing itself an insurance policy in case the relationship with Saudis go sour.

Do you expect the U.S to join the Beijing-led Asian Investment and Infrastructure Bank (AIIB)?

The US will continue to quietly convince other nations to avoid the AIIB and the BRI. But, it won’t work. The AIIB opened for business in May 2016 with a balance sheet that’s bigger than the World Bank’s. The Head of the organization, Jun Liqun, is a deeply learned policymaker who is inclined to quote WB Yeats when talking about global public policy issues. He’s got money, vision, and charm. Policy makers and people in many countries will follow his lead as he networks China into the wider world.

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