China’s Overseas Investments Come with Baggage

While China’s huge overseas investment plans continue to attract attention from developed and developing countries alike, equally important is the skepticism prevailing about the profitability of these investments. They do not come merely as “investments” in the strict sense of the term.

Certain repercussions follow, ranging from transfer of ownership of assets to potential political problems. Although such issues are not typical of China’s investments only, these issues acquire a lot of significance when seen against the context of the country’s overt emphasis on “non-interference.”

Part of this skepticism owes its existence to China’s slowing growth and consequent questions regarding its own ability to fund projects such as the high speed rail network, a central pillar for the revival of the ancient Silk-Road route.

While China may not be inclined to intervene directly into other states’ affairs, the investment plans themselves carry a lot of political baggage. Take, for instance, the case of China-Pakistan Economic Corridor. The numbers only are dazzling in terms of the potential benefits Pakistan would be able to reap. However, huge numbers do not in themselves translate into concrete socio-political benefits. With China making huge investment, part of the plan requires a significant increase in militarization of certain regions, especially Balochistan wherein a separatist movement is going on for almost a decade.

Pakistani sources say the government will place almost 60,000 additional troops in Balochistan to ensure protection of China’s silk road. This increased militarization is certainly going to add fuel to the fire. One of the most important demands the Baloch separatists have made for engaging in dialogue is demilitarization. Placement of additional troops to protect China’s interests therefore runs counter to resolution of the ethno-national conflict.

A lot of scepticism, therefore, continues to prevail in Pakistan regarding the officially sponsored narrative that development would lead to resolution of the conflict. The Baloch separatists do not believe development will lead to their emancipation. It is for them a step towards increasing state control over their resources and eventual displacement and dispossession.

Part of the scepticism prevailing in Pakistan, as in many other countries, is due to China’s own slow economic growth, says economist Aitzaz Jamil. While Chinese officials continue to assure the target countries that slow economic growth won’t have a negative impact China’s economic commitments, China’s own officials acknowledged in the first week of March that it faced tough battle to keep world’s No.2 economy growing by at least 6.5 percent over the next five years while pushing hard to create more jobs and restructure state-owned enterprises.

Notwithstanding the skepticism, China continues to promise development to developing states. One of the primary beneficiaries, as it stands, happens to be Central Asia, which accounts for a huge chunk of China’s energy imports. It is not, however, merely imports that are significant. In Kazakhstan, Chinese companies own somewhere between one-fifth and one-quarter of the country’s oil production — about the same proportion as the national oil company, putting China’s stakes at par with the state’s own interests.

Is that a conflict of interest? At times, yes. Because China owns assets in the target countries doesn’t always necessarily mean that China actually bought those assets. Ownership aften stems from a policy that aims at forcing the target countries to play by China’s financial rules, which can be onerous. Many developing countries, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on nearly 90 percent of Ecuador’s oil exports, which mostly go to paying off its loans.

“The problem is we are trying to replace American imperialism with Chinese imperialism,” said Alberto Acosta, who served as President Correa’s energy minister during his first term. “The Chinese are shopping across the world, transforming their financial resources into mineral resources and investments. They come with financing, technology and technicians, but also high interest rates.”

For this reason, political opposition to China’s economic ingress is not necessarily absent. For some, participation in the Silk Road project can yield enormous benefits. For others, Silk Road stamps China’s economic dominance in the region, a position that may put China on a collision course vis-à-vis Russia, which sees Silk Road as a direct challenge to its own regional integration plans i.e., the Eurasian Economic Union.

Despite potential conflict of interest between China and Russia, China has steadily increased its economic presence in the region. According to the IMF, before the start of the century China’s overall trade with Central Asian was estimated at about $1 billion. By the end of the decade (2010), this figure had increased 30-fold and in 2013 trade volumes surpassed $50 billion. During the financial crisis, China surpassed Russia as the region’s leading trading partner, while the current economic tumult as a result of Russia’s currency crisis has further spotlighted China’s crucial role as a regional economic stabilizer.

The political underpinnings of China’s economic presence becomes self-evident when one looks at the arrangements it has made in Central Asia through what some call “pipeline politics.” Unlike other pipelines, the China-Central Asia pipeline is comprised of three separate join ventures, each based on 50 percent ownership between China and Turkmenistan, China and Uzbekistan and China and Kazakhstan.

Effectively, this means that regional disputes concerning price, volume, pipeline maintenance, or environmental impact will be mediated by the common party – China – allowing it, in turn, to enjoy what Liu Yazhou, a general in the People’s Liberation Army, called “a rich piece of cake given to today’s Chinese people by heaven” in a 2010 essay that became a kind of manifesto for China’s expansionist policy in the region.

Although China and Russia have reached some understanding with regard to the limits as well as specific areas of their presence, both countries can hardly follow compartmentalized business plans. While China’s basic concern is with “economic matters” and Russia is set to be the provider of “hard security,” China may find it hard to stay out of security matters as its economic interests in the region increase. It has already started providing some military aid to Kyrgyzstan and Tajikistan. However, many are asking if this ultimately leads to a sort of military engagement in the region. While this may or may not happen, the question of remaining politically un-involved is not only difficult for China to answer but also unrealistic given the amount of money it has invested in the region and that it practically owns assets.

This is, however, where investment starts becoming a problem too. By making big investments in a region that borders one of the most politically and militarily volatile countries, i.e., Afghanistan, it is finding it harder to resist being drawn into political and military affairs.

China’s participation in the so-called Quadrilateral Afghan peace process is a clear manifestation of its penetration into the region both politically and economically. The more it follows such a course, the more unrealistic its emphasis on “non-interference” becomes. Hence, the questions: how different from the West are China’s economic ventures? Is it becoming eastern imperialism? Is Chinese ownership in the target countries a prelude to virtual dispossession? As the results of China’s economic ventures start appearing, answers to these questions will not be hard to find.

Salman Rafi Sheikh is a Pakistan-based academic and regular contributor to Asia Sentinel