24th February Highlights

What is sharp power? Why is shipping finance important? What’s the Quad up to? And how jealous can one man’s epic journey make you?


Out of Eden Silk Road
Photo Credit: National Geographic

Academic exposure: Sharp power

Axel has already recommended the MERICS’ Authoritarian Advance paper. If you haven’t looked at it yet, at least give the executive summary a quick read – it’s pretty seminal and has been making waves amongst folks interested in following China. The paper basically claims that we need to sit up and pay a lot more attention to CCP influencing operations in Europe. Critics have cried Sinophobia and the like, whilst the majority have welcomed it as a useful development.

My recommendation this week is “Sharp Power: Rising Authoritarian Influence“, which in some way serves as the theoretical precursor to the aforementioned China focused MERICS paper. One somewhat valid criticism of Authoritarian Advance is that it’s a little short on empirical evidence. This isn’t really the fault of the authors – it’s just incredibly hard to actually find concrete examples of such ambiguous, amorphous phenomena as self-censorship and political influence. As such, the idea that CCP influence is a threat is really still an argument of principles – the MERICS paper does an admirable job of presenting the evidence at hand, but to my mind, the most convincing part of the argument is still somewhat theoretical.

The Sharp Power paper deals with this theory in depth, basically posing the idea of ‘sharp power’, which unlike ‘soft power’ or ‘hard power’ neither seeks to attract or squash, but to insidiously penetrate civil society, etc., like a needle. One of the basic arguments here about China is, why should you expect the CCP to act on the international stage in a different manner to how it behaves domestically?

The expert view(s): (AI, Shipping, & CPEC)

This week I bring you three experts. You needn’t read all of these pieces, simply pick your poison: the China Pakistan Economic Corridor (CPEC); shipping finance; or AI and jobs. I’m going to guess that most readers would rather delve into scintillating buzzwordy world of AI than they would consider the implications of ship lease financing growth, but I strongly counsel against making too hasty a decision. Sometimes it pays dividends to read outside of your comfort zone and learn to tell your ECAs from your VLCCs.

First off, the AI guy Kai-Fu Lee, who is a really key figure in the Chinese tech world. If you haven’t already, you should listen to the podcast he did with the Sinica boys. The piece is easy to follow and is pretty simple. It picks up on a very recurrent strain of conversation nowadays: China will beat the US at AI. But Kai-Fu also brings in a brief discussion of how AI is going to wreak social havoc. This point is voiced widely, but I feel as if it is often discussed pretty inanely by people simply wanting to be relevant. As a result, their proposed “solutions” to the advancing job crisis are often pretty boilerplate and sometimes just plain dumb. Happily, Kai-Fu challenges these comforting solutions. He falls a little short of suggesting any interesting proposals of his own, but his “we need to think about this” message is much appreciated.

Virginia Marintidou’s piece on shipping finance is a little longer and a little harder to follow, but you should give it a go. Her headline is essentially “we think a lot (some of us) about shipping and the Maritime Silk Road, but shipping finance is actually super important”. And after reading the article, I’m convinced that she’s right. The picture painted of China’s increasing slice of the global shipping finance pie taps into a real debate we need to be having about what happens when China controls key parts of the global supply chain. Experience tells us that Beijing isn’t afraid to throw its economic weight around for political gain. And this isn’t just about SOEs working towards the strategic goals of the CCP, it’s about the ability of Chinese industry to carve out monopolies, and to employ profit-maximising economic strategies on a scale that non-Chinese companies simply can’t compete with. In the example cited by Virginia, China bleeds Brazilian ore giant Valemax dry by refusing to let Valemax’s carriers dock in Chinese ports. Result? Valemax is forced to sell its carriers to Chinese shipping firms and banks, which then lease them back to Valemax.

I’ve been spending a lot of time researching Belt and Road (specifically CPEC) projects recently, so I can confidently say that Arif Rafiq’s “three years later” article on CPEC is extremely insightful. Looking at CPEC is actually a little better than looking at, say, Chinese projects in East Africa, but when comparing these projects to those of the big multilateral development banks, the difference is startling. The Chinese-led Asian Infrastructure Investment Bank provides book length PDF documents on procurement processes, etc., whilst you’d be lucky to find a few hastily scanned pages on CPEC projects.

This article in the Business Recorder is also good for shedding some light on CPEC’s opacity, questioning the ownership structure of the Chinese company behind Gwadar port.

Biggest news item: the Quad alternative (not rival)

This week in the China news department we’re mainly settling back down to normal operations after New Year celebrations and looking ahead to the two sessions. The takeover of Anbang Insurance (a colossal, faltering “grey rhino“) was probably the biggest event of the week, but it wasn’t a surprising development.

With a geopolitical hat on, I’d still point to the crisis in the Maldives as the most interesting thing currently happening, but Axel covered that in last week’s highlights.

So – the most newsworthy happening of the week? Probably talk of a US-Australia-India-Japan led “alternative” to the Belt and Road. Last Sunday The Australian Financial Review quoted an unnamed US official who claimed that the Quad were mulling over the idea of launching a joint infrastructure plan. The official stressed that we’re talking about an “alternative” rather than a “rival” to China’s Belt and Road, and that the plan is not yet “ripe enough to be announced” during Australian PM Malcolm Turnbull’s US visit.  Julie Bishop (Australia’s Foreign Minister) confirmed the rumours on Monday, and Turnbull has since commented on the nascent plans, saying “It is not the case that this is to counter China’s Belt and Road.”

There have long been calls for the US to step up it’s game when it comes to offering global public goods and infrastructure alternatives to China’s Belt and Road. The recent US-China Commission hearing on the matter springs to mind – I’m pretty sure the main message there was ‘China’s gaining ground, don’t lose out in the infrastructure race’. Japan already has a pretty strong infrastructure game in the region, India has plans of its own, and now it seems the US might be gearing up to join what is fast looking like the 21st century version of “the Great Game” across Eurasia. It all fits the pattern of growing Sino-US competition and a progressively assertive US responding to a progressively assertive China – think Tillerson and Wang Yi vying for allies in Latin America.

Everyone has been very keen to stress that no one is trying to counter China, but come on… it’s hard to see how “alternative” doesn’t equal “rival” here. I wouldn’t be surprised if the US official’s comments weren’t “leaked” so much as deliberately floated. It’s clearly about sending signals – in fact, at the moment, that’s all it’s about. Whether the quad’s plans will amount to much is a matter for debate. The US has its own infrastructure deficit to deal with for a start. Secondly, it certainly has the commercial capacity to invest in Eurasia, but that’s not how Belt and Road style initiatives work – the Belt and Road is a state-led movement that leverages the cohered economic might of China Co. to make investments that are commercially untenable in the short-term but which are strategically/economically smart in the long term. I question whether the US is even equipped to counter the Belt and Road.

Either way, the rhetoric is much more important at this stage, but I’m not entirely sure what message the quad is trying to send. Is creating a narrative of epic geopolitical competition useful? That’s not a rhetorical question – I’m genuinely not sure.

To read over breakfast: Out of Eden 

I’m not necessarily putting this here for the writing, although I can’t fault it and it’s a thoroughly enjoyable piece. It’s just – wow, what a journey. If you’re anything like me and enjoy or aspire to a bit of adventuring yourself, this piece will tickle your jealousy bone something fierce.

Paul Salopek’s “decade-long experiment in slow journalism” is pretty awe inspiring – a 21,000 mile trek from Africa to the southern tip of South America that traces the migration path of our ancestors. This piece traces his Silk Road route and it’s all swish with sliding graphics, lots of photos, videos, and word snippets, so it makes for good breakfast reading.

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