The Emperor’s New Road: China and the Project of the Century

by Jonathan E. Hillman

  The problem is not simply corruption where China aims to go but how it aims to get there: building massive infrastructure projects with little transparency and accountability. Large infrastructure projects provide ample opportunities for skimming. One expert has identified thirteen reasons why construction is prone to corruption, including the size of projects, government involvement, the number of contractual links, the project’s complexity, the concealment of work, and entrenched national interests, among other factors.54

  Allegations of corruption related to Chinese projects have already shaken the region’s governments. In Tajikistan, a major highway financed by the China Development Bank was allegedly used to funnel millions of dollars to associates of the Tajik president’s son-in-law, Jamoliddin Nuraliev.55 The road was upgraded in 2010 and turned into a toll road, ostensibly to repay the $280 million loan. The contract was awarded to a company called Innovative Road Solutions, which had no experience operating roads and was registered in the British Virgin Islands. It was exempted from several taxes, and the government initially claimed that its ownership was a “trade secret.”56 A government official who spoke out against the contract was fired, and a journalist reporting on it was sentenced to twelve years in prison, a decision that was later revised to a fine and community service.57 The road was a triple loss for Tajik citizens, who were not employed in large numbers to build it, have to pay more out of pocket to use it, and will likely have to pay again through public taxes since toll receipts are going to a tax haven rather than paying down the loan.58

  In Kyrgyzstan, Chinese-financed projects have been inflated to enrich local elites. For one road project, cement was billed at $1.10 per kilogram, when it could have been obtained for $0.07 on the local market. Chinese contractors and Kyrgyz officials overseeing a power-plant project in Bishkek, financed by a $386 million loan from China’s Export-Import Bank, authorized invoices for $320 pliers and $1,600 fire extinguishers, among other inflated expenses. Months after opening, the plant had an accident that left Bishkek residents without heating. “About 90 percent of the necessary materials and equipment were bought at an elevated price,” its director later said.59 Thirty people were arrested on corruption charges related to the project, including a Chinese contractor and two Kyrgyz former prime ministers, and five criminal cases have been launched.

  In many of the countries that China’s Belt and Road aims to connect, these problems are endemic and will not simply fade away, as Alexander Cooley, who directs the Harriman Institute at Columbia University, has cautioned.60 Nor are solutions easily imposed from the outside. This is a lesson that the United States has learned, painfully and expensively, in Afghanistan, where large U.S.-funded projects have sometimes enriched elites, stoked corruption, and exacerbated rivalries.61

  Of course, Chinese companies are not alone in being accused of peddling influence. But authorities in the United States and the European Union are more vigilant in policing their own companies abroad. China adopted a foreign-bribery law in 2011 but has done little to enforce it. Chinese companies are also among the least transparent according to a study of one hundred companies in fifteen emerging markets.62 They have been willing to operate with fewer strings attached, even picking up projects that have been abandoned by the World Bank, Asian Development Bank, and other more stringent lenders for corruption violations. Chinese officials chalk some of this up as the cost of doing business.

  China’s largest lenders prefer operating in the darkness, and their sheer size makes this a global problem. China Development Bank and the Export-Import Bank of China have grown to hold more than twice the assets of major Western-backed multilateral development banks and lend more to developing countries.63 Their projects are publicized after contractors are picked, and loan terms are rarely released. The calculus behind these decisions might seem pragmatic: more opportunities and fewer obstacles equals greater influence.

  There are upsides to Beijing’s no-strings-attached approach, but it also carries the seeds of its own destruction.64 It deals with partners as they are, without imposing difficult governance reforms. Washington’s Silk Road Act, for example, included among its priorities developing rule of law, independent judiciaries, and transparency in the region. Without conditions, Beijing is freer to go where it wants, and its dealings can be more transactional. When doing business in difficult places, it can press its advantage, ensuring that Chinese companies and workers are the first to benefit. China may ask less of its partners up front, but it also takes more.

  A willingness to handle huge deals opaquely provides even more opportunities for political leverage. By agreeing to inflate project costs, for example, Beijing can funnel money to its friends in high places. A backroom deal can itself become a source of leverage, since either side could make demands and threaten to expose the other. But Beijing holds the stronger hand. Given the immense demand for infrastructure, China has more countries courting its investments than its partners have alternative sources of investment.

  This cynical approach may sound cunning, but it is fraught with risk. Putting aside its economic costs, corruption stokes resentment. Requiring assessments for financial, human rights, environmental, and other impacts is highly pragmatic. These assessments require additional time, but they minimize well-documented risks associated with projects. When ignored, those risks can come back to haunt leaders, especially those in more democratic states. Billed as a decades-long effort to unite the world, the BRI is already generating pushback, as subsequent chapters explain.

  As the sun began to set on the Caspian, the Professor Gül’s engines pushed us forward at a leisurely ten knots, or eleven and a half miles per hour. The crew followed a strict schedule, rotating shifts and eating at set intervals.

  Yet no one would venture a straight estimate about when we would arrive. The ship’s junior engineer, a cadet at the Azerbaijan State Marine Academy, said he had made the crossing over two hundred times. He recounted delays at sea and in port, where congestion can cause ships to wait for up to a week before they dock. The weather could turn ugly, too. In 2003, a ferry crossing from Aktau to Baku sank, killing forty-three of the fifty-one people on board.

  What I mistakenly took for nonchalance was prudence. Twenty hours and two bowls of borsch into our voyage, the wind picked up as we approached Azerbaijan. The ship anchored frustratingly close to the coast and waited for better weather. I asked the chef how long it would be. “Only mother nature knows,” he laughed. We eventually pulled into Alat, a port near Baku, around two a.m. the next morning.

  From dock to dock, the trip took about thirty-two hours. That is hardly a revolution in today’s world of just-in-time delivery, but it could become an improvement over the status quo, especially if backers of the new port can deliver their promise of an eighteen-hour crossing. Even greater gains could be achieved by reducing the waiting time on land.

  But not all inefficiencies are accidental or easily fixed. The art of the middleman is turning uncertainty into advantage. The more complicated the process, the more value middlemen offer as guides. The more choke points, the more opportunities to take a cut. It is easy to criticize corruption. It is another thing to persuade people making only a few hundred dollars a month to give something up in the hope that greater company profits will trickle down.

  Corruption looks ugly when it is wearing handcuffs, but usually it wears a friendly face. When my boat finally arrived in Azerbaijan, I cleared customs and asked a security guard how to get a taxi to Baku. Realizing that I was not among the normal passengers, neither on vacation riding a motorcycle or bike nor on business escorting cargo, I expected lots of questions about the nature of my trip. Why take a day-and-a-half boat ride when I could have taken an hour flight?

  But the guard was not the least bit interested in why I was there, only where I was going. He took out his cell phone, dialed, and spoke a few words in Azerbaijani. Turning back to me, he said, “My cousin can drive you. Twenty-five dollars?”

&
nbsp; Russia

  Center for Strategic and International Studies, Reconnecting Asia Project; Gazprom

  CHAPTER FOUR

  The Gatekeeper

  Russia

  “IT IS PROHIBITED TO visit this place,” the Russian soldier said, flipping slowly through my passport as if it held a secret.

  We were sitting in a small room with two large windows overlooking an unremarkable construction site, a flat expanse of brown dirt in Blagoveshchensk, a city in Russia’s Far East. The wind carried the crack and clang of power tools toward us, and Russian workers in hard hats ambled by in ones and twos. They were building a bridge into Heihe, China. The two cities share a river, called the Amur in Russian and the Heilongjiang, or “black dragon river,” in Chinese.

  They also share a bloody past. Blagoveshchensk literally means “city of good news,” but its defining moments have been decidedly otherwise. The city was founded as a military post in the mid-nineteenth century after two treaties demarcated the river as the border. During the Boxer Rebellion in 1900, Russians expelled ethnic Chinese from the city, forcing them at bayonet point to cross the river without boats. Five thousand Chinese men, women, and children were killed.1

  In 1969, U.S. officials watched with white knuckles as Soviet and Chinese troops clashed farther downriver. “A major conflict developing between China and the USSR,” one U.S. State Department official warned, “might well extend into other areas of the world and indeed threaten a large portion of the world’s population.”2 Cooler heads prevailed, but Soviet-Sino mistrust simmered; and the split provided the window for Henry Kissinger and Richard Nixon’s opening to China.

  Chinese and Russian officials now boast of building bridges across their borders, literally and figuratively, as part of a strategic partnership. First proposed in the late 1980s, the Blagoveshchensk-Heihe bridge was finally started in 2016.3 It has become a symbol of warming relations between the owner of the world’s largest nuclear arsenal and the world’s second-largest economy.

  Straddling eleven time zones across the top of the Eurasian supercontinent and with deep ties to Central Asia, Russia is the gatekeeper for China’s overland ambitions. No other country is better positioned to spoil China’s BRI. China needs Russia’s cooperation, but a century of conflict and competition leaves a deep layer of mistrust and suspicion.

  “Why are you here?” the soldier asked.

  “I would like to see the bridge,” I replied, reaching back to my college language classes and coming up with a jumble of Russian words.

  “Why do you want to visit the bridge?”

  “I would like a photo.”

  “It is not allowed. What is the purpose of your visit?”

  “Tourism.”

  “How long are you in Russia?”

  “Only today.”

  The breeze was cool outside, but the air inside the temporary building was stifling. I was sweating in a T-shirt and had no idea how he was holding up in his forest-camouflage uniform.

  “It is prohibited to visit this place,” he repeated.

  “It’s OK,” I said, standing and reaching for my passport. “No problem.”

  “This is a strategic project.”

  “It’s OK, no problem, I leave now.”

  “But you are already here.”

  “I don’t understand.”

  “Do you need a translator?”

  “It’s OK, I am leaving.”

  “No, you must answer my questions,” he insisted, laying a blank sheet of paper on the table and uncapping a pen.

  My stomach dropped. What began as a casual inquiry directed from me to him—a request to see the bridge—had boomeranged back and was quickly becoming an interrogation.

  “Most Trustworthy Strategic Partners”

  The paranoia that courses along Russia’s borders is as real and powerful as the Amur itself. Russia is the world’s largest country by landmass, and across the centuries, its rulers have risen and fallen on their ability to defend its difficult borders. During the thirteenth century, the Mongols invaded Russian lands from the Central Asian steppe. Over the past four hundred years, most of Russia’s threats have come from the west, where large plains allowed European armies—the Poles, Swedes, French, and Germans twice—to penetrate deep into Russian territory.4 As the U.S. diplomat George Kennan wrote in his famous 1946 cable, often remembered as the Long Telegram, “Russia has never known a friendly neighbor.”5

  The collapse of the Soviet Union exacerbated Russia’s worst fears. It shrank the buffer zones between Russia and its competitors to the west. As newly independent countries joined the European Union and NATO, the Kremlin saw that space shrink further. “This is not just a psychological issue for us,” Russian intelligence chief Yevgeny Primakov, who would become foreign minister and prime minister, warned about NATO expansion, “It’s a security question.”6

  Several American experts saw the danger, too. Expanding NATO, Kennan warned in 1997, “may be expected to inflame the nationalistic, anti-Western and militaristic tendencies in Russian opinion; to have an adverse effect on the development of Russian democracy; to restore the atmosphere of the cold war to East-West relations, and to impel Russian foreign policy in directions decidedly not to our liking.”7

  While Western capitals were celebrating the triumph of democracy and free markets, policy makers in Moscow felt that their weakness was being exploited. “It was not the process of expansion that would have to take Russia’s position into account but Russia that would have to adapt to the process,” Primakov later wrote.8

  Russia’s heightened insecurity on its western flank compelled it to improve relations to the east. In the early 1990s, Russian and Chinese officials began working to resolve long-standing border disputes. The process was painstakingly slow. A final agreement, struck in 2008, settled outstanding claims over a shared border running over twenty-six hundred miles and set the stage for further development. Russian Foreign Minister Sergei Lavrov said at the time, “All the conditions are created for the Russian-Chinese border to always be one of stability, openness, friendship, development and prosperity.”9

  Heaping praise on each other, Putin and Xi have rapidly elevated their countries’ relations.10 While in office, they have met over thirty times, and every time, it seems, they declare that their friendship has grown even stronger. In July 2017, Putin bestowed Russia’s highest state award on Xi and feted their “comprehensive partnership and strategic cooperation.”11 Echoing those sentiments, Xi said that China and Russia are each other’s “most trustworthy strategic partners” and that relations are “at their best time in history.”12 Returning the favor, Xi conferred China’s inaugural Friendship Medal on Putin in 2018.13

  They know the West is watching. “We came to let the Americans know about the close ties of the armed forces of China and Russia,” the Chinese defense minister Wei Fenghe said during a visit to Moscow in 2018.14

  Nor is the romance purely rhetorical. At the United Nations, China and Russia have used their seats on the Security Council to oppose international interventions. They have staked out similar positions on North Korea, state control of cyberspace, and other areas, often contrary to U.S. interests. Their joint military exercises expanded to European waters in 2017, and the following year, Russia included several thousand Chinese troops in its largest exercise since the Cold War.15 Russia and China have signed energy deals, launched joint projects in the Arctic, and even announced a joint aerospace company that aims to compete with Boeing and Airbus.16 To hedge against U.S. sanctions, Russia has been shifting its foreign currency reserves into Chinese currency.17

  By most measures, lumping Russia and China together is overly generous to Russia. Russia has nuclear weapons but also a one-trick economy focused on energy exports, a rusting military, and a declining population. Russia’s illegal behavior can be seen around the world, from its illegal annexation of Crimea and support for Bashar Al Assad in Syria to its meddling in U.S. elections. But decades
from now, U.S. officials may come to regret pushing historical enemies together through chest-thumping public statements, sanctions, and tariffs.

  A deeper Russian-Chinese partnership would be Kissinger’s worst nightmare realized. An unflinching objective of U.S. foreign policy since World War II has been to prevent the domination of the Eurasian landmass by a single power. Historically, rising powers reaching for that mantle have sparked conflict and brought the world to war with them. China is the most likely challenger, and the most alarming interpretation of the BRI is that it is China’s roadmap to hegemonic power. Xi now holds the keys in the form of investment and respect that Putin, economically and diplomatically isolated from the West, craves.

  Russian officials were suspicious when the BRI was announced. “We understand this Chinese initiative as just another attempt to steal Central Asia from us,” a senior Russian official told Alexander Gabuev, a scholar at the Carnegie Endowment.18 Officials in Russia’s security agencies were more concerned than their economic counterparts, but three economic risks colored their impressions, as Gabuev recounts. They worried that the BRI could undermine Russia’s proposed trade architecture for the region, undercut the Trans-Siberian Railway by routing trade around Russia to Europe, and dominate access to raw materials and infrastructure contracts in Central Asia.

  But Moscow was also running out of options. In 2014, in the wake of the war in Ukraine, Russia was increasingly isolated and vulnerable given its dependence on Western energy markets, investors, and technology.19 Around this time, the Kremlin conducted its first comprehensive assessment of the pros and cons of partnering with Beijing. Partnering with China posed long-term risks, including new dependencies on a larger partner, but it was the only viable path available to reduce Russia’s western vulnerabilities. The assessment concluded that the benefits, particularly in the short term, outweighed the risks.20