Russia and China may often claim to see eye to eye and do indeed often have mutual interests that overlap. But common aims are not uniform. The fact that the Russian 29th Army’s 3rd Missile Brigade, stationed in the east of the country close to the Chinese border, has been issued with the road-mobile 9K720 Iskander-M missile system, which is capable of delivering nuclear payloads, shows that it is important to look beyond well-chosen words about the friendship between Moscow and Beijing.143 After all, it is more normal to deploy such firepower near to enemies and potential enemies, rather than within striking distance of firm and reliable friends.144
And then, of course, there are the concerns about China’s economic robustness in the face of rapid growth and change. This has in part “been maintained by an exceptional degree of credit growth,” according to a recent Bank of England report that seeks to assess the impact on the UK of potential turbulence in financial markets. The credit boom in China is “one of the largest ever recorded,” the report notes, adding that “similar credit booms have typically preceded crises in other countries.”
There have been signs of the problems that come from rapid expansion fuelled by loans, with large corporations like HNA Group seeking to dispose of assets at speed, China Energy Reserve and Chemicals Group defaulting on a $350m bond, and, in July 2018, US investment firm Elliott Management Group taking control of AC Milan from its owner, Li Yonghong, after he failed to keep up with an ambitious repayment schedule.145
The challenges are not lost on policy-makers in China, where Zhou Xiaochuan, the governor of the Central Bank, has spoken not only about the need for reform, but also of the risks facing the economy. These could be “hidden, complicated, sudden, contagious and dangerous,” he wrote in an article on the People’s Bank of China—in which he reminded readers that Xi Jinping had repeatedly emphasized that “financial security is an important part of national security.”146
Then there are problems around several Belt and Road projects, such as in Malaysia, where three of the largest infrastructure projects with a combined value of more than $20bn were suspended because of cost concerns and the allegations of corruption at a Malaysian state investment fund—as were three pipeline projects worth almost $3bn.147 Projects like a new airport to serve Freetown in Sierra Leone have been shelved, while concerns have been raised in Kenya about the fact that Mombasa port may be taken over by the Chinese after it was reportedly offered as collateral for loans that are under-performing.148 A bridge in the Maldives that was built thanks to Chinese funding and inaugurated in August 2018 as a “gateway into tomorrow and the opportunities beyond” was being described just months later as part of the process by which the Maldivian people “have been burned”—in the words of one senior official.149
Overcommitment to projects like the Orange Line metro in Lahore, coupled with rising government deficits, have led to sobering assessments about whether major adjustments will be needed for Pakistan’s budget in the coming months and year, and about if, when and how loans will be restructured.150 The previous government “did a bad job negotiating with China” said Abdul Razak Dawood, a senior politician in Islamabad. “They didn’t do their homework correctly and didn’t negotiate correctly, so they gave away a lot,” he said, promising to review all the agreements and renegotiate them if necessary.151
In Tonga, the burden of keeping up with repayments has led the Prime Minister, Akalisi Pohiva, to declare that his nation is suffering from “debt distress.”152 Then there is Myanmar, where plans to invest $7.3bn in a port on the Bay of Bengal have been scaled back by more than 80 per cent, to avoid similar problems.153 While examples like these have led some to say that Belt and Road problems are proliferating, the fact that around 85 per cent of all projects have proceeded without difficulty tells its own story.154
Nonetheless, in the circumstances, it is not surprising that Beijing has set out to explain the virtues and benefits of the Belt and Road Initiative. The initiative “originates from China, but belongs to the world,” said a feature in Xinhua, the Chinese state news agency. By putting ideas into practice, it “has become the world’s biggest international cooperation platform and the most popular international public product.” It was helping to illuminate “the dreams of millions of people” and to unify the hopes of “every country and their citizens.”155
The Belt and Road Initiative, said President Xi, benefits all by creating a community “with a shared future for humanity.” This was clear from the fact that China’s trade with Belt and Road countries now exceeded $5tr, while helping to play an important role in “peace and development.” Implicitly acknowledging criticisms, Xi noted that the initiative was not a “geopolitical or military alliance,” nor a “China club,” but rather an open and inclusive process designed to improve global development patterns, global governance and economic cooperation.156
This has been followed through with signs that Beijing both recognises the problems of debt burden—and is prepared and willing to help resolve it, at least in some cases. In September 2018, it was announced that loans that had been given to “Africa’s least developed countries” would be exempted and forgiven.157 Although no specific information was given about which debts and which countries this referred to, the fact that the Ethiopian prime minister, Abiy Ahmed, announced a few days later that China had agreed to restructure some of Ethiopia’s debts—including a $4bn loan to build a new railway linking Addis Ababa with the coast—to allow payback over thirty years, rather than ten, provided an example of how it is not impossible for lender and recipient to renegotiate terms that are mutually acceptable.158
Announcing a further round of grants, interest-free loans, credit lines and development financing worth $60bn for African nations, Xi responded to accusations that too many poorly thought-through schemes had received funding. Resources, he said, “are not to be spent on vanity projects, but in places where they are needed the most.” These investments “must give Chinese and African people tangible benefits and successes that can be seen, that can be felt.”159
The problem is not so much about the principle of Chinese loans, but rather the practices that underpin them. One of the problems for those who lend money is what happens when the counter-party cannot keep up payments, or defaults. In the case of at least some Belt and Road projects, it is apparent that there are asymmetric motivations for the lender and the borrower: Chinese financial institutions have been strongly incentivised to provide capital for schemes, knowing that they have the option to fall back on Beijing if things go wrong.
So one of the key questions is to assess how approval is given to poor projects that over-promise (and are likely to under-deliver), and to consider if, how and when the major banks that provide finance are either reined in in the way they lend, have funds at their disposal reduced or are obliged to face the consequences when projects do not go according to plan. How this develops is not just crucial for Belt and Road schemes and countries, or even for China’s financial sector, but for China as a whole in its engagement with the wider world.
Evaluating Beijing’s motivations, actions and their outcomes in Africa, the Indian Ocean and along the spine of Asia is perhaps the single most important challenge for policy-makers in every country around the world today. Just as it is possible to talk of win-win when things go well, it is also reasonable to see that it becomes a “lose-lose” scenario when they do not.
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The risks to the global economy in the event of a slowdown, correction or crash in China are obvious, given that China is “deeply embedded in global supply chains,” says the Bank of England report. There would be potential benefits—for example, a sharp reduction in some commodity prices like coal, steel and copper, as well as a fall in oil prices, leading to lower prices in the UK.160 Assessments like these presumably lie behind the aggressive stance on tariffs being adopted by the United States against China, with steps
taken to put pressure on the economy to both weaken Beijing but strengthen consumers in the US at the same time. It also explains the robust attempt by China not only to issue economic countermeasures but to warn of the dangers of playing a game the consequences of which are hard to predict. The United States is “attacking the global supply chain,” said Ministry of Commerce spokesman Gao Feng, when asked about the introduction of yet more tariffs. “The American government is firing shots at the whole world and at itself too.”161
In Britain’s case, as the Bank of England’s report makes clear, the prospect of lower prices in the event of a major financial crisis in China is only one side of the story. In fact, the UK would be hit particularly badly by a financial crisis in China—far more so than any other country in Europe, because the exposure of the UK’s banks is “greater than the US, Euro area, Japan and Korea combined.” Modelling exercises about the possible implications on the UK’s economy have caused the Bank to raise its views on the potential spillover impact by 50 per cent. A major correction in China, perhaps triggered by decisions made in the US, would have a serious impact on the United Kingdom.162
The stakes are high—and all but overlooked at a time when the only topic of discussion about the economy by leading advocates of Brexit in the UK is about the prospect of new free-trade deals that will easily materialise when Britain stops being what some refer to as “a colony” of the European Union.163 There seems little or no recognition of the fact that while “the will of the people” to leave the European Union was expressed in 2016, the world has changed dramatically since then. Challenges have appeared that were just not known about at the time of the referendum, indeed in some cases they did not even exist. As such, perhaps the biggest problem about Brexit is not the question of whether leaving the European Union is right for the UK; it is whether it is right to do so at a time of such profound geopolitical and economic fragility. There are real dangers in concentrating only on matters that are of parochial importance when so many other more significant and challenging problems require and demand attention.
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The rapid development of new technologies is also a significant difficulty to address, in terms of trying to predict the impact these will have in the coming years—and working out how to prepare accordingly for a world where artificial intelligence (AI), robotics, machine learning, Blockchain, Ethereum and more will change the way we live, love, work and communicate. Then there are cryptocurrencies like Bitcoin, which, while exciting for digital pioneers, seem most obviously of interest to those who seek to keep their transactions secure and away from prying eyes—including those who deal in illicit substances or goods, or who prefer to keep potentially taxable revenue away from the authorities. Ironically, the impact of decentralised digital currencies might prove more important for states seeking to continue to engage in trade in the face of pressures—such as sanctions—where the dominance of the dollar, the euro and the yen in international transactions makes large-scale trade in other currencies impractical, inconvenient or impossible.
This would seem a logical step for countries like Iran, which is faced with trying to deal with a blanket ban on all its international commerce—and which has been exploring ways to do business in non-dollar-denominated currencies.164 In fact, the German Foreign Minister, Heiko Maas, has suggested that Europe needs to find a way to overcome the existing financial-clearing system, in order to help Iran and presumably others too in the future. New payment channels should be set up, he said, including a European Monetary Fund and an independent SWIFT system to allow inter-bank transfers.165 Inevitably, new technologies will be part of these solutions—and counter-technologies too. But hearing a senior European politician discussing finding ways to undermine and subvert US policy is almost as momentous as the Fourth Industrial Revolution itself.
As was the case in previous revolutions, the connection with the development (and funding) of new technologies is closely linked with military applications and with attempts to deliver tactical advantages that are decisive on the battlefield. As such, while being able to pay for a Chicken Zinger burger in Kentucky Fried Chicken outlets in China using facial technology is exciting, the fact that the same tools can be used by state security agencies for surveillance and security is undoubtedly more significant.166
The government in Beijing is pouring money and resources into artificial intelligence, building new technology parks across the country, such as a new $2.1bn campus in the Mentougou district of the capital, or in the former imperial capital of Xi’an.167 According to one authoritative report, in 2016 China accounted for only 11.3 per cent of global funding going to start-ups in AI; that figure had risen to almost 50 per cent the following year. “China is aggressively executing a thoroughly designed vision for AI,” the report notes, adding that “in some areas of AI, China is clearly beating the US.”168
While some elements of the “futuristic artificial intelligence plan” involve smart agriculture, intelligent logistics and new employment opportunities, others are closely linked to defence and even foreign policy. China should “break new ground in major country diplomacy,” said President Xi at the Central Conference on Work Relating to Foreign Affairs in Beijing in the summer of 2018. This includes working out how to form a “clear understanding of China’s status and role in the evolving world” and to help “formulate principles and policies of China’s external work in a scientific way, through cool-headed analysis of international phenomena.”169 According to reports, considerable effort is going into producing artificial-intelligence systems that help analyse and respond to changes in global geopolitics—and provide a competitive advantage over other states. “AI can think many steps ahead of a human,” said a researcher at the Institute of Automation at the Chinese Academy of Sciences. “It can think deeply in many possible scenarios and come up with the best strategy.”170
This is just one area where resources are being expended—as they are, presumably, in other states, too. Another example, however, comes from the development of new military technology, such as in November 2015, when the China Academy of Aerospace Aerodynamics unveiled a new version of its CH-class drone.171 Previous generations of this unmanned aerial vehicle (UAV) were cheaper versions of US equivalents that proved popular with buyers in the Middle East and Africa.172
The new UAV, however, is in a different league thanks to its ability to identify its own targets autonomously and engage them.173 This opens up a new world of problems for military strategists, who will be faced with new and untested scenarios in the event that an unmanned autonomous weapons system attacks without direct instruction, or if an unmanned asset is disabled, compromised or hacked and used against its operators. Needless to say, the uncertainties of how to respond to such scenarios offers possibilities too in cases where it becomes difficult or even impossible to verify claims and counter-claims.
“I fear our seventy-year-long holiday from history may be over,” said General Sir Nick Carter, chief of the defence staff in the British Army, in a lecture in the summer of 2018. We are living in an era of “constant competition,” he said, marked by difficult questions “about the evolving character of warfare.” It was vital to recognise that “energy, cash, corrupt business practices, cyber-attacks, assassination, fake news, propaganda—and good old-fashioned military intimidation” are being used as weapons. “What constitutes a weapon,” he warned, “no longer has to go ‘bang.’ ” And in this new era, it was a matter of fact that “our state-based competitors have become masters at exploiting the seams between peace and war.”174
Technological innovation produces an array of benefits, ranging from lower financial costs as opposed to maintaining large forces (including the costs of training and equipping), improved and enhanced performance and, of course, lower levels of political risk to leaders who are averse to images of fallen sons and daughters being brought home from wars that have become less an
d less popular in proportion to how long they go on. They also reduce time and expense required for training. According to the Chinese state media reports, a CH-5 drone could be operated by an undergraduate with a basic knowledge of aviation after only one or two days’ training.175
The Russian military is likewise investing heavily in new technologies to transform its armed forces, developing robots that are capable of mounting operations to evacuate wounded soldiers from the battlefield and to diagnose and treat casualties. Researchers are also working on biomorphic robots like the four-legged Lynx, which will be equipped with a machine gun and anti-tank guided missiles and will be able to operate in conditions including on ice and in sand that would test, challenge and tire human soldiers. Unmanned mine-clearance vehicles, robot nurses capable of operating in the extreme cold, as well as a remotely operated version of Russia’s T-14 Armata tank are also in development.176 This fearsome tank is already the envy of many outside Russia. “Without hyperbole,” said a British Ministry of Defence report, “Armata represents the most revolutionary step change in tank design in the last half century.”177
Not surprisingly, it is difficult to verify claims of exactly what is being worked on or how efficient or effective new unmanned weapons systems are—or how expensive they are to develop. But there can be no doubt that this is an area of particular interest to countries like Russia, which hosted its third Military Scientific Conference in May 2018 on “The Robotisation of the Armed Forces of the Russian Federation.”178
The intensification of military competition is moving fast and is a source of considerable concern. The US Air Force recognises, for example, that it is a matter of time before either China or Russia, or both, will develop the software and hardware needed to crack the “stealth” technology that has long given the US a significant air-power advantage.179 Then there are concerns about the development of “carrier-killer” missiles that are capable of turning aircraft carriers from advanced, fearsome warfare platforms into expensive sitting ducks.180
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