IO – Minister Coordinator for Maritime Luhut Panjaitan recently announced that the Government of Indonesia is planning to look for investment in 28 new infrastructure projects, estimated at USD 91.1 billion, when the upcoming “Second Belt and Road Initiative” (BRI) summit meetings are convened in Beijing, in April 2019. This Summit will be considerably grander than the first one held two years back; it has been reported that representatives of a hundred countries, 40 of them heads of state, will show up.
The first Summit, held in May 2017, was attended by representatives of 60 countries, 29 of whom were supreme leaders; President Joko Widodo was also there. The Summit saw the formal launch of China’s ambitious plan to revive ancient trade and cultural relations between Asia and Europe, known as the “Silk Road” (a term coined by Ferdinand Richthofen, the leader of a German expedition in 1877).
In announcing the plan, President Xi Jinping went far back into history, alluding to the relationship between Asia and Europe tentatively commenced during the Han Dynasty in 207 BC. President Xi expressed China’s intention to revive both via land and sea routes linking the two, with land transportation via railways and sea transport facilitated through building ports and modern communications – all to be included in the comprehensive BRI program.
BRI updates
The first BRI Summit was very important, since it marked the inauguration of a grandiose plan. However, it did in fact lack details. Following several years of implementation, characterized by sharp ups and downs, China’s new summit will presumably carry more concrete and detailed proposals and reports on projects that have been in store, in addition to evaluating developments of the last 5 years.
Meanwhile there has been one significant development, i.e., the unilateral decision by the government of Italy under PM Giuseppe Conte to join up with BRI projects. This is in fact a most important milestone, since Italy will be the first among the G7 countries joining in. We should note as well that this recent development happened in the face of strong criticism from the US (perplexed by its steadily declining influence) that denigrated BRI as nothing more than a “vanity project”; major EU countries were similarly alarmed by Italy breaking ranks from the official stance. The fact is that the EU has declined to endorse the BRI, even though Hungary, Poland, Greece and Portugal, – altogether a total of thirteen members – have seen it in their national interest to sign MoU with the PRC.
Since the BRI or the “New Silk Road” is the manifestation of a grand concept to connect Asia, the Middle East and Europe through land and sea, the construction of infrastructure has thus far concentrated on railroads and seaports. The BRI is not limited to these two sectors: working through CRRP Corp, the world’s biggest manufacturer of rolling stock, China has been championed the spread of high-speed trains, further implementing the connection of more than 60 countries in the New Silk Road link.
The actual implementation of this grandiose plan has not been as smooth as the Chinese loudly trumpeted on different occasions since it commenced in 2013. I cited a report conducted by Washington CSIS and the Financial Times in my column published in Kompas (21/08/2017) pointing out that from 18 projects, budgeted at USD 143 billion, a number failed to be efficiently implemented, and in fact several were cancelled outright. The only major accomplishment in 2017 was the high-speed train connecting Ankara and Istanbul in Turkey.
According to the study, the difficult history of others was reported as follows: 5 projects under construction, including a 770-kilometer long Moscow-Kazan express train line in Russia, budgeted at USD 21.4 billion – this one faced a hurdle of compliance with EU regulations; Budapest-Beograd, a 350 kilometer-long track at USD 2.89 billion, a 453 kilometer Mecca-Medina track at USD 12. 3 billion, Kunming, China-Vientiane, Laos, 417 kilometers, including 75 tunnels and 167 bridges at USD 5.8 billion (excessively burdening the delicate Laos economy), and the controversial 142 kilometer Jakarta-Bandung track at USD 5.5 billion (including a USD 4.5 billion loan from the China Development Bank). These 5 projects, totalling USD 47.5 billion, were shelved, not to mention a Yangon-Mandalay rail line in Myanmar, Tripoli-Sirte in Libya, Los Angeles-Las Vegas in the USA, Mexico City-Queretaro in Mexico and one in troubled Venezuela, from Tinaco-Anaco. Further, there were 12 projects still stuck in a planning stage, worth USD 114.1 billion.
In my column in this paper two weeks ago (15/03/2019) I mentioned that in terms of per capita income, the biggest recipient of Chinese loans in the EU is Portugal, starting from the time of the 2010 EU financial crisis; certain other smaller economies had also received loans related to BRI infrastructure development. China has been determinedly continuing its efforts to market the BRI project. These persistent efforts now seem to have taken a major step forward as President Xi’s trip to Italy, France and Monaco was crowned with the signing of a Memorandum of Understanding that officially showcased Italy as one of the many recipient countries of BRI infrastructure investment.
The fateful decision of PM Conte to take part in BRI can easily be understood economically, as Italy is currently facing a crisis with major deficits, and is in dire need of capital inflows. In doing so they buck the resistance of both the US and other EU members, Germany and France in particular; there is also domestic concern. It is certain that Italy does not want to take any fateful move to leave the EU, as its government continues to insist that the MoU is not legally binding and that the loan Italy is planning to acquire would derive from the Asian Infrastructure Investment Bank (AIIB), which is multilaterally established, with China as the major shareholder. This is thus “not officially a Chinese government institution” – unlike the China Development Bank that has been providing credit for railroads and other infrastructure construction (major financing for the Jakarta-Bandung high-speed train).
The Italian projects that have been cited in the media as part of BRI are heavy with port development, but also encompass railroads, trade and culture, the latter related to the fact that both countries have huge numbers of sites designated as UNESCO world heritage. The long and rich history of trade and cultural exchange between Italy and China has not escaped the attention of the history-sensitive Chinese, either.
It should be pointed out that in terms of trade, an imbalance in China’s favor does exist. Port developments include Genoa in the northwest, Palermo in the south and Trieste and Ravenna in the north of Italy. The MoU specifies China’s taking stakes and management of those ports, looking to expand Italian exports and broaden trade relations between the two countries.
As was mentioned above, the implementation of the BRI projects has been rougher than anticipated, as multiple postponements or cancellations of high-speed rail projects in different countries has painfully demonstrated. Some projects were halted, such as the ones in Myanmar, Nepal and Hungary, the victims of complications in financing or local regulations. Still others faced ongoing problems in the host countries, such as the unrest in Venezuela and Libya. Tensions have arisen from China’s insistence on employing Chinese workers for project construction, with protests and resistance manifesting in host countries: different countries in Africa have suffered cultural conflicts, and even in our neighbour countries there is growing reluctance. A steady stream of such news has emerged from the Philippines, Laos, Pakistan and of course our own nation.
China has been careful about politically-sensitive issues, such as construction workers. In the agreement with the government of Italy, for instance, there was a notable absence of any mention of enhancing telecommunications using the Huawei 5-G network, in view of the US whining to its allies about potential security risks. Note that the Financial Times reported that in 2017 Chinese aid workers accompanied BRI construction projects in Myanmar, Pakistan and Egypt. They worked on construction sites as Chinese-language teachers or employees of state-owned enterprises, and they strived to learn local languages. Such cultural integration has alarmed the US and other EU countries (notably Germany and France) with the fear that Italy’s decision that could become a Trojan horse for a long-term “Chinese invasion”.
For a variety of reasons host countries have been stomping on the brakes once they become familiar with the realities of BRI project implementation, in addition to outright cancellations and revisions of those projects in countries mentioned above. There has been a tendency for new governments assuming power in countries committed to BRI projects already in motion to impose new demands and to review ongoing projects. A shining example of this is Malaysia, under the new leadership of PM Mahathir, who declared they intend to impose a careful review of projects in motion, to confirm that they will not become overly burdensome in the future – thus basically questioning the seriousness or the integrity of the previous administration which wholeheartedly welcomed the projects.
There is no space here to assess the real reasons for such a review. I will simply cite titles of analyses or reports which you may peruse, all reflecting a show of caution on the part of incoming governments regarding projects agreed by their predecessors. Nikkei Asian Review (20/019/2017) reports that “China’s projects in Vietnam have earned a reputation for poor quality and delays”, The New York Times (20/08/2018) cited PM Mahathir Muhammad’s decision to assess BRI projects in Malaysia in “We Cannot Afford This: Malaysia Pushes Back Against China’s Vision”, The Strait Times (30/09/2018) reporting on PM Imran Khan’s decision in “Fearing Debt Trap, Pakistan rethinks China’s Belt and Road projects” and Financial Times (11/02/2019) reporting on the Maldives case in “The Maldives counts the cost of its debts to China”. Most spectacularly, the case of Sri Lanka’s Hambantota Port, surrendered to China for a 99-year lease, and the Laos railways project that sucked away half of its GDP, are more notorious.
Must proceed with caution
Minister Coordinator for Maritime Luhut’s announcement regarding Indonesia’s readiness to offer 28 infrastructure projects to China in the incoming BRI summit is of course commendable. It shows that the government has done its homework in furthering the national effort to expand much-needed infrastructure for economic enhancement. However, the above reports from around the world regarding a multitude of problems in the implementation of BRI projects must be acknowledged. In fact, there are ominous issues that Indonesia simply cannot afford to ignore. Indeed, Indonesia must proceed with great prudence, aware of their possible negative implications. And there are valid reasons for us to believe that without careful analysis of their financing these BRI projects could indeed turn into debt traps. Case studies of realities in Laos, Pakistan, Maldives and other nations have clearly imposed a very heavy debt burden on host countries, an obligation that might not be sustainable. Thus, the demand for review of these projects by incoming administrations, as in the case of Sri Lanka, Malaysia, Pakistan and the Maldives.
I must regretfully conclude that the administration of President Joko Widodo has yet to demonstrate necessary prudence when it comes to defending our national interests in international negotiations. An astonishing example of this was revealed with the government’s decision in 2015 to unilaterally open Indonesia to more than 160 countries for their citizens to enter without a visa. In fact, this was something which we could have held onto as an instrument to be used in bargaining with our counterparts for reciprocity, instead of acting unilaterally. In 2015 it was reported that three state-owned banks received loans for USD 3 billion from China that were not specifically earmarked for any stated purpose. It was only reported that the banks received the loans under an instruction from the Minister of State Enterprises. In fact, the state banks concerned were actually not in need of funds at that time. Thus, there was no urgency to take out foreign bank loans, which to me appeared imprudent. I am sure there are other aspects that would support my conjecture here.
One does not have to be an expert in maritime strategy to see the importance of the seas connecting our islands as part of the sea route of the New Silk Road next to South China Sea, linking north and East Asia with the Middle East, Africa and Europe. I would guard this position as a crown jewel of our sea sovereignty, as the law of the sea allows. I will not claim to have any expertise on this issue. But, just like building toll roads on land, building “sea toll roads” will have to take into serious consideration the authentic benefits for our “hinterland”.