[SCMP Column] Price of misjudgment

May 20, 2017

It is fashionable to blame all the world’s ills and idiocies on the American Apprentice, and some of that blame is well targeted. But Trump has no monopoly on idiocy, and in one area in particular the comfortingly statesmanlike Barak Obama must take the blame: that is the US failure to recognize the economic and strategic importance of Xi Jinping’s One Belt, One Road initiative, and in parallel the US’s refusal to sign up to the China-led Asian Infrastructure Investment Bank (AIIB).

While 30 world leaders gathered in Beijing to discuss progress on the Belt and Road initiative, Americans stayed home and celebrated instead their own mega-infrastructure event – Infrastructure Week 2017. Organised by the American Society of Civil Engineers and the US Chamber of Commerce, this event was pitched as “America’s largest and most diverse effort to highlight the importance of public works.” From the same goldfish bowl comes the puzzling US pretension to call their national baseball championship the “World Series”.

At least the US event enabled huge US infrastructure-builders like Aecom, Fluor and Bechtel to keep busy and distracted while leaders in Beijing discussed Asia’s massive infrastructure-building needs – estimated by the Asian Development Bank to amount to US$26 trillion between now and 2030.

And giants like GE, Caterpillar and Honeywell, who also stayed away from Beijing, are probably confident they can quickly catch up, since all three are understood already to have won some lucrative Belt and Road contracts.

But history will probably look back on the US’s petulant snub both to the Belt and Road and the AIIB as a key flexion point in the shift of global economic and diplomatic power between the US and China. Probably nothing could anyway have prevented the gradual ascent of the meticulous and patient Beijing government away from two centuries of humiliation and squalor, but US petulance has probably accelerated the process, and harmed American’s hard-earned reputation as a liberal and generous-spirited global hegemon.

Don’t get me wrong. At this stage, I believe the Belt and Road initiative is much more hype than substance, but the US seems to have been flat-footedly oblivious to its massive diplomatic significance. As I wrote in July last year: “The fact that the “One Belt, One Road” concept is likely to be empty of short-term significance from a strict trade and investment point of view does not in any way dilute its huge significance to Beijing leaders who view progress a century at a time.

“This is an attempt to provide a new prism with which to view the world economy, and the global balance of power – not a prism hovering over the Atlantic, but one firmly over China, with the “Stans”, Europe and Africa to the West, and the Pacific sea lanes going east. It is a concept wedded to global diplomacy, not global trade, but that makes it no less significant.”

The Belt and Road concept is in some respects a chimera. Most of the members of this 65 economy grab-bag (with China itself accounting for about one third of its population and two thirds of its GDP) already have well-ordered trade and investment relationships with China. The EU accounts for 28 of the 65 economies, and the ASEAN states another 10.

But three things make the Belt and Road concept distinct. First, the inclusion of the vast and neglected region of “stans” in Central Asia – from Pakistan and Afghanistan in the east to Uzbekistan and Turkmenistan abutting the Caspian Sea, and Azerbaijan and Georgia beyond, linking to Turkey and the convulsive Islamic states around Iran and Iraq. Second, the clear priority given to infrastructure-building. And third, attention willfully turned away from the US.

Bringing the “stans” into the world economy is a truly radical step. But from a trade and investment point of view, these will take decades to amount to anything from the vantage point of a private sector business. Note that the “stans” all together account for 12 per cent of the Belt and Road’s population, but just 1.7 per cent of its GDP – with almost half of this accounted for by Kazakhstan’s oil and gas. They have neither people nor the markets worth a dime. But I believe that China’s embrace of the “stans” has little to do with trade or business. Above all else it is aimed at trying to stabilise a region that is dangerously vulnerable to some very ugly Islamic radicalism, which Beijing very much does not wish to see infecting its eastern Islamic provinces.

The priority being given to infrastructure-building is also radically important – not just because of the urgent region-wide need for more investment in infrastructure, but because it reflects a fundamentally new attitude to how the wealthy world helps the world’s impoverished economies. Listen even briefly to AIIB chief, Jin Liqun, and you hear harsh words about the failings of the west’s “bleeding heart” aid strategies that have prevailed for the past half century. Jin is clear: developing economies need infrastructure, not aid, if they are to lift themselves out of poverty.

The best test case for this philosophy at present is Pakistan, which has peddled slowly and painfully backwards in spite of billions of western aid since I lived there, beyond Peshawar close to the Khyber Pass, almost half a century ago. With US$55bn of Chinese investment already committed to 21 power plants, thousands of miles of roads, development of Gwadar port close to the Horn of Africa, and numerous Special Economic Zones, Pakistan may at last begin to lift itself out of the mire.

It is not yet too late for the US to reverse Obama’s diplomatic misjudgment. A welcome mat remains in place whenever it decides to join either the Belt and Road, or the AIIB as they begin to gain importance in coming years. But I sense our American Apprentice may not be the man willing to knock at the door. On the contrary, if his over-hasty withdrawal from the 12-economy Trans-Pacific Partnership (TPP) is any guide, he seems inclined to repeat Obama’s mistakes rather than to learn from them. If the “TPP 11” economies, meeting this weekend in Hanoi alongside the APEC Trade Ministers meeting, can salvage a deal in spite of US withdrawal, he will be left to repent at leisure. American companies – and America’s diplomatic standing in Asia – will be the victims.
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