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1/Today's @bopinion post is about a rare weak point in the Chinese economic model: China's difficulty in doing foreign deals. https://www.bloomberg.com/opinion/articles/2020-12-18/china-s-belt-and-road-project-reveals-a-key-economic-weakness?sref=R8NfLgwS
2/In recent years, China's economic model has seemed to go from strength to strength. Many now wonder if Chinese state-capitalism is superior to other systems. https://adamtooze.substack.com/p/chartbook-newsletter-9
3/But China's model has had one big, notable failure in recent years: the Belt and Road project.
China planned to loan other countries a bunch of money to do infrastructure projects. It didn't work out so well... https://www.bloomberg.com/quicktake/china-s-silk-road?sref=R8NfLgwS
China planned to loan other countries a bunch of money to do infrastructure projects. It didn't work out so well... https://www.bloomberg.com/quicktake/china-s-silk-road?sref=R8NfLgwS
4/From day 1, the projects didn't work out as planned, and other countries got mad. https://www.bloomberg.com/opinion/articles/2018-08-12/soviet-collapse-echoes-in-china-s-belt-and-road-investment?sref=R8NfLgwS
5/There were cost overruns. Political setbacks. Countries demanded to renegotiate the terms of loans. https://thediplomat.com/2020/01/the-hambantota-port-deal-myths-and-realities/
6/The project got bogged down in Asian countries first. https://www.bloomberg.com/news/features/2020-03-02/a-china-belt-and-road-project-becomes-a-corridor-to-nowhere?sref=R8NfLgwS
7/And China's outbound investment fell.
8/But in Africa, China's lending continued to go strong...for a while.
9/But a lot of the African projects turned out badly, and now China is facing a wave of defualts. https://www.bloomberg.com/news/articles/2020-07-22/chinese-credit-fuels-debt-crisis-in-africa?sref=R8NfLgwS
10/African countries are kind of pissed at China for lending them money for projects that didn't work out. They're now demanding that China renegotiate loan terms and write down much of the debt. https://www.bloomberg.com/news/articles/2020-10-25/china-s-feud-with-bondholders-could-reset-debt-workout-rules?sref=R8NfLgwS
11/Now, if China were just taking economic losses, this might be fine -- the idea of Belt & Road was always to gain geopolitical influence, access to resource supplies, etc.
The problem is, the project is incurring political losses too, as countries get mad at China.
The problem is, the project is incurring political losses too, as countries get mad at China.
12/Why did Belt & Road go wrong?
Maybe because China tried to apply an authoritarian model that works well within China to countries where it just doesn't work.
Maybe because China tried to apply an authoritarian model that works well within China to countries where it just doesn't work.
13/In China, when debts go bad, the central government mops them up and that's that. But other countries get pissed at having to go begging for loan restructuring for failed projects! https://www.bloomberg.com/opinion/articles/2020-04-26/china-s-scary-bank-bailouts-rely-on-state-owned-shareholders
14/In China, the government can kick millions of peasants off their land to make way for development projects. They get mad and protest but eventually they get quelled.
But locals and indigenous people in other countries aren't easy to quell! https://www.rfa.org/english/news/myanmar/hundreds-in-myanmar-protest-lack-of-payment-for-land-confiscated-for-pipeline-project-03222018133100.html
But locals and indigenous people in other countries aren't easy to quell! https://www.rfa.org/english/news/myanmar/hundreds-in-myanmar-protest-lack-of-payment-for-land-confiscated-for-pipeline-project-03222018133100.html
15/And China's leaders and bankers are probably not so sensitive to worries about neo-colonialism in African countries.
In general, China just can't treat other countries the way it treats its own provinces!
In general, China just can't treat other countries the way it treats its own provinces!
16/So why is this a general vulnerability and weakness for the Chinese economic model?
First of all, because China needs to sell a lot of stuff to developing countries to keep growing its exports. https://www.bloomberg.com/opinion/articles/2018-12-11/huawei-needs-emerging-markets-more-than-the-developed-world?sref=R8NfLgwS
First of all, because China needs to sell a lot of stuff to developing countries to keep growing its exports. https://www.bloomberg.com/opinion/articles/2018-12-11/huawei-needs-emerging-markets-more-than-the-developed-world?sref=R8NfLgwS
17/Pissing off developing countries can come with economic consequences! https://www.bloomberg.com/news/articles/2020-11-25/india-blocks-several-alibaba-apps-in-widening-chinese-blacklist?sref=R8NfLgwS
18/And geopolitically, China can't afford to alienate a ton of developing countries. If it does, it could see its ambitions in the South China Sea and elsewhere checked.
19/Meanwhile, developed countries are taking advantages of China's ham-handed fumbling to offer infrastructure alternatives of their own -- as well they ought to! https://www.bloomberg.com/news/articles/2020-11-27/u-s-taiwan-to-push-an-alternative-to-china-s-belt-and-road
20/Europe and Japan are among the countries offering non-Chinese alternatives. https://www.bloomberg.com/opinion/articles/2019-10-01/japan-and-europe-can-finance-rival-to-china-s-belt-and-road?sref=R8NfLgwS
21/In general, dealing with other countries seems to be a weakness in China's authoritarian capitalist model.
Other countries don't like being pushed around. And that's not going to change.
(end) https://www.bloomberg.com/opinion/articles/2020-12-18/china-s-belt-and-road-project-reveals-a-key-economic-weakness?sref=R8NfLgwS
Other countries don't like being pushed around. And that's not going to change.
(end) https://www.bloomberg.com/opinion/articles/2020-12-18/china-s-belt-and-road-project-reveals-a-key-economic-weakness?sref=R8NfLgwS
