The Mega Africa Summit

A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, summits with African countries and the Pacific Islands dominated the headlines.

  1. FOCAC in Beijing

The 2018 Summit of the Forum on China Africa Cooperation (FOCAC) took place in Beijing this week, with 53 of 54 African states taking part. The headline figure was Xi Jinping’s pledge of $60 billion in new finance for Africa, which he promised comes with “no attachment of political strings.” This pledge doubles what was promised during the same summit three years ago. However, as Lina Benabdallah  from Wake Forest University shows in this tweet, the composition of the $60 billion this time is far different from three years ago. This time around, the amount earmarked for loans is smaller; a $5 billion fund is set aside to finance imports from Africa and $10 billion is set aside for investments.

This Brookings assessment further breaks down the numbers to argue that, “The overwhelming majority of Chinese financing to Africa are neither grants nor investment, but loans of various forms. China may not be the biggest creditor of Africa, but this serves to substantiate the widespread conviction that China is creating more debt for Africa.” But is that truly the case? Take, for instance, this assessment by W. Gyude Moore, who argues that “China’s $115 billion of credit to Africa between 2000 and 2016 makes up less than 2 percent of Africa’s $6 trillion debt stock. The language of debt trap diplomacy resonates more in Western countries, especially the United States, and is rooted in anxiety about China’s rise as a global power rather than in the reality of Africa.”

In addition to the $60 billion, Xi also outlined 8 major cooperation initiatives: infrastructure, trade, green development, capacity building, industrial development, healthcare, people-to-people exchanges and security cooperation. The last bit has been talked about for a while, particularly since the China-Africa Defense and Security Forum, which took place from late June to July this year. FOCAC did not provide any further details on the fund other than the assertion that it will be set up. What was also interesting about Xi’s speech at the summitwas that he felt the need to place such emphasis on China’s approach to Africa being deeper than just businesslike. Take this bit as an example: “We respect Africa, love Africa and support Africa.”

Apart from the big headlines, there were a number of key bilateral meetings before and after the FOCAC summit. Here’s a glimpse at the major announcements that emerged:

  • Egypt Emerges as China’s Africa Bulwark with $9.6 Billion in Deals: This is basically two deals: an oil refining and petrochemical complex, as well as a $3.5 billion commercial area, which will be built by China State Construction Engineering Corp.
  • China agrees to debt restructuring for Ethiopia: The biggest component here is a loan for a $4 billion railway linking Addis Ababa with Djibouti. The repayment of the loan has reportedly been extended by 20 more years.
  • Those who call China colonial are jealous: Ramaphosa: The South African president emerged as one of Beijing’s strongest supporters during FOCAC. He dismissed any talk of a debt-trap and even argued that the perception that Chinese projects come with Chinese workers is incorrect. All of this would be music to his hosts ears, with state media emphasising that the notion of a Chinese debt trap for Africa is “false” and “sensational.” Djibouti foreign minister Mahmoud Ali Youssouf, however, is likely to disagree with that characterisation. He told the Nikkei Asian Review that although it is “at a manageable level,” “the debt burden is something real, we don’t deny it.”
  • China, Mauritius set to sign free trade agreement: This would be the first such deal between China and an African state.
  • China to Build Africa’s First LNG Terminal in Ghana: The deal with China Harbour Engineering Co. Ltd is valued at around $350 million. But the important number here is that this project will provide 30% of Ghana’s total electricity generating capacity.
  • Amidst all this, there have also been reports of friction. In Nairobi, Kenya, offices of the Chinese state broadcaster CGTN were raided this week apparently as part of a crackdown on illegal immigrants. Kenyan police later apologised for this. Also, there was a controversy surrounding racist comments by a Chinese immigrant in the country, which caught international media attention.
  • Also, the Financial Times reports that the new pledge of $60 billion led to social media criticism. Reuters’ Christian Shepherd tells us that some of this conversation involved comparing the money pledged using domestic yardsticks.
  1. China & the 2+2

The much-delayed 2+2 dialogue between India and the US finally took place this week. And all one needs to do is look at the coverage in both countries to figure out how China fits into this dynamic. So here’s NYT saying that U.S. and India, Wary of China, Agree to Strengthen Military Ties. The Financial Times tells us How US-India security deal is aimed at China. FirstPost reports: India-US 2-plus-2 dialogue: Commitment to ‘free and open’ Indo-Pacific will send message to China amid trade war, while Jyoti Malhotra in The Print says, The big 2+2 talks takeaway: China has brought India and US much closer.

What’s all this about? Well, the 2+2 dialogue refers to conversations between foreign and defense ministers on both sides. So Secretary of State Mike Pompeo and Defense Secretary James Mattis visited New Delhi for talks with Sushma Swaraj and Nirmala Sitharaman. The talks ended in a comprehensive joint statement. This tweetby Brookings’ Tanvi Madan offers a great snapshot of the outcomes. But the big deal was around the signing of the Communications Compatibility and Security Agreement (COMCASA), which facilitates India buying advanced American weaponry and sharing in sensitive military technologies. The other important bit from a Chinese perspective is this remark by Swaraj:

In the discussion of the four Ministers at the 2+2 dialogue, we noticed a growing convergence of views between our countries, among others on the Indo-Pacific…We see the Indo-Pacific as a free, open and inclusive concept, with ASEAN centrality at the core and defined by a common rules-based order that both our countries are pursuing.

But it’s not necessarily the case that the Chinese understanding of such language is that it represents a zero sum game. For instance, Wang Se from the China Institutes of Contemporary International Relations argues that there are significant differences between the interests of New Delhi and Washington. Zhang Hualong, chief of the New Dehli Bureau, Wen Hui Daily, argues (and I am summarizing here) that India’s desire for strategic autonomy, leadership in IOR, the Wuhan Summit and Modi’s speech at Shangri-La Dialogue all suggest that its actions are motivated by a complex set of interests rather than an anti-Beijing approach.

  1. Bridges, Bases and Birthdays

Xi Jinping extended birthday greetings o his Sri Lankan counterpart President Maithripala Sirisena this week. But what’s more material is this Economic Times report that the Chinese and Sri Lankan central banks are working together to issue the equivalent of $250 million worth of yuan-denominated Panda bonds. This, the report argues, only worsens Colombo’s deepening debt predicament. With this in mind, the Sri Lankan embassy in Beijing is set to host an investment conclave later this month, with a number of SOEs likely to attend. But Chinese money in Sri Lanka is increasingly becoming a hot-button political issue. Nearly 15,000 plus people reportedly protested against the government in Colombo this week. While the march was largely about broader political and economic issues, AP reports that among the criticisms against the government was the perception that it was selling national assets to foreign countries.

It’s a bridge that’s symbolic of the increasing distance between India and the Maldives. The 2-km China-Maldives Friendship Bridge or the Sinamale Bridge was opened this week. Xinhua tells us a fair bit about how grand the opening ceremony was of a bridge that “is an iconic project of the Maldives and China in co-building the 21st Century Maritime Silk Road.” There’s also this brilliantly pun-laden (unintentionally of course) piece by Xinhua, which talks about the bridge giving Sino-Maldivian cooperation “concrete form” with “conjugal bonds” also being sanctified along it. The long and short of it is that this was a key diplomatic event, but Indian ambassador Akhilesh Mishra reportedly chose to stay away. Ahmed Mahloof, Maldivian MP and joint opposition spokesperson, also says that representatives from Bangladesh and Sri Lanka also skipped the event, being forced to turn back as vehicles  weren’t allowed. Only the Chinese representative’s car was allowed, Mahloof said. The Maldivian opposition also hit out at the bridge as an example of the Chinese debt trap. All of this is, of course, leading to the election on September 23, which will see President Abdulla Yameen face off against joint opposition candidate Mohamed Solih. What’s India’s take on all this? We’ll the Indian Express’ Shubhajit Roy reports that India “wants to not be a factor in the polls” but it wants “credible restoration” of the political process and the rule of law. That sounds great. What’s not clear is what New Delhi is doing or whether it is doing anything to achieve these goals.

Finally, Chinese officials have spent a fair amount of time this week refuting reports that Beijing was building a military base in the Wakhan corridor of Afghanistan. A recent SCMP report had claimed that the initial effort was to establish a training camp with “at least one battalion of troops, along with weapons and equipment, to be stationed there.” The Chinese Defense Ministry denied any such claims, arguing that they were “inconsistent with facts.” The Foreign Ministry also termed the report, “not true.”

But this is a pot that has been simmering for a long time now. Janan Mosazai, the Afghan ambassador to China, shed some light on all this in an interview to Reuters this week. Mosazai confirmed that “there will not be any Chinese military personnel in Afghanistan, related to the mountain brigade or otherwise.” However, China will train Afghan troops on Chinese soil as part of the fight against al-Qaeda and IS. There’s also conversation about China potentially providing Afghan forces combat helicopters. The report adds that “The provision of arms to Afghanistan marks a gradual evolution for Beijing, which had previously offered non-lethal assistance.” The ambassador says that currently China is providing “small arms and logistics and equipment support.” The important question here is where does this leave the Taliban, given that Beijing has been a key player in engaging with the group?

  1. Brace for Escalation

Beijing braced itself for impact on Thursday after the public comment period on proposed tariffs on $200 billion worth of Chinese imports expired. The Ministry of Commerce said that it will take “necessary countermeasures depending on the US tariff action.” It’s not clear when and if the US will impose those tariffs. Reuters reports that the timing is “uncertain.” The same report, however, quotes Craig Allen, president of the Washington-based U.S.-China Business Council, as saying that: “We know that the President has received reports that the Chinese economy is struggling – reports that we believe are overstated – and thus he may believe that additional pressure might be effective in the short-term.”

What is certain is that both sides realise that this is going to be a long drawn affair. Trump was categorical this week saying that he wasn’t ready to make a deal. Derek Scissors, Asia economist at the American Enterprise Institute, believes that we’re in for at least two years of serious tension. Deutsche Bank AG economists Zhiwei Zhang and Yi Xiong provide a more near term view, arguing that China may follow a “wait and see” strategy at least until the Midterm elections in the US, given that if Trump goes ahead with the $200 billion threat, “the trade war will likely become painful for the U.S. soon as well.” This pain essentially refers to increased expenditures that US consumers are likely to face, given that consumer goods form a significant chunk of the goods listed for tariffs in the next round.

Beijing, meanwhile, appears to be prepared to manage what it views as “short-term” pain that is likely to result from a protracted trade war. A piece in the Party journal Qiushi argues that “over time, Sino-US economic and trade frictions will surely continue to develop in a direction favourable to China.” But the short term issue is of maintaining financial stability, which requires “unblocking the transmission mechanism of monetary policy and guiding funds to invest in the real economy.” Tricky business this is, as it hints at easing off on deleveraging.

Beyond all this, if you are assessing the endgame, there are a few questions to consider. First, does Trump believe that being tough on China will bring political gains at home? Second, for now, after the Beidaihe meetings, Xi clearly seems to have the political support that he needs domestically. But given that Liu He got burned the first time around and now with the internal rumblings in Washington over the Russia investigation, the Stormy Daniels affair and “resistance” NYT OpEd this week, does Beijing believe that it’s possible to negotiate a solution with Trump? Third, is the sentiment on trade and China a Trump administration issue or a larger bipartisan issue?

The Financial Times’ Tom Mitchell has an interesting piece analysing some of this. He writes, “The Trump administration wrongly thinks China’s economy is on the ropes, in part because of the escalating trade war. For their part, Chinese officials are fixated on November’s congressional midterm elections, naively believing that Republican losses will force Mr Trump to back down…The Republicans may well lose the House of Representatives and perhaps the Senate as well. But if they do, Mr Trump will only be more likely to sharpen his China trade strategy ahead of his own re-election campaign in 2020.”

  1. Pakistan Weighing Options

Dawn reports that as per CitiGroup, by the end of September Pakistan will be heading to the IMF for a structured debt relief package. The report is rather positive about a deal being worked out. It downplays the US’ role and argues that IMF money isn’t likely to be used to repay Chinese loans. “There is no significant external debt repayment to Chinese lenders in near term,” it says. This works for Islamabad, which is clearly seeking to assure Washington that the money will not go to Chinese lenders. Abdul Qadir Memon, Pakistan’s consul general in Hong Kong, was quoted by the Nikkei Asian Review as saying, “If the U.S. ‘vehemently’ objects to an IMF bailout, ‘we are going to convince them that this money will not go to China.’ The fact that this concern exists in the US, even outside the administration, is evident by this letter that some 16 US senators have written to key administration officials.

All of this is likely to have featured in conversations between the new Pakistani civilian leadership under Imran Khan and US Secretary of State Mike Pompeo who visited the country this week. Pompeo has earlier been critical of a possible IMF bailout for Pakistan. This week, he spoke about a “reset” in relations, with the war in Afghanistan looming large in the discussions. Next up in Islamabad is Wang Yi, the Chinese foreign minister, who begins a three-day visit from Friday.

Johann Chacko offers an interesting analysis of what’s at stake in this Quartz piece, arguing that a US-China Cold War is playing out in Pakistan. I don’t entirely agree with the Cold War characterisation. While jockeying for influence is underway, there is significant convergence of broad Sino-US interests in the Af-Pak region on terrorism and development.

  1. Stormy Islands Forum

This is all a bit surreal, but it just shows the deep-rooted strength of the idea of sovereign equality. The island-nation of Nauru played host to the Pacific Islands Forum this week, ending up in a massive diplomatic tiff with Beijing. Nauru is an ally of Taiwan, and so doesn’t recognize the PRC. But the PRC is among the 18 dialogue partners at the PIF. Since the event was being held in Nauru, the government there initially refused to stamp diplomatic passports of Chinese delegates, given its support for Taiwan. That led to an angry exchange with Beijing and concerns within the PIF, as members like Samoa making rather strong public statements. Nauru eventually relented, agreeing to stamp the Chinese delegates’ visa-acceptance letters. But then at the event, President Baron Waqa and the head of the Chinese delegation Du Qiwen ended up in an ugly spat. Waqa would later term Du, “a nobody” who wanted to be recognized and speak before the Prime Minister of Tuvalu – another Taiwan ally.

The sentiment that drove Waqa is captured best in this quote: “Never mind they are bigger than us, but they should not disrespect us.” From the point of view of Beijing, this was all “a despicable farce” staged by Nauru at the behest of certain “directors.” Who are these apparent directors? Well, the Global Times has little doubt if you go by its editorial, “Taiwan should not believe there is still an opportunity for its ‘diplomacy’ just because of Nauru’s actions. It’s absurd that Taiwan’s future can be decided by a remote Pacific island country. Taiwan’s ‘independent sovereignty’ is like melting ice…”

  1. The Science & Tech Space

Competition in science and new technologies is one of the key components of the growing strategic friction between China and the US. A set of different reports this week tells us how complex winning this race for scitech superiority is going to be, given the number of different factors that are at play.

For starters, when it comes to manpower, there are positive changes taking place from a Chinese perspective. For instance, SCMP reports that as per data, an increasing number of Chinese students who travel abroad for education are returning after completing an advanced degree. The report quotes Chen Guoqiang, director of the Centre for Synthetic and System Biology at Tsinghua University, as arguing that: “One important reason is the salary. Another reason is Trump.” While the Trump phenomenon is important, it’s a more recent one. The important bit here is the availability of opportunity, competitive compensation and career options because of a realisation at the highest levels of government of the need to invest in science and technology. It’s these factors that have led to a major breakthrough this week. Chinese pharmaceutical regulator, the CFDA, approved Fruquintinib, the country’s first ever homegrown drug to treat metastatic colorectal cancer.

On the other hand, China’s new tech giants have had a rough time as of late, with Didi, Tencent and JD all facing tough situations. Ride-hailing app major Didi Chuxing has had to make changes after a passenger was raped in killed by one of its drivers in Wenzhou in late August. The company first suspended carpooling services and then later announced that it will suspend all late-night services on the mainland for a week as it reviewed safety systems. Another interesting measure announced is to expand the customer service team rather than relying more on AI chatbots.

While Didi has done well to stay ahead of the controversy and address concerns, for, it’s a much more complicated situation. Reuters reports that JD CEO Richard Liu returned to China after being detained in Minneapolis recently on suspicion of sexual misconduct. JD denied any wrongdoing on Liu’s part. Liu is central to the company, given that he controls around 80 percent of the voting rights with rules requiring him to be present at board meetings for decisions to be made. As a consequence, SCMP tells us that the controversy has led to JD’s shares in the US falling to a 19-month low.

Finally, Tencent’s gaming has been in the crosshairs of Chinese regulators for a while now. Last month CNBC had reported that the company had lost over $178 billion in value since shares hit a record high in January. That number is now estimated at nearly $197 billion. This was largely because of regulatory hurdles amid concerns that children were increasingly growing addicted to online gaming. This week Tencent relented announcing the introduction of a real name-based registration system for new players of the Honour of Kings game to identify minors. The system would be linked to China’s public security database and would be the first of its kind in the Chinese gaming industry. “Through these measures, Tencent hopes to continue to better guide underaged players to game sensibly,” the company said.

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