China Dream

How China's Belt And Road Became A Global Trail Of Trouble
By Wade Shepard

Sri Lanka's most corrupted President Mahinda Rajapaksa Mahinda Rajapaksa, the Chinese Ambassador to Sri Lanka Cheng Xueyuan and attendees look at a proposed construction model of Port City during an event to officially declare the 269 hectares of land reclaimed from the sea for the project as part of the capital Colombo on December 7, 2019.

China’s Belt and Road initiative (BRI), a network of enhanced overland and maritime trade routes better linking China with Asia, Europe and Africa began in 2013 with much fanfare and hope. Upwards of a trillion dollars were being put on the table to boost economic development in globalization’s final frontiers, Asia and Africa’s infrastructure gap was to be lessened, and the world’s second largest economy was taking more of an active role in international affairs with the prospect of creating a true multi-polar global power structure. 

With catchphrases like “a rising tide lifts all ships,” China stepped beyond its borders to an extent that hasn’t been seen for centuries—perhaps ever—and was welcomed by many emerging markets with open arms.
But today, nearly seven years since the Belt and Road began, the story is much different, as Chinese investment has become a euphemism for wasteful spending, environmental destruction and untenable debt. 

Many major projects are currently strewn around the world in half-finished disrepair and the opportunities that were sold to local populations rarely materialized. 

All up and down the Belt and Road, projects have been marred by delays, financial implosions and violent outpourings of negative public sentiment.
In the initial stages of the Belt and Road, it seemed as if China was trying to rewrite the book on international development. 

The projects were bigger, more costly, and riskier than what the world was used to seeing, which created a buzz and sense of excitement: could China step up onto the global stage and show us how it’s done? 

While the news tickers sparkled with headlines of multi-billion dollar deals, big moves, and action along the Belt and Road, a broader view would have shown that a large portion of these deals were being made with countries that had credit ratings classified as “junk.” 

Making big deals with countries like Pakistan, Sri Lanka and Malaysia showed the initial propensity of the Belt and Road to shoot for quantity over quality, expediency over transparency—and the reactions from this strategy was quickly felt across the entire network.
It was in Sri Lanka that the deficiencies of China’s international development activities were first revealed globally. 

China partnered with Sri Lanka’s most corrupted president, Mahinda Rajapaksa, who now faces allegations of financial irregularities, to build a series of infrastructure mega-projects in Hambantota, a vastly undeveloped region on the island nation’s southern coast. 

To start, the plan called for a new deep sea port, an airport, a stadium, a giant conference center and many miles of new roadways. 

These projects were mostly funded with loans from China, which a few years later Sri Lanka struggled to pay back, as the country sunk into a debt trap of its own making.
China eventually seized a 70% share of the deep sea port at Hambantota for 99 years for $1.12 billion. 

While this at first appeared to be a debt-for-equity swap, news later came out that Sri Lanka actually used the money to beef up its foreign reserves and make some other foreign debt repayments to save itself from economic collapse. 

However, the optics on the situation were entirely unhelpful, with headlines like “How China Got Sri Lanka to Cough Up a Port” echoed across media sources around the world as the “Chinese debt trap diplomacy” theory was born.
The Hambantota fiasco put a black mark on the Belt and Road’s financing strategies and served as a warning for emerging markets looking to make similar deals with China. 

Bangladesh, Malaysia, Myanmar, Pakistan and Sierra Leone have all subsequently decided to cancel or downsize some of their Belt and Road projects over concerns of ending up like Sri Lanka. 

China’s bags of money, which emerging markets were ogling over in the early days of the Belt and Road, seem to have lost a touch of their luster.

Chinese dictator Xi Jinping speaks with Sri Lanka's most corrupted President Mahinda Rajapaksa.

“As Chinese companies push deeper into emerging markets, inadequate enforcement and poor business practices are turning the BRI into a global trail of trouble,” wrote Jonathan Hillman of the Center for Strategic and International Studies. 

“A long list of Chinese companies have been debarred from the World Bank and other multilateral development banks for fraud and corruption, which covers everything from inflating costs to giving bribes.”
When the Belt and Road was first announced, Malaysian Prime Minister Najib Razak welcomed the initiative, and China quickly became the top source of FDI in Malaysia. 

According to the World Bank, between 2010 and 2016 nearly $36 billion was pumped into Malaysia by Chinese state-owned firms. 

Multiple big ticket infrastructure projects—including the East Coast Rail Link project and a massive port city called Melaka Gateway—were started, Chinese firms bought up multiple Malaysian ports, and bonafide mega-projects, such as the $100 billion, 250,000+ person Forest City, were being built with Chinese direction and financial backing.
Then came the problems. 

News of the 1MDB and other scandals connected with the prime minister came out, as it was discovered that over $7.5 billion of government money had disappeared. 

Via Belt and Road projects, China had a role in trying to help the embattled prime minister cover evidence of financial irregularities by artificially inflating the costs of infrastructure projects so the excess could be available for other uses. 

This favor came with a catch, however, as Malaysia was to give Chinese companies big stakes in national railway and pipeline projects and permission for the Chinese navy to use two Malaysian ports. 

This deal didn’t come to pass, but it yet again cast the Belt and Road in a dubious light.
There are many other examples of parties from China allegations of corruption up and down the Belt and Road. 

Bangladesh shut down a highway project that was supposed to have been built by the China Harbour Engineering Company due to the company reputedly offering a Bangladeshi official a bribe, Chinese development funds were reportedly allocated for Rajapaksa’s ill-fated reelection campaign, Chinese tech giants Huawei and ZTE have been probed for wrongdoing in numerous BRI countries, and the U.S. arrested the emissary of China’s CEFC Energy Company for illicit payments to officials in Chad and Uganda. 

A 2017 McKinsey survey found that between 60% to 80% of Chinese companies in Africa admitted to paying bribes and, almost needless to say, in the latest Transparency International Bribe Payers Index, Chinese firms scored second to last.At this point, it is clear that the BRI does not keep good company. 

In addition to most Belt and Road countries having poor debt ratings, they also tend not to fare so well in international corruption indexes. 

According to the TRACE Bribery Risk Matrix, 10 Belt and Road countries were deemed to be among the countries most at risk to bribery.
While the lack of transparency and oversight as to what China is doing abroad was a boon in the early days of the Belt and Road, the initiative has lost support amid the scandals, debt traps and failed projects that have emerged in recent years. 

Countries along the corridors are now operating with far more caution and scrutiny, pumping the breaks on many projects and potentially setting the BRI back for years to come.

China's Debt Traps

China's ambition dealt blow ahead of G20 as Tanzania and Kenya projects grind to halt

By Sophia Yan

The hopes of China’s dictator Xi Jinping to play a more assertive role on the world stage were under pressure on Thursday as he headed to the G20 summit amid a trade war with the US and blows to his flagship Belt and Road Initiative (BRI).
Eleven, who has reversed years of foreign policy caution, landed in Osaka amid reports that Tanzania had suspended a port project and Kenya halted construction on a coal power plant, dealing a major blow to Beijing’s ambitions in Africa.
The port in the Tanzanian town of Bagamoyo was worth $10bn and would have been the largest in east Africa.
But financing terms presented by the Chinese were “exploitative and awkward,” said John Magufuli, Tanzania’s president.
“They want us to give them a guarantee of 33 years and a lease of 99 years, and we should not question whoever comes to invest there once the port is operational,” said Mr Magufuli. 

“They want to take the land as their own but we have to compensate them for drilling construction of that port.” When Xi launched the BRI in 2013, developing nations enthusiastically signed on for loans to fund big projects that would set them on the path to prosperity. 

But six years on new governments are starting to cancel and renegotiate contracts given the weight of Chinese debt, casting doubt on the $1 trillion initiative set to inaugurate a new ‘Silk Road’.

Sri Lanka’s Hambantota port was a cautionary tale for many. 

After the country struggled to pay up on billions in debt, Beijing used hardball tactics to acquire a 99 year lease to the port in exchange for loan forgiveness.
The case was a stunning example of what critics had long feared – that the Belt and Road project amounted to a debt trap for weak countries around the world. 

It sparked worries China would again leverage similar defaults elsewhere to acquire key infrastructure assets; last year, the Zambian government even had to deny rumours it was planning to hand over control of major public assets.
On Wednesday a court in Kenya also halted plans for the construction of a $2 billion Chinese-backed coal power plant near the island town of Lamu, a UNESCO World Heritage site famed for its twisting alleyways and stunning coastline.
The plant, which activists say would have increased Kenya's greenhouse gas emissions by 700 percent, was cancelled after judges ruled the environmental assessment was inadequate.
Other African projects, including massive rail construction projects in Ethiopia and Kenya, have also come under scrutiny, leading China to write-off some loans.
Meanwhile Beijing is facing enormous protests in Hong Kong against a law that would extradite suspects to face trial in the mainland, where the Communist Party controls the courts. 

On Thursday hundreds of protesters in Hong Kong rallied outside the offices of the justice secretary, blocking roads as they called for the extradition bill to be dropped for good. 

Carrie Lam, the city’s chief executive, suspended it indefinitely after one million residents took to the streets decrying a power grab by Beijing.
The protesters have appealed for world powers to raise the plight of Hong Kong at the G20, although Chinese officials have already warned they will not discuss the matter.
Instead, Xi is slated to meet Donald Trump on Saturday as the US demands economic reform in return for the lifting of tariffs on roughly $200 billion of Chinese goods.
Mr Trump, officials said, was hopeful for some kind of accord as his 2020 re-election hopes hinge on a strong economy.
According to the Wall Street Journal, Xi will request that the US end its block on the sale of US technology to Huawei, and drop the demand for Beijing to buy even more American exports than it agreed to when the sides met in December.
Analysts doubted the G20 would see an end to the dispute. 

On Wednesday Mr Trump said he was happy with the status quo. 

“They want a deal more than I do,” he told Fox News.

Chinese Trap

Countries should not be duped into borrowing from China

“We are being duped, and we have to negotiate better for our own interests,” said Karim Raslan, the founder of ASEAN-focused political risk consultancy firm KRA Group about China’s Belt and Road Initiative.
By Shirley Tay

Countries should not be “duped” into borrowing from China through the Belt and Road Initiative, and should be looking for opportunities in India instead, says one firm critic of Beijing’s flagship infrastructure project.
”The BRI is all about Chinese strategic objectives; it’s not about the host countries,” said Karim Raslan, founder of political risk consultancy, KRA Group.
“We are being duped, and we have to negotiate better for our own interests,” he told CNBC’s Nancy Hungerford at the Credit Suisse Asian Investment Conference in Hong Kong on Tuesday.
Sometimes referred to as “One Belt, One Road,” the mega-project is a Chinese investment scheme which aims to create a vast global infrastructure network connecting China to more than 60 countries across Asia, Europe and Africa.
Controversy surrounding the strategy was highlighted in 2017 when Sri Lanka handed over its Hambantota port to Beijing for 99 years after the South Asian nation failed to pay back the money it owed Chinese firms.
The BRI is a “debt trap,” said Raslan. 

China is “not investing — they’re lending us money, for projects which have very little economic value to the host countries,” he added.
Borrowing nations need to “look more to India,” Raslan said. 

“We have got to focus there.”
He explained that “India, at the end of the day, (has)1.3 billion people. It’s growing very fast — they will be sucking in imports.”
India’s economy is poised to grow at 7 percent in 2019, expanding more than China’s projected growth of 6 to 6.5 percent the same year.

China's Era of Debt-Trap Diplomacy May Pave the Way for Something Sinister

Beijing cannot bend history to its will, but it will try.

By Patrick Mendis and Joey Wang

The key enabler that has allowed Beijing to protect its sovereign claims and project its power has been China’s explosive economic growth. 

As it cools, however, major programs such as the BRI will be critical to any future projection of power. 

As envisioned, the purpose of BRI is to “promote regional economic cooperation, strengthen exchanges and mutual learning between different civilizations, and promote world peace and development.” 

Behind this heady mixture of material, economic, and cultural aspirations, however, there are other hidden motivations not likely to be mentioned in official Chinese literature.
First, China also wants to decrease the dependence on its domestic infrastructure investment and begin moving investments overseas to address the capacity overhang within China. 

It should not come as an astonishment that the key instrument of this investment transfer comes with the Chinese system of “state capitalism,” which has further been solidified by Xi Jinping. 

Among the BRI infrastructure development projects, Chinese companies accounted for 89 percent of the contractors, according to a five-year analysis of BRI projects by the Center for Strategic and International Studies in Washington.
BRI also parallels numerous regional economic and infrastructure development initiatives such as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), the Ayeyarwady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS), and the Regional Comprehensive Economic Partnership (RCEP). 

As the country with the deepest pockets, a number of these member-countries have found Chinese capital too attractive to resist. 

Chairing the BIMSTEC this year, Sri Lanka, for example, now finds itself granting China a ninety-nine-year lease at the Hambantota Port as well as approximately fifteen thousand acres of land nearby for an industrial zone to help pay for part of the $1.1 billion it owes China. 

Laos and Cambodia—members of ACMECS—are so indebted to China that Australia’s former Foreign Minister Gareth Evans has purportedly opined that they have become “wholly owned subsidiaries of China.” 

Some countries have now learned from the Sri Lanka experience and have recognized that the costs far outweigh the benefits. 

Bangladesh, for instance, has declined Chinese funding for the much needed “the twenty kilometers-long rail and road bridges over Padma river” and has instead opted to “self-generated funds.” Thailand, under ACMECS, is also working to create a regional infrastructure fund to reduce reliance on China and avoid what has generally been called China’s “debt-trap diplomacy.”
Even outside the immediate domain of the BRI, China is using its wealth to isolate Taiwan diplomatically. 

In Latin America , China peeled away El Salvador in August after peeling away the Dominican Republic in May 2018. 

With growing Chinese influence in Africa, Swaziland—a tiny landlocked country— remains the only African country to recognize Taiwan after Burkina Faso established diplomatic relations with Beijing in May 2018.
China is also expanding its presence and engagement in the Caribbean with capital investments and infrastructure financing, which have played significantly to China’s advantage given the Caribbean’s proximity to the hurricane belt in America’s backyard. 

The Caribbean—so-called the “Third Border” of the United States—has been neglected even after Congress passed the U.S.-Caribbean Strategic Engagement Act of 2016. 

The Trump White House has shown little interest in engaging the Caribbean basin. 

Many observers think that the region is “too democratic and not poor enough” to get on the American foreign-policy agenda even though Washington has long noticed the Chinese “inroads” in America’s Third Border region.
Beijing has often hailed the Chinese investments as “win-win.” 

However, given that many of these countries both within and outside the BRI are now indebted to China, it is not clear whether the partnership is a win for both China and its counterpart—or China actually wins twice , since 

a) it is generally well understood that the switching of allegiance is more monetary than ideological, and 

b) the recipient often ends up indebted to China without the means to repay the debt.
Second, China wants to internationalize the use of its currency along BRI and with the new partners of Africa, Latin America, and the Caribbean basin. 

Making the renminbi (RMB) a global currency in 2015 had been one of the highest economic priorities of Beijing’s grand plan. 

China and some sixty-five BRI countries—which account collectively for over 30 percent of global GDP, 62 percent of the population, and 75 percent of known energy reserves—are increasingly using the RMB to facilitate trade and infrastructure projects. 

Pakistan, for one, has switched from the dollar to the RMB for bilateral trade with China after President Donald Trump publicly attacked Pakistan onTwitter for harboring terrorists. 

The China-Pakistan Economic Corridor (CPEC) to East Turkestan—as one of the massive projects under the BRI—can now depend upon a steady stream of Chinese capital. 

Pakistan can now also minimize the risk of Washington’s threats such as cutting off economic assistance and military support. 

Use of the RMB would also help authoritarian regimes like Iran, North Korea, and Sudan to undermine the American-imposed “financial sanctions” on the violations of such norms as human rights, child labor, and human trafficking. 

Furthermore, the success of BRI, if achieved, would establish Eurasia as the largest economic market in the world and the changing currency dynamics could initiate a shift in the world away from the dollar-based financial system.
Third, China seeks to secure its energy resources through new pipelines in Central Asia, Russia, and South and Southeast Asia’s deep-water ports. 

Beijing’s leadership for some years has been concerned about its “Malacca Dilemma” as Hu Jintao declared in 2003 that “certain major powers” may control the Strait of Malacca and China needed to adopt “new strategies to mitigate the perceived vulnerability.” 

The Strait of Malacca is not only the main conduit connecting the Indian Ocean and the Pacific Ocean to China via the South China Sea but also the shortest sea route between oil suppliers in the Persian Gulf and key markets in Asia. 

In 2016, sixteen million barrels of crude oil transited through the Malacca Strait each day, of which 6.3 million barrels were destined for China. 

In 2017, China surpassed the United States as the world’s largest crude oil importer. 

Therefore, the sustainability and security of energy supplies is a key input not only to China’s domestic stability and economic growth but also to its military operations and, concomitantly, the very legitimacy of the CPC. 

Initiatives under the BRI—such as the CPEC to East Turkestan colony, the Kyaukpyu pipeline in Myanmar that runs to Yunnan province, and the ongoing discussions for the proposed Kra Canal in Thailand —are of vital interest to China because they would provide alternative routes for energy resources from the Middle East directly to China that bypass the Malacca Strait. 

The BRI will also support the expansion of China’s military bases across the Bay of Bengal, Indian Ocean, and the Arabian Sea.

Global Response Led by Washington
As Beijing’s intentions become clear, the continuing tensions have now revived the Quadrilateral Security Dialogue with Australia, India, Japan, and the United States. 

Each of these Quad members has its own economic and geostrategic concerns over balancing China’s expanding power and influence with a host of counter-strategies. 

President Trump has, for example, signed into law the Asia Reassurance Initiative Act of 2018—a belated expression of America’s commitment to the security and stability of the Indo-Pacific region.
The U.S. Senate has also passed the Better Utilization of Investments Leading to Development (BUILD) Act of 2018 to reform and improve overseas private investment to help developing countries in ports and infrastructure. 

It is also aimed at countering China’s influence and assisting BRI countries with alternatives to China’s “debt-trap diplomacy.”
Viewed in the context of history, China’s rise has been nothing short of meteoric. 

In the sixty-plus years since U.S. Secretary of State John Foster Dulles declared the three principles—that 

1) the United States would not recognize the People’s Republic of China, 

2) would not admit it to the UN, and 

3) would not lift the trade embargo—

China has grown from a veritable economic backwater to one that is now projecting its economic and military power around the world. 

China now seeks to create a new set of global norms, while overturning the existing norms that Beijing claims it had no role in creating. 

That may be true, but China should remember that those existing international norms have also played a critical role in raising China to where it is today.

War Indications and Warnings
Successive American and Chinese leaders have come and gone. 

But China’s strategic objectives have remained much the same as they were in 1965 when the CIA concluded, inter alia , that the goal of CPC for the foreseeable future would be to “eject the West, especially the US, from Asia and to diminish US and Western influence throughout the world.” 

The CIA further reported that Beijing also aimed to “increase the influence of Communist China in Asia” as well as to “increase the influence of Communist China throughout the underdeveloped areas of the world.”
While tensions remain fraught between Washington and Beijing, the logic of China’s exercise of military power and its willingness to go to war, however, is more nuanced.

In any confrontation with the United States, Beijing’s strategy will include “creating sufficient doubt in the minds of American strategists” as to the likelihood of winning an armed conflict with China. 

In his book, On China, former Secretary of State Henry Kissinger concludes that rather than measuring success by the battles won, the Chinese are likely to measure success through “the means of building a dominant political and psychological position, such that the outcome of a conflict becomes a foregone conclusion.” 

By its own actions, the United States has helped China all along by sowing doubt among nations in the Indo-Pacific as to Washington’s own commitment to the security and stability of the region.
Security cooperation between the United States and its allies are not intended to “contain China.” Rather, they are aimed to maintain a balance of power in the region to ensure regional stability and no one power overwhelmingly dominates the others. 

Whatever claims China has made to a “Peaceful Rise,” it is clear that “peaceful” is ringing somewhat hollow. 

The United States should continue to engage allies and friends to maintain a consistent and persistent presence—irrespective of the administration in place—as an expression of its resolve, unity, and commitment to security, peace, and stability in the Indo-Pacific region. 

As China continues its military buildup and modernization, the challenge for American negotiators is that intentions may change, but not capabilities. 

The fact that the United Kingdom is now seeking to establish military bases in Asia and the Caribbean reflect continuing concerns not only for the United States and the countries of those regions, but also those on the European continent.
In addition, the United States and its allies should firmly apply a unified front in pressuring China and engaging Beijing to respect global norms in areas such as trade, technology transfer, and intellectual property theft. 

In this regard, it is quite clear that China’s behavior in pursuit of its Made in China 2025 goals is not only a concern for the United States but also for other advanced economies. 

In the broader scheme of things, China should measure its ideological priorities against its costs. 

If and when China and Taiwan unite, then it will be based upon mutual amity and the belief that it is in the interest of all Chinese people to do so—not through coercion and aggression. 

Beijing cannot bend history to its will.

China’s ‘Belt and Road’ Plan in Pakistan Takes a Military Turn

Under a program China insisted was peaceful, Pakistan is cooperating on distinctly defense-related projects, including a secret plan to build new fighter jets.
By Maria Abi-Habib

A Chinese rocket boosting two Pakistani satellites into orbit from Jiuquan, China, in July.

ISLAMABAD, Pakistan — When President Trump started the new year by suspending billions of dollars of security aid to Pakistan, one theory was that it would scare the Pakistani military into cooperating better with its American allies.
The reality was that Pakistan already had a replacement sponsor lined up.
Just two weeks later, the Pakistani Air Force and Chinese officials were putting the final touches on a secret proposal to expand Pakistan’s building of Chinese military jets, weaponry and other hardware. The confidential plan, reviewed by The New York Times, would also deepen the cooperation between China and Pakistan in space, a frontier the Pentagon recently said Beijing was trying to militarize after decades of playing catch-up.
All those military projects were designated as part of China’s Belt and Road Initiative, a $1 trillion chain of infrastructure development programs stretching across some 70 countries, built and financed by Beijing.
Chinese officials have repeatedly said the Belt and Road is purely an economic project with peaceful intent. 

But with its plan for Pakistan, China is for the first time explicitly tying a Belt and Road proposal to its military ambitions — and confirming the concerns of a host of nations who suspect the infrastructure initiative is really about helping China project armed might.
As China’s strategically located and nuclear-armed neighbor, Pakistan has been the leading example of how the Chinese projects are being used to give Beijing both favor and leverage among its clients.
Since the beginning of the Belt and Road Initiative in 2013, Pakistan has been the program’s flagship site, with some $62 billion in projects planned in the so-called China-Pakistan Economic Corridor. 

In the process, China has lent more and more money to Pakistan at a time of economic desperation there, binding the two countries ever closer.
For the most part, Pakistan has eagerly turned more toward China as the chill with the United States has deepened. 

Some Pakistani officials are growing concerned about losing sovereignty to their deep-pocketed Asian ally, but the host of ways the two countries are now bound together may leave Pakistan with little choice but to go along.
Even before the revelation of the new Chinese-Pakistani military cooperation, some of China’s biggest projects in Pakistan had clear strategic implications.
A Chinese-built seaport and special economic zone in the Pakistani town of Gwadar is rooted in trade, giving China a quicker route to get goods to the Arabian Sea. 

But it also gives Beijing a strategic card to play against India and the United States if tensions worsen to the point of naval blockades as the two powers increasingly confront each other at sea.
A less scrutinized component of Belt and Road is the central role Pakistan plays in China’s Beidou satellite navigation system. 

Pakistan is the only other country that has been granted access to the system’s military service, allowing more precise guidance for missiles, ships and aircraft.
The cooperation is meant to be a blueprint for Beidou’s expansion to other Belt and Road nations, however, ostensibly ending its clients’ reliance on the American military-run GPS network that Chinese officials fear is monitored and manipulated by the United States.
In Pakistan, China has found an amenable ally with much to recommend it: shared borders and a long history of cooperation; a hedge in South Asia against India; a large market for arms sales and trade with potential for growth; a wealth of natural resources.
Now, China is also finding a better showcase for its security and surveillance technology in a place once defined by its close military relationship with the United States.
“The focus of Belt and Road is on roads and bridges and ports, because those are the concrete construction projects that people can easily see. But it’s the technologies of the future and technologies of future security systems that could be the biggest security threat in the Belt and Road project,” said Priscilla Moriuchi, the director of strategic threat development at Recorded Future, a cyberthreat intelligence monitoring company based in Massachusetts.

The Chinese-built and operated port in Gwadar, Pakistan.

An Asset on the Sea
The tightening China-Pakistan security alliance has gained momentum on a long road to the Arabian Sea.
In 2015, under Belt and Road, China took a nascent port in the Pakistani coastal town of Gwadar and supercharged the project with an estimated $800 million development plan that included a large special economic zone for Chinese companies.
Linking the port to western China would be a new 2,000-mile network of highways and rails through the most forbidding stretch of Pakistan: Baluchistan Province, a resource-rich region plagued by militancy.
The public vision for the project was that it would allow Chinese goods to bypass much longer and more expensive shipping routes through the Indian Ocean and avoid the territorial waters of several American allies in Asia.
From the beginning, though, key details of the project were kept from the public and lawmakers, officials say, including the terms of its loan structure and the length of the lease, more than 40 years, that a Chinese state-owned company secured to operate the port.
If there was concern within Pakistan about the hidden costs of the China-Pakistan Economic Corridor, also known as CPEC, there was growing suspicion abroad about a hidden military aspect, as well.

Prime Minister Nawaz Sharif of Pakistan, center left, praying during the formal opening of Gwadar port in 2016.

In recent years, Chinese state-owned companies have built or begun constructing seaports at strategic spots around the Indian Ocean, including places in Sri Lanka, Bangladesh and Malaysia.
Chinese officials insisted that the ports would not be militarized. 

But analysts began wondering whether China’s endgame was to muscle its way onto coastal territories that could become prime military assets — much as it did when it started militarizing contested islands in the South China Sea.
Then, Sri Lanka, unable to repay its ballooning debt with China, handed over the Chinese-built port at Hambantota in a 99-year lease agreement last year. 

Indian and American officials expressed a growing conviction that taking control of the port had been China’s intent all along.
In October, Vice President Mike Pence said Sri Lanka was a warning for all Belt and Road countries that China was luring them into debt traps.
“China uses so-called debt diplomacy to expand its influence,” Mr. Pence said in a speech.
“Just ask Sri Lanka, which took on massive debt to let Chinese state companies build a port of questionable commercial value,” Mr. Pence added. 

“It may soon become a forward military base for China’s growing blue-water navy.”
Military analysts predict that China could use Gwadar to expand the naval footprint of its attack submarines, after agreeing in 2015 to sell eight submarines to Pakistan in a deal worth up to $6 billion. 

China could use the equipment it sells to the South Asian country to refuel its own submarines, extending its navy’s global reach.

The Sahiwal coal power plant in Pakistan’s Punjab Province was one of the first and biggest projects financed and completed under the Belt and Road Initiative. Pakistan has fallen behind on payments just to operate the plant.

Deepening Debt
When China inaugurated Belt and Road, in 2013, Prime Minister Nawaz Sharif’s new government in Pakistan saw it as the answer for a host of problems.
Foreign investment in Pakistan was scant, driven away by terrorist attacks and the country’s enduring reputation for corruption. 

And Pakistan desperately needed a modern power grid to help ease persistent electricity shortages.
Pakistani officials say that Beijing first proposed the highway from China’s East Turkestan colony through Pakistan that connected to Gwadar port. 

But Pakistani officials insisted that new coal power plants be built. 

China agreed.
With CPEC under fresh scrutiny, Chinese and Pakistani officials in recent weeks have contended that Pakistan has a debt problem, but not a Chinese debt problem. 

In October, the country’s central bank revealed an overall debt and liability burden of about $215 billion, with $95 billion externally held. 

With nearly half of CPEC’s projects completed — in terms of worth — Pakistan currently owes China $23 billion.
But the country stands to owe $62 billion to China — before interest balloons the figure to some $90 billion — under the plan for Belt and Road’s expansion there in coming years.
Pakistan’s central bank governor, Ashraf Wathra, said publicly in 2015 that he had no clarity on Chinese investments in Pakistan and was concerned about rising debt levels. 

It still took him months after that to secure a briefing from cabinet officials.

Years after contracting to have China build new power plants, Pakistan still has a problem with severe electricity shortfalls.

“My main question was, ‘Do we have any feasibility studies of these projects and a cost-benefit analysis?’ Their answers were all evasive,” recalled Mr. Wathra, who has since retired.
Ahsan Iqbal, a cabinet minister and the main architect for CPEC in the previous government, said the project was well thought-through and dismissed Mr. Wathra’s account.
“No one wanted to invest here — the Chinese took a chance,” Mr. Iqbal said in an interview.
But the bill is coming due. 

Pakistan’s first debt repayments to China are set for next year, starting at about $300 million and gradually increasing to reach about $3.2 billion by 2026, according to officials. 

And Pakistan is already having trouble paying what it owes to Chinese companies.

Pakistan already builds Chinese-designed JF-17 fighter jets, like this one. Under a secret proposal, Pakistan would also cooperate with China to build a new generation of fighters.

Fighter Jets and Satellites
According to the undisclosed proposal drawn up by the Pakistani Air Force and Chinese officials at the start of the year, a special economic zone under CPEC would be created in Pakistan to produce a new generation of fighter jets. 

For the first time, navigation systems, radar systems and onboard weapons would be built jointly by the countries at factories in Pakistan.
The proposal, confirmed by officials at the Ministry of Planning and Development, would expand China and Pakistan’s current cooperation on the JF-17 fighter jet, which is assembled at Pakistan’s military-run Kamra Aeronautical Complex in Punjab Province. 

The Chinese-designed jets have given Pakistan an alternative to the American-built F-16 fighters that have become more difficult to obtain as Islamabad’s relationship with Washington frays.
The plans are in the final stages of approval, but the current government is expected to rubber stamp the project, officials in Islamabad say.
For China, Pakistan could become a showcase for other countries seeking to shift their militaries away from American equipment and toward Chinese arms, Western diplomats said. 

And because China is not averse to selling such advanced weaponry as ballistic missiles — which the United States will not sell to allies like Saudi Arabia — the deal with Pakistan could be a steppingstone to a bigger market for Chinese weapons in the Muslim world.
For years, some of the most important military coordination between China and Pakistan has been going on in space.
Just months before Beijing unveiled the Belt and Road project in 2013, it signed an agreement with Pakistan to build a network of satellite stations inside the South Asian country to establish the Beidou Navigation System as an alternative to the American GPS network.
Beidou quickly became a core component of Belt and Road, with the Chinese government calling the satellite network part of an “information Silk Road” in a 2015 white paper.

A model of China’s Beidou navigation satellite network, shown during the China International Aviation and Aerospace Exhibition in Zhuhai in November.

Like GPS, Beidou has a civilian function and a military one. 

If its trial with Pakistan goes well, Beijing could offer Beidou’s military service to other countries, creating a bloc of nations whose military actions would be more difficult for the United States to monitor.
By 2020, all 35 satellites for the system will be launched in collaboration with other Belt and Road countries, completing Beidou.
“Beidou, whatever any users use it for — whether it’s a civilian navigating their way to the grocery store or a government using it to coordinate their rocket launches — those are all things that China can track,” said Ms. Moriuchi, of the research group Recorded Future. 

“And that’s what is most striking: that this authoritarian government will be a major technology provider for numerous countries in Asia, Africa and Europe.”
For the Pentagon, China’s satellite launches are ominous.
China’s military “continues to strengthen its military space capabilities despite its public stance against the militarization of space,” including developing Beidou and new weaponry, according to a Pentagon report issued to Congress in May.
In October, Pakistan’s information minister, Fawad Chaudhry, said that by 2022, Pakistan would send its own astronaut into space with China’s help.
“We are close to China, and we are getting more close,” he said in a later interview. 

“It’s time for the West to wake up and recognize our importance.”

The Pakistani military has been a vital supporter, and securer, of China’s projects in Pakistan.

Wooing Pakistan’s Military
Though the relationship between China and Pakistan has clearly grown closer, it has not been without tension. 

CPEC could still be vulnerable to political shifts in Pakistan — as happened this year in Malaysia, which shelved three big projects by Chinese companies.
Campaigning during the parliamentary elections that made him prime minister in July, Imran Khan vowed to review CPEC projects and renegotiate them if he won. 

In September, after meeting in Saudi Arabia with the crown prince, Mr. Khan said that the kingdom had agreed to invest in CPEC too.
Pakistan’s new commerce minister then proposed pausing all CPEC projects while the government assessed them.
The moves by Pakistan’s new government angered Beijing, which was concerned they could set back Belt and Road globally.
But in Pakistan, China has a steady ally it can approach to smooth things over: the country’s powerful military establishment, which stands to fill its coffers with millions of dollars through CPEC as the military’s construction companies win infrastructure bids.
Shortly after the commerce minister’s comments, the Pakistani Army’s top commander, Gen. Qamar Javed Bajwa, hurried to Beijing for an unannounced visit with Xi Jinping. 

The meeting came six weeks before Mr. Khan made his first official visit with the Chinese president, a trip he had listed as a priority.
Statements from the military said Bajwa and Xi spoke extensively about Belt and Road projects.
Bajwa “said that the Belt and Road initiative with CPEC as its flagship is destined to succeed despite all odds, and Pakistan’s army shall ensure security of CPEC at all costs,” read a statement from the Pakistani military.
Shortly after the Beijing meeting, Pakistan’s government rolled back its invitation to Saudi Arabia to join CPEC and all talk of pausing or canceling Chinese projects has stopped.

Prime Minister Imran Khan of Pakistan went to meet Xi Jinping in China in November with high hopes for an economic deal. But few details have been announced.

But China could face another challenge to its investments: a Pakistani financial crisis that has forced Mr. Khan’s government to seek loans from international lenders that require transparency.
Throughout September, international delegations traveled to Islamabad carrying the same message: Reveal the extent of Chinese loans if you want financial assistance.
In a late September meeting with visiting officials from the International Monetary Fund, Pakistan’s government asked for a bailout of up to $12 billion. 

The fund’s representatives pressed Pakistan to share all existing agreements with the Chinese government and demanded I.M.F. input during any future CPEC negotiations — a previously undisclosed facet of the negotiations, according to communications seen by the Fund and a Pakistani official. 

The fund also sought assurances that Pakistan would not use a bailout to repay CPEC loans.
But the Chinese Embassy in Islamabad stepped up its engagement as well, demanding that CPEC deals be kept secret and promising to shore up Pakistan’s finances with bilateral loans, Pakistani officials say.
Three months after taking office, Khan still has not made good on his campaign promises to reveal the nature of the $62 billion investment Beijing has committed to Pakistan, and his government has backtracked on an I.M.F. deal.
In early November, Khan visited Xi in Beijing, a trip during which he was expected to clinch bilateral loans and grants to ease Pakistan’s financial crisis.
Instead, his government walked away with vague promises of a deal “in principle,” but refused to disclose any details.

A Chinese national flag, center at the Sahiwal coal power plant in Pakistan, which cost about $1.9 billion to build. Pakistan now owes around $119 million in back payments to Chinese companies just for operating the plant.

Chinese Peril

Freeing China's South Asian string of 'little pearls'
By Michael Bender


The annual G20 Summit reminded us that disregarded countries also can be opportunities. 

As the escalating U.S. trade war with Communist China dominates attention, smaller countries that Americans don’t think much about are suddenly important pieces of the Chinese chessboard. 

They offer an important lesson in the perils of our dismissive strategic engagement, but also an opportunity to challenge China’s growing national security hegemony while not harming America’s consumers and economy.
China has what it calls a “String of Pearls” strategy to dominate small countries in Southeast and South Asia — a maritime Silk Road along the world’s most vital maritime route that the U.S. Navy and its allies will be hard-pressed to counter. 

Stretching from the South China Seas to the Horn of Africa, the route is linked with deep-water “commercial” ports and bases — the so-called pearls — and with them China will tighten its string of control in the Indian and Pacific oceans.
China’s island-building and outright appropriation of islands in the South China Sea — and America’s seemingly too-little, too-late opposition — is well-known. 

But it is the Maldives and Sri Lanka, the largely ignored but critically significant “Little Pearls” of South Asia, that still offer hope.
In recent years, China has pumped resources into the diminutive island nation of the Maldives. 

It established a Joint Ocean Observation Station on the Mukunudhoo atoll near a crucial shipping route close to India. 

This follows China’s previous acquisition of 17 other islands in the same area, raising concerns that the real and unstated purpose is for naval dominance. 

Last March, shortly after announcing the JOOS initiative, Beijing sent a combat naval force there to reassure the pro-China Maldivian president during a declared state-of-emergency.
Meanwhile, China’s huge infrastructure “investments” have driven Maldives into an unpayable debt equal to more than 25% of the archipelago’s GDP.
To the opposite side of India’s southern tip, Sri Lanka is becoming a more important “Little Pearl” on China’s string. 

The George W. Bush administration halted U.S. aid to Sri Lanka in 2007, leaving Communist China to jump in and fill the vacuum. 

Since then, the state-owned China Communication Construction Company (CCCC) funded a multibillion-dollar “Port City” project in the port city capital of Colombo, with over $13 billion expected to be invested in this project over the next 20 years. 

Beijing is poised to monopolize the financial and development market of the benign but geo-strategically important island nation.
Meanwhile, China is building a billion-dollar deep water complex called Hambantota Port on the south of Sri Lanka, about 10 nautical miles from the main shipping route between Asia and Europe. The port project gives the Chinese primary operational control of the port for the next 99 years. 

Smaller deals, such as the $50 million to be paid to a state-run Chinese company to augment the state-run Jaya Container Terminal, are also completed fairly regularly and continue to add to financial leverage that the Chinese are accumulating over Sri Lanka.
With Sri Lanka’s debt, much of it to China, continuing to balloon out of control, Beijing has seized on this as an opportunity to gain further control of Sri Lanka’s financial future through its manipulative loan collection practices and by controlling of some of the country’s most significant commercial facilities, and capturing Sri Lanka in an $8 billion debt-trap.
Making matters worse is Sri Lanka’s ongoing constitutional crisis that has paralyzed the country politically for several months — and promises to continue to do so for another year. 

The Chinese have taken advantage of the crisis, squeezing Sri Lank for more and more development deals.
Sri Lanka’s political leadership is paralyzed. 

In late October, President Maithripala Sirisena sacked his prime minister and appointed his arch-rival Mahinda Rajapaksa, the still-popular former president, in his place. 

This rare moment of realpolitik and unity in Sri Lanka was short-loved, however, because the incumbent prime minister refuses to step aside. 

Now the Supreme Court of the nation is seemingly overburdened with being the sole entity responsible for solving the constitutional stand-off and re-instating a functional government.
Without effective leadership, Sri Lanka will continue to drift into the hands of the Chinese — which the obdurate former prime minister seemingly welcomes. 

Only a snap election, such as a plebiscite, can break the stalemate and empower the Sri Lankan people to pick their own prime minister — and to break Chinese Communist economic, military, and political domination of their country.
The growth of China’s commercial investment and soft power in South Asia’s “Little Pearls” bring Beijing closer to achieving their global ambitions. 

They also erode democratic values and processes in nations like the Maldives and Sri Lanka, whose democracies have begun to crumble under the weight of burgeoning debt and influence from the power-driven, Communist hegemon.
The G20 summit is an opportunity to highlight these troubling facts. 

The Trump Administration must not only expose Beijing’s economically disastrous developmental schemes as the manipulative power grabs that they really are. 

It must also actively engage the vulnerable small nations targeted in China’s String of Pearls. 

In doing so, the United States can strike at China’s mercantile and military hegemony while gaining much-needed leverage over the Red Tiger’s other economic and fiscal bullying, and help to free vulnerable countries like Sri Lanka and the Maldives from indenture. 

It’s time to free China’s “Little Pearls.”

Australia's plan to challenge China in the South Pacific

By John Lee

Australian Foreign Minister Marise Payne and Chinese Foreign Minister Wang Yi shake hands at a news conference at the Diaoyutai State Guesthouse in Beijing Thursday.

On the day Australian Foreign Minister Marise Payne met Chinese counterpart Wang Yi in Beijing to signal the beginning of a thaw in the Australia-China bilateral relationship, her boss, Prime Minister Scott Morrison, announced a $2.2 billion infrastructure package as part of the government's "step-up to the Pacific."
Few Australian politicians want to admit that the "step-up" is targeted against another country. 

But it is occurring as Australians are becoming increasingly concerned with the significant Chinese increase of its diplomatic, economic and potentially military presence in the South Pacific, an area that has long been considered by Canberra to be its "backyard."
The motivation for this massive investment is the worst kept secret in Australian foreign policy: Australians know it is about China; the South Pacific Islands know it is about China; even Beijing knows it is about China.
Is Australia over-reacting? 

If not, why now? 

And can an economy less than one-eighth the size of China's really compete with the latter's ambitions in the South Pacific?
For foreigners, the national importance Australia attaches to the Pacific might be difficult to understand. 

In April 2018, Australian media reports claimed China had approached Vanuatu about building up its military presence on the island, and potentially opening a military base. 

Having given the island of around 270,000 people hundreds of millions of dollars of development aid, the reports also indicated that Beijing had been negotiating with Vanuatu about host and even basing rights for People's Liberation Army (PLA) Navy ships.
No subsequent proof of these negotiations was released. 

Even so, the reports generated at least as much popular interest and concern as China's well-known island-building program in the South China Sea and militarization of these artificial islands.
In Australian strategic circles, the notion of a supposed naval base around 2,500 kilometers (1,500 miles) from its shoreline did more than raise eyebrows. 

It played into the country's sense of vulnerability.
As reaffirmed in the 2016 Defense White Paper, the highest priority has been given to ensuring that no potentially hostile power is able to approach the Australian continent from Southeast Asia or the South Pacific in its national defense strategy.
Moreover, it has long been unofficial policy between allies that the United States and Japan secure Northeast Asia, the US with Australian support secures Southeast Asia, and Australia takes the primary responsibility for securing the South Pacific. 

Perhaps a naval base hosting PLA vessels in Vanuatu was never in the cards.
But the PLA is seeking to enhance its reach and any permanent Chinese military presence in the South Pacific would allow the its Navy to "break out" into the Western Pacific Ocean. 

That scenario -- or any other base offered to it by a poor and desperate Pacific Island -- would fundamentally undermine Australian strategic policy which has been in place since the end of World War II.
This brings us back to Morrison's multi-billion infrastructure package, which includes funding an infrastructure bank for projects in the region. 

In the previous decade, Chinese funding of Pacific Island countries was part of its strategy of using "checkbook diplomacy" to persuade small island countries to recognize the People's Republic of China rather than Taiwan as the true "China."
At least according to the Australian view, Chinese checkbook diplomacy is now about more than seeking official recognition at Taiwan's expense. 

It is also about winning over these small countries to China's way of thinking, whether it be about basing rights, controlling critical infrastructure in those countries or forcing states to turn a blind eye to controversial Chinese policies such as in the South China Sea.
Beijing achieves this through showering small economies -- which would otherwise find it difficult to attract foreign investment -- with cheap loans. 

As has occurred in Sri Lanka, Cambodia, Laos and Pakistan, the tendency of these small and developing economies to accept far more debt that they can repay allows Beijing to dictate the political and/or strategic terms of any debt-forgiveness or restructuring assistance.
Persistent suspicion that China is seeking to use Hambantota and Gwadar Ports in debt-ridden Sri Lanka and Pakistan respectively for military purposes in the future only raises the discomfort levels for Australia when it comes to China in the South Pacific.

Certainly, China does not take half-measures. 

Since 2011, it has offered at least $1.3 billion in donations and concessionary loans to Pacific Island countries. 

This surpasses the $1.2 billion New Zealand has given over the same period. 

China's amount is second only to the $6.6 billion from Australia.
To be sure, Australia remains the preeminent aid and development contributor to the South Pacific and its decades of working with these small island economies means Canberra is well-positioned to remain the "partner of choice."
Even so, Australia has been largely reactive and playing defense to China offense. 

For example, Canberra signed an agreement with the Solomon Islands and Papua New Guinea in July to pay for undersea cables between the three countries in a last-minute bid to prevent Chinese firm Huawei from receiving the contract. 

In September, Canberra joined with the US in a last ditch attempt to thwart Huawei winning approval to build the domestic Internet cable network in Papua New Guinea.
These, and other, efforts have been reactive to Chinese overtures.
The point is not to outbid China in terms of short-term generosity or allow Pacific Island nations to play Australia off against China to maximize both countries' largesse. 

Morrison intends to ensure that these small economies will choose an Australian backed funding source which abides by World Bank and other international commercial standards but where access is fast-tracked and not held up by unnecessary regulations (typical of World Bank and Asian Development Bank Loans), and which impose repayment terms that are sustainable and will not endanger the solvency of these economies.
Australia knows it cannot keep China out of the South Pacific. 

But it can warn these developing economies about the price of severe indebtedness to China and offer them a ready alternative when it comes to the funding of critical infrastructure which would have domestic and/or regional security implications.
Most of all, recent Australian policy is belated recognition it needs to compete in a region which has remain benign and free from potentially hostile external influence for over seven decades.

Chinese Peril

Coming soon to a military base near us: China
BY DOV S. ZAKHEIM

With China very much in mind, Congress has passed the Foreign Investment Risk Review Modernization Act, or FIRRMA, mandating the Committee on Foreign Investment in the U.S. (CFIUS) to review and, if necessary, block both foreign attempts to acquire real estate in sensitive areas and joint ventures that could involve the transfer of American technology to foreign companies.
At the same time, however, China has established its footprint in key logistical hubs worldwide and is seeking to expand it even further.
Its growing global logistical reach could pose serious national security challenges for the United States and its allies.
China has built a naval base in Djibouti, on the Horn of Africa, from which its ships have been operating since 2017. 

It financed the construction of the Sri Lankan port of Hambantota; when Sri Lanka could not repay its debts to China, Beijing obtained a 99-year lease on the port. 

At the end of June 2018, the Sri Lankan government announced that it would move the headquarters of its southern fleet to the Chinese-operated port. 

Whether this move will result in Chinese constraints upon Sri Lanka’s freedom of action remains to be seen, but it cannot be ruled out.
Yet, it is China’s increasing presence in Europe and its environs that may well be the cause of greatest concern for Washington, and should be for its allies. 

China has obtained a significant presence on the territory of four NATO allies — Greece, the Netherlands, Belgium and Germany — and almost managed to do so in a fifth. 

China capitalized on Greece’s financial crisis in 2008 to begin operating a container facility in Piraeus, the port of Athens; it since has acquired a 35 percent stake in Rotterdam’s Euromax container terminal, which can take the world’s largest container ships, as well as a 20 percent holding in Antwerp’s container terminal, one of the fastest-growing terminals in Europe. 

In July 2017, the Hamburg Port Authority awarded the construction of a new container terminal to a Chinese conglomerate.
Rotterdam, Antwerp and Hamburg are Europe’s three biggest ports.
The fifth attempt at a NATO incursion — a near-miss for China — was its attempt through the China Communications Construction Company, a state-owned enterprise, to expand and modernize three disused airfields in Greenland. 

The company asserted its intention was merely to expand tourism in the sparsely populated island. But Greenland hosts an American base in Thule, which operates systems related to missile warning and space-related missions. 

Moreover, should China deploy aircraft to these bases, its reach would extend to at least part of Western Europe. 

Not surprisingly, the Chinese bid was extremely worrying to Danish defense officials, especially since China already had sought to acquire a former American facility in Greenland, only to have the deal vetoed by the Danish government.
In fact, the Chinese attempt to win the construction contract for the three airports posed a much more difficult challenge for the government in Copenhagen. 

Denmark is responsible for Greenland’s foreign policy and national security, but Greenlanders manage their internal affairs — and the government in Nuuk considered the decision regarding the airfields to be a domestic matter. 

It was only at the eleventh hour that a Danish company was able to edge out the Chinese and come up with the winning bid.
Most recently, China has expanded its presence in the eastern Mediterranean, along NATO’s southern flank. 

In addition to operating the port of Piraeus, China now has won the right to build two facilities in Israel’s ports of Haifa and Ashdod. 

Haifa is the headquarters of the Israeli Navy while Ashdod also hosts an Israeli naval base. 

Moreover, American warships, including aircraft carriers, dock at both ports. 

China’s presence in the two Israeli ports thus would enable China to monitor not only Israeli operations and communications but, whenever the U.S. Navy is on a port visit, those of the United States as well.
Retired Israeli and American naval commanders have expressed their concerns about the awarding of these port contracts to the Chinese. 

Israel should take a lesson from the Danes and become far more active in blocking Chinese attempts to penetrate its infrastructure. 

Israel has no equivalent of CFIUS but, clearly, it needs to establish one posthaste, and do so in a manner that, like FIRRMA, has few loopholes. 

Indeed, our other NATO allies should do the same; they must close any loopholes that exist in their foreign investment laws.
Finally, Israel should reconsider the award of the contracts to China or, at a minimum, demonstrate to Washington that China will not be able to monitor American naval operations. 

Should it be unable to do so, Washington should cancel any planned port visits to Israel. 

China’s efforts to gain access to American operations and tactics is troubling enough; our allies and friends should not make it easier for Beijing.

Chinese Peril

Mike Pompeo Warns Panama Against Doing Business With China
By Edward Wong
 Secretary of State Mike Pompeo, left, with Panama’s president and vice president, Juan Carlos Varela and Isabel Saint Malo, in Panama City on Thursday. Mr. Pompeo warned against “predatory economic activity” by China.

PANAMA CITY, Panama — Secretary of State Mike Pompeo said Thursday that he had warned President Juan Carlos Varela of Panama about doing business with China, criticizing Chinese state-owned enterprises that engage in “predatory economic activity.”
As his plane left Panama City, Mr. Pompeo recounted his talks with Varela and local journalists. Clearly concerned that Panama could become a beachhead for growing Chinese economic influence in the Western Hemisphere, he emphasized that Panamanians should be cautious when considering business ties with China.
Mr. Pompeo said he intended to tell the entire region that “when China comes calling, it’s not always to the good of your citizens,” and that countries had to watch out for Chinese companies that “show up with deals that seem too good to be true.”
His warning came more than a year after Panama cut diplomatic relations with Taiwan — which China views as a part of its territory — in favor of establishing ties with Beijing.
Two other nations in the region followed suit this year.
Mr. Pompeo visited Panama City for an afternoon, stopping at the presidential palace to meet with Mr. Varela before going to the United States Embassy to address employees there.
Mr. Pompeo told reporters on his plane that he had discussed a range of issues with Panamanian leaders, from economic ties to counternarcotics, and that China was one of the priorities.
“The importance isn’t that China is out competing in the world,” he said.
“We welcome that. It’s when state-owned enterprises show up in a way that is clearly not transparent, clearly not market-driven and designed not to benefit the people of Panama, but rather to benefit the Chinese government.”
“Those are the kind of things we think are both inappropriate and not good for the people of Panama or any other country where China is engaged in this kind of predatory economic activity.”
Mr. Pompeo declined to cite specific projects that he considered questionable.
Mr. Pompeo’s warning was one of the clearest expressions yet by a senior American official of growing anxiety in Washington over China’s global economic activities, especially involving loans and infrastructure projects.
Policymakers point to the 99-year lease and controlling equity that a Chinese state-owned enterprise got last December on a port in Hambantota, Sri Lanka, after the Sri Lankan government failed to pay back loans.
American officials suspect the port will be used for military activities and will give the People’s Liberation Army a major foothold in the Indian Ocean — and they fear China could duplicate such projects elsewhere, including in the Western Hemisphere.
The Trump administration is formulating a broad strategy to compete with China’s economic and military presence across the globe.
The administration’s current National Security Strategy envisions the onset of great-power rivalry with China and Russia.
In a speech this month, Vice President Mike Pence sharply criticized Chinese influence both in the United States and abroad.
China is the second-biggest user of the Panama Canal, after the United States.
Last November, five months after cutting diplomatic ties with Taiwan, Varela traveled to Beijing to meet Xi Jinping, where they signed 19 deals, including a feasibility study on a free-trade agreement.
Chinese companies are working on a range of infrastructure projects in Panama, including ports.
One company is studying the potential for building a new railway.
Panama has said it supports China’s Belt and Road Initiative, the ambitious network of global infrastructure projects promoted by Xi.
Panama is a fulcrum in American dominance of the Western Hemisphere.
The Panama Canal has been critical to the strategic and economic needs of the United States.
And Panama is the land bridge to Colombia, where the United States has invested billions of dollars to try to stem drug exports.
Senior U.S. officials only became aware of the extent of China’s influence in Panama with Varela’s June 2017 announcement that it was cutting ties to Taiwan.
The United States ambassador at the time, John Feeley, said he had heard about the switch from Varela only an hour or so before the president announced it, and only because he had called Varela to talk about an unrelated matter.
At the time, the United States did not issue a strong statement.
But then the Dominican Republic switched recognition this May, and El Salvador did so in August. Recognizing that China was asserting its influence behind the scenes in what the United States considered its backyard, the White House issued a strong statement criticizing El Salvador’s move.
In early September, the State Department called the chiefs of mission of those three countries back to Washington for several days of “consultations.”
That was aimed at sending a message to the three countries and other nations considering switching recognition.
Among those who returned to Washington was Roxanne Cabral, the chargé d’affaires in Panama. On Thursday, she greeted Mr. Pompeo at the embassy as he arrived during a rain shower.
The United States switched official sovereign relations to the Communist-ruled People’s Republic of China from Taiwan in 1979, and many other countries followed.
But Washington has supported any decisions by nations to continue recognizing Taiwan, a democracy with de facto independence.
Only 17 nations still recognize Taiwan, and nine are in Latin America or the Caribbean.
Last year, the United States signed a memorandum of understanding with Panama on energy and infrastructure projects.
Mr. Feeley, who left the ambassadorship in March and is now a consultant for Univision, said in an interview on Wednesday that the United States would closely watch China’s infrastructure projects, including high-tech and internet-related ones.
He said he expected Mr. Pompeo to “ask of Varela that whatever he does with China, it’s done in a transparent way, and that it doesn’t disadvantage American interests there.”

Rogue Nation

Backlash against China jeopardizes its free ride
By BRAHMA CHELLANEY 

On a recent official visit to China, Malaysian Prime Minister Mahathir Mohamad criticized his host country’s use of major infrastructure projects – and difficult-to-repay loans – to assert its influence over smaller countries. 

While Mahathir’s warnings in Beijing against “a new version of colonialism” stood out for their boldness, they reflect a broader pushback against China’s mercantilist trade, investment and lending practices.
Since 2013, under the umbrella of its Belt and Road Initiative, China has been funding and implementing large infrastructure projects in countries around the world, in order to help align their interests with its own, gain a political foothold in strategic locations, and export its industrial surpluses. 

By keeping bidding on BRI projects closed and opaque, China often massively inflates their value, leaving countries struggling to repay their debts.
Once countries become ensnared in China’s debt traps, they can end up being forced into even worse deals to compensate their creditor for lack of repayment. 

Most notably, last December, Sri Lanka was compelled to transfer the Chinese-built strategic port of Hambantota to China on a 99-year, colonial-style lease, because it could longer afford its debt payments.
Sri Lanka’s experience was a wake-up call for other countries with outsize debts to China. 

Fearing that they, too, could lose strategic assets, they are now attempting to scrap, scale back, or renegotiate their deals. 

Mahathir, who previously cleared the way for Chinese investment in Malaysia, ended his trip to Beijing by canceling Chinese projects worth almost US$23 billion.
Countries as diverse as Bangladesh, Hungary and Tanzania have also canceled or scaled back BRI projects. 

Myanmar, hoping to secure needed infrastructure without becoming caught up in a Chinese debt trap, has used the threat of cancellation to negotiate a reduction in the cost of its planned Kyaukpyu port from $7.3 billion to $1.3 billion.
Even China’s closest partners are now wary of the BRI. 

In Pakistan, which has long worked with China to contain India and is the largest recipient of BRI financing, the new military-backed government has sought to review or renegotiate projects in response to a worsening debt crisis. 

In Cambodia, another leading recipient of Chinese loans, fears of in effect becoming a Chinese colony are on the rise.
The backlash against China can be seen elsewhere, too. 

The recent annual Pacific Islands Forum meeting was one of the most contentious in its history. Chinese policies in the region, together with the Chinese delegation leader’s behavior at the event itself, drove the president of Nauru – the world’s smallest republic, with just 11,000 inhabitants – to condemn China’s “arrogant” presence in the South Pacific. 

China cannot, he declared, “dictate things to us.”
When it comes to trade, US President Donald Trump’s escalating trade war with China is grabbing headlines, but President Trump is far from alone in criticizing China. 

With policies ranging from export subsidies and non-tariff barriers to intellectual-property piracy and tilting the domestic market in favor of Chinese companies, China represents, in the words of Harvard University’s Graham Allison, the “most protectionist, mercantilist, and predatory major economy in the world.”
As the largest merchandise exporter in the world, China is many countries’ biggest trading partner. Beijing has leveraged this role by employing trade to punish those that refuse to toe its line, including by imposing import bans on specific products, halting strategic exports (such as rare-earth minerals), cutting off tourism from China, and encouraging domestic consumer boycotts or protests against foreign businesses.
The fact is that China has grown strong and rich by flouting international trade rules. 

But now its chickens are coming home to roost, with a growing number of countries imposing anti-dumping or punitive duties on Chinese goods. 

And as countries worry about China bending them to its will by luring them into debt traps, it is no longer smooth sailing for the BRI.
Beyond Trump’s tariffs, the European Union has filed a complaint with the World Trade Organization about China’s practices of forcing technology transfer as a condition of market access. 

China’s export subsidies and other trade-distorting practices are set to encounter greater international resistance. 

Under WTO rules, countries may impose tariffs on subsidized goods from overseas that harm domestic industries.
Now, Chinese dictator Xi Jinping finds himself not only defending the BRI, his signature foreign-policy initiative, but also confronting domestic criticism, however muted, for flaunting China’s global ambitions and thereby inviting a US-led international backlash. 

Xi has discarded one of former Chinese strongman Deng Xiaoping’s most famous dicta: “Hide your strength, bide your time.” 

Instead, Xi has chosen to pursue an unabashedly aggressive strategy that has many asking whether China is emerging as a new kind of imperialist power.
International trade has afforded China enormous benefits, enabling the country to become the world’s second-largest economy, while lifting hundreds of millions of people out of poverty. 

The country cannot afford to lose those benefits to an international backlash against its unfair trade and investment practices.
China’s reliance on large trade surpluses and foreign-exchange reserves to fund the expansion of its global footprint makes it all the more vulnerable to the current pushback. 

In fact, even if China shifts its strategy and adheres to international rules, its trade surplus and foreign-currency reserves will be affected. 

In short, whichever path it chooses, China’s free ride could be coming to an end.