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 Prime Minister ‘Surprised’ by State’s Secret Deal With China

The state of Victoria signed on with China’s Belt and Road initiative at a time when intelligence officials are concerned about Beijing’s influence.
By Jamie Tarabay and Vicky Xiuzhong Xu
Australia's prime minister, Scott Morrison, said it was not “cooperative or helpful” for the state of Victoria to sign an agreement with China without his government’s knowledge. 

SYDNEY, Australia — Prime Minister Scott Morrison of Australia was blindsided by reports that a state government had quietly sidestepped federal regulators and signed a deal with China to participate in that country’s contentious Belt and Road infrastructure initiative.
Mr. Morrison said this week that the agreement, signed last month between the governments of China and the state of Victoria, undermined the federal government’s ability to conduct foreign policy at a time when intelligence officials are concerned that China is trying to exert undue influence in Australia.
Mr. Morrison told reporters he was “surprised” that the Victorian government would involve itself in a “matter of international relations” without discussing it first.
“They know full well our policy on those issues and I thought that was not a very cooperative or helpful way to do things on such issues,” Mr. Morrison said.
Daniel Andrews, the premier of Victoria, said the deal would bring his state’s businesses “one step closer to unlocking the trade and investment opportunities of China’s ambitious Belt and Road initiative.”
Australian Quisling: Victoria's premier, Daniel Andrews, center, said the agreement would lead to “trade and investment opportunities” for the state.

Critics, however, have characterized Andrews as naïve for failing to understand how China has used the initiative to deepen its global influence by promising to help construct grand infrastructure projects.
Others have said Andrews cut a deal with China for politically opportunistic reasons: His state government goes to the polls in less than two weeks.
Whatever his motivations, the deal sets a precedent for China to sidestep national leaders in Canberra and court states individually.
“I think this is a big part of Beijing’s agenda, to say to other states and territories that being the last to sign up will be bad,” said Michael Shoebridge, director of the defense and strategy program at the Australian Strategic Policy Institute, a think tank.
“That would be consistent with Beijing’s approach with other negotiations internationally.”
It remains unclear exactly what the deal in Victoria will cover, but the Belt and Road projects in other countries have tended to be large in scale.
Under Xi Jinping, China has pledged trillions of dollars over the past five years toward the construction of roads, power plants and ports throughout Asia, Africa and Europe.
The Belt and Road initiative, a key foreign policy of Xi’s government, uses big infrastructure projects as way to win friends and spread influence.

The Gwadar port in Pakistan, part of China’s ambitious Belt and Road infrastructure initiative, a debt trap for vulnerable countries.

But the money often comes with strings attached.
Chinese government-controlled lenders offer sizable amounts of money through loans or financial guarantees to build airports, seaports, highways, rail lines and power plants.
That money comes with the requirement that Chinese companies be heavily involved in planning and construction, and Chinese employees are brought in for the work, minimizing the immediate economic benefits to the country hosting the project.
Pakistan has accepted billions of dollars in loans from China in recent years for infrastructure projects, the terms of which remain largely undisclosed.
China has pledged a total of more than $60 billion to Pakistan in the form of loans and investments for roads, ports, power plants and industrial parks.
But now Pakistan is seeking an emergency bailout loan of $8 billion from the International Monetary Fund, along with new loans from Saudi Arabia and China.
Sri Lanka, in debt over a port that was never viable, renegotiated the terms of its contract with China to repay billions for the investment and ended up signing the port over to Beijing under a 99-year lease. 
The deal last December crystallized international criticism depicting the Belt and Road Initiative as a debt trap for vulnerable countries.

Chinese construction workers in Sri Lanka, another country that has hosted Belt and Road projects. In many cases, the use of imported Chinese labor has reduced the economic benefit for host countries.

Prime Minister Mahathir Mohamad of Malaysia recently canceled two major Chinese-linked projects, greenlighted by his since-ousted predecessor, that were worth more than $22 billion.
Australia has long had to balance its economic relationship with China against its strategic security alliance with the United States.
Ever since John Howard was prime minister more than a decade ago, Canberra has tried to keep both powers happy.
“Howard famously argued that Australia didn’t have to choose between its economic relations with China and the alliance with the United States,” said Michael Clarke, an associate professor at the National Security College at Australian National University.
“Clearly, both of those assumptions no longer hold with President Trump’s ‘America First’ approach and China’s assertiveness under Xi Jinping,” Mr. Clarke said.
The federal government, Mr. Clarke said, needs to clarify its position on whether Australian states are allowed to receive funding for Belt and Road projects.
Canberra may object to Victoria’s decision to sign on to the initiative, but the federal government has also signed a memorandum of understanding with China, which it, too, has kept largely under wraps.
In September, Steven Ciobo, then the trade minister, signed an agreement that would allow Australia and China to cooperate on infrastructure projects in third countries under the Belt and Road Initiative. The federal government has yet to make the details of that agreement public.
The Victorian government initially refused to divulge the contents of the deal it had signed with Beijing.
On Monday, however, it published a four-page document online.
“It says something about the culture of government and its distrust toward public transparency that both the federal and state governments chose not to disclose their MOUs,” said Euan Graham, a senior fellow at the Lowy Institute, a think tank.
“And there is a broader point here about how the government conducts its business.”
The reaction from other politicians — the opposition leader Bill Shorten has said he supports Victoria’s deal — and their attempts to use the news for partisan politicking have created even more fissures for China to exploit, Mr. Graham said.
“What the government needs to focus on is what’s good policy,” he said.
“Good policy toward China means a joined-up approach, and anything that allows those divides to be exposed is going to result in bad policy outcomes that China can at the very least rhetorically cash in on.”

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.

China almost has Australia surrounded. But its debt-trap diplomacy has been exposed

Beijing’s island-grabbing campaign is getting close to home. It’s muscling in on tiny nations from the Indian to the Pacific Oceans.
By Jamie Seidel

CHINA’s island-grabbing campaign is getting close to home. 

It’s muscling in on tiny nations from the Indian to the Pacific Oceans. 

But Australia’s begun pushing back.
Ceylon. Savo Island. Coral Sea. Guadalcanal. Gilbert and Marshall Islands. Tarawa. Truk. Guam.
These were names plucked from obscurity by bloody battles against Japan during World War II. 

They were battles fought because these seemingly insignificant islands — some little more than coral atolls and volcanic outcrops — are important. 

They are remote outposts, rare landfalls in vast oceans. 

They sit astride shipping lanes that carry the lifeblood of South-East Asia’s and Oceania’s economies.
Those controlling these specks on the map potentially have an impact on world affairs seemingly out of all proportion.
Not since the darkest days of World War II has Australia begun to feel the pressure of isolation and constraint. 

Germany did little more than harass our shipping in the Indian Ocean, carrying troops and equipment to the Middle East and vital resources in return. 

But Japan’s overwhelming raids on Darwin and Ceylon (Sri Lanka) in 1942 brutally demonstrated just how vulnerable we were. 

And once the Pacific Islands began to fall, the links between Australia and the United States began to look tenuous as well.

A snapshot of shipping flowing to and from Australia, and through the region, from www.shipmap.org.

That encirclement of Australia was with steel ships, aluminium aircraft and the blood and sweat of tens of thousands of troops.
It’s an encirclement some analysts fear we are experiencing again.
But in place of warships and tanks, China is steamrolling across our region with promises of grand works of infrastructure — and weaponised loans.
Debt-trap diplomacy is behind a new land grab. 

It’s the lure of loans pushed on poor countries that cannot afford to repay them.
Now new regional names are registering on Australia’s radar as they teeter and fall.
Male. Manus. Luganville. Wewak.
China has showered small nations such as Vanuatu, Tonga and the Solomon Islands with concessional loans. 

The Lowy Institute think-tank estimates Beijing pushed more than $2.3 billion into to the region between 2006 and 2016.
The fates of these far-flung places could be a bellwether of our own.

The new runway of Velana International Airport in Male, Maldives. 

ISLANDS IN CHAINS
Last week, the scattering of tiny islands that is the Maldives Archipelago in the Indian Ocean opened an enormous new runway.
Velana International Airport is on the island of Male. 

The broad new airstrip was built on land reclaimed from the sea by a Chinese state-backed company, using money from … Beijing.
It followed close on the heels of another controversial Maldives-China project.
“The nation celebrated the opening of the China-Maldives Friendship Bridge, hailed as the project of the century in the small Indian Ocean nation and a hallmark project of the China-proposed Belt and Road initiative (BRI),” the state-run Global Times reported in August.
“Although some said the Maldivian government will bear a heavy debt from the massive infrastructure co-operation with China, Maldivian officials said they appreciate China’s generosity.”
It was a pointed — if unconvincing — rebuttal of the ‘debt-trap’ narrative.
But Beijing is already in a position in the tiny strife-torn nation to seize both as collateral — and turn them towards military purposes.
Then there’s Manus.

The military base established on Manus Island during World War II has suddenly become of interest to both Beijing and Canberra. 

Once part of the British Admiralty Islands, it was seized from the Japanese by the United States for use as a major World War II naval staging post.
Now part of Papua New Guinea, it has once again returned to the world’s stage.
China has been showing interest.
Having airfield and port facilities there could boost its ‘Island Chain’ ambitions, and establish a prickly thorn between Australia and US facilities on the island of Guam.
But Australia has begun pushing back.
“The Pacific is a very high-priority area of strategic national security interest for Australia,” Prime Minister Scott Morrison said, refusing to confirm or deny reports Australian defence officials had visited the Lombrum Naval Base on Manus to assess its potential for expansion.
Details of any future jointly-operated, upgraded facility there will not be revealed before the Asia-Pacific Economic Cooperation summit in Port Moresby in November.
The Maldives and Manus are just the most recent in a rapid-pace series of international power plays in the Indian and Pacific Oceans.
Relations between Canberra and Beijing plunged to a new low earlier this year after we criticised China’s ‘debt-trap diplomacy’ and undue influence in the politics of countries throughout the region — including our own.
Beijing lashed back, using its state-run media to label Australia as an “arrogant overlord”.

Chinese dictator Xi Jinping looks on during bilateral talks at the Maldives President’s Office in the capital island Male, where he sought backing for a “21st century maritime silk road”. 

WAKING DRAGON
It’s about Xi Jinping’s grand vision.
He sees China’s influence extending far beyond its own borders.
In 2013, he detailed his grand scheme to revitalise the ancient Silk Road and sea spice routes.
It would ‘restore’ China’s position at the centre of a trade hub extending to Europe and Africa.
The Belt and Road Initiative — as it has become known — demands a networks of ports, airfields, roads and railways spanning the globe.
Chinese state-owned companies now control about 76 ports in 35 countries — including Darwin. 

And while Beijing openly insists it only wants to use these ports for commercial purposes, its warships and submarines have already been seen docked in several.
Now Xi wants another ‘Silk Road’ — this time extending into the Pacific.
Ministers from Tonga, Samoa, Vanuatu and Fiji were among those invited to Beijing in 2017 for the launch of the Belt and Road project. 

They were offered access to $55 billion in loans.
This sparked alarm in Australia, the US and Europe.
Beijing’s loans do not come cheap.
“Such indebtedness gives China significant leverage over Pacific Island countries and may see China place pressure on Pacific nations to convert loans into equity in infrastructure,” the Lowy Institute’s recent Safeguarding Australia’s Security Interests report warns.
“It’s not ‘win-win’ for China and the recipient, but simply ‘win’ for China, which not only gets access to local resources and new markets, and forward presence, but can coerce the recipient state to pay a ‘tribute’ to Beijing by ceding local assets when it can’t pay back its debts,” the Australian Strategic Policy Institute’s Dr Malcolm Davis notes.

Hambantota Port in Sri Lanka is an example of Beijing’s debt-trap diplomacy. China has won a 99-year-lease on the facility, and a 70pc controlling stake in its management.
An editorial published by the state-run Global Times says South Pacific nations had been ‘bewitched’ by Western countries including Australia and the US “who sought to gain political leverage in the region”.
“Unlike Western aid, which always comes with political and economic conditions, Chinese aid has been widely welcomed by South Pacific nations as it has no political conditions,” it quoted research fellow in Australian Studies Yu Lei as saying.
But China does not openly declare its international aid projects in the same way other nations such as Australia does. 

This has raised a degree of anxiety about exactly how much it is spending, where — and why.
Now, China’s taking a leaf out of the US playbook.
It wants strong military facilities spaced around its ‘sphere of influence’.
It calls that sphere the Second Island Chain — a rough line from Japan in the north to Papua New Guinea in the south.
But as Beijing’s dominance over the First Island Chain (including Taiwan, the Spratlys, and Paracels) of the South China Sea seems all but complete, a ‘Third Island Chain’ appears to be emerging — extending from the Maldives in the west to Fiji in the east.
“The most troubling implication for Australian interests is that a future naval or air base in Vanuatu would give China a foothold for operations to coerce Australia, outflank the US and its base on US territory at Guam, and collect intelligence in a regional security crisis,” Rory Medcalf, the head of the National Security College at the Australian National University, wrote in a recent Lowy Institute report.
It’s a similar story for the Maldives, potentially cutting Australia’s fuel supplies and trade links to Singapore, India and Europe.

United States, Indian and Japanese warships exercise together. Concern at Beijing’s expansive ambitions have drawn regional powers together. 
GAME OF THRONES
China’s rapid expansion has not gone unnoticed.
In a speech to Australia’s Parliament in 2011, then US President Barack Obama announced a ‘pivot’ back to the Asia-Pacific. 

Existing military facilities would be reinforced and strengthened. 

Forces would be based in Darwin.
It wasn’t all about troops.
Fresh efforts would be made on the diplomatic and economic fronts. 

Chief among these was the proposed (now abandoned) Trans-Pacific Partnership (TPP).
“This allowed Washington to counter Beijing’s concerns that the pivot was primarily a military move aimed at containing a rising China,” the Lowy Institute says. 

“However, the decision by the Trump administration to abandon the TPP has given US strategy in the Indo-Pacific more of a military character.”
President Trump’s attitude towards international agreements and treaties has unsettled South-East Asia. 

Will he be true to his nation’s word? 

Or would he pull the US out?
It’s a question that has prompted the region to look to strengthen its own relationships.
Generally, the Melanesian states have been seen as Australia’s area of responsibility while the US and New Zealand watch over the Polynesian islands.
In recent decades, that influence has weakened.
“Being the dominant traditional power has not always made Canberra popular in Pacific Island nations, despite being the region’s largest provider of aid,” the Lowy Institute notes. 

“However, failing to forge stronger regional partnerships now, in the hope that the current geostrategic dynamics will not change, contains significant risk.”
Things haven’t been getting better.

Australia has been ‘showing the flag’ in the Indo-Pacific, sending its new helicopter carrying assault ships on visits as a demonstration of its military — and disaster relief — capacity. 

The Pacific Islands have repeatedly expressed dismay at the deep state of denial Australian and US politicians are in over the looming global warming crisis.
After all, their low-lying islands are already falling victim to rising sea levels.
President Trump’s withdrawal from the Paris Agreement earlier this year was called “pretty selfish” by the former president of Kiribati. 

The Prime Minister of Tuvalu went further: “I think this is a very destructive, obstructive statement from a leader of perhaps the biggest polluter on earth and we are very disappointed as a small island country already suffering the effects of climate change.”
China, at least, pays lip-service to the international threat.
So, with this issue at least, it has stolen the moral upper ground.
And then there are the promises of Xi Jinping.
He’s been touting his ‘Chinese model’ as a “new option for other countries who want to speed up their development while preserving their independence.”
But his real purpose, says Dr Davis, is more ominous.
“Chinese ambitions don’t end at the reunification of Taiwan and China on Beijing’s terms or control of the South China Sea. China is clearly emerging as a hegemonic power, exploiting both soft-power inducements and hard-power threats to reassert itself as a new Middle Kingdom, and overturning what it sees to be a century of humiliation. Part of the ‘China Dream’ is ensuring that its periphery is secure through a belt of vassal states that accede to Beijing’s interests.”

A Chinese H6K takes off into a golden dawn. Beijing has been proudly boasting of its position as a new world power. 

DRAGONS AT THE GATES
The US Pentagon is alert — and alarmed.
“China is using its economic penalties, influence operations, and implied military threats to persuade other states to heed its political and security agenda,” the US National Security Strategy of December 2017 reads. 

“Chinese dominance risks diminishing the sovereignty of many states in the Indo-Pacific region”.
That includes Australia.
Beijing has been doing all it can to expand its status as a maritime power. 

It now has 43 attack submarines at its disposal — that’s more than the United States. 

It’s also been launching surface ships at an unprecedented rate, some 24 new destroyers and 31 new frigates since 2000 alone.
While formidable, it’s not likely to rival the US for another 20 years.
But it will be powerful enough to project significant power wherever it desires.
“China’s confidence on the international stage has been bolstered by its perceived successes in the South China Sea where it has occupied, and physically enhanced, a series of uninhabited reefs,” the Lowy Institute report warns.
Now China is pursuing a military and diplomatic strategy which “seeks Indo-Pacific regional hegemony in the near-term and displacement of the United States to achieve global pre-eminence in the future”, the US National Defense Strategy of 2018 states.
China’s actions are “undermining the international order from within the system by exploiting its benefits while simultaneously undercutting its principles.”

F-35B Lightning IIs with US Marine Fighter Attack Squadron 211 fly over Wake Island, one of a series of military bases retained after World War II. China wants its own ‘buffer zone’ of islands in the Pacific and Indian Ocean to protect its interests. 

And that brings it head-to-head with the US along the ‘Second Island Chain’.
At its heart is the island of Guam. 

It is a US territory and major defence facility.
The free compact states of Palau, the Marshall Islands and the Federated States of Micronesia all operate under a post-war agreement with the US, allowing a base on the Marshall Islands and the veto over any military access by any other nation. 

From the outset, this was intended to provide the US with a Pacific ‘buffer zone’ between itself and Asia.
Now China wants a ‘buffer zone’ between itself and the US.
At the bottom of the ‘Second Island Chain’ is Papua New Guinea, and the island of Manus.
Australia’s moves to thwart Beijing’s ‘Belt and Road’ projects are a sign of growing ‘push-back’ from the West.
But Beijing is determined — and persistent.
“Powerful drivers are converging in a way that is reshaping the international order and challenging Australia’s interests. The United States has been the dominant power in our region throughout Australia’s post-second world history. China is challenging America’s position,” Australia’s 2017 Foreign Policy White Paper reads.

The Royal Australian Navy Anzac Class Frigate HMAS Stuart is observed through periscope on board the RAN Collins Class Submarine HMAS Sheean. While isolated, Australia is highly dependent on its shipping lanes to the northeast and northwest. 

LOOK TO YOUR MOAT
The 2016 Defence White Paper made the situation pretty clear: “Australia cannot be secure if our immediate neighbourhood including Papua New Guinea, Timor-Leste and Pacific Island Countries becomes a source of threat to Australia. This includes the threat of a foreign military power seeking influence in ways that could challenge the security of our maritime approaches or transnational crime targeting Australian interests …”
Three of Australia’s five main maritime trade routes pass through the Pacific. 

The two largest are in the Indian Ocean.
Our trade with the US passes near New Caledonia and Fiji. 

Those to and from Japan, Taiwan — and China — largely go past New Britain and Papua New Guinea, or through the Solomon Islands, Bougainville and New Britain.
In the west, our trade funnels past Sri Lanka, the Maldives and Indonesia.
If there is trouble in the Pacific, trade will have to divert through the Torres Strait to Indonesia’s Suda and Lombok Straits.
If there is trouble in the Indian Ocean, exports from Western Australia — such as gas and iron ore — would have to take a long detour through the Tasman Sea.

HMAS Adelaide berthed at the Port of Suva in June. 

“Australia’s reliance on maritime trade with and through South East Asia, including energy supplies, means the security of our maritime approaches and trade routes within South East Asia must be protected, as must freedom of navigation, which provides for the free flow of maritime trade in international waters,” the Defence White Paper notes.
“The Government will work with Pacific Island Countries to strengthen their ability to manage internal, transnational and border security challenges … This includes working to limit the influence of any actor from outside the region with interests inimical to our own.”
Australia is gifting 19 new patrol boats to 12 Pacific Island Nations. 

The project, which includes maintenance and support and costs $2 billion over 30 years, has seen the first boats delivered this year. 

They are part of a co-ordinated project including RAAF surveillance and visits by RAN warships.
The Solomon Islands has recently signed a security treaty with Australia. 

Security partnership understandings have been negotiated with Tuvalu and Nauru. 

Kiribati is in talks.
Australia has also been showing the flag.
One of our new helicopter-carrying assault ships, HMS Adelaide, joined three other warships on a 13 week Indo-Pacific Endeavour exercise.
Just in case our Pacific partners had forgotten.
Restoring Australia’s place in its region will take considerably more effort, the Lowy Institute warns. We must offer government services, access to labour markets, and assist with defence “in return for an undertaking that foreign military forces or installations would not be allowed in these countries. This would mitigate the risk of China gaining access to dual-use facilities in these nations in return for debt reduction, while safeguarding the sovereignty of these independent nations.”

A Chinese H6K strategic bomber flies over disputed coral reefs in the South China Sea. Beijing is looking for similar island bases in the Indian and Pacific Oceans. 

ISLAND CHESSBOARD
PACIFIC OCEAN
While not having ‘traditional’ trade links to justify its interest in the region, China has aggressively stepped forward with the promise of cheap loans into a region somewhat disillusioned by Australia and the US.

1. FIJI: After a 2006 military coup, Australia — among others — imposed sanctions on Fiji until it returned to democratic rule. China places no value in such systems of government. So it stepped in, offering loans for infrastructure projects built by Chinese labourers. While not entirely welcomed by the populace, it gave Beijing powerful influence among Fiji’s leaders.
2. PAPUA NEW GUINEA: Its military officers have also been invited to China to attend training courses.
3. SAMOA: Beijing is increasingly pressuring this island nation to repay its debts. Like many others.
4. SOLOMON ISLANDS: Earlier this year, Prime Minister Turnbull promised the Solomons (and Papua New Guinea) that Australia would pay for a new undersea internet cable in order to brush aside the state-controlled Chinese telco giant Huawei, as well as relieve the island nations of the financial burden.
5. TONGA: In 2013, 64 per cent of Tonga’s foreign debt was owed to China. That amounted to 43 per cent of its annual GDP. Previously, Tonga has said it may have to seek a write-off of this burden by allowing Beijing to establish a naval base on the island.
6. VANUATU: Vanuatu owes Beijing some $US1.7 billion. Earlier this year, reports that China was seeking a ‘permanent military presence’ on the island sparked dismay in Australia. Both Vanuatu and China denied any such proposal had been made. But Prime Minister Turnbull sounded unconvinced: “We would view with great concern the establishment of any foreign military bases in those Pacific island countries and neighbours of ours,” he said. The country’s newly built $85 million Luganville wharf, which was funded by China and seems more suited to navy vessels than cruise ships.

INDIAN OCEAN
Beijing is already well advanced in its moves to establish a network of naval and air bases in the Indian Ocean. 

The number of ships and submarines it has stationed there has been steadily growing. 

But China needs more. 

Chief on its shopping list are major airfields capable of supporting its long-range reconnaissance aircraft and bombers. 

It also needs submarine support facilities and logistics infrastructure extending from the northeastern Indian Ocean to the west.

1. DJIBOUTI: In 2017, Beijing opened its first overseas military facility. This is in Djibouti on the shores of the troubled Red Sea. It’s already been openly tussling with a neighbouring US facility, allegedly blinding its pilots with lasers.
2. MALDIVES: This archipelago in the central Indian Ocean underwent a coup earlier this year, installing Abdulla Yameen -- who has been implicated in several corruption scandals and is seen as a close friend of Beijing -- as president. But elections this week has seen him deposed. How the Maldives will pay for a major Chinese-funded and built airstrip, and an equally ambitious bridge project, is yet to be seen. And there’s an abandoned British naval facility ripe for the pickings on the island of Gan.
3. MYANMAR: A naval base on the Indian Ocean side of the chokepoint Malacca Strait would give China the ability to project power across the region and the Bay of Bengal. Beijing has built a new port at Kyaukpyu — and taken a 70 per cent controlling stake in it after Myanmar defaulted on repayments.
4. PAKISTAN: China is in advanced talks with Pakistan to build a base on the Arabian Sea, near the city of Gwadar.
5. SRI LANKA: An inability to repay $6 billion in debt to China has already given Beijing a windfall in Sri Lanka. A controlling 70 per cent stake, along with a 99-year-lease, in the port of Hambantota has been given to a state-run Chinese company in an effort to pay-down the burden. This port sits close to the major Indian Ocean sea lanes.
6. THAILAND: China is pushing Thailand for the construction of a 100km canal on the scale of Panama, linking the South China Sea with the Bay of Bengal and bypassing the crowded Strait of Malacca. India fears the economically unviable Kra Canal will quickly fall under the control of Beijing, dramatically improving its ability to influence the balance of power in the Indian Ocean. Thailand, under pressure from all sides, is yet to accept — or reject — the project.

China is becoming a colonialist power

Heavy lending to Pakistan as part of the Belt and Road Initiative could backfire 
JAMIL ANDERLINI

The artfully preserved ruins of Beijing’s old summer palace are a powerful reminder of the decision by French and British troops to burn the place down in October 1860.
 The British high commissioner ordered the destruction as retribution for the murder of 20 emissaries, including a British journalist, who had been sent to negotiate a truce with the Manchu empire.
But this crucial detail is never mentioned in the Chinese government’s official version of the event. The sanitised historical record taught in schools and drummed into every Chinese citizen today is part of a decades-old propaganda effort to portray imperialism and colonialism as the exclusive preserve of evil foreigners.
According to this narrative, China is a peace-loving nation lacking any ill intentions and constitutionally incapable of acting like a bully or coloniser.
 Many countries (and people) think this way about themselves.
But China’s attitude raises a danger when combined with its new-found position as a rising superpower with an explicit plan to project its power across the globe.
 The Belt and Road Initiative, Xi Jinping’s signature foreign policy, is intended to link China and Europe along the ancient Silk Road with a network of Chinese-built roads, railways, ports and pipelines.
The BRI has a strategic element.
China hopes to reduce the importance of chokepoints such as the Strait of Malacca and the South China Sea through which most of its energy and other commodity imports must travel.
 But overall the BRI is mostly what Beijing says it is: a “win-win” project to provide infrastructure to countries that desperately need it.
While the intention behind the BRI is positive from the perspective of neighbouring countries, if China is not careful, the outcomes may not be so benign.
 On a visit to Beijing last month, the recently re-elected nonagenarian Malaysian Prime Minister Mahathir Mohamad warned that the BRI risks becoming a “new version of colonialism”. 
Malaysia has been the second-biggest recipient of BRI investment, but Mr Mahathir has already cancelled or suspended more than $23bn-worth of “unfair” Chinese contracts signed before he took office. 
 This criticism from a developing country — rather than sanctimonious western democracies — genuinely shocked Chinese officials, who are used to thinking of their country as a victim of imperialist colonial aggressors. 
Sri Lanka has had its own BRI backlash after a Chinese state-controlled company signed a 99-year lease for a strategic port in exchange for debt relief.
Critics there accused China of intentionally leading Sri Lanka into a “debt trap” so it could seize the port.
 The episode highlights Beijing’s inability to view its actions as anything but benevolent and its tendency to ignore historical echoes.
After all, China experienced its own national humiliation in the form of what they call the “unequal treaty” that gave Britain a 99-year lease over Hong Kong’s New Territories at the end of the 19th century.
 In fact, China’s leaders and theoreticians would do well to study the history of British imperialism for evidence of how economic projects can lead to empire.
The UK did not initially set out to conquer India, but the experience of the British East India Company proves that “the flag follows trade” at least as often as the other way around.
 Today, China is at risk of inadvertently embarking on its own colonial adventure in Pakistan— the biggest recipient of BRI investment and once the East India Company’s old stamping ground. Pakistan’s leaders have described their relationship with China as that of “iron brothers” with ties that are “higher than the Himalayas, deeper than the deepest ocean and sweeter than honey”.
 But this hyperbolic rhetoric masks the fact that Pakistan is now virtually a client state of China. 
Many within the country worry openly that its reliance on Beijing is already turning it into a colony of its huge neighbour.
The risks that the relationship could turn problematic are greatly increased by Beijing’s ignorance of how China is perceived abroad and its reluctance to study history through a non-ideological lens.
 For now, the Pakistani military oversees security for the $62bn of Chinese infrastructure projects in the country.
But China already sends small numbers of security officers disguised as ordinary workers to Pakistan to ensure an extra level of protection for these projects, according to Pakistani officials.
 It is easy to envisage a scenario in which militant attacks on Chinese projects overwhelm the Pakistani military and China decides to openly deploy the People’s Liberation Army to protect its people and assets.
That is how “win-win” investment projects can quickly become the foundations of empire.

‘We Cannot Afford This’: Malaysia Pushes Back Against China’s Paranoia

A country that once courted Chinese investment now fears becoming overly indebted for big projects that are neither viable nor necessary — except to China.

By Hannah Beech

Melaka Gateway, a set of artificial islands in Malaysia, is a joint project between a Malaysian group and Chinese companies.

KUANTAN, Malaysia — In the world’s most vital maritime chokepoint, through which much of Asian trade passes, a Chinese power company is investing in a deepwater port large enough to host an aircraft carrier.

Another state-owned Chinese company is revamping a harbor along the fiercely contested South China Sea.
Nearby, a rail network mostly financed by a Chinese government bank is being built to speed Chinese goods along a new Silk Road. 

And a Chinese developer is creating four artificial islands that could become home to nearly three-quarters of a million people and are being heavily marketed to Chinese citizens.
Each of these projects is being built in Malaysia, a Southeast Asian democracy at the heart of China’s effort to gain global influence.
But where Malaysia once led the pack in courting Chinese investment, it is now on the front edge of a new phenomenon: a pushback against Beijing as nations fear becoming overly indebted for projects that are neither viable nor necessary — except in their strategic value to China or use in propping up friendly strongmen.
At the end of a five-day visit in Beijing, Malaysia’s new leader, Mahathir Mohamad, said on Tuesday that he was halting two major Chinese-linked projects, worth more $22 billion, amid accusations that his predecessor’s government knowingly signed bad deals with China to bail out a graft-plagued state investment fund and bankroll his continuing grip on power.
His message throughout his meetings with officials, and in public comments, has been unambiguous.
“We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” Mr. Mahathir said on Monday at the Great Hall of the People in Beijing after meeting with Li Keqiang.

For a time it appeared that China’s standard playbook for gaining favor was working in Malaysia. 

It had successfully courted Mr. Mahathir’s predecessor, Najib Razak, with easy loans and showcase projects, and secured deals that were of strategic value for its ambitions.
But in May, Mr. Najib was voted out of office by an electorate tired of the corruption scandals swirling around him, some of which involved China’s highest-profile investment deals in Malaysia.
Mr. Mahathir, 93, was voted into office with a mandate that included getting the country out from under its suffocating debt — roughly $250 billion of it, some of it owed to Chinese companies.
From Sri Lanka and Djibouti to Myanmar and Montenegro, many recipients of cash from Chinese’s huge infrastructure financing campaign, the Belt and Road Initiative, have discovered that Chinese investment brings with it less-savory accompaniments, including closed bidding processes that result in inflated contracts and influxes of Chinese labor at the expense of local workers.
Fears are growing that China is using its overseas spending spree to gain footholds in some of the world’s most strategic places, and deliberately luring vulnerable nations into debt traps to increase China’s dominion as the United States’ influence fades in the developing world.
“The Chinese must have been thinking, ‘We can pick things up for cheap here,’” said Khor Yu Leng, a Malaysian political economist who has been researching China’s investments in Southeast Asia. “They’ve got enough patient capital to play the long game, wait for the local boys to overextend and then come in and take all that equity for China.”
In his action in Beijing on Tuesday, Mr. Mahathir said he was halting a contract for the China Communications Construction Company to build the East Coast Rail Link, thought to have cost the government around $20 billion, along with a $2.5 billion agreement for an arm of a Chinese energy giant to construct gas pipelines. 

He had earlier suspended the projects, leading some analysts to believe he wanted to renegotiate the terms during his China trip. 

Instead, he announced that the deals were off for now.
“It’s all about borrowing too much money, which we cannot afford and cannot repay because we don’t need these projects in Malaysia,” Mr. Mahathir said.

Prime Minister Mahathir Mohamad has been given an electoral mandate to guide Malaysia out from under $250 billion in debt, some of it owed to Chinese companies.

A rooftop bar at Melaka Gateway.

A Pentagon report released last week said “The ‘Belt and Road Initiative’ (BRI) is intended to develop strong economic ties with other countries, shape their interests to align with China’s and deter confrontation or criticism of China’s approach to sensitive issues.”
“Countries participating in BRI could develop economic dependence on Chinese capital, which China could leverage to achieve its interests,” the report said.
Malaysia’s new finance minister, Lim Guan Eng, raised the example of Sri Lanka, where a deepwater port built by a Chinese state-owned company failed to attract much business. 

The indebted South Asian island nation was compelled to hand over to China a 99-year lease on the port and more land near it, giving Beijing an outpost near one of its busiest shipping lanes.
“We don’t want a situation like Sri Lanka where they couldn’t pay and the Chinese ended up taking over the project,” Mr. Lim said.
In a recent interview with The New York Times, Mr. Mahathir made clear what he thought of China’s strategy.
“They know that when they lend big sums of money to a poor country, in the end they may have to take the project for themselves,” he said.
“China knows very well that it had to deal with unequal treaties in the past imposed upon China by Western powers,” Mr. Mahathir added, referring to the concessions China had to give after its defeat in the opium wars. 

“So China should be sympathetic toward us. They know we cannot afford this.”

Strategic Location

The Malaysia-China Kuantan Industrial Park.

Malaysia has long served as a prize of empire, with a geopolitical importance that belies its relatively small size. 

The Portuguese, Dutch and British flocked here, eager to control a fulcrum linking the Pacific and Indian Oceans. 

China is the latest power to try to share in the riches.
Kuantan, a Malaysian city nestled on the South China Sea coast, had never been a hot spot. 

But then China began adding military heft to its territorial aspirations in the sea, where five other governments, Malaysia’s included, have competing claims.
Chinese financing began washing over Kuantan five years ago. 

Guangxi Beibu Gulf International Port Group, a state-owned firm from an obscure Chinese autonomous region, won a contract supported by the Malaysian government to build a deepwater terminal and industrial park. 

Nearby was a planned stop on the East Coast Rail Link that would mostly be financed by the Export-Import Bank of China, a government institution.
Presiding over the official launch for the Malaysia-China Kuantan Industrial Park in 2013, Mr. Najib conferred on the project a global import.
“China and Malaysia remain closely connected at a time when the balance of global trade is tilting in Asia’s direction,” he said. 

“On economic cooperation — and diplomatic — I am proud to say that Malaysia is ahead of the curve.”
Kuantan residents, though, have long worried that the city could be saddled with white-elephant projects.
“We welcome foreign investment and development, but we question the huge price that we will have to pay,” said Fuziah Salleh, a Kuantan lawmaker for Malaysia’s new governing coalition. 

“Who is the real beneficiary of all this financing? The Malaysians or the Chinese?”
“I am worried that our sovereignty has been sold,” Ms. Fuziah said.
Mr. Mahathir, however, is not averse to standing up to the superpower of the day. 

He was prime minister before, from 1981 to 2003, and back then he railed against the United States and other Western countries for what he said was a plot to hold back developing nations like Malaysia.
“Mahathir thinks China is a hegemonic force that can control economies like Malaysia,” said Edmund Terence Gomez, a political economist at the University of Malaya. 

“He’s always been worried about powerful forces. Before it was the U.S., now it’s China.”
Mr. Mahathir’s administration has been in power for little more than 100 days. 

In that time, Malaysian officials say, they have discovered that billions of dollars in inflated Chinese contracts were used to relieve debts associated with a Malaysian state investment fund at the heart of a graft scandal that led to Mr. Najib’s downfall.

Former Prime Minister Najib Razak arriving at court in Kuala Lumpur last month after his arrest on corruption charges.

The construction site of a deepwater port in Kuantan.

The United States Treasury Department has accused Mr. Najib and his family and friends of plundering billions of dollars from that fund, 1Malaysia Development Berhad, or 1MDB. 

When the indebted fund began a fire sale of assets, two Chinese state-owned giants, the China General Nuclear Power Corporation and the China Railway Engineering Corporation, moved in, prompting speculation that Beijing was happy to keep Mr. Najib’s cash-strapped government afloat.
Sitting at his desk during an interview after the election, Mr. Mahathir pointed to a sheaf of papers before him. 

It was a proposal from a Malaysian construction company that he said contained evidence that the East Coast Rail Link could have been developed by a Malaysian company for less than half of the $13.4 billion contract won by the China Communications Construction Company, a state-owned Chinese firm with extensive operations overseas.
Notably, the bidding process for the rail contract was closed.
Last week, Mr. Lim, the finance minister, told Parliament that Malaysia would not be able to cover the operational cost for the railway, much less the capital expenditure, which he estimated at nearly $20 billion rather than $13.4 billion.
Neither the Chinese company nor its Malaysian partner responded to requests for comment.
“It looks like not all the money is being used for building the railway line,” Mr. Mahathir said of the East Coast Rail Link deal. 

“The likelihood is the money has been stolen.”
Malaysian investigators are looking into whether an associate of Mr. Najib’s stepson may have brokered the rail deal to alleviate the debt accrued by 1MDB or to fund Mr. Najib’s re-election campaign.
The United States Treasury Department considers that associate, Jho Low, an exiled financier who has an arrest warrant out on him, to be the prime agent in the 1MDB scandal. 

On the eve of Mr. Mahathir’s trip to China, Malaysian finance ministry officials said they believed that Low had been hiding out in China.
Malaysia’s new administration, which unseated a coalition that had ruled, in one form or another, since independence in 1957, has also been scrutinizing the $2.5 billion deal for a subsidiary of the China National Petroleum Corporation to build energy pipelines in Malaysia. 

Mr. Lim said he had discovered upon taking up his post that the Malaysian government had already disbursed more than $2 billion for the project.
There was one catch. 

“From what we understand,” Mr. Lim said, “zero percent of the construction work has been carried out.”

Building Big Ports

Melaka Gateway includes three artificial islands and an expanded natural islet.

While the role of Chinese money in bailing out Mr. Najib’s indebted administration has received the most attention, another Chinese megaproject raises even sharper questions about Beijing’s geopolitical aims.
The Malaysian city of Malacca was once a conduit for spices and treasures that flowed from Asia to Europe. 

The strait named after the city is still the channel through which much of Asia’s seaborne trade — and most of China’s oil imports — flows.
But Malacca’s port silted up centuries ago and is now a backwater. 

Instead, nearby Singapore, which sits at the southern end of the Strait of Malacca, ranks as the world’s busiest transshipment hub.
A $10 billion development project — backed by PowerChina International, a major Chinese utility, and two Chinese port developers — is supposed to propel Malacca back into global significance, as a vital stop on a maritime trade route that stretches from Shanghai to Rotterdam.
The plan for this project, Melaka Gateway, includes three artificial islands and an expanded natural islet, which will hold an industrial park, cruise terminal, theme park, marina, offshore financial hub and self-styled seven-star hotel.
And there will be a new deepwater port, with berths large enough to host an aircraft carrier. 

The port operator was given a 99-year lease for the deepwater terminal, rather than the more common 30-year time frame.
The local partner in Melaka Gateway is KAJ Development, which counts among its previous accomplishments building the local zoo and bird park.

Chinese tourists posing in front of an “I Love Melaka” sign in Malacca.

A road worker sweeping near the entrance to Melaka Gateway.

To explain how a little-known company was able to work with Chinese firms to transform such a strategic spot, locals have remarked on the close ties between the head of KAJ Development and Mr. Najib’s party machine. 

The company did not respond to a request for comment.
“We have so many questions about the project but no answers,” said Sim Tong Him, a former lawmaker from Malacca. 

“How did KAJ get the contract? What might happen if the Malaysian side can’t pay up? The Chinese are so secretive about this. It leaves us with a very bad feeling.”
Malacca State’s new chief minister has promised an investigation into the feasibility of the entire project, including the possibility that land on one island could be sold as a freehold to a Chinese state-owned company.
Melaka Gateway’s necessity, at least for locals, has never been clear. 

After all, the nearby Singaporean port is unlikely to be eclipsed. 

And Malaysia is already expanding other ports, even as many are running under capacity.
“We are very concerned because in the first place we don’t need any extra harbor,” Mr. Mahathir said of the Malacca project.
“We don’t have to depend upon foreigners to come,” he added. 

“When they build, they use foreign labor, foreign materials. What do we get? Nothing.”
But Beijing has funded the building of ports across the Indian Ocean, a strategy known as the string of pearls. 

Military experts have said that these ports could one day welcome Chinese warships and submarines.
“You look at a map and you can see the places where China is plotting ports and investments, from Myanmar to Pakistan to Sri Lanka, on toward Djibouti,” said Liew Chin Tong, Malaysia’s deputy defense minister. 

“What’s crucial to all that? Our little Malaysia, and the Malacca Strait.”
Under Mr. Najib, Malaysia conducted joint military drills with China and allowed Chinese attack submarines to make a port call. 

Mr. Mahathir has shifted course.
“I say publicly that we do not want to see warships in the Strait of Malacca or the South China Sea,” he said.

City of Dreams

A showroom model of Forest City, a China-financed real estate project in Johor Bahru, Malaysia.

In Forest City, a new metropolis being built at the tail end of the Malaysian peninsula, a tour guide gazed up at a bank of screens showcasing the latest in Chinese facial-recognition technology, and gave his best pitch to a group of would-be investors from a coal town in northern China.
Forest City, he said in Mandarin, was a jewel on the South China Sea.
Best of all, he said, everything in the city was designed for a Chinese clientele, from the layout of the luxury apartments to the signage in Mandarin.
The development — four artificial islands covering around eight square miles, or enough space for around 700,000 people — was conceived of by Country Garden, one of the largest private Chinese property developers, in cooperation with an investment entity whose largest shareholder is the local sultan.
In the sales gallery, an electronic display plays up Forest City’s “strategic location” and places it at the center of a map of Beijing’s Belt and Road Initiative projects.
“We are doing something that will alter the world map,” the sales pitch reads.

Forest City showroom employees putting on a show in Chinese for the children of prospective buyers.
Ceramic sea lions on the beach at Forest City.

More than any other project, Forest City helped turn local sentiment against Chinese cash, amid suspicions that a private Chinese property developer was somehow plotting to reshape Malaysia’s delicate ethnic balance.
“This is not Chinese investment but a settlement,” Mr. Mahathir said during the election campaign, using Forest City as a frequent punching bag.
Forest City is not a strategic play by the Chinese People’s Liberation Army to station warships in Malaysia. 

Nor is it viewed as a way for Beijing to finance the excesses of a corrupt leader. 

Instead, it represents something even more alarming to the average Malaysian — four man-made islands on which Chinese can live as they like and, in the process, dilute the Malaysian national identity.
Although the majority of Malaysians are Malay Muslims, the country’s second largest ethnic group is Chinese, followed by an Indian population. 

Many Chinese migrated to Malaysia during the colonial era, and the feeling that they were given preferential treatment by the British lingers to this day.
Affirmative action programs that gained full force during Mr. Mahathir’s first stint as prime minister ensure that Malays and indigenous populations get a leg up over ethnic Chinese Malaysians.
In that context, the prospect of a new wave of Chinese migration, even if only a population of part-time sunbirds, is politically sensitive in Malaysia.
But what if that wave doesn’t even materialize? 

Capital controls in China have made it far more difficult for Chinese to get their money out to pay for overseas real estate, worrying the Mandarin-speaking sales staff at Forest City. 

Who will buy all these condominiums, which are priced far above the local property market, if not the Chinese?
“We all want Forest City to succeed, because we cannot afford for it to fail and become an empty ghost city,” said Wong Shu Qi, a member of parliament for the Democratic Action Party, which is part of the governing coalition.
“The reality is that wishing for a Chinese concession in Malaysia is the best thing we can hope for,” she added. 

“How sad is that?”

A residential tower project under construction at Forest City.

A Chinese world order

By Jonathan Hillman

Loans from China helped Uganda build a speedy new road to its main airport. 

BUDAPEST — Earlier this month, 16 Central and Eastern European heads of state assembled around a single foreign power in Sofia, Bulgaria.

The convening force was not the European Union, Russia or the United States, which historically have the deepest cultural, political and security ties in this region. 

Instead, China was at the center — as it increasingly is around the world.
Now in its seventh year, the “16+1” summit perfectly captures China’s deceptive brand of multilateralism. 

Bringing together many countries, it gives the outward appearance of inclusivity and consensus-building. 

Official statements at the summit affirmed support for the World Trade Organization and the United Nations, two genuine pillars of multilateralism that are increasingly under strain. 

“We need to uphold multilateralism,” Li Keqiang told attendees.
But beneath the surface, China’s 16+1 format is fundamentally different from the multilateral practices and institutions it claims to uphold. 

China and its partners do not subscribe to a common set of rules that has any significant impact on their behavior. 

Nor is anything of consequence done by consensus. 

China’s multilateralism lacks depth, and it relies on stroking egos and dangling bilateral deals. 

Call it “flatteralism.”
Where this approach has benefits, they mostly accrue to China. 

Under the guise of broader participation, China favors governments where investment rules are less strict, ensuring Chinese companies are hired to build large projects. 

For example, Bosnia’s economy is roughly one-third the size of Croatia’s, but it is not subject to E.U. procurement rules that require open bidding. 

Last year, it received ten times as much Chinese investment, according to data collected by the Center for Strategic and International Studies.
There are practical and political advantages as well. 

These annual gatherings allow Chinese officials to efficiently lavish high-level attention on smaller economies. 

And when China comes to town, its summits are less board meetings than auditions. 

The 16 countries essentially compete for the attention of the one. 

China uses variations of this model elsewhere, positioning itself at the center of summits in Africa and Latin America. 

This is adept diplomacy, but it is not multilateralism.
Flatteralism also runs through Chinese dictator Xi Jinping’s signature foreign policy vision. 

Unveiled in 2013, China’s Belt and Road initiative aims to move Beijing close to the center of everything through new hard infrastructure projects, trade deals, cultural exchanges and a multitude of other connections. 

“Together, we can build a broad community of shared interests,” Xi told an audience of nearly 30 heads of state and representatives from more than 130 countries and 70 international organizations in Beijing last year.
The Belt and Road is a masterstroke in geopolitical advertising. 

Wrapping the effort in Silk Road mythology, Xi is effectively selling a Sino-centric order to the world. 

Rather than cringing at maps that depict all roads leading to Beijing, roughly 70 countries have signed onto the effort. 

The United Nations, WTO and other traditional standard-bearers of multilateralism have all expressed varying degrees of support for an effort that could further erode their effectiveness.
In practice, the Belt and Road is a sea of bilateral deals between China and participating countries, including many markets where few others dare to go. 

More than half of the countries participating in the Belt and Road have sovereign debt ratings that are either junk or not graded. 

China’s emphasis on building big-ticket infrastructure projects resonates with foreign leaders looking to impress at home and establish a legacy.
Ribbon cutting ceremonies are difficult for leaders to resist, and as the deals pile up, development can give way to dependency. 

In a former Sri Lankan president’s home district, major projects — including an international airport, a cricket stadium and a port — had three things in common: they used Chinese financing, Chinese contractors and his name. 

Now they are barely used, Sri Lanka has crushing debt, and China has control of the port.
Praise flows freely along the Belt and Road. 

China touts an “all-weather strategic” partnership with Pakistan, a “comprehensive strategic partnership” with Russia, a “comprehensive strategic cooperative partnership” with Vietnam and “strategic cooperative” relationships with a long list of neighbors. 

It has become the Baskin-Robbins of partnerships, offering flavors for everyone.
But what China has yet to offer is deep multilateralism at scale. 

Its closest attempt, the Asian Infrastructure Investment Bank, has attracted broad participation and adopted rules similar to those of the World Bank. 

But having lent only $5 billion to date, the AIIB is easily overshadowed by Beijing’s bilateral lending mechanisms. 

Over the next five years, the China Development Bank has committed to invest $250 billion in countries along the Belt and Road.
Less than a week after China’s 16+1 summit, NATO heads of state gathered in Belgium. 

Normally, a meeting of the world’s most powerful collective security alliance would provide a stark contrast to Beijing’s shallow summitry. 

But in the absence of strong U.S. support for authentic multilateralism, it is becoming more difficult to spot imposters.

China's Debt Traps

Chinese 'highway to nowhere' haunts haunts Montenegro

By Noah Barkin, Aleksandar Vasovic

A worker hides from the sun on the Bar-Boljare highway construction site in Klopot, Montenegro June 11, 2018. 

PODGORICA -- Perched atop massive cement pillars that tower above Montenegro’s picturesque Moraca river canyon, scores of Chinese workers are building a state-of-the-art highway through some of the roughest terrain in southern Europe.
The government has described the 165 km (103 mile) highway, with its imposing bridges and deep-cut tunnels, as the construction of the century and a pathway to the modern world.
It is designed to link the port of Bar on Montenegro’s Adriatic coast to landlocked neighbor Serbia. But once the first, challenging 41 km stretch through mountains north of the capital is completed, the government faces a difficult choice.
A Chinese loan for the first phase has sent Montenegro’s debt soaring and forced the government to raise taxes, partially freeze public sector wages and end a benefit for mothers to get its finances in order.
Despite those measures, Montenegro’s debt is expected to approach 80 percent of gross domestic product (GDP) this year and the International Monetary Fund says the country cannot afford to take on any more debt to finish its ambitious project.
“There is a big question about how they complete it,” said an EU official who requested anonymity. “Their fiscal space has shrunk enormously. They have strangled themselves. And for the time being this is a highway to nowhere.”
The road is at the heart of an intense debate about Chinese influence in Europe, both within EU member states and countries aspiring to join the bloc such as Montenegro and its Western Balkan neighbors Serbia, Macedonia and Albania.
As Beijing extends its economic reach under the ambitious Belt and Road Initiative (BRI), poor countries across Asia and Africa have seized on attractive Chinese loans and the promise of transformative infrastructure projects.
This has allowed them to develop in ways that may not have been possible without access to China’s vast foreign exchange reserves. 

But some countries, such as Sri Lanka, Djibouti and Mongolia, have found themselves weighed down by debt and ever more reliant on Beijing’s largesse.
Montenegro is the first country in Europe to find itself in this position as its government presses on with its dream of a gleaming new highway to lead the nation to a brighter future.
“This highway is a big deal in Montenegro. It reminds people of Tito and the days of grand socialist projects in the region,” said academic Mladen Grgic, referring to former Yugoslavia’s long-time communist leader Josip Broz Tito.

“But it’s a trap. Now that it’s been started, the politicians can’t stop it – no matter how harmful it might be. And frankly they don’t want to,” said Grgic, author of a 2017 study on the highway.

‘NOT BANKABLE’
The idea of building a highway from the coast to Serbia can be traced back to 2005, a year before Montenegro’s vote for independence from its neighbor. 

The project was championed by Milo Djukanovic, who has served as president or prime minister of Montenegro nearly uninterrupted since 1991.
The government hopes the highway will give an economic boost to the country’s underdeveloped north, bolster trade with Serbia and improve road safety as Montenegro’s narrow, winding mountain roads are notoriously dangerous.
Having recognized that there is little scope to take on more debt, the government’s options for building the next three phases of the highway are limited.
The option it now favors is a public private partnership (PPP) in which an outside partner would build and operate the highway, then run it under a concession from the state for 30 years to get a return on their investment.
China Road and Bridge Corporation (CRBC), the large state-owned Chinese company that is building the first section, signed a memorandum of understanding (MOU) in March to complete the rest of the road on a PPP basis.
But European lenders worry that Montenegro would need to offer costly revenue guarantees to make that work, potentially deepening its financial woes.
“We told them that their PPP model was not bankable, that they would be taking on risks they don’t know how to manage,” said an official from the European Investment Bank (EIB), the European Union’s lender.

A bridge construction site of the Bar-Boljare highway is seen in Bioce, Montenegro June 07, 2018. 

The IMF cautioned the government in May against a PPP solution that could introduce large contingent liabilities. 

One official suggested Montenegro would be better off waiting until it joined the EU before finishing the highway.
Once it is part of the EU, Montenegro would have access to more structural and cohesion funds from Brussels. 

But the process of joining the bloc could take a decade or more, despite a loose target date of 2025 floated by the EU this year.

FEASIBILITY STUDIES
Doubts about the highway surfaced after two feasibility studies, conducted in 2006 and 2012, showed it was not economically viable.
Reuters reviewed copies of the studies, the first carried out by French firm Louis Berger for the Montenegrin government, and the second by U.S. company URS for the EIB. 

Both concluded there would not be enough traffic to justify a concession.
Louis Berger estimated the government would have to pay 35 million to 77 million euros a year in subsidies to make a toll-based system attractive to outside investors.
URS looked at each section of the highway and concluded that all possible combinations were economically unworkable. 

It recommended a more modest upgrade of existing roads.
“The low current traffic volumes and the weak economic forecasts mean that the economic benefits of the proposed route do not provide adequate return on the investment,” URS said.
To justify the grand highway envisioned by the Montenegrin government, URS said internal rates of return of 8 percent would be required but it estimated they would be below 2 percent.
Ivan Kekovic, an engineer who was involved in the project in its early years but later issued an open letter to parliament warning against it, told Reuters that average traffic of 22,000 to 25,000 vehicles a day would be needed to justify a highway of the proposed scale.
Daily traffic on the busiest stretch, from the capital Podgorica to the port of Bar, is less than 6,000 vehicles.
Early attempts to build the highway, first with a Croatian consortium and then with a Greek-Israeli one, collapsed after both groups failed to provide bank guarantees in time.
Critics breathed a sigh of relief, convinced the project was dead. 

Then China appeared on the scene.

CHINA FILLS VOID
Economics professors at the University of Montenegro were paid by the state-funded Export-Import Bank of China to conduct a new feasibility study.
This one found the highway was viable, according to the government. 

But this study has never been made public and attempts by Reuters to see it were unsuccessful.
China Communications Construction Co., CRBC’s parent firm, did not respond to a request for comment about the studies.
MANS, an EU-financed anti-corruption watchdog, pressed the government to provide members of parliament with data to support its vision before a vote to approve the highway in 2014. 

It refused.
“We have no doubt that the data that the ministry of transport used in order to justify the construction of the highway are fabricated,” said Dejan Milovac, deputy executive director at MANS.
The government denies manipulating the numbers and says the highway will deliver long-term economic and social benefits that prove the skeptics wrong.
Zorana Mihajlovic, deputy prime minister of Serbia, which is building a stretch of highway with Chinese help to link with the Montenegrin road, took a similar view.
“There are investments that may not be economically justifiable from a short-term perspective, but which are strategically important,” she told Reuters.
The six Western Balkan countries – Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia - are surrounded by EU member states. 

But the region has suffered from under-investment and poor governance since the independence wars of the 1990s, making it an economic laggard.
Over the past decade, as the EU struggled with a succession of crises and put enlargement of the bloc on hold, other powers, including Russia and Turkey, have moved in to fill the void.
China has been especially active. 

In 2012, it began holding annual “16+1” summits with eastern and southern European states to discuss investment opportunities, infuriating Brussels.
A year later, it unveiled BRI, its grand plan to secure land and maritime trade routes from Asia to Europe and Africa.
The Western Balkans, strategically positioned on Europe’s southern flank, is a key access point for China to reach central Europe and beyond.
China’s investments in the region total more than 6 billion euros -- including highways, rail lines and power plants. 

Serbia, the largest economy in the region and Beijing’s long-standing ally, has received the lion’s share.
Montenegro could be attractive to China for a number of reasons. 

It gives Beijing a port of entry into Europe from the Adriatic, and close economic and political ties with the government in Podgorica could prove valuable for China if Montenegro becomes an EU member.

‘DISBELIEVERS’
The 809 million euros Montenegro received from China’s Export-Import Bank covers 85 percent of the cost of the first section of the road.
The dollar-denominated loan carries a 2 percent interest rate, 20-year repayment schedule and 6-year grace period – attractive terms but a major long-term burden for a country of roughly 620,000 people.
Under the terms of the contract, an arbitration court in China would have jurisdiction in the event of any legal dispute. 

CRBC won commitments that all imported construction materials, equipment and other goods be exempt from customs and value-added tax. 

Chinese workers were given 70 percent of the work.
Some 3,605 workers are busy building the first section of the highway. 

Roughly two-thirds of them are from CRBC, one of the largest engineering and construction firms in the world.
Four camps of neat blue-roofed bungalows house the Chinese workers. 

Dotting the area are billboards in Chinese and English exhorting them to be meticulous and responsible.
“CRBC expects to build the future sections of this project,” Kang Shifei, deputy project manager for CRBC, told Reuters on a blazing hot afternoon in June, beneath the giant pillars that will support a kilometer bridge above the Moraca canyon.
Because the government did not hedge against currency swings and omitted a vital turnpike from its original blueprint, the cost has continued to rise. 

It is now approaching 1 billion euros, nearly a quarter of Montenegro’s GDP.
A March report from the Washington-based Center for Global Development which examined the debt risks associated with BRI listed Montenegro as one of eight highly vulnerable countries, alongside Djibouti, the Maldives, Laos, Mongolia, Tajikistan, Kyrgyzstan and Pakistan.
The remaining three-quarters of the highway will plow through less mountainous terrain. 

The IMF estimates it will cost another $1.2 billion to complete.
Prime Minister Dusko Markovic has said it will be finished at any cost and promised to deepen cooperation with China in other areas, including hydropower and tourism. 

He has dismissed critics as “disbelievers”.
But opposition politicians are worried – about the country’s finances and about China’s role.
Dritan Abazovic, head of the United Reform Action opposition party, said it was normal for an economic power such as China to seek a role in the region, alongside the EU, United States and Russia.
But because of the scale of the project, he worries the deal with the Chinese will end up giving Beijing much more influence over Montenegro.
“It puts the Chinese in a very very comfortable position,” he said.