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Paw Tracker newsletter (Week of May 2)

The ongoing war in Ukraine, a suicide bomber targeting the Confucius Institute in Karachi… recent developments highlight the security uncertainties facing the Belt and Road Initiative, and accentuates President Xi’s warning at the end of last year - “don't go to dangerous places, avoid disorderly places”. Last week two interpretations of the security situation, regarding Ukraine and Pakistan, respectively, highlight the divergence of opinions in China’s BRI community. A major credit agency found optimism in the face of the global crisis, while an experienced journalist urged a long, hard look in the mirror.

Meanwhile, China’s Digital Silk Road Initiative bagged a major deal in Bangladesh. Aiming to shore up computing and telecommunication capacities of recipient countries, this relatively new component of the BRI is at once an answer to security threats (surveillance capabilities) and a source of security concerns of its own.

The Paw Tracker newsletter, developed by Panda Paw Dragon Claw, provides up-to-date and granular project-level information on the Belt and Road Initiative. Drawing from Chinese sources of information that are often disjointed and difficult to access, the newsletter also aims to become a convening space for watchers of the BRI to share and cross-check information about projects and their impacts on the ground. 

Talk of the Town

On May 6, China Chengxin International (CCXI), a domestic credit rating agency, published its assessment of how Russia’s war in Ukraine may affect the Belt and Road Initiative. The message is overall very bullish – the BRI can reap the benefits of the geopolitical fallout of the war. This interpretation probably sits on the far end of optimism and hopefulness on the spectrum of opinions currently floating in Chinese policy and economic circles.

The assessment acknowledges the short term shock the war has brought to the BRI: China-Europe freight rails services through Ukraine have been stopped or rerouted; Chinese EPC projects in Ukraine (valued at 6.64 billion USD in total) have largely halted. But its mid-to-long term projection turns out to be positive according to CCXI, premised on the conflict being resolved through negotiation.

“If Russia and Ukraine can agree to a peace deal,” the assessment states, “the long term prospect for China-EU cooperation won’t be significantly affected; China will form a stronger bond with Russia on energy and finance; and China-India relations might improve to benefit the BRI in South Asia.”

Probably euphemistically, CCXI claims that Europe’s need for economic recovery would enlarge the space for bilateral economic cooperation. It recognizes the “short term uncertainties” in China-Central Eastern Europe (CEE) relations, but insists that the “cooperative tone” won’t change in the mid-to-long term. However, in its recommendations, it also advocates for more caution in investments into the CEE region to avoid “mounting political risks.” (Reports from Europe, meanwhile, suggest that relations with the CEE region are now extremely cold.)

The assessment of China-Russia relations is blunt: China will get an upper hand in its dealings with Russia on energy, as the latter desperately needs a way out from Western sanctions. Bilateral financial integration sees an opening and the largely dormant China-Mongolia-Russia Economic Corridor might see a lifting. 

The more interesting assessment is on India. The country’s non-alignment stance in its approach to the war “shows the limit of India’s strategic closeness with the West and the common interest between China and India,” a potential boon for the struggling Bangladesh-India-Myanmar-China Economic Corridor. 

Based on such assessments, CCXI recommends using strategic openings to improve China’s energy and food security footing by accelerating the construction of the China-Russia oil/gas pipelines and diversifying it energy transport routes (such as the Persian Gulf - Afghanistan-Xinjiang route) to hedge against future blockades. Renewable energy should be developed as an energy security priority and an area of cooperation with Europe. On the finance side, CCXI emphasizes the internationalization of RMB and the development of CIPS system (in light of the “weaponization of the SWIFT system”) through the promotion of “oil RMB” (settling oil purchase with RMB) and offshore RMB settlement centers along the Belt and Road.

In contrast to the optimistic tone of the credit rating agency, a WeChat post by experienced Phoenix TV journalist Zhang Xiaowen offers a different take on the BRI’s security prospects. In response to the disbelief on the Chinese internet after the recent terrorist attack against Confucius Institute teachers in Karachi, Zhang writes candidly that it’s time to end the “self-hynotizing” on the China-Pakistan “iron brotherhood” and wake up to the complex reality of Pakistani politics and society. “Pakistani society’s friendliness to China is real, but the country’s troubles since the War on Terror are real too”, she writes. “If Pakistan’s security, economic and pandemic situations do not improve, there is no question that [Chinese investment] will suffer.”             

She also reminds her readers that local reception of Chinese investment will ultimately be decided by the actual impact of such investment, not the act of investing itself. Chinese actors might need to patiently wait for years before they can see the societal return on investment.

This week's highlight project

Bangladesh: China brings the Digital Silk Road to Dhaka

On April 27, China Railway International Group signed a contract with the government of Bangladesh to build out the country’s information and communications infrastructure. The far reaching “Bangladesh National Digital Unicom” project will see the Chinese civil engineering giant construct 10,000 computer labs across the country, assist in improving the Bangladeshi government’s statistics gathering techniques and technology, and build an information and communications literacy training center in the country’s capital, Dhaka.

Why it gets our attention: Launched in 2015, the Digital Silk Road is China’s USD80 billion bid to export digital technology and know-how to dozens of countries around the world. At least 20 countries – but possibly many more – host Digital Silk Road projects, and that number is only slated to increase as China shifts its investment priorities away from heavy infrastructure in the aftermath of the Covid-19 pandemic. The recently published Chinese Loans to Africa database from the Boston University GDP Center demonstrated that loans for ICT related projects were the most resilient during 2020, the first year of the pandemic, amid an overall drop. Projects have included the construction of Egypt’s new administrative capital, satellite antenna in Ethiopia, and Zambia’s 5G network, all of which offer great potential to emerging African economies. The Silk Road initiative has not avoided  controversy, however, including allegations that China spied on the African Union headquarters it built in Ethiopia in 2018.

Other project & corporate updates

Brazil: Another 1.1GW solar plant deal signed 

Also on April 27, Energy China and German company EAB New Energy Group signed an EPC contract for the development of three solar PV projects in Brazil totaling 1.1GW worth of generation capacity. The EPC contract also includes the construction of transmission lines connecting the projects to the grid.

The plants are all located in the northeast of the country, two in the state of Bahia and one in the state of Ceara, and will occupy a total area of 3,129 hectares.

Last year China Development Integration Ltd and China Machinery Engineering Corp signed an EPC + finance contract for 1.1GW worth of solar PV capacity in the state of Rio de Janeiro.

A bit more context: Brazil’s solar sector is experiencing a boom. Total installed capacity at the end of last year hit 13GW, 4.6GW of which came from large scale, centralized solar facilities. Brazilian industrial association Absolar predicted that this year could see an additional 11.9GW come online, with USD10 billion worth of investment already committed. The sector is attracting major global energy players from Italy’s Enel to Norway’s Equinor (formerly Statoil) to international oil major Shell - who are also heavily involved in oil and gas exploration and extraction off Brazil’s coast. Chinese investment and equipment supply have also been growing.

If you have further details of any of the above mentioned projects that you would like to share with the community, please reach out to us through
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