Paw Tracker newsletter (Week of Jan 10)

2021 opens strongly for China’s international development agenda. We are barely into the second week of the new year and Foreign Minister Wang Yi has already toured two continents, visiting nine key allies of the Belt and Road Initiative. A new white paper on China’s vision for foreign aid is set to become a point of reference for anyone studying the country’s international development toolbox. As its title suggests, the white paper ushers in a “new era” where Chinese foreign aid will be deployed more strategically and in a more coordinated way to support China’s broader geopolitical goals.

Talk of the Town

On Jan 10, the State Council published a white paper on “China’s international development cooperation in the new era”, which lays out China’s new vision for foreign aid in the coming years.
 

Up to the publication of the new white paper, official information on Chinese foreign aid has been scant. The Ministry of Commerce (MOFCOM), which used to administer China’s official foreign aid before the creation of China International Development Cooperation Agency (CIDCA) in 2018, published two white papers in 2011 and 2014, which constitute the only available official accounts, leaving the outside world resorting to third party databases (such as AidData) for information.
 

In that sense, the new white paper provides a much needed (and overdue) update. What it has also updated is China’s philosophy of foreign aid which has not been well articulated since the creation of CIDCA.
 

China’s foreign aid in numbers:  With a few pie charts and bar graphs, the white paper depicts a statistical picture of Chinese foreign aid from 2013 to the end of 2018. A total of RMB 270.2 billion (about USD 41.5 billion under today’s exchange rate) was dispersed during this period as foreign aid, which breaks down into 47.3% of grants, 4.18% of zero-interest loans and 48.52% of concessional loans. A large portion (44.65%) of that aid went to Africa. Due to accounting and transparency discrepancies (especially when it comes to concessional loans), it is hard to compare Chinese foreign aid directly with other major donor countries. But previous estimates have put it roughly on a par with Turkey and Sweden. 
 

Connection of foreign aid with BRI:  The white paper provides a rare glimpse into how Chinese foreign aid is strategically deployed to advance the Belt and Road Initiative. For example, through its technical assistance program, it trained Belarusian officials on policy support for industrial parks and shared Chinese experience with industrial park development, laying the groundwork for better local coordination for the China-Belarus Industrial Park. Through its donation programs, China supplied customs in BRI countries with container inspection equipment, which helps accelerate the transfer of goods across borders. And through  a turnkey project for Lao PDR (national bank transaction system), it facilitated financial flows in and out of the country.
 

Sustainable development:  The white paper outlined how Chinese foreign aid helped advance the UN Sustainably Developmental goals. Interestingly, under climate change, it mentioned the announcement of the South-South Climate Cooperation Fund in 2015 but describes no further details beyond the “10-100-1000 program” that existed long before the 2015 announcement, making people wonder about the actual fate of that fund.
 

The future of Chinese foreign aid:  Observers have pointed out that the white paper also indicates changes to Chinese foreign aid on more fundamental (philosophical) levels, especially around the ideas of yi (public good) and li (self-interest). Watch Panda Paw Dragon Claw for an elaborated take on this point by our contributor Stella Zhang.

This week's highlight projects

Turkey: China Energy Engineering Corporation sign EPC contract for a 2x660MW coal power plant

The two units will be built close to the city of Çanakkale in western Turkey and will use ultra-supercritical technology. The project will be designed, constructed and operated at testing stage by China Energy Engineering Corporation and Guangdong Electric Power Design Institute.

Why it gets our attention: Coal power has been extremely controversial in Turkey. The other large scale coal power plant that Chinese companies and finance are involved in, Emba Hunutlu in eastern Turkey, has been mired by legal challenges and concerns about impacts on internationally protected sea turtle habitats in the Mediterranean. Just last week, a new report from WWF and the Turkish Sustainable Economy and Financial Research Association also challenged Hunutlu’s economic viability, claiming that the plant will be unable to recuperate investment costs over the whole of its expected 30 year operational life.

Myanmar: China signs MOU to conduct feasibility study for Myanmar railway during Wang Yi visit

On Jan 10 the Chinese ambassador to Myanmar and Myanmar’s Minister for Transport and Communication attended a ceremonial signing of an MOU for a feasibility study on the construction of a railway line between the country’s second biggest city, Mandalay, and planned deep sea port, Kyaukpyu.

More project details: Stretching 650km, the rail line is expected to cost around USD 9 billion, according to Global Construction Review. The feasibility study (and most likely the actual construction) will be done by China Railway Eryuan Engineering Group, whose Myanmar office chief representative, Wang Guoliang, was present at the MOU signing ceremony.

Why it gets our attention: Not only will the rail line, which is expected to be able to travel at up to 160km/h, revolutionise Myanmar’s domestic transport and trade, it is also one half of a project linking China’s southwestern Yunnan province with Myanmar’s economic core and the proposed Indian Ocean sea deep port at Kyaukpyu. Direct overland access to the Indian Ocean - avoiding the maritime bottleneck of the Malacca Strait - offers both trade benefits and potentially game changing geopolitical implications for China.

Indonesia: Sulawesi nickel and steel projects get a billion dollar boost on eve of Wang Yi visit

On the eve of Wang Yi’s visit to Indonesia, Bank of China and a group of ten other Chinese banks agreed to finance a USD 1 billion integrated stainless steel project in south Sulawesi. A few days earlier China Harbour Engineering Company signed a contract to build a 180,000 ton cargo ship terminal at the Morowali Industrial Park in central Sulawesi, the location of Indonesia’s largest nickel mine.

More project details: The integrated project in south Sulawesi will include a stainless steel smelting plant capable of producing 2.5 million metric tons per year, a nickel mine and a 1,440 MW thermal power plant. It is owned by Shanghai listed company Xiamen Xiangyu.

Even more details: The project’s complex financing arrangement is also of interest. The 11-strong group of financiers includes both commercial banks such as Bank of China, ICBC and China Construction Bank, as well as a policy bank, the China Development Bank. It also benefits from both Sinosure and commercial insurance. Financing is in both RMB and USD.

Why it gets our attention: Indonesia is attempting to transform away from an export based economy and upgrade its domestic industrial capacity, with nickel and steel smelting a major focus. The Indonesian government has consistently aimed to leverage Chinese, Japanese and other foreign investors’ interest in the country to achieve these aims. The government is also facing criticism from the EU at the WTO over its nickel export ban, aimed at accelerating the country’s industrial upgrade.

Other project & corporate updates

Poland: Ambassador looks back at Chinese investment in Poland in 2020

In an interview with China Central Radio, Chinese Ambassador to Poland Liu Guangyuan provides a useful overview of the BRI in Poland over the past year.

A bit more context: Poland is seen as a major node of the Belt and Road in Europe, especially as a key terminal for China-EU freight rail networks. But the BRI in Poland has been tricky from the outset due to its EU member state status. The country is a major recipient of the EU’s structural funds, which limits its appetite for Chinese financing (lending in particular) and also restricts how Chinese corporates can participate in its infrastructure building. 

Why it gets our attention: Ambassador Liu’s overview underscore’s China’s sensitivity to the concerns on the Poland/EU side. It emphasized how bilateral trade was boosted in 2020, with Poland’s export to China growing 10% year on year. It also highlighted how Power China won a part of Poland’s railway modernization deal through an open bid (first such win for an EU railway upgrade project), and how a 51.5MW solar power project invested by the China-CEE Fund (a private equity fund) successfully connected to the grid.

Worth your time

On Monday, Chinese foreign minister Wang Yi promised USD 464,000 worth of Covid medical supplies to Myanmar. On Wednesday, he promised to “advance cooperation with Indonesia on vaccine research, procurement and production”. And on Saturday, he offered the Philippines a donation of half a million Sinovac Biotech vaccine. Is this “vaccine diplomacy” in action? Take a look at this three part briefing from Merics on “China’s international health politics” published late last year.