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Paw Tracker newsletter (Week of May 16)


In preparation for the BRICS leaders summit later next month, on May 19 foreign ministers of China, India, South Africa, Brazil and Russia met virtually at a meeting hosted by China. They discussed a range of thorny global issues including the aftermath of Russia’s war in Ukraine, the pandemic and climate change. Sanctions and inflation-fighting actions by the Federal Reserve have prompted new discussions about building a global economic order more considerate of emerging and developing economies’ interest, in which the BRI can play an important conduit role. 


While the turmoil of the global economy is preoccupying top diplomats, Chinese companies appear to be unbothered. Multiple projects are kicking off in war-torn Ethiopia, and a new 40,000 seat national stadium will be built in Guinea.

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


While much of the international coverage on the BRICS meetings last week, chaired by China, has been understandably focused on how ministers from India, China, Brazil and South Africa maintain their delicate positions on Russia’s war in Ukraine, another important message coming out of the online gathering of top diplomats is how the world’s biggest emerging economies should respond to the new economic realities in the wake of Western sanctions on Russia.


In the Chinese readout of the joint statement after Thursday’s Foreign Ministers’ meeting, BRICS countries emphasize “keeping the integrity of the G20 group” in global economic governance, an apparent response to calls for kicking Russia out of the club. The foreign ministers also called on “major developed countries” (aka the United States) to adopt responsible economic policies and better control the “spillover effect” of its policies on developing countries, a clear reference to the Federal Reserve’s recent rate hikes.


If the joint statement is still diplomatic, pundits and experts are more blunt about how the BRICS should coordinate to “counter US’s abuse of dollar hegemony.” A Global Times report ahead of the meeting highlighted “ongoing discussion within the BRICS to accelerate national-currency settlements”.  “The need is becoming urgent after the US cut Russia off from the global financial system,” the paper wrote. Cao Yuanzheng, chairman of Bank of China International Research, told Global Times that recent sanctions on Russia have “made the US dollar lose its neutrality” and prompted the bloc to discuss “precautions.”


There has been an active online discussion on how China should react to Western “weaponization of finance” since the war broke out in Feb, including accelerating the internationalization of RMB and promotion of the CIPS system (a RMB equivalent of the SWIFT system). The BRI is a natural vehicle for such an effort, said Cao. The romanticized vision of “euro-RMB” challenging the eurodollar system is further played up by Credit Suisse strategist Zoltan Pozsars’s now famous/notorious Bretton Woods III proposition.


But China’s economic policy community is not without misgivings about RMB’s ventures overseas. One obvious concern is the risk of triggering US “long-arm jurisdiction” by offering financial means to evade sanctions. Long-term challenges lie in the lack of mechanisms for the Chinese currency to flow back into the country through the purchase of RMB assets, which are still extremely limited to an international market. Even if Russia or Saudi Arabia are now willing to take RMB for their oil, their central banks will only be comfortable with accumulating large RMB reserves when they can purchase highly liquid Chinese treasuries. 


“There are no shortcuts to the internationalization of the Chinese currency,” one macroeconomic observer reminded readers enthusiastic about challenging the dollar hegemony. The gradual build-up of China’s economic strength, the opening up of its capital account and an advanced network of international trade are all prerequisite to a truly international currency. In the short run, RMB should first aim to become a regional invoicing currency for commodities through its “circle of friends”, he argued, and ultimately attain the status of a regional currency of reserve, accounting and exchange.

This week's highlight project

Ethiopia: Chinese investment continues as civil war drags on


On 17 May, it was reported that PowerChina had begun construction of a new airport terminal in Bahir Dar, the capital city of the Amhara region in northern Ethiopia. The project comes even as Ethiopia’s civil war rages, a conflict that began a year and a half ago and has already claimed as many as 500,000 lives. The Amhara region has been hit particularly hard: nearly 7,000 civilians were killed in Amhara between June and December last year by Tigray fighters. But that hasn’t slowed Chinese investment there. PowerChina’s deal followed CAMC Engineering’s signing of a contract (picture above) to operate a sugar factory in Amhara on 10 May.


The bigger picture: China has 400 construction and manufacturing projects in Ethiopia, worth $4 billion. As of 2018, Ethiopia was tied as the third largest recipient of Chinese investment in Africa, behind Nigeria and Angola and totaling 8% of all Chinese investment on the continent. A significant portion of Ethiopia’s infrastructure has been built by Chinese companies. That includes, “3,750 miles of railways and roads, almost 20 ports, more than 80 large-scale power facilities, more than 130 hospitals and medical centers and more than 170 schools.” 


Earlier this year, China appointed a special envoy for the Horn of Africa in an effort to balance the complex politics of the region. As we wrote in March, China also plans to bring its own version of a peace process to the region, with economic development at the core.

Other project & corporate updates

 

Guinea: Football stadium diplomacy going strong 


China may have foregone its chance to host the Asian Cup next year, but its state owned companies continue to play a major role in supporting Africa’s regional football tournament, the African Cup of Nations. Last week China Construction Fifth Engineering Division Corp signed a RMB 1.99 billion EPC contract for the construction of a 40,000 seat football stadium in Conakry, capital of Guinea, hosts of the 2025 African Cup of Nations. The stadium complex will also include six training ground facilities and the restoration of a smaller 17,000 seater stadium. Construction is expected to be completed within 24 months.


Stadium diplomacy: Since as early as the 1970s, China has been constructing football stadiums across Africa. As researchers Wei Chang, Charlie Xue and Guanghui Ding note in an interesting article on the history of China’s construction aid, “it is now the case in Africa that relatively few countries have not yet received some kind of stadium donated by China.” In fact, at least 2 of the 5 stadiums used in this year’s African Cup of Nations, hosted in Algeria, were built by Chinese companies. And the 60,000 seater Olympic Stadium of Ebimpé in Côte d’Ivoire, main stadium in the 2023 African Cup of Nations, was built by the Beijing Institute of Architectural Design. 


Chinese companies have also constructed sports stadiums across Asia, beginning with the construction of the National Sports Stadium of Mongolia in 1958.


Building stadiums is considered a form of soft and cultural diplomacy. It utilizes Chinese strengths in construction to build facilities that have social and emotional relevance to people in recipient countries. In the early years of stadium diplomacy, Chinese entities were little involved in the design of facilities, participating mainly in the form of financial aid and construction services. Since the 1970s, Chinese companies have been increasingly involved in the design of stadiums too. The mode of financial support for stadium diplomacy has also shifted over the years, with “construction aid” and grants common in the 1950s-60s, giving way to concessional loans for stadium construction in the present era.

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 pandapawdragonclaw@gmail.com

Worth your time


In a recent interview with Panda Paw Dragon Claw, Ana Krstinovska, president of North Macedonian think tank ESTIMA and a former diplomat to the EU, shared with us her view on Chinese foreign aid in the Western Balkans and its future in the post-pandemic, post-Russia invasion of Ukraine region. Read the interview here.  

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