Paw Tracker newsletter (Week of Mar 29)

Internet commentators were thrilled last week by China’s headline-grabbing Middle East diplomacy, hailing the arrival of a “new era” for Chinese involvement in the region that upholds the principles of mutual respect and Middle Eastern agency. But veteran Chinese diplomats were more concerned with the potential geopolitical pitfalls and advocated caution. At the same time, a new report on Chinese loan-making depicts China as a “muscular and commercially-savvy lender to the developing world”, challenging the benevolent win-win image that the BRI intends to build.

Talk of the Town

From 24 to 31 March, Foreign Minister Wang Yi embarked on a politically charged diplomatic tour of six Middle Eastern countries. Oil and Iran were in the spotlight, the most high profile outcome of the tour being the signing of a 25 year Comprehensive Cooperation Plan with Iran, which included a promise of “stable and affordable supplies of energy products from Iran.” Those energy products will be supplied in large part through an “investments for oil” payment-in-kind arrangement, designed to skirt the long arm of US embargos on Iran. According to a draft of the agreement from last year obtained by the New York Times, Chinese investments will be in the range of USD 400 billion. No official document of the deal signed on 27 March has been made available.

The US loomed large in Chinese coverage and commentary on the visit, the two countries’ geopolitical rivalry forming the backdrop for the outcomes of Wang Yi’s trip. Fan Hongda, a professor of Middle Eastern studies at Shanghai International Studies University, wrote in a Beijing News article that the US is using Iran and other regional powers as “chess pieces in a game against China.” An article on the WeChat channel of Singaporean Chinese language newspaper Lianhe Zaobao also referred to the China and Iran deal as a “trump card.”

For their part, however, China’s Foreign Ministry was keen to play down the geopolitical backdrop and boardgame metaphors. “Our relationship with Iran will not be affected by the state of global affairs,” said Wang Yi. “Rather, it is a permanent strategic relationship.”

But one former ambassador to Iran and the UAE, Hua Liming, offered a more candid perspective. “How far the relationship between Beijing and Tehran will go depends in large part on the future of China-US relations,” he told Lianhe Zaobao.

Wang Yi’s state visits offered more than just musings on the balance of China-US relations, however. A production line for the Sinopharm vaccine in the UAE was agreed upon and a state media readout stated that the two countries have reached “basic agreement” on the mutual recognition of health codes. The official readout from Wang Yi’s meeting with Saudi Crown Prince MBS meanwhile talked of continued collaboration on non-oil related areas of economic growth, such as 5G and nuclear energy, as well as “stengthening anti-terrorism cooperation”. 

For many Western observers it is a mystery how China manages to maintain good relations with archrivals Iran and Saudi, as well as the other Gulf States and Israel. The issue has not gone unnoticed domestically. Former ambassador Hua Liming urged China to be cautious in its “expansion of friendships” in the middle east and to reach a “subtle balance” between the two major regional powers. 

On arriving back in China, Foreign Minister Wang Yi met with foreign ministers from Singapore, Malaysia, Indonesia and the Philippines, the second high level meeting with ASEAN governments so far this year. Wang Yi’s charm offensive continues.

This week's highlight projects

In the last week of March, CRCC started the interior work of the Vientiane terminal of the China-Laos railway, moving the first overseas stretch of China’s extensive railway network one step further towards completion. In the same week, Thailand granted a USD 376 million EPC contract to a China State Construction-led consortium to develop a 23km segment of the Bangkok to Nakhon Ratchasima high-speed railway (segment 4-3, Navanakhon to Ban Pho). The 253km Bangkok to Nakhon Ratchasima railway is divided into multiple contracts that have been auctioned out separately to different companies and consortiums.

A bit more context: The China-Laos-Thailand cross-country railway network was originally envisioned in 2014 as a major BRI connectivity project that would start from Kunming in Yunnan province, pass through Vientiane, and then cross the Laos-Thai border at Nong Khai to go all the way to Bangkok. The 1300km project has since undergone laborious renegotiations in Thailand, mainly over China’s financing terms. The Thai government later decided to segment the project and fund it completely on its own. Instead of going directly to Nong Khai (800km), the first phase of the project will be a shortened route from Bangkok to Nakhon Ratchasima (253km). 

Why it gets our attention: The ambitious railway project highlights the difficulties of building connectivity infrastructure across multiple countries. While the China-financed, China-built, China-operated and China-connected Lao segment has moved forward relatively smoothly, the progress in Thailand is plagued by political turmoil and difficult renegotiations. The final Thai-funded segmented auction model reduces Chinese involvement to just one of the suppliers of equipment and technology. For now, China appears to be happy to play along with the new arrangement that leaves the China-Laos-Thailand railway disjointed. If Bangkok is linked with Kunming by the 2030 schedule, it would be an impressive feat in accommodating complex local realities.

Guinea: West Africa’s “Three Gorges Dam” is fully operational

With the fourth and final generator successfully connected to the grid at the end of March, Guinea’s Souapiti 450MW hydropower station became fully operational. The hydro dam was constructed by China International Water and Electric Corporation (CWE) on the Konkouré river, and consists of four 112.5MW generators.

Why it gets our attention: The project is a massive boost to the power generation capacity of Guinea, which by 2018 stood at just 498MW in total. The hydropower station is intended to turn Guinea from a blackout stricken country into an electricity exporter, with neighboring countries Senegal, Guinea-Bissau, Sierra Leone, Liberia and Mali expected to buy its power through cross-country transmission schemes. But as many other mega-dam projects, the Three Gorges included, the Souapiti hydropower project is also dogged by governance issues particularly in relation to the resettlement of displaced communities. 16,000 people were displaced by the dam, and many are struggling to restore their livelihoods despite the government’s promise of swift resettlement.   

Other project & corporate updates

Lao PDR: Power China offloads shares in fertilizer producer

Power China’s official website reported on March 29 that Sinohydro, a subsidiary of the engineering conglomerate, has signed a share transfer agreement with Xinhu, a company based in Zhejiang province, and GPC, an Australian firm, for its stakes in a potassium chloride project in Lao PDR.

Why it gets our attention: Power China celebrated the transfer as an important step in its “optimization of asset portfolios” and a solution to a “historically leftover problem”(历史遗留问题), indicating that the original acquisition of stakes in the fertilizer company might not have been strategically smart. The company also cited the slogan “stay lean and improve efficiency” (瘦身瘦体，提质增效) as the rationale behind the move. 

Since 2017, China’s SOEs have been facing more scrutiny on their overseas investments. Investments into overseas assets that are unrelated to their core business are restricted by the SOEs’ regulatory body SASAC, which may be the reason why Power China, a power sector engineering conglomerate, is offloading its stakes in a Lao fertilizer company.

Worth your time

A groundbreaking report from Aid Data reveals the details of 100 Chinese overseas loan contracts, previously unseen in scholarship on Chinese lending. The study reveals a “muscular and commercially savvy” lender and the use of some surprising and abnormal loan clauses. Some of the analysed loan contracts, for example, included non-disclosure clauses which bar the borrowing country from revealing even the existence of the loan. Other abnormal clauses identified included the requirement for borrowing countries to maintain a special bank account for loan repayments and promises to keep Chinese loans out of debt restructuring programs, what the researchers call a “No Paris Club” clause. ‘How China Lends’ is accessible here.