Rise and fall of Chinese economic diplomacy

Iran is reported to have cancelled a $2 billion contract given to a Chinese firm to build the world’s tallest 1,500 megawatt hydroelectric dam in its western province of Lorestan. Perhaps it symbolises the growing evidence of China’s rupturing relations with its erstwhile nation friends.

Scarborough Shoal, some 120km west of the Philippines has joined the list of areas disputed by China in the South China Sea. It carries contours of a military conflict developing between China and the Philippines.

When denied unequivocal support by Washington, Philippines approached other ASEAN members to take a stand against China. Promptly dismissing the proposal by the Philippines for international mediation, China threatened it might even go to war on this point.

One of the foremost challenges Xi Jinping will have to overcome, when he becomes president, is the increasing disquiet with which neighbours view China.

Once China became a member of WTO, the opportunity came its way to implement its version of economic diplomacy abroad. It started with South-east Asian nations. Many of them were badly bruised during the Asian monetary crisis of 1997-98.

When the US, Japan and the IMF didn’t extend support to resurrect their economies, China’s modest help — diplomatic support and economic engagement — was hugely welcomed.

After a few years of being nice, China started demanding settlement of territorial disputes with various countries — based on its own ancient maps.

Look at the examples. Increasing territorial dispute with Vietnam and Indonesia; warning India to stay away from oil exploration in Vietnam, to which India appears to have blinked; not restraining North Korea from threatening South Korea; using old maps published by Kuomintang government to lay claims in Spratly Islands; conflict with Japan over the Senkaku Islands; and harassment of US naval vessels besides the above said Scarborough Shoal issue have collectively contributed to lowering of Chinese image. India’s rising relations with Myanmar has not gone unnoticed by China either.

Moreover, China’s selective interpretation of the UN Convention on the Law of the sea and its alleged violation of the ‘Declaration on the Conduct of Parties in the South China Sea’ signed in 2002 with the ASEAN to ease territorial disputes has also questioned its intentions.

To counter this assertiveness by China, to reassure South-east Asian nations of security as also to recoup its influence, a war-weary America drew a fresh role to become “US pivot to Asia” and “US is a pacific power”. The East and South-east Asian nations felt somewhat relieved, while remaining cautious of not bristling their big neighbour’s feather much.

China felt perplexed. Where did it go wrong? Why did the economic diplomacy falter?

The altered perception about China was reinforced in the unprecedented criticism of its maritime policies by 16 of the 18 nations participating in the East Asia Summit in Bali last November. In another blow, Myanmar suspended the Myitsone hydroelectric dam China was building following criticism of the environmental damage, 90% power going to China and possibility of flooding in the surrounding areas.

Unlike in Asia where China’s priority was energy and security, it focused on mineral exploration and land acquisition In Africa and Latin America.

And to ease its entry, China lowered tariffs by 20% in 2000 and another10% in 2009.

Aggressive acquisition of assets by China with regard to mineral exploration left African and Latin American nations feeling apprehensive. Mexico, Brazil, Colombia, Venezuela and Chile questioned Chinese motives with regard to lack of employment of locals, detrimental labour and environmental damages during mineral extraction.

Instead of investing in job-creating manufacturing industries, Beijing focused on extracting natural resources like, oil, copper, soya beans etc. and relatively less in building infrastructure. It showed little interest in technology transfers. Chinese exports provide cheap access to goods and services but in doing so prevent local industries from growing. For example, textile industries are unable to grow in South Africa and Zimbabwe.

There is anguish in African continent that 90% jobs go to Chinese labour in most Beijing-financed projects. In Nigeria, there is opposition to Beijing’s investments in natural resources that cause environmental damage. Zambia complains that China has turned it into a dumping ground. China has also got into cross fire between Somalia and Eritrea.

An aggressive foreign policy coupled with a mercenary-style economic approach is damaging China’s influence built over the past decade. Unless the display of muscle power and threat perception of countries (Asian, African and Latin American) is removed, China might not acquire the respectability due a super power anytime soon.