Dotseng's thoughts on China's OBOR/BRI

Below is a long piece by Dotseng aka darkness posted in his blog. The writing of this piece it shows how much effort, reading and thinking he has put into it to make it substantial and meaningful,  the usual crap in those western biased, silly and mischievous articles. I hope darkness does not mind me reproducing the whole article here. It is good reading on a Sunday afternoon, something to chew on.

How will Singapore be affected by rail and port investments by China

Q: There are some who believe that China is punishing Singapore for being a staunch supporter of the US. That is why they are investing in ports and railways to create alternative trade routes that will bypass Singapore. Then there are others who simply believe it would be naive to assume that China would not invest in infrastructural nodes elsewhere besides Singapore to further open new trade routes to secure it’s logistic supply of energy. Which one is true?

A: In my opinion as a farmer who only consults his pet parrot on world affairs (cut off)

Q: I have asked a serious question and I and assume the readership would appreciate immensely if you can do us the courtesy of responding in kind.

A: I do apologise. Please let me start again. To say OBOR is huge doesn’t quite capture the sheer immensity of the scale and complexity of the undertaking – it’s like calling the Grand Canyon a giant sink hole.

China in my opinion is not only attempting to construct new trade routes through the Maritime Silk Route and the Silk Road Economic Belt. But it is also a new model of doing things and this is something that I feel is not really discussed and should be. Only because the means to the end this time is equally radical. Radical not only in the methodology, but also how it will be financed as well.

Let me share with you I believe this is so important – for the very first time we are witnessing very big infrastructural projects being financed wholly by the $100 billion Asian Infrastructure Investment Bank, the $40 billion Silk Road fund which requires the internationalisation of the renminbi and the harmonisation of various free trade agreements and also intellectual property rights between China and those countries that they are investing in.

So if look at what is happening on the brick on mortar side – there is considerable adjustments to intellectual laws pertaining to patents and copyrights. What the Chinese are doing in effect is to establish their own system of governance when it comes to financial instruments to even intellectual rights.

This is important because one aspect of the TPP and how it aspires to put China in a straight jacket is to nit pick on what it can and cannot do when it comes to intellectual property – so in effect this is a means for the Chinese to sideline those constraints.

Besides hundreds of billions of dollars in Chinese funds that are invested abroad. What we are also witnessing is another dimension of Chinese power. Namely its financing prowess and the ability to manage long term loan risk in investments and it is this undiscussed aspect that is key to extending Chinese power across the region.

To do all this requires core competencies not only in just pouring concrete but also how to manage financial risk on a long term basis.

What you need to understand is many of these mega infrastructural projects have traditionally being funded by the world bank, Asian Development Bank and in some cases the IMF. So what we see here is a very significant shift in how things being done along with a very radical shift in both strategy and philosophy as to how loans on country to country basis is structured.

I think when you see OBOR in this light. Then what it actually is, is not simply an attempt to out do Singapore with just providing better port of refitment services. But it is conceivable that the Chinese are also replicate the entire complimentary sets of accoutrements to provide a comprehensive one stop port service ranging from underwriting risk to financial instruments. And I think that is something that should rightly worry the planners in Singapore.

If they worried and keep on insisting that the China and Singapore relationship is hunky dory. Then I say to them – who the hell are you kidding? You think you’re talking to kindergarten kids?

Q: Why is this controlling aspect in managing the financing so important to China?

A: I think it would have to be very important since the AIIB is so new. They need to demonstrate not only the core competencies to be able to manage risk like maybe the World Bank or Asian Development Bank. But there are also issues concerning credibility and credit worthiness.
What you need to understand is outfits like the ADB, world bank and IMF have been around for a very long time. Governments are very familiar in dealing with these institutions. The same cannot be said about AIIB and their counterparts.

Besides what you need to appreciate is when ports and railways are built, this is really just the tip of the iceberg. There is a vast range of accoutrements that need to compliment these mega projects such as power generation, water treatment plants, energy transmission networks, highways, property development, dams, warehousing etc etc.

China already has very mature industries that can compliment many of these mega infrastructural projects – so don’t for one moment think that all they’re doing in dredging deep water harbours and laying down tracks. It’s much more than that – so what we are witnessing from the Chinese angle is the opening of new business apertures for many Chinese firms. And this is not a new economic blueprint. Not at all – that is what the Chinese have been doing in Africa since 1984. If for instance you visit Djibouti in Etiophia. You will not only see a blue water port and a railway. You will also see many Chinese banks, power generation, roads, water treatment plants and plenty of Chinese made heavy machinery and even cars and household appliance made in China – so when we speak about the economic sphere of OBOR, it is really a much bigger construct than anything that the Wall Street Journal talks about. I feel it is this aspect of trade of commerce that will eventually dominate the infrastructural sphere.

Q: Why is China so intrested in ports regionally? Why not make full use of Singapore to fulfill their energy needs?

A: At one level of understanding. We can certainly say ports are extremely important in this pursuit of regional domination. That is why if China decides to let’s say invest in port facilities in Malaysia it is definitely not a personal thing against Singapore. After all China has been making great efforts to develop and control ports in virtually ever theatre in Austrasia – Sri Lanka’s Hambantota Port and Pakistan’s Gwadar Port are both China funded much to the consternation of India. So is the port in Djibouti, Africa. Within Bangladesh a Chinese “special economic zone” and port are being developed in Anwara, Chittagong. In Myanmar, China has invested in a deep-sea port on Maday Island at Kyaukphyu, to facilitate a $2.5 billion pipeline transporting oil and gas to China’s Yunnan province.

In other parts of South-East Asia, China is also seeking to dominate ports as well as shipping between ports, with Laem Chabang in Thailand, Sihanoukville in Cambodia, Batam in Indonesia and Northern Sumatra. Most recently a “port alliance” has been announced between 10 Chinese ports and five Malaysian ports. The “sister port” tie ups with Kuantan, Melaka, Kedah and Port Klang in Malaysia.
Australia is also part of this maritime blueprint – The Darwin deal will provide Chinese shipping access to the Indian Ocean and the South Pacific, as well as to Indonesia and PNG.

But the question still remains why not use what is already available? That is to say why don’t the Chinese feel inclined to leverage on the current port facilities in Singapore to fulfil their current and future energy needs. You can’t say it’s because of a bottle neck or the port authorities in Singapore have no more capacity. Because they do.

I think one reason why China considers it necessary to diversify their supply chain is simply because Singapore is perceived as a reliable ally of the US.

To me it is a very simple and straightforward calculation – how do you expect the Chinese to trust Singapore when they are hosting aircraft carriers with atomics and even allowing them to launch spy missions from their airbases. That is stupid. No strategist is his right mind is going to trust Singapore. So I don’t blame the Chinese, what they are undertaking is very logical.

Because alongside this port centric agenda – there is also the string of pearls strategy that suggest these are simply to lay the ground for China’s geopolitical agenda to project into the Indian Ocean and set up a zone of denial similar to the SCS.

There is I believe some credence to this postulation because the Chinese Navy is definitely becoming more muscular and assertative in that theatre.

Q: What precisely do you mean by muscular. Can you be more specific.

A: You can subscribe to Jane’s Defence Weekly or Proceedings. To find out more. But by all intelligent accounts the Chinese would need a carrier doctrine. Beyond that I don’t wish to comment further as I only speak when I have reliable intelligence to draw sound and accurate conclusions.

Q: How will all these other ports and railways impact Singapore?

A: I think there will be an impact. But you got to understand. Trade routes whether they are maritime or land based are essentially based on economics and that is really another way of saying the customer is king. China may well be a super power but it cannot dictate to the rest of the world how they should best transport goods or even which port it can call on and not – businesses will use whatever ports they see fit and we are not just talking about bunkering facilities. It really goes much deeper to a level of sophistication that I don’t believe the lay man even quite appreciates such as financing, insuring, underwriting, risk management, off shore facilities etc etc. There is an entire pheltora of services besides shipping that goes to make up the whole port experience and Singapore is at the very top of the game.

So when people tell me just because China is investing heavily in Malaysia or planning to develop Carey Island that spells doom and gloom for Singapore. These people don’t know what they are talking about. Because the volume of trade will grow. And PSA is not going to remain the same. They will respond to all these regional emerging threats.

Having said that volume is certainly important. Because when the volume thins out then it would have a knock on effect on all these other complimentary services. They will degrade and that certainly work against competitiveness.

I think it’s too early to tell what would happen now as many of these mega projects have 10 to 15 year gestation periods and it’s very hard to predict accurately what it may all be like in the foreseeable future.

For all you know PSA may even buy equity into these regional ports.

Q: What do you see as the friction points in the Chinese drive to realise the dream of OBOR in their aggressive investments in port and rail regionally?

A: Most countries welcome direct foreign investments. Having said that it’s not merely a case of economic pluses and minuses. There is also historicism and of course politics. And this is one area that I feel China is very blasé. I don’t exactly know how they go about calculating country risk or even whether they have a risk mitigation strategy. But they should given that many of the countries they are investing in on one hand welcome FDI’s but at the same time they do harbour reservations simply because when a foreign power takes such a substantial equity in the running of a business then it can be perceived as a form of economic imperialism and a threat to even sovereignty and if we stretch that notion further it can even encroach into sectarian and race lines.

Like I said historicism certainly plays a preponderant role and it would be foolhardy to assume that China will just be able to have their way all the time without ever having to manage the local sentiments in those countries that they have invested so heavily in.

I see many friction points. Many and some of them I am a afraid will only sharpen as these investments come on line. Only because they can be politicised and weaponized for political mileage.

Q: Would you like to elaborate further on those friction points.

A: No comment.

Posted by dotseng