Thwarted by West, Beijing turned to CPEC

The world is well aware of China’s huge cash reserves, and how its deep pockets enable it to be not only a big-ticket foreign investor, but the financial saviour of the distressed economies of small Asian and African nations and beyond, transcending all barriers. Understandably, therefore, the world has seen the impressive growth and influence of the Chinese economic engine in key sectors in South Asia; such as in Bangladesh, Nepal, Sri Lanka, Pakistan, Myanmar and Afghanistan. But these don’t appear to impress the West very much these days. The West has grown wary of the speed of Chinese acquisitions of Western assets and investment. In reality, stiff Western resistance to China’s galloping ambition to penetrate its finances, capital and industrial production has begun, as seen in the recent blocking of $39 billion of European and Australia-centric acquisitions.

Understandably, both Brussels and Berlin began to thwart Beijing’s bid to take over high-profile Western assets worth $39 billion since mid-2015. Most of these are learnt to “have fallen foul of competition and security concerns” due to the asset’s proximity to sensitive military facilities. Matters have come to such a pass that some Western governments are considering enactment of new rules and regulations to tackle Chinese deals and acquisitions. From Bern to Berlin, Brisbane to Boston, the world is learning afresh how to handle the China factor. The Swiss are apprehensive about their agri-business Syngenta; the Germans about semiconductor giant Aixtron; the United States about insurer Genworth Financial’s purchase by the conglomerate China Oceanwide for $2.7 billion, and San Diego’s landmark Hotel del Coronado, that is located next to a sensitive American naval base.

The Germans, in particular, are openly hardening their line on Chinese investors. Berlin is trying to block company takeovers by Beijing-based investors, fearing its prized technologies will end up in Chinese hands. Berlin is also pushing for new EU rules to let member states “protect companies in strategic sectors from Chinese approaches linked to the Chinese state”. While some European experts don’t approve of this “protectionist backlash” by the Germans against a wave of Beijing deal-making, that peaked in 2016 with the 4.5-billion euro acquisition by Chinese appliance maker Midea of robot maker Kuka, one of Germany’s most innovative firms, Berlin remains unconvinced. It feels this is a Chinese state-directed bid to gain access to German technology, rather than being about Germany as an investment destination. The red line seems to have been drawn by the West: “this far and no further”.

This stiff opposition by the West to the Chinese spree for assets has, therefore, compelled Beijing to abort 11 big-ticket acquisitions in the last 16 months, thereby resulting in a foiled deals worth approximately $39 billion. In other words, this is equivalent to 14 per cent of China’s overall overseas investment in the corresponding period — July 2015 to October 2016. A few questions come to mind. Did the Chinese have a premonition of the impending opposition to their bids to take over Western assets and sustained offshore investment enterprises? One cannot of course say it for sure, but the timing of the announcement of the proposed $46-billion China Pakistan Economic Corridor in April 2015 gives rise to such thoughts. Why? One has to understand the fundamentals of economics: idle excess/surplus liquidity of the state is bad economics.

It has to be invested and/or recycled. Money circulation is the need, not stagnation, which in turn leads to prosperity and generates cash. Therefore, if thwarted in the West, why not invest and clinch and try inch forward elsewhere — and why not in Asia itself, in the confluence of South Asia, West Asia and Central Asia? Why not explore the hitherto unexplored landscape passing through a perennial landlocked war zone, adjacent to raw material sources of Afghanistan, an enchanting strategic geography of Pakistan and the wealth-generating, consumer goods-purchasing magnetic market of India? Indeed, is not the destructive reality of war and the creation of wealth been traditionally the two sides of the same coin since time immemorial? Thus, if the West stymies a $39-billion bid for a Chinese takeover of its assets, the investment-starved East may welcome a $46 billion capital infusion by Beijing. That is exactly what seems to be emerging.

The proposed $46 billion Chinese investment that will pass through the badlands of Pakistan, and Indian territory that falls within Pakistan-occupied Kashmir, is unlikely to be without its trials, turbulence and tribulations. That may be why the de facto ruler of our neighbouring state on the west, the Pakistan Army, has taken the lead CPEC role, virtually compelling its de jure civilian administration to play second fiddle to the generals. China too, after being thwarted by the West, is not complaining. China has, in fact, no reason not to rejoice. The Pakistan Army’s business-minded generals have smelt cash, commerce and profits as a new vista of opportunity opens up for them rather than for the Pakistani state, that falls underneath. The generals have stepped up to guarantee the successful implementation of Beijing’s $46 billion investment in infrastructure development.

After the rebuffs by the West, is it any surprise that the Pakistani generals’ rock-solid endorsement of CPEC has made them the “absolute linchpin” holding the project together. For the generals, the list of Chinese inventory is too good to be missed. This includes $34 billion for power generation and allied ventures; with the other $12 billion for highways, rail tracks, oil and gas pipelines and port development — this could be the biggest boost that the Pakistani economy has ever seen. For the Chinese, there is a lurking danger. Its investments in, and takeover bids of, Western assets were aborted on security grounds. Why then is Beijing ignoring India’s security? This all the more so after the recent Sino-Indian (joint) military drills in Ladakh, when Chinese spokesman Col. Wu Qian clarified Kashmir was a “disputed” territory and “China’s position has not changed”. Why is China ready to get into a bilateral “disputed territory” to invest its money? What if things flare up that would result in Chinese losses in the perennial hot terrain of India’s Northeast?