China's Investment Strategy in Central Asia

 

October 5, 2010

Over the past few years, China has become a major player in Central Asia’s oil & gas and in Afghanistan’s mining sector. Its investments in the region are an important part of its worldwide FDI strategy.

To date, China’s biggest purchases of gas come from Turkmenistan. In 2009 the Chinese president inaugurated a gas pipeline that stretches for 4,000 miles from Turkmenistan via Kazakhstan and Uzbekistan to China. 30 billion cubic metres per year will be supplied by Turkmenistan, while 10 billion cubic metres will come from Kazakhstan’s gas fields. The vast amount of gas will supply some 50 percent of China’s gas needs, estimated at over 80 billion cubic metres per annum. The Chinese will pay USD 195/1,000 cubic metres over 30 years, thus bringing their country into competition with Russia, as well as the EU with its Nabucco pipeline project. To get to the Turkmen gas the Chinese paid around 3 billion USD necessary for the construction of the pipeline and the development of the fields.

In Kazakhstan, China National Petrol Corporation together with Kazmunay Gas inaugurated in 2006 a 2,200 km oil pipeline between Atyrau (Kazakhstan) and Xinjiang in China – the first such pipeline to connect China to the Central Asian oil & gas fields. In 2009 CNPC took a 50 percent stake in Kazakhstan’s largest oil & gas company, in exchange for a USD 5 billion loan to Kazakhstan.

This year Uzbekistan’s state company UzbekNeftegaz officially announced that it entered discussions with CNPC to supply China with 10 billion cubic metres of gas per annum, on top of the 40 billion cubic metres supplied jointly by Kazakhstan and Turkmenistan.

In Afghanistan, MCC of CHina has signed a 3,5 billion USD deal with the Afghan government to exploit Aynak’s estimated 240 million-ton copper deposits. To seal the deal, China has offered to build a railroad and provide the infrastructure needed, the project being the biggest FDI to date in Afghanistan. Chinese negotiators outfoxed their American and Indian competitors and worked – as they did elsewhere in Central Asia – closely with their Russian counterparts in order to finalise the deal. The Afghan government will also receive hundreds of millions of dollars every year in royalty fees after the mine becomes operational.

According to American, Australian and Canadian geologists, Afghanistan is the “Saudi Arabia of lithium” and also has significant deposits of gold, copper, cobalt and iron, which could not be exploited until now because of 50 years of continuous warfare that had ripped through the country. In the quest for Afghanistan’s mineral deposits, China is favoured to develop most of them, as it did not intervene militarily there and has Pakistan on its side. The latter in turn could help the Chinese to be shielded from attacks by the Taliban and even, if the political environment changes, to win their favour.

By contrast, the US – which spent a reported 940 billion USD over the past 8 years in Afghanistan – and their Indian ally are not likely to capitalise on the development of Afghanistan’s mining sector. (sources: Asian Times, Reuters, Xinhua, The Guardian, Far Eastern Economic Review, WSJ, Daily Finance, NYT)

Elections with geopolitical implications

 October 4, 2010

Last Saturday and Sunday the citizens of two small European countries, Latvia and Bosnia, went to the polls to elect new parliamentary and presidential leaders, respectively. Both countries are experiencing severe ethnic tensions that could, if unchecked, drag into the fray larger neighbouring federations, such as the EU or Russia.

Parliamentary elections in Latvia

Latvians went to the polls to elect 100 deputies for the country’s Saeima. Affected by the economic crisis, Latvia is struggling with 20 percent unemployment and a sharp decline in economic activity. The Latvian society is divided among ethnic lines between the Latvian majority and the Russian minority.

Although voters have returned the centre-right coalition of the incumbent prime minister to power, the leftist pro-Russia Harmony Center party has gained 30 seats in the new parliament, up from 18 seats, and 25 percent of the votes. This is good news, as the party’s leaders had vowed to reach out across ethnic divides to ordinary Latvians, more interested in solving their economic woes than in any nationalistic feuds. The election’s outcome will thus benefit Latvians as well as the country’s relationship with its often-demonised neighbour Russia.

All too often in the past, Baltic countries like Estonia and Latvia have been used as a tug-of-war with Russia, by fuelling ethnic tensions there. Estonian nationalist politicians, for example, did all they could in 2008-2009 to bring about a deterioration of diplomatic relations between the EU and Russia.

Election results in Bosnia

Disgruntled voters in Bosnia have sent two moderate leaders to the collective presidency of the country. Croats have elected Zeliko Komsic and Muslims replaced their incumbent president with Bakir Izetbegovic, who declared during the campaign that he is interested in reaching out to the country’s other ethnic groups.

The exception is represented by the Serbs from Republika Srpska, who elected Nebojsa Radmanovic – a secessionist leader – as their president. Nebojsa is quoted as saying that if Serbs could not get a better deal from the current political arrangement, he would lead the tiny republic to secession from Muslim-Croat Bosnia.

Technically still a Western protectorate, Bosnia has so far failed to implement needed reforms after the signing of the Dayton agreement in 1995. The country is ridden with corruption, Bosnia being the poorest state entity to emerge from the ashes of the Yugoslav federation. The current federal agreement and three-partite, rotating presidency have pleased no-one, least of all the Serbs. Ethnic politicians still dominate Bosnian life, a fact that represents a further source of tension at the EU’s doorsteps. (sources: AFP, Reuters, LA Times, Baltic Times, Le Monde)

The onset of a social tsunami

 June 17, 2010

Most of us over forty remember how it all started. The first neoliberal victories won by Margaret Thatcher in Britain led to the near collapse of the British trade union movement. The victory against Soviet-style communism and the fall of the Berlin Wall have led to ten years of economic euphoria in the West, resulting from the opening up of the Central and Eastern European markets. Unexpectedly, neoliberalism’s main economic tenets came undone during the first decade of the new century.

By way of analogy, the current sovereign debt crisis in Europe could safely be regarded as neoliberalism’s very own Stalingrad. Even before the 2007 financial crisis, the flawed logic of supply-side economists started to produce negative social results. Yes, profits accumulated for a while, but these only to a handful. True, most products became cheaper as a result of moving entire industries to former Soviet countries or to China. Lower taxes did initially benefit consumers, but provoked a dearth of social services, investment in infrastructure, hospitals and schools. After thirty years of neoliberalism, most people find themselves poorer and their children less educated than generations of the previous fifty years.

According to neoliberal theorists, economic growth, lower taxes and free trade would eventually trickle down prosperity to all. Instead, they have given rise to an ‘investing class’ who used the profits accumulated in their accounts in unproductive, i.e. speculative ways. This led to a series of bubbles – the dot.com bubble, the Japanese real estate bubble, the US sub-prime bubble – that ultimately culminated in the global financial crisis, similar in proportion if not in outcome to the one in 1929.

The situation created after 2007 led to the counter-offensive of states against mindless speculative activities, deregulation of financial markets and neoliberal economic philosophy. The latter, had it been applied in full, would have led to the withering away of states altogether. In other words, what Marxists were dreaming of doing, neoliberal societies very nearly achieved.

The counter-offensive of political administrations against neoliberalism has shaken the very foundations of the Washington consensus. Increasingly, Western politicians, industrialists and trade union bosses are talking about the opportunity of adopting a new development model, the Beijing consensus, in which state-led investment for major projects is again the main engine of economic activity.

Not surprisingly, the investing class, its rating agencies and press have resorted to savaging the European Union’s southern flank, provoking huge financial losses to the Spanish, Greeks, Italians, Irish, and ultimately to France and Germany. In this protracted battle one could foresee the signs of a social tsunami in the making. The signs are everywhere, from Athens to Bucharest, from Germany to Spain. In the months and years to come, the protests will increase in intensity and are set to sweep away entire political structures built around neoliberal tenets.

To be sure, this is not an exercise in ball gazing, but the result of an extrapolation of observable tendencies, as J.A. Schumpeter would have put it. A few years from now, huge economic inequalities within societies would cease to be acceptable. Financial speculation and low taxes would become a thing of the past. Whilst foreseeable, the outcome is not going to be reached comfortably and without defeating entrenched and powerful financial interests together with their many helpers.

Author : Spotlight on Geopolitics
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English, External Relations  , neoliberalism

A Farewell to US Democracy

 January 23, 2010

It’s official : as of Thursday, January 21st 2010, US democracy as we all knew it has ceased to exist. In a highly controversial ruling, the US Supreme Court has done away with the ban on financial contributions by corporations in candidate elections. Thus, the American political system, already antiquated, will drift further away from those of its European counterparts. In contrast, most European countries grant equal media access to minority party candidates and severely limit donations to political parties. The decision, taken with 5 votes to 4, is seen to favour the Republicans, who were battered in the last presidential elections. It also puts to rest the bipartisan McCain-Feingold law of 2002 which tried to limit the influence of big money in federal campaigns. Considered by Russ Feingold “a terrible mistake“, the Court’s decision “has given corporate money a breathtaking new role in federal campaigns”. (source:IHT) Speaking on CBS on Sunday, John McCain has said that the movement he led to reform how campaigns are financed is now dead. Mindful not to yield too much power to American corporations, well-known for their predatory behaviour, US lawmakers had adopted the Sherman Antitrust Act in 1890 and in 1907 Congress voted the Tillman Act, prohibiting corporations from financing political campaigns. If they wanted things to move their way in Washington, corporate chieftains had to pay for the services of lobbyists. Not anymore : the Supreme Court’s decision paves the way for them to “buy” the services of senators and congressmen outright. The Supreme Court’s decision seems to lend weight to Leo Strauss’ neo-conservative theories according to which ultimate power in the USA rests with a “king”, a non-elected official who can overturn election results and demote presidents. These constitutional powers in the US are awarded to the Chief Justice of the Supreme Court. Leo Strauss believed that modernity is just a myth perpetrated by gullible intellectuals and that democracy does not really exist. He contended that even countries like the United States have the equivalent of a medieval ruling class, made up of barons and princelings of American industry. As what goes around comes around, the United States becomes in effect the mother of all banana republics – a land where corporations can look forward to dictating their will to political institutions too weak to resist their financial backers.

Author : Spotlight on Geopolitics
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English, External Relations  , USA

Asian Union Plans Attract Japan

 September 24, 2009

The plans for creating an Asian economic community grouping China, ASEAN and Japan have received an important boost recently. During his informal meeting in New York with Chinese president Hu Jintao, the new Japanese premier Mr. Hatoyama has proposed the creation of an East-Asian community which would emulate the model of the European Union. Closer ties between Japan and China should eventually create the nucleus towards which the other East-Asian nations would gravitate economically :

“Whilst recognizing our differences, Japan and China should surpass them and build a relationship based on trust. This would be the basis of the East-Asian community that I would like to create”. (Yukio Hatoyama, quoted by Asahi Shimbun and Courrier International)

The Japanese prime minister’s overtures have been positively received by the Chinese leader, himself in favour of closer economic and political ties with Japan.

At first glance, the new Japanese premier’s plans might seem premature. Not according to new data provided by seasoned economists, such as Neal Soss of Credit Suisse New York. Talking to The New York Times reporters recently, he points out that for some time now the gravity centre of the global economy is shifting towards China. The current crisis, however, marks a turning point. Until now, the United States was always the first to recover from recessions, followed by Europe and then Asia. This year, China has replaced the US as Japan’s biggest trading partner and it is actually leading the world out of the crisis, due to its massive recovery package and the banking credits extended to the business sector and individuals alike .

The corresponding increase in consumption by Chinese businesses and households has also prompted a surge in US exports to China, especially in May, June and July this year. German manufacturers, too, are looking East to increase their exports, less towards the United States. According to Jens Nagel from the Federal Association of German Exporters, “what we lose in exports to the US, we gain in China” (Courrier International).

Nor is this all. The Chinese have not only increased the amount of imports from the US, but continue to finance the huge US budget deficit on which the American recovery depends.

This considerable economic clout would have been unachievable in such a short period of time without the financial crisis, which spurred the Chinese recovery efforts. Little wonder, therefore, that Japan sees its economic future in Asia, which is fast replacing the impoverished US market as its main trading partner.

When all these developments are taken into consideration, the Japanese prime minister’s proposal makes a lot of sense. The two leading actors of the European Union, France and Germany, have gone through two devastating wars before becoming founding partners of the EEC. The bitter enmity between the two nations was in time superseded by strong economic bonds and ever-closer political ties, an outcome surely desired by the Japanese premier in his dealings with China.

However disfunctional the EU might prove at times to be from a political perspective, from an economic point of view it is the great success story of the last few decades. To be sure, the success achieved by the 27 European nations in bridging their differences and working together for economic prosperity represents a good model to follow by the world’s largest emerging trade bloc

The Phnom Penh Agenda

 Overshadowed by increased military  tension in the Korean peninsula, the 17th EU-ASEAN Summit held in Phnom Penh last week has nevertheless achieved a few notable successes.

Before the start of the meeting, Ms Benita Ferrero-Waldner had expressed the view that : “the EU and ASEAN are two successful examples of regional integration in the world” (Phnom Penh Post).

The summit was attended by 40 foreign ministers from the EU countries and ASEAN and had as its main theme the “ASEAN-EU Partnership for Peace, Economic Growth and Development”. Last Thursday, the representatives of the two trade blocs signed two very important documents, aimed at fast-tracking the EU’s accession to the Treaty of Amity and Co-operation (TAC) in Southeast Asia. Representatives also agreed to continue to promote an EU-ASEAN  Free Trade Area (FTA) which, once operational, would facilitate trade and investment between the two blocs.

The ministers present also discussed issues colateral to trade, such as terrorism, human and drugs smuggling, the tense situation in Myanmar and that in the Korean peninsula. Together, they agreed to implement the Phnom Penh Agenda, which mandates that all governments concerned should take between 2009 and 2010 all the necessary steps to facilitate co-operation between members of the two blocs in all fields of endeavour.

The signing of the documents about the EU’s forthcoming accession to the TAC was labelled by the Chairman of the summit, Cambodian Prime Minister Hun Sen as “another significant step forward in ASEAN-EU relations.”

Turkey Divides EU Political Leadership

 June 5, 2009

In the run-up to the European elections, German and French conservatives are pushing for a “privileged partnership” arrangement for Turkey, as opposed to full EU membership. From the West of the continent to the Balkans, the issue of Turkey’s accession is a hot one, given the 16 million Muslims now living within the Union’s borders.

The European Social Democrats are favourable to the idea of full EU membership for Turkey, a stance which has recently infuriated President Sarkozy. The issue is so contentious that following Carl Bildt’s interview in Le Figaro – in which he expressed Sweden’s support for accepting Turkey as a full EU member – the French president has cancelled his planned state visit to Sweden.

Nor is the situation any better in Germany. In a live chat with Spiegel Online, the President of the European Parliament, Conservative Hans-Gert Poettering, has recently declared : “it is my deep belief that — politically, culturally, financially and geographically — it would be too much to have Turkey as a member of the European Union”.(Source: Spiegel Online, 25 May 2009) Whilst Chancellor Merkel also favours a “privileged partnership” for Turkey, her foreign minister, Social Democrat Steinmeier supports the idea of Turkey’s inclusion within the EU.

To be sure, the lack of a common foreign policy and of a bipartisan approach to enlargement is responsible for the current divide affecting the EU’s polity. With the fate of the Lisbon Treaty in doubt, the Union seems unable to reach consensus on major issues such as enlargement and its limits. This creates a situation in which countries like Turkey are given mixed signals, which in turn could lead to confusion, frustration and disappointment, if not outright contempt for our political leadership.

For such political quagmires to be avoided in future, a consensus needs to be reached between the Conservatives and the Social Democrats, before adopting an official position and thrashing it out in the media. Political expediency apart, both sides should understand that some issues cannot be used for electoral purposes without doing serious harm to the EU’s influence abroad and at home. As matters now stand, the only general consensus developing is that the Union is rudderless and paralysed by infighting.