Jan 8, 20197 min read

Event Report: Lecture-Discussion on ‘China’s Growing Influence in International Lending &

Updated: Feb 28, 2023

C3S Event Report No: 001/2019

On the 11th of January 2019, Chennai Centre for China Studies (C3s), Indo-Japan Chamber of Commerce and Industry Chennai (IJCCI), along with Centre for Asia Studies (CAS) jointly organised a lecture-discussion on ‘China’s growing Influence in International lending and Differences in Approach.’ The event was held at the IJCCI, Chennai and was attended by students, academics, researchers and members of C3S. The lecture-discussion was led by Dr Maaike Okano Heijmans, Senior Research Fellow at the Clingendael Institute, Netherlands. Her research interests lie in economic diplomacy and relation relations in East Asia, with a special focus on Japan and China. In particular, her work explores how developments in these fields matter to Europe, the EU and, in particular, to the Netherlands.

Commodore R.S. Vasan IN (Retd.), Director, C3S and Regional Director, National Maritime Foundation-Tamil Nadu, welcomed the gathering and discussed the theme of the event. He highlighted the mixed nature of the intentions behind China’s investments and lending initiatives and mentioned the instruments being created by China to lend to those in the requirement of FDI. Many mechanisms are currently being pursued in attempts to pool resources and bring developing economies together, by various international players. Considering the mixed intentions behind Chinese initiatives, he mentioned the importance of bringing China’s growing influence in the process under scrutiny.

The Welcome Address was delivered by Mrs Suguna Ramamoorthy, Secretary General, IJCCI in which she thanked Cmde. Vasan and C3S for organising the event, as well as Dr. Maaike for visiting to Chennai and to deliver a lecture-discussion on the topic which is of contemporary significance.

The speaker and topic were introduced by the event moderator, Mr K Subramanian, Former Joint Secretary (Retd.), Ministry of Finance, Government of India; Treasurer, C3S. He discussed the controversial nature of foreign aid and threw light on the negative aspects, such as the levels of corruption involved in the process, political mismanagement of funds and lack of results in the recipient countries. China had started its own programme by the 1950s, and between 2008 and 2013 extended aid to around 140 countries, many in Africa. China chose to reject the OECD model of aid/lending and adopted its own, which was highly criticised by the West and created sovereign wealth funds, which were viewed negatively by Western institutions. To a large extent, the 2008 recession was saved by these funds. He then illustrated the secrecy attached to the Chinese bank loan process and the importance of studying the Chinese model in lieu of viewing it as a destabilizing force to the world order.

Mr Subramanian introduced Dr Maaike and her wide scholastic and academic background. This was followed by the Lecture Presentation by Dr Maaike on the topic “China’s Growing Influence in International Lending & Differences in Approach”. She agreed with Mr Subramanian on the point that China is not a force to be destroyed, but one that needs to be worked with. She then proceeded to present a European perspective on the topic, while also focussing on the Japanese dimension. Similarities were drawn between the Chinese and the Japanese model of lending, which have both largely been criticised by the West. However, the speaker believes that it is important to welcome a different approach. The West attempted to socialise China into the capitalist liberal economic market system, which did not work. The fact was highlighted that the Chinese have undoubtedly managed to thrive under the system, but refuse to be integrated into it. Europe, unlike the U.S, has not followed the approach of showing hostility towards the Chinese system, rather they have a greater understanding of the importance of cooperating with China, Japan and other Asian countries.

Where do the objectives meet?

Dr. Maaike believes that it is important to find the right approach and tools in cooperating with China and ways to influence its approach as well. In terms of the core objectives behind China’s lending strategy, the speaker emphasised on the domestic economic objectives, strengthening of China’s influence and status, and promotion of the acceptance of Chinese standards, norms and discourse. The domestic objectives, as well as elements of the other core objectives, are crucial in order for Xi Jinping to be able to stay in power. The UN as well has extensively discussed the BRI initiative and presents it as an agenda in terms of the UNDP. Chinese norms, standards and discourse are thus entering the international agenda. This is inevitable to an extent and causes a change in the flavour of international affairs. However, the speaker added that market capitalism, western systems and institutions must be kept protected.

The twin-track approach of China was highlighted. This has characterised the international lending system, consisting of the formal and informal track. The formal track is the multilateral track that is focused on in Europe due to the nature of the EU. It includes all that comes under the Bretton Woods system, from the World Bank to the often forgotten Asian Development Bank. China has built parallel structures to these institutions and has attempted to bring itself to the table through various mechanisms unique to themselves. The Asian Infrastructure Investment Bank (AIIB) has been a method used by China in order to step up to the table. This initiative, similar to that of the World Bank, has received a mixed reaction from the international community. While Japan and the US initially wanted to stay out of the project, Europe was largely favorable towards the initiative. However, AIIB is viewed as the positive face being portrayed by China, in order to demonstrate their ability to lead in international institutions. In reality, the amount being spent by China is very minimal in comparison to their global counterparts, as it views AIIB as simply a test of their potential to lead in the international environment.

Dr Maaike then pointed out that it was more important to focus on Chinese policy banks, which have spent the most money abroad. Unlike AIIB, policy banks work unilaterally and the Chinese lending process is largely opaque. It is important to engage with the destination countries and to offer them initiatives in order to be able to better influence the unilateral lending process. Lending often goes through the BRI, which makes following up on the results challenging. There remains huge potential for the human dimensions of the BRI projects, which are often forgotten. The Japanese response to the BRI project was touched upon. It was described as the quickest, as Japan introduced its own unilateral initiative, Partnership on Quality Infrastructure (PQI). Subsequently, Japan has explored multilateral partnerships for infrastructure. The similarities between the Fukuda Doctrine and Belt and Road Initiative were drawn, and this is a reason as to why the BRI was recognised for what it is by the Japanese earlier than by the rest of the world. Japan subsequently joined the rest in attempting to learn how to manage the Chinese initiative and work with it, instead of opposing it.

Dr Maaike then went on to explain the European reaction to Chinese lending through BRI. Europe has gone far beyond the naivete of believing that China can be socialised into the Western system. The BRI has created better business opportunities in Europe for smaller cities to benefit from, thus creating new opportunities for the European private sector. For the perspective of the Netherlands, the Port of Rotterdam could be viewed as an endpoint to BRI in Europe, encouraging the mercantilist spirit in the country. However, Chinese companies have the tendency to invest in non-priority projects, which is where the issue lies for recipient countries. Corrupt governments have often accepted loans catering to the ambitions of single political entities, and not necessarily for the good of the population. As a concept, BRI does not demonstrate anything particularly new to Europe, who has had similar connections in place. In fact, Chinese projects crosscut the prioritisation process for Europe by fulfilling the needs of single politicians.

Drawing parallels among various investment initiatives

The EU has launched its own connectivity strategy as an invitation for countries to cooperate with Europe and their partners. This strategy involves social sustainability, which is lacking in the Chinese approach. It involves economic, institutional and people to people connectivity, having borrowed from the ASEAN model, which was in place before the BRI. Dr Maaike concluded by emphasizing that it is important to do better than the quality of what the BRI has to offer and to take a more sustainable and positive approach towards connectivity and the delivering on promises.

The lecture was then followed by an interactive session with the audience on the theme and related issues. Interest rate differentials and the attractiveness of the expensive Chinese loans were discussed first. The attractiveness of Chinese loans was viewed as subjective, and more accessible to some parts of the world. They are also viewed as attractive to countries who want to promote alternative political and economic approaches at home. Mr Subramanian pointed out the debt burden that is created by Chinese loans which need to be examined, and the defaults which often take place on the same.

Mr T.V Krishnamurthy, Investment Banker and Business Strategist. Member C3S also provided the audience with his views on the topic. He described the Chinese approach as that of long term investment, and not lending, especially in Africa. He claimed that the Chinese learn from their investments and recalibrate their approach in an appropriate manner, referencing the example of lessons learnt from the Hambantota project. The increasing Chinese influence in the shipping industry was also discussed in detail. Dr Maaike spoke of the effect of this phenomenon on the port of Rotterdam. In the short term, there are opportunities to be reaped with working alongside China in the field of shipping. However, the competition with China in the shipping industry is unprecedented and is something that needs to be watched closely. The misconception of Chinese aid was also discussed. It was cleared up by Dr Maaike that the Chinese do not give aid, however, they do lend. They have a good understanding of Central Asian economies and the situation in recipient countries, which helps their lending system become a success. Mr Subramanian pointed out the importance of liquidity traps, and money ceasing to have a determining role due to recessions and quantitative easing.