Why are Caribbean nations wary of Chinese investment?

[dropcap]T[/dropcap]he Caribbean is a region that garners much attention in Beijing. The Communist Party of China (CPC) has been in a longstanding rivalry with Taiwan (AKA the Republic of China) in the battle for diplomatic recognition. The conflict is complex, as is the essential issue that underpins it, but the CPC’s growth as an economic power is a key element.

In order to recognise how the Caribbean can benefit from China’s growth, it’s necessary to understand what the CPC wants from the Caribbean; and what the Caribbean can offer the CPC.

BELT AND ROAD INITIATIVE

The starting point to understanding China’s relationship in the Caribbean begins outside the region. Presently, China’s chief focus is building the Silk Road Economic Belt and the 21st-century Maritime Silk Road, better known as the Belt and Road Initiative (BRI), in Eurasia and Africa. It’s here the CPC feels it can make the most inroads in economics and geopolitics.

Many developing nations in Africa are receptive to Chinese investment, which the US $900 billion plan can deliver. The BRI has been spearheaded by President Xi to pursue not only economic profit, but also to grow China’s global influence, without doing so in a way that could risk a head-on conflict with Washington.

The BRI can operate under the guise of regional trade in Asia, and Africa has long been a region with a competition for influence among the US and other great powers. With its focus in Asia and Africa, it can fairly be asked: What does China want out of the Caribbean? The answers available are somewhat perplexing.

THE CPC AND THE CARIBBEAN

While China can offer immense profit to nations of the Caribbean, the Caribbean can offer little in the way of what China usually seeks from its trading partners. Relative to other areas of the world, the Caribbean has a smaller population, smaller economies, and little in the way of natural resources that the 1.3 billion population nation craves.

Similarly, while the Caribbean can sell its health and lifestyle factors as ‘clean and green’, the similar offerings found in Australia and New Zealand – nations in much closer proximity to China – nullify this advantage.

The competition between the CPC and the ROC for diplomatic influence is a significant factor in the CPC’s engagement in the region, but it’s not the sole one. This rivalry has been going on for many decades now, long before the Deng Reforms in the 1980s began China’s new era of economic growth.

What is a chief factor is the United States. Here in the Caribbean, the CPC has a chance to ‘test the waters’ of a global rivalry with the United States, doing so in a relatively low-risk environment. For unlike Asia that is a tinderbox of rivalries, and Africa where issues of political instability and corruption could quickly see the CPC’s global reputation damaged further, as a whole the Caribbean is a stable, profitable, and growing region.

It’s also one where the United States holds a controversial history, and the election of President Donald Trump has amplified concerns surrounding its reliability as a regional leader and partner. It’s here the CPC sees the fertile ground to invest, curry favour in a low-risk way, and build global influence with new allies in new ways.

This is especially because the CPC holds an advantage over the US: the capacity to pursue foreign affairs with a ‘you need not choose’ narrative surrounding political freedoms. 

While the realities of trade and economy mean Washington is by no means always a perfect ambassador for these values, the US government will face a robust backlash from the free press if a new trade deal or diplomatic agreement is announced that sidesteps human rights concerns.

 No such issue exists with the CPC, and this can appeal to regional nations. Not because governments of the region as a whole aren’t committed to political freedoms – governments like Cuba notwithstanding – but because of the potential for immense investment without complexity. As is so often the case with the CPC though, it’s not that clear-cut.

WHAT ARE THE RISKS OF TRADE WITH THE CPC?

Ultimately, the risk is CPC investment is not mutually beneficial but instead parasitic. A larger trading nation arrives, acquires resources, and then leaves the smaller nation. The smaller nation remains as it was before, but potentially much worse off. This is not a prediction as much as a cautionary tale, as the experience of the CPC investment in Africa has shown.

The experience of the CPC domestically in China versus abroad has shown – while some tremendous projects have been pursued – that the CPC is unable to simply mirror results abroad. Strong workplace safety laws, protections against corruption, competitive free market tenders for projects, and other factors all may be inconsequential in Xi’s China, but are limiters in free nations.

Even when these factors are set aside, the issue of investment capital itself can be the biggest danger. The controversy surrounding the Baha Mar resort project in the Bahamas is an illustration of this. Originally predicted to add 12 per cent to the GDP of the Bahamas, delays and investor conflict – with a CPC-linked party a chief backer of the project – for a time damaged the credit rating of the Bahamas government.

This, in a year when China maintained an economic growth rate of 6.8% GDP. The CPC can sustain the delay of big projects like Baha Mar – whole cities have sat empty for a time after construction without damaging China’s growth – but the same cannot be said for Caribbean nations. Herein lies a key risk of business with the CPC.

As well as investment, a central question is the risk of ownership. The controversial construction of a port in Jamaica’s southwest following a deal between Kingston and the CPC has been mirrored in similar deals around the world. China agrees to build infrastructure in return for the right to lease it for a period of time. As it stands, deals like this at present time represent a relatively low-risk overall.

STABLE AND RESPONSIBLE?

The problem is that the CPC retains a capacity to engage in high risk behaviour as, especially under Xi, it maintains a hot and cold approach to be a responsible nation in the global community.

China has commendably been a leader in sustainability, and it’s undoubted that the quality of life of so many in poverty in China and beyond has been improved by Beijing’s economic growth. Nonetheless, the CPC has also escalated tensions in the South China Sea creating artificial islands. It has refused time and time again to pressure Pyongyang to rein in its rogue behaviour (and, as its only major ally, Beijing is the lone voice North Korea may listen to) and the increase of CPC army military exercises around Taiwan has raised tensions higher.

Domestically, Xi’s ‘corruption crackdown’ is seen as a backdoor to purging rivals, and Xi’s elevation in September to the level of Mao and Deng in China’s Constitution affirms he is a leader willing to go against convention when it suits. Even the banning of Bitcoin in China in September illustrated this.

All these factors show a changing dynamic in Beijing, and a new level of risk to investment with the CPC. Jamaicans reading this will surely be delighted to know it’s unlikely the Land of Wood and Water will be the site of a global conflict between the CPC and other nations.

But what if a trade war broke out between the US and the CPC? One that saw the US apply sanctions and the CPC, in turn, look to constrict freedom of navigation and open-sea lines of communication? Once again, the CPC is (for now) intent on avoiding an all-out conflict with Washington. But what if done via backchannels such as the ceasing of operations at a port?

Millions, if not billions, could be at stake to a local economy. Billions that may be small change for the CPC’s annual GDP, but could be ruinous for a small regional nation.

THE STATUS QUO

Overall, in the absence of a dramatic change to the status quo – such as a Taiwanese declaration of independence or CPC invasion of the island nation – the CPC may circle its rivals but have no wish to begin a war, economic or otherwise. This is good news for those who wish to live in a world that can continue to benefit from China’s economic growth (and that of the wider Asian region) while also maintaining the (relative) peace and security that the world has seen in the post-Cold war liberal order, with the US at the helm.

Nonetheless, while the potential rewards of greater Chinese investment are undoubtedly appealing to nations of the Caribbean, the risks are also not insignificant. What’s more, they are unlikely to recede, as opposed to grow greater in future. This, especially as conflict will increasingly be pursued not with ships and missiles, but as cyber warfare and economic sabotage.

At its core, the decisions here are a matter for the governments of the Caribbean and, accordingly, the people to whom those governments are accountable.

At the beginning of this article, it was suggested that, in order to recognise how the Caribbean can benefit from China’s growth, it’s necessary to understand what the CPC wants from the Caribbean; and what the Caribbean can offer the CPC.

The ultimate question is: What can the Caribbean truly gain from trade with the CPC? Any investment that proceeds on that basis – and avoids the risks of major economic loss or compromised security – is sure to be a positive outcome economically.