Return to Winter: Russia, China, and the New Cold War Against America (31 page)

Putin suggested that he wanted to steer the BRICS toward “a full-scale strategic cooperation mechanism that will allow us to look for solutions to key issues of global politics together.”
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A common BRICS economic
and
foreign policy, in other words: a clear challenge to the United States and its Western allies.

As other critics have pointed out, the BRICS countries are not exactly a perfect match. They compete against one another, they have widely divergent economies and different forms of government, and China and India have a long history of reciprocal hostility. A United
Nations Conference on Trade and Development report showed that the BRIC countries, at least to date, barely invest in one another, instead opting for their neighbors and the developed world.
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Perhaps this will change when the banking system and other arrangements are put more firmly in place.

Still, a new, rival development bank oriented along non-Western lines is as clear a sign as any, in the financial and economic realm, of Russian and Chinese intentions to forge new international models and institutions that counter Western and especially American dominance. “When Putin stressed that he does not see the BRICS as a ‘geopolitical competitor’ to the West, it was the clincher,” writes Pepe Escobar in the
Asia Times
, “the official denial that confirms it’s true.”
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BEYOND MOSCOW AND BEIJING: RUSSIA AND CHINA’S ECONOMIC REACH

Moscow and Beijing’s economic challenge to the United States has not only led to competition with, and direct investment in, Western enterprises. It has also taken full flight in the developing world, especially Africa and Latin America—regions that the European powers and the United States had traditionally seen as within their sphere of economic influence.

Africa

The African continent has long been a central site for Chinese investment and economic growth; Beijing made its earliest forays in the 1950s. By 2012, however, China had surpassed the U.S. and the EU to become the African continent’s largest trading partner. Chinese investments have reached $15 billion, up from $500 million in 2002. At the start of 2012, some 2,000 Chinese companies were operating across Africa.
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Chinese trade with Africa is dominated by mineral and oil extraction; these industries constitute some 90 percent of bilateral trade. But the Chinese also pay for roads, schools, airports, hospitals, and ports, providing infrastructure improvements that Western companies have been unwilling to fund.
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Indeed, as Zambian-born Dambisa Moyo, a former Goldman Sachs economist, argues, the U.S. and other Western countries have continually passed over investment opportunities in Africa in favor of giving foreign aid. This approach has helped sabotage African economies by encouraging corrupt governments to make wasteful decisions, while forestalling the necessity of developing sustainable growth. Chinese investment, by contrast, comes in the form of productive industry, rather than subsidized loans. Chinese aid comes quickly, decisively, and without strings attached.
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China’s African involvement is certainly not universally praised. In a 2012 speech, Hillary Clinton condemned Beijing for engaging in resource exploitation: “The days of having outsiders come and extract the wealth of Africa for themselves, leaving nothing or very little behind, should be over in the 21st century.”
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Peter Eigan, writing for the Africa Progress Panel, an NGO chaired by Kofi Anan, identified five problems with China’s economic strategy in Africa:

       
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China’s investments and returns may be large and headline-grabbing, but they don’t necessarily produce many jobs.

       
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Commodity booms distort local currencies, making it difficult for exporters to sell their goods in foreign markets.

       
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Mineral exports encourage corruption.

       
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China has not advocated for Africa on the world stage or helped African exporters sell goods in China.

       
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China has used its veto power in the United Nations Security Council to consistently limit human-rights protection, preventing action, for instance, on the Darfur crisis.
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Many ordinary Africans share Eigen’s skepticism. “Ask any African ministry official or businessperson his or her views on Chinese companies and you tend to get the same response: horrible quality and broken promises,” wrote Alexander Bernard in the
Christian Science Monitor
in August 2012. “Africa’s business and government elite aren’t the only ones taking note; the Chinese brand is often the object of ridicule even among average Africans. Photographs of a leaking ceiling in the new African Union headquarters in Addis Ababa, donated and built by Chinese contractors, made the rounds on Facebook last month, with a caption mocking the quality of Chinese construction.”
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Indeed, President Xi was forced to defend China’s economic stake in many African countries—and the often-noted similarities to colonialism—in a speech in Dar es Salaam, the seaside economic hub of Tanzania, in March 2013. “China frankly faces up to the new circumstances and new problems in Sino-African relations,” Xi said. “China has and will continue to work alongside African countries to take the practical measures to appropriately solve problems in trade and economic cooperation so that African countries gain more from that cooperation.”
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In the same speech, Xi said that China would abide by his predecessor’s promise to provide $20 billion in loans over three years for African infrastructure and development, farming, and businesses. He also announced a plan to provide training for 30,000 Africans over the next three years, including 18,000 scholarships to study abroad—apparently in China, though he did not say so explicitly.
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Some African countries—such as Niger, Gabon, and Chad—have been pushing back against Chinese contractual terms for oil deals, objecting to CNPC’s high costs and unfair charges, and even, in at least one case, shutting down oil operations after learning that Chinese firms were dumping excess crude oil in ditches. All of these countries, poor economically but rich in resources, originally welcomed Chinese investment in their nations’ oil fields and the economic development
that they hoped investment would spur. But retrospectively, political leaders are realizing that they may be selling their most precious natural commodities without getting enough in return.

“This is all we’ve got,” said Foumakoye Gado, Niger’s oil minister. “If our natural resources are given away, we’ll never get out of this.”
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China’s African road may get bumpier. “The Chinese are genuinely unprepared for this degree of pushback,” said Ricardo Soares de Oliveira, an Oxford professor and expert on African oil.
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Others see China’s aid as necessary and welcome. At the July 2012 Forum on China-Africa Co-operation, President Zuma of South Africa expressed the welcoming attitude of most African leaders: “Africa’s past economic experience with Europe dictates a need to be cautious when entering into partnerships with other economies. We are particularly pleased that in our relationship with China, we are equals and that agreements entered into are for mutual gain. This gathering indicates commitment to mutual respect and benefit. We certainly are convinced that China’s intention is different to that of Europe, which to date continues to attempt to influence African countries for their sole benefit.”
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*****

Russia is a latecomer to the African investment race, but its interests on the continent are growing fast. Already rich in oil and other strategic materials, Russia does not need Africa for the fossil fuels that interest China. Rather, it wants to use Africa as an export market for services, capital, and industrial products, as a partner for exporting raw materials, and as a source of certain rare materials that may be cheaper or more plentiful in Africa.
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Russian businessmen are concerned that China and the U.S. may have gained too much of a head start in investments and extractive industries. Mikhail Margelov, a Russian presidential representative at a Russia-Africa cooperation summit held in Addis Ababa in December
2011, said: “In the 1990s, Russia gave up practically all of its interests, freeing up the territory for the United States, the European Union, and China. In 1992, Russia closed nine embassies in Sub-Saharan Africa. The new economy led to strategic losses, and now we need to make up for them.” Margelov stressed that Russia should enter into competition for raw-materials exports needed for construction infrastructure, including gas, as well as vanadium, chromium, cobalt, and uranium—materials that are rare in Russia but important to many industrial processes.
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To be sure, Russia faces heavy challenges from China in Africa. “It is useless to fight with the Chinese,” one Russian diplomat said. “They give Africa colossal amounts of credit on very good terms, and at the end of an important contract, they always give a gift—free construction of schools and hospitals.” While Russia may have business interests in Africa, it has neither China’s investment track record nor its inexhaustibly deep pockets.
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But Russia’s late start in Africa may work to Moscow’s benefit. Chinese companies are often viewed as instruments of a “new colonialism” that brings shoddy work and overly aggressive tactics; Russia does not carry this kind of baggage.
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Russia has a relatively clean slate in the region. In October 2012, the Russian government wrote off some $20 billion in African debt in order to improve its image and gain support for more investment opportunities.
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That strategy may well pay off.

Latin America and the Caribbean

“[I am] a great admirer of Mao,” said Hugo Chávez during a 2004 visit to Beijing.
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“I think if Mao Zedong and [Simon] Bolivar had known each other, they would have been good friends because their thinking was similar.”
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For Latin America’s leftist leaders, such as Chávez, Rafael Correa, and Evo Morales, partnerships with Communist China have been especially welcome. While commercial needs undoubtedly
underlie these relationships, Chinese investment also appeals along ideological lines.

In February 2012, Chinese development banks displaced the World Bank and the Inter-American Development Bank in the value of their investments in Latin America. In fact, estimates show that since 2005, China made loan commitments of more than $75 billion to Latin American countries.
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Most of this financing came in the form of commodity-backed loans, in which countries ship oil to China at pre-set rates to pay off their debts. The majority of loans went to non-creditworthy nations such as Argentina, Ecuador, Venezuela, and Brazil, mostly for mining, oil, and infrastructure projects. Between 2005 and 2011, Chinese banks provided more than $75 billion in loans; $46 billion of these were commodity-backed.
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Latin America is a unique region for Chinese investors in that it couples a fairly large market for exports with large resource reserves not being tapped by local companies—two key components in China’s growth strategy.
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What’s more, China’s model of combining authoritarianism with robust economic growth is appealing to traditional Latin American elites, as well as to populist strongmen who would like to retain their hold on power. Many view the Western model of free markets and democratization as a poor match for Latin America’s problems. Traditional elites see the Chinese model as an efficient way to lift their people out of poverty without relinquishing their grip on power.
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They believe China is a positive force, unlike the U.S., which they’ve long perceived as a meddler in Latin American affairs.

This is not to say that China is universally welcomed and beloved in Latin America. Many Latin American leaders and businessmen are becoming unhappy with Chinese growth in the region. Some accuse the Chinese of pursuing the same extractive strategy it has applied in Africa. In response, Chinese companies have begun to make more diversified investments in Latin America. The Chinese company Lenovo, for instance,
acquired Brazilian consumer-electronics company CCE for $147 million; Chinese carmaker Foton Motors Co. is investing $300 million to build an auto plant in Brazil. In June 2012, the Chinese government proposed a $5 billion cooperation fund for infrastructure development in Latin America, along with a $10 billion credit line to support these projects.
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Russia, meanwhile, has a long history in Latin America. During the Cold War, the Soviet Union had extensive ties with Cuba, but these eroded with the fall of the USSR. In 2008, however, Dmitri Medvedev expressed Russia’s desire to renew the faded partnership with Cuba. In 2009, Raul Castro visited Moscow and signed an agreement to promote bilateral development, including projects in energy, transport, civil aviation, biopharmaceuticals, and high-tech sectors.
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Vladimir Putin developed a close relationship with Hugo Chávez before the Venezuelan leader died in 2012. In October 2011, Russia and Venezuela signed a bilateral deal worth $8 billion, including a $4 billion loan for military training. The two countries are working together to develop production in the Orinoco oil field. Venezuela is by far Russia’s most important ally in Latin America; Russia entered the Latin American arms market only with Chávez’s help.
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From 2004 to 2010, Russia sold Venezuela a staggering $5.4 billion in weapons, from tanks to missiles to rifles. Chávez dubiously claimed that he had purchased anti-aircraft missiles to protect oil derricks from aerial assault. Venezuela’s investments in Russian arms have troubled the Chilean, Colombian, and Brazilian governments, which fear that a heavily armed Venezuela could set off a continental arms race or enable Caracas to intimidate and coerce its neighbors.