In budget testimony last week, the Secretary of State told Congress that China is not just competing with the US around the world but, for all intents and purposes, is eating its lunch.
“Let's just talk, you know, straight realpolitik,” Hillary Clinton told the Senate Foreign Relations Committee. “We are in a competition with China. Take Papua New Guinea: huge energy find... ExxonMobil is producing it. China is in there every day in every way, trying to figure out how it's going to come in behind us, come under us.”
But how effective is the China model, anyway? And is China's approach really quite so uniform?
This much is clear: China's arrival as trader, investor, lender, and builder is dramatically changing the economic environment around the world because, while Chinese investors are not oblivious to the challenges of doing business in, say, Papua New Guinea or Niger, they have taken on risks where American and Japanese (and Indian) firms have not. Over the long term, China is likely to displace other, more traditional partners across an array of sectors.
Take Central Asia. Beijing has ended Russia's near monopsony on Turkmen gas, established eastbound pipeline connections to China for Kazakh oil and Turkmen gas, and negotiated complex transit rights for the latter. But China is not simply eroding Russian economic leverage. It is, too, eroding the economic influence of indigenous elites with close ties to Russian industry while empowering a new stratum. And Chinese preferential loans will, in time, erode the influence of nearly all other international lenders as well, especially the International Financial Institutions (IFIs).
Beijing's loans of $10 billion for Kazakhstan, $4 billion for Turkmenistan, more than $603 million for Tajikistan, and a $10 billion loan facility to members of the Shanghai Cooperation Organisation through China's Exim Bank and other development banks have come without World Bank-style conditionality, although China employs its own forms of conditionality through “buy China” and “employ Chinese” provisions. So, while China is providing new options to Central Asian governments, it is also assuring new bargaining power that they can leverage in new ways with the IFIs, the US, and others.