China's Silent Army
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Beijing 2008 represented a priceless PR campaign for the Chinese regime. Not only did the event serve to legitimize the regime in the eyes of its own people, but it also showed China to be worthy of a level of international prestige which immediately wiped away the tragic memory of the tanks of Tiananmen Square, the blood spilled in Tibet, and the daily trampling of human rights. Heads of State and of governments who just months before had threatened to boycott the Games now showered their Chinese counterparts with more tributes than ever before. In the press, China was now only of interest from an economic perspective, while social stories of injustice or repression were pushed, surprisingly, to the sidelines. Overnight it seemed that China had become “one of us.”
For those of us who lived in China and, from our journalistic vantage point, were daily witnesses to the abuse, excesses and horrors of the regime, this sterilization of the world’s biggest dictatorship was something we looked on with a mixture of astonishment and distress. It was a trend that would only increase in the months that followed: the cheering from the Olympic Games that had put the Asian giant on a pedestal had scarcely died away when Lehman Brothers, the fourth biggest investment bank in the United States, declared bankruptcy; September 15, 2008, just three weeks after the end of the Olympics, marked the beginning of the crisis which threatened the downfall of the Western financial system.
The chaos caused by the financial collapse in the United States and Europe, including the bailouts of banks, the mass closure of businesses and the dismissal of millions of workers, is not only still clearly visible today but many more years will have to go by before these wounds really heal. In China, however, the crisis passed by almost unnoticed, thanks to state intervention in the financial system, which helped to prevent contagion, and Beijing’s quick reaction to side-step the recession. Furthermore, while the world was falling apart around it, the Asian giant—with its growing demand and infinite reserves of foreign currency—emerged as a lifesaver amid the wreckage of the West, buying debt and giving out loans here, there and everywhere. In a little less than a year, China’s prestige and position in the rest of the world had taken a 180-degree turn, from treacherous dictatorship to savior of the world’s economy.
It was clear that the balance of world power had begun to swing towards the East. In November 2009 we watched in astonishment as Hu Jintao and Barack Obama appeared together during the president’s first official visit to China. The American leader’s low profile when tackling traditionally uncomfortable issues for Beijing—such as human rights—which had always played a prominent role in the diplomatic agenda of his predecessors, was a sure sign of China’s emergence and growing influence on the world stage. Just weeks before, the new incumbent of the White House had approached China with the idea of creating a G2, a Washington–Beijing axis to take the lead in world affairs. Beijing had said no. Why should it form an alliance with the United States when world leadership was already within its grasp?
With full pockets and renewed prestige, the giant felt strong. And so, in the midst of the opportunities offered by the financial disruption, China began to spread its net wide. Investments worth millions of dollars, long-term supply contracts for raw materials, and the acquisition of assets across the planet offered ample proof that the Chinese world conquest had become a reality which, from where we sat in our Beijing office, seemed indisputable. We soon became fascinated with the magnitude of the phenomenon: What was the nature of China’s expansion across the planet, an expansion based on the silence of money rather than the military might used by other world powers? Was the Asian country actually colonizing Africa? How close were the military, economic and nuclear ties between Beijing and Tehran? Was the colossus really sweeping away forests in Mozambique? How was neighboring Russia digesting China’s intrusion? Had China’s tentacles already reached as far as Latin America?
One by one, these questions sharpened our curiosity, unable as we were to come up with any answers based on facts. Meanwhile, writing on a daily basis about GDP and other variables of Chinese macroeconomics was becoming an almost unbearable routine when we could see that history was changing its course right in front of our eyes, in the oil wells of Angola, the iron mines of Peru and the “Made in China” markets of Central Asia. “Let’s get back to some real journalism and start sticking our noses into this business,” we told each other, convinced that this book would only make sense if we carried out our investigation on the ground. We would have to go to where the giant’s footprint was most visible—in the developing world. In other words, it was time to travel to Asia, Africa and Latin America, to see, touch and taste for ourselves how China is becoming a global power.
The summer of 2009 was already coming to a close when we began an investigation that would take two years of total dedication. Understanding this “new Chinese world” started off as a bet but soon became a passion, complete with email exchanges full of mostly harebrained ideas at ungodly hours of the night. As we moved forwards and began to understand the key issues and secrets of the phenomenon, the investigation grew into an obsession. Fortunately, we weren’t the only ones determined to find out more: the American media analysis company Global Language Monitor announced in December 2009 that “the emergence of China” was the most closely followed story in newspapers, radio, television and the Internet since the beginning of the century, bigger even than 9/11 or the election of President Obama. For one pair of journalists, there could be nothing more exciting than setting off in pursuit of the “news of the decade.”
This increasing global interest in the new China is a direct consequence of the country’s growing influence in the developing world, where it is able to spread quickly and easily. However, China’s longer-term vocation is genuinely without limits. There is no doubt that we are witnessing a phenomenon that will sooner or later lead China to storm Western markets, where it is already buying sovereign debt, building new infrastructure in Eastern Europe, acquiring controlling stakes in strategic assets such as ports, utilities and power companies, taking over German technology firms, and rescuing Western brands from the brink of collapse. We are therefore facing a slow but steady conquest destined to change the lives of every one of us and which is most likely already laying the foundations for the new world order of the twenty-first century: a world under China’s leadership.
The challenge of investigating this phenomenon demanded meticulous preparation; we would have to look into all of the million-dollar projects announcing the emergence of China that were spewing out of the office teletype machines on a daily basis. Where to go? Which countries to choose? Whom to interview? Which leads to follow? These were the questions we asked ourselves when faced with the evidence that there was not a single corner of the planet which China had not yet reached. Months of intensive research followed, with countless interviews with experts in Beijing and endless hours spent checking and classifying the information available to us. It gave us a global vision of a phenomenon which we would soon have the opportunity to confirm on the ground: the new Chinese world is already here. All the figures point to this fact: between 2005 and July 2012, Chinese companies invested US$460 billion across the globe, $340 billion of which (74 percent of the total amount) was spent in the developing world.2
What is happening is crystal clear. While the West suffers the consequences of the 2008 crisis, China goes from strength to strength: from a contract for $6 billion in the Democratic Republic of Congo using a “minerals for infrastructures” formula to China’s invaluable contribution to the motorization of Castro’s Cuba, a country that was suffering from shortages of salt, powdered milk and rice when we visited the island; from the sale of satellites to Venezuela to an unprecedented offensive on the part of China’s state corporations to guarantee their supply of “black gold,” including the investment of $48 billion in oil assets between 2009 and 2010.3 And let us not forget the matchless flow of exports that has been forged over the last decade, since China became a member of the World
Trade Organization (WTO). In just ten years the country has multiplied its trade with the rest of the world six times, with an increase from $510 billion in 2001 to $2.97 trillion in 2010.4
While there is no doubt that the crisis provided a powerful boost to China’s spread of influence across the world, it is impossible to separate the country’s expansion from the abilities of the Chinese people or the strength of its state and financial system. To begin with, China’s expansion would not be what it is today without the support of millions of anonymous people who brave prejudice and uncertainty to set up businesses in the most unlikely places around the planet. China benefits from an army of astonishing human beings with a limitless capacity for self-sacrifice, who venture out into the world driven only by their dreams of success and who go on to conquer impossible markets which Westerners never dared to tackle—or if they did, they failed.
As well as the drive of its private sector, it is important to take into account the efficiency of China’s economic model, which uses its astonishing financial clout to serve the country’s national strategic objectives. The practically unlimited funds offered by policy banks such as the Export Import Bank (China Exim) and the China Development Bank (CDB) represent an incalculable advantage in an era otherwise dominated by empty coffers and a dwindling cash flow. Firstly, these loans allow state-run businesses working in the extractive sector to buy strategic assets, secure long-term supply contracts and develop projects to exploit natural resources. Furthermore, these limitless funds allow Chinese construction companies to bid for international projects with the most tempting financial packages on the market.
Many times they don’t even go through public biddings. The recurrent funds offered by China Exim and the CDB also allow China to grant millions of dollars’ worth of credit to countries such as Iran, Ecuador, Venezuela, Angola and Kazakhstan, among countless others. These loans are almost always backed with oil and are usually made under conditions classified as confidential. Despite the global crisis, in 2009–10 Beijing overtook the World Bank as the biggest lender on the planet, granting over $110 billion in credit in that period alone. This provides China with a lethal financial weapon: being the “world’s banker” not only underpins China’s international diplomacy and global influence, but it also gives “China Inc.”—the triumvirate formed by the party-state, the banks and the state-owned companies—the ammunition needed to blow their competitors out of the water, as we ourselves have been able to confirm in country after country. And they can do all this without being accountable to anyone.
This issue wouldn’t let us rest. Where do the Exim Bank and the CDB get their unlimited resources? How is a developing country like China able to become such a financial heavyweight when the rest of the world is going through economic turmoil? What is China’s magic formula? The answer to this mystery is found right at the heart of the dictatorial regime: in short, it is the Chinese people who pay for the dreams and ambitions of the Chinese state, whether they like it or not. Why is this? On the one hand, the Exim Bank and the CDB finance themselves with bond issues bought by Chinese commercial banks, an expenditure backed by the deposits of 1.3 billion Chinese savers. As there is no welfare state, the Chinese people save over 40 percent of their earnings, which represents the highest rate of savings in the world. On the other hand, this huge quantity of deposits is combined with what economists call “financial repression,” which under the Chinese system means that depositors are forced to lose money with their savings. This is because savers receive negative returns on their deposits, a consequence of interest rates which are often lower than the rate of inflation. Most importantly, despite the value loss of their savings, depositors are prevented from leaving the system to look for better deals elsewhere because of strict controls on capital outflow. Domestic investment options are limited and strict capital controls prevent savers from investing their money in more profitable options abroad. Therefore, the financial losses suffered by the Chinese people fit perfectly with the needs of “China Inc.,” which uses this money (on which it pays de facto zero interest) to provide state-owned companies with cheap financing to carry out their global conquest. If the restrictions were to be lifted, these savings would leave the system by being moved to other investment options abroad, thereby cutting off the flow of cheap capital. Therefore the magic wand of limitless funding is paid for at great expense by Chinese savers while, at the same time, China’s commercial competitors complain that this capacity for preferential credit is unfair.
At any rate, this strategy has allowed China to launch an international offensive that is primarily aimed at the developing world. It is in these countries that China can find the raw materials required to fuel its economy, as well as untapped markets with little competition for Chinese products. China’s expansion in Africa, Asia and Latin America is therefore a strategic issue that should be interpreted from the point of view of domestic policy: China needs to achieve at least 8 percent annual growth to maintain social stability, and therefore a constant supply of raw materials is needed to keep the “factory of the world” and China’s urbanization—two of the country’s driving economic forces—from stagnating. For Beijing, there is simply too much at stake to leave such matters in the hands of the market.
At a local level, China’s expansion is causing dramatic transformations. The effects are arguably most visible in Africa thanks to its chronic lack of infrastructure, despite quality concerns.5 In this continent alone, China has contributed to the construction of 2,000 kilometers of railway tracks, 3,000 kilometers of roads, dozens of football stadiums and 160 schools and hospitals, among other projects. But we should not forget the 300 dams that China is building or financing across the world; the thousands of kilometers of strategic oil and gas pipelines in places such as Sudan, Kazakhstan and Burma; the construction of housing in war-torn countries such as Angola; or its railway projects in Argentina and Venezuela. Furthermore, China’s plans to change the world include long-term aspirations: Beijing has proposed the construction of a 200-kilometer “dry canal” across Colombia as an alternative to the Panama Canal, and Chinese companies have also shown interest in a similar infrastructure project which will unite the Pacific and Atlantic oceans via the Amazon River.
We were able to get a sense of China’s growing power on our first journey in November 2009, when we flew out to the Egyptian seaside resort of Sharm el-Sheikh to test the waters at the most recent—at the time—China–Africa summit. Among the usual speeches singing the praises of Sino-African friendship, China’s Prime Minister Wen Jiabao announced that China would be granting the continent $10 billion in concessional loans, a figure to which China added another $20 billion during the July 2012 China–Africa summit held in Beijing. The real revelation in the 2009 summit, however, occurred at the end of the press conference given by China’s government number two. Wen stood in the room packed with over fifty African and Chinese journalists like a triumphant bullfighter, smiling to the crowd in the midst of a standing ovation and having his photo taken with the reporters, who were falling over themselves to shake hands with the new Messiah. We couldn’t believe what we were seeing: journalists applauding the authorities! “Can China really be doing so well in Africa?” we asked ourselves. From what we had just seen, the answer seemed to be a resounding yes.
And so we began our travels, setting out on a fabulous and dangerous adventure through over twenty-five counties to find out whether all this applause was really justified. Our aim was to understand how China is carrying out its current expansion and what impact this is having at a local and regional level. From the copper mines of the Democratic Republic of Congo to Turkmenistan’s gas-rich deserts, and from the Siberian forests to Ecuador’s Amazonian dams, our philosophy was always the same: to witness what was happening with our own eyes, to give a voice to the main actors in this drama, and to use our years of experience as journalists in China to help explain this new reality. The decision to fund the project ourselves was compl
etely insane in financial terms, but worth it to maintain our journalistic independence.
We carried out extensive fieldwork to avoid falling into the trap of anecdote. We boarded eighty planes to fly across 235,000 kilometers; we crossed eleven land borders and put our lives at risk over the course of the 15,000 kilometers covered on dangerous roads and dirt tracks. One date in particular stands out from our safari through the Chinese world because it highlights some of the more demanding aspects of the journey: August 22, 2010. At six o’clock that morning we flew from Luanda to Cabinda, a small Angolan enclave on the border with the Democratic Republic of Congo; the night before we had spent several hours checking in at an airport with no computers, caught up in the drama of a general power cut. Crossing one of the most dangerous borders in Africa was particularly stressful that day because the checkpoint was closed for a public holiday and many of the soldiers guarding it were high on drink and drugs. It also didn’t help that we were carrying four laptops, seven cameras and five hard disks—all of them loaded with the work of several weeks.
Once we reached Muanda, the lawless, poverty-stricken Congolese town closest to the border, we were detained for several hours before the Spanish Embassy rescued us from the grasp of the local chief of police, who was rubbing his hands with glee at the thought of getting hold of a substantial bribe. Next we traveled the 400 kilometers to Kinshasa, the Congolese capital, on a hellish journey along a narrow road full of potholes, with wrecked cars lining the ditches and lorries driving towards us at full speed with no headlights. It was gone midnight when we finally arrived at the hotel in Kinshasa, where the most eclectic bunch of people imaginable came together after dark, united by alcohol, ear-shattering music and firearms. At 100 euros per night, Internet access and running water were luxuries we could only dream of. Meanwhile, sleeping was a constant battle with the mosquitoes. Day after day it went on like this, living on a knife-edge.