James Lindsay: ‘Biden’s foreign policy is not simply a restoration’

In this Eastern Focus interview, dr. James M. Lindsay, senior vice president at the Council on Foreign Relations (CFR), explains that Joe Biden sees his core global challenge as being less about promoting democracy than preserving it.

What would you expect to fundamentally change under a Biden administration in terms of foreign policy vision? To use the vivid image of the book you co-authored together with Ivo Daalder – “the Empty Throne” – will we be present at a restoration? To what foreign policy traditions are we going back?

I would frame President Biden’s approach like this: He is looking to recover a tradition of American leadership in the world that Donald Trump turned his back on. From Truman to Obama, American presidents believed that American leadership served not just its own interests, but the interests of others. The United States led the creation of a world order that Americans believed advanced and protected their interests even as it helped others. Donald Trump’s America First rejected that idea, arguing instead that America’s engagement in the world produced costs that greatly exceeded any benefits. That’s why America First morphed into America alone.

From Truman to Obama, American presidents believed that American leadership served not just its own interests, but the interests of others.

Joe Biden, like almost all post WW2 presidents, believes in the virtue of American leadership. But it is important to note that his foreign policy is not simply a restoration. He understands that “you can’t step into the same river twice”. Things have changed. You can’t ignore the fact that we had 4 years of America First foreign policy and America’s relations with many of its closest friends, allies and partners have been damaged and are in need of repair. The Biden team – composed of serious, seasoned, experienced foreign policy hands – understands that they face a very different situation compared to when they were last in government. They know that America’s diplomatic relationships need to be repaired. They also recognise that many US partners worry that a Biden presidency will represent only a temporary return to a traditional US foreign policy. An old saying applies here: Fool me once shame on you, fool me twice shame on me. Can Biden deliver on his agenda and on his promises? A skeptic can reasonably say that Americans voted for Donald Trump once, so what’s to stop them from voting for him again?

‘The policy of engagement with China hasn’t worked’

Let’s discuss the different strands existing in the Democratic Party vis-à-vis the great power competition. In the end the return of the great power competition has become a core feature of the contemporary international relations. It is no longer the 1990s or 2000s. The Democratic Party is no longer the one of the 1990s or 2000s. For example on Asia in particular “there is a new generation that emerged” in the words of Eric Sayers that displays a competitive-minded approach to Beijing (and here I would include Kurt Campbell, Ely Ratner, Kathleen Hicks, Mira Rapp-Hooper.

When we talk about the Democratic Party we first need to recognise that there are divisions within the party, including on foreign policy with splits between doves and hawks. Second, for many and perhaps most Democrats, job number one is not foreign policy, it is not restoring American leadership abroad. Instead it is about getting America’s domestic house in order. Indeed, many Democrats see two reasons why a successful foreign policy depends on fixing domestic problems. One is to persuade the American public that investments and actions overseas are worthwhile and not detracting from success at home. That is why the Biden Administration quite consciously uses the phrase a ‘foreign policy for the middle class’. The second reason is that America’s ability to lead has historically rested on American power, on the appeal of American values (soft-power), and on a reputation for competence. The United States was always the can-do country. It was the country where the president said on the Inauguration Day that in 10 years we would land a man on the moon and then did just that. It is safe to say that over the last dozen years the reputation of the US as a can-do power, as a competent power, has taken a blow. That happened first with the financial crisis in 2008-2009 and then again with the bugled response to the COVID-19 pandemic.

For many and perhaps most Democrats, job number one is not foreign policy, it is not restoring American leadership abroad. Instead it is about getting America’s domestic house in order.

At the same time there has been a sea change in foreign policy thinking over the last decade among both Democrats and Republicans. A consensus has formed in Washington that the policy of engagement with China hasn’t worked. Visions of what the engagement policy was supposed to produce varied, but the core belief was that we would invite China into this rules-based international order and that China would over time benefit from joining, realise the benefits, and then become a responsible stakeholder. The conclusion today– and this is a broadly held view in the United States – is that this bet didn’t pay off. We have witnessed particularly since Xi Jinping came to power a more assertive China that is seeking not to blend into the existing order, but to revamp it in a number of ways. Beijing’s engagement with that order, particularly on trade, has been strategic in the sense of exploiting the rules to benefit China economically, while not actually embracing them. This view of Chinese behaviour is something that unites the American firsters with a Biden return to American leadership. So the question becomes one of how you act on this changed perception.

Donald Trump’s answer was America First: we exert our power, we are the most important economy in the world and we can force China to bend to our demands. After 4 years the results are in on that experiment, and I would suggest it failed. China is stronger because the basic premise of Trump’s strategy of an America that can do it alone was wrong. Trump ran against allies saying they didn’t do enough, and then pursued a foreign policy which asked the US to deliver more. It didn’t work. So the Biden response is to work with our friends, partners and allies to come up with common responses to actions by China, whether in the military sphere, the economic sphere or on human rights. This is easier said than done, because even if you are going to get people to agree that China needs to be deflected or challenged, you get disagreements over where it should be challenged, how it should be challenged, who should do the challenging and who should foot the bill.

Biden argument isn’t we can contain China, but to persuade the Chinese not to do things to challenge our interests and our values. So the policy is not containment, but challenging Chinese behaviour that violates international norms.

It is certainly the case that the Biden foreign policy is going to look different than Trump’s on a number of issues – think climate change, human rights – but in other areas it is going to be similar. Of course not in tone. We’ve left behind the time when foreign policy is made by tweets at 3 a.m., we’ve left behind the time when senior administration officials disagree publicly over what the policy is, and we’ve left behind the time when the president makes foreign policy on the fly. Now we have a more disciplined, coherent, methodical administration. But the premise remains that China remains the challenge. We need to be very careful here. The Biden argument isn’t we can contain China, but to persuade the Chinese not to do things to challenge our interests and our values. So the policy is not containment, but challenging Chinese behaviour that violates international norms. We see that when we are talking about Taiwan, freedom of navigation operations (FONOPS) in the South China Sea, and China’s human rights abuses. In this context the big question becomes – can the U.S. marshal sufficient support from its traditional friends, allies and partners?

But in these diplomatic efforts it is not just what the US does that matters. What others do also matters, particularly the Chinese. And they are clearly following a strategy of divide and rule that seeks to prevent Biden from building a coalition of states that will pressure China.

‘Reaganism doesn’t fit the situation the US finds itself in today’

Are we on the verge of a paradigm change or rethinking in terms of the role of state/government domestically? A Reagan in reverse? Or a Rooseveltian New Deal 2.0? Trillions will be spent on infrastructure, social benefits, green economy. Not long ago, the national debt used to be understood as the biggest threat to the US national security. Are you worried by the skyrocketing debt levels? Isn’t this spending spree financed through a large deficit a danger for the US strategic solvency?

It’s too early to say whether we will talk about Biden’s presidency as we do about Reagan’s or FDR’s. President Biden certainly hopes to usher in a paradigm shift at home even as he reinvigorates the US approach to the world abroad. Americans have lived for four decades under the echoes of Reaganism and its insistence that “Government is not the solution to our problem, government is the problem.“ Reagan prefaced that claim, however, with the words “in the present crisis.” Biden and his supporters argue that whatever the wisdom of Reagan’s advice four decades ago, it doesn’t fit the situation the US finds itself in today. Forty years of disdaining government action has left America’s infrastructure in tatters, weakened its social safety net, and accelerated economic inequality. The solution, especially during a pandemic, cannot be turning to the same set of failed policies. Rather, government must act, and it must act boldly.

Of course, big actions come with big price tags. Growing public debt is a concern, even if deficit hawks have been wrong for decades in insisting that fiscal ruin lies just around the corner. And for all the talk about Biden’s spending plans, it is worth remembering that the US national debt jumped by more than a third on Donald Trump’s watch while America’s pressing infrastructure and social needs went unaddressed.

Forty years of disdaining government action has left America’s infrastructure in tatters, weakened its social safety net, and accelerated economic inequality. The solution, especially during a pandemic, cannot be turning to the same set of failed policies. Rather, government must act, and it must act boldly.

Biden’s argument is that the greater risk at the present moment is doing too little than too much. That is a bold bet to make. If it pays off, the US economy will grow faster, making the debt easier to carry, solving a lot of domestic problems along the way, and putting US foreign policy on firmer footing. If the bet fails, then the national debt could pose a future danger. But should the US should ever reach that day of financial reckoning, a succession of presidents and Congresses who ducked America’s fiscal challenges rather than address them would need to share in the blame.

While there is a new awareness on the disruptive rise of China, including in projecting its power and influence in Europe through companies, strategic assets and regional formats, there is no particular hurry in embracing a great power competition mindset in Europe. The recent investment accord with China is a case in point. What are implications for the transatlantic relationship? Do you see any potential strategic convergence between the Europe and the US in counterbalancing Chinese influence and projecting a common euro-Atlantic front?

I always worry about making generalisations about Europe. Europe has a robust set of countries that see some things alike and see some things differently. My sense is that overall, many Europeans are reluctant to get caught up in a great power competition. They believe that if they can minimise their exposure that they will maximise their benefits. But Europeans will find it difficult to avoid choosing sides. At the end of the day there are some issues that they can’t avoid. There are a number of Chinese policies that do concern people in Europe: human rights, Hong Kong, climate change – where the contribution of the Chinese power plants is a huge part of the problem – or regional intimidation. There are also European concerns about China’s predatory economic policies, namely, that China doesn’t play by the rules of the game but rather uses the rules to exploit others and create dependencies.

Many Europeans are reluctant to get caught up in a great power competition. They believe that if they can minimise their exposure that they will maximise their benefits. But Europeans will find it difficult to avoid choosing sides.

Some European leaders recognise that Europe has to confront the reality of China. But will Europe embrace the challenge? This will be influenced by several things: one is how well Europe is doing in tackling its own internal problems.

Another is how well the US plays its hand. The reality is, much as we extoll the transatlantic relationship, it has been buffeted over the years by all kinds of spats–on trade, the Iraq War, and the Vietnam War to name a few. So disagreement among friends is not unknown or uncommon and we should not idealise the past. We never had a moment of pure consensus, there always have been divisions. One of the tests will be how well the Biden administration understands the current state of relations–how adept are they working with their counterparts in Europe? Part of the success there is going to require the US not only to ask others to do something, but for the US to be willing to listen and give something.

Another factor to have in mind over the next 6 to 12 months is what is China going to do? Is Xi Jinping going to moderate his behaviour? One obvious strategy for a great power facing a potential opposing coalition is to create divisions in that coalition – whether by offering investments to Greece or the Czech Republic or negotiating favourable deals with the EU as a whole.

‘The West was built around the notion that we were democracies and that we shared several core beliefs’

Do you see the ‘alliance of democracies’, in itself a very Wilsonian concept, at the core of the Biden vision the way to restore US leadership and defend the liberal international order? Is this a realistic construct? The theoretical democratic solidarity is often trumped by pragmatic commercial interests.

The conversation we are having on Joe Biden’s call for a summit of democracies suggests that democracies working together is a novel idea. I would argue that for the last 75 years, the United States has led an informal league of democracies. The commitment between the United States and Europe, the transatlantic relationship, was never simply about shared interests. It was also about shared values and shared governmental approaches. This is not to say that NATO always had countries that were democracies – the outliers were for a time countries like Greece, Portugal or Spain.

But the general thrust of the West was built around the notion that we were democracies and that we shared several core beliefs: first, allowing people to change who governs them is a fundamental, universal value; two, it is the best way to arrange public affairs; three, we have an obligation to enable others to enjoy the benefits of democratic government. To me this is not something far-fetched, it is something we’ve been doing all along. We’ve been engaged in working with our fellow democracies on a whole range of issues.

The commitment between the United States and Europe, the transatlantic relationship, was never simply about shared interests. It was also about shared values and shared governmental approaches.

There is also this naïve assumption that you can only have a universal organisation like the UN, or a condominium of great powers like the Congress of Vienna, or regional organisations. The reality is that you can have a multiplicity of approaches. There is nothing wrong with having different forums, in part because you are trying to mobilise different people around different issues. I don’t accept this technocratic approach in which we have neat organisational lines and a hierarchy.

I will note that the importance of thinking about ourselves as being democracies is that it reminds us – whatever differences we have over digital taxes, subsidies, and the like – is that we share a fundamental commitment to a way of governing ourselves that we should not lose sight of. There is a tendency in human affairs to let small details take away from understanding what your common humanity is. It is important for us to work together.

Organisations remind people of common interests or create them. When China goes about selling the BRICs it is consciously trying to create a conception that these countries – different in so many ways in terms of economic interests, culture and political systems – share something in common and can thereby forge some common bases of action. That same logic applies even more strongly to building around the democratic core. It is more a philosophy that we need to recognise that as democracies, for all the differences that we might have on some particulars, we share core assumptions about the world and the international order.

‘It is hard to argue that US foreign policy interests would be better served by abandoning a commitment to democracy’

Is it too much to say that there are echoes of a Truman-esque moment in terms of US grand strategy? And I am thinking here to the emphasis of democracy vs. autocracy as an inflection point and as the contest of our times. The interim NSS guidance published in March talks in these broad terms and it suggests a grand strategy that aims at consolidating the democratic/free core. In the end, it was the core message that Biden himself projected during the recent Quad, G7 and NATO summits.

There are echoes of Truman’s foreign policy in Biden’s. Today, as then, the United States finds itself embroiled in a great power competition. Today, as then, that peer competitor insists that its political and economic model is superior to democracy and free-market capitalism. And today, as then, that peer competitor stirs alarm among many of its neighbours with its ambitions.

There are, of course, also important difference between the world today and the world of the late 1940s. The US and Chinese economies are deeply intertwined, whereas the US and Soviet economies were essentially disconnected. Both Beijing and Washington might like to reduce their mutual interdependence, but that will be hard to do. As a result, each capital has important economic incentives to favour cooperation over conflict.

Biden sees his challenge as being less promoting democracy than preserving it. That is why he has repeatedly framed his task as leading “the world in fighting to defend democracy.”

Another important difference is that democracies are far more common today than they were seven decades ago – and they have shown that they can prosper. True, we have witnessed a significant democratic regression over the past dozen years, including in the US, as January 6 attests. So Biden sees his challenge as being less promoting democracy than preserving it. That is why he has repeatedly framed his task as leading “the world in fighting to defend democracy.”

That task is easier to state than to accomplish. An immediate problem is the obvious deficiencies in America’s own democracy. It’s hard to lead a cause when others doubt your virtue. Beyond that, Washington’s ability to influence the success of democracies elsewhere has always been limited, and it has often sacrificed its democracy goals to secure other foreign policy ends. Biden is already confronting these limitations and trade-offs in places like Haiti, Myanmar, and Tunisia. Like many of his predecessors in the Oval Office, he will be criticised for fecklessness and hypocrisy because his rhetoric and actions won’t always align. But it is hard to argue that US foreign policy interests would be better served by abandoning a commitment to democracy.

There is a major debate about Taiwan these days in both US and US alliance system in the Indo-Pacific (especially Japan). We’ve seen even calls of ending US strategic ambiguity vis-à-vis Taiwan. To some extent the whole debate echoes the one that we’ve seen after WW2 about including/excluding South Korea in the perimeter of the American national security. And we know how that particular one ended. What has changed in the US perception and how important is Taiwan for the US security?

For all of the talk on Taiwan, US policy has not changed on a fundamental level and isn’t likely to change any time soon. The core principle, which goes back to 1979, is that the US adheres to a One China policy: the US does not regard Taiwan as an independent country. That is why the US doesn’t have diplomatic relations with Taipei. US relations with the island are governed instead by a piece of Congressional legislation – the ‘Taiwan Relations Act’– which essentially requires the US to support Taiwan and to work to ensure that any reunification with the mainland happens peacefully.

But tensions have risen in recent years because of the confluence of two things.

One is that Taiwan has emerged as a model of democratic evolution: from what had been an authoritarian system to a flourishing vibrant democracy that is not just successful in terms of elections but as a flourishing economy with incredibly competent leadership. Just look at how effective Taiwan – despite its close ties with China – was in preventing the COVID-19 pandemic from upending its society. If the US is at one end of the spectrum with a flawed response to the pandemic, Taiwan gets the gold star as top of the class.

How do you deter Beijing? What are the right steps to prevent an escalation in conflict? What steps should you avoid because they will accelerate a conflict? Sometimes acting can provoke.

The other element has been the increased aggressiveness of China. As Chinese rhetoric has increased and as Chinese actions have become more threatening – crossing the ADIZ (Air Defense Identification Zone) and testing the Taiwanese defense perimeter – the question arose over whether the United States is sufficiently signalling its support for Taiwan. The Trump administration moved away from a 30 year policy of keeping official contacts at a low level and Beijing obviously reacted harshly to that. The United States also stepped up arms sales to Taiwan. I anticipate that the Biden administration will continue that policy. That said, the Biden administration, like all the American presidencies, seems set to abide by the One China policy. It will say that reunification should take place on peaceful terms, and in no way should China coerce, intimidate or force Taiwan into a reunification. Of course that raises a major question. Xi Jinping has intimated if not said outright that China may consider non-peaceful means for achieving reunification. What will Washington do if China does move forcefully against Taiwan?One of the challenges for the US government is to figure out how to prevent that situation from happening. How do you deter Beijing? What are the right steps to prevent an escalation in conflict? What steps should you avoid because they will accelerate a conflict? Sometimes acting can provoke. On the other hand, not acting can invite aggression. Trying to find the sweet spot or the Goldilocks spot – something that is not too hot and not too cold, not too big and not too small – is a test of diplomatic skill.

Dr. James M. Lindsay is senior vice president, director of studies, and Maurice R. Greenberg chair at the Council on Foreign Relations (CFR). He is a leading authority on the American foreign policymaking process and the domestic politics of American foreign policy.

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Aug

Europe: the only source for Russia’s modernisation

Pavel Luzin

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Since at least 2014, Russia’s economic and technological cooperation with Europe (and with the West altogether) have been in decline. Both Russia’s government and its people tend to underestimate the long-term consequences of this decline, because they fail to appreciate the fact that in previous decades and even in previous centuries, the paradigm of Russia’s development was based on close relations with Europe. In short, Russia was incapable of achieving economic growth if its relations with Europe were damaged. We should also remember that Russia’s governance is still despotic in nature, even though by the end of the twentieth century it had transformed from a Bolshevist regime to semi-authoritarian (now fully authoritarian) with the predominance of a state-run economy.

This despotic nature came to define the classic Russian approach towards such relations: Russia efficiently exploited both the political contradictions within Europe and the frictions between Europe and America. That approach provided the impetus for economic and technological modernisation, but also allowed the Russian authorities to prevent significant European influence on Russia’s political system.

However, the principles and values of institutional Europe (as well as the principles of trans-Atlantic unity) such as human rights and freedoms, the market economy and democracy, an independent judiciary and so on, pose a challenge to the domestic political order of Russia, especially after these principles came to be implemented in most Eastern European states.

So, it became harder for Russia to play its old-fashioned political game, and the essential tensions in Russia–Europe relations became apparent in 2008 when Russia’s post-Soviet political and economic model faced deadlock: in 2008, Russia’s annual GDP exceeded $1.6 trillion, and in 2017 it was less than $1.58 trillion.

Moreover, Russia’s annual economic growth has hovered around 1.5–2% since 2017 (after another recession in 2015–16), less than the average growth rate across the European Bank of Reconstruction and Development countries. At the same time, ties of cooperation between Russian and Western companies were damaged due to both the disillusion of foreign investors and the imposition of sanctions. So, even if Russia is growing, the development gap between Russia and Europe will only expand in the coming years.

It is in this context that Russia decided to rely on military power, in order to find a new path but also to prevent its near-abroad from gaining access to any competitive/ alternative political and economic institutional model. The reason was clear: any potential success story in the democratisation of post-Soviet states poses a threat to Russia’s domestic order.

Without the extended cooperation with Europe, Russia faces long-term and growing underachievement in its economic and technological performance.

This was the perspective which guided Russian aggression against Ukraine in 2014. Nevertheless, sooner or later Russia will need to make a choice between reconciling itself to all the necessary domestic political steps towards a market economy, democratic governance and peace in its relations with Ukraine, including the withdrawal from Crimea and Donbas on the one hand – and the irreversible loss of its relatively high status in world politics on the other.

The second option will be just as probable, as Russia will not be able to use Europe as the technological and financial source for its modernisation. The main challenge here is that without the extended cooperation with Europe, Russia faces long-term and growing underachievement in its economic and technological performance.

This underachievement creates problems even for Russia’s military capacity, which is one of the main tools for Russia’s foreign policy. For instance, Russian defence industry is incapable of producing advanced satellites, warships and aircraft and many others without access to European technologies.

History does matter

In the twentieth century, Russia’s most important achievements in the area of modernisation came from Europe and the United States. In 1922, soon after the Bolsheviks took full power in Russia, they signed the Rapallo Treaty with Germany which gave them access to German arms manufacturing technologies. Later Moscow obtained much industrial equipment and technology from the Soviet occupation zone in Germany after WW2, and some of this equipment was used in Russian factories until this century. Supplies of industrial equipment and technologies from the United States, in the 1930s through commercial contracts, and in 1941–5 through the Lend-Lease Act, also played a crucial role in Russia’s modernisation. However during the second half of the twentieth century Europe remained the main driver for Russian economic and technological development. During the Cold War, the USSR used both legal ways and espionage to get equipment and technologies from Western Europe, including Great Britain, Germany and France. Moreover, rising oil prices and higher demand for petroleum from European countries, along with the discovery of huge oil and gas fields in Siberia, allowed Soviet Russia to increase its trade with Europe. Russia mostly exported raw materials and mostly imported machinery and equipment, other goods and technologies.

However, the Eastern European states inside the Soviet bloc were even more important for Russia’s modernisation. The Council for Mutual Economic Assistance (CMEA) was established to this end in 1949. During the decades Eastern Europeans were not only consumers of Russian raw materials, but also supplied the machinery and equipment that Russia needed. Moreover, their workers and engineers helped Russia in the construction of crucial facilities such as gas pipelines.

Europe and Russia before and after 2014

After the end of the Warsaw Treaty and CMEA, and the collapse of the Soviet Union, the ties of cooperation with European states also changed, although Russia became even more dependent on the whole of Europe. Nevertheless, in the post-Soviet era, before the annexation of Crimea, Russia’s access to Western technologies and investments was also limited due to the grand corruption and poor institutional environment in the country.

Later, in the 2000s Russia was able to support its economic ambitions with huge amounts of petrodollars as it had done in the 1970 & 1980s. The modernisation and the trade and cooperation with European states as Russia’s main partners certainly benefited it a great deal.

The problem is that up to 70% of all FDI (Foreign Direct Investments) in Russia are FDI round tripping. So, actually they are not direct foreign investments but come back from the offshore subsidiaries of the Russian corporations.

However the other 30% are real, and most of them come from Europe. There were two peaks in the balances of FDI in Russia: $74,783 billion in 2008 and $69,219 billion in 2013. After that Russia lost many European investors; some of them have decreased their work in Russia since President Putin returned to power in 2012.

Of course, there are still European investors working in Russia, but they have definitely become much more prudent in their business strategies. Although the post-Soviet modernisation of Russia has not been completed, some competitive companies have appeared in the fields of telecommunications, IT, banks and retail.

Once again Europe was a source of knowledge, technologies, capital and equipment. Moreover, Russia cooperated with European companies in order to modernise its defence industry and armed forces. For example, in the 2000s Russian authorities tried to interest EADS (currently Airbus) and AugustaWestland (currently merged with Leonardo) in manufacturing aircraft in Russia.

The German defence company Rheinmetall supplied a training centre for the Russian army, the Italian company Iveco supplied armoured vehicles, and a couple of Mistral helicopter carriers were ordered from France (these ships had not been supplied due to the European sanctions in response to Russia’s actions against Ukraine). One more example: as one of the leading space powers, Russia was unable to develop and produce advanced communication satellites without cooperation with European aerospace companies such as Thales, Airbus and others.

So, Russia needed such cooperation in order to maintain its ambitions to world-power status. All the examples above mean that the annexation of Crimea and the war in Donbas have impacted Russia’s economics hard. This situation suggests that the country will be unable to develop successfully before it withdraws from Crimea and European investors come to trust Russia again.

This scenario will be unavoidable if the EU and the US maintain their positions towards Russia’s trouble-making foreign policy. Therefore Moscow’s model of economic growth, with its typical authoritarian practices of limiting private initiative and its aggressive foreign policy, is bound to fail – there are just no drivers for sustainable development in Russia, so the country will likely only be able to maintain its current status projection as a political winner for a limited time.

Reasons for measured optimism

So, more than five years of confrontation between Russia and the West have resulted in the long-term decline of Russia’s economy. The economic gap between Russia and the developed countries is increasing, and there is no hope of Russia managing sustainable development within the current political circumstances.

Nor can China replace Europe as Russia’s main trade partner. In 2017, the trade between Russia and six European countries presented in Table 3 was 1½ times higher than that between Russia and China that year. Also, China cannot give Russia the investments that the European countries gave before the Crimean annexation or even still give now, even if it were just because Russia is not a priority market for Chinese companies.

At the same time though, Beijing is trying to keep Moscow as a strategic partner. For instance, China has secured itself a longterm supply of oil and gas from Rosneft and Gazprom.

Also China is gradually entering the Russian telecommunications and transport sectors, and will hardly stop there. However, what China needs is a predictable neighbour which will definitely not join any anti-Chinese coalition. This is China’s main objective in its relations with Russia. All that means that China has no interest in Russia’s sustainable development, as it has no interest in Russia’s domestic political situation. So, the cost of confrontation is growing for Russia.

With Western sanctions in place, Russia is unable to modernise its economy. Due to the absence of significant sources for development in ‘fortress Russia’, it is fated to decline in its political and economic sustainability, which makes scenarios of domestic turbulence much more probable.

Also the number of people in Russia who have benefited from its authoritarian regime is decreasing. Consequently, we will see a significant transformation of the regime in the coming decade, with the option of transition towards democracy and market economy. In order to restore itself as a trustworthy actor and partner, Russia will need to undertake huge domestic reforms and withdraw from Ukraine, and possibly from Georgia and Moldova (that depends on the political circumstances of the future transition of power in Moscow in the coming decade).

Also, Russia will have to reconsider its trouble-making tactics towards the Western states and its adverse approach towards NATO and the EU enlargement process. Nevertheless, if this happens, some day Europeans will be the first to support Russian efforts towards economic and political modernisation.

Tagged undersecurity foreign policy European Union Russia

Sat

Aug

Enter the dragon: Rising Chinese influence in Serbia

Mihailo Gajic

Disruption / Eastern Focus / SOURCES OF INSECURITY IN THE EU AND ITS NEIGHBOURHOOD

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Since the People’s Republic of China began its One Belt One Road (OBOR) initiative, there has been much discussion on how this initiative would affect the countries it covers. The main goal of this project, as proclaimed, is to increase connectivity between China and other markets through the development of infrastructure and eliminating transport choke points.

This would enable a higher level of economic cooperation by reducing the costs of freight transport and the time necessary for the goods to reach their target markets. However, does this economic project come with political strings attached? Would China be able to leverage this new influence in Serbia and the Western Balkans, and thus gain a strong foothold in Europe?

Would China be able to leverage this new influence in Serbia and the Western Balkans, and thus gain a strong foothold in Europe?

I argue that much of the discussion in this area is either misplaced at present, or overlooks the real reasons why Chinese influence is rising in the WB and particularly Serbia; and I offer a list of policy recommendations that would make Serbia more resilient to this influence.

Loans passed off as investments

Whenever Serbia’s President Vučić discusses infrastructure projects that involve Chinese partners, he always depicts them as ‘investments’. In a country where media freedom is severely limited at best, these reports have been picked up by the media and widely disseminated, without any fact-checking. One should also understand why the country’s president – a figure who has no constitutional role in the conduct of economic or foreign policy – has been so vocal in promoting Chinese influence: Mr Vucić, as the president of the most important party in the country, has been able to dismantle almost all institutional checks and balances and put almost all state institutions under his political control ‘à la Orbán’.

Hence, Chinese investments in the country seem to be multiplying; this sheds a good light on the current regime, which bases its legitimacy on economic issues, making public finances stable and promoting economic growth. Growth is probably the most pressing issue in the country; public opinion polls show that the vast majority of citizens regard the overall economic situation, unemployment and low salaries as the most pressing matters to be addressed.

Furthermore, the sluggish growth in the previous decade stemming from the weak rule of law means that Serbia was only able to regain its 2008 pre-crisis GDP per capita level in 2016. However, in reality the true level of Chinese investments in Serbia is very low. Apart from two already completed acquisitions (the Smederevo steel mill in 2016 and the Bor mines in 2018) and one big investment that has been announced for the near future (a car tyre factory in Zrenjanin), there are few Chinese investments in the country.

But these investments are strategically located; the cities of Smederevo and Bor are almost completely economically dependent on these facilities. Since these two companies incurred substantive losses when in government hands, the state was more than happy to sell them off to interested investors. However, it seems that this process was not transparent or fair, since the names of the buyers were effectively already known before the tenders were completed. Although the Chinese companies are there to make a profit, their influence can also reach higher political levels, as they are among the most important economic players in that region of Serbia.

But since their total stock is very limited, the Chinese economic presence in Serbia is overall rather modest in actual numbers… Serbia is just a springboard for reaching the more developed, and therefore more important, markets in the EU. This is well reflected in the fact that Serbia, which is not yet a member of the WTO (so its trade barriers are higher than in other comparable countries), has signed free trade agreements with all its important political and economic partners (including the EU, CEFTA, Russia and Turkey), in addition to China.

Less bureaucracy, more appealing loans

For the time being the loans from the Chinese government are being used to fund infrastructure projects. The overall infrastructure in the country needs to recover after two decades of low investments: during the 1990s, military conflicts swallowed up most of the state’s financing capabilities, and public investments were the first to be cut after the 2008 economic crisis.

This is well portrayed in the Global Competitiveness Report 2018, which ranks the quality of the roads in Serbia as 95th in the world (out of 140 economies listed). To respond to this need for infrastructure investment, multilateral financial institutions such as the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development have provided significant assistance and loans. However, these institutions were more concerned with projects of international importance, such as the international E10 highway running from Budapest to Sofia or Thessaloniki, than with those of local importance, such as the E11 highway from Belgrade to Bar.

Furthermore, these institutions have rather strict regulations, including financial supervision and auditing, while construction companies need to pass well-designed tender procedures. Therefore, there is little room to siphon off funds. Meanwhile, the public procurement system in Serbia is notorious for its corruption scandals, many of which have been connected to government-sponsored infrastructure projects. China does not labour under these constraints.

The only condition Beijing has is that a Chinese company will get most of the construction work at the price determined beforehand, without submitting to any tender procedures. A smaller part of the work goes to local sub-contractors, also without a public tender, so that the local partners can also gain a (smaller) piece of the pie. For a political elite well-versed in political clientelism, this is a win-win situation. This is what mainly explains the attractiveness of the Chinese investment loans in the region. The interest rates on the Chinese loans are not that important.

For most of the loans the interest rate applied is 2-3%, a figure similar or just slightly higher than the rates applied by the international financial institutions. The interest rates on government bonds have recently also declined significantly (Eurobonds for 10-year loans in 2014 carried a rate of 5.5%, while in 2018 the rate was 3.5%, and the most recent Eurobond carried 1.6%).

So, since there is no big difference between direct state financing and Chinese loans, the latter are actually probably more expensive, because there is no pressure on costs from the competition, in the absence of tender procedures.

The actual level of Chinese loans is still low

In some countries, the Chinese infrastructure investment loans were renegotiated when the total debt level became unsustainable. Since the Chinese took over the Sri Lankan port of Humbantota in 2017 in a debt/equity swap, there has been rising concern over whether this situation could also occur in other countries, such as Zambia, but also in Serbia. If the government proved unable to meet its rising obligations to its Chinese partner, would the latter then take over some important infrastructure, or increase their political leverage in the country in some other manner?

The level of Serbia’s public debt is still high, but it is not yet at an alarming level. The fiscal consolidation measures put in place in 2014, together with the higher growth rates of the economy that followed curbed the level of public debt, whose share in GDP significantly decreased. Furthermore, the share of Chinese loans in total government debt is rather low, making up just €895 million euros, or just under 4% of the total public debt. But if the lack of bureaucracy or checks on how the money is spent makes Chinese loans appealing, why have there not been more of them?

The answer is: because the level of discretionary power which politicians have over regular loans financed through the international market is already significant – they can spend the money only in line with local regulations, which are easy to disregard or circumvent. Therefore, the Chinese loans are only being used in place of financing from international financial institutions.

A strong economy with limited soft power

Chinese soft power in the country is still weak. Many different initiatives regarding cultural, educational and scientific cooperation have been started, but these are restricted to a rather limited number of experts. The two Confucius Institutes in the country (in Belgrade and Novi Sad) are active in these fields (especially regarding language training), and have for the time being avoided entering into political debate.

Chinese state media does not have a local media affiliate, but is content with a cooperation agreement with a local radio station in Belgrade, which rebroadcasts their programmes on Chinese culture. The number of Serbian nationals working or living in China is also rather limited (most of them are teachers of English), so their perspective on the country does not affect how most Serbs perceive China.

The main drivers of Chinese soft power in Serbia are the fact that the Asian giant is perceived as a strong and growing economy, as well as the political support that China has provided to the Serbian government by not recognising Kosovo as an independent entity. Therefore, the wider population perceives China as a benevolent actor that supports Serbian interests – something which could easily be used as political leverage.

Serbia as a future Trojan horse inside the EU?

An important argument mentioned by regional policy experts, and even by high-ranking politicians such as Johannes Hahn, the EU Commissioner for European Neighbourhood Policy and Enlargement Negotiations, is that the rising Chinese influence in the country could make Serbia a Trojan horse within the EU. This is a valid argument, but it is based on false premises: Serbian accession to the EU lies in the rather distant future, and the Chinese have much more important friends who are already inside ‘fortress Europe’. First of all, there is rising anti-accession sentiment within the most important EU countries, such as France. As Nathalie Loiseau, the top candidate of La République en Marche party for the EU elections stated during her visit to Belgrade as French Minister for European Affairs in March 2019, there would not be a new wave of EU accession any time soon.

This is not only because of Serbia’s lacklustre track record in meeting EU criteria, but mostly because the EU itself is not ready for the accession of new members. Furthermore, if one wants to look for Chinese Trojan horses, one should not look at the gates, but beyond the walls. The two most important candidates for this title are Viktor Orbán’s Hungary and Matteo Salvini’s Italy.

Both these countries are dissatisfied with certain EU policies, and are trying to establish strong political connections with non-Western stakeholders. Both countries are also vying for Chinese investments and loans, although this economic segment is probably more important for the Italian government, due to the sluggish performance of the Italian economy and weak public finances.

Hence, overemphasising Serbian cooperation with China as a political problem could seem simply hypocritical and insincere, bearing in mind the much higher levels of cooperation between the EU core countries and China.

How can the West take on the Chinese challenge?

For the time being, it seems that the West has not been able to counteract China’s rising influence in Serbia, as well as in the Western Balkans. Brussels needs to make some strategy changes. It needs to communicate with the Serbian people (who still wrongly believe that Russia is Serbia’s most generous donor!), not just their government – something the US seems to have acknowledged too: the US Embassy in Belgrade has recently stopped focusing on the painful past or on Kosovo, and turned to future fruitful cooperation.

Overemphasising Serbian cooperation with China as a political problem could seem simply hypocritical and insincere, bearing in mind the much higher levels of cooperation between the EU core countries and China.

It should also not come as a surprise that few EU flags were spotted during the street protests against Mr. Vučić’s government in recent months. It is hard for Serbians to see the EU as a supporter of freedom, when the president of the European Council Donald Tusk called Vučić his ‘friend’ and ‘soulmate’ at a press conference.

The very technical language of accession reform conditionalities is hard to understand for the general public, whereas EU support for Vučić is plainly clear. The EU should place more emphasis on the rule of law and media freedoms in the country (most programmes so far have not produced any significant outcomes), as well as the centralisation of political power, which could be tackled through changes in election system and judicial appointments.

The Kosovo issue should be resolved as soon as possible, but on a more inclusive and participatory basis, in order for a long-term compromise to be reached. These changes would eliminate most of the factors that enable China, Russia and other external factors to exert their influence in the country. Mutually beneficial cooperation with these countries could still take place, but Serbian society would then be able to distinguish between opportunities and traps.

For the time being, the EU’s actions as an external factor in the region are not strengthening or developing local resilience to foreign influence, but are in fact supporting the very forces that are undermining it.

Tagged undereconomy China European Union Serbia influence investment

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