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China’s One Belt, One Road Initiative And The Middle East Is A Crossroads, Part 4, Pakistan, Turkey, United Arab Emirates, And Yemen

ArmchairTechInvestor, May 27, 2018, by Brad Peery

Book Under Development-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs:
www.ArmchairTechInvestor.com
www.ArmchairPolitician.US

Below are summaries of the OBOR initiatives in the countries covered in the Middle East Part 4.

Pakistan

*”Pakistan is part of the southern region of the Asian continent that is known as South Asia. It is located on the crossroads of Asia and the Middle East, bordering China in its north-most area, India in the east and Iran and Afghanistan in the west. Pakistan is the world’s sixth most populous country with about 200 million people. It is the second largest economy in South Asia after India.”

Pakistan is a member of the South Asian Association for Regional Cooperation (SAARC), Pakistan is also a member of the South Asia Free Trade Area (SAFTA). Pakistan is one of the member states of Central Asia Regional Economic Cooperation (CAREC) and Economic Cooperation Organization (ECO). Importantly Pakistan has signed a bilateral a trade agreement with China, and agreements with Malaysia and Sri Lanka that also have ports financed and managed by China.

The China-Pakistan economic corridor is being established to develop modern infrastructure projects that include roads, railroads and power plants. A 250-mile Multan-Sukkur section of the Peshawar-Karachi Motorway began construction in 2016 for completion in August 2019.

Gwadar Port is financed and operated by China Overseas Port Holding Co., It started operations in November 2016. Located at the mouth of the Persian Gulf, it is close to the Straits of Hormuz, and the Gwadar Port provides China with an important shipping route to the Middle East. In April 2017, China provided a loan of US$1.2 billion to Pakistan to help it with a currency crisis.

**“China has reportedly halted funding for three road projects that are part of the China-Pakistan Economic Corridor, a centerpiece of the so-called Belt and Road initiative. The sudden decision reveals how unilateral Chinese decision-making is on Belt and Road investments, according to analysts.

Turning off the money for the project is “China’s way of conveying a diplomatic yet strong message to the Pakistanis: We will pay, but only on our terms,” the European Foundation for South Asian Studies, an Amsterdam-based think tank, said in a note, describing the situation as “a temporary punitive step to affirm control.”

This is another example of the risk that Sri Lanka learned about when it couldn’t make payments on the Chinese loans that financed its port project and led to China essentially owing the port. The same thing has happened to Pakistan’s Gwadar Port. Pakistan has no control of it.

China’s One Belt One Road Initiative is likely to end up being a way for China to expand its territorial presence in Asia, Africa, the Middle East and even Europe.
**Pakistan learns the downside of taking infrastructure money from China, China giveth, and China taketh away. CNBC Asia-Pacific, Nyshka Chandran, December 12, 2017

Turkey

*Turkey has been going through mounting geopolitical tensions with neighboring countries. It has also had high inflation because of a weak lira, which is casting doubt on its growth prospects. Despite these problems, government-sponsored credit guarantees have restored confidence in the Turkish economy. Its economy grew at a 5.1% annual rate in the six months through June 2017, and was expected to grow by 5.3% in the year 2017.

But given further recovery of the global economy and solid gains in industrial production and investment, the Turkish economy is forecast to see 4.0% growth in 2018. This is despite its geopolitical problems.

***The relationship between Turkey and China is turning into one of a strong friendship. Turkey’s sour relationships with NATO, the EU and Germany are driving it into the arms of China. Also Turkish President Recep Tayyip Erdogan’s human rights abuses, and use of the electoral process to essentially create a dictatorship are ignored by China. The Turkish Foreign Minister promised to eliminate any anti-Chinese media reports and stated “we see China’s security as our security”. Turkey and China are developing shared interests. This is an example of China befriending countries that are looking for alternatives to the West.

“The friendship has, to a substantial extent, already been struck. Beijing purchased a stake in Turk Telekom, a company that has been allegedly used by the Turkish government to spy on Turkish citizens and regime opponents. High-speed rail, ports and other infrastructure projects have all been lined up. The OBOR will also assist Ankara in promoting its construction industry in Central Asia, where Turkish firms have been operating since the 1990s.”
***Why is Turkey so eager to be led down the Belt and Road?, East Asia Forum, Nicol Brodie, October 28, 2017

United Arab Emirates

The United Arab Emirates (UAE) is heavily on the oil-related sectors. It is trying to diversify in several ways. It has an $81.7 billion plan to promote a knowledge-based economy which will include investments in education, health, energy, transportation, water and the space industry. It is already diversified to the extent that slightly less than 70% of its GDP is non-oil related, with the objective being to take that to as high as 80% by 2021. The plan also includes tripling the labor force in the “knowledge economy” by 2021.

“China’s investment in the UAE has been growing in recent years, with cumulative FDI rising from US$764.3 million in 2010 to US$4.6 billion in 2015.” In May 2017, UAE Minister of State Sultan Ahmed Al-Jaber commented that the UAE strongly supports China’s OBOR Initiative. “Foreseeing a 50% growth by 2040 in the energy demand in Belt and Road countries, he noted that both China and the UAE have made strategic co-investments in the energy sector. For example, China National Petroleum Corp. (CNPC) and China CEFC Energy Co., have recently taken a minority share in the UAE’s onshore oil reserves.”

On the regional level, The UAE is trading with Arab nations through the Greater Arab Free Trade Area Agreement (GAFTA). Under the GAFTA, the UAE has free trade with Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia and Yemen.

****Chinese contractors have become increasingly active in local construction projects and Chinese visitors continue to increase according to consultants JLL. According to JLL, the UAE plays a crucial role in China’s proposed OBOR Initiative.
Dubai is a key city in this strategy, and a gateway to stable markets, especially in Africa. Currently about 60 percent of Chinese exports to regional markets are channeled through the UAE. JLL pointed to a number of significant Chinese investments in the UAE – such as in Abu Dhabi Industrial Park and Dubai Food Park – as signs of growing Chinese economic involvement in the country.
****Chinese economic influence in the UAE growing, says JLL
The UAE is a significant part of the country’s $124 billion ‘one belt, one road’ initiative
Asian Business, By Bernd Debusmann Jr, February 7, 2018

*****Another indication of the involvement of China in the UAE is an MOU that has been signed with the Shanghai Stock Exchange with Dhabi Global Market (ADGM) to establish a Belt and Road Exchange,” Richard Teng, chief executive of ADGM’s Financial Services Regulatory Authority, told CNBC.

“The joint exchange is poised to support businesses and investors along the Belt and Road. This Beijing-backed scheme plans to link the world’s second-largest economy to the west via a vast land and maritime infrastructure network across Eurasia.”
****China and UAE move a step closer to opening a ‘Belt and Road Exchange’, CNBC, Sam Meredith, April 24, 2018

Yemen

*”Yemen sits at the southwest tip of the Arabian Peninsula, between Oman to the east and Saudi Arabia to the north. It overlooks the Bab al-Mandab Strait where the Red Sea joins the Gulf of Aden. It has been locked in a complex civil war since 2015, with the rebel Houthi group fighting against the Yemen government backed by a Saudi-led coalition, the Islamic State and Al-Qaeda. The prolonged civil war has led to famines and humanitarian crises in the country.”

The Houthi group, backed by Iran, is fighting against the Yemen government backed by a Saudi-led coalition, the Islamic State and Al-Qaeda.

Yemen is a small oil-producing country, not a part of OPEC. It is one of the world’s poorest countries, and has a young population. “Yemen allows foreign oil companies to exploit its oil fields in light of their capital and technology resources. Prior to the civil war in 2015, the oil sector accounted for 65% of its fiscal revenue and one-quarter of its GDP. Yemen’s oil exports had been suspended since early 2015, but were resumed in 2017. “International oil companies in Yemen, such as Austria’s OMV are also looking to resume oil production in south Yemen in 2018.”

*****’Yemen is facing an acute humanitarian crisis after nearly three years of civil war, with more than 10,000 deaths and three-quarters of the country’s population in dire need of humanitarian assistance.’ China has not been a leader in Yemen, but has supplied humanitarian role, largely driven by China’s close relationship with Saudi Arabia.

“As Yemen’s major trade partner, China has an outsized economic presence in the country and can play a significant economic role in Yemen’s postwar reconstruction through its OBOR Initiative.”
*****China and Yemen’s Forgotten War, US Institute of Peace, By I-wei Jennifer Chang, January 16, 2018

China’s One Belt, One Road Initiative And The Middle East Is A Crossroads, Part 3, Oman, Palestine, Qatar, Saudi Arabia And Syria

ArmchairTechInvestor, May 26, 2018, by Brad Peery

Book Under Development-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs:
www.ArmchairTechInvestor.com
www.ArmchairPolitician.US

Below are summaries of the OBOR initiatives in the countries covered in the Middle East Part 3.

Oman

*Oman is located “in the Gulf of Oman, the Arabian Sea and the Strait of Hormuz, a major transit point for crude oil and a trade route connecting the Middle East, India, Africa and Europe. Oman ranks the fourth out of the six members in the Gulf Co-operation Council (GCC) by population, after Saudi Arabia, the UAE and Kuwait.” The deep-sea SOHAR Port is “located at the centre of global trade routes between Europe and Asia, making it an ideal business location.”
*The Belt and Road Initiative: Country Profiles, Hong Kong Trade Development Council, May 17, 2018

“New Chinese investments are working to transform a small fishing village in Oman into the country’s new industrial center, according to a new report by Reuters. The city receiving all of the industrial attention is located 345 miles south of Muscat. The project promises an overall surge in Chinese investment in the country if it shows any indications of a success.”

**Oman is central to China’s OBOR Initiative, with oil being a prime driver, at least for the next few years. However, longer term, China could ban fossil fuel cars in China, with them being replaced by electric vehicles. This could happen by about 2030.
**Oman To Become A Key Part Of China’s Silk Road, Oilprice.com, By Zainab Calcuttawala, September 7, 2017

Palestine

One Belt, One Road Network
ArmchairTechInvestor, May 25, 2018, by Brad Peery

* “Palestine is located on the eastern coast of the Mediterranean Sea. It comprises two non contiguous areas – the Gaza Strip and the West Bank. Gaza, the smaller of the two, is bordered by Egypt and Israel, while the West Bank is surrounded by Jordan and Israel.”

The overall unemployment rate in Gaza was 44% while that in West Bank was lower at 18% in 2017.”

Palestinian president Mahmoud Abbas visited China in July 2017. Four agreements were signed including promoting tourist destinations and economic cooperation. Also, “China will support the building of Palestine’s Tarqomia Industrial Zone, west of Israeli city Hebron.”

***China’s peace initiative for the Israeli-Palestinian conflict was announced on July 31, 2017. Few new ideas were included in the plan, and this was not the first time China has proposed a plan, with the last one being in 2013. This proposal is even more vague. It omits Palestinian demands to establish an independent Palestinian state that enjoys full sovereignty, as well acknowledging Israel’s right to exist while addressing its legitimate security concerns.

“The 2017 proposal is the first to be made in the context of the One Belt, One Road (OBOR) vision. This vision has unprecedentedly advanced China’s interest in the Middle East, and its stake in regional stability has grown significantly. Concomitantly, OBOR provides China with unprecedented means to influence regional processes in ways that it finds acceptable under its “business first” approach to the Middle East. As for similarities, both proposals are finely balanced in their requirements from the involved parties.”
***China Has a New Middle East Peace Plan, What’s new in Beijing’s latest proposal and what does it tell us about China’s views and intentions concerning the region?, The Diplomat, By Yoram Evron, August 14, 2017

Qatar

One Belt, One Road Network
ArmchairTechInvestor, May 25, 2018, by Brad Peery

Qatar is one of the wealthiest countries in the world in terms of GDP per capita. Qatar’s economy is highly dependent on oil and gas, which accounts for over 50% of GDP, 85% of export earnings, and 70% of government revenues. The government has been making efforts to diversify the economy into a sustainable long-term income model. This includes investments in the petrochemical sector, promotion of business tourism, and financial sector improvements.

*“Qatar’s real GDP growth expanded by 2.5% YOY in Q1 2017 on the strength of its non-oil sector. The country is projected to expand by 3.4% in 2017 due to massive infrastructure investment and further economic diversification.”

Oil and gas rich Qatar is viewed as an important staging point for the OBOR Initiative. China is the world’s leading buyer of oil and gas.

***“Professor Wang Yiwei of the People’s University in China believes that even though Chinese investments will not be directly affected by the current conflict, the growing instability in the region could still have a negative impact on China’s economic cooperation with the Gulf States.”

Bahrain, Saudi Arabia, Egypt and the United Arab Emirates have severed diplomatic ties with Qatar. They accused Qatar of supporting terrorist groups and of interfering in other states’ internal affairs. Libya also severed ties, as did Yemen, the Maldives and Mauritania.

“Despite some temporary problems, China has nothing to worry [about the present row],” Bian Yongzu, an expert at Chungyang Financial Research Center said.”
*** How Qatar Row Could Impact China’s One Belt, One Road Project
Sputnik International, Aleksey Nikolskyi, August 6, 2017

Saudi Arabia

One Belt, One Road Network
ArmchairTechInvestor, May 25, 2018, by Brad Peery

*“Saudi Arabia is part of the Greater Arab Free Trade Area Agreement (GAFTA). Under the GAFTA, the country enjoys free trade with Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Sudan, Syria, Tunisia , the UAE and Yemen. As member of the GCC, Saudi Arabia also has free trade agreements (FTAs) with Singapore, New Zealand and the European Free Trade Association (EFTA) comprising Switzerland, Norway, Iceland, and the Principality of Liechtenstein.”

There are negotiations underway on the establishment of FTAs with the EU, Japan, China, India, Pakistan, Turkey, Australia, Korea and the Group of Mercosur (Brazil, Argentina, Uruguay Paraguay, and Venezuela).

****China’s “One Belt and One Road” initiative is expected to make “creative” contributions to helping Saudi Arabia realize its “Saudi Vision 2030” plan, Saudi Ambassador to China Turki Bin Mohamed Al-Mady said. To diversify its heavily oil-dependent economy, Saudi Arabia announced a “Saudi Vision 2030” growth strategy in 2016, which includes privatizing some state-owned companies.”

Chinese President Xi Jinping visited Saudi Arabia in January 2016. Both countries agreed to form a comprehensive strategic partnership. The areas of cooperation could include technology, security and defense, which would be addressed in separate agreements.

“Saudi Arabia was one of the first countries to respond positively to the [Belt and Road] initiative,” he said. “In terms of strategic location, Saudi Arabia serves as the central hub connecting three continents – Asia, Africa and Europe, and has been an important part of the initiative.”

Al-Mady said that he hopes Saudi Arabia can play a more central and positive role in promoting the initiative to strengthen the in-depth integration of the initiative and the “Saudi Vision 2030.”
****Belt, Road initiative will help Saudi Arabia realize 2030 vision, ambassador says, ChinaGoAbroad, Xinhua, May 25, 2018

Syria

One Belt, One Road Network
ArmchairTechInvestor, May 25, 2018, by Brad Peery

*”Syria is a Middle East country at the eastern end of the Mediterranean Sea, bordered by Iraq, Israel, Jordan, Lebanon and Turkey. Damascus is the capital, while Aleppo is the largest city. Syria has a young population, with more than 50% of its citizens aged below 25.”

Sanctions were imposed on Syria by the U.S., the EU, the Arab League, Turkey and Canada. Since then Syria has traded heavily with Iraq. Most Chinese companies have discontinued their operations, but indicated in 2017 that they looked forward to reconstruction projects following the war in Syria. The China Petrochemical Corporation and China National Petroleum Corporation have previously invested in Syria’s hydrocarbon sector.

*****“By working through what is still the internationally recognized government of Syria, Beijing will be able to claim that it has avoided taking sides in a civil war (now nearly over) but is now engaging with a sovereign state…While relying on Middle Eastern oil supplies, China has traditionally avoided diplomatic entanglements there, so this support for Assad marks a shift in regional diplomacy that Chinese diplomats will undoubtedly try to conceal behind the language of non-intervention.”
*****Is China coming into Syria for its “One Belt, One Road”?
Informed Comment, By Neil Thompson, January 1, 2018

China’s One Belt, One Road Initiative And The Middle East Is A Crossroads, Part 2, Iran, Iraq, Israel, Jordan, Kuwait And Lebanon

ArmchairTechInvestor, May 26, 2018, by Brad Peery

Book Under Development-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs:
www.ArmchairTechInvestor.com
www.ArmchairPolitician.US

Below are summaries of the OBOR initiatives in the countries covered in the Middle East Part 2.

Iran

*Iran is on the China-Central-West Asia (CCAWA) Economic Corridor of the OBOR Initiative. Chinese President Xi visited Iran in January 2016 and the two dictatorship countries agreed to increase bilateral trade by more than tenfold to US$600 billion in the next decade. Areas of cooperation include energy, trade and industry. Iran is located in Southern Asia bordering the Persian Gulf, the Caspian Sea and the Gulf of Oman. It has an attractive opportunity to serve as a gateway to a regional market of 400 million people that includes Afghanistan, Iraq, Russia and Turkey, and the Central Asian countries. The OBOR Initiative is primarily intended to promote land and sea connectivity with countries along its key routes. However, the International North-South Transport Corridor (INSTC), which was established by Iran, India, and Russia in 2000, plans to connect the Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg, Russia. As a multi-modal transport corridor, INSTC will make Iran a key link in connecting the three founding members and 11 other state members.

China has become Iran’s top trading partner. Chinese companies have gradually replaced those in the EU and the U.S. following nuclear sanctions. In 2016 trade with China reached $31.2 billion, and grew to $18.1 billion in the first half of 2017. China became the largest crude oil export market of Iran in 2017, followed by India. Additionally, Chinese companies China National Petroleum Corporation (CNPC) and the Sinopec Group, have won major oil exploration contracts in Iran. In 2021, another recent example of Iran-China co-operation can be found in the $4.8 billion South Pars contract to develop the largest natural gas field in the world. Iran’s other key trading partners include Turkey, Korea and the UAE. Iran is proposing trading agreements with a number of countries including Malaysia, Pakistan, Turkey, India and the Eurasian Economic Union (EEU).
*The Belt and Road Initiative: Country Profiles, Hong Kong Trade Development Council, May 17, 2018

**“Chinese businesses involved in Iranian developments are worth at least $33 billion as of June 2017 according to Beijing’s Commerce Ministry”, part of China’s OBOR Initiative. “In September 2017, China provided a $10 billion credit line to five Iranian banks financing water, energy and transport projects, and in March the two countries inked a $700 million deal allowing China to build a train line that links the port of Bushehr to the rest of Iran’s railway network.”
**China stands to gain in Iran after US quits nuclear deal, AFP, Julien Girault, May 17, 2018

Iraq

*Iraq has the world’s fourth largest proven oil reserves, which puts it in a favorable position because of China’s thirst for oil. Iraq’s oil output has increased following its gaining strength follow the U.S.-led invasion in 2003. Iraq mainly exports crude oil to India, China, the U.S. and South Korea, and imports food, medicines and manufactured items from Turkey, China, Syria and the U.S.

Iraq has established four free zones to promote trade through advantageous customs incentives. Chinese companies are among the largest foreign investors in Iraq’s oil sector, with PetroChina, Sinopec and China National Offshore Oil Company (CNOOC) involved in development of many of the country’s oil projects.

Iraq borders on the Persian Gulf. At present, Iraq is not listed as a participant of the OBOR Initiative. However, the country is one of the principal suppliers of oil to China. Bilateral trade between the two countries has been increasing steadily. Given that Iraq’s southern (Saudi Arabia), northern (Turkey) and eastern (Iran) neighbors are all slated to be participants of the OBOR Initiative, it is unclear to to what extent Iraq might benefit from the Initiative at the expense of its neighbors.

Israel

*Israel grew GNP by 4% in 2016 and by 3.3% in 2017. Israel is considered to be one of the most advanced countries in the Middle East and is a high-tech powerhouse. Despite the fact that Israel is a democracy, China might find it advantageous to develop businesses that use their technology and geographic location.

Many international high-tech companies have opened up branches as well as research and development centers in Israel. They include Microsoft, IBM, Cisco and Motorola. There have been a number of acquisitions of Israeli technological companies by U,S, firms such as Google, IBM and Facebook. Major transactions span various high-tech sectors, including software, mobile application and digital advertising. Such acquisitions could be of interest to Chinese companies.

“Israel is actively promoting cooperation with China and other parties under the Belt and Road Initiative, welcoming Chinese enterprises to participate in various infrastructure projects in Israel. Israel is attempting to add sea ports and new railroad networks. China Harbouris is building a new port next to Ashdod’s existing one, and the Shanghai International Port Group (SIPG) has won a 25-year license to operate another deep-sea private port planned in Haifa. It is reported that Israel would like China to participate in the building of a railroad connection between the ports in Eilat and Ashdod, connecting the Red Sea to the Mediterranean Sea.”

Jordan

*Jordan’s economy is about 67% services, 30% industry and 3% agriculture. The major export markets are 50% Arab countries. Exports to the U.S. are almost 20% of the total, and Jordan’s currency is pegged to the U.S. dollar.

“Jordan has signed free trade agreements (FTAs) with the US, Canada, Turkey, MERCOSUR (which includes Argentina, Brazil, Paraguay and Uruguay), Egypt, Morocco, Tunisia (the Agadir Agreement), the EFTA states (which includes: Switzerland, Norway, Iceland and Liechtenstein), and Singapore. Jordan is a member of the Pan Arab Free-Trade Area (PAFTA) Treaty, with members including: Egypt, United Arab Emirates (UAE), Bahrain, Jordon, Tunisia, Saudi Arabia, Sudan, Syria, Iraq, Oman, Palestine, Qatar, Kuwait, Lebanon, Libya, Morocco, and Yemen.”

***Chinese Ambassador to Jordan Pan Weifang spoke during a press conference in Amman. “AMMAN — Jordan and China are holding talks regarding the signing of a memorandum of understanding (MoU) on cooperation, as part of China’s One Belt, One Road initiative, according to the Chinese ambassador. A multibillion land and maritime project, the One Belt One Road project aims to connect China to the rest of the world, including Jordan.”

“Following the signing of the MoU, we will witness increased cooperation and projects between the two sides in various areas,” Chinese ambassador to Jordan, Pan Weifang, said at a press conference in November, 2017.”
***China’s One Belt, One Road initiative to benefit Jordan — ambassador, The Jordan Times, By Mohammad Ghazal, November13, 2017

Kuwait

*Kuwait participates in the China-GCC Free Trade Agreement negotiations. The oil sector plays a dominant role in the Kuwaiti economy, with the country estimated to own roughly 6% of the world’s oil reserves. Oil exports account for over 90% of Kuwaiti government revenues and 50% of nominal GDP. Kuwait’s major export markets include India, Saudi Arabia, China, Iraq and the UAE.”

****Kuwait’s Silk City and the five-island developments are a key project in the One Belt One Road initiative. Kuwait is expecting to spend over $100 billion to build one of the world’s longest causeways to their northern area. “The plan is to reinvigorate the ancient Silk Road trade route by establishing a major free trade zone linking the Gulf to central Asia and Europe. The 36-kilometre (22-mile) bridge, three-quarters of it over water, will cut the driving time between Kuwait City and Subbiya to 20-25 minutes from 90 minutes now. It is already nearly three-quarters completed. A $3 billion 5,000-megawatt power plant has already been built in Subbiya.”
****Kuwait’s Silk City project expected to top $100B, Daily Sabah, March 8, 2017

*****“Mr. Jiang Zengwei said Kuwait and China have signed several cooperation agreements, which have further laid the foundations for promoting mutually beneficial growth. “China is today one of the Kuwait’s most important trading partners and an important source of crude oil from Kuwait. Bilateral trade was US$12 billion in 2017, recording a year-on-year growth of 28%.”
*****Kuwait’s Silk City is key project in China’s One Belt One Road initiative, AME info, March 22, 2018

Lebanon

*Lebanon is at the eastern end of the Mediterranean Sea. Syria is to the north, and Israel is to the south.

Ravaged by civil wars over the years 1975-1990, Lebanon has seen its debt balloon to 150% of GDP as it went through reconstruction. The government has been divided, but has seen the influence of Hezbollah increase.

“Lebanon has expressed a keen interest in China’s Belt and Road Initiative, seeing itself as a gateway to the Arab world. Al-Fayhaa Union of Municipalities, a union of three municipalities in Lebanon, signed an agreement with the Silk Road Chamber of International Commerce (SRCIC) in November 2017 for an active role in the OBOR.”

******The Union of Tripoli’s municipalities was hailed for joining the SRCICI, pointing to the “special importance of Tripoli and its huge potentials not only for Lebanon but for the whole region which enables it to enhance trade with China.”

During the signing it was stated “we will not spare any effort in boosting Tripoli’s standing and its openness on Chinese markets and such an alliance will prepare it to become a special hub for cooperation with China within the Belt and Road initiative.”

Important to success will be “the strategic location of Tripoli and its seaport on the Mediterranean and its human resources and infrastructure including the airport and railroads and logistic services it provides.”
******Lebanon’s Tripoli keen for active role in Belt and Road initiative, Xinhua, November 11, 2017

China’s One Belt, One Road Initiative And The Middle East Is A Crossroads, Part 1, Afghanistan, Armenia, Bahrain, Egypt And Georgia

ArmchairTechInvestor, May 24, 2018, by Brad Peery

Book Under Development-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs:
www.ArmchairTechInvestor.com
www.ArmchairPolitician.US

Below are summaries of the OBOR initiatives in the countries covered in the Middle East Part 1.

Afghanistan

*In May 2016, Afghanistan signed a Memorandum of Understanding (MOU) with China on the One Belt, One Road (OBOR) Initiative. The aim is to foster cooperation that includes policy coordination, infrastructure development, trade and investments. Projects implemented include a cargo railway connecting China to Northern Afghanistan and a direct flight between Kabul and Urumqi. China has committed to invest $100 million in OBOR projects in Afghanistan.

In August, 2017, the U.S. implemented a new Afghanistan policy which adds 4,000 U.S. troops to facilitate the efforts directed at terrorists and criminal networks while expanding the use of unmanned aircraft and special operations teams.

China is Afghanistan’s third largest trading partner, with bilateral trade estimated to have been over $1 billion in 2015. Afghanistan is in the middle of some very large OBOR investments being made by China. There is a China-Pakistan Economic Corridor in which China is investing $46 billion. China is making a very large commitment to Pakistan. With militants using Pakistan as a sanctuary to attack Afghanistan, some uncertainty is introduced into how the investments China is making in Afghanistan will tie into the larger OBOR plans for the area. China and the U.S. should be partners in Afghanistan, as both need a peaceful country and a stable government.
*China’s Belt and Road Meets Trump’s Afghanistan Plan
Could China play the good cop while the U.S. plays the bad cop?
The Diplomat, By Yu Fu, December 21, 2017

Armenia

**Armenia borders Iran and Turkey in the Middle East, and is at the crossroads between Asia and Europe. It has mountainous terrain and is rich in minerals that include aluminum, iron, gold and silver. As a way station on the original Silk Road, Armenia has planned a new rail link to Iran and a new North-South highway which will allow goods to be transferred from Armenia’s southern border to Georgia and beyond to Black Sea ports that include Batumi and Poti in Georgia.

Armenia is a small country with a GDP of about $10.6 billion. It has not been formally invited to join the OBOR Initiative. “There is no formal invitation to the country,” says Hrant Abajyan, Armenia’s trade representative to China in Beijing.

Armenia states that it is convinced that the Initiative will be important in developing relations between participants, and that “it can and must be an *integral and indivisible part of this initiative.”
**Making sense of Belt and Road – The Belt and Road country: Armenia
EUROMONEY, By: Chris Wright, September 26, 2017

Bahrain

***Bahrain is an island country in the Persian Gulf. It is connected to Saudi Arabia by the 15 mile long King Fahd Causeway. It is the smallest country among the six-member Gulf Co-operation Council (GCC). More than 50% of the people in Bahraini are expatriates, including Indians, Pakistanis, Bangladeshis and Filipinos. Bahrain has signed free trade agreements with the US, Singapore and the European Free Trade Association.

Bahrain has a double taxation agreement with China. Many Chinese enterprises have set up businesses in Bahrain. They include the Bank of China, the China Harbour Engineering Company and Huawei. Huawei, which may be banned in the U.S. because of possible spying by the Chinese government, opened its first Middle East IT tech center in 2012. Mainland China company Chinamex partnered with Bahrain’s Diyar Al Muharraq and built Dragon City, a retail and wholesale mall development modeled on the UAE’s successful Dragon Mart. Dragon City began operations in December 2015.

The six member-countries of the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) are considered an important trade region and was the EU’s fourth-largest export market in 2016.

**“According to Bahrain’s Minister for Transportation and Telecommunications Kamal bin Ahmed Mohammed, the ambitious multi-trillion-dollar Belt and Road Initiative (BRI) by China could become a great opportunity for the Gulf nations.
The Gulf region, which is a central location of the BRI, is a prime market for China and vice versa.”
***China’s ‘One Belt, One Road’ is a ‘win-win’ for GCC – Bahrain Minister, GulfInsider, May 13, 2018

Egypt

Egypt’s GDP growth rate was 4.3% in 2016, and reached 5.4% in the March quarter of 2018. The Suez Canal is a vital shipping lane that connects the Mediterranean Sea with the Red Sea. To double the shipping capacity of the Canal, the Egyptian government started the Suez Canal Corridor Area Project (SCCAP) in August 2014. The project will include industrial and technology parks in addition to the new Canal sector. Revenue is projected to increase to $15 billion in 2023 from $5.3 billion in 2015. with the SCCAP expected to spur foreign investment and create jobs.

****Egypt should be able to serve as the hub for OBOR Initiative into the Middle East and Africa. With Egypt viewed by China as one of the five most attractive countries for mergers and acquisitions potential, their relationship has been elevated to a “strategic partnership”. There is now a growing new commercial relationship between them.

New elements in attracting Chinese capital are new standards that define and require that developments be green. The definition of green is being developed by China to suit its own needs.
****Greening the belt and road: opportunities for Egypt, Middle East Institute, By Deborah Lehr and Yasser Elnaggar January 23, 2018

Georgia

One Belt, One Road Network
ArmchairTechInvestor, May 24, 2018, by Brad Peery

*****Georgia is well situated to be an important participant in the OBOR Initiative. It is located at the eastern part of the Black Sea. Russia is north and northeast and to the south are Armenia and Turkey. Georgia is a logistics and transshipment corridor to the Caucasus mountains and Central Asia. 60% of all types of its overland international freight are in transit. Infrastructure upgrades are underway at the major seaports of Batumi and Poti. There are several other planned projects, as well as the construction of a deep-sea port at Anaklia. This port will accommodate larger vessels. All of these projects should strengthen the country’s logistical importance.

Former Georgian President had a disastrous plan to build skyscrapers that would house 500,000 residents. The city of the future is today an array of tetrapods that form a breadwater for the Anaklia Black Sea Deep Water Port, which Georgia hopes will be a key link on China’s OBOR initiative.

This is the foundation for the Anaklia Black Sea Deep Water Port, Georgia’s bid to become a key link in China’s sprawling Belt and Road Initiative. The bid to construct the $2.5 billion port was expect to go to Chinese investors, but instead went to a group of Americans and Georgians. A key factor was that of the jobs going to Chinese workers, an estimated 6,400 jobs will go to Georgians, easing the 12.5% unemployment rate. In Pakistan, the Chinese port development there resulted in the jobs going to the Chinese.

The South Caucasus offers the West an attractive alternative to other OBOR trade routes. Georgia is more geopolitically palatable than Iran. Tbilisi, where the port is located ranks favorably in global indices measuring corruption and ease of doing business. Also, Georgia signed a Deep and Comprehensive Free Trade Agreement with the EU that became effective in 2016 allowing Georgia to serve as a logistics hub with the EU. China followed suit with a bilateral free trade agreement that came into effect on January 1, 2018.

Georgia became directly involved in OBOR 2016 when it joined the Asian Infrastructure Investment Bank (AIIB), a $100 billion fund designed to finance Belt and Road projects. Georgia has signed an agreement under which the bank will provide $114 million to build the Batumi Bypass Road, a new highway to connect Georgia’s outlying areas through a series of mountain tunnels.

Georgia seems to have avoided the pitfall of having China build and manage its most important port project and instead can manage its three ports as a integrated program, with the larger vessels going to the Anaklia port.
*****With Port Project, Georgia Seeks Place on China’s Belt and Road.
Georgian infrastructure remains underdeveloped, which could leave Anaklia disconnected, Eurasianet, Bradley Jardine, February 21, 2018

China’s Interest In Africa Has Been Heightened By A Thirst For Oil, But It’s Shifting To Building Its One Belt, One Road Network

ArmchairTechInvestor, May 23, 2018, by Brad Peery

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Below is an analysis of some of the major efforts China is undertaking in Africa to advance its One Belt, One Road (OBOR) Initiative.

Djibouti

*Djibouti is not a new effort for China in Africa. China already has a base there and has plans to expand that base into a regional military supply port.

Some Pentagon officials regard the Djibouti base, and the future second base at Jiwani, as part of efforts to control oil shipping in and out of the Persian Gulf and the Red Sea. Both Chinese bases are located near strategic chokepoints-Djibouti near the Bab el Mandeb on the Red Sea and Jiwani close to the Strait of Hormuz on the Persian Gulf.

“Djibouti’s government will embrace greater Chinese involvement in the nation’s ports and sees no reasons for U.S. concern that its strategic interests may be threatened”, Finance Minister Ilyas Dawaleh said.

Because Djibouti is located on a global shipping crossroads that links the Red Sea and Suez Canal, Djibouti has become increasingly important to regional and world powers. Djibouti is almost the size of the state of Massachusetts. The largest U.S. military base in Africa is situated there and China’s first such overseas facility, which was inaugurated in August 2017, is also in the Doraleh area.

The Horn of Africa country is embroiled in a dispute with DP World Ltd. over the running of the Doraleh Container Terminal and has struck a deal to boost cargo trade with a company working with Chinese state-owned enterprises. It would be “ridiculous” to imagine that China could restrict or deny U.S. access to Doraleh as a result of the deal, Dawaleh said in a phone interview.

“Djibouti’s development needs all its friends and strategic partners,” he said. “At the same time, no one can dictate to us who we should deal with.”

U.S. Africa Command General Thomas Waldhauser warned that a Chinese takeover of Doraleh could have “significant” consequences if there were restrictions on the U.S.’s ability to use the facility.
*Beijing is using commercial bridgeheads to give its warships staying power in the Indian Ocean. Foreign Affairs, By Keith Johnson and Dan De Luce, April 17, 2018

Ethiopia

Ethiopia is a North-Eastern African country in the Horn of Africa. It is landlocked and borders Djibouti on the east. With a population of over 90 years, it is the second largest African country, with only Nigeria being larger. The country is underdeveloped, and has a small GDP per person.

China has been Ethiopia’s largest trading partner over the last 10 years. Cumulative foreign direct investment (FDI) from China increased more than tenfold from US$109 million in 2007 to US$1,130 million in 2015. In one year’s time, the amount increased to over US$2 billion in 2016. Chinese FDI is pivotal in infrastructure development, telecommunications, energy and manufacturing. Ethiopia completed it first freeway in 2014, aided by China. China has a very strong rail development capability, and provided funding for the Addis Ababa rail project. China has also aided Ethiopia in developing industrial parks.

**“The Belt and Road Initiative could advance Ethiopia’s development as well as that of other African countries, Ambassador Tekeda Alemu, Ethiopia’s permanent representative to the United Nations, said in May, 2017. The initiative offers opportunities for participating countries to mobilize resources and speed up development, Alemu said in an interview with Chinese media in his office in New York.”
**Belt and Road has promise for Ethiopia, Africa: envoy
By Hong Xiao and Wang Linyan, China Daily USA , May 11, 2017

Madagascar

Madagascar is an island country in the Indian Ocean and is about 250 miles from the east coast of Southern Africa. Madagascar has bilateral investment agreements with seven countries including China.

U.S. has signed the African Growth and Opportunity Act (AGOA) which expanded the product scope for duty-free exports to the U.S. based on an existing Generalised System of Preferences (GSP).

***“In March 2017, China and Madagascar signed a memorandum of understanding (MOU) to jointly advance the One Belt, One Road Initiative, as well as bilateral agreements in economic co-operation, trade and infrastructure construction. Total trade between Madagascar and China increased by 8.6% to US$1.25 billion in 2017. According to China’s Ministry of Commerce, China’s cumulative FDI in Madagascar was US$297.6 million in 2016, compared to US$25.4 million in 2011.”
***China welcomes Madagascar to join Belt and Road construction
Source: Xinhua March 27, 2017-03-27, Editor: huaxia

Morocco

Morocco is considered to be well-diversified in the region. It is estimated that the Moroccan economy grew by 4.2% in 2017. Real GDP growth is expected to reach 3% in 2018. The country considers itself to be a regional hub in Africa. The country has initiated a program to increase its competiveness.

The U.S. has a free trade agreement. Other free trade agreements include the European Union (EU), European Free Trade Association and the Pan-Arab Free Trade Area (PAFTA), which consists of 17 Arab member countries.

****”Chinese Foreign Minister Wang Yi and Moroccan Minister of Foreign Affairs and International Cooperation Nasser Bourita on Friday signed a Memorandum of Understanding (MOU) on joint construction of the Belt and Road.” Additionally Mr. Bourita indicated “Morocco welcomes Chinese companies to expand markets in Africa and the Arab states by making use of his country’s geographical advantages. Bourita also said “Morocco supports China’s efforts to safeguard its sovereignty, territorial integrity and legitimate maritime interests.” This could preclude Morocco from challenging China’s claims in the Indian Ocean, including those China claims that are challenged by India.
**** China, Morocco sign MOU on Belt and Road
Source: Xinhua|, November 17, 2017, Editor: Mengjie

South Africa

South Africa has a population of over 50 million people. It also had a relatively high per-capital income of $5,018 in 2016. It sits at the southern tip of Africa and considers itself to be the gateway to Africa. The China OBON Initiative has challenged that assumption by largely bypassing South Africa in implementing its African leg of the maritime portion of the network.

South Africa has a stagnant economy and grew by only 0.3% in 2016. South Africa has challenges that include poverty, inequality and unemployment. South Africa’s largest export market is China, which accounted for 9% of its exports in 2016. China supplies imports totaling 18% of South Africa’s imports. South Africa’s large trading partners include the U.S. The U.S. African Growth and Opportunities Act (AGOA) allows about 7,000 kinds of South African products to be exported to the U.S., with attractive quotas and duty-free treatment, until 2025.

According to UNCTAD, inflow foreign direct investment (FDI) in South Africa was US$2.3 billion in 2016, an increase from US$1.7 billion in 2015, about a 35% increase. South Africa is a member of the COMESA-EAC-SADC Tripartite Free Trade Area. This free trade area includes the three largest regional economic communities (RECs) in Africa:
• The Common Market for Eastern and Southern Africa (COMESA);
• The East African Community (EAC); and,
• The Southern African Development Community (SADC),
This creates an integrated market with a combined population of about 600 million people and a total GDP of about US$1 trillion. This agreement is tentative, and will come into force when it is ratified by the 26 member states.

South Africa became the fifth member of the prestigious BRIC Summit in April 2011. The other four members are China, India, Russia and Brazil. Being a member of BRIC was supposed to allow South African businesses to gain improved access to a group which includes over 40% of the world’s population and 17% of the global trade. After the seventh BRIC Summit in 2015, the New Development Bank was established with an initial authorized capital of US$100 billion. The fund’s objective is to support infrastructure and sustainable development projects in emerging economies.

*****”China’s Belt and Road Initiative (BRI) delivers a final blow to South Africa’s foreign policy claim to be the gateway to the African continent. As China boosts its preferred Silk Road partners, it leaves South Africa at a loss for its very own foreign policy identity—and opens up a murkier future for the African continent.”

After China unveiled its OBOR Initiative in 2014, it started to pursue its Africa agenda without going through South Africa. China made clear its growing relationship with other African states that included Kenya, Tanzania, Djibouti, Ethiopia and other emerging partners in East Africa.

China insisted on including it OBOR Initiative in different forums, especially BRICS and the Forum on China–Africa Cooperation (FOCAC). In these forums there was no coordinated African effort to limit China’s influence in continent-wide development. China seems to be looking at expanding BRICs to include countries such as Kenya and Egypt or, alternatively to focus more on its OBOR Initiative and less on the aims of BRICs.
*****South Africa’s dilemma in the Belt and Road Initiative: Losing Africa for China?, Friedrich-Ebert-Stiftung, by Tamara Naidoo, February 26, 2018

Tunisia

China’s energy needs were the genesis of its interest in North African countries. Beginning in 2017, China became more interested in Tunisia in conjunction with its OBOR Initiative following projects in Algeria and Egypt that ran into difficulties, triggered by lower oil prices. Algeria had problems with permits and was frustrated that 40,000 imported Chinese labors were being used instead of local laborers being hired. Projects in Egypt have also been unsuccessful.

******“Talks were launched in 2015 with the goal of better integrating the Tunisian market into the EU. In this sense, Tunisia functions as an ideal middleman for a China interested in controlling physical passageways between North Africa and Europe as part of the One Belt, One Road initiative. China is apparently interested in Tunisia’s Bizerte port, which offers easy access to Europe and is located at a critical hub of fiber optic submarine network cables.

China’s interest in Tunisia is mutually beneficial. With national inflation expected to reach between 9% and 12%, crippling IMF and government imposed austerity measures and a devalued dinar and high unemployment, Tunisia’s economy needs help. In a 2016 survey, Afrobarometer found that 47% of Tunisians believe China’s economic assistance is helping to meet Tunisia’s needs.”
******Tunisia hopes boost in Chinese investment can ease economic woes,
Al-Monitor, Sarah Souli, March 19, 2018

Three Examples of China Using Its One Belt, One Road Network Initiative To Project An Increase In Military Power Are In Sri Lanka, Pakistan And Djibouti

ArmchairTechInvestor, May 20, 2018, by Brad Peery

Book Under Development-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy
Book on Amazon.com: Trump’s Political Agenda and Achievements

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*One can profess that China’s One Belt, One Road (OBOR) trade network, covering over 60 countries, is for humanitarian purposes and will assist the countries on the network in improving their economic opportunities. The network connects with about 65 percent of the world’s population and over 30% of its GDP. China’s role is to finance infrastructure development in the countries. China goes into the countries and provides high interest loans that many of the countries can’t afford. If they default, China can then take over the facilities, and establish a permanent presence within those countries. This can also have the effect of the country not being able to arrange outside financing, making them even more reliant on China.

With regard to loans having been made by China, If repayments are not made, the country begins a long-term period where their foreign policy choices will be constrained. Sri Lanka is an example of what can occur. A new government in Sri Lanka had a desire to develop closer relations with India and the U.S. They were constrained by a previous debt for equity swap with China that resulted in China getting a 99-year lease on a very strategically important port at Hambantota, Sri Lanka. The loan that was made was not a financially sound investment and resulted in Sri Lanka defaulting on the loan, with tragic consequences to the country.
* China’s Belt and Road Initiative is Being Blamed for Sri Lanka’s Hambantota Port Problems. But the Real Story is Rather Different.
Silk Road Briefing, April 23, 2018

**Large government-backed loans to foreign countries come with social and political strings attached. The Washington Post reports that China’s ZTE Corporation “sold technology and provided training to monitor mobile phones and Internet activity.” Today, Chinese tech giant Huawei is partnering with the government of Kenya to construct “safe cities” that leverage thousands of surveillance cameras feeding data into a public security cloud “to keep an eye on what is going on generally” according to the company’s promotional materials. Not all elements of China’s domestic surveillance regime are exportable, but as the “New Digital Silk Road” takes shape, the public and online spaces of countries along it will become less free.
**China’s vast foreign investment program comes at a sharp cost to human rights and good governance, Foreign Policy, By Richard Fontaine and Daniel Kliman, May 16, 2018

***According to the Washington Post’s, By Bill Gertz, “China is constructing its second overseas military base in Pakistan as part of a push for greater power projection capabilities along strategic sea routes. The facility will be built at Jiwani, a port close to the Iranian border on the Gulf of Oman, according to two people familiar with deal.”

Djibouti is a different situation. China already has a base there and has plans to expand that base into a regional military supply port.

Some Pentagon officials regard the Djibouti base, and the future second base at Jiwani, as part of efforts to control oil shipping in and out of the Persian Gulf and the Red Sea. Both Chinese bases are located near strategic chokepoints-Djibouti near the Bab el Mandeb on the Red Sea and Jiwani close to the Strait of Hormuz on the Persian Gulf.

“Djibouti’s government will embrace greater Chinese involvement in the nation’s ports and sees no reasons for U.S. concern that its strategic interests may be threatened”, Finance Minister Ilyas Dawaleh said.

Djibouti is located on a global shipping crossroads that links the Red Sea and Suez Canal, Djibouti has become increasingly important to regional and world powers. Djibouti is almost the size of the state of Massachusetts. The largest U.S. military base in Africa is situated there and China’s first such overseas facility, which was inaugurated in August 2017, is also in the Doraleh area.

The Horn of Africa country is embroiled in a dispute with DP World Ltd. over the running of the Doraleh Container Terminal and has struck a deal to boost cargo trade with a company working with Chinese state-owned enterprises. It would be “ridiculous” to imagine that China could restrict or deny U.S. access to Doraleh as a result of the deal, Dawaleh said in a phone interview.

“Djibouti’s development needs all its friends and strategic partners,” he said. “At the same time, no one can dictate to us who we should deal with.”

U.S. Africa Command General Thomas Waldhauser warned that a Chinese takeover of Doraleh could have “significant” consequences if there were restrictions on the U.S.’s ability to use the facility.
***Beijing is using commercial bridgeheads to give its warships staying power in the Indian Ocean. Foreign Affairs, By Keith Johnson and Dan De Luce, April 17, 2018

ArmchairTechInvestor Opinion
China may be providing benefits to some of the countries on their OBOR network. Others are likely to be unable to meet their debt payments to China, and China will extract a substantial price for such defaults. Many of these defaults will result in China essentially owing the assets in the partner country.

Estimates put China’s total Belt and Road-related construction and investment at more than $340 billion from 2014 to 2017. The total project cost is estimated to be from $4 trillion to $8 trillion dollars, so it appears that as much as 8% of the total cost of the project has already been made by China. The size of the project represents an enormous financial commitment, even for China.

China’s plans call for the Jiwani base in Pakistan to be a joint naval and air facility for Chinese forces, located a short distance up the coast from the Chinese-built commercial port facility at Gwadar. Both Gwadar and Jiwani are part of Pakistan’s western Baluchistan province. There is social unrest in that province, and China has a commitment from Pakistan to provide a 15,000 person military guard to protect the Gwadar Port area. It is reported that most of the people living in the area are Chinese.

China is a tough negotiator and will extract a significant price, if there is a default on their debt. As happened in Sri Lanka, this can include the conversion of their debt to equity in a project, with China essentially owning the project.

China Has Semiconductor Fund Plans Underway To Try And Beat The U.S. In The Future Race For Semiconductor Technology Superiority

ArmchairTechInvestor, May 6, 2018, by Brad Peery

Book Under Development-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy
Book on Amazon.com: Trump’s Political Agenda and Achievements

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In 2013, Chinese government officials invaded the Beijing and Shanghai offices of Qualcomm. After a 15-month investigation, regulators saddled the company with a $975 million fine. In addition to the fine, Qualcomm:
• Was branded a monopoly;
• Was forced to reduce prices;
• Had to move more of its technical manufacturing to China;
• And, help boost the technological abilities of Chinese companies.
By 2018, a growing number of American companies “have complained that China has pressured them into sharing their technology in similar ways”.

The U.S. is finally standing up to an aggressive China by confronting large Chinese companies that are trying to enter the U.S. market, and could threaten U.S. security. Qualcomm, a worldwide leader in semiconductor technology, was threatened by an unfriendly takeover by Broadcom, a Singapore-based company. The U.S. blocked the acquisition on national security grounds. There were several concerns. The acquisition of Qualcomm could have reduced U.S. superiority in semiconductors. It could also have reduced the U.S. lead in next generation 5G broadband networks. Qualcomm has a large business in China, and China has threatened to block Qualcomm has made an offer to acquire NXP Semiconductors, an important part of its growth strategy. The acquisition has been stalled by an antitrust review. In early May, 2018, “Chinese officials said that Qualcomm will have to make more concessions to compensate for the market power it would enjoy after completing the deal, without providing details.”

China has used the national security threat issue as a way to protect Chinese companies. China is still considered to be an emerging country under the World Trade Organization rules, showing how antiquated is the WTO.
*Qualcomm May Be Collateral Damage in a U.S.-China Trade War
New York Times, By Ana Swanson and Alexandra Stevenson, April 18, 2018

**China announced plans to significantly improve the competitiveness of Its state and Chinese semiconductor companies when it launched a $21.8 billion semiconductor development fund in 2014. A U.S. Trade Representative’s report on March 22, 2018 declared the 2014 fund as an effort by government agencies and state-owned companies to meet Chinese national strategic objectives.

China has also announced a new fund that could total about $47.4 billion. Important semiconductor industry sectors it will support are likely to include microprocessors and graphic processors. The objective is to reduce China’s dependence on foreign semiconductor products from companies such as Qualcomm, IBM and Nvidia.
**China Plans Fund to Boost Semiconductors, Wall Street Journal, By Yoko Kubota, May 5, 2015

China’s Goal Is To Dominate The Internet. They Are Using Their Very Large Home Markets, And Unfair Trade Practices, To Achieve That Goal

ArmchairTechInvestor, April 23, 2018, by Brad Peery

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ZTE and Huawei are two Chinese companies that pose a threat to the U.S.’s broadband communications networks. ZTE has become the fourth largest cellphone supplier in the U.S. The UK banned the use of ZTE equipment because of concerns that China could force the company to infiltrate the UK’s broadband communications infrastructure.

China essentially requires Chinese companies that wish to do business in China to pledge allegiance to China. This can result in those companies being used to spy on countries where they do business. This is the equivalent of the U.S. requiring Apple to spy on behalf of the U.S. government, which they would not do. The reverse is true, in that Apple is being required to support Chinese government objectives that amount to Internet usage censorship, such as by requiring the removal of Apple Internet applications, as a cost of doing business in China.

The technological war with China has begun. It remains to be seen whether U.S. companies can do business in China without giving away their technology. China has pledged that proprietary company technology will be protected, but such words are easily annunciated.

In the case of access to the U.S. information technology markets. companies such as ZTE and Huawei are finally being restricted because of the business they do in the U.S. that could provide a threat to U.S. security, and open the U.S. up to Chinese surveillance.

China has a vision to become an Internet and tech power. It has pledged more state support for companies caught up in the trade fight with the U.S. A step China has already taken to dominate the Internet is to allow only three Chinese companies to directly access the Internet. Any foreign company that wants to access the Internet must do it through one of those three companies. This is a step along the way toward China’s ambition to dominate the Internet.

One of the main issues between the U.S. and China is the claim that China is stealing the intellectual property of U.S. companies. This is typically done through forcing U.S. companies that want to do business in China to form joint ventures with Chinese companies. One of the companies that has resisted this restriction was Tesla, when it decided to build an electric vehicle plant in Shanghai. It will be required to pay a 25% import tax on all vehicles sold in China. This is the kind of treatment that justifies Trump putting 25% tariffs on U.S. imports of Chinese products, such as steel.

As of April, 2017, the U.S. was drawing up a $100 billion sanctions bill against China, because of the alledged stealing by Chinese companies of the intellectual property of U.S. companies doing business in China.

The U.S. has imposed sanctions on ZTE, a large Chinese smartphone company, that restrict it for seven years from using semiconductor processors manufactured by Qualcomm, or the Android platform manufactured by Alphabet (Google).

Semiconductors are a “core” area where China lags behind the U.S. and that China wants to achieve Technological breakthroughs. The U.S. has blocked Broadcom, a Singapore company that has recently moved to the U.S., from pursuing an unfriendly takeover of Qualcomm. Broadcom could have discontinued Qualcomm’s 5G chip development program, opening the market to a Chinese company. This would create security risks for the U.S., including defense communications.

Mr Xi, the new Chinese President for life, has pushed Chinese companies to collaborate with the military, particularly in information technology, including quantum computing, artificial intelligence, and other advanced technology fields.
Xi Outlines Vision for Furure as Tech Power, Wall Street Journal, by Josh Chin, April 23, 2018

ArmchairTechInvestor Opinion
China has a very large domestic market that is enticing foreign companies to meet Chinese edicts that may disadvantage the foreign companies home countries in competing with China economically and militarily.

The new dynasty of President Xi needs to be viewed as at least a 20-year focused effort by China to dominate certain information technology and other technology driven industries, such as electric vehicles. That focus, plus the One Belt, One Road Trade network, involving 60 countries, will provide an increasing challenge to the current global technologic, economic and military dominance by the U.S.

Trump Is Considering Joining The TransPacific Partnership (Now TPP-11). Will This Be Possible And Advantageous?

ArmchairTechInvestor, April 22, 2018, by Brad Peery

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President Trump’s trip to Asia in early November, 2017, was supposed to be about the possible de-nuclearization of the Korean Peninsula. However, an important element of the trip was to make it clear that Trump wants to follow-up on the U.S. withdrawal from the TPP by arranging bilateral trade agreements with the countries in Asia. Had the U.S. done this 15 years ago with China, instead of relying on the World Trade Organization to police the compliance of countries with its edicts, including China, the trade situation with China might be quite different today.

*An advantage of an agreement such as TPP includes preferential terms for member countries that can reduce tariffs from what they might be otherwise. The TPP group of countries represents 16% of global GDP. However, countries other than the U.S. would be only 35% of TPP, and the U.S. would be 65%. Japan is 16% of the GDP of the original 12 countries. And, Mexico and Canada, with whom the U.S. is negotiating a Nafta agreement, together are 9% of the GDP. The other 8 countries total only 10% of the GDP of the original 12 countries.

Not being a member of TPP could be negative for U.S. farming interests. For example, in July, 2017, Japan imposed a 50% tariff on U.S. frozen beef. Australia’s tariff cost is 27.5% because of their membership in TPP. Japan has also signed an agreement with the European Union to import their farm products. It is working on a similar agreement with Canada, whose pork producers are taking market share from the U.S.

**There are many barriers to the U.S. rejoining the TPP. The other eleven countries have already reached an Agreement, forming TPP-11. Once 6 countries ratify the agreement, it will become active. That could occur about first quarter, 2019. Until the Agreement is ratified, the U.S. will not be able to join it. 20 provisions in the original agreement, some of which were important to the U.S. were eliminated. These would need to be restored, and other concessions given to the U.S. to make this a better deal that the original agreement. To add additional benefits for the U.S. and get all 11 countries to agree to add the U.S. as a new member could be very difficult.

While the U.S. is emphasizing its policy of negotiating bilateral trade agreements, China is doing just the opposite. It has developed a trade agreement, called the Regional Comprehensive Economic Partnership with 16 countries making up 39% of global GDP. China is the main trade competitor of the U.S. on the global stage. It has an ambitious project called the One Belt, One Road Network that will connect 60 countries to China economically, as joint investors, and perhaps also politically and as defense partners. These types of activities can result in relationships that go far beyond trade and can involve joint investment, political and military relationships.
*Trump’s Pacific Trade Tear, Wall Street Journal Editorial, November 11, 2017
**Re-Entry to Trade Deal Won’t Be Cheap, Wall Street Journal, by Bob Davis, April 16, 2018

ArmchairTechInvestor Opinion

It may turn out the renegotiating Nafta with Mexico and Canada will work out to the benefit of the U.S. mainly by requiring and verifying certain levels of U.S. content in automobiles imported into the U.S. It is much less certain that this will be the case for the U.S. withdrawal from the TPP. There is no evidence yet that any of the countries will be willing to negotiate bi-lateral agreements with the U.S. There are benefits in developing relationships with countries in Asia, beyond just the trade aspect of those relationships. Having the TPP as one element of a relationship with a country can be very beneficial overall.

If the U.S. wants to be a player in Asia, it will need to be viewed as a reliable longterm partner. Being a democracy that can change policy, as administrations change, does not bode well for forging lasting partnerships. That is the main issue for the U.S. in developing lasting foreign policy relationships, including trade relationships. It is no wonder that results occur such as how disadvantaged the U.S. is in its trading relationship with China. They know who they are, and where they are going, and can therefore take a very longterm view in executing their plans.

The U.S. withdrew from the Trans Pacific Trade Partnership (TPP) The TPP was the 12-nation trade deal that included the United States, Japan, Mexico, Canada, Australia, New Zealand, Vietnam, Peru, Chile, Malaysia, Singapore, and Brunei. It was never ratified by Congress. Trump’s America First theme, and the cancellation of the TPP has led many in Asia to view the U.S. as anti-trade, and China as pro-trade. However, the U.S. has negotiations underway with many of these countries, plus the Nafta trade agreement with Canada and Mexico. The main uncertainty is whether the U.S. can negotiate a bi-lateral agreement with Japan, which prefers to have the U.S. join the TPP.

China’s Growth Rate Is Slowing As China Consolidates Its Communist Party and State Operations

ArmchairTechInvestor, March 27, 2018, by Brad Peery

Book on Amazon.com: Trump’s Political Agenda and Achievements
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China is targeting a growth rate of 6.5% in 2018, following an increase of 6.9% in 2017. As part of the changes that have occurred since President Xi became China’s leader for life, the government is reigning in risky lending practices, revamping the state’s bloated state sector, and has also espoused attracting foreign investment. This latter objective does not seem to be likely, in view of how China treats foreign companies that want to develop their operations in China. Trade tensions with the U.S. are also an issue. President Trump has proposed working with China to reduce the trade imbalance with the U.S. by $100 billion, over 25% of the U.S. trade deficit with China. This might be accomplished over several yeas, and could be an alternative to a trade war.

On a separate front, India has become the large country with the highest growth rate, replacing China. Both countries have about the same size populations, but India has lagged China in developing its economy. India’s economic growth problems have improved. In the last quarter of 2017, India’s economy grew by 7.2%. In the first half of 2017, Mr. Modi voided most of the currency in circulation and put in a nationwide goods and services tax, causing uncertainty and consternation that took the economy below a 6% growth rate. The reforms implemented by Mr. Modi were aimed at stemming corruption and aiding cashless transactions. The banks in India are struggling and a $32 billion capital infusion was implemented in October 2017. Areas of the economy are growing but exporters are struggling
*Beijing Sees Growth of 6.5% This Year, Wall Street Journal, by Lingling Wei and Chun Hong Wong, March 5, 2018
**India’s Growth Zooms to Global Lead, Wall Street Journal, by Anant Vliay Kala, March 1, 2018