Economy & Business - Atlantic Council

Watch the full interview here.

After Vilnius: What’s next on Ukraine’s path to NATO?

Eastern Europe NATO Security & Defense Ukraine

Today’s Ukraine is often described as a testing ground for new military technologies, but it is important to stress that Ukrainians are active participants in this process who are in many instances leading the way with new innovations ranging from combat drones to artillery apps. This ethos is exemplified by initiatives such as BRAVE1, which was launched by the Ukrainian authorities in 2023 as a hub for cooperation between state, military, and private sector developers to address defense issues and create cutting-edge military technologies. BRAVE1 has dramatically cut down the amount of time and paperwork required for private sector tech companies to begin working directly with the military; according to Ukraine’s defense minister, this waiting period has been reduced from two years to just one-and-a-half months.

One example of Ukrainian tech innovation for the military is the Geographic Information System for Artillery (GIS Arta) tool developed in Ukraine in the years prior to Russia’s 2022 full-scale invasion. This system, which some have dubbed the “Uber for artillery,” optimizes across variables like target type, position, and range to assign “fire missions” to available artillery units. Battlefield insights of this nature have helped Ukraine to compensate for its significant artillery hardware disadvantage. The effectiveness of tools like GIS Arta has caught the attention of Western military planners, with a senior Pentagon official saying Ukraine’s use of technology in the current war is a “wake-up call.”

Alongside intensifying cooperation with the state and the military, members of Ukraine’s tech sector are also taking a proactive approach on the digital front of the war with Russia. A decentralized IT army, consisting of over 250,000 IT volunteers at its peak, has been formed to counter Russian digital threats. Moreover, the country’s underground hacktivist groups have shown an impressive level of digital ingenuity. For example, Ukraine’s IT army claims to have targeted critical Russian infrastructure such as railways and the electricity grid.

Ukraine’s tech industry has been a major asset in the fightback against Russia’s invasion, providing a much-needed economic boost while strengthening the country’s cyber defenses and supplying the Ukrainian military with the innovative edge to counter Russia’s overwhelming advantages in manpower and military equipment.

This experience could also be critical to Ukraine’s coming postwar recovery. The Ukrainian tech industry looks set to emerge from the war stronger than ever with a significantly enhanced global reputation. Crucially, the unique experience gained by Ukrainian tech companies in the defense tech sector will likely position Ukraine as a potential industry leader, with countries around the world eager to learn from Ukrainian specialists and access Ukrainian military tech solutions. This could serve as a key driver of economic growth for many years to come, while also improving Ukrainian national security.

David Kirichenko is an editor at Euromaidan Press, an online English language media outlet in Ukraine. He tweets @DVKirichenko.

The takeaways: Europe—reeling from Russia’s full-scale invasion of Ukraine and its effects, along with growing apprehension over increased Chinese assertiveness—realizes that it needs to double down on its global partnerships. Here, CELAC represents thirty-two votes at the United Nations (UN). (Venezuela is unable to vote due to being in arrears in the payment of its UN dues.) CELAC is also a fountain of critical raw materials, which Europe is increasingly focused on securing to fuel its green transition. And although China was not mentioned, the summit’s focus on quality and local investments is certainly a swipe at Chinese financing and a doubling down on the EU’s strategy of diversifying its supply chains.

For LAC countries, no convincing was needed to get regional dignitaries to show up. Europe is willing to put forward substantial strategic planning and the funding behind it as it aspires to be “a partner of choice” for LAC. Launched alongside the summit, the new EU-LAC Global Gateway Investment Agenda commits the funding announced by von der Leyen for more than 130 projects through 2027. These projects revolve around four pillars of mutual interest: a fair green transition, an inclusive digital transformation, human development, and health resilience and vaccines. These pillars also stand in stark contrast to the top-down Chinese investments in many parts of the region that have less of an eye toward long-term development objectives.

A distinctly European approach to diplomacy

The summit also reflected the EU’s differing approach to LAC compared with the United States. Start with the invites to Brussels for Cuba, Venezuela, and Nicaragua, with Cuba’s leader, Miguel Díaz-Canel, in attendance. This reflects a softer approach on Europe’s part toward the leaders of countries where the United States has imposed sanctions over abuses of power and human-rights concerns. But it also shows that Europe has less diplomatic leverage in the region than that enjoyed by Washington. The United States was able to cajole countries into attending last year’s Summit of the Americas despite many leaders’ opposition to the snub of Cuba and Venezuela, in particular. CELAC leaders would have been less willing to do so in Brussels. This makes sense. The United States—despite concerns about the growing presence of extra-regional actors in LAC, many of which, unlike Europe, carry nefarious intentions toward US interests—remains the most important strategic partner for the hemisphere.

As well, the Global Gateway—in many respects Europe’s counterproposal to China’s Belt and Road Initiative—shows that Europe recognizes its need to match diplomatic outreach with concrete deliverables and large-scale financing. The billions that are slated to come from Europe far surpass US investment announcements at last year’s Summit of the Americas. So while Europe leaned in on specific projects, the United States used its hemispheric gathering to focus on partnership strategies to jointly tackle issues ranging from inclusive economic development to climate.

Perhaps the biggest feat for the EU was the joint agreement on a declaration coming out of this week’s meeting. With such a diversity of interests and priorities among CELAC members and within the EU, a final joint declaration did not always seem possible. The EU’s proposed language condemning Russia’s invasion of Ukraine was a non-starter for many CELAC diplomats who tend to view the war as primarily a European problem and are concerned about getting dragged into taking a side. Meanwhile, some EU member diplomats have said they have red lines against removing the language condemning Russia’s invasion. CELAC diplomats also wanted a reference in principle that the EU should give reparations for slavery to its member states. The declaration that emerged was the product of skillful negotiation balancing EU and LAC priorities—and competing positions within each region.

Point fifteen of the declaration was the biggest achievement of the summit:

We express deep concern on the ongoing war against Ukraine, which continues to cause immense human suffering and is exacerbating existing fragilities in the global economy, constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks. In this sense, we support the need for a just and sustainable peace. We reiterate equally our support for the Black Sea Grain Initiative and the efforts of the [UN secretary general] to secure its extension.

Although Nicaragua abstained from signing on to the declaration because of this Ukraine war language, the rest of the attendees—including Cuba and Venezuela—agreed to it. This language is a major accomplishment for Europe, while CELAC walks away with a substantial investment pledge from the Global Gateway that others could not match.

Looking ahead to 2025

Europe has clearly unleashed a newfound commitment to the Americas. This summit was a strategic balancing act to shore up European partnerships with a region that is becoming vital to global interests and solutions to world problems. However, the EU’s pledging of billions of euros is one thing; delivering the funds and leveraging them into a new economic partnership will require serious follow-up and sustained engagement. Meanwhile, CELAC countries are increasingly able to take advantage of changing global dynamics to advance regional interests.

What would be the best course for the future? The United States and Europe should each have a seat at the table at their respective summits with LAC countries. The EU has now agreed to host a summit with CELAC every two years—the next one will be in 2025, with Colombia offering to host. The Dominican Republic will host the next Summit of the Americas that same year. Doesn’t some degree of alignment make sense heading to 2025? As in many other priority global issues, transatlantic collaboration will ultimately help to win the day.

Jason Marczak is senior director of the Atlantic Council’s Adrienne Arsht Latin America Center. He participated in the EU-CELAC Business Round Table in Brussels preceding the leaders’ meeting. He is on Twitter at @jmarczak.

Jörn Fleck is senior director of the Atlantic Council’s Europe Center.

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Kumar interviewed by Bloomberg HT on central bank digital currencies

mrashid — Wed, 19 Jul 2023 13:36:58 +0000

The post Kumar interviewed by Bloomberg HT on central bank digital currencies appeared first on Atlantic Council.

Kumar and CBDC tracker cited by the Observer Research Foundation

mrashid — Wed, 19 Jul 2023 13:28:57 +0000

Read the full issue brief here.

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Global Sanctions Dashboard: Sanctions alone won’t stop the Wagner Group

Kimberly Donovan, Maia Nikoladze, and Ryan Murphy — Wed, 19 Jul 2023 13:23:01 +0000

On June 23, Russian private military security company the Wagner Group, led by Yevgeny Prigozhin, staged a takeover of the Russian city of Rostov-on-Don and advanced within 125 miles of Moscow. After approximately thirty-six hours, the rebellion concluded with an agreement brokered by Belarusian President Alyaksandr Lukashenka. The incident drew widespread international attention to the Wagner Group and its operations in Ukraine, Africa, and the Middle East. Despite being heavily sanctioned in most Western jurisdictions, the group continues to raise, use, and move money around the world.

In this edition of the Global Sanctions Dashboard, we walk you through existing sanctions against the Wagner Group, limitations around enforcing them, and what more Western allies can do to counter Wagner’s influence in Africa. Moreover, we identify gaps in beneficial ownership information as the key vulnerability in enforcing sanctions against Russia, including in the case of the oil price cap.

The Wagner Group is heavily sanctioned but keeps making money

The Wagner Group, its affiliates, and leadership are the targets of Australian, British, Canadian, European Union (EU), Japanese, and US sanctions for human rights abuses and serious crimes, among other illicit activity, and for participating in Russia’s war of aggression against Ukraine. There are proposals and discussions in play within the EU and UK governments to designate the group as a terrorist organization. The United States redesignated the Wagner Group as a transnational criminal organization in January 2023. While these types of organizational designations may appear symbolic, they pave the way for more significant sanctions and actions such as prosecution of group members and affiliates pursuant to terrorism or criminal charges, which carry significant penalties. Terrorist organization and transnational criminal organization designations also send a strong signal to foreign governments that they may want to reconsider their relationships with these groups.

Shortly after the Wagner Group’s attempted mutiny against Moscow’s military leadership, the United States issued designations targeting the Wagner Group’s illicit gold activity and affiliated entities in the Central African Republic (CAR), United Arab Emirates, and Russia, exposing Prigozhin’s network and mining operations. Concurrently, the United States issued a twenty-nine-page joint advisory on Wagner’s illicit gold trade in sub-Saharan Africa, encouraging industry participants to apply enhanced due diligence to avoid the risks potentially facilitating the violation of economic sanctions or money laundering.

Despite sanctions and efforts to curtail the Wagner Group’s illicit activity, the group has successfully evaded financial sanctions through a series of facilitators and front companies around the world and by taking advantage of lack of beneficial ownership to obscure operations and avoid identification. The Wagner Group has made more than five billion dollars since 2017, according to a Forbes assessment, mainly from mining, illicit gold trade, and forestry business in Africa, as well as funding from the Russian state.

The restructuring of Wagner Group’s command and control creates new opportunities in Africa

Despite the mutiny, Russia is likely to continue using the Wagner Group as an irregular or “gray zone” instrument of foreign policy and regional influence across Africa, although some rebranding and restructuring of the organization is expected. The Kremlin could change the Wagner Group’s name but will likely keep the existing security contracts with African authorities and continue using the group for disinformation operations. Reportedly, the Kremlin has already begun the “corporate takeover” of the Wagner Group, with Russian law enforcement authorities seizing computers from companies connected to Prigozhin.

Nevertheless, the Wagner Group’s organizational restructuring in Russia will likely impact the group’s operations in Africa as the Kremlin moves to assert greater control over Wagner Group operations and personnel and demonstrate that Putin is still in power. For example, around six hundred Wagner Group mercenaries left the CAR following Prigozhin’s failed rebellion, however the reason for their departure remains unknown. Russian government officials have been traveling to Africa and the Middle East in recent weeks to reassure regimes that Wagner Group will be able to meet their existing contract requirements under new command and control. In a visit to Damascus on June 26, Russian Deputy Foreign Minister Sergei Vershinin assured Syrian President Bashar al-Assad that Wagner forces would continue operations under the control of the Kremlin. In the CAR and Mali, Russian Minister of Foreign Affairs Sergey Lavrov offered similar assurances.

The Kremlin’s attempts to save face and assert control provide Western allies with an opportunity to counter the Wagner Group’s influence and position, particularly in African countries such as CAR and Mali. The United States and its allies can take a “demand-side economics” approach and introduce positive inducements for regimes currently contracting with the Wagner Group, such as diplomatic, economic, and security cooperation that meet the needs of African countries while swaying them away from their reliance on the Wagner Group and ultimately Russia.

The United States could leverage its designation of the Wagner Group as a transnational criminal organization to share information with foreign partners about the Wagner Group’s criminal activity, human rights abuses, and illicit financial activity to encourage partners to open investigations within their jurisdictions and prosecute Wagner Group personnel as criminals. These prosecutions could be brought to international organizations such as Interpol, to issue Red Notices and engage law enforcement around the world to bring criminals to justice. Further, if the United Kingdom and EU designate the Wagner Group as a terrorist organization, it may deliver a reminder to African governments that terrorism remains a priority and that the West is willing to cooperate with African governments on internal national security threats. A terrorist designation would also allow the EU and United Kingdom to bring terrorism charges against Wagner Group personnel within their jurisdictions and create the ability to further sanction the group and its network, disrupting their financial activity and ability to travel.

Additionally, Western allies can seize the opportunity to raise awareness about Wagner’s lack of success in places like Mozambique and Libya, human rights abuses in African countries, and exploitation of natural resources, to emphasize that their services come at a high cost. Western countries can partner with civil society organizations and African governments to track and identify the complex ownership structures of the Wagner Group-connected companies that enable sanctions evasion, share intelligence on these companies among partners, and take steps to freeze and seize assets of the Wagner Group that run counter to the interests of African countries.

Identifying a key vulnerability in Russia sanctions enforcement: Beneficial ownership

The key to understanding who is behind the shell companies and complex ownership structures of companies facilitating the Wagner Group’s activity is identifying the real human beings or organizations that control shell companies. They are called “beneficial owners.”

The Financial Action Task Force (FATF), the international body responsible for setting global anti-money laundering standards, has called on its members to implement tougher global beneficial ownership standards and give competent authorities adequate information on the true owners of companies. Several countries, including the United States and United Kingdom, have passed legislation and developed or are in the process of developing regulations to bring their countries’ anti-money laundering and countering-the-financing-of-terrorism regimes up to FATF standards on beneficial ownership.

The FATF and the international Egmont Group of Financial Intelligence Units (FIUs) can collaborate to ensure FATF regional bodies representing African countries and FIUs across the continent have the information they need and the capacity to understand and identify the risks the Wagner Group’s activities present to their respective domestic financial systems as well as the global financial system.

Lack of knowledge on beneficial ownership also played a key role in obstructing the enforcement of the oil price cap against Russia. The United States and Group of Seven (G7) allies imposed a sixty-dollar cap on Russian crude oil in December 2022, with the goal of keeping oil flowing out of Russia while reducing the revenue stream into Moscow. The effectiveness of the price cap strategy depends on Russian oil exporters and importers accessing maritime services, such as insurance of oil tankers, provided by G7 countries that have sanctioned Russia. If Russian oil importers and exporters want to use these maritime services, which make up 90 percent of the market, they have to comply with the price cap. In response, Moscow built up a shadow fleet of oil tankers whose real owners are unknown.

Why Russia’s shadow fleet is so dangerous

In February 2023, Russia’s shadow fleet was worth more than two billion dollars and consisted of around six hundred vessels. The fleet includes tankers previously used for Iranian and Venezuelan oil shipments and European tankers sold to Middle Eastern and Asian owners since Russia’s invasion of Ukraine began. The tankers operate without Western insurance and are not up to Western safety standards for oil tankers. Most of them are owned by offshore companies based in countries such as Panama, the Marshall Islands, and Liberia.

A third of Russia’s shadow fleet tankers are more than fifteen years old, which poses heightened risks of oil spills and environmental disasters. Normally, tankers should be demolished when they are around fifteen years old. The average age of the shadow fleet is twelve years and many of them will surpass fifteen years in the coming years.

Fortunately, Asian nations have strengthened monitoring and inspection of old tankers. For example, Singapore held a record thirty-three tankers for failing safety inspections. Even Chinese port authorities in Shandong province have held at least two tankers older than twenty years for safety checks. Ships under detention for safety violations will have to re-apply for certificates and it’s unclear how long it will take them to get back to the ocean, if at all.

How to prevent the growth of the shadow fleet

Last year, the number of undisclosed buyers of tankers more than doubled compared to 2021. Buyers of most of these tankers were located outside of G7 countries or the European Union. Specifically, London-based company Gibson Shipbrokers estimates that around one hundred fuel tankers were sold to companies outside of the G7. The undisclosed buyers of European ships most likely were shell companies or individuals acting on behalf of Russian beneficial owners of the shadow fleet tankers. This development is alarming and demonstrates a common theme in the challenges associated with enforcing sanctions against Russia including the oil price cap—beneficial ownership.

Following FATF’s recommendation to its member states on making the identities of true owners of companies available to competent authorities could make it more difficult for sanctions evaders and money launderers to facilitate transactions for sanctioned Russian companies. It could also help sellers of tankers to identify whether the ultimate benefactor is a Russian entity or an individual. In the meantime, greater information sharing between partner nations on illicit Russian financial activity and the shell companies that are involved will help close this gap in sanctions enforcement and increase global understanding of Russia’s reach.

Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @KDonovan_AC.

Maia Nikoladze is the assistant director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.

Ryan Murphy is a young global professional at the Atlantic Council’s GeoEconomics Center.

Castellum.AI partners with the Economic Statecraft Initiative and provides sanctions data for the Global Sanctions Dashboard and Russia Sanctions Database.

Global Sanctions Dashboard

The Global Sanctions Dashboard provides a global overview of various sanctions regimes and lists. Each month you will find an update on the most recent listings and delistings and insights into the motivations behind them.

Explore Here

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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An overview of gender parity in Bahrain: Progress, challenges, and the path forward

Nibras Basitkey and Lynn Monzer — Tue, 18 Jul 2023 20:27:20 +0000

On July 12th, 2023 the Atlantic Council’s empowerME Initiative, in collaboration with the U.S. Embassy in Manama and Bahrain FinTech Bay, held a first workshop in a series of four events for the Win Fellowship’s first cohort launched in Bahrain in June. The event, which took place both in-person at Bahrain FinTech Bay offices and virtually, focused on female leadership in the country.

The opening notes were delivered by empowerME’s chairman Amjad Ahmad. Keynote remarks were provided by H.E. Shaikh Abdulla Bin Rashid Al Khalifa, Ambassador of the Kingdom of Bahrain to the United States, and David Brownstein, Deputy Chief of Mission at the U.S. Embassy in Manama.

The event encompassed a moderated discussion featuring esteemed panelists: Jordana Semaan, Head of Human Resources (Gulf and Asia), Global Head of DEI, Investcorp; Nidal Al-Basha, Head of Public Sector Innovation, Amazon Web Services MENA Region; Hollie Griego, Global Wealth Investments North America Head of Strategy & Platforms, Citi; and Marwa Al Saad, Executive Director at Human Capital, Mumtalakat Bahrain, with Suzy Al Zeerah, Chief Operating Officer, Bahrain FinTech Bay, skillfully moderating the session.

These panelists shared profound insights on the current state of gender equality in Bahrain, the successful initiatives and strategies propelling this progress, the remaining challenges, and the influential role of corporate initiatives in endorsing gender equality and promoting women’s leadership within Bahrain’s business landscape.

Key discussion points

Amjad Ahmad, Chairman of the empowerME initiative at the Atlantic Council kicked-off the event by introducing the remarkable achievements of Bahraini women in education, workforce, and politics. Women in Bahrain make up 83 percent of tertiary school enrollments, 54 percent of the public sector workforce, and 45 percent of leadership positions in official state agencies. In the private sector, women comprise 35 percent of the workforce, hold 17 percent of board seats, and occupy 35 percent of managerial roles. The political landscape is no different, as Bahraini women made major strides. They make up 20 percent of the total members of the Council of Representatives and 25 percent of the Shura Council. Ahmad emphasized that these achievements are the result of a number of factors, including government policies that promote gender equality, the strong educational attainment of Bahraini women, and the increasing participation of women in the workforce.

In his opening remarks, Ambassador H.E. Shaikh Abdullah bin Rashid Al Khalifa expressed his strong support for the WIn Fellowship, noting its role in exposing Bahraini top women entrepreneurs to life-changing networking opportunities, mentorship, and workshops, thereby increasing their economic participation. He also highlighted the significance of the transformation brought about by the Supreme Council for Women (SCW Bahrain), which has been instrumental in implementing legislative and societal safeguards for Bahraini women. As a result of these reforms, Bahraini women account for about 43 percent of the labor force. Continued progress is being made in areas of pay equity, entrepreneurship, pensions, and the enhancement of women’s physical and psychological well-being. Furthermore, His Highness underscored Bahrain’s commitment to digital inclusion, manifested in the government’s initiatives to train women in digital skills and motivate them to pursue STEM fields.

David Brownstein expressed his support for the WIn Fellowship, asserting, “we’re incredibly proud to support the WIn Fellowship here in Bahrain. Bahrain is a place where seeds flourish when planted.” He also pointed to the shared goals between the U.S. Embassy and the Bahraini government, with both parties aiming for a peaceful and prosperous state. “Achieving this requires the active participation of all society’s members”, he noted. He also affirmed the U.S. Embassy’s commitment to supporting Bahrain’s national strategy on gender equity and addressing inequality.

The panelists all agreed on Bahrain’s success in promoting women to all levels of the workforce and representation in government and boards, attributing this to both government reforms and a workforce that acknowledges women’s potential. They also recognized persisting challenges, like widespread biases against women, underscoring the necessity of a robust peer-to-peer network of women advocating for each other.

When asked about the factors that have contributed to Bahrain’s high ranking in gender parity among Arab countries, Nidal Al Basha stated several key aspects. Firstly, he mentioned the role of encouraging women to pursue STEM spatializations, which has been instrumental in promoting gender equality. Additionally, he emphasized on the importance of a supportive work environment that grants women extended maternity leaves, ensuring a balance between their professional and personal lives. Al Basha explained that Bahrain offers additional benefits for women, such as dedicated nursing rooms in the workplace, demonstrating a commitment to meeting their specific needs. The implementation of inclusive hiring and promotional policies also plays a significant role in enabling women to succeed and advance in their careers, according to Al Basha.

Marwa Al Saad emphasized further how Bahrain recognizes the immense value of human potential, considering it as one of the most valuable and inexhaustible resources. She stated that the high gender parity in Bahrain is attributed to various factors. “There is a mindset shift in the country that prioritizes growth and development, fostering an environment where both men and women can flourish,” she explained. Bahrain has also implemented robust policy and program reforms that establish a solid foundation for the advancement of all genders. These initiatives created equal opportunities and a supportive framework for individuals to thrive in various sectors. Al Saad also mentioned an exciting new initiative; the Bahrain Defense Force, which further demonstrates Manama’s commitment to gender parity and inclusivity. This initiative showcases the country’s dedication to providing equal opportunities and encouraging the participation of all genders in defense-related fields.

Jordana Semaan, from her side, mentioned that the one lesson that other countries in the region can learn from Bahrain is the emphasis placed on women and celebrating their success stories. “The importance of representation cannot be understated, as it serves as a significant motivator for other women to enter the workforce and unlock their full potential”, she said. By showcasing accomplished women and their achievements, Bahrain inspires and encourages others to pursue their goals and make significant contributions in their respective fields.

Hollie Griego focused on the importance of allyship among women, highlighting how it empowers and propels them into higher positions within the workplace. “Citi, following a similar approach to Bahrain, recognizes the significance of recruiting, training, and retaining women in its workforce” according to Griego. She pointed to the implementation of mechanisms that create an environment where women can thrive, allowing them to strike a balance between their roles as working mothers and providing the flexibility necessary to forge a successful career path leading to long-term security. These mechanisms serve as valuable examples that any country can adopt to promote gender equality and support women’s advancement.

Additionally, the panelists discussed the changing perception towards women in tech sectors, demonstrated by the increased hiring of female engineers at Amazon Web Services. They gave the example of the vital role supportive mechanisms at the workplace play in facilitating women’s advancement into senior roles, enabling them to balance their roles as working mothers. The importance of role models was also stressed, regardless of gender.

When asked about the challenges faced by Bahraini women, similar to women globally, Semaan referred to a UNDP report stating that 9 out of 10 people hold biases against women. This bias is present in both men and women, and is a significant obstacle to overcome. Semaan explained the importance of alliances and support networks among women, highlighting their role in addressing these challenges. “In this region, there is still a cultural expectation for women to take on caregiving roles,” she pointed.

Al Saad further emphasized the importance of implementing gender-inclusive solutions to address these challenges, while Al-Basha focused onthe importance of mental health support for both women and men, as well as the significance of programs that help women re-enter the workforce after being on leave.

Griego acknowledged that while Citi is one of the few institutions with a female CEO, there is still much work to be done to address the gender pay gap at senior levels and promote women into those roles. She emphasized the significance of mentorship for women, as it plays a crucial role in guiding them through their professional journey and career growth.

Suzy Al Zeerah additionally pointed to the absence of sufficient female role models and mentors in Bahrain and in the Middle East in general.

Closing remarks

According to the Global Gender Gap Report 2023, Bahrain stands as the second highest in terms of gender parity among the Arab countries. This achievement is due to several important themes that have emerged throughout the discussion.

The commitment to supporting working women, as evidenced by extended maternity leave suggests an understanding of the importance of balanced work-life dynamics. This is also apparent in private sector policies, especially in terms of maternity leaves like in the case of Amazon Web Services, among others that are trying to create an enabling workplace for women to join. Research did actually prove that paid maternity leave increases women’s labor force participation and entrepreneurship, thus affecting the country’s’ economy in general.

An equally significant development in Bahrain’s gender equality journey is the strategic emphasis on digital inclusion and the promotion of women in STEM fields. Bahrain is a frontrunner in technological diversity in the MENA region. Digital activities contributed to 8% of Bahrain’s gross domestic product (GDP) in 2020, demonstrating the nation’s committed efforts towards enhancing digital inclusivity. As for the digital gender disparity, it is minimal in internet access (1.1 percent), while none-existent in mobile accessibility.

Furthermore, around a third of the broader ICT workforce in Bahrain are women and approximately 20 percent of startup founders are women, higher than the global average. Given the traditionally low representation of women in the global tech sector, Bahrain’s encouragement of female participation is a drastic step towards a more balanced gender equation.

Role models and allyship were discussed during the workshop. Both are important for women’s economic advancement. Afterall “you can’t be what you can’t see”. Championing female leaders in sectors such as tech and defense can potentially disrupt existing barriers, opening doors for future generations.

Despite this progress, Bahraini women, like many in the region, continue to face a variety of legal, regulatory, and sociocultural obstacles to economic participation and leadership. Initiatives to address this discrepancy are necessary for future growth and development. These barriers highlight the need to invest in women skills, establish strong networks, and develop clear metrics to measure progress in supporting women.

The private sector plays a key role in improving the condition of women and increasing their leadership. For example, the gender pay gap in Bahrain is prominent in the private sector-US$2,300 versus US$1,700 for women compared to only US$200 in the public sector-. Institutions need to actively work towards increasing female representation in leadership, by prioritizing the recruitment, training, and retention of women, play a critical role in creating a more equitable business landscape, concluded the speakers.

The discussion overall underscored Bahrain’s commitment to gender equality and its innovative approach to tackle this issue. However, it also highlighted the persistent challenges that need to be addressed to ensure lasting progress. The workshop served to place Bahrain’s journey as an inspiring model for other nations grappling with similar issues.

Lynn Monzer is the Associate Director with the Atlantic Council’s empowerME initiative at the Rafik Hariri Center for the Middle East.

Nibras Basitkey is the Program Assistant with Atlantic Council’s empowerME initiative at the Rafik Hariri Center for the Middle East.

WIn Fellowship cohorts

Jun 14, 2023

The WIn Fellowship 2023-2024 cohort

Building on the success of its inaugural cohort, the Women Innovators Fellowship (WIn) is expanding to Bahrain and the UAE, in addition to Saudi Arabia, as it continues to empower more women entrepreneurs from the Middle East. The program is thrilled to announce this year’s eighty-six recipients of its 2023 WIn Fellowship. The participants will receive a year-long program of executive education, mentoring, and networking opportunities in collaboration with Georgetown McDonough School of Business and with the support of the United States embassies in the three target countries and PepsiCo.

Feb 24, 2023

2023 WIn Fellowship Roadshow

The WIn Fellowship roadshow is led by the Atlantic Council’s empowerME Initiative in cooperation with Georgetown University’s McDonough School of Business with support from US Embassy Riyadh, UPS, and PepsiCo. The WIn Fellowship Roadshow participants, chosen from a highly competitive cohort of more than thirty applicants, receive a fully sponsored trip to the United States for leadership training at Georgetown and meetings with US business and government leaders.

Jun 14, 2023

WIn Fellowship 2023-2024 Bahrain

The empowerME initiative is happy to present the 2023-2024 WIn fellow cohort from Bahrain. These women entrepreneurs will build on their leadership and executive skills to scale their startups to new heights.

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Female leadership in Bahrain: progress, potential, and Sustainability

The Atlantic Council’s empowerME Initiative‘s workshop on destigmatizing failure and promoting business risk through policies and culture in Saudi Arabia and the wider MENA region was held on Wednesday, July 12th from 11:00 am-12:00 pm ET/6:00-7:00 pm Bahrain. The WIn Fellowship is led by the Atlantic Council’s empowerME Initiative in cooperation with Georgetown University’s McDonough […]

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empowerME

empowerME at the Atlantic Council’s Rafik Hariri Center for the Middle East is shaping solutions to empower entrepreneurs, women, and youth and building coalitions of public and private partnerships to drive regional economic integration, prosperity, and job creation.

Explore the initiative

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Roberts in the Missoulian

everges — Tue, 18 Jul 2023 19:08:32 +0000

ORIGINAL SOURCE

On July 18, IPSI Nonresident Senior Fellow Dexter Tiff Roberts published a piece in the Missoulian on China’s economic coercion. This article is based on his interview with US Ambassador to Japan Rahm Emanuel. Roberts emphasizes the importance of finding a unified approach in the face of coercion.

Fellow

Dexter Tiff Roberts

Global China Hub Indo-Pacific Security Initiative

China Chinese

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Kumar quoted in Axios on cryptocurrency regulation

mrashid — Tue, 18 Jul 2023 13:54:51 +0000

Read the full newsletter here.

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State of the Order: Assessing June 2023

sodal — Tue, 18 Jul 2023 13:23:59 +0000

Reshaping the order

This month’s topline events

Putin in Peril. Russian President Vladimir Putin faced the most serious challenge to his authority since taking office, as the Wagner Group, a Russian paramilitary organization, mounted an insurrection against the Kremlin’s military leadership. With heavily armed mercenaries seizing the city of Rostov and moving within a few hundred miles of Moscow, a looming conflict was averted as Yevgeny Prigozhin, the group’s chief, agreed to stand down and go into exile in Belarus. But Prigozhin’s whereabouts remained in doubt, as Putin sought to reassert control over the Wagner Group and consolidate his grip on power.

Shaping the order. The sudden rebellion by Prigozhin, a longtime close ally of Putin, suggests that the war in Ukraine is placing serious strains on Russia’s political leadership. Though Putin appears safe for now, the insurrection could open the door to future challenges to his rule, with the potential to shake the global order. Moscow appears to be struggling to gain control over Wagner, which has provided a crucial source of funding for Russia’s operations in Ukraine and helped the Kremlin expand its influence across the Middle East and Africa.
Hitting home. The fall of Putin could ultimately lead to a more peaceful Russia, but political instability inside the Kremlin could also pose new risks to US security interests.
What to do. With Putin forced to shift his focus to domestic challenges, Washington should use this opportunity to accelerate weapons support for Kyiv as Ukrainian forces push forward with their critical counteroffensive.

Blinken in Beijing. US Secretary of State Tony Blinken met with Chinese President Xi Jinping and Chinese Foreign Minister Qin Gang in Beijing, on a trip intended to “stabilize” relations between the two nations. While China refused a US request to resume military-to-military contacts, both sides appeared to view the talks as productive. But Chinese officials reacted bitterly to President Joe Biden’s subsequent reference to Xi as a “dictator,” calling the comments “extremely absurd and irresponsible.”

Shaping the order. While it may temporarily help improve the atmospherics surrounding the US-China relationship, Blinken’s visit is unlikely to lead to a shift in the overall trajectory. Tensions will remain high in light of Beijing’s threats against Taiwan and other attempts to undermine the global order, as the US pursues efforts to shift supply chains in critical industries away from China, as part of a new “derisking” strategy.
Hitting home. Seeking to maintain stable relations with the world’s second largest economy may be beneficial for the American people, but this will also require sustained efforts to defend against potential threats.
What to do. The Biden administration should continue to coordinate with allies on strategies to counter Beijing’s assault on the global order, even as it tries to establish guardrails in the US-China relationship.

Modi’s State Visit. President Joe Biden hosted Indian Prime Minister Narendra Modi at the White House, as the administration sought to bolster economic and geopolitical ties with India. Amid media criticism of India’s backsliding on democracy, Modi was given a White House state dinner – only the third of Biden’s presidency – and invited to speak before a joint session of Congress. The two nations agreed to strengthen defense and technology cooperation, including building GE military jet engines in India and launching joint initiatives on semiconductors, artificial intelligence, and other areas.

Shaping the order. Washington’s warm welcome for Modi reflects a desire to cultivate a stronger relationship with India in the context of strategic competition with China. While joint concerns over China appear to be propelling the relationship forward, it remains unclear whether the two nations can reach a more meaningful strategic partnership, especially given New Delhi’s refusal to condemn Russia’s aggression against Ukraine. In addition, Modi’s targeting of religious minorities and crackdown on political dissent have raised questions about the future of the relationship.
Hitting home. A stronger US relationship with India could generate new business opportunities for US companies seeking to reduce supply chain dependencies on China.
What to do. While seeking to build on the positive momentum coming out of Modi’s visit, Washington should also make clear that it sees a shared commitment to democratic norms as the foundation for closer ties between the world’s two largest democracies.

Quote of the Month

“Democracies must now rally together around not just our common interests, but also our shared values. Preserving and protecting the freedoms that are essential to peace and prosperity will require vigorous leadership…”
– US Secretary of Defense Lloyd Austin in New Delhi, India, June 5, 2023

State of the Order this month: Unchanged

Assessing the five core pillars of the democratic world order

Democracy (↓)

Guatemala’s ruling government sought to overturn the results of the country’s presidential elections after the results indicated that Bernardo Arévalo, a reformist candidate, gained enough votes to qualify for a run-off. The State Department warned that undermining the election results would constitute a “grave threat to democracy.”
With the support of Pakistan’s ruling government, the country’s military began implementing a broad crackdown against the media and political opposition, in the wake of national protests following the arrest of former prime minister Imran Khan.
As Indian Prime Minister Narendra Modi made a high-profile visit to Washington, US concerns over democratic backsliding in India appeared to take a back seat in an effort to cultivate closer relations between the two nations.
Overall, the democracy pillar was weakened.

Security ()

Yevgeny Prigozhin, head of the paramilitary Wagner Group, mounted an insurrection against Russia’s military leadership, but agreed to stand down after his heavily armed mercenaries came within a few hundred miles of Moscow.
China and Cuba reached a secret agreement to allow Beijing to establish a surveillance facility on the island targeting the United States, and are in the process of negotiating a deal to establish a new joint military training facility.
A contingent of leaders from seven African countries, including South African president Cyril Ramaphosa, met with Ukrainian President Volodymyr Zelensky and President Putin, in a bid to initiate peace talks between Russia and Ukraine, though neither side accepted the African proposal.
In a further indication of Seoul’s tilt toward a harder line on China, South Korean President Yoon Suk Yeol directly criticized China’s ambassador in Beijing for his comments critical of South Korea’s joining US-led initiatives.
On balance, the security pillar was unchanged.

Trade (↑)

The US and Britain issued the Atlantic Declaration, a new economic framework aimed at enhancing cooperation on critical and emerging technology, supply chains, clean energy, and other issues, as a potential counterpart to the US-EU Trade and Technology Council.
The US and thirteen other members of the Indo-Pacific Economic Framework reached an agreement on supply chains – one of the framework’s four core pillars – that will result in several new bodies focused on advancing supply chain resiliency.
On balance, the trade pillar was strengthened.

Commons (↑)

The United Nations adopted the world’s first treaty aimed at protecting the high seas and preserving marine biodiversity in international waters, which constitute over two-thirds of the ocean.
The US announced plans to rejoin the United Nations Educational, Scientific, and Cultural Organization (UNESCO), in an effort to counter China’s growing sway in multilateral fora. After the Trump administration withdrew the US from the organization in 2017, China became one of its largest donors.
On balance, the global commons pillar was unchanged.

Alliances ()

French President Emmanuel Macron expressed opposition to a proposal by NATO Secretary General Jens Stoltenberg to open a NATO liaison office in Japan, suggesting that the alliance should stay focused in the North Atlantic region.
On his first trip to the White House since taking office, British prime minister Rishi Sunak met with Joe Biden, as the two leaders committed to closer cooperation on a range of political and economic issues.
US-India relations appeared to enter a new chapter as Prime Minister Narendra Modi joined President Joe Biden for an official state visit in Washington.
On balance, the alliance pillar was unchanged.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order

Lucan Ahmad Way, in Foreign Affairs, contends that revolutionary autocracies have demonstrated remarkable staying power, even in the face of mounting challenges.
Hal Brands, in Foreign Policy, suggests that Russia, China, Iran, and to some extent North Korea constitute a bloc of adversaries more cohesive and dangerous than anything the United States has faced in decades.
Sumit Ganguly and Dinsha Mistree, in Foreign Affairs, argue that in the face of Chinese aggression, a policy of continued non-alignment will not serve India well.

Action and analysis by the Atlantic Council

Our experts weigh in on this month’s events

Fred Kempe, in Inflection Points, contends that Ukraine deserves NATO membership, as well as more robust weapons support.
John Herbst and Dan Fried, in the Washington Post, suggest that the key to a Ukrainian victory in its war against Russia may lie in a successful advance to retake Crimea.
Patrick Quirk and Caitlin Dearing Scott, writing for the Atlantic Council, argue for a fully developed foreign aid strategy to help the US succeed in strategic competition with China and Russia.
Peter Engelke and Emily Weinstein, writing for the Atlantic Council Strategy Paper series, set forth a comprehensive strategy for the US and its allies to retain its technological advantage over China.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

Ash Jain – Director for Democratic Order
Dan Fried – Distinguished Fellow
Soda Lo – Project Assistant

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email AJain@atlanticcouncil.org.

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Russia just quit a grain deal critical to global food supply. What happens now?

Atlantic Council experts — Mon, 17 Jul 2023 19:31:09 +0000

That ship has sailed. Just after 8:00 a.m. local time on Sunday, the bulk carrier TQ Samsun pulled out of the Ukrainian port of Odesa en route to Istanbul. It was the last vessel to leave under the United Nations (UN) and Turkey-brokered deal to export grain and fertilizer by sea from Ukraine amid Russia’s full-scale invasion. On Monday, the Kremlin announced that it would halt the deal, curtailing vital Ukrainian food exports that fed four hundred million people worldwide before 2022, according to the World Food Programme.

Below, Atlantic Council experts answer four pressing questions about what just happened and what to expect next.

1. Why did Russia pull out of the deal?

Moscow’s notification to the UN, Kyiv, and Ankara that it was suspending participation in the grain deal and would not renew the deal further is part of a negotiating strategy to loosen sanctions and gain more freedom of maneuver. Russian standard practice is to make humanitarian measures conditional upon concessions that serve its military, economic, and political interests—as it has with earlier negotiations on the grain deal and numerous times over relief and aid deliveries in Syria.

Specific demands in this case include readmitting the Russian agricultural lender Rosselkhozbank back into the Society for Worldwide Interbank Financial Telecommunication (SWIFT) mechanism, allowing Russia to import repair parts for agricultural machinery, and unfreezing other assets. Moscow claims that the deal, known as the Black Sea Grain Initiative, has not delivered on points that were to benefit Russia, but this round of pressure is certainly about more than the letter of the deal; it is about easing sanctions pressure.

—Rich Outzen is a nonresident senior fellow at the Atlantic Council IN TURKEY and a geopolitical analyst and consultant currently serving private sector clients as Dragoman LLC.

2. What’s the next move for Ukraine and its Western partners?

In October 2022, Russia left the grain deal, actually suspended its participation, and there were only three parties left: the UN, Turkey, and Ukraine. The grain corridors at that time functioned well, in part because the Russian inspectors had been disrupting the grain deals from inside. The most rational way to react to this withdrawal is to proceed in the trilateral format with the UN, Ukraine, and Turkey. I don’t think Russia has a lot of options now. In the northwestern part of the Black Sea, Russia lacks capacity to inflict any major damage. Since Ukrainian armed forces retook Snake Island last year, the maritime area has been largely controlled by the Ukrainian side. So there is little possibility for a major disruption by Russian vessels in this part of the Black Sea.

Russia could say that continuing the deal in a trilateral format crosses a “red line.” But if Russian forces attack a vessel transporting grain, it could trigger a major reaction that Moscow would not want to face, depending on which country the vessel belongs to, who is the owner, and who the sailors are. I would not be surprised if after a meeting or phone conversation with Turkish President Recep Tayyip Erdoğan in the next few weeks, Russia rejoins the grain deal.

Meanwhile, messages from Ukrainian President Volodymyr Zelenskyy have been very clear that there has been no deal between Ukraine and Russia. The deal is among Ukraine, Turkey, and the UN. What Putin undermines now is his agreement with the UN and Turkey, not with Ukraine. Russia’s halt of its participation in the deal will likely further increase insurance costs, but in June the Ukrainian government approved a maritime compensation scheme so that vessels calling at Ukrainian ports will be compensated if they are damaged due to Russian military activity. So, from the Ukrainian side, there is readiness to proceed with the deal.

While trying to keep the grain corridors functioning, it’s also important to step up efforts to restore freedom of navigation in the Black Sea, a basic principle of international law. Crimea must be de-occupied and should not become a bargaining chip in negotiations with Moscow, because Russia will continue to use Crimea to threaten security in the Black Sea and global food markets for as long as it is allowed to do so.

—Yevgeniya Gaber is a nonresident senior fellow at the Atlantic Council IN TURKEY and a former foreign-policy adviser to the Ukrainian prime minister.

In practice, the deal had pretty much collapsed some time ago when ships started to disappear from the horizon off of Odesa’s Black Sea coast. Normally, up to a dozen bulk carriers are waiting to be loaded; in the past couple weeks, one or two at best—indicating things weren’t working well at the joint clearance center in Istanbul. (Ukrainians have blamed Russian inspectors for deliberately slowing down clearance procedures.)

So what happens next? The UN and Western nations should not succumb to the Kremlin’s blackmailing tactics. Russia should not be given another chance to weaponize food—nor be given sanctions relief in exchange for allowing ships carrying food to sail through international waters.

A global food emergency should be declared and, as I told BBC World News this morning, arrangements made for ships to sail under armed escort through the Black Sea. Of course, such a measure would never get past Russia’s veto in the UN Security Council. So creative diplomacy is required, perhaps with the European Union taking the lead.

In the near term, Ukraine should also be assisted with moving grain transport onto alternative arteries such as the Danube River and onto trains and trucks. Poland can play a key role by alleviating the days-long waits truck drivers currently face entering Poland from Ukraine.

—Michael Bociurkiw is a nonresident senior fellow at the Atlantic Council’s Eurasia Center based in Odesa, Ukraine.

3. What are the prospects for getting the deal back, and what could the UN and Turkey do right now?

The deal will likely survive because Ukraine, Turkey, and Europe more broadly, as well as a number of developing nations, benefit from it, which likely makes modest concessions to the Russian position acceptable to the leaders of those countries. Given the disinclination of either the Turks or NATO to directly intervene in the conflict, it is unlikely that there will be direct military escorts for grain ships rather than a negotiated deal. Nor do the Russian forces appear ready for a major naval escalation in the Black Sea, so there is a fair chance they will settle in the end. The reputational and economic costs of a prolonged end to grain shipments will hurt Russia, too, so I do not expect a prolonged or permanent cancellation of the deal.

—Rich Outzen

4. What impact does this have on the developing world?

The threat to global economic landscape and food security—especially in Africa and other developing regions—is hard to overstate. While once soaring food prices amid pandemic supply chain disruptions and Russia’s war had begun to stabilize, thanks in large part to the more than thirty million tons of wheat exported from Ukraine under this deal, the situation remains volatile. Down from its peak of 160 in March of 2022, the Food and Agriculture Organization’s Food Price Index was at 122 in June, still a third higher than June 2020, when it was 93. Globally, food price inflation remains higher than 5 percent per year in more than 60 percent of low-income countries and nearly 80 percent of lower-middle-income and high-income countries. Real food inflation is as high as 80 percent in Zimbabwe, 30 percent in Egypt, and 14 percent in Laos. And within countries, women and already vulnerable communities tend to be hardest hit. In just the last two weeks, the World Bank reported that wheat prices had decreased by 3 percent globally—gains Monday’s announcement are all but certain to reverse.

—Nicole Goldin is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and global head, inclusive economic growth at Abt Associates.

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“New Rules for Stablecoins and the Future of Payments” event featured in Politico

mrashid — Mon, 17 Jul 2023 16:31:54 +0000

Read the full newsletter here.

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Tran quoted in Reuters on Chinese export controls

mrashid — Mon, 17 Jul 2023 16:27:34 +0000

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Tantardini in Longitude on the future of human spaceflight

Atlantic Council — Mon, 17 Jul 2023 14:58:28 +0000

original source

In the June 2023 Issue of Longitude, Forward Defense Nonresident Senior Fellow Marco Tantardini published an article on the complexity of recovering manned spacecraft from orbit and landing them on other bodies in the solar system.

Further than the Moon is Mars, where only the US and China have been capable of diving into the thin and tricky atmosphere and landing a robotic spacecraft without crashing.

Marco Tantardini

Fellow

Marco Tantardini

Forward Defense Scowcroft Center for Strategy and Security

Italy Space

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

Read the full newsletter here.

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“New Rules for Stablecoins and the Future of Payments” event featured in Politico

mrashid — Mon, 17 Jul 2023 13:50:03 +0000

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Graham quoted in the VOA on Russian sanctions evasion

mrashid — Mon, 17 Jul 2023 13:11:45 +0000

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Lipsky quoted in Business Insider on de-dollarization

mrashid — Sun, 16 Jul 2023 16:20:46 +0000

Read the full report here.

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“Fractured foundations: Assessing risks to Hong Kong’s business environment” report cited by Chatham House

rmurphy — Fri, 14 Jul 2023 19:07:59 +0000

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Norrlöf quoted in Business Insider on dollar dominance

mrashid — Fri, 14 Jul 2023 16:12:00 +0000

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Is Germany shifting its approach on China?

Atlantic Council experts — Fri, 14 Jul 2023 15:56:29 +0000

Is this another Zeitenwende? The German government adopted its first-ever strategy for relations with China on Thursday. Released after months of dispute among Germany’s three-party governing coalition, the strategy calls for measures to “de-risk” Berlin from the national security vulnerabilities of economic dependence on Beijing. The sixty-four page document reflects a wider shift in German foreign policy in the past year toward more strategic thinking—exemplified by Chancellor Olaf Scholz’s Zeitenwende, or turning point, speech after Russia’s full-scale invasion of Ukraine. The China strategy arrives a month after the release of Germany’s inaugural national security strategy.

Below, Atlantic Council experts answer the most pressing questions about Germany’s new China strategy and what it will mean for relations between Europe and Asia’s largest economies.

1. Much has been made of the Zeitenwende prompted by Russia. Are we seeing a similar shift in German thinking on China?

Those expecting a Zeitenwende in Germany’s China policy from the country’s first-ever comprehensive China strategy will be disappointed. For China hawks in Washington, Germany’s new strategy will offer too much evolution and not enough revolution in Berlin’s approach to Beijing. The product of a contentious interagency process and partisan divergences in a complex three-way coalition, the new strategy starts with a familiar balancing act between calling out a more aggressive China and keeping Germany’s options open to continue its economic relationship with Beijing. It still tries to square the triangle of China as a partner, competitor, and systemic rival. The strategy acknowledges that “China has changed” and, along with it, German policy toward China must change, but fails to translate this into sufficiently specific or ambitious policy proposals. The document picks up European Commission President Ursula von der Leyen’s “de-risking” approach but also rules out decoupling. Throughout, it touts a coordinated approach at the European Union (EU) level—something China hawks among fellow member states might throw back at Berlin, which is seen by some as slow-walking a tougher approach to China in Brussels.

At the same time, a closer look reveals some important progress. Berlin’s China strategy avoids some of the biggest mistakes of its recently released national security counterpart. Most notably, it makes a more explicit assessment of the strengths and assets Germany can bring to bear in a more contentious Sino-German relationship. These are inevitably intertwined with EU competences, from the leverage the European single market affords Germany, to a proposed anti-coercion instrument and the new foreign subsidies regulation, to competition policy tools, tech regulation, and raw materials initiatives. Reflecting a recent government drive toward greater diversification, the document dedicates a separate chapter to “global partnerships”—from Africa and Central Asia to Latin America—and a proactive EU trade policy. In contrast to the national security strategy, it also makes explicit efforts to improve whole-of-government coordination, installs a regular (if somewhat vague) reporting mechanism on the strategy’s implementation, and highlights the need to strengthen expertise on China in the government and policy community more broadly.

—Jӧrn Fleck is the senior director of the Atlantic Council’s Europe Center.

With this strategy, Germany has put the Merkel-era naiveté toward China to rest. It highlights the need for Germany to become more resilient, invest in greater China competence, defend the global order, and engage with like-minded partners in order to outcompete China. The strategy also has a particular European component and takes a whole-of-government approach by increasing intergovernmental coordination on China. Not everybody in government, business, or academia will agree with the strategy, but it cements the slow shift that has taken place in German strategic thinking, which hopefully will continue.

—Roderick Kefferpütz is a nonresident senior fellow in the Europe Center and the director of the Heinrich-Böll-Stiftung European Union office in Brussels.

The document confirms Germany’s adoption of a tougher approach toward a “changed” China under Xi Jinping. It underscores that Berlin will reduce dependencies and better protect its interests in the bilateral relationship even as Germany values continued engagement with Beijing to tackle global challenges. The question is whether this unvarnished take on the need for a transformed German approach to China will be matched with actionable government policies.

Notable elements include the conclusion that Beijing seeks to leverage economic and technological dependence on China to achieve political ends and that Berlin, in coordination with its EU partners, must commit to a “de-risking” strategy to reduce vulnerabilities across critical sectors and supply chains. Beijing has made clear its distaste for the “de-risking” terminology first employed by von der Leyen in March and which US and European leaders have since adopted, viewing it as just another version of “decoupling” that US allies may find more palatable to the ear. Indeed, the Chinese embassy in Berlin responded today that “forcibly ‘de-risking’ based on ideological prejudice and competition anxiety will only be counterproductive.”

—David O. Shullman is the senior director of the Atlantic Council’s Global China Hub and a former US deputy national intelligence officer for East Asia.

2. How involved militarily is Germany in the Indo-Pacific now, and what does this strategy tell us about how that will change?

The strategy takes an incredible leap forward! This is a welcome change from the national security strategy, which hardly mentioned the Indo-Pacific at all. In the China strategy, Germany is starting to take a “one-theater” approach to China, linking the Euro-Atlantic and Indo-Pacific regions. On several occasions, the strategy notes the challenge posed by the Sino-Russian relationship and explicitly mentions that “developments in the Indo-Pacific can have a direct impact on Euro-Atlantic security.” In this context, Germany wants to increase its presence as a security actor, aiming to expand military cooperation and arms exports in the Indo-Pacific.

—Roderick Kefferpütz

3. How does Germany’s China approach compare with that of its European neighbors and the United States?

One notable aspect of Berlin’s new strategy is how extensively and explicitly it’s tied into the EU’s overall approach to China, signaling to Chinese leaders that they may be facing a less favorable environment—at least in Berlin—for trying to create divisions within the EU and undermine a stronger and more unified approach toward China. Germany’s strategy uses multiple sections to lay out how its approach is embedded within a broader EU strategy and articulate a vision for strengthening the EU’s capacity for contending with China.

Many of the elements of Germany’s strategy for dealing with China as a “partner, competitor, and systemic rival” echo the recommendations that von der Leyen laid out earlier this year, such as enhancing domestic economic competitiveness and resilience and strengthening coordination with like-minded partners.

—Colleen Cottle is the deputy director of the Global China Hub and a former Central Intelligence Agency official.

The released strategy suggests divisions within the government over what role the transatlantic relationship plays when it comes to China. Earlier versions of the strategy mentioned the transatlantic relationship roughly twice as much and stated that the transatlantic partnership “plays a decisive role in a successful China policy.” This has been artificially toned down and reworded to “coordination with Germany’s closest partners is fundamental to our foreign policy; this also applies to our policy-making with and vis-à-vis China. Both the transatlantic alliance and the close partnership built on trust with the United States, including in the G7, is of tremendous importance for the EU and for Germany.”

The earlier leak also highlighted that “Germany, the EU and our valued partners are in a global systemic competition with China,” while the published version says “China has entered a geopolitical rivalry with the United States,” indirectly suggesting that Germany is standing on the sidelines. But this is not the case, as the strategy makes clear.

Germany takes a leadership role in this strategy by taking a networked, allies-based perspective. The strategy notes that its China policy is part of a joint EU policy on China, aims to Europeanize Germany’s approach to China, and even highlights that countries wishing to join the EU should align their approach to China with the bloc’s. Germany defines the China challenge in the context of different regions of the world and at the level of global institutions, regularly identifying valuable partners in this regard.

—Roderick Kefferpütz

4. What do we expect the reaction to be in Beijing?

Chinese leaders will note the call for German companies to “internalize” risk calculations as they consider current and future investments in China—indicating that the government may not bail them out in the event of geopolitical events, such as a crisis over Taiwan. The strategy includes language on the role that export controls and investment screening play in ensuring economic engagement with China does not bolster its military capabilities—highlighting concerns around Beijing’s military-civil fusion strategy—or “encourage systematic human rights violations in China.”

Beijing will also take note of the strategy’s call for stepped up engagement with Taiwan and welcoming of its greater participation in international fora, albeit while still reaffirming Germany’s one-China policy. The strategy mentions Germany’s growing security role in the Indo-Pacific, along with the need for differences over Taiwan to be settled peacefully. Importantly, the document also highlights that China is a “systemic rival” that seeks to upend the rules-based international order.

Chinese leaders, however, will remain hopeful that the strategy’s tough rhetoric will not be matched by government action. The lack of specifics on binding requirements to curtail German economic dependence on China, restrict outbound investment, or adopt tougher export control measures will bolster such hopes. Beijing will view the document’s reiteration of the need for continued economic engagement, combined with the fact that China remains Germany’s top trading partner and companies like BASF and Volkswagen have pledged to expand investment in China, as indicators that it retains leverage to prevent Berlin from aligning with Washington’s more hardline China policies. Beijing will also be attentive to the apparent daylight between those in government advocating for a tougher China policy and Scholz himself, who visited Beijing in November accompanied by a sizable business delegation and recently expressed the view that the government has a limited role in any de-risking policy.

Beijing is betting that, despite the strong rhetoric here, government inaction and economic realities in Germany will offer opportunities to steer Berlin back toward the more pro-China position of years past.

—David Shullman

Beijing will be watching closely to see how this strategy translates into concrete action. It will also be looking for opportunities to try to soften or slow roll any disadvantageous measures by leveraging German companies’ continued strong reliance on the Chinese market—a shortcoming identified in this strategy—and Berlin’s desire for continued cooperation with China in areas like climate change, sustainable development, global health, and broadly defined “economic and trade relations,” as laid out in the strategy.

—Colleen Cottle

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Graham quoted in Nikkei on US-China trade tensions

mrashid — Thu, 13 Jul 2023 16:39:28 +0000

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The flawed premises behind Janet Yellen’s China visit

Hung Tran — Wed, 12 Jul 2023 18:31:02 +0000

US Treasury Secretary Janet Yellen’s July 6-9 visit to China went smoothly, following a well-choreographed script. But the ability of Yellen’s visit to achieve its goal of cooling tensions between the two superpowers will be limited, as Yellen’s statements were premised on two flawed assumptions about the nature of US-China relations.

First, while criticizing China’s unfair economic practices, Yellen also encouraged economic engagement, as well as cooperation in addressing global problems such as climate change and low-income countries’ debt burdens. Yellen’s attempts to compartmentalize areas of cooperation between the two countries will fall flat, as Chinese policymakers do not bracket off China’s economic relationship with the United States from their political disputes with Washington.

Second, Yellen defended measures to restrict China’s access to US advanced technology as necessary for national security. She said the United States aimed to de-risk but not decouple from China and did not intend to constrain China’s growth. This framing will not assuage Beijing’s concerns, as Chinese officials see both de-risking and decoupling as efforts to hinder China’s economic growth. Thus, Yellen’s Beijing visit will not meaningfully improve US-Chinese relations, as the two nations’ core interests remain at odds with each other.

Can compartmentalization work?

The United States has recently enacted measures to control the supply to China of high-tech products and know-how in advanced semiconductors, artificial intelligence, and quantum computing to safeguard US national security. Yellen suggested that China should not let this stop the two countries from engaging in trade and investment “based on fair rules” for mutual benefit or from collaborating on other global cooperative initiatives. Yellen has employed the compartmentalization approach: trying to promote an economic relationship with China on a separate track from the countries’ rivalries in the political sphere.

Compartmentalization reflects more wishful thinking than realism when it comes to dealing with China, which, since the twentieth National Congress of the Chinese Communist Party in October 2022, has emphasized a holistic approach to national security. That approach encompasses perceived threats to military, diplomatic, political, social, economic, and development interests, which necessitate “all of government” and “all of society” efforts to respond. In fact, China has long used economic coercion to achieve its political goals—demonstrating that Chinese policymakers view trade and politics as linked rather than compartmentalized.

In this context, the more the United States and China engage in tit-for-tat measures in the name of national security, the more those steps will deepen mutual mistrust, coloring relationships in other areas and making compromises more difficult to reach. Appeals to focus on areas of cooperation for mutual benefit sound reasonable, but will ultimately be futile in changing the nature of the US-China rivalry as a whole.

De-risking vs. decoupling

Yellen also adopted the terminology introduced by European Commission President Ursula von der Leyen, stressing that the United States aims to de-risk but not to decouple from the Chinese economy. Yellen was emphatic: Decoupling from China “would be disastrous for both countries and destabilizing for the world… and virtually impossible to undertake.” By contrast, de-risking means “diversification of critical supply chains or taking targeted national security actions.”

The distinction between de-risking and decoupling seems to have some basis in fact. US-China economic interactions in areas under sanctions—either via tariffs or controls over trade and investment—have declined, while those not being sanctioned continue to grow. For example, according to Chad Brown of the Peterson Institute for International Economics, US imports of Chinese goods under increased tariffs fell by 25 percent from 2017 to 2022 while imports of non-taxed goods increased by 42 percent—pushing the bilateral trade volume to a new record high of $690 billion in 2022. Yet, while Yellen mentioned the record trade volume with China as proof that there has been no decoupling, she did not report that the United States recorded a trade deficit of $382 billion with China in that year, compared to a deficit of $375 billion in 2017, at the beginning of then President Donald Trump’s trade war with China. In this context, continued growth in trade volume and deficit with China may not be something to look forward to—without adopting effective measures to safeguard US manufacturing capability.

The deeper problem is that the rhetoric of “de-risking, not decoupling” has been rejected by the Chinese, who see no difference between the two concepts—believing that both are about constraining China’s growth, especially in high-tech sectors crucial for future economic and military development. In particular, China views US “de-risking” measures in certain high-tech sectors as offensive actions meant to delay China’s progress and strengthen US leadership positions in those important areas.

It is also important to keep in mind that China has for a long time attempted both de-risking against US sanctions (mainly by trading more with the Global South and developing alternative settlement mechanisms for cross-border economic transactions) and decoupling by promoting self-sufficiency in advanced tech and military developments.

Talk isn’t cheap, but…

Yellen concluded that her visit represents a step forward in maintaining frequent, high-level communications between the two countries, setting their relationship on “a surer footing,” but recognized that significant differences remain between the two. In fact, China hasn’t changed its positions, insisting that the United States has to take the next steps, dropping all sanctions. Given this reality, it is important for the United States to be clear-eyed about what it can expect from meetings with Chinese officials. While maintaining regular contact is better than having no contact, simply repeating to each other their respective well-known core interests is not going to solve any problems.

Meanwhile, the most important communication between the United States and China is not happening: that between the two militaries, which is critical to avoid an unwanted war in the western Pacific that could be triggered by accidents, mistakes, miscommunications, or misunderstandings. This lack of US-China military communication is particularly worrisome, and its resumption would be much more beneficial than statements about de-risking or decoupling during choreographed diplomatic visits.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

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Progress on debt restructuring provides a glimmer of hope for developing countries

Jeremy Mark and Vasuki Shastry — Wed, 12 Jul 2023 13:00:00 +0000

After more than three years of debt distress across the developing world, there is a glimmer of hope as government and private-sector creditors finally take the first steps to restructure debt. This progress could provide financial breathing room after a succession of economic shocks from the COVID-19 pandemic, the war in Ukraine, inflation, and sharply rising global interest rates.

But many questions remain about whether creditors truly are prepared to meaningfully reduce debt burdens. These issues likely will be on the table in India this week (July 14 to 18) when the Group of Twenty (G20) finance ministers and central bank governors gather to discuss debt restructuring and other global economic issues.

In Zambia, which defaulted on its debts in 2021, government creditors led by China have resolved months of jostling and agreed to a restructuring of $6.3 billion of the country’s more than $8 billion of debt. The agreement extends for 20 years the country’s debt-repayment schedule and lowers its annual interest bill to one percent until economic growth recovers. Now, the country’s private-sector lenders, who hold billions of dollars of government IOUs, are talking about writing down some of their Zambia loans, and in Ghana are writing off loans and restructuring dollar-denominated bonds. Meanwhile, both classes of creditors are deep in restructuring discussions with Sri Lanka, which has requested a 30 percent haircut on some bonds.

These settlements would pave the way for assistance from the International Monetary Fund (IMF) and provide a way forward—albeit a difficult one—for dozens of low-income countries that are in or nearing debt distress. This represents progress compared with a year ago, when China and the private sector were balking at a transparent negotiating process. But there are still many issues to address—especially how far China really is prepared to go in reducing the burden of its vast lending. Unlike previous global debt episodes, notably the Latin America debt crisis of the 1980s and debt relief to low-income countries early this century, there is unlikely to be a grand bargain this time around.

While the preliminary agreement with Zambia has been heralded as “an epochal shift in global finance,” the reality is that negotiations there and elsewhere are following a well-trodden path: first the seal of approval of an IMF rescue program (which in Zambia’s case was reached in 2022), with promises of IMF money once a debt restructuring is agreed to. Then the hard bargaining with government lenders, followed by talks with private creditors. This slow progress is a far cry from late 2020 when the G20 agreed on a restructuring process for the poorest countries called the Common Framework that briefly raised hopes of a rapid succession of debt reductions—hopes that were dashed largely because of foot-dragging by China and foreign lenders.

Before the emergence of China as a major creditor to middle and low-income countries during the lending spree that accompanied its Belt and Road Initiative, debt negotiations went through the IMF and the Paris Club of advanced-economy lenders. It was arguably a simpler world, not least because private-sector lenders’ debt exposure in developing countries was marginal. That changed after 2010, when institutional investors joined China in shoveling money out the door to what became known as “frontier economy” borrowers. Between 2007 and 2020, an unprecedented 21 African countries accessed international debt markets. Today, debtors must proceed on multiple tracks—the Paris Club, the Chinese government, China’s state banks and state-controlled commercial banks, and Western fund managers and money-center banks.

Some creditors question the true nature of the debt restructuring now on offer. For example, private sector lenders and analysts say privately it is not clear whether, in Zambia’s case, China has negotiated bilateral conditions that have been concealed from other lenders. They say that this could cast doubt on assurances that government creditors have provided to the IMF about restructuring arrangements. In addition, China’s insistence on extending debt repayments for decades conflicts with the Paris Club’s track record of providing relief in the form of reductions in principal owed. That could become an issue if China pursues its approach in countries where other governments are major creditors—for example, India and Japan in Sri Lanka. In that case, the model of the Zambia agreement could quickly become a muddle.

The private sector has arguably made significant strides in recognizing their loan losses, as the situation in Ghana illustrates. Lenders such as the big four South African banks are writing off as much as $270 million of their loan exposures, which equates to a haircut of almost 60 percent. And Standard Chartered Bank has set aside some $160 million for Ghanaian write-downs. This loan-loss recognition serves two purposes. First, it is an effort to inform shareholders about the banks’ overall sovereign exposure and the steps they are taking to reduce it. Second, by setting a floor on the losses they are prepared to absorb, they have a better negotiating hand in the restructuring conversations.

Meanwhile, bondholders are likely to face increasing pressure to restructure Eurobond issues—and accept haircuts—as the repayment schedule accelerates in the next two years.

A looming issue may be the response of Western banks and bondholders to China’s success in having some of its loans by state-controlled banks exempted from the Zambia agreement and classified as commercial lending. How those Chinese loans are treated—in Zambia and elsewhere—while the real private-sector creditors negotiate settlements will be a test of China’s willingness to accept the principle of “comparability of treatment” for all creditors, a key principle that Beijing publicly insisted upon as recently as April.

There are real-world ramifications to these nuts-and-bolts issues that extend beyond the politics of the restructuring process. The human cost of the debt crisis for poor countries has been severe. The UN estimated last year that fifty-four countries with severe debt problems represented about three percent of global gross domestic product, but accounted for more than one-half of the 600 million people worldwide living in extreme poverty. That number has risen sharply since the pandemic hit in 2020.

Debt payments by these countries siphon off resources that are desperately needed for health, education, and other social programs. Defaults and restructuring only make this scarcity worse. That points to the need for new sources of funding. The World Bank is under pressure to free up more money for grants and lending. Meanwhile, the IMF has increased funding for two trusts designed to meet the needs of low-income countries, including one created to help developing countries meet the immediate and long-term challenge of climate change and pandemics. About $100 billion of new resources come, in part, from the 2021 allocation of $650 billion of Special Drawing Rights to IMF member countries.

But demand for help is rising faster than the available resources, especially for the Poverty Reduction and Growth Trust, a perpetually underfunded IMF vehicle that subsidizes zero-interest loans to the poorest countries. As new lending to these nations from China and private creditors dries up, the World Bank and IMF will be hard-pressed to pick up the slack. Debt restructuring that merely extends repayment for decades without any forgiveness will only entrench the imbalance between needy borrowers and lenders whose priority is to recoup their capital.

Jeremy Mark is a senior fellow with the Atlantic Council’s Geoeconomics Center. He previously worked for the IMF and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

Vasuki Shastry, formerly with the IMF, Monetary Authority of Singapore, and Standard Chartered Bank, is the author of Has Asia Lost It? Dynamic Past, Turbulent Future. Follow him on Twitter: @vshastry.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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In brief: The future of US-Africa trade and investment

Frannie Léautier — Tue, 11 Jul 2023 15:04:56 +0000

Top lines

AGOA gives duty-free access to the US market for eligible countries in sub-Saharan Africa, aiming to promote African economic development alongside market liberalization and democratic governance.
With AGOA due to expire in 2025, policymakers in the US and Africa must decide the basis for stronger US-Africa trade going forward.
The future of AGOA is not guaranteed. AGOA should be renewed by the US Congress for at least a ten-year period as soon as possible. Doing so could allow African economies to capitalize on efforts to diversify supply chains away from China, supporting US strategic interests and a more resilient global economy.

WORTH A THOUSAND WORDS

In 2022, US imports of goods utilizing AGOA (or GSP) benefits was valued at $10.2 billion. Like overall US imports from Africa, imports from AGOA beneficiaries have changed over time, driven mostly by the value of oil imports from countries like Nigeria and Angola.

THE DIAGNOSIS

Since 2000, the cornerstone of US trade policy for Africa has been the African Growth and Opportunity Act also known as AGOA.

Past work by the Atlantic Council suggests that Africa sits at the nexus of current development, climate, and security challenges. With global competition over resources, technology and influence growing, the strategic importance of establishing a new kind of relationship with Africa has become clear to the United States. With an African market of over 1.3 billion people and a combined Gross Domestic Product (GDP) of over $3.4 trillion, expanding US-Africa trade and investment is now a clear strategic priority for both the United States and African countries.

The Atlantic Council’s Africa Center is examining trade between the US and Africa to date and the impact of AGOA, and analyzing the future of AGOA after its potential expiration in 2025. Our work draws on a survey and interviews conducted with leaders in government, business, international organizations, and civil society. The report identifies key constraints limiting trade expansion and examines emerging challenges and opportunities that will shape its future. Drawing on this analysis, the report provides actionable recommendations for policymakers and other key stakeholders on the future of AGOA.

AGOA has come to define much of United States’ commercial relationship with Africa. With AGOA set to expire in 2025 and the shifting world economy providing new challenges and opportunities, now is the time to decide the future of US-Africa trade. The analysis in this report, as well as the findings from survey responses and interviews, suggest recommendations covering three areas:

AGOA itself
the future of US-Africa trade more broadly, and
the even broader future of US-Africa relations.

THE PRESCRIPTION

How to seize the moment

AGOA has symbolized the shift in US perceptions of Africa, augmenting aid with trade and commercial opportunity. Recognizing that the next ten years will shape economic trajectories for decades to come, the US must build on its narrative investment by embedding greater certainty for US and African investors.

AGOA should be renewed by the US Congress for at least a ten-year period as soon as possible. Doing so could allow African economies to capitalize on efforts to diversify supply chains away from China, supporting US strategic interests and a more resilient global economy.
AGOA’s extension should be combined with greater certainty about AGOA eligibility, with fewer short-term eligibility decisions wherever possible. Eligibility is necessary for a country to access AGOA benefits. Doing so will boost investor confidence and support long-term economic development, which is the best way for the US to achieve its broader commercial and political goals. Greater stability in AGOA eligibility will also enhance the United States’ support for African economic integration through the AfCFTA.
Existing US efforts, through USAID, USTR and other agencies, should continue and ensure that support through continental level initiatives is sufficiently attuned to local contexts and barriers. Support to countries and firms in Africa is needed to ensure that the benefits of AGOA in fueling long-term development are achieved. There is a need for stronger capacity building to translate AGOA eligibility into utilization and real export capacity. Investing in re-establishing regional trade hubs could do this, while also supporting regional trade integration and direct links between AGOA and Africa’s Regional Economic Communities. USAID should ensure all regions, including Francophone Central Africa, are supported in this work.
To realize the benefits of AGOA for long-term development, African governments should rapidly develop and regularly update realistic national AGOA strategies and embed them in their economic planning and public investment.The US Congress should ensure sufficient funding for US agencies to support this process, including dedicated staff to work with African governments to draft the plans, if necessary. Support for these strategies could help set the United States’ interaction with Africa apart from other countries like China and India.Selecting a few countries to support early could make a big difference. This could include eligible countries that are finding it difficult to meet the criteria such as the Central African Republic, Liberia, or the Democratic Republic of Congo.
To support greater investment in export-oriented sectors within African countries, the US DFC, Millennium Challenge Corporation, and the Prosper Africa initiative should align their financing and commercial facilitation with these AGOA strategies too. The future of US-Africa trade should be situated within a broader reorientation of the US-Africa relationship that builds true partnerships that not only yield economic opportunities and expanded trade but also serve longer-term social and political goals. New forms and arenas for collaboration between US and African actors could drive unique solutions in a multipolar world. Such strategies could also include countries that are important to US-Africa trade but face eligibility constraints such as Cameroon, Ethiopia, and Somalia.

BOTTOM LINES

With so much written about the future of AGOA itself, the future of US-Africa trade more broadly, and the even broader future of US-Africa relations, a thorough examination of AGOA eligibility in 2023 is an opportunity to begin a longer conversation about the future of AGOA and US-Africa trade and investment.

As the United States reorients its international economic policy and African countries build new approaches to economic integration and collaboration, the future of US-Africa trade is ready to be defined. While setting the course for a renewed AGOA is important for maintaining business confidence, many of the challenges that African countries, firms, and individuals face will require deeper structural responses. In the push to achieve inclusive growth across the continent, capacity and investment constraints are particularly clear.

There are also immense opportunities. The rise of digital, financial, and creative products and services will shape African economies going forward. The expansion of economic and political links across the continent will provide more unified markets and supply chains, with greater economies of scale. The resources, ideas, and human capital needed to deliver global public goods and the green energy transition are already making Africa central to the future economy. Taking steps to broaden and deepen US-Africa trade and collaboration in these directions will provide the basis for more inclusive, sustainable growth and serve strategic economic and political goals for both sides.

Like what you read? Check back for our full report, coming soon.

Fellow

Frannie Léautier

Africa Center

Africa Economy & Business

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

The post In brief: The future of US-Africa trade and investment appeared first on Atlantic Council.

Lipsky quoted by Politico on CBDCs and CBDC Tracker cited

rmurphy — Mon, 10 Jul 2023 14:37:31 +0000

The post Lipsky quoted by Politico on CBDCs and CBDC Tracker cited appeared first on Atlantic Council.

Why local officials must participate in Ukraine’s reconstruction

Zachary Popovich, Michael Druckman — Mon, 10 Jul 2023 13:58:58 +0000

It is now beyond question: Putin’s dream of decapitating Ukraine’s central leadership and subjugating the country has turned into a nightmare for Russia. Rather than finding Ukraine’s society divided and malleable, Russia has encountered a confident citizenry animated by commitments to a free and democratic future. While many of Ukraine’s national figures have provided commendable leadership examples, local leaders and mayors have also emerged as pivotal sources of resilience and hope.

Since Moscow’s invasion began in February 2022, cities across Ukraine have experienced significant destruction from Russia’s frequent artillery bombardments, drone attacks, and missile strikes. Ongoing fighting around Bakhmut in eastern Ukraine is a reminder of how cities remain central battlefields in the war.

Local officials and mayors have courageously stepped up to the challenge of wartime governance, with citizens increasingly turning to them to address emergency humanitarian and security challenges. Ukrainian mayors often serve as primary lines of defense responsible for processing medical aid, engaging directly with international organizations, and repairing damaged infrastructure.

According to a recent survey conducted across twenty-one cities, between 87% and 96% of Ukrainian residents wish to remain in their cities after the war, with 39% to 62% of respondents agreeing that local officials should decide reconstruction priorities. Clearly, leaders who have managed local response systems are well equipped to identify local needs and mobilize available resources for future targeted reconstruction projects.

For this reason, it is crucial that Ukraine’s nascent reconstruction strategies incorporate local leaders and mayors as primary actors charged with directing and managing redevelopment initiatives. Although any Ukrainian “Marshall Plan” will certainly prioritize financing redevelopment projects and infrastructure repair, Ukrainian officials and the country’s international partners should also work to establish new relationships that empower leaders at the local level.

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Numerous plans to address Ukraine’s future economic and political engagement with transatlantic and other recovery institutions are already underway. During the recent Ukraine Recovery Conference in London, public and private leaders from over 60 countries pledged significant financial resources to address humanitarian needs and outline investments in Ukraine’s battered economy.

Kyiv had earlier presented a draft Recovery and Development Plan at the 2022 Ukraine Recovery Conference in Lugano, Switzerland. This plan outlined the need for approximately 850 reconstruction projects set over ten years with total costs estimated at $750 billion dollars.

In January 2023, the European Commission also unveiled its Multi-Agency Donor Coordination Platform, which is designed to streamline future Ukrainian international recovery assistance and establish clear, transparent, and accountable financial standards. While such initiatives help secure much-needed funds, Ukraine and its allies must also seek to utilize these global opportunities and engage Ukraine’s local leaders as vital partners in their country’s recovery.

Eurasia Center events

After Vilnius: What’s next on Ukraine’s path to NATO?

Eastern Europe NATO Security & Defense Ukraine

Expanding on Ukraine’s decentralization experience is not only a pragmatic wartime imperative necessary for distributing equipment and supplies; it will also build upon established reforms necessary for Ukraine’s democratic consolidation. Beginning in 2014 as part of the many sweeping reforms enacted after the Euromaidan Revolution, political decentralization has been an important way of reducing Soviet-style centralization in Kyiv while combating corruption.

Over the past nine years, Ukraine’s mayors have started to gain experience developing and managing public policies and directly responding to constituent needs. Over this period, more than 10,000 informal local councils were merged into officially recognized municipalities and granted formal administrative oversight and financial regulatory powers. Up until Russia’s 2022 invasion, decentralized economic and political reforms introduced unprecedented positive changes in quality of life for millions of Ukrainians; the share of citizens living below subsistence levels fell from 52% to 23% between 2015 to 2019.

Ukraine’s continued success in creating resilient local governance systems will require cooperation with national political leaders with clear expectations outlined in legal commitments. Meanwhile, examples of renewed political centralization in response to wartime demands have highlighted possible fault lines between local and national figures. This trend threatens to exacerbate tensions if left unchecked.

In the city of Chernihiv, located approximately 90 miles north of Kyiv, Mayor Vladyslav Atroshenko was removed by courts following an investigation by Ukraine’s National Agency for the Prevention of Corruption (NAPC) into the alleged use of a municipally-owned car by the mayor’s wife to evacuate from the city during the opening days of the war. Mayor Atroshenko himself stayed in Chernihiv to oversee the defense of the city which withstood a siege and partial occupation in spring 2022.

In the city of Rivne in western Ukraine, rumblings grow of Mayor Oleksandr Tretyak potentially being removed in relation to an NAPC investigation into the payment of bonuses to city officials in 2020. At the same time, Mayor Tretyak claims he has come under increasing pressure to move limited city budget money to the region’s civil military administration, something he has so far refused to do, claiming that the city has already fulfilled all budgetary support requirements. These examples have fueled speculation over the direction of wartime centralization and should give pause to local authorities and regional civic leaders.

Any future national reconstruction policy will be best served by building upon Ukraine’s localized leadership assets and incorporating local councils, mayors, and officials in decision-making processes. By directing incoming aid at the local level, global partners can help expand technical, strategic, and administrative capacities and ensure resources are used effectively across targeted issues. Ukraine’s dedication to continued decentralization reforms is not only necessary to achieve reconstruction goals but is also a critical component of the country’s mission to develop transparent democratic systems from the ground up moving forward.

Zachary Popovich is a senior program associate at the International Republican Institute. Michael Druckman is the resident program director for Ukraine at the International Republican Institute.

Masoud Mostajabi and Britt Gronemeyer — Fri, 07 Jul 2023 20:41:19 +0000

On June 13, the Atlantic Council’s Iran Strategy Project hosted a virtual event, “The Mechanisms of Corruption in Iran” to discuss the nature of corruption and sanctions in Iran as well as the social, economic, and political implications of these issues.

The Atlantic Council’s Scowcroft Middle East Security Initiative Director, Jonathan Panikoff conducted opening remarks, stating that discussions of Iran’s current economic situation must also address the corruption that exists within the country given its rampant nature. This was emphasized by Atlantic Council nonresident senior fellow Nadereh Chamlou who served as the moderator for the session.

In order to discuss the complexities of corruption within Iran, it is first important to define corruption. Associate Professor of Finance at the University of Dallas, Ali Dadpay, explained that corruption is the use of a public position for personal gain. Dadpay shared how this phenomenon manifests in situations such as the importation of luxury vehicles into the Islamic Republic. He recalled how foreign made vehicles were banned from Iran, however, members of Parliament were able to import foreign made luxury vehicles due to their positions of power.

Causes of Sanctions and Corruption

The beginning of the conversation included a review of the causes of corruption in Iran and specifically analyzed the role that sanctions play in its prevalence. To initiate the discussion, Chamlou mentioned a study by one of Iran’s top economists that found only 20% of corruption can be traced back to sanctions, whereas 80% is attributed to other factors. This begs the question, what could that something else be?

Entrepreneur Majid Zamani claimed that while sanctions are not the only cause of this corruption, they have created a plethora of opportunities for rent-seeking, which only those who are ideologically connected to the regime have access to.

Within Iran specifically, Zamani discussed the existence of a theocratic system, stating that because people are selected for leadership based on their loyalty to ideology, rather than merit, the political system is poorly organized and thus more susceptible to corruption. Furthermore, Dadpay argued that because Iran has a nationalized economy with extensive regulations, as opposed to a globalized economy, the government benefits from corruption and monopolization. Zamani added that the banking system epitomizes this vulnerability to corruption due to the interest rates, corrupting all loans.

Impact of Corruption & Sanctions

The panel then moved to the discussion of how corruption and sanctions have manifested in Iranian society. Given the US Government’s prioritization of US interests, as opposed to those of the Iranian community, Atlantic Council’s nonresident senior fellow Brian O’Toole and Dadpay both recognized that even though these sanctions are targeted, they will ultimately influence all Iranians, by creating a demand for sanctions evasion and a market that avoids financial responsibility. When asked whether Iranians could avoid corruption in the private sector and still succeed, Zamani claimed that the entire private sector in Iran is impacted by its relationship to the government. However, there is a spectrum of involvement, with one end including those who are loyal to the government and comfortable with the corruption and the other end comprising of individuals trying to avoid engaging in corrupt behaviors but ultimately having to comply at times in order to survive. He also clarified that although they do not make up the majority of the GPD, the Iranian private sector includes small market owners and medical professionals, occupations that comprise the bulk of society.

How to address it

After discussing the causes and effects of corruption in Iranian society, the panelists moved to their recommendations as to how to address it. O’Toole said that it takes time, so patience and persistence are crucial, and tackling corruption begins by addressing root problems. While pursuing flashy cases of corruption may be more alluring, it often only targets a single perpetrator rather than the source. To tackle the wider system would require transparency at every stage, even the more mundane. Dadpay agreed with O’Toole, advocating for a clear and transparent legal framework and stating that accountability in corruption cannot be achieved without an explicit and independent judiciary branch. In order to achieve transparency and accountability, according to Zamani, civil society must demand it from the government, through civil disobedience and outward refusal to engage in a corrupt system of governance. Lastly, moderator Chamlou included her own belief that tackling corruption in Iran would require dismantling networks of patronage and government insiders.

Masoud Mostajabi is a Deputy Director at the Atlantic Council’s Middle East Programs.

Britt Gronemeyer is a Young Global Professional with the Middle East Programs at the Atlantic Council.

The post The mechanisms of corruption in Iran appeared first on Atlantic Council.

Cynkin in VOA

everges — Fri, 07 Jul 2023 19:40:41 +0000

ORIGINAL SOURCE

On July 6, IPSI Nonresident Senior Fellow Tom Cynkin was quoted in Voice of America to discuss decisions by the United States to de-risk and South Korea to resume dialogue with China. He argues that this isn’t “going soft” on China but rather recognizing the need for good channels of communication even during periods of intense competition.

Fellow

Thomas Cynkin

Indo-Pacific Security Initiative Scowcroft Center for Strategy and Security

Indo-Pacific Japan

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A midterm report card for Mexico’s USMCA progress

Luz María de la Mora — Thu, 06 Jul 2023 22:45:36 +0000

The United-States-Mexico-Canada Agreement (USMCA) is now halfway between its entry into force three years ago and its first required joint review in 2026. At this halfway point in the agreement’s first phase, what are the upcoming challenges for Mexico as it seeks to maximize the benefits of its USMCA membership?

The USMCA has certainly been successful in increasing the volume of Mexico’s trade with the United States and Canada. According to the US Census Bureau, in April 2023, the United States imported more goods from Mexico than from any other country; in 2022, Mexico-US trade was almost 27 percent higher than in 2019, and Mexico-Canada trade grew 21.8 percent in these same years. Between 2020 and 2023, Mexico received fifty billion dollars in US and ten billion dollars in Canadian investments.

This increase in trade and investment flows is explained not only by the USMCA’s implementation, but also by the Biden administration’s decision to diversify supply chains, relocate production to North America, and “de-risk” from China. By seeking to reduce the vulnerability of supply chains in North America, the integration facilitated by the USMCA acquired greater relevance for companies, workers, governments, and societies.

Even though the agreement has spurred dynamism in trade and investment, its implementation has not gone without serious challenges and confrontations, which Mexico will need to address before the 2026 joint review. These include differences in the way the three countries have chosen to comply with the USMCA, heightened scrutiny on labor and environmental issues, and incomplete implementation of the agreement’s provisions.

Unsettled disputes

First, Mexico has faced difficulties on both sides of the USMCA’s dispute settlement mechanism, established in Chapter 31. Mexico’s use of this mechanism signals that it considers the agreement an effective instrument to defend its commercial and investment interests. Together with Canada, Mexico requested the establishment of a panel to settle its differences with the United States regarding the interpretation of the methodology to determine the regional value content of essential auto parts in cars manufactured in North America. The panel ruled in favor of Mexico, but there seems to be no interest in enforcing the ruling.

Mexico has also been the target of Chapter 31. Both the United States and Canada requested consultations regarding Mexico’s energy policy in July 2022 and restrictions on trade in genetically modified corn in June 2023. While both consultation processes could still lead to requests for the establishment of panels, the parties have been in conversation regarding the substance of their concerns.

Chapter 31 is of great value to the private sector in North America because it offers a legal tool to solve differences. The USMCA offers a dispute settlement mechanism that works, unlike the World Trade Organization Dispute Settlement Body, which is paralyzed. The USMCA’s panel reports are binding, and panel decisions are not affected by domestic political pressures.

However, it is the three governments’ responsibility to comply with the panels’ decisions, even if they are unfavorable, and to make sure that rulings are fully enforced. Not doing so undermines the value of the USMCA dispute settlement mechanism and the agreement itself.

High standards, heightened scrutiny

Second, Mexico has been subject to scrutiny on labor and environmental matters, reflecting US and Canadian national priorities and their need to respond to political pressure from their own domestic constituencies. Regarding labor, under the Rapid Response Labor Mechanism, the United States has initiated eleven cases against Mexico, and Canada has initiated one. Mexico’s labor authority has sought to address the concerns raised in each case, avoiding sanctions and prohibitions on exports.

On environmental matters, Mexico has faced questioning from its partners regarding compliance with its environmental legislation and its USMCA obligations. For example, in February 2022, the United States requested consultations with Mexico on the protection of the vaquita porpoise, which is associated with totoaba illegal fishing. In May 2023, the US Fish and Wildlife Service determined that Mexico has not done enough to prevent the illegal trafficking of totoaba, so later this month, US President Joe Biden could decide to impose an embargo on the trade of wildlife products from Mexico, in line with Mexico’s Convention on International Trade in Endangered Species of Wild Fauna and Flora obligations, which are also recognized in the USMCA. In labor and environmental affairs, the United States and Canada have used and may continue to use the USMCA mechanisms to pressure Mexico to comply with its obligations, since these issues are key to their own domestic political agendas.

Unfinished business

Third, Mexico has yet to fully implement several USMCA provisions. These include the Asia-Pacific Economic Cooperation Cross-Border Privacy Rules Framework, established in Chapter 19, which is already overdue. In addition, Mexico will have to become a signatory to the 1991 agreement of the International Union for the Protection of New Varieties of Plants as provided in Chapter 20. Likewise, the USMCA has a built-in agenda of future negotiations, such as the inclusion at the sub-federal level of provisions on state-owned companies and designated monopolies (Chapter 22), which should have been concluded in June 2023. Mexico needs to make sure that these provisions are enforced according to its USMCA commitments, since this will align its regulations and policies with those of its North American partners.

At the halfway point between USMCA’s entry into force and its first joint review, Mexico has seen a substantial increase in its trade and investment flows, which are key engines for its economic growth. However, Mexico still faces serious challenges in the full implementation of its commitments and in making sure that the United States also complies with a panel report favorable to Mexico. It is in Mexico’s interest to fully comply with the agreement while also requesting compliance from the United States, since that will provide certainty and predictability to investors in the region. This will facilitate the agreement’s extension at the six-year review in 2026 and will allow Mexico to promote opportunities for North American productive integration and the relocation of supply chains.

Luz María de la Mora is a nonresident senior fellow with the Atlantic Council’s Adrienne Arsht Latin America Center, where she supports the Center’s Mexico work. From December 2018 to October 2022, she served as undersecretary of foreign trade in the Mexican Secretariat of Economy, during which she helped implement the USMCA.

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Lipsky cited by Les Echos on the race for central bank digital currencies

mrashid — Thu, 06 Jul 2023 17:09:59 +0000

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#AtlanticDebrief – What’s the significance of the EU’s AI Act? | A Debrief with Brando Benifei MEP

nlawler — Thu, 06 Jul 2023 16:20:54 +0000

IN THIS EPISODE

What’s behind the EU’s push to regulate AI? What will the legislation require of companies who develop AI systems? With the trialogues underway, what are some of the key issues that will dominate interinstitutional negotiations? How did the introduction of ChatGPT change the way the European Parliament was looking at regulating AI? And what’s the relationship between regulation and innovation when it comes to AI technologies?

On this episode of #AtlanticDebrief, Fran Burwell sits down with Brando Benifei MEP, co-rapporteur of the EU’s AI Act, to discuss what the EU hopes to achieve with its legislative proposal.

You can watch #AtlanticDebrief on YouTube and as a podcast.

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CBDC Tracker update cited by Forkast

mrashid — Wed, 05 Jul 2023 17:14:56 +0000

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CBDC Tracker cited by CoinGeek

rmurphy — Mon, 03 Jul 2023 15:12:35 +0000

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Lipsky op-ed on CBDCs published by Il Sole

rmurphy — Mon, 03 Jul 2023 14:03:16 +0000

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Roberts quoted in South China Morning Post

kimai — Sun, 02 Jul 2023 23:03:44 +0000

Original Source

On July 2, 2023 Nonresident Senior Fellow Dexter Tiff Roberts was quoted in a South China Morning Post article on a proposal by Chinese officials to update its Trademark Law in an attempt to improve intellectual property protection to better appeal to foreign investors amid its slowing economy.

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“China tackling ‘bad faith’ trademark hoarding, squatting rules to protect IP, be more attractive to investment” – Nonresident senior fellow Dexter Tiff Roberts quoted in the South China Morning Post

mgeraci — Sun, 02 Jul 2023 15:14:17 +0000

In order to encourage investment and tackle trademark squatting, China is proposing changes to its Trademark Law amidst a massive ramping up of patents. According to Dexter Tiff Roberts, who was quoted on July 2, “One recent change is that China patents everything, even stuff you wouldn’t expect.”

The post “China tackling ‘bad faith’ trademark hoarding, squatting rules to protect IP, be more attractive to investment” – Nonresident senior fellow Dexter Tiff Roberts quoted in the South China Morning Post appeared first on Atlantic Council.

“Indonesia’s Mandalika Project Reveals the Dark Side of AIIB Lending” – Nonresident senior fellow Wawa Wang in The Diplomat.

mgeraci — Sat, 01 Jul 2023 17:34:47 +0000

Original Source

On July 1, 2023, Global China Hub Nonresident Senior Fellow Wawa Wang’s newest piece for The Diplomat explored the effects of the Asia Infrastructure Investment Bank’s emphasis on “rapid and flexible infrastructure financing, making it easier for clients to dodge higher rule-based standards.”

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The post “Indonesia’s Mandalika Project Reveals the Dark Side of AIIB Lending” – Nonresident senior fellow Wawa Wang in The Diplomat. appeared first on Atlantic Council.

Success is not just showing up. Blinken’s Caribbean trip needs to deliver.

Wazim Mowla — Fri, 30 Jun 2023 19:43:58 +0000

US Secretary of State Antony Blinken’s trip to the Caribbean cannot be a wasted opportunity. The July 5-6 trip begins in Trinidad and Tobago—where heads of government and state will gather for the fiftieth anniversary of the Caribbean Community’s (CARICOM) formation—and ends in Guyana. On the surface, this is a win for US-Caribbean relations, as it comes off the back of several high-level US visits to the region.

In the past twelve months, Vice President Kamala Harris launched the US-Caribbean Partnership to Address the Climate Crisis 2030, welcomed leaders to Washington, and met in person with leaders in The Bahamas. This has helped build goodwill in the region. But US visits and diplomatic engagement have yet to yield many results. Simply put, if Blinken arrives in the Caribbean with little to announce, frustration is likely to brew.

Blinken’s visit must start an action-oriented agenda for the region. He should focus on two key areas of cooperation. First, the United States should work with multilateral development banks (MDBs) to provide access to low-cost and low-interest financing to high- and middle-income Caribbean countries. Second, Washington should provide requisite tools to local private sector businesses so they can play a larger role in the region’s own development.

For the United States, the consequences of insufficient action so far are evident. Given the enormity of the challenges facing the Caribbean, the region’s leaders are seeking solutions to their problems elsewhere. Barbadian Prime Minister Mia Mottley has taken to the global stage to overhaul MDB financing, Guyana is welcoming investment in its oil sector from all corners of the world, and Trinidad and Tobago is increasing engagement with Venezuela over shared gas reserves. Other Caribbean leaders see African countries, India, and China as attractive partners that can provide financing, investment, and aid.

This does not mean that US presence in the region will evaporate. The Caribbean’s proximity to the United States, strong trade relations, and a large US-based diaspora ties the partners together. But US government officials must realize that the United States will no longer be the only actor with which Caribbean leaders will engage. Therefore, if the United States wants to remain relevant in the region, now is the moment to deliver real solutions to the challenges facing its Caribbean neighbors.

A plan to amplify financial instruments

The first step should be working with MDBs, such as the World Bank and the Inter-American Development Bank, to amplify new financial instruments to support access to concessional financing for Caribbean countries. Most Caribbean countries are classified as high- or middle-income, which means that they are not able to access low-cost and low-interest financing from MDBs to fund needed infrastructure or social programs in times of crisis. Part of this work is ongoing, with the World Bank recently announcing a debt pause on loan repayments for developing countries hit by natural disasters.

However, the pause only applies to new loans, not existing ones. Given the specific vulnerabilities of Caribbean countries, which extend beyond just the effects of climate change–induced events, the United States should work with MDBs to create a specific carve-out for small island development states such as the CARICOM countries. Hurricanes and other natural disasters pose significant risks to the Caribbean. But due to the small size and openness of their economies, so do other external events, such as pandemics, the volatility of commodity prices, and disruptions in supply chains. These external risks should be accounted for as well, because if another COVID-19 pandemic occurred today, Caribbean countries would still be on the hook for loan repayments.

Charging up the private sector

The United States should also work closer with local businesses to embolden the Caribbean private sector. Big infrastructure projects in the Caribbean, such as roads, bridges, and new buildings, are mostly led by governments. The private sector is often left out, as local banks provide only limited financing or loans with high interest rates. This creates a vast asymmetry between government and private sector resources, with governments scoring political points from new infrastructure projects, while the skills, expertise, and capital that bring these projects to fruition result in little benefit for local companies. Foreign companies, therefore, reap the benefits, with returns on projects benefitting external actors rather than populations in the Caribbean, including the business community. This creates a dependency on the state to provide jobs, resources, and skills to citizens, meaning that the distribution of these resources is tied to the government of the day.

To address this, the United States should create a US-Caribbean Public Private Partnership program that incubates small businesses in the region. The objective should be to train small businesses and transfer skills and technologies to local companies so that they can scale to a level where they are competitive in bidding rounds for upcoming projects. This is all the more important in the construction and energy sectors, as new climate-resilient infrastructure and energy systems are needed in the Caribbean now and going forward. The benefits would be twofold. First, a stronger and more robust private sector should strengthen and stabilize the region’s financial sector, making Caribbean countries less susceptible to volatility in global markets. Second, the larger the private sector, the more jobs will be available to citizens. This should stimulate domestic growth and create more diverse job opportunities outside of public service and the tourism industry—two sectors highly vulnerable to climate change and growing debt-to-gross-domestic-product ratios.

It is a consequential moment for the Caribbean—its challenges grow worse each day. To survive the next few decades, it needs the support of its partners, including the United States. High-level visits alone will not suffice. To capitalize on the goodwill the United States has built in the Caribbean, Blinken’s trip should mark the beginning of an active policy toward the region. Working with MDBs and supporting private sector growth would be a giant step forward.

Wazim Mowla is the associate director of the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center.

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#AtlanticDebrief – What were the main takeaways from the EUCO summit? | A Debrief from Dave Keating

nlawler — Fri, 30 Jun 2023 19:13:48 +0000

IN THIS EPISODE

What were the main outcomes from the recent European Council summit? Why are European Council summits important? How did EU leaders come together to address the latest European issues from Russia’s war in Ukraine, de-risking from China, and migration?

On this episode of #AtlanticDebrief, Ben Judah sits down with Dave Keating, Nonresident Senior Fellow at the Atlantic Council’s Europe Center and France 24 Brussels correspondent, to discuss the developments from the summit and the main political debates.

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Russian War Report: Kremlin denies that it targeted civilians in a missile attack on a pizza restaurant

Digital Forensic Research Lab — Fri, 30 Jun 2023 19:00:00 +0000

As Russia continues its assault on Ukraine, the Atlantic Council’s Digital Forensic Research Lab (DFRLab) is keeping a close eye on Russia’s movements across the military, cyber, and information domains. With more than seven years of experience monitoring the situation in Ukraine—as well as Russia’s use of propaganda and disinformation to undermine the United States, NATO, and the European Union—the DFRLab’s global team presents the latest installment of the Russian War Report.

Military camps for Wagner reportedly under construction in Belarus

Russian independent outlet Verstka reported on the construction of camps for Wagner forces near Asipovichi, Mogilev Oblast, located in Belarus approximately two hundred kilometers from the Ukraine border. According to Verstka’s local forestry source, the area will cover 2.4 hectares (5.9 acres) and accommodate eight thousand Wagner fighters. The source also claimed that there will be additional camps constructed. Family members of Wagner fighters also confirmed to Verstka that they were deploying to Belarus.

Radio Svaboda, the Belarusian-language edition of Radio Liberty, reviewed satellite imagery from Planet Labs that suggested signs of expansion at the Unit 61732 military camp adjacent to the village of Tsel, twenty kilometers northwest of Asipovichi. The outlet interviewed Ukrainian military analyst Oleg Zhdanov, who suggested it was “too early to tell” as to whether the military camp’s expansion is specifically for Wagner forces. “Very little time has passed to start building a camp specifically for the Wagnerites—it’s unreal,” Zhdanov told Radio Svaboda.

Location of possible construction at the Unit 61732 military camp in Tsel, Belarus. (Source: Planet Labs)

On June 27, in his first speech after the Wagner mutiny, Russian President Vladimir Putin reaffirmed the deal that ended the rebellion on June 24 in which Yevgeniy Prigozhin would relocate to Belarus. Putin praised those Wagner fighters who did not participate in the revolt and said they could sign a contract with the Russian Ministry of Defense of other services. He added that other mercenaries who do not want to join could go either home or follow Prigozhin to Belarus.

—Eto Buziashvili, research associate, Tbilisi, Georgia

Pro-Kremlin sources spreading disinformation to justify missile strike in Kramatorsk

Pro-Kremlin sources denied Russia targeted civilians when a missile struck a crowded pizza restaurant in Kramatorsk, killing at least twelve civilians and injuring more than fifty others. According to this narrative, RIA Pizza was actually a military base hosting US and Ukrainian soldiers. To support the claims, pictures taken after the strike were published on Telegram and Twitter.

To support the claim that soldiers of 101st Airborne Division were located at the pizza “military base,” pro-Kremlin sources circulated grisly footage of the attack aftermath recorded by freelance journalist Arnaud De Decker. The clip shows a man wearing a morale patch of a US flag with the words “Always Be Ready: 5.11 Tactical.” 5.11 Tactical is a military apparel company that sells branded merchandise, including morale patches, worn to offer support to various causes and slogans but not used official unit patches. Various types of 5.11 Tactical’s “Always Be Ready” patches are readily available for purchase online.

Top: A 5.11 Tactical morale patch for sale on its website. Bottom: Image taken during the aftermath of the Kramatorsk attack showing a man wearing the same morale patch on his helmet. (Source: 5.11 Tactical/archive, top; @arnaud.dedecker/archive, bottom)

Similarly, another post from Aleksandr Simonov’s Telegram channel that a man wearing an 101^st Airborne t-shirt was a member of the US Army division. These t-shirts are also readily available from online retailers.

Montage of three screenshots from online retail websites selling 101^st Airborne t-shirts. (Sources: top left, Etsy/archive; bottom left, Predathor/archive; right, Allegro/archive)

Montage of three screenshots from online retail websites selling 101st Airborne t-shirts. (Sources: top left, Etsy/archive; bottom left, Predathor/archive; right, Allegro)

—Sayyara Mammadova, research assistant, Warsaw, Poland

Kremlin blames Colombian victims for the injuries they sustained in the Kramatorsk attack

In addition to pro-Kremlin accusations that the Kramatorsk attack targeted a base housing US Army soldiers, Kremlin influencers also targeted citizens of Colombia, three of whom were injured in the attack, for being at the site of the incident. Colombian President Gustavo Petro said the attack targeted “three defenseless Colombian civilians” in violation of the protocols of war and called for the Colombian Foreign Ministry to submit a note of diplomatic protest to Russia. While the Kremlin acknowledged launching the attack, it insisted the assault struck military personnel rather than civilians.

The three Colombian citizens injured in the attack include acclaimed Colombian writer Hector Abad Faciolince; Sergio Jaramillo Caro, who previously led Colombia’s peace negotiations with FARC rebels; and Ukrainian-based journalist Catalina Gomez. According to the New York Times, Abad and Jaramillo were in Kramatorsk “collecting material” in support of their initiative, ¡Aguanta Ucrania! (“Hang On Ukraine!”), which seeks to garner support for Ukraine in Latin America.

Following the attack, Colombian influencers and officials criticized the attack through media outlets and social media accounts in Spanish. Danilo Rueda, Colombia’s current high commissioner for peace, issued a statement expressing support for the victims without mentioning Russia, while the Ministry of Foreign Affairs expressed its “strongest condemnation of the unacceptable attack by Russian forces on a civilian target.”

Gomez, who was injured in the attack, broadcast a video for France 24 from the site of the explosion. Meanwhile, Abad and Jaramillo conducted interviews with Colombian media outlets such as El Tiempo in which they described the incident.

Actualidad RT, a Russian media outlets with enormous reach in the Spanish-speaking world, insisted that the victims of the attack were mercenaries and instructors of NATO and Ukraine rather than civilians. Actualidad RT quoted statements from Igor Konashenkov, spokesperson for the Russian Ministry of Defense, and Kremlin spokesperson Dmitri Peskov, who said the attack struck “military targets” and that “Russia does not attack civilian infrastructure.” Actualidad RT promoted its claims via Twitter and Facebook multiple times on June 28.

Colombian radio station WRadio interviewed Kremlin foreign policy spokesperson Maria Zakharova on the morning of June 28. Zakharova stated that the restaurant was a Russian military target and called for an investigation into Victoria Amelina, a Ukrainian writer who was gravely injured while purportedly hosting the Colombians at the restaurant, claiming without evidence that Amelina had prior knowledge that the restaurant was a military target. Zakharova reiterated this statement after a WRadio journalist asked her to confirm the accusation. In contrast, Abad stated that it was Gomez who suggested they visit the restaurant, and that she apologized for doing so after the attack.

The Russian embassy in Colombia amplified Zakharova’s narrative later that same afternoon and evening. On Twitter, the embassy insisted that the city was “an operational and logistical-military hub, not a suitable place to enjoy Ukrainian cuisine dishes.” It also seemed to celebrate that the “reckless trip [of the Colombians] did not turn into an irreparable tragedy.”

—Daniel Suárez Pére z, research associate, Bogota, Colombia

Prigozhin’s online assets reportedly blocked in Russia

Over the course of the thirty-six-hour Wagner mutiny, the Kremlin attempted to limit information about Yevgeniy Prigozin on Russian social media and search engines, eventually blocking websites affiliated with Prigozhin. On June 24, the Telegram channel of Russian state-owned propaganda outlet RT reported that several Prigozhin-controlled media outlets including RIA FAN, People’s News, and Patriot Media Group were no longer accessible in parts of Russia. RT added that the reason for their disappearance was unknown. Similar reports appeared in Mediazona and several Telegram channels.

The DFRLab used the Internet censorship measurement platform OONI to verify the claim and check the accessibility of RIA FAN within Russia. OONI detected signs that riafan.ru was blocked in the country.

Internet censorship measurement platform OONI detected the apparent blocking of Prigozhin-owned media outlet RIA FAN. (Source: OONI)

On June 29, independent Russian outlet The Bell claimed the Kremlin was searching for a new owner for Patriot Media Group, which includes media assets associated with Prigozhin. The following day, multiple Russian outlets reported that Prigozhin had dissolved Patriot Media Group.

—Eto Buziashvili, research associate, Tbilisi, Georgia

Questions abound over the future of Wagner contracts and Prigozhin-linked businesses in Africa

For years, Wagner has acted as Russia’s primary form of influence in Africa—spreading disinformation and propaganda, securing military contracts, and exporting natural resources to support Putin’s war effort. Following Prigozhin’s attempted mutiny, the future of Wagner’s operations on the continent has come into question. While it is highly unlikely the Kremlin would willingly abandon its influence in Africa, if Wagner is retired or its troops absorbed into the Ministry of Defense, it is uncertain who would maintain the group’s operations on the continent.

Russian Foreign Minister Sergei Lavrov confirmed that Russia’s work in Africa will continue. In a TV interview with Russia Today, Lavrov said, “In addition to relations with this PMC the governments of CAR and Mali have official contacts with our leadership. At their request, several hundred soldiers are working in CAR as instructors.”

A top advisor to Central African Republic President Faustin-Archange Touadéra appeared unconcerned about the weekend’s events. Speaking of Wagner’s military instructors, Fidèle Gouandjika said, “If Moscow decides to withdraw them and send us the Beethovens or the Mozarts rather than Wagners, we will have them.” In a statement released to its Telegram channel, the Officer’s Union for International Security—a US-sanctioned Wagner front company operating in CAR—claimed CAR’s defense minister had apologized for Gouandjika’s remarks. It quoted Defense Minister Claude Rameaux Bireau as saying, “The people of the CAR are grateful to the Russian instructors of Wagner, ask any Central African on the streets of Bangui or in the village of the CAR—he will confirm my words.”

In Mali, where Wagner forces have taken over responsibility for pushing back jihadists after the departure of French forces, the online outlet Mali Actu reported that the situation could dramatically impact Mali. “This situation raises major concerns about the security, stability and sovereignty of Mali, as well as the impact on the local population and counter-terrorism efforts,” it wrote.

—Tessa Knight, research associate, London, United Kingdom

Analysis: With Wagner mutiny, Russia loses plausible deniability about its involvement in Africa

While Wagner’s future in Africa remains uncertain, it is important to consider that the Wagner Group not just a paramilitary force. It is also a conglomerate of companies active in different sectors, from mining and logistics to political warfare and moviemaking, able to travel the spectrum between private entrepreneurism to state proxy. This flexibility has previously allowed Moscow to deploy Wagner to act as a force multiplier in Africa while simultaneously denying Russia’s direct presence on the continent. In Africa, Russia has used Wagner multiple times as part of a strategy to help authoritarian leaders stay in power and gain a pro-Russian military presence on the ground, all while maintaining plausible deniability. Until now, the positive outcomes of this strategy have far exceeded the costs for the Kremlin, as Russia has built a strong network of African influence with relatively little effort, securing concessions in strategic extractive industries, and expanding military-to-military relations on the continent.

However, this principle of plausible deniability, which made Wagner so successful and so useful for Moscow as an extension of its foreign policy and influence, is now damaged. As previously noted, Russian Foreign Minister Sergei Lavrov, as well as Putin, publicly confirmed direct links between Wagner and the Russian state apparatus.

Africa is intimately linked to Wagner: In the wake of Wagner’s involvement in Syria, Africa became the scene of the group’s expansion. Engaging in Sudan, the Central African Republic, Libya, Mozambique, Madagascar, and Mali, Wagner employed an opportunistic strategy of supplying security while taking concessions to mine natural resources. While its forces were in most cases invited to stabilize fragile states, its actions actively invited further instability, creating more opportunities and a greater demand signal for its services, ultimately granting renewing opportunities to Moscow to reinforce its footprint in the continent.

While denying direct links to Wagner’s actions in Africa might have become more difficult for the Kremlin, Russia is unlikely to waste the network of influence built by the group in recent years. Instead, Moscow will likely continue to deploy hybrid tools such as Wagner, although organized in different shapes and forms, so Russia can continue displacing Western influence, exploiting natural resources, and evading sanctions through dozens of front companies.

—Mattia Caniglia, associate director, Brussels, Belgium

Investigation sheds light on how Putin’s childhood friends allegedly evade sanctions

On June 20, the Organized Crime and Corruption reporting project (OCCRP) published a series of investigations titled “The Rotenberg Files” that shed light on the business dealings and alleged sanctions evasion attempts of Boris and Arkady Rotenberg, close friends of Russian President Vladimir Putin. The report is based on fifty thousand leaked emails and documents, examined by journalists from seventeen outlets. The OCCRP said the leak came from a source who worked for the brothers at a Russian management firm. The OCCRP investigation was conducted in partnership with the Times of London, Le Monde, and Forbes, among others.

Boris and Arkady Rotenberg are childhood friends of Putin. The billionaire brothers faced Western sanctions amid Russia’s 2014 annexation of Crimea, but their lavish lifestyles do not appear to have been impacted.

According to the OCCRP, the leaked documents demonstrate how the Rotenberg brothers allegedly used Western lawyers, bankers, corporate service providers, and proxies to evade sanctions.

One of the report’s findings also alleges the brothers maintain business links to Prince Michael of Kent, a cousin of the late Queen Elizabeth II who was previously accused by the Sunday Times and Channel 4 of profiting off close access to the Kremlin. According to the latest investigation, “Prince Michael distanced himself from earlier ties to the Putin regime in the wake of the 2022 invasion of Ukraine. But leaked emails and corporate records show he co-owns a company with two Russian businessmen who helped billionaire oligarch and Putin ally Boris Rotenberg dodge Western sanctions.”

Another investigation from the Rotenberg files reported that Putin’s eldest daughter regularly visited a holiday property financed by Arkady Rotenberg in an exclusive Austrian skiing destination. Documents reviewed by the OCCRP suggest that the house was purchased by a Cypriot company in 2013 with a loan from a bank then owned by Arkady, using funds invested by another company he owned. Other records suggested that the former romantic partner of Putin’s daughter is connected to the company that owns the Austrian property. Residents claim to have seen Putin himself at the Kitzbühel residence, though this has not been confirmed.

The Rotenberg brothers and Prince Michael declined to comment to the OCCRP investigative consortium.

—Ani Mejlumyan, research assistant, Yerevan, Armenia

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The next European Union member is…

Atlantic Council experts — Fri, 30 Jun 2023 14:22:51 +0000

July 1 marks ten years since Croatia joined the European Union (EU)—and no country has done so since. It’s the longest duration without a new member for the EU and its predecessor institutions going back to 1973. Below, the Europe Center’s Frances Burwell explains the current complex political debate within the EU over enlargement, then eleven experts share their insights on potential new members—official candidates as well as a couple wild cards.

Hard lessons about EU enlargement

During the ten years since the last enlargement of the EU, some hard lessons have emerged for the existing twenty-seven member states. Contrary to expectations, these lessons have little to do with the reform of EU institutions and processes. Instead, they are rooted in political vulnerabilities in both “old” Europe and “new” Europe. Above all, the existing member states fear the emergence of new members—and especially a large new member, such as Ukraine—with serious rule-of-law failings, à la Poland or Hungary.

When the EU decided to grant Ukraine and Moldova candidacy status in June 2022, it was a political decision motivated by the desire to show unity in the face of Russian aggression. Neither country would have qualified for candidacy status under normal circumstances, nor would the existing member states have been willing to make such an exception. But both countries have worked hard, and the question now is when to open negotiations on specific regulations. Prospective members from the Balkans present a more mixed picture, with some governments making progress and others even seeming unconvinced of the value of membership. As the EU enlargement debate begins to heat up, keep in mind four key lessons:

The institutions can adapt. Every enlargement round has been accompanied by calls for institutional reform and treaty change. No way, it was said, can the EU operate at fifteen, at twenty-five, or twenty-seven. Yet, the EU institutions continue to function. Indeed, during the COVID-19 pandemic and in response to the invasion of Ukraine, the EU has made more difficult decisions more quickly than at any time in its history.
The accession process offers too many opportunities for existing members to settle historical scores with potential members, slowing the process. Too often, this is due to niche historical grievances exploited by member state politicians; see Bulgaria’s efforts to slow down the accession of North Macedonia or Spain’s failure to countenance Kosovo’s bid.
Rigorous benchmarking of regulations does not prevent democratic backsliding. The twelve mostly postcommunist states admitted in 2004 and 2007 had to meet much higher standards of regulatory cohesion than earlier entrants. Yet today, members of the class of 2004 Poland and Hungary face charges that they have strayed from basic EU values on the rule of law, especially regarding the judiciary and media. Other member states have also had questions raised about the state of their democracies.
The biggest lesson of them all is that politics is the key element in the accession process. What will be the reaction of the radical left and extreme right that has become such a factor in EU domestic politics? Will ratification of each accession by existing members be too high of a hurdle? Ukraine and Moldova have benefited from politics so far, but as the accession process moves forward and membership seems closer, the politics—especially among the current member states—will only get harder.

—Frances Burwell is a distinguished fellow at the Atlantic Council’s Europe Center.

Click to learn more about leading candidates and wild cards

Lisa Homel

Albania

Valbona Zeneli

Bosnia and Herzegovina

Laura Linderman

Georgia

Agon Maliqi

Kosovo

Andrew D’Anieri

Moldova

Maja Piscevic

Montenegro

Ilva Tare

North Macedonia

Cameron Munter

Serbia

Alp Ozen

Turkey

Benton Coblentz

Ukraine

Ben Judah

United Kingdom

Albania: Strong momentum to overcome rule-of-law concerns

Albania was granted EU candidate status in June 2014. The EU grouped Albania’s accession bid with North Macedonia’s (which was stalled due to a dispute with Greece over naming issues), and it wasn’t until July 2022 that Albania had its first intergovernmental conference with the EU to actually launch negotiations officially.

Albania’s greatest progress toward accession thus far has been its substantial judicial reform, which is unprecedented in its ambition in the Western Balkans. The reform, which implemented serious vetting of the judiciary, led to the dismissal of more than 60 percent of judges and prosecutors across the country who were found to have criminal ties, concealed wealth, or otherwise unprofessional behavior.

Despite this initiative, Albania still has a long way to go on rule-of-law reform to meet EU standards. With so many judges and prosecutors dismissed, there is a serious shortage of officials available to deal with continued criminal cases. And while the reform is strong on paper, international assessments find Albania to still suffer from significant corruption (even compared to other Western Balkans countries) and needs to strengthen its record on indictments in high-level corruption cases, prioritize anti-money laundering initiatives, and increase transparency in consolidating property rights.

But Albania has the drive to continue with these reforms: EU membership remains incredibly popular and is supported by nearly 96 percent of Albanians according to a 2022 Euronews Albania poll. The same poll showed that more than 35 percent of Albanians think the country will join the EU by 2027. Albanian Prime Minister Edi Rama has consistently expressed his willingness to keep the country on track to meet EU reforms and he has been transparent in his appeal for pre-accession EU funds to enable the country to meet EU benchmarks. Within the region, he’s an ardent supporter of regional cooperation opportunities such as the Berlin Process and Open Balkan Initiative that would allow for the movement of people and trade throughout the region as a good exercise to prepare for future EU membership.

Although Albania had a late start in the EU accession process, its substantial judicial reforms, clear messaging from its leader on the value of EU membership, and overwhelming popular support for the effort have given it unique momentum within the region to continue on its path toward joining the bloc.

—Lisa Homel is an assistant director of the Atlantic Council’s Europe Center.

Bosnia and Herzegovina: Bumpy accession progress leaves an opening for Russia and China

Twenty years ago, Bosnia and Herzegovina (BiH) was promised EU membership at the Thessaloniki Summit. The Stabilisation and Association Agreement (SAA) with the EU entered into force in June 2015, and BiH applied for membership in February 2016. Candidate status was granted six years later, in December 2022, as result of a new geopolitical situation in Europe, propping up the EU’s renewed engagement with the Western Balkans as vital for European security.

The long and bumpy EU integration process, lack of sustainable reforms in the country, dysfunction in the government, ethnic divisions, weak economic development, and systemic corruption of ethno-political elites controlling institutions have increased apathy and skepticism in BiH. EU membership is supported by half of the population, but when it comes to expectations of citizens, 35 percent believe that the country will never join the EU. The risk of competing visions for the future of the country is increasing, and the EU’s strategic competitors, Russia and China, are gaining more space. Young people have opted for the easier way to join the EU, through massive emigration into Western Europe. Migration and brain drain have become new security challenges, as BiH is among the countries that have lost the largest share of their population since the early 1990s (33 percent).

The new government in BiH has prioritized EU integration, and the main focus should be on implementing the fourteen priorities of the European Commission, dealing mostly with the functionality of the government focusing on the rule of law and judiciary reform and by creating a clear division of competencies between different levels of government. To be successful, the EU’s higher focus on fundamentals and stricter conditionality and accountability should be paired with earlier access to structural funds to promote socioeconomic convergence and a gradual phasing-in of candidate countries in various sectors of the EU market.

—Valbona Zeneli is a nonresident senior fellow at the Atlantic Council’s Europe Center.

Georgia: Backsliding and Russian influence put the EU in a bind

In June 2022, the European Commission decided not to grant Georgia candidate status, unlike Moldova and Ukraine. Instead, the Commission granted it a “European perspective” and provided twelve recommendations for issues that the country must tackle first. Despite widespread agreement in the West that the government has been backsliding in key indicators such as independence of the judiciary and state institutions, the Commission’s June 2022 decision was questionable because Georgia has completed far more of the legislative and technical requirements for candidate status than Ukraine or Moldova and has a vibrant, if tenuous, democratic system. In a March 2023 International Republican Institute poll, 89 percent of the Georgian population said it supports the country joining the EU. Widespread public protests erupted that month when the government attempted to introduce a foreign agent law, modeled on a similar Russian law, that was undemocratic and in direct conflict with the Commission’s recommendations. The government withdrew the bill in response.

The EU now finds itself in a bind, as the Georgian government has not implemented many reforms addressing the most serious problems and its commitment to this Western course is somewhere between fickle and self-sabotaging. The EU is in a position where if it grants candidate status now, it risks rewarding a government that is backsliding in terms of democratic reform. Conversely, if it refuses to give candidate status, it risks consigning Georgia to a bureaucratic gray zone where it could find itself increasingly unable or unwilling to counter Russian influence. However, so far, the country remains an imperfect but spirited and pluralistic democracy with a population deeply committed to a European future.

—Laura Linderman is a nonresident senior fellow with the Atlantic Council’s Eurasia Center.

Kosovo: Progress is stalled as the Serbia standoff continues

Kosovo signed a Stabilisation and Association Agreement with the EU in 2015 and submitted its application for candidate status in 2022. Although 85 percent of Kosovars want to join the EU, Kosovo faces the unique obstacle of not being able to advance further in EU accession because five EU member states do not recognize its independence (Cyprus, Greece, Romania, Slovakia, and Spain). A key precondition set by the EU for Kosovo to move forward has been the conclusion of the normalization agreement with Serbia, which has effectively stalled since 2015. A recent European proposal on normalization agreed to in principle by both sides is also on the brink of failure due to tensions in Kosovo’s Serbian-majority north.

The deterioration in the security situation and Kosovo’s stagnant EU accession process undermines the country’s recent progress in democratic reforms and in tackling corruption. The lack of clear EU prospects for Kosovo and the Western Balkans in general—especially many years of delays in approving visa liberalization for Kosovo (it comes into force in January 2024)—have fueled frustrations with the EU and brought anti-EU narratives to the mainstream of public discourse.

—Agon Maliqi is an independent analyst and researcher from Kosovo working on security and democracy issues in the Western Balkans.

Moldova: Corruption and Transnistria remain challenges

In June 2022, the European Council announced it would grant Moldova and Ukraine candidacy status—almost eight years to the day since Chisinau earned an association agreement with the EU in 2014. Candidacy was a major symbolic boon for Moldova, which had endured a maddeningly stop-start progression toward EU reforms and candidacy. But pro-European president Maia Sandu has her country on the right track: She is tough enough to enact real reforms and as a former International Monetary Fund official, has the right combination of technocratic and diplomatic skills to lead Moldova toward Europe.

Yet Moldova faces major roadblocks to pass through before its eventual accession. The EU’s June 2022 announcement carried with it nine political conditions before accession talks, compared to seven for Ukraine. With a population of less than three million people, Moldova lacks the capacity of Ukraine but faces similar challenges of outside influence. Chisinau continues to battle corrupt politicians and oligarchs who consistently threaten to blow Sandu’s reform drive off course. Moldova will also likely need to solve the fate of Transnistria, the Russia-dominated statelet that broke away in 1992. EU countries will rightly want to strengthen border controls with a Russian client statelet.

Greater EU diplomatic engagement with Chisinau and technical support for market and judicial reforms can help shore up Moldova’s capacity to make meaningful progress on EU conditions. Additional Western sanctions on Shor, Plahotniuc, and their proxies can mitigate their malign influence in Moldovan politics and help consolidate the country’s democracy.

—Andrew D’Anieri is assistant director at the Atlantic Council’s Eurasia Center.

Montenegro: A stable political coalition is necessary for progress

Montenegro started negotiations for EU membership eleven years ago. So far, Podgorica has opened all the chapters but has only closed three. The negotiations came to a halt in 2018 when Brussels made it clear that progress in the EU accession process would be directly conditioned by advancements in the rule of law and democratic institutions. Since the former regime of President Milo Đukanović turned Montenegro into a so-called captured state, with a corrupt judiciary and police and where organized crime thrived, the EU accession process has de facto been slowed down, if not halted.

The process of forming a new government is underway in Podgorica. The winning party in the recent elections is the Europe Now Movement (PES). The main challenge for PES leader Milojko Spajić, the likely prime minister in the future government, will be to form a stable coalition capable of executing necessary reforms which would unlock Montenegro’s path to the EU.

The biggest problems in Montenegrin society are organized crime and corruption. They cannot be resolved without appointing new prosecutors and judges and adopting and implementing reforms in the judiciary and police. While Russia’s influence in Montenegro exists, it is limited. The pro-Russian sentiment among certain segments of Montenegrin society, which dates back to the eighteenth century, is often mistakenly interpreted as a result of Russian influence rather than historical heritage.

Public support for Montenegro’s accession to the EU consistently ranges between 70 and 80 percent, indicating that this is one of the few issues in the country with a fairly broad consensus. Therefore, the implementation of the so-called EU agenda is a crucial tool in forming a new government and creating a stronger parliamentary majority.

—Maja Piscevic is a nonresident senior fellow with the Atlantic Council’s Europe Center and representative of the Center in the Western Balkans.

North Macedonia: Amid delays, public support for EU membership is plunging

North Macedonia’s perspective on EU membership has drastically shifted in the past two decades, replacing initial enthusiasm with caution and diminished optimism. Despite obtaining candidate status in 2005, the country has endured eighteen years of uncertainty, waiting for the European Commission recommendations to translate into official negotiations from the European Council. The Prespa Agreement, considered a significant compromise five years ago, failed to deliver on its promise of faster progress toward EU membership, further dampening hopes.

In November 2020, Bulgaria’s blockade on North Macedonia’s EU accession negotiations, demanding constitutional changes for the Bulgarian minority, worsened the situation. The opposition’s refusal to join votes for the necessary constitutional changes, requiring a two-thirds parliamentary majority, has led to an impending political crisis. Trust has eroded, significantly undermining the EU’s credibility compared to sentiments held two decades ago.

To tackle this challenge, European Commission President Ursula von der Leyen proposed an effective strategy: immediate and generous allocation of pre-accession funds to facilitate North Macedonia’s transformation and benefit other Western Balkan countries. However, the specific amount of funds remains unspecified, leaving room for uncertainty.

The forthcoming Balkan Barometer report from the Regional Cooperation Council reveals a diminishing perception of EU membership in North Macedonia, once a fierce supporter. In 2019, 70 percent of citizens viewed EU membership as a positive development, but the 2023 Balkan Barometer shows that only 50 percent of respondents consider it a positive prospect, with 34 percent neutral and 13 percent negative.

These survey findings serve as a wake-up call for North Macedonian leaders, EU officials, and US policymakers. Urgent measures are necessary to address citizens’ concerns and doubts. Open dialogue, trust-building, and effective communication about the advantages and opportunities of EU membership are crucial. Specific challenges must be tackled, aligning the EU integration process with citizens’ expectations. Mere promises and kind words will not suffice to reverse the current gloomy narrative. Boosting the local economy through investments and improving standards of living would be a highly welcomed step, revitalizing the path to EU membership and restoring faith in the process, ultimately bringing back hope to the citizens for the once-promised European future.

At this critical juncture, Bulgaria must refrain from employing vetoes or placing undue pressure on North Macedonia and should foster a constructive and cooperative relationship free from unnecessary obstacles. Additionally, the EU member states should collectively exert pressure on Sofia, urging responsible actions based on European values towards its neighbor.

—Ilva Tare is a nonresident senior fellow at the Atlantic Council’s Europe Center and was most recently a broadcaster with EuroNews Group.

Serbia: ‘Sitting on two stools’ means no movement toward EU

For most Serbs, EU membership increasingly seems like a mirage, and certainly the prospect does not have the power and gravitational pull that it had in the years immediately following the wars of Yugoslav succession. Serbia officially applied for membership in December 2009, and all governments since that time have professed pro-EU sentiments. But over the last decade, Serbia has not made progress on reforms necessary for accession and has continued its reputation as trying to “sit on two stools” (claiming commitment to a Western course while remaining closely tied to Russia). Moreover, the current leadership has been deft at looking to other sources of support and investment (China’s Belt and Road Initiative, Gulf states) for visible development projects even as the EU provides the overwhelming amount of its foreign assistance. And in certain areas, such as press freedom, Serbia has a way to go to achieve EU standards.

So even as 65 percent of Serbs support EU reforms, only 43 percent are actually in favor of joining the EU. The fate of Russia’s attack on Ukraine may have an impact on the leadership and public opinion in Serbia, but for now, there is great “EU fatigue” and a lack of confidence that membership in the union is anywhere near. Finally, relations with Kosovo will be key to Serbia’s prospects in the EU, and recent events have not been encouraging there, despite the best efforts of the transatlantic community.

—Cameron Munter is a nonresident senior fellow at the Atlantic Council’s South Asia Center and Europe Center and a former US ambassador to Serbia.

Turkey: Rule of law and Cyprus hamper a long-stalled process

Turkey’s EU accession history goes back a long way, starting in 1959 when it applied for associate membership to what was then known as the European Economic Community (EEC). Turkey officially applied for full membership in the EEC in 1987, and Turkey became eligible to join the EU in 1999. The same year, during the Helsinki European Council, the EU recognized Turkey as a candidate and official negotiations for accession began in 2005. However, progress has been slow and to date, only sixteen of thirty-five accession chapters have been opened, and only one has been completed. A total of fourteen chapters are blocked due to the decisions of the European Council and Cyprus. Meanwhile, the war in Syria led to a refugee crisis for the EU—with Turkey on the front line. In the 2015 and 2016 EU summits, burden-sharing in migration management was a major topic between Turkey and the EU. As a result, currently Turkey hosts almost four million Syrian refugees under temporary protection status.

The most important step for overcoming this period and helping to normalize relations was the Turkey-EU summit in March 2018, in Varna, Bulgaria, which was beneficial to reestablishing confidence in Turkey-EU relations. But just three months later, the General Affairs Council stated that “Turkey has been moving further away from the European Union. Turkey’s accession negotiations have therefore effectively come to a standstill and no further chapters can be considered for opening or closing and no further work towards the modernization of the EU-Turkey Customs Union is foreseen.”

The 2022 enlargement report released by the European Commission offered an assessment of where things stand now: “The Turkish government has not reversed the negative trend in relation to reform, despite its repeated commitment to EU accession,” the report reads. “The EU’s serious concerns on the continued deterioration of democracy, the rule of law, fundamental rights, and the independence of the judiciary have not been addressed.”

Turkish President Recep Tayyip Erdoğan, who just won another term to rule for the next five years, is pushing for membership less than he did in his prior twenty years leading the country. However, Erdoğan recently called for increased communications for Turkey’s EU membership. According to a 2022 poll by the German Marshall Fund, 59 percent of Turks support EU membership. The big issues Turkey needs to overcome before being admitted are the rule of law and a resolution to the Cyprus dispute with the EU. Despite these issues, Turkey has stepped up recently to de-escalate tensions with Greece in the Eastern Mediterranean, especially after Turkey’s devastating earthquake early this year, which led to a warm earthquake diplomacy between the two countries.

—Alp Ozen is a program assistant at the Atlantic Council IN TURKEY program.

Ukraine: As reforms advance, accession talks could begin this fall

The dramatic events of the 2014 Revolution of Dignity made clear to the world the Ukrainian people’s desire to pursue the path of European integration. Now, the Ukrainian people are fighting an existential war to protect that vision against a full-scale Russian invasion.

In the wake of Russia’s full-scale invasion, Ukraine was officially granted EU candidacy status in June 2022. Brussels set out seven conditions before accession talks could begin. In June 2023, the EU reported that Ukraine had satisfied two of these conditions, made good progress in one other area, and made some progress in the remaining four. The two conditions already met relate to the judiciary and media, while Ukraine must still pass laws regarding the Constitutional Court, anti-corruption efforts, anti-money laundering efforts, de-oligarchization, and the protection of minority rights in order to align its legislation with EU standards.

Ukraine could begin accession talks as soon as this fall, once all seven conditions are fulfilled. That process will be a long and technical one, but Ukrainian officials and the Ukrainian people have demonstrated their strong commitment to the process. The February 2023 visit to Kyiv by von der Leyen and fifteen EU commissioners to meet with their Ukrainian counterparts underscored the leaders’ commitment, while the people’s commitment was resounding in a recent poll finding that 92 percent of Ukrainians want the country to join the EU by 2030, with all regions of the country squarely in support: 88 percent, 94 percent, 93 percent, and 91 percent in the east, north, west, and south, respectively.

—Benton Coblentz is a program assistant with the Atlantic Council’s Eurasia Center, where he facilitates the center’s work on Ukraine and the wider Eurasia region.

United Kingdom: A post-Brexit reexamination of the relationship is underway

Few slogans have been as effective in British politics as “Get Brexit Done,” which helped carry Boris Johnson to victory in the 2019 general election after three years of uncertainty about whether or not the United Kingdom would actually leave the European Union. However, the mood in Britain suggests that Brexit—if understood to mean a stable, fixed, relationship with the bloc outside the EU—is anything but done.

Two trends are pushing toward a reexamination of the relationship. Firstly, a growing number of Britons regret the decision to leave by a margin as wide as 60 percent to 40 percent. In addition, as many as 20 percent of those who voted to “leave” now signal to pollsters that they would have chosen to “remain” instead. Secondly, the opposition Labour Party, a “remain” spirited party, is now seeing poll leads as high as 25 percent. The chances are that Britain will be led by a Labour government by the end of 2024, with strong public support for a closer relationship with the EU.

That doesn’t mean Britain is on the verge of rejoining the EU. Opposition leader, and probably soon-to-be prime minister, Keir Starmer has committed the party not to rejoin the EU’s single market or customs union, which are the arrangements as far as trade is concerned, but to push for better ties beneath that. The EU and its supporters in the United States need to start paying attention to what Labour is saying. David Lammy, the shadow foreign secretary, has proposed a “security pact” between the EU and the United Kingdom as a first step to rebuilding the relationship.

This should be encouraged but more needs to be done. With the European economy in general in such a bad way, Washington should encourage Britain and the EU to go for the most ambitious form of new relationship politically possible within Starmer’s constraints—with economics and trade at the heart of it. Throttled trade benefits nobody, and the failure of Brexit in practice means the EU can afford to be generous. No other EU country is keen to copy what made the United Kingdom “the sick man of Europe.”

—Ben Judah is director of the Europe Center’s Transform Europe Initiative and the author of “This is Europe.”

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“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by RailFreight.com

rmurphy — Fri, 30 Jun 2023 13:27:45 +0000

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CBDC Tracker update cited by Trade Finance Global

rmurphy — Thu, 29 Jun 2023 16:19:00 +0000

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CBDC Tracker update cited by finews.asia

rmurphy — Thu, 29 Jun 2023 16:17:02 +0000

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“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by The Economist

rmurphy — Thu, 29 Jun 2023 15:26:14 +0000

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Maximizing US foreign aid for strategic competition

Patrick Quirk, Caitlin Dearing Scott — Thu, 29 Jun 2023 14:30:00 +0000

Introduction

The United States has reshaped how it uses military and economic tools to compete with China, Russia, and other adversaries. The United States is increasingly adept at deploying military assets, as well as a range of financial sanctions or trade deals, to weaken China or Russia’s position and advance its own. Yet, the United States has not calibrated all statecraft tools for this competition. This includes how and where it uses foreign aid.

For more than fifty years, foreign aid has been a core form of US engagement in the developing world. To advance its interests, the United States has provided loans, technical assistance, and direct budget support to developing nations to promote economic growth and more representative forms of governance.

A fully developed strategy for using foreign aid across all sectors—economic, education, security assistance, and democracy support—can provide critical reinforcement to the military and economic pillars of strategic competition. To be sure, the United States has reorganized parts of its bureaucracy and launched new initiatives to enhance how it uses foreign aid to compete with China. The US Department of State recently launched a new Office of China Coordination, informally known as China House, to coordinate China policy. The Biden administration announced a flagship Group of Seven Plus (G7+) initiative for the advancement of strategic, values-driven, and high-standard infrastructure and investment in low- and middle-income countries. Congress initiated foreign-aid funds dedicated to countering Chinese malign influence in foreign political systems.¹ New embassies in Vanuatu, the Solomon Islands, and Tonga, among other potential locations, are welcome developments that will provide the sustained presence necessary to engage governments and push back against Beijing’s influence, as well as help identify ways to use foreign aid to compete.

These changes are necessary, but far from sufficient to maximize the impact of foreign aid to compete with China and Russia. The power of foreign aid as a tool of US influence is not lost on its adversaries. The most prevalent example is China’s Belt and Road Initiative (BRI), through which the People’s Republic of China (PRC) has spent hundreds of billions of dollars for years to expand its influence in developing nations. Recently, China has increased BRI spending and shifted from its original focus on infrastructure megaprojects to the less capital-intensive, but still impactful, fields of governance (e.g., training elected officials in Beijing’s governance model); funding for academic departments to promote pro-Chinese narratives; green-energy projects; and funding for pro-China media outlets.² Under the BRI umbrella, China uses foreign aid in these and other sectors to promote policies and politicians favorable to PRC interests. The United States is, therefore, compelled to play a game of catchup.

Fully harnessing the potential of US foreign aid in this struggle requires fundamental reforms to the congressional processes involved in overseeing aid allocations and earmarks; reforms to bureaucratic agencies tasked with spending foreign aid; improvements to US modes for delivering this assistance; and a narrowing of scope to areas most critical for advancing US interests. Needed reforms include the following.

Realign spending to focus on allies and countries strategically important to US competition with China and Russia, including reconsidering assistance mechanisms based solely on income level, with an aim of investing in allies and partners that advance US interests.
Make delivering for allies and shoring up democracy core pillars guiding how the United States uses foreign aid to compete with China and Russia. Investments in strong democratic institutions—such as political parties, independent legislators, independent media, and civil society—will yield dividends in countering foreign authoritarian influence.
Invest to empower pro-democracy elements in backsliding or authoritarian countries. The United States must respond asymmetrically in countries with pervasive authoritarian capture, using foreign assistance in ways that empower individuals and institutions to expose and put pressure on the regime elements that perpetuate corruption and enable foreign influence.
Congress should pass legislation (the Non-Kinetic Competition Act) requiring the executive to submit multiyear plans outlining the US approach—harnessing all nonmilitary statecraft tools, including foreign aid—to competing with China in select priority countries.
Focus on geography and interests, rather than sectors, to ensure maximum flexibility, strategies rooted in country-specific needs, and longer-term planning.
Increase spending to expand partner-nation resilience to Beijing and Moscow coercion and cooptation. Strong democratic institutions increase a country’s ability to detect, prevent, and mitigate Chinese Communist Party (CCP) influence operations. Priorities should include support for independent media, parliamentary diplomacy, and educational and technical exchanges, all of which have proven effective at building democratic resilience to foreign authoritarian influence.
Empower the State Department’s Office of Foreign Assistance Resources to fulfill its mandate of aligning foreign aid with policy goals and maximizing impact. Enabling the Department of State to take the lead on foreign policy and control aid allocations will ensure that aid is appropriately leveraged to advance specific foreign policy objectives.
Lengthen the time horizon for US foreign-aid programs and objectives from a single year to ten. Democracy, rights, and governance programming—as well as initiatives in other sectors germane to competition—requires longer-term investment to develop strong and resilient institutions, political parties, and processes. US agencies and implementing partners need longer project times to maximize impact.
Limit branding waivers. The United States benefits from populations and governments knowing who provides aid, and its marketing needs to reflect as much.
Focus on advancing interests, rather than “localization” targets. The US Agency for International Development (USAID) and State Department should pursue partnership approaches best positioned to achieve US interests in the target country. In most, if not all, cases, this will involve working through international nongovernmental organizations (NGOs) that collaborate with and, as needed, build the capacity of local partners.

With the aim of encouraging the United States to more strategically use foreign assistance to advance its policy objectives, this paper outlines why the threat posed by China and Russia requires more than a kinetic solution, and why and how foreign aid is essential to winning this competition; the current US approach to foreign assistance—where it spends, on what, and via which bureaucratic mechanisms—and its strengths and shortcomings; historical lessons from using US foreign aid for strategic competition, principally during the Cold War, that are applicable today; and recommendations for reforming the US foreign-aid infrastructure, regulations, and approach to better position the United States to compete.

I. The authoritarian threat has no purely military solution

China and Russia are often portrayed as purely military threats that warrant entirely kinetic solutions. To be sure, US military deterrence through a strong Army, Navy, and Air Force—with nuclear capabilities as a foundation—will remain essential to strategic competition. Kinetic options are necessary, but not sufficient. Competition with China and Russia is playing out not only in the sea lanes of the Indo-Pacific or Ukraine’s battlefields, but in the halls of parliaments in developing nations, in efforts to influence the post-conflict political systems of war-torn countries, and at the United Nations (UN), where both China and Russia endeavor to reshape the liberal world order.

China’s primary threat to the United States is undoubtedly a military one. It is amassing weapons sufficient to invade Taiwan, and has expanded its blue-water navy with an eye toward rivaling, if not supplanting, US capabilities. Yet, the PRC is also using political and economic tools to expand its influence in developing states at the expense of US objectives.

The CCP is increasingly using economic leverage and elite capture to exert political influence, deploying information operations, party-to-party ties, and, in some cases, export of its authoritarian governance model to create favorable conditions in other countries that enable the PRC to advance its local and global interests. This includes extracting natural resources critical to its domestic production and economic growth, expanding military basing essential to Chinese military deterrence and expanded control, and coopting politicians who serve these ends and can be counted on to vote with China at the UN on issues ranging from criticism of human-rights violations in Xinjiang to the future of the International Telecommunications Union and global internet governance. Together, these tactics are corroding democratic governance and popularizing authoritarian governance in countries the world over.

The BRI has been the crown jewel in the CCP’s global influence campaign. Nearly one hundred and fifty countries from every region of the world have signed on to the BRI, presenting a significant opportunity for the PRC to exert economic and political influence on a regional and global scale.³ According to research conducted by the International Republican Institute looking at PRC influence across country contexts, “growing trade, financial, and business ties are the foundation of the PRC’s efforts to build influence in other countries’ politics.”⁴ The CCP strategically deploys economic dependence, leverage, and coercion, in addition to elite capture, to develop pro-PRC constituencies in partner countries and advance pro-PRC policies. Thus, the BRI fits into the CCP’s broader efforts to create a world safe for the party and its interests, which Chinese leader Xi Jinping proposes achieving via three initiatives that collectively articulate the CCP’s vision for the globe, titled the Global Development Initiative, the Global Security Initiative, and the Global Civilization Initiative.⁵

The Global Development Initiative (GDI) seeks to expand the BRI to advance “people-centered” development, China’s catchphrase for its model of development that prioritizes economic advancement at the expense of human rights. The GDI—and PRC promotion of it—is explicit in its rejection of “Western” definitions of development, which incorporate human rights as a core tenet.⁶ China has been rallying countries to join the GDI, with vague promises of PRC support to help them achieve their Sustainable Development Goals for 2030, with a focus on poverty and hunger alleviation and increased access to clean energy. The PRC has established a group of “Friends of the Global Development Initiative” at the UN, which counts some sixty members.⁷ The Global Security Initiative (GSI) is the CCP’s vision for building a new global “security architecture” rooted in the CCP’s definition—and model—of security and stability.⁸ With aims to increase CCP influence at the UN through increased funding and diplomatic engagement, the expansion of PRC training programs to military and police, and an expanded role serving as an arbiter in international conflicts, the GSI signals China’s intent to return to its self-avowed rightful place at “the center for the world stage.”⁹ Without naming the United States and Europe, the CCP through GSI makes clear that it seeks to provide an alternative model of alliances or “circle of friends” to counter US interests, with a particular focus on the developing world in Africa, Southeast Asia, the Middle East, Latin America, and the Pacific islands.¹⁰

The Global Civilization Initiative (GCI) is the PRC’s new framework for promoting its governance model globally, building on the foundational work of the International Liaison Department supporting political parties around the world. Whereas such party-to-party exchanges once sought to build the legitimacy of the CCP, they are now focused on advertising the value of the PRC’s system of governance more generally. The GCI formalizes this recent trend, emphasizing the need for respect for a plurality of governance models. Speaking at the World Political Parties’ Conference, organized by the CCP in March 2023, General Secretary Xi Jinping extolled the PRC’s model of “a better social system,” noting that China’s experience has broken the myth that “modernization=Westernization.”¹¹ Implicit in the GCI, with its calls for understanding “different civilizations’ understanding of values” and models, is an attempt to popularize the CCP’s model of governance and help it realize its vision of a revised global order with a CCP-led China as the central node of globalization and global governance in the decades to come.

Collectively, these three initiatives are part of China’s overall strategy to promote authoritarian solutions to the mounting challenges facing developing democracies. They have the potential to undermine the principles of liberal democracy that buttress the extant rules-based world order. For many developing countries, PRC investment and trade are an economic necessity. They are, however, never free of conditions, despite PRC claims to the contrary. Whether the terms mandate that PRC-financed infrastructure be awarded to PRC-based companies, eschew existing environmental standards, or subvert transparency and accountability disclosure terms on the contractual arrangements, PRC entities’ business and negotiating practices often have adverse effects on the recipient countries’ finances and political systems.¹²

From a security standpoint, China’s promotion of the concept of “indivisible security,” used to justify Russia’s invasion of Ukraine, and its “aims to reshape norms of international security to be favorable to China and other authoritarian regimes while delegitimizing traditional military alliances,” as the US-China Economic and Security Review Commission has noted, are deeply worrying.¹³ Moreover, its proclivity to export repression beyond its borders poses a serious threat to developed and developing nations alike.

China has utilized “public security” as an entry point for establishing overseas police stations in fifty-three countries around the world, providing an entry point for PRC law enforcement to engage in transnational repression and crack down on dissent and political expression among the Chinese diaspora.¹⁴ In countries with large diaspora populations, the CCP has also relied upon triads, or crime syndicates, to intimidate its critics and further its objectives at the local level. Moreover, politically, China’s promotion of its authoritarian governance model undermines good governance globally, fueling democratic backsliding and legitimizing the rise of authoritarian actors from El Salvador to Belarus.

All of this has the potential to undermine US interests on everything from internet governance to human rights, while undermining US global leadership. These tactics have dire consequences for the United States, yet the United States cannot effectively address them with purely military or trade/sanctions solutions. Military responses, whether ship deployments or arms transfers, do not help strengthen the institutions and civil society needed for countries to be resilient to PRC influence operations, or to build an alliance of democracies to counter a growing autocratic threat.

Like China, Russia poses a threat to US interests that cannot be countered with armaments or economic tools alone. Russia is squarely focused on winning its illegal war with Ukraine. Even so, we can expect Vladimir Putin’s regime will continue using a range of non-kinetic means to advance its interests in Europe, Latin America, Africa, and Asia. The Kremlin’s principal goal is to foster instability and undermine alliances that counter its influence regionally and globally. It deploys a mix of political, economic, and military tactics to divide and rule.¹⁵

In the political arena, the Kremlin directly interferes in other countries’ political and electoral processes. Russia tries to influence the political playing field to be more amenable to its interests, and to inject the Kremlin’s point of view into the political discourse. The Kremlin and its affiliated entities provide financial and other incentives to political parties and politicians willing to represent and advance favorable policies in national parliaments or international institutions. Such support can include legal and illicit campaign contributions, often made by organizations set up by Russia’s agents of influence, individuals linked to Russia and Russian businesses, or Russian organizations directly. According to a recent report by the US State Department, Russia has covertly given at least $300 million to officials and politicians in more than two dozen countries since 2014, with plans to transfer more.¹⁶

Russia also targets electoral processes. Russian hackers have been accused of interfering in many elections and electoral campaigns around the world. In the 2018 presidential election in Mexico, they were reportedly involved in the spread of false information aimed at discrediting candidates to stir up divisions and polarization among voters.¹⁷ Russia similarly deploys cyberattacks, internet trolling, social media campaigns, and intrusions into state voter-registration systems to undermine political and electoral processes and create confusion as people head to the polls.¹⁸

Economically, the Kremlin employs strategic corruption to coopt elites and create pro-Kremlin proxies in media, politics, and business to push its agenda. This strategy aims to influence debates, gain support, and shape legislation in the Kremlin’s favor. This tactic is particularly effective in countries with favorable views of Russia. It helps galvanize public support and weakens alliances that conflict with the Kremlin’s interests. The Organized Crime and Corruption Reporting Project (OCCRP), a group of investigative journalists, recently revealed an expansive Kremlin operation to bribe politicians and businesspeople in Europe.¹⁹ The International Agency for Current Policy, an informal group connected to Moscow, is behind the bribes, arranged payments, and all-expenses-paid trips to luxury resorts for numerous European politicians and investors to encourage pro-Russian political and economic actions.

Militarily, the Kremlin is deploying proxy forces like the Wagner Group to support authoritarian governments or provoke low-scale conflict across Africa, including in Mali and the Central African Republic.²⁰ Wagner Group security deployments across the continent have been at the forefront of Russian efforts to influence African politics, and have been accompanied by disinformation campaigns to advance Russia’s political and security influence.²¹ The Wagner Group has also led Kremlin efforts to develop a pro-Russia infrastructure across Africa. This infrastructure includes the Internet Research Agency troll farm to conduct disinformation campaigns, captured antidemocratic political elites, coopted companies that exploit Africa’s natural resources, and front companies posing as nongovernmental organizations.

Russia’s influence efforts around the world are supported by wide-scale propaganda and disinformation campaigns to delegitimize independent, expert journalism—and the very concept of truth—in the eyes of consumers, exploit fissures in democratic societies and exacerbate polarization in conflicted ones, undermine support for democracy and the West, and advance pro-Kremlin narratives and policies. One approach Moscow deploys are Russian-funded media outlets like RT and Sputnik. RT, formerly Russia Today, is part of a state-sponsored propaganda corporation that masquerades as a legitimate, Western-looking news and opinion-making outlet that produces content in seven languages.²² With almost $400 million coming from Russian state subsidies in 2022 alone, the company has hired Western journalists to mislead its viewers, and to make its false content seem credible to legitimate media outlets around the world. Another tactic Russia uses is fake media outlets and social media accounts to dilute legitimate media reporting and inject messaging that serves Russia’s strategic objectives. Social media have been a particularly powerful tool for Russia, whose agents have been creating tailored content to influence the beliefs of groups of voters and sway them away from anti-Russia political forces.

The contours of this challenge—from Beijing and Moscow—make clear that military and economic tools are not enough for the United States to compete and win. Kinetic efforts cannot bolster partner countries against the malign influence of the CCP and Kremlin and the associated cooptation of elites. Military tools, either security assistance or indirect effects of deterrence, cannot shape the politics and development trajectories of partner countries so that they take forms more favorable to the prosperity of their own people and US interests.

Economic-statecraft tools are more amenable to these ends—and complementary to foreign aid—but still not sufficient. Trade deals can increase US economic competitiveness vis-à-vis China by bolstering the US industrial base through opening markets to US citizens and businesses. The United States can use trade deals as an incentive for potential allies to align with US interests over those of the PRC or Kremlin and to help countries reduce their economic dependence on China and Russia. The United States can use economic sanctions to punish countries or individuals for a range of behaviors—from repressing their citizens, as in Belarus, to invading Ukraine, as with Russia—with the aim of stopping said targets from continuing these actions. Moreover, the United States can use economic measures to build a collective economic defense against economic coercion, and to deter PRC and Kremlin economic aggression.

Foreign aid is a necessary complement to kinetic and economic tools. It cannot single-handedly address all challenges listed above, but can help lead to changes—like making a country’s governance systems more resilient to foreign interference—that benefit the United States at the expense of its rivals.

II. US foreign aid: Effective tool, dated toolbox

The United States has utilized foreign assistance to advance its geopolitical interests since the end of World War II, and introduced the Marshall Plan to secure Europe’s (and Japan’s) social and economic foundations in the face of Soviet expansionism and restive communist factions.²³ The United States continued to use foreign aid as part of its strategy of containment over the next four decades, providing valuable lessons for advancing US interests in a new age of competition.

Foreign aid (interchangeably referred to as “foreign assistance”) consists of money, technical assistance, or commodities the United States provides to another country to advance a common objective. US foreign assistance can be organized into three overarching categories based on intent of spending: economic and development assistance that addresses political, economic, and development needs; humanitarian assistance that supports disaster relief and emergency operations to alleviate suffering and save lives; and security assistance, which strengthens the capacity of the military and law enforcement in other countries.²⁴

Across these three categories, foreign-aid-funded initiatives can include training rural farmers in more sustainable harvesting techniques, helping construct roadways linking peripheral towns to urban centers, or deploying specialists to advise government ministries on economic or political reform options.

The throughline connecting the three foreign-aid types—and the variation therein—is that US taxpayer dollars spent to fund these initiatives help lead to changes in the target country that benefit US interests. For instance, spending to increase the capacity and independence of government institutions can enhance transparency and provide more favorable investment conditions for US companies.

Yet, the United States spends less than 1 percent of its discretionary budget on foreign assistance, which for fiscal year (FY) 2022 amounted to$52.76 billion.²⁵ Comparatively speaking, this is a small portion of the federal budget. For the sake of contrast, it is 7 percent of the military’s FY22 $777.7-billion budget, and is nearly the exact amount the Department of Defense paid for fewer than one hundred new aircraft in FY22.²⁶

Illustrating the overall downward trend in foreign-aid spending, the United States spends roughly 50 percent less on foreign aid today, as a portion of gross domestic product (GDP), than it did during Ronald Reagan’s presidency. The similarities in the challenges the United States faced in the 1980s and today—and the disparity in resources it is marshalling to address those threats—is stark.

The United States allocates foreign aid through several departments and agencies, with the main entities being USAID and the Department of State. President John F. Kennedy established USAID in 1961 to lead the implementation of US foreign aid. Through the 1970s, USAID provided emergency food assistance that helped avert famines and helped newly independent countries establish basic governing structures. In the 1980s, USAID assistance guided economic reforms across Latin America and other regions around the world, helping stabilize economies in the face of currency and debt crises. After the Soviet Union’s fall, USAID helped new countries transition from autocracies to nascent democracies. From 2000 onward, USAID has played a central role in combatting HIV/AIDS, addressing violent extremism in fragile states, and solidifying democratic gains from the immediate post-Cold War era. In 2004, the United States expanded the agencies responsible for allocating foreign aid by establishing the Millennium Challenge Corporation (MCC) and, in 2019, the International Development Finance Corporation (DFC).²⁷ These changes that foreign aid helped enable or cause have, directly or indirectly, benefited US security and economic prosperity.

What the United States has gained in scope and scale through this range of foreign-aid entities, it has lost in not having them unified by a common directive and mission for spending. The George W. Bush administration worked to address this drift by disbanding USAID policy offices, and transferred those associated oversight and policy responsibilities to a new Office of Foreign Assistance Resources at the Department of State. This change aimed to further align foreign-aid spending with foreign policymaking, which is the State Department’s purview (USAID, per a 1988 law, reports to the secretary of state). Despite this change, the United States continues to struggle with developing comprehensive strategies for issues and countries—and harnessing all elements of US foreign assistance (in tandem with other statecraft tools, like diplomacy and economic engagement) toward a common end. Some feel USAID operates too independently, and its spending is insufficiently aligned with US foreign policy objectives.

Why foreign aid is critical to strategic competition

A solid base of rigorous research shows that foreign aid is effective across a range of sectors in contributing to changes in recipient countries that favor the United States and advantage it in its competition with China, Russia, and other rivals.

Foreign aid can lead to three primary types of impact that are beneficial to strategic competition: economic development that opens markets to US businesses, which increases US economic competitiveness with China and Russia; stronger governance and political institutions, which can serve as a robust check on Russian and Chinese attempts to undermine or coopt allies or potential partners; and more favorable views of the United States by a government and/or its people, which the United States can then leverage for cooperation on mutually beneficial interests or against China and Russia.

Foreign aid supports US economic competitiveness by helping develop new economies for US businesses and trade. It does so by promoting a country’s overall development, as well as sound, transparent regulation.²⁸ Foreign assistance increases economic potential within a state, especially when developing basic industry, improving basic infrastructure, or rebuilding an area after conflict. Today, for example, eleven of the United States’ top fifteen trade partners are previous recipients of foreign aid. Access to overseas markets matters for people at home; roughly one in five US jobs is linked to international trade, and one in three US manufacturing jobs is linked to exporting US products overseas. When considering investments overseas, US businesses need predictable regulations managed by independent institutions, which, collectively, minimize risk of loss of capital. By fostering foreign markets for US goods and businesses, foreign aid can help bolster the United States’ industrial base.

Foreign aid also helps strengthen governance and democracy in countries around the world. A study of US foreign assistance focused on “democracy promotion” programs from 1990 to 2003 found that democracy assistance had “clear and consistent impacts” on overall democratization—as well as civil society, judicial and electoral processes, and media independence.²⁹ Despite a global democratic recession from 2012 to 2022, eight countries that were autocracies actually bounced back and are now democracies in 2023—with international democracy support and protection being an important factor in securing these gains.³⁰ The benefits of these changes, enabled by foreign aid, are clear. The world is safer and more secure with more—not fewer—democracies. Democracies do not launch wars against other democracies, are more reliable allies to the United States, and are far less prone to intrastate civil conflict.³¹ By strengthening independent institutions and civil-society oversight, foreign aid can help make countries more resilient to interference from foreign rivals like China and Russia. Robust institutions and vibrant civil society make it difficult for China and Russia to exert influence and coopt elites.

Finally, foreign aid can help improve citizens’ and governments’ views of the United States, often at the expense of its principal rivals. The long-term aspect is important here. Chinese and Russian foreign-assistance programs tend to favor physical projects that advance their economic interests and solidify partnerships with authoritarian actors.³² Populations, genuinely appreciative and benefiting from such investments, look favorably upon these efforts in the short term. Over time, there is growing evidence that these projects eventually begin to erode local support for Beijing and Moscow.³³ In the case of China, this is partially due to shoddy construction work, a feeling of Chinese neocolonialism and loss of sovereignty, and discomfort with authoritarian moves by parties in power. While there is much reporting on China’s BRI and Russia’s recent use of Wagner Group mercenaries in Africa, both countries’ programs lack transparency—increasingly alienating potential local partners as long-term consequences become more apparent.³⁴

By contrast, US foreign-assistance spending is transparent, involves clear conditions guiding where and how funds are to be used, and favors working with local partners to identify real needs and inform project design and implementation.³⁵ Well-implemented, effective, and large-scale initiatives focused on addressing pressing needs of populations—like the President’s Emergency Plan for AIDS Relief (PEPFAR)—solve problems for local populations and generate positive perceptions of the aid provider, the United States. Several studies find that US investments in PEPFAR foreign assistance (as one example) are strongly associated with improved perceptions of the United States across the globe.³⁶ A potent mix of project transparency, exposure to US government institutional practices and customs, and an earnest desire to help recipient countries prosper underpins US foreign aid’s impact and success.³⁷

III. Looking back to chart a path forward: Lessons from the Cold War

Today’s threat landscape is not analogous to the Cold War for several reasons: China and the United States are far more intertwined economically than the United States and Soviet Union; technological advances have minimized geographical advantages; and states and citizens are more connected, with a magnitude of information access that was unthinkable in the immediate post-World War II era.

Despite these differences, the period in which the United States was grappling with a seemingly mighty Soviet Union and today’s competition with China share some similarities. Today, like then, the United States faces an array of threats across military, social, economic, and political domains from a formidable power that kinetic tools alone cannot address; as a result, the United States is looking to harness all statecraft tools to its advantage. Three key lessons from how the United States used foreign aid during the Cold War can help inform how it uses this non-kinetic tool for strategic competition today.

To maximize foreign aid’s impact, strategic patience is essential. Foreign aid can produce meaningful outcomes, but changes can take years to occur.³⁸ It took a decade for the Marshall Plan and associated US foreign assistance to transform Western European nations into the staunch democratic-minded, market-oriented partners that they are today. While US foreign aid that began in 1948 helped prevent socialist uprisings across Europe, NATO integration and rearmament took the 1950s to accomplish.³⁹ The European Economic Community only truly began to develop in the 1960s.⁴⁰ And the dismantling of European colonial empires and the move toward the US view of the liberal order took until the 1970s to be fully realized.⁴¹

Beyond Europe, US foreign assistance to African and Latin American governments highlights how approaching regions with a longer-term perspective and approach provides opportunities to augment engagement when conditions become more favorable.⁴² Throughout the 1960s and 1970s, US work in both regions haphazardly shifted between supporting anticommunist militarism, encouraging economic liberalization and development, and improving living conditions.⁴³ Moreover, post-colonial struggles in Africa and regional interference from the Cubans and Soviets in Latin America limited the overall effectiveness of US foreign-assistance programs until the 1980s.⁴⁴ Previous US engagement then allowed it to become a preferred partner as the Soviet Union began to withdraw from the “third world” and the global financial order introduced new requirements for integration and development.⁴⁵

Just as foreign assistance takes time to generate outcomes, assistance strategies should have flexibility to adapt to changes in the country or region over the lifetime of a given initiative. Identifying an end state, and methodically working toward it over the course of years or decades, allows second- and third-order effects of investments to occur.

Second, policymakers need to be realistic about what foreign aid can achieve—and avoid overpromising and under-delivering. More often than not, success has been achieved when US policymakers used foreign assistance to secure practical and realistic outcomes. While often criticized for partnering with autocrats over the course of the Cold War, the United States’ incremental investments slowly eroded the Soviet Union’s theory of victory and allowed the United States to encourage democratic progress over time.⁴⁶ US foreign assistance supported strategic aims that ultimately led to a more peaceful, prosperous, and representative world.

A final lesson is that foreign assistance works best when it is part of a broader whole-of-government strategy.⁴⁷ When the United States synchronizes foreign-aid interventions, these efforts tend to build on each other to promote long-term cultural change and alignment with US interests and policy.⁴⁸ Some clear examples of whole-of-government success are Western Europe, Colombia, South Korea, and Chile.⁴⁹ Each of these examples shares a US assistance approach and series of programs that combined security guarantees with cooperation and reform programs; economic-development packages that paired investment monies with revitalization of key industries; social initiatives intended to soften cultural cleavages while improving social determinants of health; and incentives for local governments to improve their capacity, resiliency, and responsiveness. When foreign-assistance efforts remained siloed between agencies, efforts fell short and minimized impact of taxpayer dollars.

IV. Recommendations: Maximizing US foreign aid to compete

The United States has the infrastructure and expertise to re-elevate foreign aid as a tool of statecraft and use it to help compete with China, Russia, and other adversaries. Doing so will require making changes to where the United States spends foreign assistance and on what, and reforming structures within the US government that dictate how said funds are allocated. These changes are based on lessons from the past, as well as a sober assessment of today’s threat landscape and the need to position the United States for today’s challenges.

1. Where the United States allocates foreign aid and on what

The United States should realign spending to focus on allies and countries strategically important to competition with China and Russia. Foreign aid can help lead to changes in countries that advantage the United States in that competition (e.g., by making a country’s political system more resilient to Chinese or Russian influence), as well as address other pressing challenges (e.g., by addressing causes of migration in Central America to curb flows of people into the United States). Foreign aid can also be used to help US allies or countries of strategic importance in ways that maintain or cement extant alignment of interests (e.g., via infrastructure development that benefits the government in power) or help move a country that is on the fence between cooperating with China and the United States (e.g., Pacific islands).

The current approach to, and regulations governing, allocating foreign aid is not set up to enable the United States to use funds in ways that directly and efficiently advance US interests. It forces the United States to center spending in many aid sectors on predominantly low-income countries (where the perceived greatest development needs are) and disincentivizes spending on middle-income nations (with some plans in place to phase out spending in middle-income states), disregarding how important these nations, despite their income level, might be to the United States.

The Trump administration explored realigning how the United States uses foreign assistance of all stripes—from economic aid to health assistance—to make competing with China the primary objective. This realignment did not gain traction. However, the review elements that called for revisiting stipulations to spend based on a country’s income level—and instead center decisions around a country’s importance to the United States—are welcome and worth revisiting.

The United States should make delivering for allies and shoring up democracy core pillars guiding how it uses foreign aid to compete with China and Russia. The United States has rightfully increased funding for infrastructure projects in developing nations—along and through multilateral forums—to offer an alternative to China’s BRI. These projects, from highways to hospitals, help the United States compete with China because they buy goodwill with recipient governments and—given the transparent way in which they are managed—provide important investment to support countries’ development needs. But they only address one part of the China challenge, and do not address the root causes enabling Chinese interference and influence—weak governance and political institutions.

Strong democratic institutions are the most reliable form of defense against Russian, Chinese, and other external efforts to shape a country’s domestic politics to the benefit of the external actor. Political parties channel citizens’ views into policy and law. Independent legislatures and capable executives craft and enforce legislation that makes markets favorable to foreign (and US) investment, and inhibit the type of opaque deals favored by the PRC. Independent media play a crucial role in identifying and exposing harmful authoritarian influence, while civil-society organizations (CSOs) work to push governments to take corrective action. Across borders, a diverse group of activists, media figures, religious leaders, researchers, and policymakers is collaborating to confront the challenge of foreign authoritarian influence, forming a strong and growing network of likeminded individuals committed to building democratic resilience worldwide. This network is using innovative methods to uncover and bring attention to the harmful influence of authoritarian actors, such as the PRC and Kremlin. They are devising advocacy and policy solutions tailored to the individual needs of local communities, with the goal of promoting lasting change and ensuring accountability from domestic and foreign authoritarian actors. They need US support.

Invest to empower pro-democracy elements in backsliding or authoritarian countries. In democratically backsliding or authoritarian countries, the scope and scale of elite capture by the PRC or the Kremlin—and conditions on US foreign assistance over human-rights concerns and corruption—limit the potential for political change to build democratic resilience to foreign authoritarian influence. In such contexts, it is extremely challenging to compete symmetrically with the PRC or the Kremlin, which do not impose conditions related to human rights or democracy, and routinely end up worsening both. The United States must respond asymmetrically, using foreign assistance in ways that empower individuals and institutions to expose and put pressure on the regime elements that perpetuate corruption and enable foreign influence. Ongoing investments in media, civil society, and small “d” democratic political parties and opposition movements can sustain important pro-democracy elements to effectively push back against authoritarian influence, in closed and closing countries.

2. Congressional action

Given its constitutional role of oversight and resource appropriation, Congress has an important role to play in ensuring the United States maximizes use and impact of foreign aid in its competition with China and Russia.

Congress should pass legislation (the Non-Kinetic Competition Act) requiring the executive to submit multiyear plans outlining the US approach—harnessing all nonmilitary statecraft tools, including foreign aid—to compete with China in select priority countries. Absent congressional requirements or oversight, it is unclear if the executive branch will be able to swiftly make the needed changes outlined above to where and how the United States spends aid, including ensuring whether it is part of a broader strategy for each country. To accelerate these efforts, Congress could pass legislation requiring the executive to deliver plans for select priority countries, outlining how it intends to use all aspects of US power and resources—including foreign aid, linked to diplomacy—to compete with China. The strategies should include a clearly defined goal, as well as a theory of the case. The legislation could be modeled on the Global Fragility Act (GFA), which requires the executive to deliver a strategy for preventing violent conflict and promoting stability globally, and ten-year plans for achieving these aims in select priority countries. Unlike the GFA, however, the legislation proposed here need not require the executive to publicly release plans, given the sensitive nature of the content.

Focus on geography and interests, rather than sectors. US foreign aid is largely organized around sectors (e.g., health, education) and driven by congressional earmarks. This makes it exceedingly difficult for the United States to craft geography-specific strategies (e.g., for sub-Saharan Africa) with a single source of foreign aid as an available resource. Ideally, the United States would craft a competition strategy for a given region that clearly identifies an end state, theory of the case, and associated inputs required to realize it (kinetic and non-kinetic, including foreign aid). Instead, the current system predetermines (via earmarks) how the United States spends a significant portion of foreign aid (with some exceptions), forcing planners to use aid in suboptimal ways that seldom advance country-specific strategies.

Congress, considering its increased attention to position the United States to prevail against China, should review extant earmarks, do away with as many as feasible, help the executive conduct longer-term planning, and provide greater flexibility in using foreign aid to compete. The legislation cited below could help set parameters and ensure funds are spent on the highest priorities.

Increase spending to expand partner-nation resilience to Beijing and Moscow coercion and cooptation. Strong democratic institutions increase a country’s ability to detect, prevent, and mitigate CCP influence operations, but must be coupled with other work focused squarely on detecting, preventing, and countering CCP and Kremlin interference—whether attempts by the PRC to train political parties in Kenya on the China “model” or direct Kremlin funding to political parties to influence electoral outcomes and ensure pro-Kremlin voices are voted into office. Foreign assistance in this category can fund a range of programming, from technical assistance to countries negotiating BRI deals to support for independent media in countries vulnerable to foreign influence. Priorities should include the following types of democracy, rights, and governance programming, which have proven effective in building democratic resilience to foreign authoritarian influence.

Supporting independent media: Supporting independent journalism can be a powerful tool in countering the influence of the PRC and Kremlin in the Global South. It is a wise investment of limited US resources to empower well-trained journalists in vulnerable countries, who can provide free and unbiased reporting to expose the impact of foreign authoritarian influence. Every dollar spent in this direction can make a significant difference.
Legislative dialogues: In legislatures throughout the world, a growing number of elected officials are committed to democratic resilience. From engaging with partners like Taiwan and Ukraine to exposing concerns around the domestic impacts of deepened political and economic engagement with China and Russia, these officials have been successful in advocating for measures to counteract foreign influence and building global democratic unity to confront it. Facilitating and supporting such dialogues, by both the US Congress and parliaments globally, is a critical and effective means to counter PRC and Kremlin influence.
People-to-people exchanges: China is making a significant investment in people-to-people exchanges, sponsoring fellowships, scholarships, and exchanges to showcase the China model across the Global South. This soft-power initiative is an area in which the United States has a strategic advantage; it just needs to leverage it. The exchange programs sponsored by the Department of State’s Bureau of Educational and Cultural Affairs are an effective mechanism for engaging youth, students, educators, artists, athletes, and rising leaders to promote US interests—and democracy. More than 99 percent of participants in the bureau’s Sports Visitors exchange program come away expressing positive views of the United States, while its exchange programs have brought almost seven hundred officials who would go on to run their countries’ governments to the United States. However, only forty thousand international participants engage in such programming annually, given the bureau’s $777.5-million annual budget for exchanges. By comparison, in 2018, the PRC provided scholarships to sixty-three thousand students to study in China, a figure that doesn’t include party-to-party exchanges run by the International Liaison Department or journalist and parliamentary exchanges. Additional investment in this area would be a cost-effective win-win.

The United States spends a paltry amount combatting Russian and Chinese malign influence around the world, despite this being the foremost challenge of the time. The United States spends less than $325 million a year countering Chinese influence and $300 million countering Russian influence via foreign aid. In fact, the $625 million the United State spends annually on this threat from China and Russia is less than the Defense Department spends on printing each year.⁵⁰

US policymakers argue that prevailing against China is a national imperative, but have only appropriately resourced its kinetic toolkit. Foreign-aid spending focused on this aim needs to increase fourfold, to $1 billion annually. It should center on countries already exposed to CCP and Kremlin interference, at the cusp of such interventions, or likely to experience them moving forward.

3. Intra-US government structural changes

Several changes to intra-US government processes and structure would help better align foreign-aid spending with core national security interests and increase its impact in the competition with China and Russia.

Empower the State Department’s Office of Foreign Assistance Resources to fulfill its mandate of aligning foreign aid with policy goals and maximizing impact. US foreign-aid spending should directly align with, and advance, US interests in priority states, competing with China and Russia chief among them. This means enabling the Department of State to take the lead on foreign policy and control aid allocations in a way that concretely advances specific foreign policy objectives, rather than a development goal that might be tangentially related to US interests. The secretary of state should empower the Office of Foreign Assistance Resources to truly lead on foreign-aid coordination and alignment, deputizing its director to ensure aid spending aligns with policy goals. The USAID administrator should continue reporting to the secretary. The United States needs to maximize the impact of foreign aid for immediate political wins and incorporate foreign aid into longer-term planning.

Lengthen the time horizon for US foreign-aid programs and objectives from a single year to ten. The United States used foreign aid to significant effect during the Cold War. Flexibility in what and how to spend, as well as the time horizon on which success was measured (noting the struggle with the Soviet Union was the central objective) were extremely important. In the last 15–20 years, and in line with shorter-term goals (e.g., health), the time horizon for gauging success has shortened to 1–2 years. This is counterproductive. Democracy, rights, and governance programming—as well as initiatives in other sectors germane to competition—requires longer-term investment to develop strong and resilient institutions, political parties, and processes. US agencies and implementing partners need longer project times to maximize impact.

Limit branding waivers. Projects or initiatives funded by US foreign aid typically are branded as “from the American people,” and include the funding agency’s logo (e.g., that of USAID) to enable attribution for the work to the United States. Yet, the United States often allows organizations implementing foreign-aid projects to forego this branding requirement—thereby granting a waiver—on security or other grounds. For example, an NGO offering training to local farmers in an area contested by militias known to have anti-American views might request a waiver citing potential risk to personnel from said armed groups. Similar exceptions are granted for construction or other projects in areas perceived to be contested or at risk. Meanwhile, there are hospitals, schools, trainings, and so on in the same areas with “from China” branding readily visible. The United States benefits from populations and governments knowing who provides aid, and its marketing needs to reflect as much. The United States should only issue waivers when said branding could pose harm to implementers or beneficiaries, or when it is counterproductive to achieving results.

Focus on advancing interests, rather than “localization” targets. Under current Administrator Samantha Power’s leadership, USAID has articulated a commitment to the localization of US foreign assistance. This includes, but is not limited to, channeling a greater portion of US foreign assistance to local partners and taking additional steps to ensure US-funded projects build sustainable capacity of these local organizations. The United States has considered requiring international nongovernmental organizations that receive the “primary” grant from USAID to allocate a set percentage—up to 20 percent—to go directly to local partners. The rationale for this change, which the Barack Obama administration shared, is that US foreign assistance should help build local capacity to address needs. The intent is noble, but this arguably detracts from US foreign assistance achieving its actual and main intent—advancing US interests.

Rather than set aside an arbitrary amount of foreign aid for channeling to local NGOs, USAID and the State Department should pursue partnership approaches best positioned to achieve US interests in the target country. In most, if not all, cases, this will involve working through international NGOs that collaborate with—and, as needed, build the capacity of—local partners. Foreign aid should focus on building capacity and localizing aid, insofar as doing so advances US interests.

Conclusion

The United States’ overall approach to statecraft—how it forms strategy and uses tools to execute that strategy—has not caught up to the state of the world today. The current approach too often places bureaucratic prerogatives above policy priorities. The United States needs to be on high alert, shaping all aspects of government work toward its competition with China.

Patrick Quirk, PhD, is vice president for strategy, innovation, and impact at the International Republican Institute (IRI) and nonresident senior fellow in the Atlantic Council’s Scowcroft Center for Strategy and Security.

Caitlin Dearing Scott is the director for countering foreign authoritarian influence at the International Republican Institute.

The authors would like to thank Owen Myers for his research assistance.

The Scowcroft Center for Strategy and Security works to develop sustainable, nonpartisan strategies to address the most important security challenges facing the United States and the world.

1 See, for example: the Countering the PRC Malign Influence Fund Authorization Act, https://www.congress.gov/bill/118th-congress/house-bill/1157/text?format=txt&overview=closed.

2 Matt Schrader and J. Michael Cole, “China Hasn’t Given up on the Belt and Road,” Foreign Affairs, February 7, 2023.

3 “Countries of the Belt and Road Initiative,” Green Finance and Development Center, last visited April 3, 2023, https://greenfdc.org/countries-of-the-belt-and-road-initiative-bri/?cookie-state-change=1678461024145.

4 David Shulman, ed., “A World Safe for the Party: China’s Authoritarian Influence and the Democratic Response,” International Republican Institute, February 2021, https://www.iri.org/wp-content/uploads/2021/02/bridge-ii_fullreport-r7-021221.pdf; Caitlin Dearing Scott and Matt Schrader, eds., “Coercion, Capture, and Censorship: Case Studies on the CCP’s Quest for Global Influence,” International Republican Institute, September 2022, https://www.iri.org/resources/coercion-capture-and-censorship-case-studies-on-the-ccps-quest-for-global-influence/.

5 Jonathan Cheng, “China Is Starting to Act Like a Global Power,” Wall Street Journal, March 22, 2023, https://www.wsj.com/articles/china-has-a-new-vision-for-itself-global-power-da8dc559.

6 “China’s Global Development Initiative Is Not as Innocent as It Sounds,” Economist, June 9, 2022, https://www.economist.com/china/2022/06/09/chinas-global-development-initiative-is-not-as-innocent-as-it-sounds.

7 Ibid.

8 Caitlin Dearing Scott and Isabella Mekker, “How China Exacerbates Global Fragility and What Can be Done to Bolster Democratic Resilience to Confront It,” Modern Diplomacy, September 18, 2021, https://moderndiplomacy.eu/2021/09/18/how-china-exacerbates-global-fragility-and-what-can-be-done-to-bolster-democratic-resilience-to-confront-it/.

9 Alice Ekman, “China’s Global Security Initiative,” European Union Institute for Security Studies, March 2023, https://www.iss.europa.eu/sites/default/files/EUISSFiles/Brief_5_China%27s%20Global%20Security%20Initiative.pdf; “China’s Paper on Ukraine and Next Steps for Xi’s Global Security Initiative,” US-China Economic and Security Review Commission, March 7, 2023, https://www.uscc.gov/sites/default/files/2023-03/Chinas_Paper_on_Ukraine_and_Next_Steps_for_Xis_Global_Security_Initiative.pdf; “Xi Jinping: Time for China to Take Centre Stage,” BBC, October 18, 2017, https://www.bbc.com/news/world-asia-china-41647872.

10 Ekman, “China’s Global Security Initiative.”; “China’s Paper on Ukraine and Next Steps for Xi’s Global Security Initiative.”

11 Bill Bishop, “Xi Proposes a “Global Civilization Initiative; PBoC; Missing Bond Date; Guo Wengui,” Sinocism, March 15, 2023, https://www.sinocism.com/p/xi-proposes-a-global-civilization.

12 Shulman, “A World Safe for the Party.”

13 “China’s Paper on Ukraine and Next Steps for Xi’s Global Security Initiative.”

14 “Patrol and Persuade,” Safeguard Defenders, December 2022, https://safeguarddefenders.com/sites/default/files/pdf/Patrol%20and%20Persuade%20v2.pdf.

15 See, for example: Paul Stronski, “The Return of Global Russia: An Analytical Framework,” Carnegie Endowment for International Peace, December 14, 2017, https://carnegieendowment.org/2017/12/14/return-of-global-russia-analytical-framework-pub-75003.

16 Edward Wong, “Russia Secretly Gave $300 Million to Political Parties and Officials Worldwide, U.S. Says,” New York Times, September 13, 2022, https://www.nytimes.com/2022/09/13/us/politics/russia-election-interference.html.

17 David Alere Garcia and Noe Torres, “Russia Meddling in Mexican Election: White House Aide McMaster,” Reuters, January 7, 2018, https://www.reuters.com/article/us-mexico-russia-usa/russia-meddling-in-mexican-election-white-house-aide-mcmaster-idUSKBN1EW0UD.

18 See, for example: “Pillars of Russia’s Disinformation and Propaganda Ecosystem,” Global Engagement Center, August 2020, https://www.state.gov/wp-content/uploads/2020/08/Pillars-of-Russia%E2%80%99s-Disinformation-and-Propaganda-Ecosystem_08-04-20.pdf; “Disinformation: A Primer on Russian Active Measures and Influence Campaigns,” Select Committee of Intelligence of the United States Senate, March 30, 2017, https://www.govinfo.gov/content/pkg/CHRG-115shrg25362/html/CHRG-115shrg25362.htm.

19 Cecilia Anesi, Lorenzo Bagnole, and Martin Laine, “Italian Politicians and Big Business Bought into Russian Occupation of Crimea,” Organized Crime and Corruption Reporting Project, February 3, 2023, https://www.occrp.org/en/investigations/italian-politicians-and-big-business-bought-into-russian-occupation-of-crimea.

20 Paul Stronski, “Russia’s Growing Military Footprint in Africa’s Sahel Region,” Carnegie Endowment for International Peace, February 28, 2023, https://carnegieendowment.org/2023/02/28/russia-s-growing-footprint-in-africa-s-sahel-region-pub-89135.

21 “Wagner Group, Yevgeniy Prigozhin, and Russia’s Disinformation in Africa,” Global Engagement Center, May 24, 2022, https://www.state.gov/disarming-disinformation/wagner-group-yevgeniy-prigozhin-and-russias-disinformation-in-africa/.

22 “About RT,” RT, last visited April 7, 2023, https://www.rt.com/about-us/.

23 James P. Grant, “Perspectives on Development Aid: World War II to Today and Beyond,” Annals of the American Academy of Political and Social Science 442 (1979), 1–12, http://www.jstor.org/stable/1043475.

24 For an overview of US foreign-assistance categories, purposes, and spending, see: “About Us,” US Office of Foreign Assistance Resources, last visited June 8, 2023, https://www.state.gov/about-us-office-of-foreign-assistance.

25 Cory R. Gill, Marian L. Lawson, and Emily M. Morgenstern, “Department of State, Foreign Operations, and Related Programs: FY2022 Budget and Appropriations,”Congressional Research Service, January 23, 2023, https://crsreports.congress.gov/product/pdf/R/R47070.

26 “Summary of the Fiscal Year 2022 National Defense Authorization Act,”US Senate Armed Services Committee, last visited June 8, 2023, https://www.armed-services.senate.gov/imo/media/doc/FY22%20NDAA%20Agreement%20Summary.pdf;“Program Acquisition Cost by Weapons System,” US Department of Defense, Under Secretary of Defense (Comptroller)/Chief Financial Officer, June 8, 2023, https://comptroller.defense.gov/Portals/45/Documents/defbudget/FY2022/FY2022_Weapons.pdf.

27 DFC was authorized in October 2018 and officially created in 2019. Authorized by the BUILD act, DFC was formed by merging the Overseas Private Investment Corporation (OPIC) and the Development Credit Authority (DCA) of USAID.

28 “The Case for Democracy: Does Democracy Cause Economic Growth, Stability, and Work for the Poor?” Varieties of Democracy Institute, May 11, 2021, https://v-dem.net/media/publications/c4d_1_final_2.pdf.

29 Steven E. Finkel, Anibal Perez-Linan, and Mitchell A. Seligson, “The Effects of US Foreign Assistance on Democracy Building, 1990–2003,” World Politics 59, 3 (2007), https://www.jstor.org/stable/40060164.

30 “Democracy Report 2023: Defiance in the Face of Autocratization,” Varieties of Democracy Institute, 2023, https://www.v-dem.net.

31 “The Case for Democracy.”

32 Kristen A. Cordell, “Chinese Development Assistance: A New Approach or More of the Same?” Carnegie Endowment for International Peace, March 2023, https://carnegieendowment.org/2021/03/23/chinese-development-assistance-new-approach-or-more-of-same-pub-84141; Gerda Asmus, Andreas Fuchs, and Angelika Müller, “BRICS and Foreign Aid,” AIDDATA, August 1, 2017, https://www.aiddata.org/publications/brics-and-foreign-aid; Axel Dreher, et al., “African Leaders and the Geography of China’s Foreign Assistance,” Journal of Development Economics 140 (2019), 44-71, https://doi.org/10.1016/j.jdeveco.2019.04.003.

33 Robert A. Blair, Robert Marty, and Philip Roessler, “Foreign Aid and Soft Power: Great Power Competition in Africa in the Early Twenty-First Century,” British Journal of Political Science 52, 3 (2022), 1355–1376, https://www.cambridge.org/core/journals/british-journal-of-political-science/article/abs/foreign-aid-and-soft-power-great-power-competition-in-africa-in-the-early-twentyfirst-century/55AECCCE48807135072DCB453ED492F1 .

34 Pierre Mandon and Martha T. Woldemichael, “Has Chinese Aid Benefited Recipient Countries? Evidence from a Meta-Regression Analysis,” International Monetary Fund, February 25, 2023, https://www.imf.org/en/Publications/WP/Issues/2022/02/25/Has-Chinese-Aid-Benefited-Recipient-Countries-Evidence-from-a-Meta-Regression-Analysis-513160; Paul Stronski, “Late to the Party: Russia’s Return to Africa,” Carnegie Endowment for International Peace, October 16, 2019, https://carnegieendowment.org/2019/10/16/late-to-party-russia-s-return-to-africa-pub-80056; Rosana Himaz, “Challenges Associated with the BRI: a Review of Recent Economics Literature,” Service Industries Journal 41 (2021), https://www.tandfonline.com/doi/abs/10.1080/02642069.2019.1584193.

35 Michael J. Mazar, et al., “Stabilizing Great-Power Rivalries,” RAND, 2021, https://www.rand.org/pubs/research_reports/RRA456-1.html.

36 See, for example: Benjamin E. Goldsmith, Yusaku Horiuchi, and Terence Wood, “Doing Well by Doing Good: the Impact of Foreign Aid on Foreign Public Opinion,” Quarterly Journal of Political Science, December 1, 2013, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2361691.

37 Daniel F. Runde, “US Foreign Assistance in the Age of Strategic Competition,” Center for Strategic and International Studies, May 14, 2020, https://www.csis.org/analysis/us-foreign-assistance-age-strategic-competition.

38 Andrew S. Natsios, “Foreign Aid in an Era of Great Power Competition,” Prisms 8, 4 (2020), 101–119, https://ndupress.ndu.edu/Media/News/News-Article-View/Article/2217683/foreign-aid-in-an-era-of-great-power-competition/.

39 Curt Tarnoff, “The Marshall Plan: Design, Accomplishments, and Significance,”Congressional Research Service, January 18, 2018, https://sgp.fas.org/crs/row/R45079.pdf; Hal Brands, “Forging a Strategy” in The Twilight Struggle: What the Cold War Teaches Us about Great-Power Rivalry Today (New Haven, CT: Yale University Press, 2022), 13–29, https://doi.org/10.2307/j.ctv270kvpm.5.

40 Najam Rafique, “US Foreign Assistance: A Study of Aid Mechanism,” Strategic Studies 12, 1 (1988), 55–77, http://www.jstor.org/stable/45182762.

41 Brands, “Forging a Strategy.”

42 Hal Brands, “Contesting the Periphery” in The Twilight Struggle: What the Cold War Teaches Us about Great-Power Rivalry Today (New Haven, CT: Yale University Press, 2022), 76–102, https://doi.org/10.2307/j.ctv270kvpm.8.

43 “U.S. Foreign Assistance to Latin America and the Caribbean: FY2022 Appropriations,”Congressional Research Service, March 31, 2022, https://sgp.fas.org/crs/row/R47028.pdf; Keith Griffin, “Foreign Aid after the Cold War,” Studies in Globalization and Economic Transitions (London: Palgrave Macmillan, 1996), https://doi.org/10.1057/9780230372139_3.

44 Feraidoon Shams B., “American Policy: Arms and Aid in Africa,” Current History 77, 448 (1979), 9–13. http://www.jstor.org/stable/45314708.

45 Mark Webber, “The Third World and the Dissolution of the USSR,” Third World Quarterly 13, 4 (1992), 691–713, http://www.jstor.org/stable/3992384.Ibid, Brands 2022.

46 Alexander R. Alexeev, “The New Soviet Strategy in the Third World,”RAND, 1983; Hal Brands, “American Grand Strategy: Lessons from the Cold War,” Foreign Policy Research Institute, January 25, 2016, https://www.fpri.org/article/2015/08/american-grand-strategy-lessons-from-the-cold-war/.

47 Susan B. Epstein and Matthew C. Weed, “Foreign Aid Reform: Studies and Recommendations,” Congressional Research Service, July 28, 2009, https://sgp.fas.org/crs/row/R40102.pdf.

48 Ibid.

49 Forrest Hylton, “Plan Colombia: The Measure of Success,” Brown Journal of World Affairs 17, 1 (2010), 99–115, http://www.jstor.org/stable/24590760.

50 “Document Services: DOD Should Take Actions to Achieve Further Efficiencies,”Government Accountability Office, October 2018, https://www.gao.gov/assets/gao-19-71.pdf. Printing costs have continued to rise in the service-branch budget through FY23, based on analysis of Department of Defense budget-justification documents.

The post Maximizing US foreign aid for strategic competition appeared first on Atlantic Council.

What policymakers need to know about artificial intelligence

Philip L. Frana — Thu, 29 Jun 2023 13:00:00 +0000

Defining artificial intelligence
How artificial intelligence works
Machine learning
Deep learning
Global competition and controversies
Dangers, myths, and misconceptions

Despite an abundance of books, articles, and news reports about artificial intelligence (AI) as an existential threat to life and livelihoods, the technology is not a grave menace to humanity in the near term. Undeniably, the comments of deep learning pioneer Geoffrey Hinton, who resigned from Google, are concerning. “I have suddenly switched my views on whether these things are going to be more intelligent than us. I think they’re very close to it now and they will be much more intelligent than us in the future. How do we survive that?” Hinton said in a recent interview. Hinton fears that AI may come to intentionally or inadvertently exert control over humanity, a hypothetical scenario known as an “AI takeover.” He is also worried about the potential spread of AI-generated misinformation or the possibility that an oppressive leader may attempt to use AI to create lethal autonomous weapons systems (LAWS). But AI programs have no agency to act on their own. Generative AI language models currently operate only within the controlled environments of computer systems and networks, and their capabilities are constrained by training datasets and human uses.

The generative transformer architecture that is powering the current wave of artificial intelligence may reshape many areas of daily life. OpenAI CEO Sam Altman has been making a global tour to engage with legislators, policymakers, and industry leaders about his company’s pathbreaking Generative Pre-trained Transformer (GPT) series of large language models (LLMs). While acknowledging that AI could inflict damage on the world economy, disrupt labor markets, and transform global affairs in unforeseen ways, he emphasizes that responsible use and regulatory transparency will allow the technology to make positive contributions to education, creativity and entrepreneurship, and workplace productivity.

At present, however, Altman’s generative AI is most useful in improving natural language processing and machine translation. Generative transformers are flexible and scalable models that outperform recurrent neural networks—which made voice-activated assistants on smartphones possible—in certain tasks, such as capturing relationships between different words within long documents and answering questions about them. Examples include GPT, BERT, T5, and LaMDA. They do not on their own possess independent capabilities associated with artificial general intelligence or superintelligence, and it is unlikely that a truly versatile human-like cognitive AI will become a reality before 2050. Even an ultrasmart AI program may never bootstrap itself into consciousness. And there is almost zero chance that—as in the Roko’s Basilisk thought experiment—a spiteful and malicious AI will emerge that rewards those humans who assist it and punishes any who dare attempt to stop it. As Sam Altman puts it “GPT4 is a tool not a creature.”

What is certain is that AI tools and methods will be crucial for confronting a slew of slow-motion catastrophes unfolding across the world. COVID-19 has claimed almost seven million lives worldwide, and based on excess mortality likely many more. Strife, stress, and conflict endangers democracies on both sides of the Atlantic. Unschooling and remote work movements mingle with cultural and political divisions and societal disruptions. Climate change brings extremes in heat, drought, and wildfires along with melting ice caps and sea level rise.

Machine learning (ML) is able to tackle these issues head-on. Admittedly, it has a long way to go before it’s a feasible tool for pandemic control, but AI is attaining good performance in the diagnosis, evaluation, and prognosis of infected individuals; predictions of pandemic spread; and COVID-19 drug discovery as well as vaccine development. Responsible applications of AI are strengthening communities and empowering democracies. Over the past few years, this technology played a particularly powerful role in knitting humanity together virtually amidst the spread of disease, snarled traffic, scarce fuel, and the high cost of living. AI-enabled technologies are also monitoring the world’s climate, agriculture, and economies, as well as providing solutions to feed and clothe the world without further damaging the environment. They can facilitate many paths to sustainable planet-wide development. Green AI technologies representative of the convergence of social innovation and technological change include ecobots, biodiversity and ecosystem services, and renewable energy solutions.

Nonetheless, humanity is living in uncertain, complex, and ambiguous times. But as Sun Tzu explained in The Art of War, in the midst of chaos, there is also opportunity. It is not surprising that the current generation has invented AI and social media-fueled empathy scorecards intended to replace or supplement credit scores, prescription video games and other “calmtainments,” and AI-assisted chatbot therapists (Woebot and Wysa). AI is being brought to bear against the labor squeeze and workers’ demands for higher wages, supply chain disruptions and volatilities in manufacturing, and the omnipresent threats of wars of occupation.

Defining artificial intelligence

The ultimate goal of AI is to emulate human-like thinking or perform tasks that normally require human activity. John McCarthy, Marvin Minsky, Nathaniel Rochester, and Claude Shannon, in their original proposal to bring together mathematicians, cyberneticists, and information processing innovators for a formative 1956 summer research workshop on AI at Dartmouth College, contended that “every aspect of learning or any other feature of intelligence can be so precisely described that a machine can be made to simulate it.” AI can be subdivided in several different ways, but the major branches are usually described as artificial narrow intelligence (ANI), artificial general intelligence (AGI), and artificial superintelligence (ASI).

ANI is the branch where the overwhelming majority of AI-inclined developers work. ANI thereby represents the state of the art in AI. It is a category that includes all useful applications of AI to specific problems such as calculating risks and reducing errors, handling repetitive or boring tasks, making informed recommendations or decisions quickly, or automating job duties that are difficult or dangerous. ANI developers are rarely concerned about whether their AI systems are capable of true cognition, awareness, metacognition, or affectivity. Instead, they are content to regard them as models for understanding intelligent behavior and building useful tools. Common areas of activity in ANI are speech recognition, natural language processing, chatbots, search engines, recommender systems, digital assistants, computer vision, image recognition, and machine translation. Every sort of machine intelligence encountered in daily life is limited to specific tasks and knowledge domains that are not readily translated into other tasks or domains irrespective of how sophisticated they are.

On the other hand, AGI and ASI have as their shared goal the achievement of a complete or comprehensive range of human intelligence capabilities, including perhaps even consciousness. In AGI and ASI, the model is the mind; the map is the territory. Should the goal be reached, some researchers believe ASI will surpass human intelligence, with cognitive capacities well beyond those of the smartest people and in a wide variety of domains. An ASI’s “mind” would not just be different in degree from the human one; it would be different in kind. Indeed, some researchers assume that any potential candidate for ASI would require a self-modifying property. Many people, including, most famously, Bill Gates, Stephen Hawking, and Elon Musk, have spoken out about AGI/ASI safety and control. Stuart Russell and Peter Norvig, authors of the leading textbook on AI, note that “[a]lmost any technology has the potential to cause harm in the wrong hands, but with AI and robotics, we have the new problem that the wrong hands might belong to the technology itself.” Others have been more sanguine. Neuroscientist Anthony Zador and computer scientist Yann LeCun, for example, suggest that there is no reason why a machine would develop a self-preservation instinct or evolve into a dangerous competitor.

How artificial intelligence works

The typical AI developer writes code—sometimes employing the assistance of context-aware intelligent code-completion software like IntelliSense or Copilot. At the core of all AI systems written today are intelligent agents. The classical approach to AI is in the form of sense-think-act: agents perceive their environment using sensors, consider choices and make decisions, and react using effectors. They may be physical (robots) or virtual (software) and are often both. Agents now have all sorts of different abilities, goals, preferences, knowledge representations, and memories of past experiences. Humans themselves are considered very complex intelligent agents by AI developers, albeit biological ones. This is why it is sometimes said that the “holy grail” of AI is to understand man as a machine.

Agents are ubiquitous in everyday life. Siri, Cortana, and the Google Assistant are agents, as are tabletop smart home appliances like Amazon Echo, Google Home, Samsung Bixby, Xiaomi Xiao Ai, and Apple HomePod. Agents are also embedded in many autonomous and semiautonomous robotic devices like the Roomba vacuum cleaner, Tesla driver-assistance system, and General Atomics Gray Eagle Extended Range unmanned aerial military drone. Large, pretrained language models are the foundation of the latest—potentially disruptive and transformative—conversational agents like Google Bard, Jasper Chat, OpenAI’s ChatGPT, and Microsoft’s Bing chatbot.

Practitioners of symbolic AI, a dominant early approach to simulating humanlike cognition, compared the brain to a sophisticated computer program. From the mid-1950s and continuing into the 1980s, computer scientists created general and specific problem solver programs. Software developers also created general inference engines upon which specialized rule bases could be applied interchangeably. These so-called expert systems consisted of heuristics or rules of thumb developed from direct interviews with experts and professionals (e.g., physicians, lawyers, mechanics, and chemists). Heuristic programming assumed as a given that an expert is a specialist.

Expert knowledge, however, is rarely fixed. Indeed, it is regularly updated through new discoveries and experience. Heuristic systems struggle to keep up with all but the most predictable definitions and structured reasoning methods. AI researchers describe this as the “knowledge acquisition bottleneck.” Training an AI program to serve as a clinical decision support system, for example, is only feasible if there is a reasonably efficient way to keep up with an exponentially growing reservoir of medical knowledge and know-how. Often, the domain expert and the programmer find it difficult to maintain their systems and keep them current.

Knowledge engineers argue among themselves about whether the right approach is to carefully simulate the reasoning abilities of experts in models of human information processes or rather to discover entirely new methods for weighing evidence that can only be accomplished using computers. Ironically, as expert system prototypes proliferated, they became more specialized, limited in scope, and fragmentary. The history of expert systems has proven that machines, like humans, perform better in specialized domains. Exceptional general-purpose thinking is rare among machines, and perhaps also among human beings.

Expert systems gave way to directly mining the data of extremely large numbers of cases. Data mining requires figuring out how to represent knowledge and extract useful patterns through automatic or semiautomatic analyses so that they might be used effectively. Data mining techniques include cluster analysis, anomaly detection, and association rule mining. This movement away from the primacy of experts has been likened to the demise of the Greek Oracle of Delphi.

By the 1990s, connectionist approaches featuring artificial neural networks (ANNs) eclipsed symbolic AI in popularity. The metaphor for the connectionist approach to AI is the brain as a collection of billions of neurons that both wire and fire together. The application of neural networks to AI also dates to the 1950s but had fallen out of favor until resuscitated by Hinton, the cognitive psychologist who recently left Google, and others who described a new procedure called “backpropagation” for training multilayered neural networks. The connectionist approach became even more exciting as advances in computing hardware and schemes for handling large volumes of structured, semi-structured, and unstructured data (“big data”) made it possible to improve the efficacy of neural networks.

Machine learning

ML today is a subset of AI which relies on both the symbolic and neural network approaches. The synthesis of neuro-symbolic AI and development of hybrid architectures is relatively new. Computer scientists use ML and data analytics to train algorithms and neural networks with statistical methods to discern patterns, make classifications, predict outcomes, and uncover significant insights from available masses of information. In ML, models of learning are used to dexterously organize the capabilities of intelligent agents as they improve themselves using data extracted from online systems or the environment. ML is divided into roughly three categories—supervised, unsupervised, and reinforcement learning.

In supervised learning, labeled data are used to train algorithms. The computer is “taught” to recognize general rules using “training data” (labeled inputs and desired outputs). Supervised learning algorithms may engage in active learning to label new data points with desired outputs, classification to organize data into relevant categories, regression analysis to investigate relationships between independent features or variables and dependent variables or outcomes, or similarity learning, where the goal is to measure the resemblance or relatedness between things.

In unsupervised learning, the algorithm discovers structure, features, and insights from unlabeled data. Unsupervised learning is helpful where common properties of the dataset are unknown or poorly understood. Additionally, unsupervised learning is helpful in solving clustering and association-type problems. Clustering algorithms group data based on similarities and differences. Marketing companies often use clustering and demographic segmentation of customers to identify and group households that are similar to one another in wealth, buying behavior, or lifestyle. These clusters are given names like Married Sophisticates, Penny Pinchers, Skyboxes and Suburbs, Summit Estates, Shotguns and Pickup Trucks, Rolling Stones, Single City Struggles, Aging Upscale, and Timeless Elders. Association algorithms find interesting relationships between variables. Association rule learning can be useful in market-based analyses of customer purchases, allowing retailers to recognize relationships between items that customers frequently buy together and predict the likelihood of purchases of an item based on the occurrence of other items in an individual transaction.

A computer performs reinforcement learning when it learns through interaction with the environment and feedback to achieve a predefined goal or maximize a reward. In reinforcement learning, the AI improves by first making mistakes. Reinforcement learning has applications in teaching self-driving cars to avoid obstacles and stay on the road, training AI non-player characters in video games, and instructing caregiver robots on how to grasp common household objects.

Deep learning

Deep learning is a type of ML that depends primarily on ANNs and training data. The neural networks train by imitating the natural neural interconnectivity of the brain using layers of nodes and connections. These nodes are composed of various inputs and weights, a given threshold, and an output value. When the output value surpasses the predefined threshold, it “fires” like a biological neuron, activating the node and passing data along to the next layer of the network. AlexNet, one of the pioneering technologies in the field of computer vision, was designed by Hinton and his students. This deep learning tool used to analyze visual imagery is composed of eight layers—five convolutional layers, two hidden layers, and one output layer. AlexNet was trained on graphics processing units (GPUs). It outperformed all other challengers in the 2012 ImageNet Large Scale Visual Recognition Challenge. Deep neural networks and platforms are employed in many contexts today; they promote cybersecurity (Deep Instinct), predict criminal recidivism (COMPAS Core), make early diagnoses in oncology (Behold.ai), teach next-gen driverless cars (Tesla, Waymo, Nvidia), and boost the creativity of artists (DALL-E, Stable Diffusion) and writers (GPT-4, Charisma). Generative transformer models are a prime example of deep learning, and they are revolutionary in their ability to quickly find relationships and capture context across large datasets.

Computational creativity is one subfield of AI that has been dramatically reshaped by deep learning. Computational creativity applications attempt to generate original ideas and artifacts. These “generative AI” applications are transforming our understanding of machines as helpmates to humans and altering bedrock conceptions of novelty. Is the goal to replicate human storytelling or to create new media for storytelling? Can an AI agent create a real emotional connection with a person? Can a machine have an original thought or imagination? How would an AI program recognize that something is imaginary? In a world of computational creativity, some common tropes and normative modes of seeing, hearing, and knowing may have to be unlearned.

All sorts of possibilities are being explored with generative AI. The annual National Novel Generation Month (NaNoGenMo) contest is the brainchild of computer programmer and internet artist Darius Kazemi. NaNoGenMo is the artificial spiritual twin of the National Novel Writing Month (NaNoWriMo), a nonprofit organization that encourages human authors to find their voices by banging out drafts of fifty-thousand-word novels in November. Programmers following Kazemi’s rules instead write code that generates fifty thousand words of machine-made fiction. NaNoGenMo provides a standard corpus of public domain lists and texts for rapid prototyping, but participants use all sorts of public domain writings to train their AIs. In the NaNoGenMo submission The Seeker, the intelligent agent is at once algorithm, agent, protagonist, and narrator. The Seeker reads differently each time because the code randomly shuffles in a new selection from its corpus to parse, deconstruct, and reconstruct.

Today, humans and artificial intelligences have joined forces to tell prize-worthy stories like The Day a Computer Writes a Novel, which passed the first round of screening for the Hoshi Shinichi Literary Award in Japan, and 1 the Road published by Jean Boîte Éditions. The author of 1 the Road, Ross Goodwin, was a speechwriter in the Obama administration. Goodwin trained a Long Short-Term Memory Recurrent Neural Network (LSTM-RNN) with three different sets of texts (science fiction, poetry, and “bleak” writings) totaling sixty million words. 1 the Road is particularly interesting because the AI’s input is supplemented using sensors—a video camera, microphone, GPS device, and clock timer—exposed to the sights and sounds of a road trip from New York to New Orleans. Typically, large language models are trained on massive amounts of textual data and can be tens of gigabytes—even petabytes—in size. Researchers are concerned about running low on this kind of data to train models, which means that accessing data from other sources such as audio dialogue, images, spreadsheets and databases, and video clips will become increasingly important.

In this networked world exposure to content is constant. Generative AI promises to exponentially increase the amount created annually. Generative AI applications today are spiritedly responding to an apparent “creativity crisis” among human beings as measured by a thirty-year decline in scores on the Torrance Tests of Creative Thinking, a prominent test for human creativity. Generative AI has manufactured all sorts of objects, discoveries, and/or performances. However, some examples of computer-aided creativity are quite old. One precedent is Alan Turing’s imitation game. Another is the general problem solver of AI pioneers Herbert Simon, Allen Newell, and John Clifford Shaw.

In 1958, Simon and Newell wrote that “within ten years a digital computer will write music that will be accepted by critics as possessing considerable aesthetic value.” This prediction has now been fulfilled by the subfield of generative music and algorithmic composition. One of the most famous examples is David Cope’s Experiments in Musical Intelligence (“Emmy”). Emmy is an algorithmic composer capable of analyzing existing musical compositions, rearranging and recombining them, and ultimately inventing new works that are indistinguishable from those of Johann Sebastian Bach, Frédéric Chopin, and Wolfgang Amadeus Mozart. Shimon at Georgia Tech University is a marimba-playing improvisational jazz-bot musician. DeepMusic.AI, OpenAI’s MuseNet, and the Magenta Music Transformer are all online tools for creating music with deep learning and generative AI. Recently, two programmers have been trying to make music infringement lawsuits obsolete by securing copyright to every combination of eight quarter notes in the C major scale using tones generated with the Musical Instrument Digital Interface (MIDI) standard electronic music protocol. And, similar to NaNoGenMo, a song contest has sprung up that is exclusively for artificially generated music. The first AI “Eurovision Song Contest” winner, the Australian group Uncanny Valley, sampled kookaburra bird calls and koala grunting noises. Additionally, there are AI painters, Dungeons & Dragons dungeon masters, journalists, filmmakers, dancers, stunt performers, and theater players.

Global competition and controversies

A number of countries have established national strategies, initiatives, and funding mechanisms to promote AI innovation and adoption. Former US President Donald J. Trump established the American AI Initiative by signing an executive order in 2019. The order did not allocate any direct federal funding, but it highlighted the significance of employing AI in a responsible manner and taking action to respond to significant investments made by other nations. In 2020, the US Congress passed the National AI Initiative Act. The National AI Initiative (NAII) establishes a coordinated program that spans the federal government. It is aimed at expediting AI research and development (R&D) to strengthen the country’s economic growth and national security. The act provides almost $6.5 billion in funding over five years for R&D, education, and standards related to AI. The National Science Foundation, the Department of Energy, the Department of Commerce, the National Aeronautics and Space Administration, and the Department of Defense will jointly oversee a nationwide network of interdisciplinary AI research institutes.

The US government’s efforts are partially motivated by China’s substantial investments in AI technology. The New Generation Artificial Intelligence Development Plan, announced in 2017, is the Chinese government’s national strategy for AI R&D. China hopes to overtake the United States by 2030 and establish the country as a global leader in the production of AI technology and talent. The major port city of Tianjin in northern China has declared its intention to establish reserves totaling ¥100 billion (equivalent to $15.7 billion) to bolster the AI industry, as well as a separate ¥10 billion fund to advance intelligent manufacturing. China passed a national law aimed at addressing ethical and regulatory concerns related to AI in 2021. In April 2023, the Cyberspace Administration of China issued regulations mandating that content generated by AI must align with the fundamental principles of socialism.

The Russian Federation also has a National AI Development Strategy designed to bolster investment in AI research, education, and industrial development. Somewhat surprisingly, the 2019 Russian AI strategic decree does not mention national defense, though it does emphasize the importance of AI for economic development and healthcare. The decree also does not mention budget, deadlines, or enforcement mechanisms. Due to the recent military conflicts in Libya, Syria, Nagorno-Karabakh, and Ukraine, it is anticipated that Russia will allocate significant resources toward developing AI systems for unmanned aerial drones, counter-drone technologies, and AI-powered surveillance systems.

Significant and unheralded projects are also underway in Africa. The African Union has unveiled an Artificial Intelligence Continental Strategy for Africa, which is intended to facilitate the participation of stakeholders, initiate capacity-building efforts, and fortify regulatory frameworks for AI technology and data management. Artificial Intelligence for Development in Africa (AI4D) is a four-year initiative launched in 2020 by Canada’s International Development Research Centre and Sweden’s International Development Cooperation Agency. The objective of AI4D is to team up with Africa’s government and scientific communities to encourage AI research, innovation, and talent. The ultimate aim is to elevate the standard of living for people in Africa and beyond. African nations are particularly concerned with issues of machine bias and ethics and wary of patterns of manipulation and abuse in the form of automated imperialism, algorithmic colonialism, and digital extractivism.

Canada, Australia, Japan, South Korea, Germany, France, and the United Kingdom also have significant national strategies to address challenges posed by a future empowered by AI. Many of these nations are worried about the likelihood of global competition in AI leading to an arms race or authoritarianism fueled by information technologies. Entrepreneurs, politicians, and engineers warn of an impending “AI Cold War.” An AI arms race to create near-autonomous weapons systems is in full swing, despite being a topic of controversy. The banning of these so-called killer robots may not even be practical. Governments around the world have developed a number of other controversial applications of AI, such as image recognition and mass surveillance, predictive policing, deepfakes and misinformation campaigns, and social credit scoring.

Dangers, myths, and misconceptions

AI can be destructive even when used as an instrument for creative discovery. One of the dangers of unleashing computational creativity tools is being submerged by a culture of automation that dampens individual creative expression and dialogue with human audiences, participants, and partners. In 2022, an AI-generated artwork took first place in a fine arts competition at the Colorado State Fair, which outraged many. Only months later, an internationally acclaimed photography competition—the Sony World Photography Awards—was won by an image generated using AI. Getty Images and established art communities are refusing to accept AI-generated masterpieces. But in general, AI is valuable because it empowers humanity with tools that extend bodies and minds and mitigates risks and perilous circumstances.

Deep learning pioneer and serial entrepreneur Andrew Ng has said that worrying about AI is like worrying about overpopulation on Mars. Artificial agents will not need to be excused or incarcerated for crimes and misdemeanors that upon analysis and reflection can be traced to human error, indifference, or greed. Whole brain emulation, artificial consciousness, technological singularity, and AI apocalypse are all well over the horizon. The threats that remain are still significant. The chief near-term dangers of AI technology are pervasive and more subtle. They include risks such as over-optimization, weaponization, deception and distraction, complexification, moral and practical deskilling, amplification of competition and conflict, job losses due to automation, and harms to human uniqueness, privacy, and accountability.

What lies behind the hype and fear of AI is a fundamental misunderstanding of current objectives, as well as severe shortsightedness. Most AI is meant to supplement human intelligence, not replace it. AI is intelligence augmentation until—and only if—humanity commits and finds ways to entirely remove human beings from the loop as creators, controllers, and decisionmakers. “Exiting the loop” will prove difficult: Humans are extraordinarily skilled at handling ambiguous situations, such as intuiting the emotional state of other drivers on the road. AI will not become human-like merely because humans anthropomorphize it either. An AI program does not try to learn (although it can improve through reinforcement learning methods); it plucks statistical patterns and distributions from training data using pipelines, algorithms, and parameters unglamorously selected behind the scenes by programmers. ANNs are not reasoning the way brains do, and adversarial ML involves no clashing of titans. Thinking about the past, present, and future of AI is imperative. When IBM said that the Jeopardy!-winning Watson AI would also revolutionize medicine, it in effect denied a century of hard-won gains in health informatics R&D (and has yet to achieve its lofty promises). It is not possible to simply wave our hands and say that quantum computing, DNA data storage, and neuromorphic chips will pave the way for an AI-infused next industrial revolution. Real progress in AI comes much more slowly, albeit with occasional surprising leaps forward, and ultimately depends on the real wants and needs of human beings.

Philip L. Frana is an associate professor in the Interdisciplinary Liberal Studies and Independent Scholars programs at James Madison University. His scholarly interests focus on the social and cultural aspects of robotics, automation, and information technology.

GeoTech Cues May 22, 2023

The regulators are coming for your AI

By Steven Tiell

The Group of Seven (G7) has lobbed the latest of three notable salvos in signaling that governments around the globe are focused on regulating Generative Artificial Intelligence (AI). The G7 ministers have established the Hiroshima AI Process, an inclusive effort for governments to collaborate on AI governance, IP rights (including copyright), transparency, mis/disinformation, and responsible […]

Technology & Innovation

GeoTech Cues Jan 25, 2023

AI generates new policy risk

By Jonno Evans

New AI tools will have a huge impact on how people work and live and can support innovation and productivity across sectors. But it is also important to be mindful of its potential for misuse. Governments, policymakers, and other stakeholders must be proactive to ensure that these tools are not exploited to cause harm.

Technology & Innovation

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Championing positive paths forward that societies can pursue to ensure new technologies and data empower people, prosperity, and peace.

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Lipsky cited by Bloomberg on Chinese digital yuan

rmurphy — Thu, 29 Jun 2023 12:59:37 +0000

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The disinformation landscape in West Africa and beyond

Tessa Knight, Jean le Roux — Thu, 29 Jun 2023 09:00:00 +0000

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Introduction

The prominence of West Africa, and Africa as a whole, within the global disinformation ecosystem cannot be ignored. A report by the Africa Center for Strategic Studies released in April 2022 identified twenty-three disinformation campaigns targeting African countries dating back to 2014. Of these campaigns, sixteen are linked to Russia.

The listed disinformation campaigns—nine of which were identified by the DFRLab—reveal two key points. First, there has been a marked increase in the number of publicly identified disinformation campaigns in recent years. Whether this is due to an increase in the scrutiny, analytical capacity, or efforts on the part of bad actors is unclear. Second, the characteristics of each of these influence operations are distinct—these operations target a wide variety of issues, such as elections, the war in Ukraine, commercial interests, and domestic and international politics.

Further, relations between France and francophone West Africa have, following years of amicable relations built on the back of military cooperation, seen a marked erosion that was underscored by the exit of the last of the French troops from Mali in August 2022. Anti-France and pro-Russia sentiments have surged contemporaneously, with overlapping narratives positioning Russia as a viable alternative to Western aid. When French forces began their departure from Mali in June 2022, Russian private military companies (PMCs) such as the Wagner Group stood ready to fill the void.

This report examines several influence operation case studies from the West African region, with a particular emphasis on Mali, Burkina Faso, Côte d’Ivoire, and Niger. The narratives, actors, and contexts supporting these influence operations are summarized alongside their impact on regional stability. Russian influence plays a significant role in these case studies, an unsurprising fact considering the geopolitical history of this region.

This report also includes case studies from outside the Sahel region, consisting of thematically distinct but strategically noteworthy influence campaigns from elsewhere on the continent. For example, the Nigerian government used social media influencers to suppress citizen participation in the #EndSARS movement. Elsewhere, the Ethiopian diaspora used innovative click-to-tweet campaigns to spread international awareness of the conflict in Ethiopia’s Tigray region. In South Africa, the rise in violent xenophobic demonstrations was precipitated by a popular social media campaign that normalized prejudice against foreign nationals.

The plethora of actors, targets, strategies, and tactics make a blanket approach to studying African disinformation networks difficult. The depth and breadth of these campaigns shows that Africa is facing the same challenges as the rest of the world insofar as disinformation is concerned. Moreover, the interest shown by foreign governments attests to the region’s geopolitical significance. This combination of geopolitical importance and a vulnerability to influence campaigns makes Africa a notable case study.

Background

Africa’s information environment is not monolithic Analog channels such as radio and film are used in conjunction with digital efforts to reach audiences, but Internet penetration rates and the accompanying reli- ance on analog media differ significantly from country to country For example, as of January 2022, Morocco, the Seychelles, and Egypt maintained Internet penetration rates of higher than 70 percent, nearly ten times the rate of the country with the lowest penetration rate, the Central African Republic (7 percent).

In the countries mentioned in the table above, Facebook and Instagram maintain a leading position insofar as social media penetration is concerned This can be partly ascribed to Facebook’s Free Basics service that “zero-rates” data (including Facebook and Instagram data) on participating mobile networks. These mobile networks can then bundle Facebook and Instagram data into a consumer’s service plan without the consumer having to pay extra for that data use Considering that mobile connections outstrip desktop connections, and that mo- bile data is more expensive than fixed broadband, it is clear why this has been effective to expand Facebook and Instagram’s footprint Meta shuttered the Free Basics program in some regions at the end of 2022 as the program’s spiritual successor – Meta Discover – was being rolled out The impact this will have on the information environment remains to be seen.

Social media and internet penetration rates in some of the African countries referenced in this report

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The Atlantic Council’s Digital Forensic Research Lab (DFRLab) has operationalized the study of disinformation by exposing falsehoods and fake news, documenting human rights abuses, and building digital resilience worldwide.

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CBDC Tracker update cited by Reuters

rmurphy — Wed, 28 Jun 2023 20:40:08 +0000

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“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Radio Free Europe/Radio Liberty

rmurphy — Wed, 28 Jun 2023 17:41:25 +0000

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CBDC Tracker update cited by La Nación

rmurphy — Wed, 28 Jun 2023 16:13:14 +0000

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CBDC tracker cited by Statista

mrashid — Wed, 28 Jun 2023 16:11:23 +0000

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CBDC Tracker update cited by CNBC Africa

rmurphy — Wed, 28 Jun 2023 16:09:50 +0000

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“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by UK Parliament

rmurphy — Wed, 28 Jun 2023 15:28:08 +0000

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Tran quoted in Bretton Woods Committee post on Paris Summit

rmurphy — Wed, 28 Jun 2023 13:48:37 +0000

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CBDC Tracker update cited by Yahoo! Finance

rmurphy — Wed, 28 Jun 2023 13:11:08 +0000

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Lessons from the Paris Summit for a New Global Financing Pact

Hung Tran — Tue, 27 Jun 2023 21:04:54 +0000

French President Emmanuel Macron has hosted the Summit for a New Global Financing Pact on June 22-23 in Paris “to rethink the global financial architecture” and to mobilize financial support for developing and low income countries (DLICs) facing the challenges posed by excessive debt, climate change, and poverty. Despite the grand title of the gathering, it has just produced a road map—basically a list of events and meetings in the next year and a half—and a score of progress reports on previous pledges by countries and international organizations.

The completion or near completion of those measures is indeed helpful to DLICs, even if the measures fall short of what is needed—the sustainable development gap of those countries has been estimated to be $2.5 trillion per year. What the DLICs really need are concrete initiatives and the less said about grand strategy the better. Dressing those initiatives up as parts of a “new global financial architecture” risks conflating them with the geopolitical conflict centered around changing or preserving the current world order. That conflation will only make it more difficult to develop the international consensus required to adopt those measures.

The Paris Summit showcases the potential and limits of the plurilateral approach

The Paris Summit brought together senior representatives of about thirty-two countries, international organizations such as the World Bank (WB) and the International Monetary Fund (IMF), civil society organizations advocating debt relief and climate financing for DLICs, as well as private-sector businesses. Besides Macron, presidents and prime ministers from South Africa, Brazil, Germany, China, and a dozen or so African countries attended. The United States was represented by Treasury Secretary Janet Yellen and Special Climate Envoy John Kerry. The Summit represents an example of a plurilateral approach where a relatively small group of countries get together around a common agenda instead of the multilateral approach involving all members of the international community. Other examples include the World Trade Organization (WTO), which has been able to push through a few plurilateral trade agreements on specific issues, having failed to facilitate any round of multilateral trade liberalization since its inception in 1995; and the IMF which has recognized that working with smaller groups of like-minded countries can be a practical way forward.

The Paris Summit exhibited the potential and limitations of the plurilateral approach. The results of the Summit were contained in the Chair’s summary of discussion, essentially reflecting participants’ appeals and statements of wishes rather than new commitments by countries. In fact the United States—a key country in any international undertaking—has been lukewarm at best about several proposals to raise funding, including worldwide taxation of CO2 emission in shipping and aviation, of financial transactions, and of fossil fuels in general. Yellen reiterated that multilateral development banks (MDBs) should try to optimize the use of their balance sheets to provide more finance to climate-related projects before asking members for more capital.

Concrete results from the Paris Summit

Nevertheless, the Paris Summit managed to produce two sets of results. One is a Road Map highlighting important events and meetings such as the G20 Summit in September in New Delhi and the IMF/WB annual meetings in October in Marrakech. Also noteworthy is the meeting of the 175-member International Maritime Organization in July to discuss the idea of taxing emissions from shipping, and the United Nations Summit on the Future in September 2024. The road map is useful in focusing international attention on important gatherings to push for further progress on the various commitments and initiatives already on the table.

More useful to DLICs are announcements of the completion or near completion of previous pledges. Specifically, President Macron expressed confidence that the 2009 pledge by developed countries to spend $100 billion a year to help DLICs deal with the impacts of climate change will be fulfilled later this year. The OECD has reported that in 2020 the total amount reached $83 billion—the failure to meet this promise on time has been a disappointment for DLICs. More positively, the IMF reported that it has met its goal of asking countries with excess SDR reserves to re-channel $100 billion of the SDRs allocated in 2021 to help DLICs—with $60 billion pledged for its Resilience and Sustainability Trust (RST) and Poverty Reduction and Growth Trust (PRGT). In particular, the RST is aiming to help DLICs deal with climate change through an exception to the short-term nature of IMF lending, offering loans with a 20-year maturity and a 10-year grace period.

The WB also outlined a toolkit that had been in the works for some time and includes offering a pause in debt repayments during extreme climate events (but only for new loans, not existing ones), providing new types of insurance for development projects (to help make those more attractive to private sector investors), and funding advance-warning emergency systems. In particular, it has announced the launching of a Private Sector Investment Lab to develop and scale up solutions to barriers to private investment in emerging markets. Progress has been reported in efforts by MDBs, especially the WB, to optimize their balance sheets according to the G20-endorsed Capital Adequacy Framework in order to be able lend $200 billion more over 10 years—with the hope of catalyzing a similar amount of investment from the private sector (which is easier said than done).

Most concretely, after years of procrastination, the official bilateral creditor committee agreed to restructure $6.3 billion of Zambia’s bilateral debt, a portion of its total public external liabilities of more than $18 billion. The deal extends maturities of bilateral debt to 2043, with a 3-year grace period; an interest rate of 1 percent until 2037 then rising to a maximum of 2.5 percent in a baseline scenario; but up to 4 percent if Zambia’s debt/GDP ratio improves sufficiently. In the baseline scenario, the present value (PV) of the debt will be reduced by 40 percent, assuming a 5 percent discount rate. This is lower than the 50 percent PV haircut accorded to some other countries in debt crises and is insufficient to meaningfully reduce Zambia’s debt load. Nevertheless it is helpful, especially in allowing Zambia to receive a $188 million disbursement from its $1.3 billion IMF program. The deal was reached contingent on Zambia negotiating comparable agreements with its private creditors and after the multilateral development banks (MDBs) pledged to provide concessional loans and grants to DLICs in crises.

Key takeaways

First and foremost, the results of the Paris Summit show that it is useful to maintain pressure on governments and international organizations to deliver on their pledges and commitments to various initiatives, as well as to agree to new ones to help DLICs. Even though each of the measures is insignificant compared to the overall needs, cumulatively many of them can provide tangible support to DLICs.

Secondly, progress on any of these initiatives requires agreement by all key countries, including China. For example, the Zambia debt restructuring deal was achieved only when China’s preferences have been honored—including no cut in the principal amount of debt, relying instead on maturity extension and low interest rates; classifying several loans including from China Development Bank as commercial, not official; and requiring other creditors including MDBs and private sector investors to participate on a comparable basis in the debt relief. Hopefully, the Zambia deal can represent a template to speed up the restructuring process for DLICs, as flagged in an earlier Atlantic Council post.

And that leads to the last takeaway from the Paris Summit, mentioned earlier. Countries should not let debt alleviation and climate change mitigation initiatives be used as political scoring points in the geopolitical conflict between the West and China. This will make it difficult to build the consensus required to move forward in these efforts.

Hung Tran is a nonresident senior fellow at the GeoEconomics Center, Atlantic Council, and former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Deputy Director of Foresight, Scowcroft Strategy Initiative

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Global Strategy 2023: Winning the tech race with China

Peter Engelke, Emily Weinstein — Tue, 27 Jun 2023 13:00:00 +0000

Strategy Paper Editorial Board
Executive summary
A 2033 What If…
Strategic context
Goals
Major elements of the strategy
Assumptions
Guidelines for implementation
Major risks
Conclusions and recommendations

As strategic competition between the United States and China continues across multiple domains, the Scowcroft Center for Strategy and Security in partnership with the Global China Hub, has spent the past year hosting a series of workshops aimed at developing a coherent strategy for the United States and its allies and partners to compete with China around technology. Based on these workshops and additional research, we developed our strategy for the US to retain its technological advantage over China and compete alongside its allies and partners.

Strategy Paper Editorial board

Executive editors

Frederick Kempe
Alexander V. Mirtchev

Editor-in-chief

Matthew Kroenig

Editorial board members

James L. Jones
Odeh Aburdene
Paula Dobriansky
Stephen J. Hadley
Jane Holl Lute
Ginny Mulberger
Stephanie Murphy
Dan Poneman
Arnold Punaro

Executive summary

The United States and the People’s Republic of China (PRC) are engaged in a strategic competition surrounding the development of key technologies. Both countries seek to out-compete the other to achieve first-mover advantage in breakthrough technologies, and to be the best country in terms of the commercial scaling of emerging and existing technologies.

Until recently, the United States was the undisputed leader in the development of breakthrough technologies, and in the innovation and commercial scaling of emerging and existing technologies, while China was a laggard in both categories. That script has changed dramatically. China is now the greatest single challenger to US preeminence in this space.

For the United States, three goals are paramount. The first is to preserve the US advantage in technological development and innovation relative to China. The second is to harmonize US strategy and policy with those of US allies and partners, while gaining favor with nonaligned states. The third is to retain international cooperation around trade in technology and in scientific research and exploration.

The strategy outlined in these pages has three major elements: the promotion of technologically based innovation; the protection of strategically valuable science and technology (S&T) knowhow, processes, machines, and technologies; and the coordination of policies with allies and partners. The shorthand for this triad is “promote, protect, and coordinate.”

On the promotion side, if the United States wishes to remain the leading power in scientific research and in translating that research into transformative technologies, then the US government—in partnership with state and local governments, the private sector, and academia—will need to reposition and recalibrate its policies and investments. On the protect side, a coherent strategy requires mechanisms to protect and defend a country’s S&T knowledge and capabilities from malign actors, including trade controls, sanctions, investment screening, and more. Smartly deploying these tools, however, is exceedingly difficult and requires the United States to hone its instruments in a way that yields only intended results. The coordination side focuses on “tech diplomacy,” given the need to ensure US strategy and policy positively influence as many allies, partners, and even nonaligned states as possible, while continuing to engage China on technology-related issues. The difficulty lies in squaring the interests and priorities of the United States with those of its allies and partners, as well as nonaligned states, and even China itself.

This strategy assumes that China will remain a significant competitor to the United States for years to come. It also assumes that relations between the United States and China will remain strained at best or, at worst, devolve into antagonism or outright hostility. Even if a thaw were to reset bilateral relations entirely, the US interest in maintaining its advantage in technological development would remain.

Any successful long-term strategy will require that the US government pursue policies that are internally well coordinated, are based on solid empirical evidence, and are flexible and nimble in the short run, while being attentive to longer-run trends and uncertainties.

There are two major sets of risks accompanying this strategy. Overreach is one because decoupling to preserve geopolitical advantages can be at odds with economic interests. A second involves harms to global governance including failure to continue cooperation surrounding norms and standards to guide S&T research, and failure to continue international science research cooperation focused on solving global-commons challenges such as pandemics and climate change.

The recommendations that follow from this analysis include the following, all directed at US policymakers.

Restore and sustain public research and development (R&D) funding for scientific and technological advancement.
Improve and sustain STEM (science, technology, engineering, and math) education and skills training across K–12, university, community college, and technical schools.
Craft a more diverse tech sector.
Attract and retain highly skilled talent from abroad.
Support whole-of-government strategy development.
Ensure private-sector firms remain at the cutting edge of global competitiveness.
Improve S&T intelligence and counterintelligence.
Ensure calibrated development and application of punitive measures.
Build out and sustain robust multilateral institutions.
Engage with China, as it cannot be avoided.

A 2033 What If…

Imagine that it is the year 2033. Imagine that China has made enormous strides forward in the technology arena at the expense of the United States and its allies and partners. Suppose that this outcome occurred because, between 2023 and 2033, China’s economy not only does not weaken substantially but instead goes from strength to strength, including (importantly) increasing its capabilities in technological development and innovation. Suppose, too, that the US government failed to craft and maintain the kinds of investments and policies that are needed to sustain and enhance its world-leading tech-creation machine—its “innovation ecosystem”—to stay ahead of China. Suppose that the US government also failed to properly calibrate the punitive measures designed to prevent China from acquiring best-in-class technologies from elsewhere in the world—where calibration means the fine-tuning of policies to achieve prescribed objectives without spillover consequence. Finally, suppose that the United States and its allies and partners around the world failed to align with one another in terms of strategies and policies regarding how to engage China and, just as critically, about alignment of their own ends. What might that world look like?

Looking at that world from the year 2033, a first observation is that US scientific and technological (S&T) advantage, a period that lasted from 1945 to the 2020s, has come to an end. In its place is a world where China’s government labs, universities, and firms are often the first to announce breakthrough scientific developments and the first to turn them into valuable technologies.

For the US government and for allies and partners in the Indo-Pacific region, the strategic consequences are severe, as China has not only closed much of the defense spending gap by 2033 but is able to employ weaponry as advanced, and in some cases more advanced, than those of the United States and its allies.¹ Military planners from Washington to New Delhi watch China’s rising capabilities with much anxiety, given the geostrategic leverage that such changes have given Beijing across the region.

Nor is this problem the only headache for the United States and its coalition of partners in 2033. For a variety of reasons, many of China’s tech firms are outcompeting those elsewhere in the world, including some of the United States’ biggest and most important firms. Increasingly, the world looks as much to Shenzhen as to Silicon Valley for the latest tech-infused products and services.

China’s long-standing ambition to give its tech firms an advantage has paid off. The Chinese state has successfully pursued its strategy of commercial engagement with other countries, one that has been well known for decades and is characterized by direct and indirect financial and technical aid for purchases of Chinese hardware and software. This approach, while imperfect, drove adoption of Chinese technology abroad, with much of that adoption happening in the Global South.² Across much of Africa, Latin America, South and Southeast Asia, and the Middle East, China has grown into the biggest player in the tech space, with its technologies appealing both to consumers and to many governments looking for financial assistance in upgrading their tech infrastructure. Moreover, China’s tech assistance has aided authoritarian governments seeking the means to control access to information, especially online, and the desire to surveil citizens and suppress dissent.³ China’s efforts have been a major reason why the internet has fractured in many countries around the world. The ideal of the internet as an open platform is largely gone, replaced by a system of filtered access to information—in many instances, access that is controlled by authoritarian and illiberal states.

In 2033, even the biggest US-based tech firms struggle to keep pace with Chinese firms, as do tech firms based in Europe, Asia, and elsewhere. Although still formidable, Western firms find themselves at a disadvantage in both domestic and foreign markets. China’s unfair trading practices have continued to give its firms an edge, even in markets in mature economies and wealthy countries. China has continued its many unfair trading practices, including massive direct and indirect state subsidies and regulatory support for its firms, suspect acquisition—often outright theft—of intellectual property (IP) from firms abroad, and requiring that foreign firms transfer technology to China in exchange for granting access to its enormous domestic consumer market, in 2033 the biggest in the world.⁴ When added to the real qualitative leaps that China has made in terms of the range and sophistication of its tech-based products and services, foreign firms are often on the back foot even at home. In sector after sector, China is capturing an increasingly large share of global wealth.

Nor is this all. China’s rising influence means that the democratic world has found it impossible to realize its preferences concerning the global governance of technology. This problem extends beyond China’s now significant influence on technical-standards development within the range of international organizations that are responsible for standards.⁵ The problem is much larger than even that. Since the early 2020s, because of decreasing interest in scientific cooperation, the United States, China, and Europe have been unable to agree on the basic norms and principles that should guide the riskiest forms of advanced tech development. As a result, big gaps have appeared in how the major players approach such development. This patchwork, incomplete governance architecture has meant that countries, firms, and even individual labs have forged ahead without common ethical-normative frameworks to guide research and development. In such fields as artificial intelligence (AI), China has increased its implementation of AI-based applications that have eroded individual rights and privacies—for example, AI-driven facial-recognition technologies used by the state to monitor individual activity—not only within China, but in parts of the world where its technologies have been adopted.⁶

Nor is even this long list all that is problematic in the year 2033. Scientific cooperation between the United States and China—and, by extension, China and many US allies and partners—has declined precipitously since 2023. Cross-national collaboration among the world’s scientists has always been a proud hallmark of global scientific research, delivering progress on issues ranging from cancer treatments to breakthrough energy research. Collaboration between China on the one hand, and Western states on the other, used to be a pillar of global science. Now, unfortunately, much of that collaboration has disappeared, given the rising suspicions and antagonism and the resulting policies that were implemented to limit and, in some cases, even block scientific exchange.⁷

From the perspective of developments that led to this point in the year 2033, the United States and its allies and partners failed to pursue a coherent, cooperative, and united strategy vis-à-vis strategic competition with China. Policymakers were unable to articulate, and then implement, policies that were consistent over time and across national context. Various international forums were created for engagement on strategy and policy questions, but they proved of low utility as policy harmonization bodies or tech trade-dispute mechanisms.

Opening session of US-China talks at the Captain Cook Hotel in Anchorage, Alaska, US March 18, 2021. REUTERS/Frederic J. Brown

Strategic context

The above scenario, which sketches a world in 2033 where China has gained the upper hand at the expense of the United States and its allies and partners, is not inevitable. As this strategy paper articulates, there is much that policymakers in the United States and elsewhere can do to ensure that more benign futures, from their perspectives, are possible. However, as this strategy paper also articulates, their success is far from a given.

The United States and the People’s Republic of China (PRC) are engaged in a strategic competition surrounding the development of key technologies, including advanced semiconductors (“chips”), AI, advanced computing (including quantum computing), a range of biotechnologies, and much more. Both countries seek to out-compete the other to achieve first-mover advantage in breakthrough technologies, and to be the best country at the commercial scaling of emerging and existing technologies.

These two capabilities—the first to develop breakthrough technologies and the best at tech-based innovation—overlap in important respects, but they are not identical and should not be regarded as the same thing. The first country to build a quantum computer for practical application (such as advanced decryption) is an example of the former capability; the country that is best at innovating on price, design, application, and functionality of electric vehicles (EVs) is an example of the latter capability. The former will give the inventing country a (temporary) strategic and military advantage; the latter will give the more innovative country a significant economic edge, indirectly contributing to strategic and military advantage. The outcome of this competition will go a long way toward determining which country—China or the United States—has the upper hand in the larger geostrategic competition between them in the coming few decades.

For China, the primary goal is to build an all-encompassing indigenous innovation ecosystem, particularly in sectors that Chinese leadership has deemed critical. Beijing views technology as the main arena of competition and rivalry with the United States, with many high-level policies and strategy documents released under Xi Jinping’s tenure emphasizing technology across all aspects of society. Under Xi’s direction, China has intensified its preexisting efforts to achieve self-sufficiency in key technology sectors, centering on indigenous innovation and leapfrogging the United States.

On the US side, the Joe Biden administration and Congress have emphasized the need to maintain leadership in innovation and preserve US technological supremacy. Although there are many similarities between the Donald Trump and Biden administrations’ approaches to competition with China, one of the primary differences has been the Biden administration’s focus on bringing allies and partners onboard and trying to make policies as coordinated and multilateral as possible. While a laudable goal, implementation of a seamless allies-and-partners coordination is proving difficult.

Until recently, the United States was the undisputed leader in the development of breakthrough technologies, and in the innovation and commercial scaling of emerging and existing technologies. Until recently, China was a laggard in both categories, falling well behind the United States and most, if not all, of the world’s advanced economies in both the pace of scientific and technological (S&T) development and the ability to innovate around technologically infused products and services.

That script has changed dramatically as a result of China’s rapid ascension up the S&T ladder, starting with Deng Xiaoping’s reforms in the 1970s and 1980s and continuing through Xi Jinping’s tenure.⁸

Although analysts disagree about how best to measure China’s current S&T capabilities and its progress in innovating around tech-based goods and services, there is no dispute that China is now the greatest single challenger to US preeminence in this space. In some respects, China may already have important advantages over the United States and all other countries—for example, in its ability to apply what has been labeled “process knowledge,” rooted in the country’s vast manufacturing base, to improve upon existing tech products and invent new ones.⁹

Chinese President Xi Jinping speaks at the military parade marking the 70th founding anniversary of People’s Republic of China, on its National Day in Beijing, China October 1, 2019. REUTERS/Jason Lee

This competition represents a new phase in the two countries’ histories. The fall of the Berlin Wall and the decade that followed saw US leadership seek to include China as a member of the rules-based international order. In a March 2000 speech, President Bill Clinton spoke in favor of China’s entry into the World Trade Organization (WTO), arguing that US support of China’s new permanent normal trade relations (PNTR) status was “clearly in our larger national interest” and would “advance the goal America has worked for in China for the past three decades.”¹⁰ China’s leadership returned the favor, with President Jiang Zemin later stating that China “would make good on [China’s] commitments…and further promote [China’s] all-directional openness to the outside world.”¹¹

Despite some US concerns, the period from 2001 through most of the Barack Obama administration saw Sino-American relations at their best.¹² The lure of the Chinese market was strong, with bilateral trade in goods exploding from less than $8 billion in 1986 to more than $578 billion in 2016.¹³ People-to-people exchanges increased dramatically as well, with tourism from China increasing from 270,000 in 2005 to 3.17 million in 2017, and the number of student F-visas granted to PRC students increasing tenfold, from approximately 26,000 in 2000 to nearly 250,000 in 2014.¹⁴ US direct investment in China also grew significantly after 2000, as US companies saw the vast potential of the Chinese market and workforce. Notably, overall US investment in China continued to grow even after the COVID-19 pandemic.¹⁵

So what changed? In a 2018 essay titled “The China Reckoning,” China scholars Ely Ratner and Kurt Campbell—now both members of the Biden administration—described how the US plan for China and its role in the international system had not gone as hoped.

Neither carrots nor sticks have swayed China as predicted. Diplomatic and commercial engagement have not brought political and economic openness. Neither US military power nor regional balancing has stopped Beijing from seeking to displace core components of the US-led system. And the liberal international order has failed to lure or bind China as powerfully as expected. China has instead pursued its own course, belying a range of American expectations in the process.
Campbell and Ratner, “The China Reckoning.”

These sentiments were shared by many others in Washington. Many felt like China was taking advantage of the United States as the Obama administration transitioned to its “pivot to Asia.” For example, in 2014 China sent an uninvited electronic-surveillance ship alongside four invited naval vessels to the US-organized Rim of the Pacific (RIMPAC) military exercises, damaging what had appeared to be improving military-to-military relations.¹⁶ On the economic side, despite the two sides signing an agreement in April 2015 not to engage in industrial cyber espionage, it soon became clear that China did not plan to uphold its side of the bargain. In 2017, the US Department of Justice indicted three Chinese nationals for cyber theft from US firms, including Moody’s Analytics, Siemens AG, and Trimble.¹⁷

Within China, political developments were also driving changes in the relationship. Xi Jinping assumed power in November 2012, and most expected him to continue on his predecessors’ trajectory. However, in 2015 a slew of Chinese policies caught the eye of outside observers, especially the “Made in China 2025” strategy that caused a massive uproar in Washington and other global capitals, given its explicit focus on indigenization of key sectors, including the tech sector.

On the US side, when President Trump was elected in 2017, the bilateral economic relationship came under further fire, sparked by growing concerns surrounding China’s unfair trade practices, IP theft, and the growing trade deficit between the two countries. First the first time, frustration over these issues brought about strong US policy responses, including tariffs on steel, aluminum, soybeans, and more, a Section 301 investigation of Chinese economic practices by the US trade representative, and unprecedented export controls on the Chinese firms Huawei and ZTE. On the Chinese side, a growing emphasis on self-reliance, in conjunction with narratives surrounding the decline of the West, has dominated the conversation at the highest levels of government. In many instances, some of these statements—like China’s relatively unachievable indigenization goals in the semiconductor supply chain—have pushed the US policy agenda closer toward one centering on zero-sum tech competition.

In 2023, the Biden administration continued some Trump-era policies toward China, often reaching for export controls as a means to prevent US-origin technology from making its way to China. The Biden administration is even considering restricting outbound investment into China, stemming from concerns around everything from pharmaceutical supply chains to military modernization. The bottom line is that US-China competition is intense, and is here to stay for the foreseeable future.

Goals

There are three underlying goals for policymakers in the United States to consider when developing a comprehensive strategy.

Preserve the US advantage in technological development and innovation relative to China. Although the United States has historically led the world in the development of cutting-edge technologies, technological expertise, skills, and capabilities have proliferated worldwide and eroded this advantage. Although the United States arguably maintains its first position, it can no longer claim to be the predominant global S&T power across the entire board. As a result, US leadership will have to approach this issue with a clear-eyed understanding of US capabilities and strengths, as well as weaknesses.

Further, it is impractical to believe that the United States alone can lead in all critical technology areas. US policymakers must determine (with the help of the broader scientific community) not only which technologies are critical to national security but also how these technologies are directly relevant in a national security context. This point suggests the need for aligning means with ends—what is the US objective in controlling or promoting a specific technology? Absent strong answers to this question, technology controls or promotion efforts will likely yield unintended results, both good and bad.

Further, it is impractical to believe that the United States alone can lead in all critical technology areas. US policymakers must determine (with the help of the broader scientific community) not only which technologies are critical to national security but also how these technologies are directly relevant in a national security context. This point suggests the need for aligning means with ends—what is the US objective in controlling or promoting a specific technology? Absent strong answers to this question, technology controls or promotion efforts will likely yield unintended results, both good and bad.

Further, the United States’ capacity to transform basic research into applications and commercial products is an invaluable asset that has propelled its innovation ecosystem for decades. In contrast, Chinese leadership is keenly aware of its deficiencies in this area.

First-mover advantage in laboratory scientific research is not the same thing as innovation excellence. A country needs both if it seeks predominance. A country can have outstanding scientific capabilities but poor innovation capacity (or vice versa). Claims that China is surpassing the United States and other advanced countries in critical technology areas are premature, and often fail to consider how metrics to assess innovative capacity interact with one another (highly cited publications, patents, investment trends, market shares, governance, etc.).¹⁸ Assessing a country’s ability to preserve or maintain its technological advantage requires a holistic approach that takes all of these factors into account.
Harmonize strategy and policy with allies and partners, while gaining favor with nonaligned states. With respect to strategic competition vis-a-vis China, the interests of the United States are not always identical to those of its allies and partners. Any strategy designed to compete in the tech space with China needs to align with the strategies and interests of US allies and partners. Simultaneously, US strategy should offer benefits to nonaligned states within the context of this strategic competition with China, so as to curry favor with them.

This goal is especially important, given that the United States relies on and benefits from a network of allies and partners, whereas China aspires to self-sufficiency in S&T development. To preserve the United States’ advantage, US leadership must first recognize that its network is one of the strongest weapons in the US arsenal.

US allies and partners, of which there are many, want to maintain and strengthen their close diplomatic, security, and economic ties to the United States. The problem is that most also have substantial, often critical, economic relationships with China. Hence, they are loath to jeopardize their relationships with either the United States or China.

This strategic dilemma has become a significant one for US allies in both the transpacific and transatlantic arenas. As examples, Japan and South Korea, the two most advanced technology-producing countries in East Asia, are on the front lines of this dilemma. Their challenging situation owes to their geographic proximity to China on the one hand—and, hence, proximity to China’s strategic ambitions in the East and South China Seas, as well as Taiwan—and to their close economic ties to both China and the United States on the other.¹⁹ Although both have been attempting an ever-finer balancing act between the United States and China for years, the challenge is becoming more difficult.²⁰ In January 2023, Japan reportedly joined the United States and the Netherlands to restrict sales of advanced chipmaking lithography machines to China, despite the policy being against its clear economic interests.²¹ In April and May 2023, even before China banned sales of chips from Micron Technology, a US firm, the US government was urging the South Korea government to ensure that Micron’s principal rivals, South Korea’s Samsung Electronics and SK Hynix, did not increase their sales in China.²²

For nonaligned states, many of which are in the Global South, their interests are manifold and not easily shoehorned into a US-versus-China bifurcation. Many states in this category have generalized concerns about a world that is dominated by either Washington or Beijing, and, as such, are even more interested in hedging than are the closest US allies and partners. Their governments and business communities seek trade, investment, and access to technologies that can assist with economic development, while their consumers seek affordable and capable tech. Although China has made enormous strides with respect to technological penetration of markets in the Global South, there also is much opportunity for the United States and its allies and partners, especially given widespread popular appetite for Western ideals, messaging, and consumer-facing technologies.²³
Retain cooperation around trade and scientific exploration. One of the risks that is inherent in a fraught Sino-American bilateral relationship is that global public-goods provision will be weakened. Within the context of rising tensions over technological development, there are two big concerns: first, that global trade in technologically based goods and services will be harmed, and second, that global scientific cooperation will shrink.

An open trading system has been an ideal of the rules-based international order since 1945, built on the premise that fair competition within established trading rules is best for global growth and exchange. The US-led reforms at the end of the World War II and early postwar period gave the world the Bretton Woods system, which established the International Monetary Fund (IMF), plus the Marshall Plan and the General Agreement on Tariffs and Trade (GATT). Together, these reforms enabled unprecedented multi-decade growth in global trade.²⁴ China’s accession to the WTO in 2001, which the US government supported, marked a high point as many read into China’s entry its endorsement of the global trade regime based on liberal principles. However, since then—and for reasons having much to do with disagreements over China’s adherence to WTO trading rules—this global regime has come under significant stress. In 2023, with few signs that the Sino-American trade relationship will improve, there is significant risk of damage to the global trading system writ large.²⁵

Any damage done to the global trading system also risks harm to trade between the two countries, which is significant given its ongoing scale (in 2022, bilateral trade in goods measured a record $691 billion).²⁶. Tech-based trade and investment remain significant for both countries, as illustrated by the February 2023 announcement of a $3.5-billion partnership between Ford Motor Company and Contemporary Amperex Technology Limited (CATL) to build an EV-battery plant in Michigan using CATL-licensed technology.²⁷ A priority for US policymakers should be to preserve trade competition in tech-infused goods and services, at least for those goods and services that are not subject to national security-based restrictions and where China’s trade practices do not result in unfair advantages for its firms.

Beyond trade, there are public-goods benefits resulting from bilateral cooperation in the S&T domain. These benefits extend to scientific research that can hasten solutions to global-commons challenges—for example, climate change. China and the United States are the two most active countries in global science, and are each other’s most important scientific-research partner.²⁸ Any harm done to their bilateral relationship in science is likely to decrease the quality of global scientific output. Further, the benefits from cooperation also extend to creation and enforcement of international norms and ethics surrounding tech development in, for example, AI and biotechnology.

A worker conducts quality-check of a solar module product at a factory of a monocrystalline silicon solar equipment manufacturer LONGi Green Technology Co, in Xian, Shaanxi province, China December 10, 2019. REUTERS/Muyu Xu

Major elements of the strategy

The strategy outlined in these pages has three major elements: the promotion of technologically based innovation, sometimes labeled “running faster”; the protection of strategically valuable S&T knowhow, processes, machines, and technologies; and the coordination of policies with allies and partners. This triad—promote, protect, and coordinate—is also shorthand for the most basic underlying challenge facing strategists in the US government and in the governments of US allies and partners. In the simplest terms, strategists should aim to satisfy the “right balance between openness and protection,” in the words of the National Academies of Sciences, Engineering, and Medicine.²⁹ This strategic logic holds for both the United States and its allies and partners.

Promote: The United States has been the global leader in science and tech-based innovation since 1945, if not earlier. However, that advantage has eroded, in some areas significantly, in particular since the end of the Cold War. If the United States wishes to remain the leading power in scientific research and in translating that research into transformative technologies (for military and civilian application), then the US government, in partnership with state and local governments, the private sector, and academia, will have to reposition and recalibrate its policies and investments.

The preeminence of America’s postwar innovation ecosystem resulted from several factors, including: prewar strengths across several major industries; massive wartime investments in science, industry, and manufacturing; and even larger investments made by the US government in the decades after the war to boost US scientific and technological capabilities. The 1940s through 1960s were especially important, owing to the whole-of-society effort behind prosecuting World War II and then the Cold War. The US government established many iconic S&T-focused institutions, including the National Science Foundation (NSF), Defense Advanced Research Projects Agency (DARPA), the National Aeronautics and Space Administration (NASA), most of the country’s national laboratories (e.g., Sandia National Laboratories and Lawrence Livermore National Laboratories), and dramatically boosted funding for science education, public-health research, and academic scientific research.³⁰

This system, and the enormous investments made by the US government to support it, spurred widespread and systematized cooperation among government, academic science, and the private sector. This cooperation led directly to a long list of breakthrough technologies for military and civilian purposes, and to formation of the United States’ world-leading tech hubs, Silicon Valley most prominent among them.³¹

The trouble is that after the Cold War ended, “policymakers [in the US government] no longer felt an urgency and presided over the gradual and inexorable shrinking of this once preeminent system,” in particular through allowing federal spending on research and development (R&D) and education to flatline or even atrophy.³² From a peak of around 2.2 percent of national gross domestic product (GDP) in the early 1960s, federal R&D spending has declined since, reaching a low of 0.66 percent in 2017 before rebounding slightly to 0.76 percent in 2023.³³

Today, US competitors, including China, have figured out the secrets to growing their own innovation ecosystems (including the cultural dimensions that historically have been key to separating the United States from its competition) and are investing the necessary funding to do so. For example, several countries, especially China, have outpaced the United States in R&D spending. Between 1995 and 2018, China’s R&D spending grew at an astonishing 15 percent per annum, about double that of the next-fastest country, South Korea, and about five times that of the United States. By 2018, China’s total R&D spending (from public and private sources) was in second place behind the United States and had surpassed the total for the entire European Union.³⁴ From the US perspective, other metrics are equally concerning. A 2021 study by Georgetown University’s Center for Security and Emerging Technology (CSET) projected that China will produce nearly twice as many STEM PhDs as the United States by 2025 (if counting only US citizens graduating with a PhD in STEM, that figure would be three times as much). This projection is based, in part, on China’s government doubling its investment in STEM higher education during the 2010s.³⁵

The United States retains numerous strengths, including the depth and breadth of its scientific establishment, number and sizes of its Big Tech firms, robust startup economy and venture capital to support it, numerous world-class educational institutions, dedication to protection of intellectual property, relatively open migration system for high-skilled workers, diverse and massive consumer base, and its still-significant R&D investments from public and private sources.³⁶

In addition, over the past few years there have been encouraging signs of a shift in thinking among policymakers, away from allowing the innovation model that won the Cold War to further erode and toward increased bipartisan recognition that the federal government has a critical role to play in updating that system. As was the case with the Soviet Union, this newfound interest in strengthening the US innovation ecosystem owes much to a recognition that China is a serious strategic competitor to the United States in the technology arena.³⁷ The Biden administration’s passage of several landmark pieces of legislation, including the CHIPS and Science Act, the Inflation Reduction Act (IRA), and the Infrastructure Investment and Jobs Act (IIJA), increased the amount of federal government spending on S&T, STEM education and skills training, and various forms of infrastructure (digital and physical), all of which are concrete evidence of the degree to which this administration and much of Congress recognize the stiff challenge from China.
Protect: A coherent strategy requires mechanisms to protect and defend a country’s S&T knowledge and capabilities from malign actors. Policy documents and statements from US officials over the past decade have called out the many ways in which the Chinese state orchestrates technology transfer through licit and illicit means, ranging from talent-recruitment programs and strategic mergers and acquisitions (M&A) to outright industrial espionage via cyber intrusion and other tactics.³⁸

On the protect side, tools include trade controls, sanctions, investment screening, and more. On the export-control side, both the Trump and Biden administrations have relied on dual-use export-control authorities to both restrict China’s access to priority technologies and prevent specific Chinese actors (those deemed problematic by the US government) from accessing US-origin technology and components.³⁹ Investment screening has also been a popular tool; in 2018, Congress passed the bipartisan Foreign Investment Risk Review Modernization Act (FIRRMA) that strengthened and modernized the Committee on Foreign Investment in the United States (CFIUS)—an interagency body led by the Treasury Department that reviews inbound foreign investment for national security risks.⁴⁰ Under the Biden administration, a new emphasis on the national security concerns associated with US outbound investment into China has arisen, with an executive order focused on screening outbound tech investments in the works for almost a year.⁴¹ On sanctions, although the United States has so far been wary of deploying them against China, the Biden administration has, in conjunction with thirty-eight other countries, imposed a harsh sanctions regime on Russia and Belarus following Russia’s unprovoked invasion of Ukraine.⁴²

Trade controls can be effective tools, but they need to be approached with a clear alignment between means and ends. For decades, an array of export controls and other regulations have worked to prevent rivals from accessing key technologies. However, historical experience (such as that of the US satellite industry) shows that, with a clear alignment between means and ends, trade controls can have massive implications for the competitiveness of US industries and, by extension, US national security.⁴³

Before deploying these tools, it is critical for policymakers to first identify what China is doing—both within and outside its borders—in its attempts to acquire foreign technology, an evaluation that should allow the United States to hone more targeted controls that can yield intended results. Trade controls that are too broad and ambiguous tend to backfire, as they create massive uncertainties that lead to overcompliance on the part of industry, in turn causing unintended downside consequences for economic competitiveness.

Understanding China’s strategy for purposes of creating effective trade controls is not as difficult as it once appeared. For instance, a 2022 report from CSET compiled and reviewed thirty-five articles on China’s technological import dependencies.⁴⁴ This series of open-source articles, published in Chinese in 2018, provides specific and concrete examples of Chinese S&T vulnerabilities that can be used by policymakers to assess where and how to apply trade controls. Other similar resources exist. Although the Chinese government appears to be systematically tracking and removing these as they receive attention, there are ways for US government analysts and scholars to continue making use of these materials that preserve the original sources.
Coordinate: The final strategy pillar is outward facing, focused on building and sustaining relationships with other countries in and around the tech strategy and policy space. This pillar might be labeled “tech diplomacy,” given the need to ensure US strategy and policy positively influences as many allies, partners, and even nonaligned states as possible, while continuing to engage China on technology-related issues. As with the other two pillars, this pillar is simple to state as a priority, but difficult to realize in practice.

In a May 2022 speech, US Secretary of State Antony Blinken said that the administration’s shorthand formula is to “invest, align, [and] compete” vis-a-vis China.⁴⁵ Here, he meant “invest” to refer to large public investments in US competitiveness, “align” to closer coordination with allies and partners on tech-related strategy and policy, and “compete” largely to geostrategic competition with China over Taiwan, the East and South China Seas, and other areas.

Blinken’s remarks underscore the Biden administration’s priority for allies and partners to view the United States as a trusted interlocutor. When it comes to technology policy on China, the trouble lies in the execution—in particular, overcoming the tensions inherent within the “invest, align, compete” formula. After Blinken’s speech, for example, the IRA became law, which triggered a firestorm of protest among the United States’ closest transpacific and transatlantic allies. Viewing the IRA’s ample support for domestic production and manufacturing of electric vehicles and renewable-energy technologies—designed to boost the US economy and tackle climate change while taking on China’s advantages in these areas—the protectionist European Union (EU) went so far as to formulate a Green Deal Industrial Plan, widely seen as an industrial policy response to the IRA.⁴⁶ Much of the row over the IRA resulted from the perception—real or not—that the United States had failed to properly consider allies’ and partners’ interests while formulating the legislation. In the words of one observer, “amid the difficult negotiations at home on the CHIPS Act and the IRA, allies and partners were not consulted, resulting in largely unintended negative consequences for these countries.”⁴⁷

Long-term investment by US policymakers in multilateral institutions focused on technology will be a critical aspect of any potential victory. The Biden administration is already making strides on this front through several multilateral arrangements, including the resurrection of the Quadrilateral Security Dialogue (the Quad) and the establishment of the US-EU Trade and Technology Council (TTC) and AUKUS trilateral pact. All three of these arrangements have dedicated time and resources to specific technological issues in both the military/geopolitical and economic spheres, and all three have the potential to be massively impactful in terms of technology competition.

However, history has shown that these types of arrangements are only effective as long as high-level political leadership remains involved and dedicated to the cause. Cabinet officials and other high-level leaders from all participating countries—especially the United States—will have to demonstrate continued interest in and commitment to these arrangements if they want them to produce more than a handful of documents with broad strategic visions.

Assumptions

The strategy outlined in these pages rests on two plausible assumptions. First, this strategy assumes that China will not follow the Soviet Union into decline, collapse, and disintegration anytime soon, which, in turn, means that China should remain a significant competitor to the United States for a long time to come.

China’s leadership has studied the collapse of the Soviet Union closely and learned from it, placing enormous weight on delivering economic performance through its brand of state capitalism while avoiding the kind of reforms that Mikhail Gorbachev instituted during the 1980s, which included freer information flows, freer political discourse, and ideological diversity within the party and state—all of which Chinese leadership believes to have been key to the Soviet Union’s undoing.⁴⁸ China also does not have analogous centrifugal forces that threaten an internal breakup along geographic lines as did the Soviet Union, which had been constructed from the outset as a federation of republics built upon the contours of the tsarist empire. (The Soviet Union, after all, was a union of Soviet Socialist republics scattered across much of Europe and Asia).⁴⁹

These factors weigh against an assessment that China will soon collapse. Nicholas Burns, the US ambassador to China, has said recently that China is “infinitely stronger” than the Soviet Union ever was, “based on the extraordinary strength of the Chinese economy” including “its science and technology research base [and] innovative capacity.” He concluded that the Chinese challenge to the United States and its allies and partners “is more complex and more deeply rooted [than was the Soviet Union] and a greater test for us going forward.”⁵⁰

A more realistic long-term scenario is one in which the United States and its allies and partners would need to manage a China that will either become stronger or plateau, rather than one that will experience a steep decline. Both variants of this scenario are worrisome, and both underscore the need to hew to the strategy outlined in this paper. A stronger China brings with it obvious challenges. A plateaued China is a more vexing case, owing to the very real possibility that Chinese leadership might conclude that, as economic stagnation portends a future decline and fall, the case for military action (e.g., against Taiwan) is more, rather than less, pressing. The strategist Hal Brands, for example, has suggested that a China that has plateaued will become more dangerous than it is now, requiring a strategy that is militarily firm, economically wise (including maintenance of the West’s advantages in the tech-innovation space), and diplomatically flexible.⁵¹

Second, the strategy outlined here assumes that relations between the United States and China will remain strained at best or, at worst, devolve into antagonism or outright hostility. In 2023, the assumption of ongoing strained relations appears wholly rational, based on a straightforward interpretation of all available diplomatic evidence.

How this strategy should shift if the United States and China were to have a rapprochement would depend greatly on the durability and contours of that shift. Even if a thaw were to reset bilateral relations to where they were at the beginning of the century (an unlikely prospect), the US interest in maintaining a first-mover advantage in technological development would remain. As reviewed in this paper, there was a long period during which the United States and China traded technologically based goods and services in a more open-ended trading regime than is currently the case. During that period, the United States operated on two presumptions: that China’s S&T capabilities were nowhere near as developed as its own, and that the US system could stay ahead owing to its many strengths compared with China’s.

The trouble with returning to this former state is that both presumptions no longer hold. China has become a near-peer competitor in science and technological development, and its innovative capabilities are considerable.

If China and the United States were to thaw their relationship, the policy question would concern the degree to which the United States would reduce its “protect” measures—the import and export restrictions, sanctions, and other policies designed to keep strategic technologies and knowhow from China, while protecting its own assets from espionage, sabotage, and other potential harms.

Guidelines for implementation

As emphasized throughout this paper, any successful long-term strategy will require that the US government pursue policies that are internally well coordinated, are based on solid empirical evidence, and are flexible and nimble in the short run, while being attentive to longer-run trends and uncertainties. The government will need to improve its capabilities in three areas.

Improved intelligence and counterintelligence: The US government will need to reassess, improve, and extend its intelligence and counterintelligence capabilities about tech development. The intelligence community will need to be able to conduct ongoing, comprehensive assessments of tech trends and uncertainties of relevance to the strategic competition with the United States. To properly gauge the full range of relevant and timely information about China’s tech capabilities, the Intelligence Community’s practice of relying on classified materials will need to be augmented by stressing unclassified open-source material. Classified sources, which the Intelligence Community always has prioritized, do not provide a full picture of what is happening in China. Patent filings, venture-capital investment levels and patterns, scientific and technical literature, and other open sources can be rich veins of material for analysts looking to assess where China is making progress, or seeking to make progress, in particular S&T areas. The US government’s prioritization of classified material contrasts with the Chinese government’s approach. For decades, China has employed “massive, multi-layered state support” for the “monitoring and [exploitation] of open-source foreign S&T.”⁵² There is recognition that the US government needs to upgrade its capabilities in this respect. In 2020, the House Permanent Select Committee on Intelligence observed that “open-source intelligence (OSINT) will become increasingly indispensable to the formulation of analytic products” about China.⁵³

An intelligence pillar will need a properly calibrated counterintelligence element to identify where China might be utilizing its means and assets—including legal, illegal, and extralegal ones—to obtain intellectual property in the United States and elsewhere (China has a history of utilizing multiple means, including espionage, to gain IP that is relevant to their S&T development).⁵⁴ Here, “properly calibrated” refers to how counterintelligence programs must ensure that innocent individuals, including Chinese nationals who are studying or researching in the United States, are not brought under undue or illegitimate scrutiny. At the same time, these programs must be able to identify, monitor, and then handle as appropriate those individuals who might be engaging in industrial espionage or other covert activities. The Trump administration’s China Initiative was criticized both for its name (it implied that Chinese nationals and anyone of East Asian descent were suspect) and the perception of too-zealous enforcement (the program resulted in several high-profile cases ending in dismissal or exoneration for the accused). In 2022, the Biden administration shuttered this initiative and replaced it with “a broader strategy aimed at countering espionage, cyberattacks and other threats posed by a range of countries.”⁵⁵
Improved foresight: Strategic-foresight capabilities assist governments in understanding and navigating complex and fast-moving external environments. Foresight offices in government and the private sector systematically examine long-term trends and uncertainties and assess how these will shape alternative futures. These processes often challenge deeply held assumptions about where the world is headed, and can reveal where existing strategies perform well or poorly.

This logic extends to the tech space, where the US government should develop a robust foresight apparatus to inform tech-focused strategies and policies at the highest levels. The purpose of this capability would be to enhance and deepen understanding of where technological development might take the United States and the world. Such a foresight capability within the US government would integrate tech-intelligence assessments, per above, into comprehensive foresight-based scenarios about how the world might unfold in the future. The US government has impressive foresight capabilities already, most famously those provided by the National Intelligence Council (NIC). However, for a variety of reasons, including distance from the center of executive power, neither the NIC nor other foresight offices within the US government currently perform a foresight function described here. The US government should institutionalize a foresight function within or closely adjacent to the White House—for example, within the National Security Council or as a presidentially appointed advisory board. Doing so would give foresight the credibility and mandate to engage the most critical stakeholders from across the entire government and from outside of it, a model followed by leading public foresight offices around the world.⁵⁶ This recommendation is consistent with numerous others put forward by experts over the past decade, which stress how the US government needs to give foresight more capabilities while bringing it closer to the office of the president.⁵⁷
Improved S&T strategy and policy coordination: One of the major challenges facing the US government concerns internal coordination around S&T strategy and policy. As technology is a broad and multidimensional category, the government’s activities are equally broad, covered by numerous statutes, executive orders, and administrative decisions. One of many results is a multiplicity of departments and agencies responsible for administering the many different pieces of the tech equation, from investment to development to monitoring, regulation, and enforcement. In just the area of critical technology oversight and control, for example, numerous departments including Commerce, State, Defense, Treasury, Homeland Security, and Justice, plus agencies from the Intelligence Community, all have responsibilities under various programs.⁵⁸

Moreover, the US government’s approach to tech oversight tends to focus narrowly on control of specific technologies, which leads to an underappreciation of the broader contexts in which technologies are used. A report issued in 2022 by the National Academies of Sciences, Engineering, and Medicine argued that the US government’s historic approach to tech-related risks is done through assessing individual critical technologies, defining the risks associated with each, and then attempting to restrict who can access each type of technology. Given that technologies now are “ubiquitous, shared, and multipurpose,” the National Academies asserted, a smarter approach would be to focus on the motives of bad-faith actors to use technologies and then define the accompanying risks.⁵⁹ This approach “requires expertise that goes beyond the nature of the technology to encompass the plans, actions, capabilities, and intentions of US adversaries and other bad actors, thus involving experts from the intelligence, law enforcement, and national defense communities in addition to agency experts in the technology.”⁶⁰

US Secretary of State Antony Blinken meets with Chinese President Xi Jinping in the Great Hall of the People in Beijing, China, June 19, 2023. REUTERS

Major risks

There are two major sets of risks accompanying this strategy, both of which involve the potential damage that might result from failure to keep the strategic competition within acceptable boundaries.

Decoupling run amok: Overreach is one of the biggest risks associated with this strategy. Geopolitical and economic goals contradict, and it can be difficult to determine where to draw the line. As such, reconciling this dilemma will be the hardest part of a coherent and effective competition strategy.

Technology decoupling to preserve geopolitical advantages can be at odds with economic interests, which the United States is currently experiencing in the context of semiconductors. The October 7, 2022, export controls were deemed necessary for geopolitical reasons, as the White House’s official rationale for the policy centered around the use of semiconductors for military modernization and violation of human rights. However, limiting the ability of US companies like Nvidia, Applied Materials, KLA, and Lam Research to export their products and services to China, in addition to applying complex compliance burdens on these firms, has the potential to affect these firms’ ability to compete in the global semiconductor industry.

In addition, the continued deployment of decoupling tactics like export controls can put allies and partners in a position where they feel forced to choose sides between the United States and China. On the October 7 export controls, it took months to convince the Netherlands and Japan—two critical producer nations in the semiconductor supply chain whose participation is critical to the success of these export controls—to get on board with US policy.⁶¹ Even now, although media reporting says an agreement has been reached, no details of the agreements have been made public, likely due to concerns surrounding Chinese retaliation.

These issues are not exclusive to trade controls or protect measures. On the promote side, the IRA has also put South Korea in a difficult position as it relates to EVs and related components. When first announced, many on the South Korean side argued that the EV provisions of the IRA violated trade rules. At one point in late 2022, the South Korean government considered filing a complaint with the WTO over the issue.⁶² Although things seem to have cooled between Washington and Seoul—and the Netherlands and Japan have officially, albeit privately, agreed to join the US on semiconductor controls—these two instances should be lessons for US policymakers in how to approach technology policies going forward. Policies that push allies and partners too hard to decouple from the Chinese market are likely to be met with resistance, as many (if not all) US allies have deeply woven ties with Chinese industry, and often do not have the same domestic capabilities or resources that the United States has that can insulate us from potential harm. China is acutely aware of this, and will likely continue to take advantage of this narrative to convince US allies to not join in US decoupling efforts. China has historically leveraged economic punishments against countries for a variety of reasons, so US policymakers should be sure to incorporate this reality into their policy planning to ensure that allies are not put in tough positions.

Recently, government officials within the Group of Seven (G7) have been using the term “de-risking ” instead of “decoupling.” The term was first used by a major public official during a speech by Ursula von der Leyen, president of the European Commission, in a March 2023 speech where she called for an “open and frank” discussion with China on contentious issues.⁶³ The term was used again in the G7 communique of May 2023: economic security should be “based on diversifying and deepening partnerships and de-risking, not de-coupling.”⁶⁴ This rhetorical shift represents a recognition that full economic decoupling from China is unwise, and perhaps impossible. Moreover, it also is a tacit admission that decoupling sends the wrong signals not only to China, but to the private sector in the West as well.

In the authors’ opinion, de-risking is superior to decoupling as a rhetorical device—but changes in phrasing do not solve the underlying problem for policymakers in the United States, Europe, East Asia, and beyond. That underlying problem is to define and then implement a coherent strategy, coordinated across national capitals, that manages to enable them to stay a step ahead of China in the development of cutting-edge technology while preventing an economically disastrous trade war with China.
Harm to global governance: Another major set of risks involves the harms to global governance should the strategic competition between the United States and China continue on its current trajectory. Although the strategy outlined in these pages emphasizes, under the coordination pillar, maintenance of global governance architecture—the norms, institutions, pathways, laws, good-faith behavior, and so on that guide technology development—there is no guarantee that China and the United States, along with other important state and nonstate actors, will be able to do so given conflicting pressures to reduce or eliminate cooperative behavior.

Tragic outcomes of this strategic competition, therefore, would be: failure to continue cooperation regarding development of norms and standards that should guide S&T research; and failure to continue S&T research cooperation focused on solving global-commons challenges such as pandemics and climate change.

Any reduction in cooperation among the United States, China, and other leading S&T-research countries will harm the ability to establish norms and standards surrounding tech development in sensitive areas—for instance, in AI or biotechnology. As recent global conversations about the risks associated with rapid AI development show, effective governance of these powerful emerging technologies is no idle issue.⁶⁵

Even under the best of circumstances, however, global governance of such technologies is exceedingly difficult. For example, Gigi Kwik Gronvall, an immunologist and professor at Johns Hopkins University, has written that biotechnology development is “inherently international and cannot be controlled by any international command and control system” and that, therefore, “building a web of governance, with multiple institutions and organizations shaping the rules of the road, is the only possibility for [effective] governance.”⁶⁶ By this, she meant that—although a single system of rules for governing the biotechnology development is impossible to create given the speed of biotech research and multiplicity of biotech research actors involved (private and public-sector labs, etc.) around the world—it is possible to support a “web of governance” institutions such as the WHO that set norms and rules. Although this system is imperfect, as she admits, it is much better than the alternative, which is to have no governance web at all. The risk of a weak or nonexistent web becomes much more real if the United States, China, and other S&T leaders fail to cooperate in strengthening it.

Conclusions and recommendations

The arguments advanced in this paper provide an overview of the range and diversity of policy questions that must be taken into consideration when formulating strategies to compete with China in science and technology. This final section offers a set of recommendations that follow from this analysis.

Restore and sustain public R&D funding for scientific and technological advancement. As noted in this paper, public investment in R&D—most critically, federal-government investment in R&D—has been allowed to atrophy since the end of the Cold War. Although private-sector investment was then, and is now, a critical component of the nation’s R&D spending, public funding is also imperative for pure scientific research (versus applied research) and for funneling R&D toward ends that are in the public interest (defense, public health, etc.). Although the CHIPS and Science Act and the IRA both pledge massive increases in the amount of federal R&D investment, there is no guarantee that increased funding will be sustained over time. Less than a year after the CHIPS Act was signed into law, funding levels proposed in Congress and by the White House have fallen well short of amounts specified in the act.⁶⁷
Improve and sustain STEM education and skills training across K–12, university, community college, technical schools. It is widely recognized that the United States has fallen behind peer nations in STEM education and training at all levels, from K–12 through graduate training.⁶⁸ Although the Biden administration’s signature pieces of legislation, including the CHIPS Act, address this problem through increased funding vehicles for STEM education and worker-training programs, the challenge for policymakers will be to sustain interest in, and levels of funding for, such programs well into the future, analogous to the federal R&D spending challenge. Other related problems include the high cost of higher education, driven in part by lower funding by US states, that drives students into long-term indebtedness, and the need to boost participation in (and reduce stigma around) STEM-related training at community colleges and technical schools.⁶⁹ Germany’s well-established, well-funded, and highly respected technical apprenticeship programs are models.⁷⁰
Craft a more diverse tech sector. A closely related challenge is to ensure that the tech sector in the United States reflects the country’s diversity, defined in terms of gender, ethnicity, class, and geography. This is a long-term challenge that has multiple roots and many different pathways to success, including public investment in education, training, and apprenticeship programs, among other things.⁷¹ Among the most challenging problems (with potentially the most beneficial solutions) are those rooted in economic geography—specifically regional imbalances in the knowledge economy, where places like Silicon Valley and Boston steam ahead and many other places fall behind. As in other areas, recent legislation including the IRA, CHIPS Act, and IIJA have called for billions in funding to spread the knowledge economy to a greater number of “tech hubs” around the country. As with other pieces of the investment equation, however, there is no guarantee that billions will be allocated under current legislation.⁷²
Attract and retain high-skilled talent from abroad. One of the United States’ enduring strengths is its ability to attract and retain the world’s best talent, which has been of enormous benefit to its tech sector. A December 2022 survey conducted by the National Bureau of Economic Research (NBER), for example, found that between 1990 and 2016, about 16 percent of all inventors in the United States were immigrants, who, in turn, were responsible for 23 percent of all patents filed during the same period.⁷³ Although the United States is still the top destination for high-skilled migrants, other countries have become more attractive in recent years, owing to foreign countries’ tech-savvy immigration policies and problems related to the US H-1B visa system.⁷⁴
Support whole-of-government strategy development. This paper stresses the need to improve strategic decision-making regarding technology through improving (or relocating) interagency processes and foresight and intelligence capabilities. One recommendation is to follow the suggestion by the National Academies of Sciences, Engineering, and Medicine, and bring a whole-of-government strategic perspective together under the guidance of the White House.⁷⁵ Such a capacity would bring under its purview and/or draw upon a tech-focused foresight capacity, as well as an improved tech-focused intelligence apparatus (see below). The CHIPS Act contains provisions that call for development of quadrennial S&T assessments followed by technology strategy formulation, both to be conducted by the White House’s Office of Science Technology and Policy (OSTP).⁷⁶ A bill that was introduced in June 2022 by Senators Michael Bennet, Ben Sasse, and Mark Warner (and reintroduced in June 2023) would, if passed, create an Office of Global Competition Analysis, the purpose of which would be to “fuse information across the federal government, including classified sources, to help us better understand U.S. competitiveness in technologies critical to our national security and economic prosperity and inform responses that will boost U.S. leadership.”⁷⁷
Ensure private sector firms remain at the cutting edge of global competitiveness. Policymakers will need to strengthen the enabling environment to allow US tech firms to meet and exceed business competition from around the world. Doing so will require constant monitoring of best-practice policy development elsewhere, based on the presumption that other countries are tweaking their own policies to outcompete the United States. Policymakers will need to properly recalibrate, as appropriate and informed by best practices, an array of policy instruments including labor market and immigration policies, types and level of infrastructural investments, competition policies, forms of direct and indirect support, and more. An Office of Global Competition Analysis, as referred to above, might be an appropriate mechanism to conduct the horizon scanning tasks necessary to support this recommendation.
Improve S&T intelligence and counterintelligence. Consistent with the observations about shortcomings in the US Intelligence Community regarding S&T collection, analysis, and dissemination, some analysts have floated creation of an S&T intelligence capability outside the Intelligence Community itself. This capability would be independent of other agencies and departments within the government and would focus on collection and analysis of S&T intelligence for stakeholders within and outside of the US government, as appropriate.⁷⁸
Ensure calibrated development and application of punitive measures. As this paper has stressed at multiple points, although the US government has powerful protect measures at its disposal, implementing those measures often comes with a price, including friction with allies and partners. The US government should create an office within the Bureau of Industry and Security (BIS) at the Commerce Department to monitor the economic impact (intended and unintended) of its export-control policies on global supply chains before they are implemented (including impacts on allied and partner economies).⁷⁹ This office would have a function that is similar in intent to the Sanctions Economic Analysis Unit, recently established at the US Treasury to “research the collateral damage of sanctions before they’re imposed, and after they’ve been put in place to see if they should be adjusted.”⁸⁰
Build out and sustain robust multilateral institutions. This paper has stressed that any effort by the United States to succeed in its tech-focused competition with China will require that it successfully engage allies and partners in multilateral settings such as the EU-TTC, Quad, and others. As with so many other recommendations on this list, success will be determined by the degree to which senior policymakers can stay focused over the long run (i.e., across administrations) on this priority and in these multilateral forums. In addition, US policymakers might consider updating multilateral forums based on new realities. For example, some analysts have called for the creation of a new multilateral export-control regime that would have the world’s “techno-democracies…identify together the commodities, software, technologies, end uses, and end users that warrant control to address shared national security, economic security, and human rights issues.”⁸¹
Engagement with China cannot be avoided. The downturn in bilateral relations between the United States and China should not obscure the need to continue engaging China on S&T as appropriate, and as opportunities arise. There are zero-sum tradeoffs involved in the strategic competition with China over technology. At the same time, there are also positive-sum elements within that competition that need to be preserved or even strengthened. As the Ford-CATL Michigan battery-plant example underscores, trade in nonstrategic technologies (EVs, batteries, etc.) benefits both countries, assuming trade occurs on a level playing field. The same is true of science cooperation, where the risk is of global scientific research on climate change and disease prevention shrinking if Sino-American scientific exchange falls dramatically. Policymakers in the United States will need to accept some amount of S&T collaboration risk with China. They will need to decide what is (and is not) of highest risk and communicate that effectively to US allies and partners around the world, the scientific community, and the general public.

The authors would like to thank Noah Stein for his research assistance with this report.

Report authors

Staff

Peter Engelke

Global Energy Center Scowcroft Center for Strategy and Security

Technology & Innovation Europe & Eurasia

Fellow

Emily Weinstein

Nonresident Fellow

Global China Hub

China Technology & Innovation

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1 Although China likely will not close the spending gap with the United States by the mid-2030s, current spending trajectories strongly suggest that China will have narrowed the gap considerably. See the US-China bilateral comparison in: “Asia Power Index 2023,” Lowy Institute, last visited June 13, 2023, https://power.lowyinstitute.org; “China v America: How Xi Jinping Plans to Narrow the Military Gap,” Economist, May 8, 2023, https://www.economist.com/china/2023/05/08/china-v-america-how-xi-jinping-plans-to-narrow-the-military-gap.

2 See, e.g., the arguments presented by: Bryce Barros, Nathan Kohlenberg, and Etienne Soula, “China and the Digital Information Stack in the Global South,” German Marshall Fund, June 15, 2022, https://securingdemocracy.gmfus.org/china-digital-stack/.

3 For a brief overview of China’s efforts in this regard, see: Bulelani Jili, China’s Surveillance Ecosystem and the Global Spread of Its Tools, Atlantic Council, October 17, 2022, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/chinese-surveillance-ecosystem-and-the-global-spread-of-its-tools/.

4 For background to these practices, see: Karen M. Sutter, ““Made in China 2025’ Industrial Policies: Issues for Congress,” Congressional Research Service, March 10, 2023, https://sgp.fas.org/crs/row/IF10964.pdf; Gerard DiPippo, Ilaria Mazzocco, and Scott Kennedy, “Red Ink: Estimating Chinese Industrial Policy Spending in Comparative Perspective,” Center for Strategic and International Studies, May 23, 2022, https://www.csis.org/analysis/red-ink-estimating-chinese-industrial-policy-spending-comparative-perspective; “America Is Struggling to Counter China’s Intellectual Property Theft,” Financial Times, April 18, 2022, https://www.ft.com/content/1d13ab71-bffd-4d63-a0bf-9e9bdfc33c39; “USTR Releases Annual Report on China’s WTO Compliance,” Office of the United States Trade Representative, February 16, 2022, press release, 3, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/february/ustr-releases-annual-report-chinas-wto-compliance.

5 On China and technical standards, see: Matt Sheehan, Marjory Blumenthal, and Michael R. Nelson, “Three Takeaways from China’s New Standards Strategy,” Carnegie Endowment for International Peace, October 28, 2021, https://carnegieendowment.org/2021/10/28/three-takeaways-from-china-s-new-standards-strategy-pub-85678.

6 China’s current (2023) AI regulations are generally seen as more developed than those in either Europe or the United States. However, analysts argue that the individual rights and corporate responsibilities to protect them, as outlined in China’s regulations, will be selectively enforced, if at all, by the state. See: Ryan Heath, “China Races Ahead of U.S. on AI Regulation,” Axios, May 8, 2023, https://www.axios.com/2023/05/08/china-ai-regulation-race.

7 The scientific community has warned that this scenario is a real risk, owing to heightened Sino-American tension. James Mitchell Crow, “US–China partnerships bring strength in numbers to big science projects,” Nature, March 9, 2022, https://www.nature.com/articles/d41586-022-00570-0.

8 Deng Xiaoping’s reforms included pursuit of “Four Modernizations” in agriculture, industry, science and technology, and national defense. In the S&T field, his reforms included massive educational and worker-upskilling programs, large investments in scientific research centers, comprehensive programs to send Chinese STEM (science, technology, engineering, and math) students abroad for advanced education and training, experimentation with foreign technologies in manufacturing and other production processes, and upgrading of China’s military to include a focus on development of dual-use technologies. Bernard Z. Keo, “Crossing the River by Feeling the Stones: Deng Xiaoping in the Making of Modern China,” Education About Asia 25, 2 (2020), 36, https://www.asianstudies.org/publications/eaa/archives/crossing-the-river-by-feeling-the-stones-deng-xiaoping-in-the-making-of-modern-china/.

9 Dan Wang, “China’s Hidden Tech Revolution: How Beijing Threatens U.S. Dominance,” Foreign Affairs, March/April 2023, https://www.foreignaffairs.com/china/chinas-hidden-tech-revolution-how-beijing-threatens-us-dominance-dan-wang.

10 “Full Text of Clinton’s Speech on China Trade Bill,” Federal News Service, March 9, 2000, https://www.iatp.org/sites/default/files/Full_Text_of_Clintons_Speech_on_China_Trade_Bi.htm.

11 “Speech by President Jiang Zemin at George Bush Presidential Library,” Ministry of Foreign Affairs of the PRC, October 24, 2002, https://perma.cc/7NYS-4REZ; G. John Ikenberrgy, “The Rise of China and the Future of the West: Can the Liberal System Survive?” Foreign Affairs 87, 1, (2008), https://www.jstor.org/stable/20020265.

12 Elizabeth Economy, “Changing Course on China,” Current History 102, 665, China and East Asia (2003), https://www.jstor.org/stable/45317282; Thomas W. Lippman, “Bush Makes Clinton’s China Policy an Issue,” Washington Post, August 20, 1999, https://www.washingtonpost.com/wp-srv/politics/campaigns/wh2000/stories/chiwan082099.htm.

13 Kurt M. Campbell and Ely Ratner, “The China Reckoning: How Beijing Defied American Expectations,” Foreign Affairs, February 18, 2018, https://www.foreignaffairs.com/articles/china/2018-02-13/china-reckoning.

14 “Number of Tourist Arrivals in the United States from China from 2005 to 2022 with Forecasts until 2025,” Statista, April 11, 2023, https://www.statista.com/statistics/214813/number-of-visitors-to-the-us-from-china/; and “Visa Statistics,” U.S. Department of State, https://travel.state.gov/content/travel/en/legal/visa-law0/visa-statistics.html.

15 “Direct Investment Position of the United States in China from 2000 to 2021,” Statista, January 26, 2023, https://www.statista.com/statistics/188629/united-states-direct-investments-in-china-since-2000/.

16 Robbie Gramer, “Washington’s China Hawks Take Flight,” Foreign Policy, February 15, 2023, https://foreignpolicy.com/2023/02/15/china-us-relations-hawks-engagement-cold-war-taiwan/; Sam LaGrone, “China Sends Uninvited Spy Ship to RIMPAC,” USNI News, July 18, 2014, https://news.usni.org/2014/07/18/china-sends-uninvited-spy-ship-rimpac.

17 “Findings of the Investigations into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974,” Office of the United States Trade Representative, March 22, 2018, https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF. When asked in November 2018 if China was violating the 2015 cyber-espionage agreement, senior National Security Agency cybersecurity official Rob Joyce said, “it’s clear that they [China] are well beyond the bounds today of the agreement that was forced between our countries.” See: “U.S. Accuses China of Violating Bilateral Anti-Hacking Deal,” Reuters, November 8, 2018, https://www.reuters.com/article/us-usa-china-cyber/u-s-accuses-china-of-violating-bilateral-anti-hacking-deal-idUSKCN1NE02E.

18 Jacob Feldgoise, et. al, “Studying Tech Competition through Research Output: Some CSET Best Practices,” Center for Security and Emerging Technology, April 2023, https://cset.georgetown.edu/article/studying-tech-competition-through-research-output-some-cset-best-practices.

19 The World Intellectual Property Organization’s annual “Global Innovation Index,” considered the gold standard rankings assessment of the world’s tech-producing economies, ranks South Korea sixth and Japan thirteenth in the 2022 edition. “Global Innovation Index 2022. What Is the Future of Innovation-Driven Growth?” World Intellectual Property Organization, 2022, https://www.globalinnovationindex.org/analysis-indicator.

20 For a general review of the Japanese case, see: Mireya Solis, “Economic Security: Boon or Bane for the US-Japan Alliance?,” Sasakawa Peace Foundation USA, November 5–6, 2022, https://spfusa.org/publications/economic-security-boon-or-bane-for-the-us-japan-alliance/#_ftn19. For the South Korean case, see: Seong-Ho Sheen and Mireya Solis, “How South Korea Sees Technology Competition with China and Export Controls,” Brookings, May 17, 2023, https://www.brookings.edu/blog/order-from-chaos/2023/05/17/how-south-korea-sees-technology-competition-with-china-and-export-controls/.

21 Jeremy Mark and Dexter Tiff Roberts, United States–China Semiconductor Standoff: A Supply Chain under Stress, Atlantic Council, February 23, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/united-states-china-semiconductor-standoff-a-supply-chain-under-stress/.

22 Yang Jie and Megumi Fujikawa, “Tokyo Meeting Highlights Democracies’ Push to Secure Chip Supplies,” Wall Street Journal, May 18, 2023, https://www.wsj.com/articles/tokyo-meeting-highlights-democracies-push-to-secure-chip-supplies-54e1173d?mod=article_inline; “US Urges South Korea not to Fill Chip Shortfalls in China if Micron Banned, Financial Times Reports,” Reuters, April 23, 2023, https://www.reuters.com/technology/us-urges-south-korea-not-fill-china-shortfalls-if-beijing-bans-micron-chips-ft-2023-04-23/.

23 See, e.g., the arguments in: Matias Spektor, “In Defense of the Fence Sitters. What the West Gets Wrong about Hedging,” Foreign Affairs, May/June 2023, https://www.foreignaffairs.com/world/global-south-defense-fence-sitters.

24 On the expansion of trade under Bretton Woods during the first postwar decades, see: Tamim Bayoumi, “The Postwar Economic Achievement,” Finance & Development, June 1995, https://www.elibrary.imf.org/view/journals/022/0032/002/article-A013-en.xml.

25 For a review of the history of the bilateral trade relationship, see: Anshu Siripurapu and Noah Berman, “Backgrounder: The Contentious U.S.-China Trade Relationship,” Council on Foreign Relations, December 5, 2022, https://www.cfr.org/backgrounder/contentious-us-china-trade-relationship.

26 Eric Martin and Ana Monteiro, “US-China Goods Trade Hits Record Even as Political Split Widens,” Bloomberg, February 7, 2023, https://www.bloomberg.com/news/articles/2023-02-07/us-china-trade-climbs-to-record-in-2022-despite-efforts-to-split?sref=a9fBmPFG#xj4y7vzkg

27 Neal E. Boudette and Keith Bradsher, “Ford Will Build a U.S. Battery Factory with Technology from China,” New York Times, February 13, 2023, https://www.nytimes.com/2023/02/13/business/energy-environment/ford-catl-electric-vehicle-battery.html.

28 “Tracking the Collaborative Networks of Five Leading Science Nations,” Nature 603, S10–S11 (2022), https://www.nature.com/articles/d41586-022-00571-z.

29 “Protecting U.S. Technological Advantage,” National Academies of Sciences, Engineering, and Medicine, 2022, 12, https://doi.org/10.17226/26647.

30 Robert W. Seidel, “Science Policy and the Role of the National Laboratories,” Los Alamos Science 21 (1993), 218–226, https://sgp.fas.org/othergov/doe/lanl/pubs/00285712.pdf.

31 The federal government’s hand in creating Silicon Valley is well known. For a short summary, see: W. Patrick McCray, “Silicon Valley: A Region High on Historical Amnesia,” Los Angeles Review of Books, September 19, 2019, https://lareviewofbooks.org/article/silicon-valley-a-region-high-on-historical-amnesia/. A forceful defense of the federal government’s role in creating and sustaining Silicon Valley is: Jacob S. Hacker and Paul Pierson, “Why Technological Innovation Relies on Government Support,” Atlantic, March 28, 2016, https://www.theatlantic.com/politics/archive/2016/03/andy-grove-government-technology/475626/.

32 Robert D. Atkinson, “Understanding the U.S. National Innovation System, 2020,” International Technology & Innovation Foundation, November 2020, 1, https://www2.itif.org/2020-us-innovation-system.pdf.

33 “National Innovation Policies: What Countries Do Best and How They Can Improve,” International Technology & Innovation Foundation, June 13, 2019, 82, https://itif.org/publications/2019/06/13/national-innovation-policies-what-countries-do-best-and-how-they-can-improve/; “Historical Trends in Federal R&D, Federal R&D as a Percent of GDP, 1976-2023,” American Association for the Advancement of Science, last visited June 13, 2023, https://www.aaas.org/programs/r-d-budget-and-policy/historical-trends-federal-rd.

34 Matt Hourihan, “A Snapshot of U.S. R&D Competitiveness: 2020 Update,” American Association for the Advancement of Science, October 22, 2020, https://www.aaas.org/news/snapshot-us-rd-competitiveness-2020-update.

35 Remco Zwetsloot, et al., “China is Fast Outpacing U.S. STEM PhD Growth,” Center for Security and Emerging Technology, August 2021, 2–4, https://cset.georgetown.edu/publication/china-is-fast-outpacing-u-s-stem-phd-growth/.

36 As reviewed in: Robert D. Atkinson, “Understanding the U.S. National Innovation System, 2020,” International Technology & Innovation Foundation, November 2020, https://www2.itif.org/2020-us-innovation-system.pdf.

37 See, e.g., the arguments laid out by Frank Lucas, chairman of the House Science, Space, and Technology Committee, in: Frank Lucas, “A Next-Generation Strategy for American Science,” Issues in Science and Technology 39, 3, Spring 2023, https://issues.org/strategy-american-science-lucas/.

38 “Findings of the Investigations into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974”; “Threats to the U.S. Research Enterprise: China’s Talent Recruitment Plans,” Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, US Senate, November 2019, https://www.hsgac.senate.gov/wp-content/uploads/imo/media/doc/2019-11-18%20PSI%20Staff%20Report%20-%20China’s%20Talent%20Recruitment%20Plans%20Updated2.pdf; Michael Brown and Pavneet Singh, “China’s Technology Transfer Strategy: How Chinese Investments in Emerging Technology Enable A Strategic Competitor to Access the Crown Jewels of U.S. Innovation,” Defense Innovation Unit Experimental (DIUx), January 2018, https://www.documentcloud.org/documents/4549143-DIUx-Study-on-China-s-Technology-Transfer.

39 Steven F. Hill, et. al, “Trump Administration Significantly Enhances Export Control Supply Chain Restrictions on Huawei,” K&L Gates, September 2020, https://www.klgates.com/Trump-Administration-Significantly-Enhances-Export-Control-Supply-Chain-Restrictions-on-Huawei-9-2-2020; and “Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification,” Bureau of Industry and Security, US Department of Commerce, October 14, 2022, https://www.federalregister.gov/documents/2022/10/13/2022-21658/implementation-of-additional-export-controls-certain-advanced-computing-and-semiconductor.

40 “The Committee on Foreign Investment in the United States,” US Department of the Treasury, last visited June 13, 2023, https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius.

41 Hans Nichols and Dave Lawler, “Biden’s Next Move to Box China out on Sensitive Tech,” Axios, May 25, 2023, https://www.axios.com/2023/05/25/china-investments-ai-semiconductor-biden-order.

42 “With Over 300 Sanctions, U.S. Targets Russia’s Circumvention and Evasion, Military-Industrial Supply Chains, and Future Energy Revenues,” US Department of the Treasury, press release, May 19, 2023, https://home.treasury.gov/news/press-releases/jy1494.

43 Tim Hwang and Emily S. Weinstein, “Decoupling in Strategic Technologies: From Satellites to Artificial Intelligence,” Center for Security and Emerging Technology, July 2022, https://cset.georgetown.edu/publication/decoupling-in-strategic-technologies/.

44 The articles were published in China’s state-run newspaper, Science and Technology Daily. Ben Murphy, “Chokepoints: China’s Self-Identified Strategic Technology Import Dependencies,” Center for Security and Emerging Technology, May 2022, https://cset.georgetown.edu/publication/chokepoints/.

45 Antony J. Blinken, “The Administration’s Approach to the People’s Republic of China,” US Department of State, May 26, 2022, https://www.state.gov/the-administrations-approach-to-the-peoples-republic-of-china/.

46 “Media Reaction: US Inflation Reduction Act and the Global ‘Clean-Energy Arms Race,’” Carbon Brief, February 3, 2023, https://www.carbonbrief.org/media-reaction-us-inflation-reduction-act-and-the-global-clean-energy-arms-race/; Théophile Pouget-Abadie, Francis Shin, and Jonah Allen, Clean Industrial Policies: A Space for EU-US Collaboration, Atlantic Council, March 10, 2023, https://www.atlanticcouncil.org/blogs/energysource/clean-industrial-policies-a-space-for-eu-us-collaboration/.

47 Shannon Tiezzi, “Are US Allies Falling out of ‘Alignment’ on China?” Diplomat, December 19, 2022, https://thediplomat.com/2022/12/are-us-allies-falling-out-of-alignment-on-china/.

48 “The Fall of Empires Preys on Xi Jinping’s Mind,” Economist, May 11, 2023, https://www.economist.com/briefing/2023/05/11/the-fall-of-empires-preys-on-xi-jinpings-mind; Kunal Sharma, “What China Learned from the Collapse of the USSR,” Diplomat, December 6, 2021, https://thediplomat.com/2021/12/what-china-learned-from-the-collapse-of-the-ussr/; Simone McCarthy, “Why Gorbachev’s Legacy Haunts China’s Ruling Communist Party,” CNN, August 31, 2022, https://www.cnn.com/2022/08/31/china/china-reaction-mikhail-gorbachev-intl-hnk/index.html.

49 For a review of the complex history of the construction and deconstruction of the Soviet Union, see: Serhii Plokhy, “The Empire Returns: Russia, Ukraine and the Long Shadow of the Soviet Union,”Financial Times, January 28, 2022, https://www.ft.com/content/0cbbd590-8e48-4687-a302-e74b6f0c905d.

50 Phelim Kine, “China ‘Is Infinitely Stronger than the Soviet Union Ever Was,’” Politico, April 28, 2023, https://www.politico.com/newsletters/global-insider/2023/04/28/china-is-infinitely-stronger-than-the-soviet-union-ever-was-00094266.

51 Hal Brands, “The Dangers of China’s Decline,” Foreign Policy, April 14, 2022, https://foreignpolicy.com/2022/04/14/china-decline-dangers/.

52 Tarun Chhabra, et al., “Open-Source Intelligence for S&T Analysis,” Center for Security and Emerging Technology (CSET), Georgetown University Walsh School of Foreign Service, September 2020, https://cset.georgetown.edu/publication/open-source-intelligence-for-st-analysis/.

53 A summary of and link to the committee’s redacted report is in: Tia Sewell, “U.S. Intelligence Community Ill-Prepared to Respond to China, Bipartisan House Report Finds,” Lawfare, September 30, 2020, https://www.lawfareblog.com/us-intelligence-community-ill-prepared-respond-china-bipartisan-house-report-finds.

54 William Hannas and Huey-Meei Chang, “China’s Access to Foreign AI Technology,” Center for Security and Emerging Technology (CSET), Georgetown University Walsh School of Foreign Service, September 2019, https://cset.georgetown.edu/publication/chinas-access-to-foreign-ai-technology/.

55 Ellen Nakashima, “Justice Department Shutters China Initiative, Launches Broader Strategy to Counter Nation-State Threats,” Washington Post, February 23, 2022, https://www.washingtonpost.com/national-security/2022/02/23/china-initivative-redo/.

56 Tuomo Kuosa, “Strategic Foresight in Government: The Cases of Finland, Singapore, and the European Union,” S. Rajaratnam School of International Studies, Nanyang Technological University, 43, https://www.files.ethz.ch/isn/145831/Monograph19.pdf.

57 For a review, including a summary of such recommendations, see: J. Peter Scoblic, “Strategic Foresight in U.S. Agencies. An Analysis of Long-term Anticipatory Thinking in the Federal Government,” New America, December 15, 2021, https://www.newamerica.org/international-security/reports/strategic-foresight-in-us-agencies/.

58 See, for example: Marie A. Mak, “Critical Technologies: Agency Initiatives Address Some Weaknesses, but Additional Interagency Collaboration Is Needed,” General Accounting Office, February 2015, https://www.gao.gov/assets/gao-15-288.pdf.

59 “Protecting U.S. Technological Advantage,” 97.

60 Ibid.

61 Toby Sterling, Karen Freifeld, and Alexandra Alper, “Dutch to Restrict Semiconductor Tech Exports to China, Joining US Effort,”Reuters, March 8, 2023, https://www.reuters.com/technology/dutch-responds-us-china-policy-with-plan-curb-semiconductor-tech-exports-2023-03-08/.

62 Troy Stangarone, “Inflation Reduction Act Roils South Korea-US Relations,” Diplomat, September 20, 2022, https://thediplomat.com/2022/09/inflation-reduction-act-roils-south-korea-us-relations/; “S. Korea in Preparation for Legal Disputes with U.S. over IRA,” Yonhap News Agency, November 3, 2022, https://en.yna.co.kr/view/AEN20221103004500320.

63 “Speech by President von der Leyen on EU-China Relations to the Mercator Institute for China Studies and the European Policy Centre,” European Commission, March 30, 2023, https://ec.europa.eu/commission/presscorner/detail/en/speech_23_2063.

64 “G7 Hiroshima Leaders’ Communiqué,” White House, May 20, 2023, https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/20/g7-hiroshima-leaders-communique/.

65 See, e.g.: Kevin Roose, “A.I. Poses ‘Risk of Extinction,’ Industry Leaders Warn,” New York Times, May 30, 2023, https://www.nytimes.com/2023/05/30/technology/ai-threat-warning.html.

66 Gigi Kwik Gronvall, “Managing the Risks of Biotechnology Innovation,” Council on Foreign Relations, January 30, 2023, 7, https://www.cfr.org/report/managing-risks-biotechnology-innovation.

67 Madeleine Ngo, “CHIPS Act Funding for Science and Research Falls Short,” New York Times, May 30, 2023, https://www.nytimes.com/2023/05/30/us/politics/chips-act-science-funding.html; Matt Hourihan, Mark Muro, and Melissa Roberts Chapman, “The Bold Vision of the CHIPS and Science Act Isn’t Getting the Funding It Needs,” Brookings, May 17, 2023, https://www.brookings.edu/blog/the-avenue/2023/05/17/the-bold-vision-of-the-chips-and-science-act-isnt-getting-the-funding-it-needs/.

68 See, e.g.: Gabrielle Athanasia and Jillian Cota, “The U.S. Should Strengthen STEM Education to Remain Globally Competitive,” Center for Strategic and International Studies, April 1, 2022, https://www.csis.org/blogs/perspectives-innovation/us-should-strengthen-stem-education-remain-globally-competitive.

69 On per-student university funding at state level, see: Mary Ellen Flannery, “State Funding for Higher Education Still Lagging,” NEA Today, October 25, 2022, https://www.nea.org/advocating-for-change/new-from-nea/state-funding-higher-education-still-lagging

70 Matt Fieldman, “5 Things We Learned in Germany,” NIST Manufacturing Innovation Blog, December 14, 2022, https://www.nist.gov/blogs/manufacturing-innovation-blog/5-things-we-learned-germany.

71 For a review, see: Peter Engelke and Robert A. Manning, Keeping America’s Innovative Edge, Atlantic Council, April 2017, https://www.atlanticcouncil.org/in-depth-research-reports/report/keeping-america-s-innovative-edge-2/.

72 To date, Congress has allocated only 5 percent of the funds called for in the piece of the CHIPS Act that funds the tech hubs. Madeleine Ngo, “CHIPS Act Funding for Science and Research Falls Short,” New York Times, May 30, 2023, https://www.nytimes.com/2023/05/30/us/politics/chips-act-science-funding.html; Mark Muro, et al., “Breaking Down an $80 Billion Surge in Place-Based Industrial Policy,” Brookings, December 15, 2022, https://www.brookings.edu/blog/the-avenue/2022/12/15/breaking-down-an-80-billion-surge-in-place-based-industrial-policy/.

73 Shai Bernstein, et al., “The Contribution of High-Skilled Immigrants to Innovation in the United States,” National Bureau of Economic Research, December 2022, 3, https://www.nber.org/papers/w30797.

74 Miranda Dixon-Luinenburg, “America Has an Innovation Problem. The H-1B Visa Backlog Is Making It Worse,” Vox, July 13, 2022, https://www.vox.com/future-perfect/23177446/immigrants-tech-companies-united-states-innovation-h1b-visas-immigration.

75 “Protecting U.S. Technological Advantage,” 98–99.

76 Matt Hourihan, “CHIPS And Science Highlights: National Strategy,” Federation of American Scientists, August 9, 2022, https://fas.org/publication/chips-national-strategy/.

77 “Press Release: Bennet, Sasse, Warner Unveil Legislation to Strengthen U.S. Technology Competitiveness,” Office of Michael Bennet, June 9, 2022, https://www.bennet.senate.gov/public/index.cfm/2022/6/bennet-sasse-warner-unveil-legislation-to-strengthen-u-s-technology-competitiveness.

78 Tarun Chhabra, et al., “Open-Source Intelligence for S&T Analysis,” Center for Security and Emerging Technology (CSET),Georgetown University Walsh School of Foreign Service, September 2020, https://cset.georgetown.edu/publication/open-source-intelligence-for-st-analysis/.

79 Emily Weinstein, “The Role of Taiwan in the U.S. Semiconductor Supply Chain Strategy,” National Bureau of Asian Research, January 21, 2023, https://www.nbr.org/publication/the-role-of-taiwan-in-the-u-s-semiconductor-supply-chain-strategy/.

80 Daniel Flatley, “US Treasury Hires Economists to Study Consequences of Sanctions,” Bloomberg, May 17, 2023, https://www.bloomberg.com/news/articles/2023-05-18/us-treasury-hires-economists-to-study-consequences-of-sanctions?sref=a9fBmPFG.

81 Kevin Wolf and Emily S. Weinstein, “COCOM’s daughter?” World ECR, May 13, 2022, 25, https://cset.georgetown.edu/wp-content/uploads/WorldECR-109-pp24-28-Article1-Wolf-Weinstein.pdf.

The post Global Strategy 2023: Winning the tech race with China appeared first on Atlantic Council.

CBDC tracker cited by Decrypt

mrashid — Mon, 26 Jun 2023 16:17:07 +0000

The post CBDC tracker cited by Decrypt appeared first on Atlantic Council.

Unlocking economic development in Latin America and the Caribbean: Five opportunities for private-sector leadership and partnership

Pepe Zhang — Mon, 26 Jun 2023 16:00:00 +0000

Executive summary
Introduction
Overview of key opportunities
Conclusion
Annex
Interviews

Public Event Mon, June 26, 2023 • 2:00 pm ET

Executive summary

How does the private sector perceive Latin America and the Caribbean (LAC)? What opportunities do firms find most exciting? And what precisely can companies do to seize on these opportunities and support the region’s journey toward recovery and sustainable development? To answer these questions, the Atlantic Council collaborated with the Inter-American Development Bank (IDB) to glean insights from its robust network of private-sector partners. Through surveys and in-depth interviews, this report identified five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Introduction

Latin America and the Caribbean stand at a pivotal moment. Hard hit by the pandemic in 2020, the region managed an impressive rebound in 2021 on the back of successful vaccination campaigns and historically intensive fiscal support.¹ However, new uncertainties began to emerge by late 2021. LAC’s growth slowed to 3.5 percent in 2022, and is expected to further weaken to 1.7 percent in 2023.²

Inflationary pressures, rate hikes in both LAC and advanced economies, spillovers of the war in Ukraine, tightening fiscal positions, and still-high debt levels have dampened the regional macro-outlook.³ In addition, countries face structural micro-level vulnerabilities—such as rigid and informal labor markets and low productivity—which made LAC the slowest-growing region globally from 2014–2019 and the region worst affected economically by COVID in 2020.⁴

The above challenges—coupled with a lingering pandemic, a global food crisis and energy crunch, and the effects of climate events—are testing public finances and institutions. Much is at stake as governments seek to better serve the needs of their economies and societies. From sustaining the ongoing recovery against short-term headwinds to boosting inclusive, productive, and sustainable development in the long term, governments cannot, and should not, do it alone.

In this context, the Atlantic Council’s Adrienne Arsht Latin America Center (AALAC) has partnered with the Inter-American Development Bank (IDB) to highlight the critical role of the private sector in supporting growth and improving lives in LAC. By working directly with IDB’s robust network of multinational private-sector partners through surveys and interviews, AALAC identifies and spotlights five opportunities whereby the private sector can drive economic prosperity, sustainable development, and social progress in LAC.

Enhancing market size, scalability, and regional integration. The private sector can strengthen the hard and soft infrastructures supporting the region’s economies, while drawing them closer together through trade, regulatory, and other integration.
Accelerating digitalization and innovation. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.
Improving state governance, institutional capacity, and transparency. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government-service delivery, and regulatory quality in LAC.
Addressing multidimensional inequality. Private-sector actions to reduce gender inequality, level the playing field between SMEs and large firms, narrow the urban-rural divide, and prepare for global shocks will enable a more prosperous, inclusive economy for LAC.
Meaningfully advancing the green agenda. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

In each opportunity area, the report provides recommendations private firms should consider to maximize their own roles in the region’s recovery and continued development, as well as by working through partnerships with the public sector. To inspire ways forward, such recommendations are accompanied by concrete, actionable examples of successful private-sector leadership and partnerships.

Where applicable, the report also introduces relevant, complementary policy recommendations for the public sector by drawing primarily on research of the Americas Business Dialogue (ABD), a private-sector initiative facilitated by the IDB. ABD leverages the insights of more than four hundred companies to develop, disseminate, and support the implementation of sound public-policy recommendations.

Partnerships at the IDB
The report is the product of a close collaboration between the Atlantic Council and the IDB. The IDB is the leading source of development financing for Latin America and the Caribbean, with a long track record of working in partnerships with the public, private, nonprofit, philanthropic, and academic sectors. Through its Office of Outreach and Partnerships (ORP), created in 2008, the IDB has managed to cultivate a robust network of partners, including private-sector firms dedicated to supporting the region’s development in partnership with the bank. The Atlantic Council engaged more than one hundred of these firms as part of the report-building process.

The IDB works with its private-sector partners in many ways, focusing largely on: capturing financing from partners to complement its operations in the region; mobilizing pro-bono knowledge, innovation, and technological solutions from partners that can generate impact in the region, in line with its institutional strategy; and engaging in knowledge sharing, dialogue, networking, and other activities through high-level partnership platforms. To date, the IDB Group has mobilized close to $52 billion from 500+ partners from the private, public and philanthropic sectors, including $5.91 billion in 2022.

Special feature: Private-sector perception of LAC
In addition to identifying the five opportunities of private-sector-led growth in LAC, this report provides a helpful snapshot of business attitudes toward the region, through a series of surveys and interviews conducted in May and July 2022 (see methodology in Annex A). Survey respondents—private-sector partners of the IDB—are predominantly multinational companies and represent fifteen sectors. Seventy-nine percent of these companies operate in two or more LAC countries and 65 percent employ more than four hundred people in the region. The survey yields two salient insights.

The first of these insights is that business leaders perceive the region through a spectrum of optimistic and pessimistic lenses. In brief, survey respondents are almost exactly split on whether the overall business and investment environments in LAC have improved over the last decade. The optimists, which make up 49 percent of respondents, consider the environments to be friendlier or much friendlier than in the past, whereas the pessimists (the other 51 percent) see stagnation or even deterioration in these conditions (Figure 1). Interestingly, the two groups are not defined by discernible differences in terms of the industries or subregions in which they operate, or in the demography of the respondent.

The optimism-versus-pessimism dichotomy reflects more than just two contrasting views of the region’s past trajectory. Rather, dissecting survey responses by optimists and pessimists reveals their respective underlying perspectives on LAC’s strengths and weaknesses—and, implicitly, their disagreements and surprising agreements. For example, while optimists are more hopeful about, and place greater emphasis on, LAC’s digital and innovation potential than the pessimists, optimists fully concur with pessimists that governance and institutions are top challenges facing LAC.

Comparisons like this—see numerous “additional survey insight” boxes throughout the report—add more nuance to the analysis, as well as the resulting, forward-looking recommendations. Although perceptions are hard to change, progress in the five opportunity areas outlined below will be key to tipping the balance of optimism and pessimism in LAC’s favor. This is important because perceptions guide decision-making: perceived risks and weaknesses can undercut investment, while a shift toward more optimistic views of the region can do the opposite.

Second, the survey displays a more favorable perception of LAC than common wisdom or an “international observer” might suggest. On one hand, reputable international assessments of business friendliness and competitiveness— conducted by organizations such as the Economist Intelligence Unit, the World Economic Forum, and the Institute for Management Development—tend to place LAC in the bottom half of all countries.⁵ On the other hand, our survey respondents—including the pessimists—see LAC as slightly more attractive than the global average (see Figures 2 and 3 below). ⁶ Despite the potential positive bias of our multinational survey respondents toward LAC, it offers hope that they suggest—in a global context—that LAC may have more to offer than meets the eye.

To further explore such varied perceptions of LAC, the report compares LAC to other regions through objective metrics, where applicable. More importantly, an obvious takeaway is that, going forward, the region needs to lower its “barriers to entry” and make its opportunities more accessible to everyone, whether knowledgeable observers or those who do not necessarily possess a deep understanding of local conditions. Effective and constructive public-private collaboration and dialogues, including those undertaken in preparation for this report, will be indispensable to rallying international optimism and attention in specific countries, and in the region in general.

Overview of key opportunities

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Conclusion

When asked to identify the main social impact of their companies, survey respondents cited myriad promising areas. Unsurprisingly, the most commonly cited was economic growth and job creation (72 percent), as shown in Figure 11 a few pages ago. But LAC needs companies to consider their contributions far beyond output and employment, especially with the region confronting a number of additional short-term uncertainties and structural socioeconomic obstacles. As evidenced by concrete examples throughout the report, many firms have undertaken commendable efforts and rethinking in this regard. But more can be done. Going forward, the private sector would do well to step up as a leader—and a partner for the public sector—in boosting development, equity, resilience, and sustainability in LAC. This report explored how the private sector can rise to this challenge in a systematic and actionable way, through sixteen recommendations across five concrete opportunities (summarized below). Additionally, it explained why doing so also benefits firms, for those less convinced of the cause (or less optimistic about the region). This is particularly critical to further galvanizing private sector interests at a time when pandemic-induced scarring and other ongoing economic headwinds have eroded corporate revenues and suppressed cumulative investment in certain sectors.⁷ Even with fewer resources available, however, companies can make an impact through well-designed day-to-day operations, strategies, special programs, and partnerships. Finally, the private sector cannot, and should not, do it alone. The report highlighted success stories and the overall importance of multistakeholder partnerships (public-private, private-multilateral, private-civil society, etc.), as a way to complement private-sector actions and amplify developmental impact. On that note, this conclusion section offers some final thoughts and additional insights on how to stimulate public-private partnerships in particular, as well as the critical role of the multilateral sector to advance partnerships and private-sector-led development.

Special feature: Maximizing the potential of public-private cooperation
In addition to the private-sector opportunities and recommendations summarized above, the report showcased scores of successful partnerships with the private sector that helped magnify developmental impact. As governments pursue and expand these partnerships, a central question remains: how to ensure these partnerships are successful. The answer varies greatly depending on the nature of the collaboration (e.g., co-financing an infrastructure project versus developing vocational training with private-sector expertise). Nevertheless, insights from our survey shed light on this. See Figure 12 below.

Firms most commonly cited the two following factors as necessary for successful collaboration with the public sector: regulatory, procedural, and legal clarity (70 percent), and integrity and trustworthiness (70 percent). The next tier of requirements was related to the attributes of specific collaborations themselves: economic viability (60 percent), skilled counterparts (56 percent), and effective negotiation (54 percent).

Here again, interesting differences appeared between our survey’s optimists and pessimists. The latter—who showed greater skepticism of government institutions—are more likely to prioritize regulatory and legal frameworks and engage with trustworthy and honest counterparts. Optimists, meanwhile, focused more on the specifics of a given collaboration (in particular, economic viability). See Figure 13 below.

Ultimately, as with all relationships, successful public-private cooperation in pursuit of recovery and sustainable development in the region will depend on a shared vision for success, a clear sense of what each partner brings to the table, trust and communication, transparency and honesty, and a shared belief in the unique potential of multistakeholder partnerships to improve lives in the region.

Special feature: The role of the multilateral sector

Multilateral actors have a critical role to play in these partnerships. Indeed, many interviewees, including Telefonica, pointed to the multilateral institutions as key partners that can help private actors unlock their full potential to support the region’s development.

First, multilateral entities bring profound sectorial, country, and development expertise to partnerships. This knowledge helps ensure partnerships are designed in line with country and sector needs, that they respond to the realities on the ground, and that they are soundly implemented and carefully monitored to maximize impact.

Second, multilaterals are trusted partners of governments, civil-society actors, and private firms, and therefore can serve as a bridge connecting these diverse actors. This is particularly relevant in LAC, where trust in the public and private sectors is low, and where mistrust is a significant obstacle to development.⁸ As an honest broker, multilaterals can unlock progress and prosperity by convening and building trust among public, private, and civil-society actors, and by opening the hearts and minds of local partners and beneficiaries to the ways in which private-sector partnerships can improve the region’s environmental, social, and economic wellbeing. A salient example here is IDB’s leadership in convening public-private dialogue, through platforms like the Americas Business Dialogue, on diverse topics of strategic development importance. These dialogues have effectively fostered public-private-multilateral ties in the region and involved nontraditional stakeholders, such as MNCs, in the region’s development journey.

Third, multilaterals can play a supporting role to empower partnerships with the private sector, even without being directly involved in the partnerships themselves. For example, they can partner with governments to provide anchor investments or de-risking facilities that may crowd in the private sector. Their support of private-sector operations with a meaningful development impact creates significant demonstration effects for other private firms to follow. Their commitment to fostering domestic private-sector development lays the groundwork for private firms to thrive, generating opportunities for future partnerships.

Such financial and technical assistance is particularly important in today’s uncertain economic and political context. On one hand, multilaterals are well positioned to act as countercyclical lenders during credit crunches and other crises. On the other hand, the multilaterals’ focus on the long-term growth and competitiveness agenda helps induce similar behavior in the public and private sectors, which helps overcome certain short-termism (for example, caused by elections, protests, or political polarization) potentially counterproductive to ultimate development goals.

Finally, multilaterals are also well placed to extract and disseminate the lessons generated from partnerships and use them to inform future partnerships and public policymaking—an essential component and objective of this collaborative report between AALAC and IDB. Moreover, their robust government ties, network of stakeholders, and in-country presence facilitates the exchange and cross-pollination of know-how across different geographies and industries. Like MNCs, many multilaterals have extensive coverage and memberships across LAC. The IDB, for example, has physical presence across twenty-six countries in the region.

Annex

Acknowledgements

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. In this context, the Atlantic Council is providing timelier-than-ever insights to highlight the critical role of the private sector in supporting growth and improving lives in Latin America and the Caribbean. As part of this broader effort, this report identifies five opportunities whereby the private sector can drive economic prosperity, sustainable development, and social progress in the region.

This report is a collaborative undertaking with the Inter-American Development Bank (IDB). We would like to thank the IDB for supporting this project financially and substantively. More than a dozen IDB colleagues, led by those at the Office of Outreach and Partnership (ORP), provided inputs and facilitated connections that helped inform this report.

Thank you to the nine private-sector stakeholders and experts who dedicated their time to provide thoughtful insights through one-on-one interviews: Helga Flores Trejo (Bayer), Florence Pourchet (BNP Paribas), Angela Maria Zuluaga (Coca-Cola), Eleonora Rabinovich (Google), Karim Lesina (Millicom), Felipe Rincon (Mastercard), Alejandro Moran Marco (NTT DATA), Alfonso Gomez (Telefonica), and Silvia Constain (Visa). We would also like to thank Reuben Smith-Vaughan (Amazon) for his input and comments. Many more participated in an anonymous survey that fed into this report. All participants were senior executives of multinational corporations that operate in Latin America and the Caribbean and are development partners of the IDB.

Finally, we would like to thank our Adrienne Arsht Latin America Center colleagues Eva Lardizábal and Jacob Kaufhold for their excellent research, writing, and coordination support; and Jeff Fleischer, Donald Partyka, and Anais Gonzalez for their editing and design support.

We are also grateful for the analytical contributions of Paul Kielstra, our survey consultant.

Jason Marczak
Senior Director, Adrienne Arsht Latin America Center, Atlantic Council

Pepe Zhang
Senior Fellow, Adrienne Arsht Latin America Center, Atlantic Council

Annex A: Methodology

A collaborative effort between AALAC and IDB, this report drew on insights from direct, structured consultations with key private sector stakeholders familiar with and active in LAC through: an anonymous survey conducted in May and June 2022; nine one-on-one, in-depth interviews with senior executives in June and July 2022; and additional input in particular from the ABD, an IDB-led initiative that houses and produces public-policy recommendations in collaboration with more than four hundred companies and associations.

Survey: To better understand the private-sector perspective on the opportunities facing LAC, AALAC and IDB invited their private-sector partners to participate in an anonymous online survey, hosted on Survey Monkey. Fifty-five individuals completed the questionnaire in late May and late June 2022. The questions, developed jointly by AALAC and IDB, covered areas including: recent and likely future evolution of LAC’s business environment, how LAC compares with other global regions, top attractions and barriers of doing business in LAC, the socioeconomic role and contributions of private firms in regional recovery and development, and ways to enhance private-sector partnerships with governments and multilateral organizations.

Survey respondents were predominantly multinational firms operating in LAC. The mean number of each company’s employees in the region is more than four hundred, with more than three-quarters having more than two hundred (see Figure 14, above). Consistent with such size, these businesses typically operate across the region. On average, surveyed companies are active in nine LAC countries. Seventy-nine percent of them operate in more than one sub region of LAC: South America, Central America, and the Caribbean. Respondents’ firms are also distributed across a wide range of sectors—fifteen in total—with the most common being information technology (15 percent), financial services (15 percent), and automotive (11 percent).

Interviews: In June and July 2022, AALAC conducted one-on-one interviews with nine senior executives from IDB’s network of private sector partners representing several industries: Bayer, BNP Paribas, Coca-Cola, Google, Mastercard, Millicom, NTT Data, Telefonica, and Visa. These qualitative interviews complemented the survey by delving deeper into specific issues relevant to the report and of private sector and partnership interest. Full-length interviews were published on the Atlantic Council’s website as part of its Experts of the Americas series.

ABD: The report also benefited from insights from the Americas Business Dialogue, in particular its 2022 report of policy recommendations. ABD carries out a sustained high-level exchange between LAC governments and companies, and acts as the private sector consultation mechanism for the Summit of the Americas. The opinions expressed in ABD recommendations are those of ABD members, and do not necessarily reflect the views of the IDB, its board of directors, or the countries it represents.

Additional input: Finally, the report benefited from technical inputs of IDB teams working closely with the private sector, including: Climate Change & Sustainable Development Sector (CSD), Department of Research & Chief Economist (RES), Infrastructure & Energy Sector (INE), Institutions for Development Sector (IFD), Integration & Trade Sector (INT), Social Sector (SCL), IDB Lab, and IDB Invest. The report was produced and coordinated by the Office of Outreach and Partnership (ORP) on the IDB side, and the AALAC on the Atlantic Council side.

Building on the above resources and additional research, AALAC and the IDB identified five areas of opportunity for accelerating growth and development in LAC through the private sector and partnership, which were used as the foundation for the report.

Annex B: ABD Recommendations

The report drew on recommendations facilitated by the Americas Business Dialogue (ABD). For ease of navigation, this table summarizes where ABD recommendations were used and included the text of the original recommendations.

Interviews

Unlocking development in LAC: What role and opportunities for the private sector

An in-person conversation on pathways for the private sector to boost regional development across Latin America and the Caribbean.

Americas Climate Change & Climate Action Economy & Business Energy & Environment

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

1 Stimulus in LAC was smaller in size compared to advanced economies, but larger than the stimulus in LAC provided during previous crises

2 “World Economic Outlook Report April 2023: A Rocky Recovery,” International Monetary Fund, April 2022, https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023

3 Eduardo Cavallo, et al., “From Recovery to Renaissance: Turning Crisis into Opportunity,” Inter-American Development Bank, April 2023, https://flagships.iadb.org/en/MacroReport2022/From-Recovery-to-Renaissance-Turning-Crisis-into-Opportunity.

4 “GDP Growth (Annual %)—Sub-Saharan Africa, Middle East & North Africa, Latin America & Caribbean, Europe & Central Asia, East Asia & Pacific, European Union, South Asia, North America,” World Bank, last visited January 24, 2023, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2019&locations=ZG-ZQ-ZJ-Z7-Z4-EU-8S-XU&start=2007. LAC had the lowest gross domestic product growth (by percentage) among regions every year from 2014–2019 except 2017, when it was .1 percentage points higher than the Middle East/North Africa.

5 “EIU Global Outlook—a summary of our latest global views,” Economist, June 15, 2022, http://country.eiu.com/article.
aspx?articleid=532192036&Country=United+States&topic=Economy&subto_1; “World Competitiveness Ranking,” International Institute for Management Development, last visited
January 24, 2023, https://www.imd.org/centers/world-competitiveness-center/rankings/world-competitiveness; “The Global Competitiveness Report 2019,” World Economic
Forum, 2019, https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf.

6 Question 6 asked “On a scale of 1 to 5, where 1 = best of all regions and 5 = worst of all regions, how would you rank LAC for its attractiveness and competitiveness compared
to other global regions?” The mean ranking for attractiveness is 2.7, where three means the respondent thinks the region average globally. For competitiveness, the mean is 2.9.
See Figures 2 and 4 below.

7 “Healthier Firms for a Stronger Recovery: Policies to Support Business and Jobs in Latin America and the Caribbean,” Inter-American Development Bank, August 2022, https://publications.iadb.org/en/healthier-firms-stronger-recovery-policies-support-business-and-jobs-latin-america-and-caribbean.

8 Keefer and Scartascini, Trust, 7

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Meaningfully advancing the green agenda

Pepe Zhang — Mon, 26 Jun 2023 16:00:00 +0000

Adrienne Arsht Latin America Center

This is the 5th installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Meaningfully advancing the green agenda

The private sector identified the green agenda as a major opportunity, with more than half of survey respondents flagging “addressing climate change” as a top sustainable development and business priority to drive full economic recovery from COVID-19.¹ While climate action is critical on a global level, companies recognize that it is particularly pressing in LAC.

LAC is the world’s most economically unequal region and the second-most disaster-prone region in the world, highly vulnerable to climate consequences.² This vulnerability threatens to further entrench inequality and undermine the wellbeing of people and communities. Every year, between one hundred and fifty thousand and two million people in LAC are pushed into poverty or extreme poverty because of natural disasters, while as many as seventeen million people could migrate across LAC by 2050 due to climate change.³ Climate change also threatens food security, which can heavily impact rural communities.⁴ It will generate economic costs of up to $100 billion annually by 2050, which undercut growth and limit the ability of businesses to operate, prosper, and thrive.⁵

Recommendations for the private sector

Advancing the green agenda is not only imperative as a means of addressing the threat of climate change, but also as a means of unlocking massive business opportunities with the potential to drive private-sector-led economic recovery and growth in LAC. In particular, private firms have an important role to play by creating green jobs, promoting the circular economy, and partaking in green finance.

Creating green jobs: Firms can help create green jobs by adopting sustainable practices, seizing business opportunities in emerging green sectors, and providing upskilling, reskilling, and other support for workers displaced by the green transition.
Promoting the circular economy: Firms can help drive a transition to a circular-economy model by financing circular-economy efforts, supporting multistakeholder initiatives, and adopting and promoting sustainable business practices.
Partaking in green finance: The financial sector can help foster a green-finance ecosystem in the region by tightening environmental, social, and governance (ESG) requirements, aligning investments with green objectives, and nurturing green[1]bond markets in LAC.

About the author

Staff

Pepe Zhang

Senior Fellow

China Coronavirus

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

1 Opportunities and Challenges in Latin America and the Caribbean: The Private Sector Perspective,” June 2022, question 10.

2 “GHO 2023: at a Glance,” Humanitarian Action, last visited January 25, 2023, https://gho.unocha.org/appeals/latin-america-and-caribbean#footnote-paragraph-136-1.

3 Carlos Felipe Jaramillo, “A Green Recovery of Latin America and the Caribbean is Possible and Necessary,” Latin America and the Caribbean World Bank Blog, September 11, 2020, https://blogs.worldbank.org/latinamerica/green-recovery-latin-america-and-caribbean-possible-and-necessary.

4 Enrique Oviedo and Adoniram Sanches, coords., “Food and Nutrition Security and the Eradication of Hunger: CELAC 2025: Furthering Discussion and Regional Cooperation,” Community of Latin American and Caribbean States, July 2016, 74–75. https://repositorio.cepal.org/bitstream/handle/11362/40355/S1600706_en.pdf?sequence=1&isAllowed=y.

5 Walter Vergara, et al., “The Climate and Development Challenge for Latin America and the Caribbean: Options for Climate-Resilient, Low-Carbon Development,” Economic Commission for Latin America and the Caribbean, Inter-American Development Bank, and World Wildlife Fund, 2013, 13–14, https://publications.iadb.org/publications/english/document/The-Climate-and[3]Development-Challenge-for-Latin-America-and-the-Caribbean-Options-for-Climate-Resilient-Low-Carbon-Development.pdf.

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Mühleisen quoted in Axios on Zambia debt restructuring deal

rmurphy — Mon, 26 Jun 2023 14:55:18 +0000

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Five steps toward Ukrainian victory and a lasting peace with Russia

Arseniy Yatsenyuk — Mon, 26 Jun 2023 11:07:48 +0000

A few years ago, against the backdrop of a national pro-democracy uprising in Belarus, I called on European leaders to develop a clear strategy for Eastern Europe. This envisaged EU and NATO membership for Ukraine, Moldova, Georgia, and a free Belarus. Alas, many European politicians preferred to wait and see.

It is admittedly difficult to make historic political decisions, but the price of not doing so is often horrendously high. In this case, the price is obvious: By failing to integrate Ukraine and bring the countries of Eastern Europe out of the geopolitical grey zone, Western leaders set the stage for the full-scale Russian invasion of 2022.

Further mistakes will be just as costly. Thankfully, there is now a growing consensus throughout the West that only Ukrainian victory can end the global security crisis sparked by Russia’s invasion. Nevertheless, there is still a need for greater clarity on what would constitute victory and how Europe can achieve a lasting peace.

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Defeating Russia and securing peace will require a series of interrelated measures that go far beyond the battlefield. I have identified five key elements to a sustainable settlement that will end the current carnage and prevent any repetitions in the years ahead.

The first element is arming Ukraine sufficiently for victory. This process is well underway, but serious issues remain in terms of both quantities and timing. Every single delay in military aid costs Ukrainian lives and emboldens Russia. Ukraine’s Western partners must overcome their misplaced fear of provoking Putin and should instead seek to streamline the delivery of weapons. After all, it is now widely recognized that Russia must be defeated on the battlefield.

The second element is the strategic deterrence of Russia and creation of a new NATO-centered security architecture in Europe. There should now be no illusions: NATO alone can provide Europe with a credible and efficient security system. This means NATO membership for Ukraine. Nothing less will force Moscow to retreat. The upcoming NATO summit in Vilnius should conclude by inviting Ukraine to join the alliance. No bilateral guarantees or other compromise measures can hope to replace NATO’s Article Five or stop Russia.

The third element is Ukrainian membership of the European Union and restoration of the Ukrainian economy in close unison with the wider European economy. There has been significant progress toward this objective since the outbreak of Russia’s full-scale invasion, but overall results remain disappointing and fall far short of the many political statements on the importance of Ukraine’s European integration.

Eurasia Center events

After Vilnius: What’s next on Ukraine’s path to NATO?

Eastern Europe NATO Security & Defense Ukraine

The fourth key task is undermining Russia’s potential to act aggressively. It is hard to assess how long Russia will remain capable of waging the current war, but financial issues will play an important role in any decision-making process. Last year, official Russian military expenditure amounted to approximately $85 billion. This year, the figure is set to reach at least $108 billion. Unofficially, the total sum spent on the war is likely to be far higher. Clearly, sanctions must continue and need to intensify. Additional steps could include the prevention of dual-purpose goods transit through Russia and the maximum implementation of secondary sanctions.

In parallel, it is also vital to protect and strengthen Ukraine’s economy. Further measures are necessary to facilitate Ukrainian exports. NATO-led naval convoys should break Russia’s Black Sea blockade and enable Ukraine to resume international exports throughout the country’s southern ports. Ukraine’s external debt should undergo restructuring.

The fifth element necessary for a sustainable peace in Eastern Europe is perhaps the most important and at the same time the most intangible. Genuine victory will only be possible when Russian imperialism is no longer a threat to the region.

Once Ukraine is liberated and secure under the collective umbrella of NATO membership, the top priority for the international community will be addressing the imperial ideology that encourages Russians to commit acts of international aggression with impunity and contempt for human life. Russia must bear full legal and financial responsibility for its aggression against Ukraine and for the genocide of the Ukrainian nation. The era of Russian impunity for war crimes must end.

Unless the underlying issue of Russian imperialism is addressed at the international level, the liberation of Ukraine will provide little more than temporary relief. Confronting Russia’s imperial identity is the only way to achieve a lasting peace. This would pave the way for a new global security system and the much-needed reform of international bodies such as the UN Security Council. World peace will remain elusive until Russian imperialism is consigned to the dustbin of history.

Arseniy Yatsenyuk is Chairman of the Kyiv Security Forum and former Prime Minister of Ukraine (2014-16).

mrashid — Fri, 23 Jun 2023 17:54:03 +0000

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Donovan quoted in Semafor on Russian reparations for Ukraine

rmurphy — Fri, 23 Jun 2023 16:01:00 +0000

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“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the China Table

mrashid — Fri, 23 Jun 2023 15:30:36 +0000

The post “Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the China Table appeared first on Atlantic Council.

“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Aviation Week

rmurphy — Fri, 23 Jun 2023 13:05:56 +0000

Jörn Fleck and James Batchik: Europe is taking a hard look at itself

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Defne Arslan joins CNBC Asia’s Capital Connection to review Turkey’s economy

aozen — Fri, 23 Jun 2023 09:43:04 +0000

ORIGINAL SOURCE

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Pavia quoted in Al-Monitor on Algerian President Abdelmadjid Tebboune’s visit to Russia

Atlantic Council — Thu, 22 Jun 2023 19:49:16 +0000

Original Source

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How regime security is set to dominate Saudi-UAE interaction over economic competition and political rivalry

Robert Mason — Thu, 22 Jun 2023 18:59:33 +0000

The Visions strategies aimed at diversifying the economies of the Middle East—particularly those of all the Gulf Cooperation Council (GCC) rentier states—have brought to the fore the divergent objectives of Saudi Arabia’s and the United Arab Emirates’ (UAE) economic policies. These differences are relevant and worth investigating in order to understand the complexity of the relationship. However, in spite of that, it is important to note that the Saudi-UAE relationship can still be considered durable due to shared imperatives surrounding regime security.

One of the primary irritants in their bilateral relations has been oil policy. Saudi Arabia prefers an extended transition towards renewables while the UAE has relatively smaller oil reserves (about one hundred billion barrels, ranking it number six globally). With greater access to sovereign wealth funds, the UAE has gained an advantage in the economic diversification process, although all the GCC states still have some way to go in achieving diversification based on goods and services rather than hydrocarbons and their derivatives. Since Russia was brought into a leadership role alongside Saudi Arabia in OPEC+ in 2016, the UAE has been left with unused oil capacity, which is potentially worth an additional $50 billion annually. This raises questions about the UAE’s membership in OPEC+ and its overall stance towards the kingdom.

Political struggles between Saudia Arabia and the UAE have existed since the founding of the latter in 1971, with territorial disputes and dynastic competition being major facets. About 20 percent of the Shaybah oil field is said to be claimed by Abu Dhabi; the 1974 Treaty of Jeddah failed to sustain a final agreement due to a discrepancy between the oral and the written agreement. This lack of consensus has led to tensions on more than one occasion, especially after President Khalifa bin Zayed Al Nahyan assumed office in 2004 and sought to revive Abu Dhabi’s claims.

Perhaps unsurprisingly, in this new climate, the Dolphin Gas Project—launched in 1999 and envisaged as a pan-GCC project that was later narrowed into cross-border gas transmission from Qatar—was opposed by the kingdom on several occasions. Still, Qatar, the UAE, and Oman were able to begin limited operations in 2007. A proposed 2005 maritime causeway project to link the UAE and Qatar was also resisted, since it would limit Saudi Arabia’s unfettered sea-lane access. It has since come under further doubt due to the prolonged GCC crisis.

Intensifying economic competition

Saudi and UAE economic competition intensified after Saudi Arabia shifted gears in 2016 to pursue its Vision 2030 objectives. Riyadh has introduced a raft of new investment policies, including import rules that exclude goods made in free zones—a key aspect of the UAE economy—and those using Israeli input from preferential tariffs. Other changes include the domicile of regional headquarters and tax breaks.

The Saudi launch of national champions, such as Riyadh Air, is expected to fly to a hundred destinations over the coming years (once operational). It will raise the stakes for the UAE’s flag carriers—Emirates Airline and Etihad Airways—and Qatar’s flag carrier—Qatar Airways—which have been used to feed each respective nation’s tourism industries and bolster their statuses as international hubs. Saudi strategic investments in international sports such as Formula One and golf, as well as megaprojects such as Neom (a planned smart city in Tabuk Province in northwestern Saudi Arabia), will have a similar effect on heightening intra-GCC competition, mostly vis-à-vis Dubai.

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At the same time, the UAE has quickly adapted to changing conditions. It has signed Comprehensive Economic Partnership Agreements (CEPAs) that cover many aspects of trade with Israel, India, Indonesia, and Turkey. This contrasts the slower progress of GCC Free Trade Agreement negotiations with major partners, such as the European Union and China.

Additionally, UAE President Zayed has promoted his brother Sheikh Mansour bin Zayed to the position of co-vice president alongside Sheikh Mohammed bin Rashid al-Maktoum—thereby consolidating the rule of the Bani Fatima (the six sons of Fatima bint Mubarak Al Ketbi, Sheikh Zayed bin Sultan’s most prominent wife). The move also helps to de-personalize the MBS-Zayed leadership dynamic. Given the amount of double hatting—one individual with two different roles—and the amount of crossover between politics and business in the Emirates, this is an important consideration to reduce the potential for bleed-through between politics and economics and vice-versa.

However, there are still likely to be further pinch points pending MBS’ successful rollout of multi-billion dollar megaprojects, such as Neom, the launch and expansion of nascent industries, and whether political consolidation and social engineering prove sustainable.

The preeminence of security concerns

The Middle East has been a critical area of Saudi and UAE interaction and cooperation, especially at the onset of the 2011 Arab Spring, when they activated the GCC’s Peninsula Shield Force (PSF) to respond to the uprising in Bahrain. The PSF guarded key installations, freeing up Bahraini security services to crack down on protesters. Furthermore, Egypt’s Gulf Arab neighbors, along with Kuwait, responded in unison with a variety of economic statecraft in support of President Abdel Fattah el-Sisi in 2013. This measure was taken after the military seized power in Egypt due to their deep misgivings about the former Muslim Brotherhood-led government and the central role that Qatar had played in Cairo’s political economy.

Given the limitations of GCC cooperation, Saudi Arabia and the UAE formed an informal security alliance in Yemen in 2015 to roll back a Houthi insurgency and restore the internationally recognized government of then-President Abd Rabbu Mansur Hadi. Despite the UAE’s withdrawal from the war in 2019, its legacy continues through ongoing relations with the Southern Transitional Council and influence in the south, including on the island of Socotra and around the Bab al-Mandab Strait and the Red Sea. This protects the UAE’s maritime and commercial interests and gives it further leverage over the future of Yemen. The UAE’s position contrasts with the kingdom’s, which looks set on maintaining Yemeni territorial integrity.

Nevertheless, Saudi Arabia and the UAE are still politically aligned on most issues, including diplomacy with Iran, Turkey, and Syria. There may also be some coordination in theaters, such as in Sudan, where a conflict broke out on April 15 due to an escalating power struggle between Sudan’s de-facto leader and army chief, Abdel Fattah al-Burhan, and the Rapid Support Forces (RSF) led by General Mohamed Hamdan Dagalo (also known as Hemedti). Saudi Arabia has taken the lead in mediation given the UAE’s perceived bias in favor of Hemedti.

Fundamentally, it is not economics nor regional politics that are the determining factors in the Saudi-UAE bilateral relationship. Instead, it is the persistent need to maintain regime security during this period of uncertainty that supplants all other concerns and defines the way these two states interact with each other.

Robert Mason is the author of Saudi Arabia and the United Arab Emirates: Foreign Policy and Strategic Alliances in an Uncertain World.

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The ‘de-risk’ is in the details: A look at Europe’s ambitious new economic security strategy

Atlantic Council experts — Thu, 22 Jun 2023 18:23:24 +0000

Don’t call it decoupling. This week, the European Commission released its European economic security strategy, an ambitious plan to intercede in the European economy to reduce security risks across supply chains, critical infrastructure, and digital technology. European Commission Executive Vice-President Margrethe Vestager underscored that the strategy will “de-risk” the European Union (EU) from threats, not “decouple” its economy. But from whom? While the strategy dodges a direct answer, the EU’s top trading partner in goods, China, is an understood top concern.

Read insights below from Atlantic Council experts on what’s in the strategy and what it reveals about Europe’s economic and geopolitical future.

Click to jump to an expert analysis:

Barbara C. Matthews: The EU is acting to decrease points of vulnerability for renewable energy

Charles Lichfield: While not mentioned, China is the central focus of the strategy

Sarah Bauerle Danzman: The road to an EU outbound investment mechanism will be rocky

Elmar Hellendoorn: The strategy seeks to be adaptable but also comprehensive

Europe is taking a hard look at itself

The European economic security strategy represents a welcome development not just for its contents but in how the European Commission is thinking about economic security—and itself.

Under a framework of “promote, protect, and partner,” the strategy sheds light on the commission’s approach to de-risking, the phrase du jour of today’s geopolitics. It proposes new assessments of vulnerabilities, strengthened rules on key areas like foreign direct investment and export controls, and new rules on outbound investment. It also recycles existing proposals—the Critical Raw Materials Act, Net-Zero Industry Act, and Cyber Resilience Act, for example. By themselves, these are not groundbreaking. But it would be a mistake to stop there. Taken together, the strategy is a welcome document that outlines how the commission sees its policies become larger than the sum of their parts.

The contents of the strategy notwithstanding, there are three takeaways about how Europe sees its economic future. First, it starts with knowing oneself. The strategy opens with a frank acknowledgement that Europe was “insufficiently prepared” for many of the challenges that the COVID-19 pandemic, Russia’s war in Ukraine, and challenges from unnamed—read: China—players posed to Europe. Second, the strategy acknowledges that the European market, its regulations, and cohesion is by itself a European strength that can “keep global supply chains open and shape standards.” Third, that there is a direct reference that the economic risks identified could threaten Europe’s national security is a small but notable addition. It shows a recognition of the convergence of the geopolitical and the economic.

However, the strategy also shows both the potential and the limitations of the commission. First, as much as the Berlaymont may be thinking geopolitically, the commission still relies on capitals across the continent to approve and implement new rules. Throughout the strategy, there are polite reminders for member states to implement or enforce existing or future rules. Second, and perhaps more crucially, it’s clear that the commission is increasingly out ahead of member states on issues of security, defense, and now economics. Many member states will have reservations, if not objections to some of the conclusions and proposals in the strategy. There is no shared consensus among member states about how to adequately defend themselves against China.

It’s important to remember that, as the strategy’s sentences, conjunctions, and punctuation will now be parsed and debated across the continent and the European Parliament, the strategy is not a roadmap that will solve all of Europe’s woes but an opening salvo.

—Jörn Fleck is the senior director of the Europe Center at the Atlantic Council.

—James Batchik is an assistant director at the Atlantic Council’s Europe Center.

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Competition or cooperation: Debating a transatlantic de-risking strategy on China

Is a transatlantic agenda on China possible? EU and China experts unpack the US and EU approaches to China in an era of increasing geopolitical confrontation.

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The EU is acting to decrease points of vulnerability for renewable energy

The newly announced European economic security strategy constitutes a shift beyond the EU’s previous “strategic autonomy” security priorities. It will likely generate friction with both China and the United States in the near term regarding key renewable energy resources.

Until this year, the EU’s main focus was to ensure that its capacity to pursue its strategic interests remain unconstrained. It sought to ensure that policy conflicts and tensions between the United States and other countries (such as China and Russia) did not adversely impact its own interests.

Now, the EU seeks actively to minimize “the risks arising from economic linkages that in past decades we viewed as benign.” Those past linkages include Russia (natural gas), China (automobile component and other industrial manufactured exports) and the United States (a deeply integrated, multidimensional trade relationship that includes a deep reliance on retail technology giants that dominate the twenty-first century). Following Russia’s illegal invasion of Ukraine in 2022, the EU effectively replaced Russia with the United States as the key external supplier of energy resources, even as it made great strides toward delivering an energy mix that, for the first time, is generated more from renewable sources (specifically, wind and solar) than from gas.

The new EU “de-risking” strategy now views none of these economic linkages as benign. It views concentrated economic relationships as a source of risk that must be managed through a diversification strategy that places alignment on key norms (such as democracy, decarbonization, and commitment to open economies) as the foundation for future engagement.

Europe’s successful shift in the last year toward renewable energy implies a sharp increase in demand by Europe for a range of energy inputs that are, at present, predominantly controlled by China. Not only does China “dominate all steps of solar panel production,” it also has long served as the “dominant or near-monopoly producer” of most critical minerals needed to produce modern technology and renewable energy components such as wind turbine parts. Europe’s demand for hydrogen and lithium are set to skyrocket in the next decade, increasing the importance of the forthcoming Critical Minerals Agreement negotiations with the United States. The EU is acting now to decrease these points of vulnerability by mobilizing significant financial resources to promote renewables developments across Africa, the Middle East, and Latin America, even as it prepares to implement its carbon tax later this year.

The European policy shift to “de-risking” holds the promise of aligned transatlantic policy priorities in which EU and US initiatives complement each other to provide an effective counterbalance to Chinese economic pressure globally across the resource-rich Global South. It also holds the risk that misalignment with the United States regarding resource access and digital policy will generate frictions that can be exploited by other countries. Successful execution of this policy will require more than checkbook diplomacy. It will require Washington and Brussels to focus on the larger strategic picture to avoid individual technical issues from derailing their strategic relationship.

—Barbara C. Matthews is a nonresident senior fellow at the Atlantic Council. She was the first US Treasury attaché to the EU with the Senate-confirmed diplomatic rank of minister-counselor.

While not mentioned, China is the central focus of the strategy

The seventeen-page long “communication” on a European economic security strategy does not mention China once. It does refer to Russia, but only in its scene-setting introduction. For the rest of the paper, economic risks stem only from phenomena, not countries. Third countries are the focus of the section following these risks, but this puts them in an exclusively positive light: to confront challenges to its economic security, Europe needs the broadest possible partnerships.

Can there be any purpose to a strategy that dares not mention which countries are causing the risks it is supposed to tackle? The answer is still yes.

The robust discussions that took place between European Commission President Ursula von der Leyen’s team and the European Council—representing the views of all twenty-seven member states—are well publicized. A critical mass of national capitals, though concerned about the consequences of Chinese economic practices, are keen to avoid falling into a ratchet of policies and partnerships leading to an anti-China coalition. This includes members who have long been calling for the EU to take a more hands-on approach on economic statecraft, such as France.

And yet, even under such constraints, the strategy gets many things right. Alongside the traditional calls for cooperation, it pushes for more structured dialogue with the private sector—something that has been lacking on economic security strategy so far. We should also remember that von der Leyen did get to set out her views on EU-China relations not too long ago. So even if China isn’t mentioned, we can be pretty sure it remains the central focus of the EU’s fledgling strategy.

—Charles Lichfield is the deputy director and C. Boyden Gray senior fellow, of the Atlantic Council’s GeoEconomics Center.

The road to an EU outbound investment mechanism will be rocky

This strategy makes clear that the commission is going to bat for outbound investment controls, likely tightly connected to the three emerging technologies most poised to transform war making capabilities—advanced semiconductors, quantum computing, and artificial intelligence. This position reflects a rapid evolution in the commission’s thinking; just last year it was less enthusiastic toward outbound controls when the United States first announced its intention to develop a tool to regulate such investments. Then it only agreed to “study the issue.” Despite the commission’s commitment to propose an outbound initiative by the end of 2023, the debate between the EU, member states, and the business community is likely to be fierce.

In the near term, the inclusion of outbound investment in the strategy has two important implications. First, it substantially increases the likelihood that the United States will move forward with its own mechanism—through an executive order—in the next couple of months. The Biden administration can now point to the document as evidence of a growing consensus among partners and allies to place narrow restrictions on outbound investments into key strategic technologies. Second, and in line with the recent Group of Seven (G7) communiqué on economic resiliency, it frames the issue of outbound regulation squarely around technology security and technology leakage rather than around broader policy objectives such as supply-chain diversification.

The road to an EU outbound investment mechanism will be rocky. The economic security strategy identifies technology security as an element of “economic security,” but the proliferation of dual-use technology has traditionally been viewed as a matter of national security—an area over which member states, rather than the commission, have competence. Moreover, the EU has traditionally—through both export control and inward screening policies—sought to develop tools that do not discriminate between foreign countries. If the EU maintains this policy principle, its outbound mechanism will likely look quite different from the United States’ plan to only focus on investments into entities operating in or owned by “countries of concern” such as China.

—Sarah Bauerle Danzman is a nonresident senior fellow with the GeoEconomics Center’s Economic Statecraft Initiative and associate professor of international studies at the Hamilton Lugar School for Global and International Studies, Indiana University Bloomington.

The strategy seeks to be adaptable but also comprehensive

The most important element of the document can be read between the lines: it is not so much about what the commission is going to do about economic security but how. Three key principles seem to be guiding the commission’s economic security strategy.

The first principle is strategic adaptability. The commission announces that it will constantly work toward a vision on economic security that will help to tie the different policy instruments together. As geopolitical circumstances are changing in unforeseeable and complex ways, the commission has wisely refrained from setting its economic security policy approach in stone. Adaptability and flexibility appear to be baked into the commission’s thinking on this issue.

The second principle is comprehensiveness. In the strategy, the commission clearly expresses the ambition to break through different policy silos. While it does sum up the different policy instruments the EU has to strengthen its economic security—ranging from foreign direct investment screening to cybersecurity—the underlying question is how it is going to coordinate the use of its economic statecraft toolkit to achieve a maximum result.

The third principle is cooperation. The commission also shows a certain humility in pointing out all the work ahead on economic security. Clearly, it needs the support of its member states, not only in terms of policy execution, but also in helping to fully understand the challenge. Also, the EU is going to align its diplomacy and economic security policy more, thus targeting countries that the EU can work with to achieve greater economic security. Lastly, in terms of further conceptualization of its strategic approach to economic security, the commission also seems to be reaching out to the wider private sector.

—Elmar Hellendoorn is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center.

The post The ‘de-risk’ is in the details: A look at Europe’s ambitious new economic security strategy appeared first on Atlantic Council.

Russian War Report: Wagner attempts to draft gamers as drone pilots

Digital Forensic Research Lab — Thu, 22 Jun 2023 18:12:27 +0000

Security

Ukrainian counteroffensive sees advances in Zaporizhzhia and eastern Ukraine

Wagner attempts to draft gamers as UAV pilots

Tracking narratives

Deripaska blames hackers after his website briefly takes credit for potential war crime

Rumors of alleged death of popular pro-Kremlin war correspondent gain traction on Twitter

Ukrainian counteroffensive sees advances in Zaporizhzhia and eastern Ukraine

On June 19, Ukrainian forces launched counteroffensive actions in at least three areas and appear to have made gains in Zaporizhzhia and eastern Ukraine. The Telegram channel of Russian military blogger WarGonzo reported that Ukrainian forces continued attacks northwest, northeast, and southwest of Bakhmut and advanced near Krasnopolivka. Ukrainian Deputy Defense Minister Hanna Maliar announced that over the past week Ukrainian troops advanced up to seven kilometers in the direction of Zaporizhzhia and retook 113 square kilometers of territory. Russian Telegram channels also reported that fighting was ongoing south and southwest of Orikhiv on June 19. Zaporizhzhia and Donetsk oblasts continue to be the most active areas of the frontline, as the Ukrainian army attempts to advance in the directions of Novodarivka, Pryutne, Makarivka, Rivnopil, Novodanylivka, and Robotyne.

On June 17, the Russian Ministry of Defense claimed that Ukrainian forces conducted ground attacks west and south of Kreminna. It also stated that the Russian army had repelled Ukrainian attacks on the Avdiivka-Donetsk sector. Meanwhile, Ukrainian forces continued operations around Velyka Novosilka near the border between Donetsk and Zaporizhzhia oblasts.

According to Ukrainian forces, Russian forces conducted offensive actions in Donetsk and Luhansk oblasts. The Ukrainian military reported forty-five combat engagements with Russian forces near Yampolivka, Torske, Hryhorivka, Spirne, Avdiyivka, Krasnohorivka, Marinka, Pobieda, Novomykhailivka, and Donetsk’s Dibrova and Orikhovo-Vasylivka. According to Ukraine, the Russian army continued to shell villages in the direction of Marinka, Zaporizhzhia, Kherson, Lyman, and Kupiansk. Ukraine also alleged that Russian forces launched Kalibr cruise missiles from a submarine in the Black Sea and Shahed drones from the eastern coast of the Sea of Azov.

On June 20, Kyrylo Budanov, chief of the Main Directorate of Intelligence for the Ministry of Defense of Ukraine, alleged that Russian troops mined the Zaporizhzhia nuclear power plant’s cooling pond, which is necessary for the safe operation of the plant. According to Budanov, if Russia triggers an explosion, there is a “high probability that there will be significant problems.” Budanov did not provide any evidence to support the allegation, and the statement cannot be independently verified at this time. If true, however, it would put the nuclear plant at greater risk of a significant accident. The power plant complex, Europe’s largest, has been under occupation since February 2022.

On January 22, the governor of Russian-occupied Crimea accused Ukraine of targeting a bridge that connects the peninsula to Kherson Oblast, near the village of Chonhar. In a Telegram post, Vladimir Sal’do alleged that Ukraine struck the bridge with “British Storm Shadow missiles,” creating a hole in the middle of the bridge.

As fierce hostilities continue in eastern and southern Ukraine, there are signs of a new wave of arrests in Russia, including of people with ties to Ukraine. On June 20, Russian state media outlet RIA Novosti announced that a woman of Ukrainian origin was detained in Saransk and charged with treason.

—Ruslan Trad, resident fellow for security research, Sofia, Bulgaria

Wagner attempts to draft gamers as UAV pilots

A June 19 Telegram post from Russian opposition news outlet Verstka claimed that Wagner Group is encouraging gamers to apply to serve as unmanned aerial vehicle pilots in the war against Ukraine. The media outlet reported that no prior military experience was required to apply for the position. Posts from Wagner emerged on Vkontakte the same day, inviting gamers with experience in “manipulating joysticks in flight simulators” to enroll.

Wagner ad recruiting gamers as UAV pilots. (Source: VK)

Verstka, which contacted a Wagner recruiter as part of its reporting, stated that the campaign aims to recruit soldiers to pilot “copters and more serious machines.” In this particular context, “copters” (коптеры) is a reference to commercial drones that are sold to the public and have been widely used in the war against Ukraine. A May 19 investigation published by the Organized Crime and Corruption Reporting Project found that Chinese manufacturers have reportedly continued to provide Russian armed forces with DJI drones through third parties in Kazakhstan.

Verstka also noted that in 2022, the Russian defense ministry attempted to recruit gamers with a targeted ad campaign that invited them to play “with real rules, with no cheat codes or saves.”

—Valentin Châtelet, research associate, Brussels, Belgium

Deripaska blames hackers after his website briefly takes credit for potential war crime

The Russian-language website of Russian industrialist and US-sanctioned oligarch Oleg Deripaska briefly displayed an article appearing to take credit for deporting Ukrainian children to Russian-occupied Crimea in partnership with Kremlin official Maria Lvova-Belova, who is already facing an International Criminal Court arrest warrant for allegedly deporting children.

Yaroslav Trofimov, chief foreign affairs correspondent at the Wall Street Journal, noted the article’s appearance and disappearance in a June 15 tweet. Trofimov shared screengrabs of the article, which by that time had already been deleted from Deripaska’s Russian-language website, deripaska.ru. A complete copy of the article can be found at the Internet Archive.

Later in the article, it added, “Separately, the Fund and personally Oleg Vladimirovich [Deripaska] express their gratitude to Maria Lvova-Belova and her project ‘In Hands to Children,’ which not only provided methodological materials, but also found an opportunity to send employees for psychological work with affected babies.” In March 2023, the ICC issued an arrest warrant for Lvova-Belova and Russian President Vladimir Putin, alleging they are responsible for unlawful deportation and transport of children from Russian-occupied parts of Ukraine to the Russian Federation.

In a response to Russian independent news outlet Meduza, which also covered the incident, a team of representatives for Deripaska called the article a “gross fake press-release” and blamed hackers for the article’s appearance. “The team added that Deripaska ‘unequivocally condemns the separation of children from their parents’ and that he is ‘one of the very few prominent Russian industrialists who openly criticizes the fratricidal war and consistently advocates for peace in Ukraine, as well as a reduction in global military spending,’” Meduza noted.

—Eto Buziashvili, research associate, Tbilisi, Georgia

Rumors of alleged death of popular pro-Kremlin war correspondent gain traction on Twitter

Rumors are spreading online that claim Ukrainian forces killed pro-Kremlin war correspondent Semyon Pegov, who operates an influential group of social media accounts under the name Wargonzo. The rumor first spread on Twitter on June 19 following the release of a graphic video from the 73rd Naval Center of Operations documenting how Ukrainian special forces unit had shot Russian soldiers in trenches. On June 19, Pegov’s Twitter account disregarded the allegations as fake. Wargonzo’s Telegram account has continued to operate as usual.

DFRLab analysis conducted with the social media monitoring software Meltwater Explore revealed that the most retweeted tweet came from the pro-Ukraine Twitter account @GloOouD, which stated, “LOOKS LIKE RUSSIAN TERRORISTS AND WAR REPORTER SEMEN PEGOV WAS KILLED BY UKRAINIAN SPECIAL FORCES.” The account shared a screenshot of a low-quality video frame depicting a red-bearded man that bears resemblance to Pegov.

Screenshot of @GloOouD’s tweet suggesting that Semyon Pegov was killed by Ukrainian special forces. (Source: @GloOouD/archive)

The DFRLab confirmed that the video frame depicting Pegov’s look-alike was extracted from the graphic video posted posted by the 73rd Naval Center of Operations. The video’s metadata indicates the clip was created on June 18, 2023, at 22:16:07 GMT+0300. However, the video shows events occurring in daylight.

Pegov’s most recent public appearance was on June 13 during a meeting between Putin and Russian war correspondents. The Kremlin-controlled Channel One Russia broadcast the meeting on June 18.

Comparison of the red-bearded man from the 73rd Naval Center of Operations’ video and Pegov talking at a press conference. (Source: @ukr_sof/archive, top; Perviy Kanal/archive, bottom)

—Nika Aleksejeva, resident fellow, Riga, Latvia

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Addressing multidimensional inequality

Pepe Zhang — Thu, 22 Jun 2023 16:00:00 +0000

Adrienne Arsht Latin America Center

This is the 4th installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Addressing multidimensional inequality

A fourth private-sector-led opportunity for accelerating socioeconomic development in LAC is tackling one of the region’s most long-standing issues: inequality. Inequality in LAC is multidimensional in that it affects a wide range of issues and population groups based on gender (recommendation 1 below), geography (recommendation 3 below), socioeconomic status, occupational sector, age, ethnicity, digital access, healthcare, and other factors.¹ Tackling these multidimensional and often interrelated inequalities can improve economic wellbeing. For example, evidence suggests that reducing gender inequality alone—in terms of lifetime earnings losses—could boost regional GDP by at least 8 percent.² Since these and other inequalities are often interconnected, mitigating them will often require a holistic approach.

Recommendations for the private sector

Tapping into the financing, expertise, and technological capabilities of private firms will be crucial to mitigating multidimensional inequality in LAC. Practical training, mentoring, capacity building, supply-chain integration, and other programs help bring new talent into the region’s workforce, expand business operations, and increase productivity in LAC. This will particularly benefit underprivileged groups such as women, SMEs, and rural populations, making LAC’s growth more inclusive and resilient against future shocks.

Addressing gender-based inequality: Companies must empower female professional advancements, e.g., by addressing constraints arising from caregiving and unpaid domestic work, or by providing skills, entrepreneurial, or other training for women.
Empowering SMEs: Larger firms can shore up SME competitiveness by facilitating access to financing, supply-chain integration, and capability-building opportunities.
Tackling place-based inequality: Public-private collaboration and investment can make rural areas more accessible to basic services (like water and Internet) and more economically productive, thus reducing the rural-urban divide.
Preparing for shocks: Employer-led relief initiatives not only serve to cushion the impact of financial, climate, and other shocks on the lives and livelihoods of employees, but fortify societal cohesion and broader economic resilience.

About the author

Staff

Pepe Zhang

Senior Fellow

China Coronavirus

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 20, 2023

Improving state governance, institutional capacity, and transparency

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Technological, governance, and other cooperation between the public and private sectors can enhance institutional capacity, integrity, government service delivery, and regulatory quality in LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

1 Pepe Zhang and Peter Engelke, 2025 Post-Covid Scenarios: Latin America and the Caribbean, Atlantic Council, April 21, 2021, https://www.atlanticcouncil.org/in-depth-researchreports/2025-post-covid-scenarios-latin-america-and-the-caribbean.

2 Quentin Wodon and Benedicte de la Briere, “The Cost of Gender Inequality: Unrealized Potential: The High Cost of Gender Inequality in Earnings,” Canada, Children’s Investment Fund Foundation, Global Partnership for Education, and World Bank Group, May 2018, 2, “Human capital measured as the present value of the future earnings of the labor force,” https://openknowledge.worldbank.org/bitstream/handle/10986/29865/126579-Public-on-5-30-18-WorldBank-GenderInequality-Brief-v13.pdf?sequence=1&isAllowed=y.

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Lipsky authors a piece for Bruegel on central bank digital currencies

mrashid — Thu, 22 Jun 2023 15:36:46 +0000

The post Lipsky authors a piece for Bruegel on central bank digital currencies appeared first on Atlantic Council.

Nikoladze quoted by the VOA on Russian sanctions evasion

mrashid — Thu, 22 Jun 2023 15:32:18 +0000

The post Nikoladze quoted by the VOA on Russian sanctions evasion appeared first on Atlantic Council.

“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Tages-Anzeiger

mrashid — Thu, 22 Jun 2023 15:24:38 +0000

The post “Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Tages-Anzeiger appeared first on Atlantic Council.

“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Berner Zeitung

mrashid — Thu, 22 Jun 2023 15:20:14 +0000

The post “Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Berner Zeitung appeared first on Atlantic Council.

“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by DW

mrashid — Thu, 22 Jun 2023 15:18:17 +0000

The post “Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by DW appeared first on Atlantic Council.

“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the Business Insider

mrashid — Thu, 22 Jun 2023 15:16:04 +0000

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“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Süddeutsche Zeitung

mrashid — Thu, 22 Jun 2023 15:13:58 +0000

The post “Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by Süddeutsche Zeitung appeared first on Atlantic Council.

“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the Wall Street Journal

mrashid — Thu, 22 Jun 2023 15:09:36 +0000

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“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the Wall Street Journal

mrashid — Thu, 22 Jun 2023 15:06:10 +0000

The post “Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the Wall Street Journal appeared first on Atlantic Council.

“Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the South China Morning Post

mrashid — Thu, 22 Jun 2023 15:02:15 +0000

The post “Sanctioning China in a Taiwan Crisis: Scenarios and Risks” report cited by the South China Morning Post appeared first on Atlantic Council.

Tantardini in Longitude on the space workforce

Atlantic Council — Thu, 22 Jun 2023 13:54:12 +0000

original source

In the June 2023 Issue of Longitude, Forward Defense Nonresident Senior Fellow Marco Tantardini published an article on the state of the space industry work force. He noted that the average age of many employees of aerospace companies is rising closer to retirement and that there is competition from other sectors for qualified engineers.

The European Space Agency (ESA) has about 2,400 staff members and expects that by 2030 44% of its personnel will retire.

Marco Tantardini

Fellow

Marco Tantardini

Forward Defense Scowcroft Center for Strategy and Security

Italy Space

II. The role of economic statecraft in a Taiwan crisis

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Sanctioning China in a Taiwan crisis: Scenarios and risks

Charlie Vest and Agatha Kratz — Thu, 22 Jun 2023 03:16:31 +0000

Executive summary

I. Introduction

Goals of economic countermeasures

Current economic statecraft tools

Tools in a future crisis

III. Sanctions scenarios and their costs

Economic countermeasures aimed at China’s financial system

Economic countermeasures aimed at individuals and entities associated with CCP and PLA leadership

Economic countermeasures aimed at China’s industrial sectors

IV. Practi cal challenges in sanctions development

Conclusions and recommendations

DOWNload PDF

Executive summary

In recent months, growing tensions in the Taiwan Strait as well as the rapid and coordinated Group of Seven (G7) economic response to Russia’s invasion of Ukraine have raised questions—in G7 capitals and in Beijing alike—over whether similar measures could be imposed on China in a Taiwan crisis. This report examines the range of plausible economic countermeasures on the table for G7 leaders in the event of a major escalation in the Taiwan Strait short of war. The study explores potential economic impacts of such measures on China, the G7, and other countries around the world, as well as coordination challenges in a crisis.

The key findings of this paper:

In the case of a major crisis, the G7 would likely implement sanctions and other economic countermeasures targeting China across at least three main channels: China’s financial sector; individuals and entities associated with China’s political and military leadership; and Chinese industrial sectors linked to the military. Past sanctions programs aimed at Russia and other economies revealed a broad toolkit that G7 countries could bring to bear on China in the event of a Taiwan crisis. Some of these tools are already being used to target Chinese officials and industries, though at a very limited scale.
Large-scale sanctions on China would entail massive global costs. As the world’s second-biggest economy—ten times the size of Russia—and the world’s largest trader, China has deep global economic ties that make full-scale sanctions highly costly for all parties. In a maximalist scenario involving sanctions on the largest institutions in China’s banking system, we estimate that at least $3 trillion in trade and financial flows, not including foreign reserve assets, would be put at immediate risk of disruption. This is nearly equivalent to the gross domestic product of the United Kingdom in 2022. Impacts of this scale make them politically difficult outside of an invasion of Taiwan or wartime scenario.
G7 responses would likely seek to reduce the collateral damage of a sanctions package by targeting Chinese industries and entities that rely heavily and asymmetrically on G7 inputs, markets, or technologies. Targeted sanctions would still have substantial impacts on China as well as sanctioning countries, their partners, and financial markets. Our study shows economic countermeasures aimed at China’s aerospace industry, for example, could directly affect at least $2.2 billion in G7 exports to China, and disrupt the supply of inputs to the G7’s own aerospace industries. Should China impose retaliatory measures, another $33 billion in G7 exports of aircrafts and parts could be impacted.
Achieving coordination among sanctioning countries in a Taiwan crisis presents a unique challenge. While policymakers have begun discussing the potential for economic countermeasures in a Taiwan crisis, consultations are still in the early stages. Coordination is key to successful sanctions programs, but high costs and uncertainty about Beijing’s ultimate intentions will make stakeholder alignment a challenge. Finding alignment with Taiwan in particular on the use of economic countermeasures will be central to any successful effort. G7 differences on Taiwan’s legal status may also prove a hurdle when seeking rapid alignment on sanctions.
Deterrence through economic statecraft cannot do the job alone. Economic countermeasures are complementary to, rather than a replacement for, military and diplomatic tools to maintain peace and stability in the Taiwan Strait. Overreliance on economic countermeasures or overconfidence in their short-term impact could lead to policy missteps. Such tools also run the risk of becoming gradually less effective over time as China scales up alternative currency and financial settlement systems.

I. Introduction

For decades, Taiwan’s deepening economic ties with China and the rest of the world have helped maintain peace and stability in the Taiwan Strait. Mutual trade and investment have spurred rapid economic growth and—at least until recently— appeared to diminish the likelihood of military conflict.

The long-standing guardrails around the China-Taiwan status quo have weakened. Intensifying US-China geopolitical tensions, China’s increased use of military and economic tools to put pressure on Taiwan, Beijing’s draconian handling of Hong Kong, and evolving Taiwanese perspectives on their national identity and relationship with the mainland have all contributed to rising tensions. Taiwan’s presidential elections set for early 2024 increase the risk of escalation, as do both a rancorous US debate on China and political anxiety in Beijing in the face of a deteriorating economic outlook.

As concerns grow, so does awareness of the global economic stakes of a Taiwan crisis. Prior Rhodium Group research estimates that more than $2 trillion of global economic activity would be at risk of direct disruption from a blockade of Taiwan annually.¹ This is a likely underestimate of the short- and long-term economic fallout of a full-blown crisis. In all cases, the scale of these likely global impacts—ranging from widespread goods shortages, mass unemployment, and a possible financial crisis—underscores the need for clear-eyed analysis about the costs of a conflict.

In this context, policymakers and business leaders around the world have begun discussing the potential role of sanctions and other economic countermeasures in a military crisis. The G7’s coordinated use of sanctions against Russia in the wake of its invasion of Ukraine have highlighted the range of tools on the table. In Washington and other G7 capitals, as well as in Beijing, leaders are now considering the potential for, and implications of, sanctioning China. Yet G7 coordination in a Taiwan crisis would involve a different set of challenges. China’s economy is ten times larger and more globally interconnected than Russia’s, raising questions about the viability of joint economic countermeasures.

Given these open questions, the purpose of this report is to provide a data-driven and objective first look at the potential for a coordinated G7 response to a Taiwan crisis. It evaluates different economic statecraft tools and considers the global economic repercussions from their use. Based on an extensive series of in-person roundtable discussions in the United States, the European Union, and the United Kingdom, interviews held with G7 policymakers and experts, and our own independent economic analysis, the report sets out the order of magnitude of what is at stake and the coordination that would be required for sanctions options to be effective.

While few US, European, and Chinese officials want to see tensions escalate in the Taiwan Strait, the past year has shown that situations previously regarded as highly unlikely can quickly materialize into a devastating reality. Understanding the scenarios and risks of using the tools of economic statecraft is not only a useful exercise, but also a critical step in ensuring all sides understand the full impact of actions that may be undertaken in a crisis.

II. The role of economic statecraft in a Taiwan crisis

A sense of heightened risk in the Taiwan Strait and the use of sanctions against Russia has led decision-makers around the world to reflect on the potential use of economic countermeasures against China in a Taiwan crisis. US lawmakers have already proposed legislation mandating sanctions on China in the event of an invasion of Taiwan.² Surveys of European countries underline an increasing—if still minority—willingness to sanction China if it were to take military action against Taiwan.³ Officials in Beijing are asking these questions as well, with China’s State Council reportedly considering the potential for Western sanctions in a Taiwan crisis.⁴ The economic fallout from sanctions on Russia have also led business leaders and major banks to conduct contingency planning exercises exploring their exposures to a cross-strait crisis, including sanctions on China.

In defining what sanctions to use—if any—policymakers are likely to take a series of factors into consideration: what goals they are looking to achieve, what options are on the table to achieve those goals, and their relative impacts, costs, and limitations. This section reviews these factors and lays out the most likely options on the table.

Goals of economic countermeasures

Economic countermeasures—defined broadly here to include financial sanctions, export controls, and other restrictions on economic activity—can have a variety of objectives. They may aim to deter aggression, either by promising punitive economic actions in response to a transgression (deterrence by punishment) or by denying an adversary the technology or resources to engage in aggressive activity in the future (deterrence by denial). They may also aim to degrade an adversary’s ability or willingness to sustain aggression after it has begun.

The aim of economic countermeasures may evolve over time. The United States had long imposed export controls to limit the flow of military and dual-use technology to Russia. Immediately prior to Russia’s full-scale invasion, the United States and allies threatened sanctions on Russia in a bid to deter military action. After the invasion, the focus of sanctions shifted to degrading Russia’s ability and willingness to continue the war. Sanctions may also have had a signaling effect that G7 countries were aligned and willing to bear prolonged costs in support of Ukraine.

As in the case of Russia, the United States and allies have limited the flow of arms and military technology to China in part to blunt its ability to engage in aggression against Taiwan long before a potential crisis. The proper design of these long-term restrictions is a matter of contentious debate in the field of export controls and technology policy, but is not the focus of this paper.

Some G7 partners are already communicating to China that actions short of an invasion could trigger economic countermeasures

Economic countermeasures might also be considered after a full-scale invasion of Taiwan to degrade China’s ability to sustain the conflict. In fact, interviews and roundtables highlighted near consensus about the fact that sanctions would be imposed on China were it to use military power to seize Taiwan. However, if the case of Russia is any guide, these sanctions take time to have an effect. Recent studies suggest that absent military intervention from the United States and allies, Taiwan is unlikely to withstand a full-scale invasion for the length of time necessary for sanctions alone to meaningfully degrade China’s military capacity.⁵

Some level of sanctioning might therefore also be contemplated in a crisis below the level of invasion, to deter further aggression. Some G7 partners are already communicating to China that actions short of an invasion could trigger economic countermeasures. These actions are the core focus of this report. While we do not identify specific triggers for economic action below invasion—because these are still intensely debated—they might include a military quarantine scenario, where the PRC restricts the free movement of ships or planes to Taiwan; acts of overt economic coercion such as wide-ranging punitive restrictions on cross-strait trade; and major cyberattacks or other disruptions to telecommunications networks on the island. Taiwanese officials have described some of these below-invasion scenarios as the most likely and pressing military risks to Taiwan’s sovereignty.⁶ Some of these “gray zone” actions, besides, come with high global economic costs that could warrant efforts by G7 nations to deter Chinese actions.⁷

Current economic statecraft tools

In looking to achieve these goals, G7 leaders have a range of tools available. Many economic countermeasures have been deployed in the context of previous crises (Table 1), including Russia’s 2014 annexation of Crimea and 2022 full-scale invasion of Ukraine, making them useful starting points to assess potential future action.

In understanding whether these tools could also be deployed in a major cross-strait crisis, it is important to remember that some tools are already being used against China today, both by the United States and other members of the G7. Actions include, among others:

Export controls including product-based and end-user-based controls on certain strategic technologies, such as semiconductors, integrated circuits, and supercomputing technology.⁸
Restrictions on the trading of debt and equity instruments in certain military-related companies under the Non-SDN Chinese Military Industrial Complex Companies List.⁹
Sanctions imposed on persons involved in the repression of minorities in Xinjiang, as well as small Chinese banks aiding Iran and North Korea in sanctions evasion.¹⁰
US and EU coordination of sanctions against Chinese firms involved in supporting Russia’s war on Ukraine.

While these measures are applied at a much smaller scale than they would be in a Taiwan Strait crisis, they illustrate the fact that G7 nations have already shown willingness to use economic measures against China when Chinese actions or policies were considered problematic. Importantly, these measures have been selective. From manufactured goods to inputs for electric vehicles, to machine tools, and pharmaceuticals, China is deeply embedded in global supply chains in a way wholly more complicated than Russia’s energy exports. At the same time, China’s reserves, capital controls, the state-owned banking sector, and abundant fiscal space provide the Chinese economy with critical buffers and economic defense mechanisms.

Tools in a future crisis

In imposing sanctions in a Taiwan crisis, G7 partners would seek to amplify existing measures taken against China and focus on asymmetric dependencies. Policymakers will likely look to the same types of targets described in Table 1, with varying intensity depending on the level of escalation, namely:

Sanctions on China’s financial sector
Sanctions on individuals associated with the leadership of the Chinese Communist Party (CCP) and People’s Liberation Army (PLA)
Restrictions on industrial companies in sectors relevant to China’s defense industrial base

We take these three types of tools as our baseline for likely G7 countermeasures in a Taiwan crisis and analyze each in depth.

While these are the most likely sets of tools identified by experts based on past actions, future crises may bring new tools to the table too. Conversations with US and European officials made clear that Russia’s invasion of Ukraine reshaped the contours of what was possible in the realm of economic statecraft. Just as blocking Russia’s central bank reserves and implementing an oil price cap were initially considered unrealistic, crises may spur discussions around new tools. Roundtable discussants raised options ranging from targeting casinos in Macau, which are regarded as havens of capital flight for China’s elite as well as illicit finance and money laundering; to imposing controls on China’s digital industries and firms, which power much of the country’s urban and consumer economy; to limiting access to International Monetary Fund (IMF) Special Drawing Rights, and stopping repayments of dollar-denominated Belt and Road Initiative (BRI) debt. We do not explore these potential countermeasures in this study. However, some of the ideas discussed by stakeholders illustrate the range of additional tools that could be brought to bear in a crisis.

III. Sanctions scenarios and their costs

In this section we examine three likely channels of G7 sanctions—on China’s financial system, on certain individuals and entities, and on industrial sectors. We provide an assessment of China-G7 economic value at stake through use of each type of tool, and evaluate implementation challenges, possible effectiveness, and risks.

Economic countermeasures aimed at China’s financial system

In a Taiwan crisis, G7 leaders could consider deploying economic countermeasures targeted at China’s financial system. Financial sector sanctions are a central pillar of the G7’s recent sanctions program aimed at the Kremlin. These measures include actions to block transactions with major Russian banks, freeze their assets, and deny them access to the global dollar payments infrastructure.

This section explores the economic implications of sanctions on China’s financial system, considering two primary options: a targeted sanctions program to limit dollar financing to small banks involved in funding military-related activities, and a comprehensive sanctions program targeting China’s four largest banks and its central bank with the aim of cutting China off from global financial markets.

Global economic links: Finance

For an economy of its size, China has relatively limited external financial sector ties. China is the world’s second-largest economy and has the largest volume of international goods trade, yet it ranks eighth and ninth in the world in terms of total external assets and liabilities.¹¹ Nonetheless, these ties have critical global importance. As of the end of 2022, China held 95 percent of its $3.3 trillion in reserves in foreign currency (with the remaining held in gold).¹² China does not report the exact composition of its foreign exchange reserves, but it is known to hold at least $1.1 trillion in US government bonds through US custodians, and more routed through custodians in Belgium,¹³ as well as about $300 billion in corporate debt and equity.¹⁴ The remainder of China’s foreign currency reserves are held predominantly in euros, Japanese yen, and pounds sterling.¹⁵ In addition to China’s official reserves, China’s banking sector holds $1.5 trillion in cross-border assets according to State Administration of Foreign Exchange statistics, most of which is held in G7 currencies.¹⁶

Global bank holdings of assets within China’s banking system are much lower. On average, only 3 percent of global central bank reserve holdings are in RMB-denominated assets.¹⁷ G7 banks hold $112 billion in claims on Chinese banking institutions such as loans, deposits, and debt instruments, which is only 1 percent of total cross-border bank claims.¹⁸ While this means that global banks, on average, are not heavily exposed to China in terms of explicit bank assets, it also means that Chinese banks primarily borrow from Chinese domestic savers and do not depend heavily on foreign borrowing to maintain their balance sheets.

Global exposures to China’s banking system are much greater when considering China’s role facilitating cross-border financial flows, particularly trade. When Chinese importers and exporters do business abroad, they typically do so in foreign currencies: 77 percent of China’s total $6.8 trillion in goods and services trade is settled in currencies other than the RMB, primarily US dollars and euros.¹⁹ To facilitate these cross-border payments, Chinese banks maintain correspondent accounts at global banks, which debit or credit dollar and euro payments to the Chinese correspondent accounts on behalf of the foreign customer or supplier. Maintaining these correspondent accounts is a key part of the financial infrastructure underpinning global trade.

Chinese banks also finance other important cross-border flows, including $384 billion in repatriated income from foreign businesses and investments, $330 billion in inbound and outbound direct investment, and $381 billion in cross-border portfolio investment.²⁰

Scenarios

With these financial sector linkages in mind, we consider two potential sanctions scenarios: one in which G7 countries would impose limited sanctions on a small bank with linkages to China’s military or technology sector, and another where they would deploy full-scale sanctions on China’s central bank and China’s Big Four banking institutions.

Limited sanctions scenario

One potential scenario would involve imposing blocking sanctions on a small Chinese bank with limited financial ties to the global financial system and with links to China’s military or dual-use technology sectors. The nominal purpose of these sanctions would be to constrain the flow of foreign financing to military-relevant economic activities.

Actions of this kind have been imposed by the United States before. In 2012, the US Treasury Department sanctioned China’s Bank of Kunlun for providing financial services to six Iranian banks sanctioned by the United States for involvement with Iran’s weapons program and international terrorism.²¹ In 2017, the United States issued a final rule under Section 311 of the USA PATRIOT Act severing China’s Bank of Dandong from the international dollar financing system for its role in helping the Democratic People’s Republic of Korea (DPRK) evade sanctions.²²

The Bank of Kunlun and Bank of Dandong were relatively small and had limited ties to the global financial system. The financial impact from these actions on the global financial system was minimal. In the case of the Bank of Dandong, for instance, the bank processed $844 million in cross-border transactions in 2016 just prior to being identified as an institution of “primary money laundering concern,” a modest sum in the broader picture of global financial flows.²³ While these banks were cut off from the global dollar financing system, they remain connected to the rest of China’s banking sector. As raised in our roundtables, this enables them to continue providing financial services for US sanctioned entities, including Iran and the DPRK.

In a Taiwan crisis scenario, policymakers would face a similar challenge. G7 countries could impose blocking sanctions on small banks, freezing any foreign assets held in G7 jurisdictions and prohibiting domestic individuals and entities from transacting with those banks. However, even if the sanctioned banks lost direct access to correspondent banks in the United States and Europe, they would still have access to financing channels from other Chinese banks, and China’s military-industrial enterprises could still easily access dollar financing, if needed, from other channels in China’s state-run banking system. Rather than make a substantial impact on China’s financing flows, the primary impact of these types of sanctions would be limited to conveying an intent to escalate financial sanctions further, potentially on larger, more systemically important institutions.

Full-scale financial sector sanctions scenario

At the other extreme, the United States and allies could take much more drastic measures against China’s financial system by, for example, imposing blocking sanctions and denying SWIFT access to China’s central bank, its finance ministry, and China’s Big Four banks, which collectively hold one-third of China’s total banking assets.²⁴

The economic impact of such moves would be dramatic, both for China and for the world. This would effectively freeze China’s foreign exchange reserves held in overseas custodial accounts, making them unusable for the defense of China’s currency or to meet short-term obligations to finance China’s imports or external debt repayments. The bulk of overseas assets of the Big Four banks —amounting to around $586 billion—would be frozen.²⁵ This represents a floor, not the ceiling, of the global economic disruption from these actions, which are many magnitudes higher.

G7 assets in China would also be at risk. It is likely that China would freeze the (relatively small) renminbi-denominated holdings of G7 banks. Chinese banks, facing a sudden shortage of foreign exchange due to asset freezes, would likely fall into technical default on G7 bank-issued debt, totaling around $126 billion.

Sanctioned banks would also be cut off from the international dollar payments system. Chinese banks do not systematically report the scale of their cross-border transaction settlements, so we are left to estimate the scale of disruption if China’s Big Four banks were sanctioned. Starting from China’s balance of payments statistics on cross-border trade and investment, we estimate what share of that activity is attributable to the Big Four. We assume that the Big Four banks’ role in facilitating cross-border trade and investment is proportional to their share of foreign asset ownership in China’s whole banking sector, indicating approximately $3 trillion in trade and investment flows could be put at risk, primarily from disruptions to trade settlement. This is only a rough estimate and is likely an undercount, but it illustrates the scale of economic activity at risk from full-scale sanctions on China’s largest banks.

Over the long term, Chinese importers and exporters could move to other, unsanctioned banks for trade settlement and finance, but the immediate disruption to global trade would be substantial and smaller banks would likely struggle to backfill the enormous demand for trade-facilitating financial services in the short term. Eventually, Chinese importers and exporters would adapt to financial-sector sanctions by turning to a different set of banks and potentially engaging in more renminbi-denominated transactions (see Box 1 on China’s international payments alternatives). But the vast majority of China’s exports would be impacted in the short term, as it would be extremely difficult for Chinese companies to receive US dollar- or euro-denominated payments for goods.

$3 trillion in trade and investment flows could be put at risk, primarily from disruptions to trade settlement.

Freezing China’s official foreign exchange assets would also have substantial global spillovers. An asset freeze of China’s dollar reserves would suddenly make dollars in China scarce, driving down the value of the renminbi relative to the dollar. Beijing could fight this depreciation pressure in the short term through strict capital controls and exchange rate interventions, but ultimately would need to allow the renminbi to depreciate to ease outflow pressures and stabilize China’s balance of payments.

A weaker exchange rate would make goods imports more expensive and reduce China’s global economic throw weight. Disruptions to China’s export trade would also entail substantial economic hardship and financial stress for Chinese companies and suppliers to global markets. However, assuming that Chinese exporters and importers eventually found other non-sanctioned banks to legally conduct trade with foreign counterparties, China would still avoid a balance of payments crisis. China presently runs a large current account surplus, providing a consistent flow of dollars into its financial system. In fact, devaluation of the renminbi would ultimately make Chinese exports more competitive relative to other countries, which would push some of the impact of sanctions on to exporters in those countries. Other emerging market currencies, including those of US allies, would be likely to depreciate sharply against the US dollar as well. Countries that depended upon exports to China, such as Angola and Brazil, would see those export markets contract sharply.

The imposition of broad-based financial sanctions on Chinese banks would create significant dislocations within the global financial system and would likely require a coordinated policy response among developed market central banks in order to manage the fallout. Global supply chains would be upended while exporters and importers routed activities to unsanctioned banks. Countries that rely on dollar financing— to finance trade with the United States and Europe, for instance—would face a surge in financing costs, requiring the Federal Reserve to pump dollars back into the global economy through central bank swap lines. But even if swap lines with China were prohibited, these dollars would find their way back into China’s economy due to its trade surplus with the rest of the world.

Takeaways

While it is likely that a financial sanctions package would be on the table in the case of a major Taiwan crisis, avenues for sanctioning China’s financial system face limitations. A lower-scale response that targeted small banks involved with financing military activities would limit the negative impact on the global economy, but it would have little effect on Chinese behavior or military activities because other financing channels would remain open. On the other extreme, a full-scale sanctions response targeting China’s central bank and most of the country’s major commercial banks would have massive economic spillovers—for China’s economy, but also for the global financial system and the global economy. Second-order consequences could include a tightening of global trade financing conditions; weakness in emerging market currencies and balance of payments problems in emerging markets; major supply chain disruptions and interruptions to global manufacturing of consumer goods; and inflationary short-term impacts from interrupted China-world trade.

Sanctions on China’s financial sector could end up falling somewhere between these two extremes, with sanctions placed on midsize banks, for instance. Impacts from these sanctions on trade and financial markets would be more moderate than in the case of a maximal sanctions scenario, but these face many of the same limitations as more comprehensive sanctions.

Fundamentally, the long-term strategic benefit of financial-sector sanctions is unclear. Imposed on small banks, they would have minimal impact on China’s ability to finance military activities. At a large scale, sanctions would disrupt trade with China in the short run, but they would not fundamentally change China’s position within global manufacturing supply chains. Over time, China’s terms of trade would probably improve along with a weaker exchange rate. The symmetrical impact of such sanctions on China and the rest of the world reduces the credibility of such broad-based financial sanctions as a deterrent.

Box 1: How Well-Developed Are China’s International Payments Alternatives?

Over the past five years, China’s Ministry of Finance and the People’s Bank of China (PBOC) have established several platforms to facilitate cross-border transactions and reduce reliance on dollar-based payment systems. Given the increased interest from across the Global South in alternative payment systems to the dollar in the wake of G7 sanctions on Russia, it is likely that in the next five years more of the Chinese systems could be used as a means of sanctions evasion.

In 2015, China launched its Cross-border Interbank Payment System (CIPS) to function as a settlement and clearance mechanism for renminbi transactions. An alternative to the dollar-based Clearing House Interbank Payment System (CHIPS), CIPS is supervised by the PBOC, and participants have the opportunity to message each other through the CIPS messaging system.

Data on CIPS usage suggest that transaction volumes have more than doubled in that period, growing by 113 percent.²⁶ However, while China is making significant progress in developing international payment alternatives, it lags behind the established global payment ecosystem.²⁷ Research indicates that CHIPS has ten times more participants and settles forty times more transactions compared to CIPS.²⁸ These incumbents have well-established networks, widespread acceptance, and trust among global users.

Perhaps the most significant payment alternative is China’s development of its Central Bank Digital Currency (CBDC), the e-CNY, which began in 2017. The retail CBDC project focuses on enabling individuals and businesses to use the e-CNY for everyday transactions. Interestingly, the PBOC has over 300 staff working on their CBDC project, and only about one hundred working on CIPS.²⁹ However, this retail CBDC project may have limited ability to help internationalize the yuan and facilitate its use as a means of sanctions evasion given its domestic focus and the lack of infrastructure for cross-border use.

The same cannot be said, however, of China’s wholesale CBDC ambitions. China’s wholesale project aims to streamline interbank transactions and improve its cross-border financial system efficiency. Project mBridge is a joint experiment with the Hong Kong Monetary Authority, Bank of Thailand, Central Bank of the United Arab Emirates, and Bank for International Settlements to create common infrastructure that enables real-time cross-border transactions using CBDCs. In October 2022, the project successfully conducted 164 transactions in collaboration with twenty banks across four countries, settling a total of $22 million, with almost half of all transactions in the e-CNY.

This initiative demonstrates China’s active involvement in exploring innovative solutions for international payments, particularly in the context of cross-border transactions which do not use dollars or euros. This system, though not yet ready for full launch, could help countries bypass dollar-denominated systems like SWIFT or CHIPS and develop an alternative financial architecture.

The biggest challenge for new China-based cross-border payments architecture is liquidity. China maintains capital controls on yuan and offshore clearing, and settlement of yuan is severely limited in comparison to the dollar, euro, pound, and yen. Removing these capital controls to provide liquidity pools for offshore clearing and settlement in yuan will come with some financial instability in Chinese markets, which is undesirable to leadership in the short term.

However, even if certain transactions will be more costly to execute, the recent history of sanctions evasions shows actors are willing to pay a premium to have specific transactions avoid dollars and US enforcement. China is investing significant resources in scaling up these capabilities.

Economic countermeasures aimed at individuals and entities associated with CCP and PLA leadership

Sanctioning the leadership and key associates of adversarial governments, criminal organizations, and terrorist groups is a well-established mechanism deployed by G7 nations and international organizations, including the United Nations. These measures are meant to pressure the targeted individuals, organizations, and governments to change their behavior or policies, while freezing their assets and restricting their ability to raise, use, and move funds.³⁰. In the event of a Taiwan crisis, G7 countries could impose targeted financial sanctions on Chinese government and military officials as well as other politically connected elites to attempt to deter further escalation and increase economic pressure on General Secretary Xi Jinping and his close allies.

Sanctions targeting Russian government and military officials and elites have been a central part of the G7 and allies’ sanctions strategy to counter Russia’s aggression toward Ukraine. Since the 2014 invasion of Crimea, G7 allies have collectively sanctioned more than 9,600 Russian-linked individuals, with a specific focus on government and military officials, oligarchs, and others with links to the regime as well as their family members and close associates who received asset transfers before a sanctions designation.³¹ As of March 2023, members of the Russian Elites, Proxies and Oligarchs (REPO) Task Force—a coalition of G7 nations, Australia, and the European Commission—have blocked Russian assets valued at more than $58 billion, including both financial accounts and assets such as real estate and luxury goods.³²

Separately, some G7 nations have imposed unilateral sanctions on PRC officials in response to human rights abuses and PRC actions in Hong Kong. As of May 2023, the United States had designated forty-two government officials, including former Chief Executive of the Hong Kong Special Administrative Region Carrie Lam and other PRC government officials, in response to actions undermining Hong Kong’s autonomy.³³ In March 2021, the EU also made a rare use of its Global Human Rights Sanctions Regime to sanction four high-ranking Chinese officials for their involvement in human rights abuses against ethnic minorities in the Xinjiang Uyghur Autonomous Region, with sanctions including travel bans and asset freezes³⁴—a move complemented by economic countermeasures taken the same day by the United States, the United Kingdom, and Canada.³⁵

It is highly likely that G7 nations would consider multilateral targeted designations against Chinese government and PLA officials and their associates in a major Taiwan crisis, given their relative success coordinating multilateral sanctions to counter Russia’s invasion of Ukraine.³⁶ The following section explores economic ties at stake and potential sanctions scenarios.

Global economic links: Individuals abroad

Assessing the scale of overseas assets covered by a potential sanctions regime on Chinese government, party, and military officials is extremely complex. There is limited available public information on the wealth of Chinese officials, in large part because that wealth is concealed via layers of personal networks and investment vehicles, and is often managed by third parties. These third parties invest on behalf of officials in domestic and overseas properties, publicly listed companies, and other investments—often in offshore jurisdictions such as the British Virgin Islands (BVI), the Cayman Islands, and Samoa. These offshore company structures often open bank or brokerage accounts in other jurisdictions, thereby further obscuring the relationship to the ultimate beneficiary.

For the purpose of this study, the authors used data derived from investigative reports and leaks of financial information such as the Panama Papers, which combined give a broad sense of the scale of assets connected to some of the highest-ranking figures of China’s leadership. In 2012, Bloomberg reported that Xi’s extended family held more than $400 million in business holdings and real estate.³⁷ The same year, reporting by the New York Times identified $2.7 billion in assets linked to former Premier Wen Jiabao and his close network.³⁸ Leaks of financial information including the offshore accounts analyzed by the International Consortium of Investigative Journalists in 2014 confirmed the existence of shell companies incorporated in the British Virgin Islands that are linked to the relatives of Wen and Xi, although the value of assets linked to these companies is unknown.³⁹ The leaked information also contained evidence of BVI-incorporated companies held by relatives of former Premier Li Peng and former President Hu Jintao, among others. Despite the opacity surrounding the overseas assets of the elite of the CCP, these single cases are potential indications that relevant, sanctionable assets likely represent tens of billions of dollars in aggregate.

This figure could grow quickly if the targets of financial sanctions were extended beyond high-level CCP and PLA leadership to include politically linked private business leaders. The estimated net worth of the top 200 wealthiest people in China is around $1.8 trillion.⁴⁰ Twenty-nine of those business leaders are current members of the National People’s Congress (NPC) or the Chinese People’s Political Consultative Conference (CPPCC), with a combined net worth of $278 billion. Much of this net worth is, however, linked to business activities taking place in China, rather than within G7 jurisdictions.

Twenty-nine of those business leaders are current members of the National People’s Congress (NPC) or the Chinese People’s Political Consultative Conference (CPPCC), with a combined net worth of $278 billion

Scenarios

A scenario involving sanctions on Chinese officials could proceed in several stages, with a first set of actions targeting a narrow and lower-level set of party, government, and military officials with direct links to a Taiwan crisis. Further actions could expand these sanctions to close associates of designated individuals, a longer list of officials, or ultimately to a broader set of politically connected business elites. Under the most extreme of scenarios, these sanctions could be widened to include China’s highest-level leaders in response to major developments in the Taiwan Strait.

Sanctions on a narrow set of CCP, government, and military officials

One likely scenario would involve sanctions—asset freezes and travel bans—imposed on a narrow group of CCP, government, and military officials with clear responsibilities over actions taking place in the strait. China’s current minister of defense, Li Shangfu, is already under US sanctions⁴¹—but designations could be extended to cover select members of the Central Military Commission or high-ranking PLA commanders. These could also include close advisers to these officials or to China’s high-level leaders on Taiwan-related issues.

The nominal purpose of these sanctions would be largely symbolic, and a means to condemn Beijing’s actions. Their effectiveness in changing behavior is likely to be extremely limited and could contribute to a hardening of positions. Most of this group of designated officials would likely be highly aligned with Xi’s decisions on Taiwan. Narrowly crafted sanctions on officials might also generate limited financial outcomes, given that these individuals are already under tight political scrutiny in China and unlikely to be allowed major overseas holdings. The scope of sanctionable assets might grow marginally larger, however, if close associates and family members are included, especially children of government officials studying in G7 countries, as well as close aides and the third parties handling their investments. Similar to the Russian case, these individuals may become a focus for the G7 if asset transfers occur ahead of designations.

Sanctions on a wider range of CCP, government, and military officials as well as business elites

In response to an escalation in the Taiwan Strait, G7 countries could decide to progressively expand sanctions to cover a longer list of government, CCP, and PLA officials. The list could also include certain business elites with known links to China’s leadership, who lend their public or financial support to China’s actions, or those who are active in sectors linked to China’s military-industrial base. The United States has already designated several Chinese executives and companies for breaking US law by providing support to North Korea, among other violations.⁴²

In addition to asset freezes and travel bans, G7 governments might impose restrictions on professional and financial services provided to these elites, including wealth management or business advisory services.⁴³ While Chinese clients overwhelmingly rely on the expertise of wealth managers based in Hong Kong, a small percentage of other managers are located in Switzerland (1.6 percent), the UK (1.6 percent), and the United States (1.1 percent).⁴⁴

The purpose of this second round of sanctions would be to attempt to pressure these officials to push internally for a change in policy. Assuming intelligence about their overseas assets were available to G7 implementing authorities, these broader sanctions could end up covering tens of billions of dollars in overseas assets. The costs to designated officials could be high: besides the financial implications of an asset freeze, even the public revelation of foreign assets could be politically damaging.

Our roundtable participants noted that sanctions on individuals amid a Taiwan crisis could potentially produce a stronger response than has occurred with recent designations of Russians. Whereas many Russian officials have been under sanction since 2014 and have had time to adapt, such sanctions on China would be mostly new and immediately impactful to those designated.

Still, it remains unclear whether sanctions on China’s business elites would compel a change in policy. Business leaders arguably have the most to lose from Chinese aggression against Taiwan to begin with, since disruptions in trade and investment with Taiwan and G7 partners will affect businesses first and foremost. The waning influence of the private sector in governance due to crackdowns on the technology and financial sectors under Xi raises further questions about business elites’ ability to influence policy outcomes toward Taiwan.

Sanctions on China’s high-level leaders

In an extreme escalation in the Taiwan Strait, sanctions could end up targeting China’s highest-ranking officials including most members of the Political Bureau of the CCP’s Central Committee and Xi himself. If Russia sanctions are any indication, this third circle of sanctions could also include China’s ministers of foreign affairs, science, and technology or finance, the PBOC governor, or high-level members of China’s legislative bodies (the NPC and CPPCC). These sanctions would similarly be largely symbolic.

Takeaways

The G7’s response to Russia’s invasion of Ukraine demonstrates that coordinated multilateral financial sanctions on political and business elites are now a central tool in G7 economic statecraft. By design, these sanctions have the benefit of having relatively low immediate economic impacts on G7 economies, concentrating costs on a small number of targeted officials. In principle, these sanctions also have the benefit of avoiding indiscriminately targeting China’s broader populace.⁴⁵ Though in practice they often end up inadvertently affecting the broader population or the national economy, as foreign banks and private-sector entities reduce exposure to a broader range of individuals or entities than the ones directly sanctioned.

Their effectiveness as deterrence tools in a Taiwan crisis is in question, too. Narrow sanctions on CCP, government, and PLA officials would probably end up targeting political leaders already aligned with Xi’s decisions on Taiwan. Chinese officials may conceal their offshore assets through complex personal networks and corporate structures that are potentially painful and costly to unravel. They also require tight coordination and information sharing among sanctioning parties, in order to locate and act against sanctioned individuals’ assets across jurisdictions. (The foundation for this cooperation does exist, however, as a result of recent sanctions on Russia).

Broader sanctions on business elites could freeze greater overseas wealth, but this may have limited impact on policy outcomes. Private business leaders are already incentivized to disfavor Chinese aggression toward Taiwan and have diminishing political sway after years of power centralization under Xi. Yet because they are an important signaling tool, sanctions on Chinese officials would very likely be considered in a major Taiwan crisis.

Economic countermeasures aimed at China’s industrial sectors

Finally, G7 leaders may consider deploying export controls and other economic statecraft tools against Chinese companies or industries linked to China’s military or defense industrial base.

These actions featured prominently in the G7 sanctions program on Russia, with a variety of trade and investment-related measures imposed on companies and industries linked to mining, electronics, aviation, and other sectors. The United States implemented stronger sector-wide export controls on certain industrial and electrical equipment, added military-linked companies to the US Commerce Department’s (export-control) Entity List, and designated numerous companies on the SDN list.

Currently, Chinese firms with ties to the PLA and specific companies utilizing dual-use technologies already face sanctions and export controls. This signals additional businesses operating in these sectors as likely targets in a Taiwan crisis. In a crisis scenario, a number of economic countermeasures could be used to limit the flow of potential dual-use goods to China’s military and restrict the operation of sectors critical to China’s defense industrial base.

This section describes the economic linkages between potentially targeted sectors and the global economy, as well as the economic assets and flows that could be implicated under an economic statecraft program. To bring more granularity to our analysis, we use a case study approach that explores the potential for restrictions on China’s aerospace sector.

Our findings point to significant economic risks from a broad sanctions package, as well as deep interdependencies between China and G7 economies in potentially targeted sectors. This suggests that, if deployed, countermeasures would likely target narrower industries—or single firms within industries—where China depends on imported G7 technology and where global dependence on Chinese exports is small. Even then, sanctions could come with substantial costs to G7 technology exporters in the sanctioned industries.

Global economic links: Industries and supply chains

A number of Chinese industries could become the target of G7 countermeasures in the context of a major Taiwan crisis, due to their linkages to China’s defense sectors. Among them, chemicals, metals, electronics, aviation, and shipbuilding already feature prominently in US lists of Chinese military-industrial companies, including the Non-SDN Chinese Military-Industrial Complex Companies list and the Department of Defense’s Chinese Military Companies list—making them likely potential targets for future action.⁴⁶

Collectively, these five industries already comprise over ten percent of Chinese gross domestic product, produce over $6.7 trillion in annual revenue, and employ over 45 million people.⁴⁷ They also are deeply linked to the global economy: in 2018, Chinese companies in these industries imported goods valued at $686 billion, and exported goods valued at nearly $1.1 trillion.

These sectors are also linked to the global economy through investment. Collectively they have been the destination for $107 billion in direct investment from the United States, United Kingdom, and European Union since 2000, and Chinese companies in these sectors have invested at least $179 billion abroad, either through acquisitions or greenfield investment, according to Rhodium cross-border FDI monitoring. Bloomberg data and Chinese official data suggest that foreign holdings of listed Chinese companies and their subsidiaries in these sectors amount to about $120 billion, and these firms have at least $76.9 billion in dollar-denominated debt instruments currently outstanding.⁴⁸

Scenarios

G7 countries have a range of economic countermeasures that could be brought to bear against select Chinese industries in the event of a Taiwan crisis. Here we consider two potential scenarios, a maximalist export controls scenario targeting major industries with comprehensive export controls, and a targeted sanctions scenario using China’s aerospace industry as a case study.

Maximalist export controls scenario

In an extreme scenario, G7 countries could impose strict export restrictions on trade with China on a range of major industrial sectors, such as chemicals, metals, electronics, and transportation equipment. These sanctions, though highly costly, would not be entirely unprecedented. In the case of Russia, the United States and other G7 countries imposed restrictions on exports in the oil and gas, metals and mining, defense, and technology sectors through a combination of tightened export controls and property blocking rules.

The disruptions to China from such sanctions would be substantial: G7 exporters are the source of 18 percent of the imported content these industries in China consume, totaling $153 billion based on trade in value-added data that estimates the origin and value of production activity along supply chains. G7 countries also account for 43 percent of China’s export market in these industries, putting $225 billion in Chinese manufacturing activity at risk. Altogether, over fifteen million jobs in China are estimated to depend on exports in these sectors. Many more jobs would be put at risk from the loss of imported inputs into Chinese production processes.

These dependencies run both ways, however, and impacts on the sanctioning countries would also be extremely high. The $153 billion in goods that G7 countries export to these industries in China support approximately 1.3 million jobs across the G7; and China itself is the source of 25 percent of G7 imports in these industries.

Even these substantial figures far underestimate the total economic impact from a total ban on trade between G7 economies and these industries in China. The value-added approach provides a useful estimate of the value that different countries contribute to well-functioning global value chains. But disruptions from a sudden stop of trade in these industries—in particular in hard-to-replace critical components—would result in massively greater economic disruption until alternative sources were fully brought up to speed.

Exports from China to the G7 would be disrupted as well. Trade restrictions on foreign inputs to these industries would affect Chinese production and exports. China could also take retaliatory action banning exports from these and other sectors to the G7.

In some cases, alternatives to disrupted trade flows might be found quickly, putting the efficacy of trade restrictions in doubt. A ban on G7 exports of iron ore to China, for instance, would disrupt only a small volume of trade unless other partners such as Australia, which exported $72 billion of iron ore exports in 2022, were also to join. Even so, these supplies could in large part be replaced by exports from other countries such as South Africa and Brazil.⁴⁹ Additionally, the G7’s challenges in halting the export of high-end Western technology to Russia following its invasion of Ukraine demonstrate that such regimes can be porous.⁵⁰

The deep interlinkages between Chinese and global industries mean potential economic disruptions from targeting certain sectors could be significant. Altogether, a conservative accounting of the trade flows disrupted by export controls in these sectors amounts to at least $378 billion in disrupted trade.⁵¹

Except under extreme circumstances, it is unlikely that G7 leaders would be able to agree to trade restrictions on this scale. Germany, for instance, is deeply invested in and dependent on China in the chemicals industry. The French, UK, and US aviation industries have huge sales to China (see case study below), and Japan and non-G7 members South Korea and Taiwan are deeply connected with mainland China in electronics. These linkages would make agreeing on a broad package extremely difficult. Broad trade restrictions would also be indiscriminate in their impact on China’s citizenry, a fact with serious ethical implications and potentially political ones, as a broadbased export-control regime could in fact strengthen popular support for the government rather than undermine it.⁵²

Finally, a broad export-control package would have major spillovers to the global economy due to global value chains that depend on imports of Chinese intermediate goods (electronics, for instance) that would be disrupted by strict controls. These considerations make measures of this scale highly unlikely, except under the most extreme circumstances.

Targeted sanctions scenario

Due to the costs of a maximalist approach, economic countermeasures against China’s industrial sectors are more likely to be narrower in scope, targeting specific companies or subsectors with high technological dependencies on G7 countries and relatively low global dependency on Chinese exports. The key feature of these countermeasures would be asymmetry: imposing restrictions that disproportionately affect China’s economy. Importantly, asymmetry does not imply costlessness. Any effective trade restriction inevitably results in costs to the sanctioning economy and the global economy as a whole.

China’s aerospace industry, which depends on foreign-sourced engines and parts, provides a case in point. In a potential sanctions scenario, the United States and G7 partners could impose blocking sanctions and export restrictions on China’s two largest aerospace companies, the Commercial Aircraft Corporation of China (COMAC) and the Aviation Industry Corporation of China (AVIC). These companies depend heavily on inputs from overseas suppliers. Of the eighty-two primary suppliers to China’s first narrow-body jet, the COMAC C919, only fourteen are from China (and seven of those are Chinese-foreign joint ventures).⁵³ China’s most critical vulnerability is engines: all three of its domestically manufactured commercial aircraft rely on foreign-produced engines, and China’s domestic jet engine manufacturers are widely believed to be far behind Western competitors in terms of technological sophistication.⁵⁴

In a scenario in which blocking sanctions and export restrictions were placed on AVIC and COMAC, all exports of aerospace goods to these firms could be prohibited, amounting to approximately $2.2 billion in aerospace parts trade at risk.⁵⁵ However, the ultimate impact of such measures on China’s aerospace ambitions would be much greater. China has begun mass production of its ARJ21 regional airliner–which depends on GE engines–and exported its first model to Indonesia last year. COMAC’s flagship C919 narrow-body jet marked its first commercial flight in May 2023, and the country has aspirations to sell over 1,200 over coming years. Restricting the sale of aviation parts to COMAC and AVIC would substantially disrupt China’s civil aviation ambitions.

$33 billion of G7 aerospace exports to China could be disrupted through retaliatory measures.

While the impact of these measures would be particularly acute for China, the costs on foreign aerospace companies would also be substantial. China could respond to restrictions by halting aerospace exports to G7 countries. China exported $1.2 billion in aircraft parts to G7 countries in 2018, including inputs to for eign airliners. While most are low-tech inputs, they can be difficult to replace in the short run: a shortage of wire connectors that coincided with widespread lockdowns in China in 2022 led to US production delays for the Boeing 737.⁵⁶China could also respond by delaying purchases of Airbus and Boeing planes. In total, approximately $33 billion of G7 aerospace exports to China could be disrupted through retaliatory measures.

Foreign aerospace companies also have substantial tie-ups with AVIC and COMAC. Since 2000, US and British companies and those based in EU member states have invested an estimated $3.7 billion in China’s aerospace sector, according to Rhodium’s cross-border FDI tracking. A substantial number of these projects are connected to AVIC and COMAC, including Airbus’s A320 final assembly line in Tianjin, which produces six aircraft per month, about 10 percent of Airbus’s average monthly production.⁵⁷

AVIC and COMAC also have invested in global aerospace companies. AVIC, for instance, acquired Austrian FACC AG, which produces aerostructures and other components for Airbus, Boeing, and other global firms. In a scenario where COMAC and AVIC were put under blocking sanctions, these operations would likely be forced to wind down or divest

Finally, foreign investors would be exposed to losses in equity and debt in AVIC. Foreign equity holdings in twenty-four listed subsidiaries of AVIC companies totaled $1.4 billion, or 1.4 percent of their combined market capitalization as of April 2023.⁵⁸ Dollar-denominated debt issued by AVIC and subsidiaries amounted to $3.8 billion, approximately 21 percent of its total debt issuance.⁵⁹

Sanctions on China’s leading aerospace companies and export controls on the components they import would be a heavy blow to its civil aerospace ambitions, making them a plausible economic countermeasure in a Taiwan crisis. However, the impacts on foreign aerospace companies would be significant given the high degree of trade and investment ties to China, making these countermeasures costly and potentially difficult to coordinate in a crisis. Targeted sanctions on other sectors where G7 countries hold asymmetrical technological advantages could also be considered, but these all come with non-negligible costs to the sanctioning economies as well.

Takeaways

China is deeply connected to the global economy in sectors that would potentially be targeted for economic countermeasures in a Taiwan crisis. The expansive nature of these ties would make broad export controls and trade restrictions extremely costly and likely hard to justify except in the most extreme circumstances.

Targeted sanctions on specific firms and technology choke points are more plausible, but they come with substantial costs to foreign companies. Our case study, with export controls placed on China and full blocking sanctions imposed on China’s leading aerospace manufacturers, shows that tens of billions of dollars in aerospace goods trade, inbound and outbound direct investment, and portfolio holdings in China’s aerospace sector would be put at risk. While China would face substantial challenges in achieving its goal of developing a strong domestic commercial aviation industry, foreign aerospace companies would lose out on billions of dollars in exports and sales to China and risk seeing billions of dollars in direct investment lost.

IV. Practical challenges in sanctions development

Beyond identifying specific tools and appropriate targets for economic countermeasures, policymakers will confront a range of complex coordination issues around implementing sanctions in a Taiwan crisis. Discussions with participants in our roundtables highlighted areas of consideration in developing economic countermeasures to deter aggression against Taiwan.

Understanding Taiwan’s perspective. A crucial factor in designing G7 economic responses to possible aggression against Taiwan should be the policy preferences of Taiwan itself. Depending on the nature of the crisis and political conditions in Taiwan, Taiwanese officials might not support economic countermeasures against China and opt for a de-escalatory response. Given the depth of economic ties between China and Taiwan, certain economic countermeasures against China could be highly costly for the Taiwanese economy. Public opinion would likely be divided on the question of how to respond. With only mixed Taiwanese support, G7 coordination on economic countermeasures could be difficult to achieve. Strong Taiwanese support on the other hand would make coordination easier, so long as Taiwanese actions were not seen to have precipitated the crisis.

Defining clear redlines and triggers across the G7. A key barrier to coordinating sanctions among G7 partners and with Taiwan arises from the difficulties in agreeing on what Chinese acts of aggression should trigger economic countermeasures. While some actions might be seen by all parties to have crossed redlines–such as a military quarantine of Taiwan—Chinese coercion against Taiwan often takes the form of “gray zone” measures that are more ambiguous and brush up against but do not clearly cross redlines.⁶⁰ Getting G7 nations to agree to impose economic countermeasures against China in response to such actions will be more challenging. The roundtables highlighted different levels of tolerance for escalatory action measures among G7 partners.

The specific drivers of a crisis would matter as well: European experts note that a crisis that was seen to be provoked by the United States or Taiwan would make G7 alignment more difficult, especially given divergent views among EU member states about how to respond to a cross-strait crisis.

Coordinated signaling in order to deter. The challenges involved with identifying redlines and agreeing on responses in advance also complicate efforts to signal resolve to China. Successful deterrence depends on the would-be aggressor knowing what actions would provoke a response and believing that the defender’s threats of retaliation are credible.⁶¹ The ambiguous nature of Chinese escalatory actions and the potential for disagreements among partners over how to respond in the moment of crisis make establishing deterrence through the threat of economic countermeasures a significant challenge.

Participants in roundtables disagreed about the best signaling approach, with some arguing that clarity about redlines and consequences is essential, and others arguing that providing too much specificity could instead encourage aggressive behavior and focus China’s countersanctions and sanction-proofing work. Providing clarity on what Chinese actions would elicit a punitive response could encourage Beijing to take actions just below such thresholds.

Building out necessary tools. Our roundtables highlighted the fact that G7 countries joining a sanctioning coalition may need additional legal tools to carry out effective countermeasures on China. In the wake of enhanced export controls on Russia, for instance, the EU faced challenges restricting reexports of export-controlled products through third countries to Russia, as doing so would require additional legal authorities.⁶² And differences in UK, EU, and US regulations have complicated the efforts of multinational companies to wind down their operations in Russia.⁶³ For effective action and deterrence, such authorities would need to be shored up.

Scoping a cost mitigation strategy. Even limited economic countermeasures against China would have global economic spillovers. This means any sanctions program would likely need to be paired with measures to support industries at home as well as third countries affected by lost trade and investment with China. Sanctions triggering a devaluation of the renminbi would negatively affect countries dependent on commodity exports to China. A stronger dollar resulting from global investors seeking liquidity and safe assets in a crisis would put additional stress on countries with substantial dollar-denominated debt. G7 countries would need to manage the global spillovers of sanctions with additional dollar liquidity, loan extensions and forgiveness, and other tools to support the global economy in a period of economic stress.

Factoring in the market reaction. Any G7 economic statecraft response would have to contend with additional disruptions to global supply chains from Chinese aggression against Taiwan and the resulting market impacts. Russia’s 2022 invasion of Ukraine caused market gauges like the S&P 500 to fall by around 4 percent, and the initial market impact of a Taiwan crisis could be significantly larger due to the size and importance of the economies involved. US officials have estimated a disruption to the exports of Taiwan Semiconductor Manufacturing Company alone could cost the global economy between $600 billion to $1 trillion a year.⁶⁴ Roundtable participants stressed that G7 actions would have to avoid aggressively compounding the inevitable supply chain and market effects of a crisis. The initial shock could undermine domestic political support for sanctions that would incur additional economic costs.

Conclusions and recommendations

Policymakers in G7 capitals are increasingly discussing Taiwan crisis scenarios, and starting to explore the range of options available to them in responding to Chinese actions against Taiwan, both beyond and below the level of invasion. While our work shows that maximalist countermeasures would be highly costly and therefore unlikely except in the most extreme circumstances, G7 countries may consider a set of more limited tools that target areas of asymmetric Chinese dependence on foreign technology and critical inputs.

That options are available, and that G7 leaders are discussing them, does not mean that deploying them in an aligned fashion would be easy. Coordination on economic countermeasures will be critical to effective deterrence, but could be hard to achieve given the difficulty to define red lines in a conflict that is likely to be marked by ambiguity and uncertainty. Given these limitations, economic countermeasures can only be one part of a broader deterrence effort and toolbox that also includes diplomatic and military channels.

From our research, roundtables, and interviews, a set of recommendations emerged for policymakers considering the use of economic countermeasures in a Taiwan crisis:

G7 partners and Taiwan should scale up private coordination and signaling. G7 discussions about the role of economic countermeasures in a Taiwan crisis are still in the early stages. Given the challenges involved in agreeing upon red lines and appropriate countermeasures, pragmatic discussions around contingencies must be a priority. This includes creating effective private channels of communication among G7 partners and key stakeholders on emerging trends, financial ties, and shared vulnerabilities. Meanwhile, G7 partners should privately message to China the extent they are willing to go in using economic tools to counter Chinese aggression toward Taiwan. Coordination with Taiwanese officials is also crucial.
The G7 should coordinate beyond its membership. This report assumes that most or all of the current coalition that has imposed sanctions against Russia would align on measures in a Taiwan Strait crisis. Roundtables and consultations with like-minded capitals in the Asia-Pacific region have suggested this is a reasonable assumption. However, even more so than in the case of Russia, exchanges outside the G7, including the rest of the G20, will be necessary given the scale of economic disruption at stake.
Economic asymmetries need to be better understood. Policymakers argued that the most likely economic countermeasures would focus on areas where China is asymmetrically dependent on foreign goods, technology, and finance. Further research is needed to identify these areas and the potential costs, vulnerabilities, and limitations of targeting them in a crisis.
Take practical legal steps now to boost the credibility of G7 deterrence. Discussants noted that successful deterrence requires making clear that G7 nations are ready to act decisively in a crisis. This may require legal steps, including: shoring up of the EU’s framework for export controls; advance preparation of US executive orders specifying and granting sanctions authorities to the Office of Foreign Assets Control; preliminary analysis on the potential impact and spillovers of proposed packages; and the construction of communication channels among US government stakeholders such as the Federal Reserve, Commodity Futures Trading Commission, Securities and Exchange Commission, Office of the Comptroller of the Currency, Financial Crimes Enforcement Network, and appropriate bilateral, plurilateral, and multilateral counterparts. This may include preparing the legal and regulatory landscape across G7 jurisdictions to ensure appropriate authorities are in place to deter or respond to a crisis.
Invest in other forms of deterrence. Economic countermeasures should be considered as part of a whole-of-government and multilateral strategy as they have costs and limitations that can make them less effective on their own. These tools will be more effective when paired with traditional tools of deterrence in both the military and diplomatic realms.
Keep lines of communication open. Bilateral and plurilateral communication is the best tool to de-escalate in a crisis. Recent breakdowns in military-to-military communication channels between the United States and China are of serious concern given elevated tensions in the region. Maintaining open communication lines and regular exchanges with Chinese counterparts is a key element in any risk-mitigation strategy.
Balance credible threats with credible assurances. Effective deterrence requires credible threats to be matched with credible assurances. The G7 should make clear to Beijing it has no desire to change the status quo in the Taiwan Strait. Efforts to maintain the status quo and shore up traditional diplomatic, military, and economic tools to ensure peace and stability in the Taiwan Strait should be the priority.

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About the authors

Charlie Vest is an associate director on Rhodium Group’s corporate advisory team. He manages research and advisory work for Rhodium clients and contributes to the firm’s research on US economic policy toward China. Vest holds a master’s degree in Chinese economic and political affairs from UC San Diego and a bachelor’s degree in international affairs from Colorado State University. Prior to joining Rhodium, he worked in Beijing as research manager for the China Energy Storage Alliance, a clean energy trade association.

Agatha Kratz is a director at Rhodium Group. She heads Rhodium’s China corporate advisory team, as well as Rhodium’s research on European Union-China relations and China’s economic statecraft. She also contributes to Rhodium work on China’s global investment, industrial policy and technology aspirations. Kratz holds a Ph.D. from King’s College London, having studied China’s railway diplomacy. Her previous positions include associate policy fellow at the European Council on Foreign Relations and editor-in-chief of its quarterly journal China Analysis, assistant editor for Gavekal-Dragonomics’ China Economic Quarterly, and junior fellow at the Asia Centre in Paris.

Acknowledgements

This report was written by Charlie Vest and Agatha Kratz with support from Juliana Bouchaud in collaboration with the Atlantic Council GeoEconomics Center. The principal contributors from the Atlantic Council GeoEconomics Center were Josh Lipsky, Kimberly Donovan, Charles Lichfield, and Niels Graham.

The GeoEconomics Center and Rhodium Group wish to acknowledge a superb set of colleagues, fellow analysts, and current and former officials who shared their ideas and perspectives with us during the roundtables and helped us strengthen the study in review sessions and individual consultations. These individuals took the time, in their private capacity, to critique the analysis in draft form; offer suggestions, warnings, and advice; and help us to ensure that this report makes a meaningful contribution to public debate. Our gratitude goes to Dave Shullman, Jörn Fleck, Logan Wright, Daleep Singh, Jeremy Mark, Richard Aboulafia, Annie Froehlich, Julia Friedlander, David Barboza, Chris Skaluba, the Centre for Financial Crime and Security Studies at the Royal United Services Institute (RUSI), and Atlantik-Brücke.

This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The authors are solely responsible for its analysis and recommendations.

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2 STAND with Taiwan Act of 2023, S. Res. 1027, 118th Cong. (2023).

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7 For example, a “peaceful quarantine” of Taiwan, whereby China would require ships to clear customs in mainland ports before docking in Taiwan, would likely cause a major spike in global shipping costs, with substantial international inflationary effects.

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24 Respectively they are the People’s Bank of China and China Banking and Insurance Regulatory Commission, and the Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, and Bank of China.

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29 “Behind the Scenes of Central Bank Digital Currency: Emerging Trends, Insights, and Policy Lessons,” IMF, February 9, 2022.

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41 “CAATSA Section 231: Addition of 33 Entities and Individuals to the List of Specified Persons and Imposition of Sanctions on the Equipment Development Department,” US Department of State, September 20, 2018, https://2017-2021.state.gov/caatsa-section-231-addition-of-33-entities-and-individuals-to-the-list-of-specified-persons-and-imposition-of-sanctions-on-the-equipment-development-department/index.html.

42 “Treasury Targets Actors Facilitating Illicit DPRK Financial Activity in Support of Weapons Programs,” US Department of Treasury, April 24, 2023, https://home.treasury.gov/news/press-releases/jy1435.

43 See for example, “U.S. Treasury Takes Sweeping Action Against Russia’s War Efforts,” US Department of the Treasury, May 8, 2022, https://home.treasury.gov/news/press-releases/jy0771; and “EU Sanctions against Russia Explained,” Council of the European Union, https://www.consilium.europa.eu/en/policies/sanctions/restrictive-measures-against-russia-over-ukraine/sanctions-against-russia-explained/#services ; https://www.gov.uk/government/publications/russia-sanctions-guidance/russia-sanctions-guidance.

44 Ho-Chun Herbert Chang et al., “Complex Systems of Secrecy: The Offshore Networks of Oligarchs,” PNAS Nexus 2, No. 3, March 2023, 51, https://doi.org/10.1093/pnasnexus/pgad051.

45 Julia Grauvogel, Nikolay Marinov, and Tsz-Ning Wong, “Targeted Sanctions against Authoritarian Elites,” April 26, 2022, https://dx.doi.org/10.2139/ssrn.4094157.

46 See “DOD Releases List of People’s Republic of China (PRC) Military Companies in Accordance with Section 1260H of the National Defense Authorization Act for Fiscal Year 2021,” US Department of Defense Release, October 5, 2022; and “Entities Identified as Chinese Military Companies Operating in the United States in Accordance with Section 1260H of the Fiscal Year 2021 National Defense Authorization Act.”

47 TiVA tables, 2018.

48 Bloomberg L.P. (2023); and China Securities Regulatory Commission. Equity holdings of Chinese listed firms and their subsidies includes foreign holdings of Chinese listed firms through the Qualified Foreign Institutional Investor program and Hong Kong Stock Connect, as well as the market capitalization of Chinese subsidiaries in these sectors listed on foreign stock exchanges.

49 UN Comtrade.

50 Miles Johnson, Chris Cook, and Anastasia Stognei. “The UK Business that Shipped $1.2bn of Electronics to Russia.” FT. Financial Times, April 7, 2023. https://www.ft.com/content/bdd8c518-bf10-4c9c-b53b-bfbe512e2e92.

51 ECD TiVA database. Value is the sum of G7 value-added in exports to Chinese sanctioned industries and Chinese value-added in exports from sanctioned industries to G7 countries.

52 Daniel Verdier and Byungwon Woo, “Why Rewards Are Better than Sanctions,” Economics & Politics 23, no. 2 (2011).

53 Scott Kennedy, “China’s COMAC: An Aerospace Minor-Leaguer,” Center for Strategic and International Studies, December 7, 2020, https://www.csis.org/blogs/trustee-china-hand/chinas-comac-aerospace-minor-leaguer.

54 Amanda Lee, “China’s C919 Jet to Be More Home-grown with a Domestically Made Engine, but How Long Will It Take?,” South China Morning Post, October 12, 2022, https://www.scmp.com/economy/china-economy/article/3195711/chinas-c919-jet-be-more-home-grown-domestically-made-engine.

55 This figure includes parts exported to China for maintenance of existing Boeing and Airbus planes that comprise the bulk of China’s civil jet airliners, and so the total value of the export trade at direct risk of disruption from sanctions would be slightly lower.

56 Jon Hemmerdinger, “Wire Connector Shortages Hamper 737 Production,” FlightGlobal, May 11, 2022, https://www.flightglobal.com/airframers/wire-connector-shortages-hamper-737-max-production/148612.article.

57 Gregory Poleck, “Airbus to Build Second Assembly Line at Chinese A320 Site,” AINOnline, April 6, 2023, https://www.ainonline.com/aviation-news/air-transport/2023-04-06/airbus-build-second-assembly-line-chinese-a320-site; and James Field, “Airbus Ramps Up Production Output,” Aviation Source News, February 18, 2023, https://aviationsourcenews.com/manufacturer/airbus-ramps-up-production-output/.

58 Bloomberg L.P. (2023). Retrieved from Bloomberg database.

59 Bloomberg L.P. (2023). Retrieved from Bloomberg database.

60 Benjamin Jensen, Bonny Lin, and Carolina G. Ramos, “Shadow Risk: What Crisis Simulations Reveal about the Dangers of Deferring U.S. Responses to China’s Gray Zone Campaign against Taiwan,” CSIS Brief, February 16, 2022, https://www.csis.org/analysis/shadow-risk-what-crisis-simulations-reveal-about-dangers-deferring-us-responses-chinas.

61 Michael J. Mazarr, “Understanding Deterrence,” Rand Corporation, 2018, https://www.rand.org/pubs/perspectives/PE295.html.

62 Sam Fleming and Henry Foy, “Brussels Eyes Export Curbs to Close Russian Sanctions Loophole,” Financial Times, April 28, 2023, https://www.ft.com/content/ca35ecf4-a5bd-4ff2-906e-10988a87a1ee.

63 Brian J. Egan et al., “Disparate US, EU and UK Sanctions Rules Complicate Multinationals’ Exits From Russia,” Skadden, December 13, 2022, https://www.skadden.com/insights/publications/2022/12/2023-insights/new-regulatory-challenges/disparate-us-eu-and-uk-sanctions-rules.

64 Reuters staff writers, “Top US Spy Says Chinese Invasion Halting Taiwan Chip Production Would Be ‘Enormous’ Global Economic Blow,” Reuters, May 4, 2023, https://www.reuters.com/technology/top-us-spy-says-chinese-invasion-halting-taiwan-chip-production-would-be-2023-05-04/.

The post Sanctioning China in a Taiwan crisis: Scenarios and risks appeared first on Atlantic Council.

The new Ukraine will be a country worthy of its heroes

Yulia Svyrydenko — Thu, 22 Jun 2023 01:22:19 +0000

People often talk about achieving strength through adversity. In Ukraine, this is the everyday reality for millions of people. Over the past sixteen months, Ukrainian courage has stunned the world. This is not just a matter of resilience; Ukrainians know that we face destruction if we do not win.

Thanks to Ukrainian bravery and determination, almost nobody now doubts our ability to survive the war and defeat Russia’s invasion. However, many international observers are now starting to ask a new question: What will Ukraine do next?

I was recently in my hometown of Chernihiv. Russia tried to seize it in the first weeks of the full-scale war. For a period, the city was surrounded. One year later, Chernihiv is humming with activity. Ruins are gradually being rebuilt and businesses are working. During my trip, I talked to a local entrepreneur, Andrii, who owns a small store. He donates half of his profits to the Ukrainian military. Andrii asked me: “Of course, we will win, but what happens next? How will the country develop?”

I answered him and I can answer the whole world. We have a clear vision of what Ukraine must become and how to achieve it. Our plan for Ukraine has three pillars: security, freedom, and drive.

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Security comes first. All other efforts will be futile without this key ingredient. Ukraine needs a strong army to ensure the safety of our people and our economy. This is also the only way to make sure NATO’s eastern border remains secure.

Freedom is the second pillar. This is a central aspect of Ukraine’s European identity. As a nation, we stand for human rights and against international aggression. The new Ukraine will be a place where citizens and businesses have the freedom to innovate and succeed. We aim to remove unnecessary barriers to business development while ensuring inclusion and equality through social policies.

The third pillar is drive, shaping our goal for dynamic growth. We want Ukraine to become a global competitor and contributor, not a state dependent on others. By attracting investment and promoting innovation, Ukraine will become a new engine of European economic growth.

Ultimately, Ukraine’s goal is to join the Trillion Dollar Club. We need to finance a strong army of 500,000 personnel and a highly developed defense sector, as well as social services, education, and healthcare. A GDP of $1 trillion will enable ample funding for these sectors without imposing a critical burden on the budget.

At present, we see an investment potential in the region of $500–900 billion toward the rebuilding of Ukraine over the next 20 years. Additionally, replacing Russian and Chinese exports to EU and G7 countries could generate very large volumes annually.

Eurasia Center events

After Vilnius: What’s next on Ukraine’s path to NATO?

Eastern Europe NATO Security & Defense Ukraine

The construction industry and infrastructure development are top priorities. Currently, the damage inflicted by Russia on Ukraine’s residential sector alone amounts to over $54 billion. Reconstruction will require a significantly larger investment, creating unprecedented challenges and opportunities for the entire sector. We envisage a generational infrastructure upgrade that moves Ukraine away from the post-Soviet model and toward a modern European approach.

In the longer term perspective, we intend to rely on sectors where Ukraine already has proven potential and can offer globally competitive solutions. This includes food security, green transition, high-end technology, and industry.

We are committed to participating in the green transition, which is essential for Europe. This will make it possible to replace Russian energy resources. Our understanding of the green transition goes beyond energy to include the development of green metallurgy and a shift toward green logistics. Furthermore, Ukraine’s large reserves of strategic minerals position us as a major player in the production of lithium-ion batteries and nuclear fuel. The availability of resources provides an opportunity for high-tech production, opening the way for the EU to replace supplies from China.

Industrial development will generate demand for technological solutions and innovation. We expect to see a new boom in the Ukrainian IT sector, as well as the emergence of sectoral R&D centers capable of meeting the needs of other industries and the digital economy.

We are focused on technological development, but we are also very much aware that 350 million people are currently facing starvation worldwide. We aim to boost food security and become a food provider for 600 million people globally.

None of the above would be possible without the people who will make it happen and for whom all of this is intended. We aim to create conditions for millions of Ukrainians to return home and to persuade others to relocate to Ukraine by implementing attractive social policies and citizenship rules.

Simultaneously, we need to do the same for investors. The task we face is enormous. Ukraine’s record annual foreign direct investment (FDI) total remains the $11 billion received in 2007. We must attract at least that amount every single year for the next two decades.

We understand that investors need to see tangible results not just ambitious plans. Key steps include reform of Ukraine’s law enforcement agencies and courts, along with the establishment of strong and independent regulators. If successfully implemented, this will provide an institutional framework to ensure fair play and anti-corruption policies.

Setting up a business in Ukraine will become easy. We will simplify and digitize all processes involved in the creation of a new business, from construction permits and environmental regulations to turnkey utilities connections. We will reform monetary, tax, and labor policies by revising rates and tariffs and liberalizing the labor market. Ukraine will become one of the most convenient places on the planet to do business.

Ukraine’s future goes beyond sectoral growth. We envision ourselves as an integral part of the European community and a driving force for global development. We will contribute to international security, propose solutions for shared challenges, and establish good governance practices.

Over the last 10 years, Ukraine has already made significant progress toward countering corruption. Further advances are crucial as we seek to become a NATO member to protect our nation, and as we pursue EU membership to open up new business opportunities and consolidate reforms.

There is no alternative for us. Ukrainians must turn these ambitions into reality to ensure the country’s future safety and preserve freedom. Otherwise, Russia will remain a threat and will inevitably make another attempt to destroy Ukraine.

We call on all Ukrainians to return home and invite the global community to join us on this transformative journey. We invite them to invest in our resilient nation and to become shareholders in the prosperity that Ukraine’s success will surely bring. This is more than a national task; it is a global call to action. It will show how ordinary people in extraordinary times can turn adversity into strength.

Yulia Svyrydenko is Ukraine’s First Vice Prime Minister and Minister of Economic Development and Trade.

Meanwhile, multinational corporations (MNCs) are integrating sustainability metrics into their supply chains, based on the Science Based Targets Initiative (SBTI). Financial and reputational risks from poor ESG practices can negatively impact a company’s future profits and resilience, which filter down to its local value chain. Many MNCs, including, Nestle, PepsiCo, and Unilever, are working towards preventing this by establishing and adhering to SBTI targets to increase sustainable practices within their global supply chains. Others, including Starbucks, are diverting funds to support climate and water projects in developing countries in an effort to conserve or replenish 50% of the water they deplete through their operations, including the agricultural supply chain.

Together, ESG investing and SBTI targets should contribute significantly to sustainable development and lower the cost of hitting the SDGs. However, last year revealed several barriers that threaten that potential.

Roadblocks to investing in sustainable development

Sustainable finance faced challenges in 2022 as increased global regulatory scrutiny and divergent ESG standards led to a dip in ESG investing. Reuters reported that in 2022, sustainable investments reversed course for the first time in a decade, with sustainable bond sales decreasing by 30% and green bonds down 23%. Overall, ESG performance declined by nearly 9%, as international investment in ESG, especially climate change, declined.

Varying ESG rating standards, methodology, and data sources, that are often reclassifying sustainably labelled products, contributed to lower levels of ESG investing in 2022. Several ESG labelled securities were downgraded due to criteria conflicting with both major ratings agencies, while conflicting or overly prescriptive requirements led to a decline in support for ESG related shareholder proposals and the withdrawal of several financial industry members from regional ESG alliances. With over 600 ESG data providers, globally, it is not surprising a lack of consistency and standardization leave investors confused about the true risks and rewards from sustainable finance. Recent research reported that 20 of the 50 largest global asset managers assess their sustainable finance products using four or more ESG rating providers, while the other 30 use internal models for the same purpose. Underlying biases in ratings can often exclude developing countries struggling to attract sustainable finance due to inherent country-specific risks, like fossil fuel dependence, budget constraints, and high sovereign debt from external shocks, market access, and lack of technological innovation. However, some asset managers, like Abrdn, have developed in-house ESG ratings system based on data and metrics from external sources, like the World Bank and IMF, to consider unique factors when evaluating alignment with the SDGs for companies listed in their Emerging Markets Sustainable Development Corporate Bond Fund.

Global regulations for ESG have also complicated cross-border sustainable investing, potentially leading to an increase in compliance costs and reduction in the number of eligible sustainable funds for firms. Although evolving European, UK, and US frameworks regulating ESG have similar objectives, the approaches towards sustainable investing vary among the jurisdictional regulations and oversight bodies, especially around labelling and reporting. This disparity has also encroached on the Asia-Pacific financial industry, where many banks are starting to require local asset managers to comply with European ESG standards despite the existence of similar local regulations. An analysis of ESG and sustainable-labelled funds identified that less than 4% meet the standards of all three jurisdictions, while 85% do not comply with any of them. Additionally, different jurisdictional requirements and contradicting assessments of how to measure sustainable supply chains brought an additional level of uncertainty to MNC’s ESG initiatives in FDI. Companies are starting to realize they may not have fully assessed the impact of carbon emissions on its operations in other countries, specifically in the developing market. Streamlining allowing for flexibility in the global ESG regulatory framework will be critical to ensuring sustainable investments increase and assist with countries in meeting their ESG goals.

A way forward

To help meet the SDGs, the World Bank recently announced the creation of a roadmap that focused on three main objectives, including increasing private sector funding, improving country-level engagement and analysis, and establishing a global taxonomy for sustainable investment tools. UN Deputy Secretary-General Amina Mohammed recently warned that “the SDGs will fail without the private sector,” because private sector actors can “invest in the transitions necessary to accelerate development progress and get the SDGs back on track.” The private sector has not only the financial capacity, but also the commitment, to fuel sustainable investing, but faces barriers to keep up the momentum. The IMF and World Bank have an incredible opportunity to address the current ESG investing challenges. The World Bank roadmap is an important first step, but more will be needed to ensure globally consistent standards and data for ESG. The potential for greenwashing or indiscriminate exclusion of countries can be avoided by working with governments and ratings providers, and by improving country-level engagement to both align metrics and to integrate unique country risks in sustainable investing and supply chains. With many firms already leveraging IMF and World Bank data, creating a formal framework will encourage the expansion and scaling up of private sector ESG financing for regions in urgent need of funding.

Nisha Narayanan is a Non-Resident Senior Fellow with the GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Nikoladze, Phillip Meng, and Jessie Yin cited in DW on Russia-China relations

mrashid — Wed, 21 Jun 2023 15:00:42 +0000

The post Nikoladze, Phillip Meng, and Jessie Yin cited in DW on Russia-China relations appeared first on Atlantic Council.

Donovan quoted by Newsweek on Russia-China sanctions evasion

rmurphy — Wed, 21 Jun 2023 14:41:00 +0000

The post Donovan quoted by Newsweek on Russia-China sanctions evasion appeared first on Atlantic Council.

How Beijing’s newest global initiatives seek to remake the world order

Michael Schuman, Jonathan Fulton, Tuvia Gering — Wed, 21 Jun 2023 13:00:00 +0000

Introduction

In March 2023, China stunned the world by achieving a rare and unexpected diplomatic breakthrough. Chinese leader Xi Jinping brokered an agreement between longtime antagonists Iran and Saudi Arabia to restore diplomatic relations.¹ It was a coup, one that could reshape the Middle East, and the role of the United States in that vital region.

In comments after the deal was signed, Wang Yi, the Chinese Communist Party’s (CCP’s) top official for foreign affairs, noted that the dialogue was a successful application of the Global Security Initiative, or GSI.² That proposal remains obscure to many practitioners of international relations, but it is of growing importance to Beijing as part of Xi’s intensifying campaign to remake the world order in China’s favor.

Xi and his diplomats have been propagating the GSI with greater urgency in recent months. Beijing’s 12-point “position paper” (also called a “peace plan”) on resolving the Ukraine war, released in February on the first anniversary of the Russian invasion, also relied heavily on ideas found in the GSI.³ First proposed by Xi in April 2022 and further articulated in a concept paper released in February 2023,⁴ ⁵ the GSI is a manifesto for an alternative system of international affairs to the current “rules based” order led by the United States and its partners in Europe and the Indo-Pacific. In it are China’s core principles of diplomacy, including the paramount importance of state sovereignty and territorial integrity; noninterference in the internal affairs of states; and opposition to “unilateral” sanctions and “bloc confrontation.” Though many of its ideas are not new, the GSI, taken as a whole, is Xi’s first attempt to present a more comprehensive vision of a new world order and formulate the ideological backbone for a global governance system that elevates Chinese influence at the expense of American power.

The GSI has a twin, the Global Development Initiative, or GDI. The two are interconnected through the Chinese Marxist belief that “security is a prerequisite for development, and development is a guarantee for security,”⁶ otherwise known as “peace through development.”⁷ Xi first outlined this proposal to the United Nations General Assembly in 2021 “to help revive global efforts to achieve the [UN’s] Sustainable Development Goals” by 2030.⁸ But just as the GSI aims to guide discourse on global governance, the GDI’s goal is to usurp the international dialogue on the global development agenda, place it under Chinese tutelage, and infuse it with (supposed) Chinese principles. The GDI has gained traction in the development sphere and within the UN system.

These twin initiatives are China’s “blueprint” for transforming the global order.⁹ They are likely part of a corpus of ideas still to come; all meant to be mutually reinforcing and aimed at forging an increasingly comprehensive vision of a new global governance system. As part of this broader framing effort, Beijing introduced the Global Civilization Initiative (GCI) in March 2023, which promotes a state-focused and state-defined values system and marks another effort by Beijing to eliminate universal values in areas such as human rights and democracy, in line with principles in the GSI.¹⁰ In this future, China will be in the lead, and the international system will be friendlier to autocratic governments; sovereignty will come at the expense of individual liberties, while universal values such as democracy and human rights, which have been at the core of world affairs for decades, will be stripped from global governance. Together, the three global initiatives stem from the ideological edge of Xi’s efforts to roll back American global primacy. They are, therefore, crucial features of Chinese foreign and security policy. Policymakers in the United States and its partners in Europe and the Indo-Pacific need to know more about them and their role in China’s foreign policy.

The GSI and GDI in China’s worldview

“The world is undergoing great changes unseen in a century,” Xi has said. On the surface, this now-ubiquitous formulation refers to major global drivers, such as climate change, terrorism, recessions, disruptive technologies, and a fourth industrial revolution. As any major stakeholder, China must adapt to these shifts.

But such internationally held truths on the state of the world belie a unique Chinese belief of another type of change; China, as the world’s rising power, must assume a more global role to guide the international community through these new challenges and ensure that the “great changes unseen in a century” fuel, rather than thwart, the “great rejuvenation of the Chinese nation.”¹¹

That is the starting point for the three initiatives. They are a response to a world undergoing historic changes—ones that could, if managed properly, benefit China. Beijing holds that “China is in its best development stage since modern times,” just as the world’s geoeconomic center gravitates from the North Atlantic to the Indo-Pacific.¹²

And as this dynamic region’s most valuable player, China juxtaposes its resurgence against a post-Trump, post–financial crisis America¹³ and what Beijing’s leaders believe is the United States’ diminishing global influence, universally described by Chinese intelligentsia as “a rise of the East and a decline of the West.”¹⁴ Despite the caveats of senior economists, Xi’s China is self-confident: “Time and momentum are on our side,” Xi routinely insists.¹⁵ The Chinese political elite believe that by 2049—the centennial of the Communist regime—the rejuvenated, wealthy, and powerful modern socialist Chinese state will have equaled or surpassed the United States in every factor that contributes to a country’s comprehensive national power.

The GSI and GDI are two crucial tools to help China achieve global primacy. Though short on details, albeit not on platitudes, they are China’s answer to the future of the international order.

Since Xi’s premier international development program, the Belt and Road Initiative, or BRI, was announced in 2013, Beijing has been offering Chinese alternatives to global governance, and in the process undermining Washington’s preferences for international order. The BRI, though, as mainly an infrastructure-building project, and one with mixed results, fell short of a full vision of a post-Western world, which became increasingly necessary amid China’s systemic rivalry with the United States. In 2017, Xi introduced another key concept for the country’s international agenda, calling for the building of a “community of a shared future for mankind,” which further laid the groundwork for advancing his strategic vision.¹⁶ Enter the GDI, GSI, and GCI. Chinese leaders describe these initiatives as new, badly needed, and superior solutions to the world’s ills. In June 2022, Xi explained that the GDI was initiated “at a time when…the North-South gap keeps widening, and crises are emerging in food and energy security.”¹⁷ Wang described the GDI as “a rallying call to galvanize greater attention on development and bring it back to the center of the international agenda.”¹⁸ He added that “it offers a ‘fast track’ to promote development, as well as an effective platform for all parties to coordinate development policies and deepen practical cooperation.” The main principles expressed in the GDI, as Xi outlined them, include a commitment to a “people-centered” and “innovation-driven” approach to development, and a focus on “results-oriented actions” that bring “benefits for all.”¹⁹

Similarly, the GSI is another “public good from China to the world,” offered at an especially uncertain moment, shortly after Russia’s invasion of Ukraine. Wang has outlined its significance in maintaining world peace and preventing conflicts and wars, and upholding multilateralism.²⁰ The GSI is underpinned by “six commitments,” some of which borrow ideas directly from the Kremlin’s playbook:²¹ a vision of common, comprehensive, cooperative, and sustainable security; respecting the sovereignty and territorial integrity of all countries; abiding by the purposes and principles of the UN Charter; taking the legitimate security concerns of all countries seriously; peacefully resolving differences and disputes between countries through dialogue and consultation; and maintaining security in both traditional and nontraditional domains.

This official narrative may give the impression that China is reacting to global changes by tackling “two of the most pressing issues” for most developing countries: development and security.

Yet this tells only half the story. The bigger picture shows how Beijing is taking the initiative—both literally and figuratively. For the first time in recorded history, a global Chinese polity with global aspirations is stepping up to save the world. Speaking at the Boao Forum in 2021 under the theme of “A World in Change,” Xi lamented about “the four deficits” that humanity is facing: a “growing governance deficit, trust deficit, development deficit, and peace deficit,” further asking, “What has gone wrong with the world? What is humanity’s way forward?”²² These remarks would later be known in CCP parlance as the “Questions of Our Time.”²³

Xi has the answers. Western leaders, who have guided the international community for two centuries, demonstrated they do not. According to Beijing’s version of events, just when the world needed a strong and united global leadership the most, the Western-led global governance system failed it. Chinese sources paint a “picture of helplessness”²⁴ of the US-led West, too preoccupied with internal crises and hell-bent on containing China’s rise to maintain its hegemony and its “unfair and unjust” global order.²⁵

And in this “world full of uncertainty,” so goes the CCP narrative, “China is the greatest source of stability.”²⁶ Armed with the “ideological essence of Chinese excellent traditional culture” combined with Marxism’s “global outlook and methodology”²⁷ and “scientific” guidance,”²⁸ the party’s leadership has been able to “correctly evaluate” the “world’s ills.” Party theorists advocate that this compendium of wisdom has been distilled into the “answer sheet” to the Questions of Our Times,²⁹ and that the key to the shared future of mankind can be found in “Chinese prescriptions” for global maladies.³⁰

Thus, the GDI and GSI offer elements of prescriptions to “fix” the world order. They should be first viewed as components of a larger push to establish China as a leader in global governance. The GDI “embodies China’s fundamental experience over the past 40 years of viewing ‘development’ as the solution to every problem,” writes Liu Hongwu of Zhejiang Normal University.³¹ The “China Model” not only serves as an example for other developing nations, according to Yu Yunquan, president of the Academy of Contemporary China and World Studies. As a global major power, “China should share China’s development opportunities with the rest of the world, especially developing nations, and emphasize China’s role as a global provider of public goods.”³²

The twin initiatives, therefore, signify an evolving Chinese worldview in which internal policies are externalized. Beijing aims to create a favorable external environment that will support China’s sovereignty, security, and development interests. But the twin initiatives cannot be understood outside of the context of China’s confrontation with the United States. Chinese leaders often define them in terms of great power competition. “Strive to build the most extensive ‘anti-hegemonic united front’ to break the ‘anti-China alliance’ that the US is trying to create,” according to top CCP theoretician Liu Jianfei. “This great game is not only a geopolitical competition between major powers, but also a contest between national governance systems and the direction of global governance and international order.”³³

To that effect, the Chinese solutions are first celebrated as the epitome of “real multilateralism.” Then-Vice Foreign Minister Le Yucheng described it as opposed to the “fake multilateralism, fake rules, fake human rights and fake democracy” of the US-led West.”³⁴ “These solutions also improve and go beyond the Western theory of geopolitical security,” according to Wang Yi. Beijing can further neutralize US-led Western “containment and suppression” by tethering its own security and development strategies to the rest of the world’s.

In addition, the new initiatives aim to redefine universal values and the rules-based international order in favor of “absolute sovereignty”³⁵ and the “common values of humanity.”³⁶ They can potentially deflect Western criticism of China’s internal repression and human rights abuses on a reactive level. On a proactive level, they can give other authoritarian regimes more leeway to operate with impunity and greater legitimacy on the world stage.

Finally, the initiatives sidestep key Chinese foreign policy principles such as its stated non-alliance policy—which holds that Beijing does not build military alliances—and its nonaggression policy. At the same time, the initiatives make it easier for Beijing to create anti-Western multilateral platforms. For one thing, the GSI formally adopts the Kremlin’s concept of “indivisible security,”³⁷ with Chinese leaders joining Russian president Vladimir Putin in excusing the unlawful invasion of Ukraine by blaming the US-led NATO for committing the “original sin” that led to the war.³⁸ Beijing has been using this terminology more frequently to describe US initiatives and alliances in the Indo-Pacific as threatening China’s security. In doing so, Beijing can lay the rhetorical, legal, and political groundwork to justify a People’s Liberation Army invasion of Taiwan as a righteous act of self-defense in response to US moves in the region that threaten Chinese interests by, for example, creating conditions that enable Taiwan to move toward independence.

Consequently, the GSI and GDI have become core elements of China’s foreign policy. In almost each and every diplomatic interaction China has had in the past year, it has ensured that the foreign parties always exalt the initiatives as having “strategic significance in resolving risks and challenges faced by today’s world.”³⁹ In another attempt to heed Xi’s call to “expand China’s circle of friends,” China’s Foreign Ministry exploited an obscure mechanism at the United Nations to quickly establish the Group of Friends of the GDI. It should come as no surprise that a meeting of the group in New York in September, hosted by Wang, was attended by representatives of the Global South, many of them closely aligned with Beijing or linked to its development programs, including Laos, Cambodia, Ethiopia, Uzbekistan, and Egypt.⁴⁰ That category of country is, after all, the initiative’s primary target. As of April 2023, the GDI received the support of more than 100 countries and international organizations and the blessing of the UN Secretary-General, and nearly 70 of those countries joined the Group of Friends of the GDI in Geneva.

The GSI and GDI in China’s foreign policy: Deepening ties to the Global South

Prior to Xi Jinping, the leadership of the People’s Republic of China (PRC) shied away from the notion that China offered a “model” for other countries to follow in their quest for development and growth, instead emphasizing the need for countries to pursue their own path. That has changed. Xi has explicitly made the case for China as a model, saying in a 2017 speech that China’s historical experience combined with the “development miracle of reform and opening up have already declared to the world with indisputable facts that we are qualified to be a leader” in shaping a new international order.⁴¹ Beijing has become assertive in positioning “the ‘China Solution’ as an alternative model of development to that of the Global North.”⁴² The GDI and GSI must be understood as parts of a larger ambition to assert China as a leader in global governance, offering public goods under an alternative normative framework. This is gaining traction, especially in the Global South.

While Beijing has long been committed to South-South cooperation, its influence in much of the developing world has taken a more strategic turn under Xi. Writing about China’s role in Africa and the Middle East, Dawn Murphy with the National War College posited that “as its power grows, it increasingly builds spheres of influence in these regions and challenges the rules of the international system by constructing an alternative international order.”⁴³ This is not to imply that Beijing wants a wholesale overturning of the existing order, but to emphasize that it has a complex view of the international order, and its preferences are often incongruous with the norms of international politics preferred by the United States and the other democracies. Murphy offers a useful distinction, describing both the Westphalian order—“the bedrock of the contemporary international system”—and the liberal international order (a “Western [not global] order” where “Western states were the dominant members”).⁴⁴ The Westphalian order is one based on the norms of sovereignty, territorial integrity, noninterference in the domestic affairs of states, self-determination, and indiscrimination—all of which are consistent with Chinese preferences. The liberal international order (LIO), on the other hand, is dominated and perpetuated by Western-preferred liberal norms, such as free markets, international institutions, cooperative security, democracy, collective problem-solving, shared sovereignty, and the rule of law. The CCP, along with governments in much of the non-Western world, rejects the idea that these are universal norms that should be used as foundational principles for international political life.

The two orders can and do coexist, and different countries may converge or diverge on different aspects of them. In Beijing’s case, the LIO has provided stability and prosperity, without which its Reform Era policies could not have delivered the growth and development that have transformed China. At the same time, the values of the LIO are in constant tension with the CCP and its goal of ensuring that China achieves great power status and has a central role in global governance. In 2016, Fu Ying, then chairperson of the National People’s Congress’ Foreign Affairs Committee, gave a speech in London in which she articulated a view of the two competing orders. She noted China’s support for the principles of the Westphalian order as embodied by the United Nations and its institutions, for which “China has a strong sense of belonging” as “one of its founders and a beneficiary, a contributor, as well as part of its reform efforts.”⁴⁵ The liberal order, on the other hand, Fu criticized for perpetuating Western dominance while being unable to solve the world’s most serious problems, and at times exacerbating them. The tension between these two orders is the reason why China frequently calls for reform of global governance, a point emphasized by Xi when he articulated a set of priorities for Chinese diplomacy in a 2018 speech; China would take a leading role in this reform, basing new global practices “with the concept of fairness and justice.”⁴⁶

Chinese-led initiatives, such as the Asian Infrastructure Investment Bank, the BRI, the GSI, the GDI, and the GCI, are therefore part and parcel of China’s efforts to reform international politics. In this flood of Chinese initiatives, the Global South has been the focal point. Despite its enormous economy, China still identifies as “the world’s largest developing country”⁴⁷ and uses this status to generate support and solidarity with other developing countries—which represent, by far, the majority of the world. Xi recently reiterated this Chinese self-identification as a member of the Global South, saying: “China will always be a member of the family of developing countries. We will continue to do our utmost in raising the representation and voice of developing nations in the global governance system.”⁴⁸ The PRC has long used this status effectively, identifying as “the permanent representative of the developing world”⁴⁹ in international institutions—for example, the UN Security Council, the World Trade Organization, and the International Monetary Fund (IMF)—where its political and economic weight give it substantial influence.

In its outreach to the Global South, China has institutionalized cooperation, provided serious financial support, and created domestic programs to more effectively implement policy. In terms of institutionalization, it has established the Forum on China-Africa Cooperation, the China-Arab States Cooperation Forum, and the China and the Community of Latin American and Caribbean States Forum. Each of these forums has ambassador-level representatives, regular meetings, and working groups to facilitate policy coordination between China and other member states. As for financial support, Beijing allocated nearly $42 billion to foreign assistance between 2013 and 2018, including grants, interest-free loans, and concessional loans. Of this, nearly 45% went to Africa and 37% to Asia.⁵⁰ In August 2022, China announced that it was waiving 23 interest-free loans to 17 African countries and also announced that it would redirect $10 billion of its IMF reserves to African countries.⁵¹ In 2015, China established the South-South Cooperation Assistance Fund and has so far contributed $3 billion.⁵² It contributed an additional $1 billion for a revamped Global Development and South-South Cooperation Fund launched in June 2022 under the auspices of the GDI.⁵³

At the same time, China has emerged as “the lender of last resort” to developing countries, undertaking 128 bailout operations in 22 countries between 2020 and 2021, for a total of $240 billion. An important consideration, however, is the cost of a Chinese rescue loan: with interest rates at 5%, it is more than double the 2% from the IMF.⁵⁴ Debt restructuring is a serious concern in the Global South, and how the PRC addresses it is being closely monitored. Sri Lanka, for example, owes China $7.4 billion, nearly a fifth of the country’s public debt.⁵⁵ In Africa, Chinese lenders account for 12% of external debt, valued at $696 billion.⁵⁶

In its domestic bureaucratization, China established the China International Development Cooperation Agency (CIDCA) in 2018 with the aim to “formulate strategic guidelines, plans and policies for foreign aid, coordinate and offer advice on major foreign aid issues, advance the country’s reforms in matters involving foreign aid, and identify major programs and supervise and evaluate their implementation.”⁵⁷ In January 2021 it released a white paper, “China’s International Development Cooperation in the New Era,” described by Hong Zhang as Beijing’s “manifesto for leadership in global development.”⁵⁸ CIDCA is explicitly meant to work through and bolster the BRI, meaning it supports both a geopolitical and a developmental agenda.

Clearly, China is upping its game in the Global South. However, it is not simply a matter of South-South cooperation for the sake of altruism; this engagement is meant to support Beijing’s push for greater power and influence. Through knowledge and technology transfers, China is exporting its own norms and practices. It is providing an alternative model to the Western model that has proved elusive to most of the developing world after decades of Washington consensus policies. That the PRC began the Reform Era in 1978 as an underdeveloped country and has bridged the gap is attractive and inspirational for many countries that want to replicate its success. “Chinese-style modernization breaks the myth of ‘modernization equals Westernization,’” Xi said in a speech to top CCP cadres in January 2023, after securing his third term as party general secretary.⁵⁹ He reiterated this point in March when introducing the GCI to representatives from political parties around the world.⁶⁰ This is especially appealing because, in the post-Cold War era, liberal norms and values were embedded in international organizations like the World Bank and IMF, and the collapse of the Soviet Union meant a lack of credible alternatives.⁶¹ The growth of Chinese institutions has provided another option for developing countries. While they may not find Chinese values any more—or less—appealing than liberal ones, having this alternative weakens the dominance of existing institutions.

And, of course, there are political considerations too. In multilateral forums like the UN, more countries voting with China is better for Beijing and balances negative perceptions and narratives. It also provides support for Chinese positions, such as at the 47th session of the UN Human Rights Council in 2021, when 69 countries signed a statement that supported China’s policies in Hong Kong, Tibet, and Xinjiang. The statement read in part: “We oppose politicization of human rights and double standards. We also oppose unfounded allegations against China out of political motivation and based on disinformation, and interference in China’s internal affairs under the pretext of human rights.”⁶²

In short, the norms that the CCP emphasizes with the GDI and GSI are designed to speak to a large percentage of the world. The audience is not the developed countries; rather, Beijing is trying to appeal to that big group of countries that sees a need for reform in international political norms and practices and is hungry for alternative options, including development approaches that come with less conditionality than developed countries require with their financing.

The GSI and GDI: Challenges, opportunities, and the fate of the world order

China’s political elite often equate the twin initiatives to the BRI. That program, too, garnered scant attention from the international community when it was first launched; now, the BRI has become a fixture of global development (for good or ill, depending on your perspective) and, for the emerging world, an alternative form of project finance to the system offered by Western institutions. The GSI and GDI, they suggest, will become equally ubiquitous and influential in the years to come and eventually play a crucial role in remaking global governance.

The comparison between the BRI and the twin initiatives is constructive. As they did with the BRI, Chinese leaders are sure to hammer home the importance of the GSI and GDI on the world stage, praising the initiatives’ worth at international forums and diplomatic conferences and through state media. Though they may be little known today, they are likely to be unavoidable in the future.

But there is a key distinction between the BRI and the twin initiatives. The expansion of the BRI could, in essence, be “purchased.” Developing countries, constantly in need of funds, were always likely to welcome China’s financing with open arms. Winning adherents to the twin initiatives can, in a sense, be purchased as well; countries that desire strong economic ties to and continued aid from China are incentivized to express their support for the GSI and GDI, at least rhetorically, to keep Chinese money coming. The twin initiatives, though, exist in the realm of ideas, and for those ideas to play a meaningful role in reshaping the global order, they will have to be adopted and acted upon by global policymakers who would then participate in Beijing’s agenda to reform global governance. To do so, Beijing must convince enough of the world that its proposed principles are not merely alternatives to those of the US-led rules-based order, but superior ones, better able to resolve conflicts, tackle challenges, and promote prosperity.

The success or failure of the GSI and GDI is, therefore, intimately connected to the success or failure of China’s larger endeavor to reshape global governance in ways that support the advancement of its own interests and global power. The twin initiatives form the ideological framework for China’s new world order; without sufficient buy-in from other governments, they will remain little more than diplomatic talking points. China’s policymakers will need to infuse their principles into the global discourse to influence how governments interact with one another, how multilateral institutions operate, and most of all, what values are upheld by the stakeholders in the world system.

Much of China’s ability to promote the principles of the twin initiatives will depend on its own trajectory. Discussions of China’s efforts to reshape the world order often take for granted that the country’s rise will continue on pace and on plan. But that is not inevitable. China today is facing serious challenges to its development. The economy is struggling with rising debt, a bloated property sector, and a weaker outlook for growth. The centralization of political power in the hands of Xi has rendered the policymaking process less predictable and pragmatic and more ideological. Xi’s economic policy has turned away from the tried-and-true formula of “reform and opening up” that promoted private enterprise and integration with the global economy, in favor of heavier state control and a focus on import substitution—both of which could be a drag on economic growth and efficiency. Xi’s adversarial stance toward the United States has also soured the international environment that had supported Chinese economic progress and threaten crucial flows of investment and technology. If China’s economy falters, so will Beijing’s drive for greater global influence, and its ability to market the country’s political and economic system as a superior model for the world and the basis of solutions to global problems will also suffer, undercutting the GSI and GDI.

Even if Beijing overcomes those domestic hurdles, the twin initiatives will confront stiff headwinds. Beijing will have to shove aside the existing foundational principles underpinning the current multilateral system based on liberal beliefs in open political, economic, and social systems. In that, Beijing is facing and will continue to face implacable resistance from the United States and its allies and partners in Europe and the Indo-Pacific. The major advanced democracies are unlikely to concede to governance reform along the lines suggested by the GSI. Its concepts, though couched in lofty language of dialogue and mutual respect, directly contradict the liberal values of the current world order. When Xi speaks of “noninterference” and respecting “the independent choices of development paths and social systems made by people in different countries,” it translates to a world in which authoritarian regimes hold as much legitimacy as democracies, and the pursuit of individual human rights is considered an unacceptable intrusion into a nation’s sovereignty. There seems little chance that the United States and its allies—both among the advanced democracies and within the developing world—will cooperate with China on the reform of global governance and its institutions based on the GSI. Nor will they passively permit China to hijack the global development agenda for its own purposes, as is the intent of the GDI.

Beijing is not helping its cause by directly connecting the twin initiatives to its efforts to undermine US influence. It is telling that the Chinese government released two papers—one a tirade against the United States,⁶³ the other a concept paper on the GSI⁶⁴—within the same week in February 2023, around the first anniversary of Russia’s invasion of Ukraine. A key element of Beijing’s message to promote the twin initiatives is that the United States has become incapable of continuing its role as global leader, and, even more than that, Washington’s actions have become a detriment to international security and prosperity. Many principles within the GSI are obviously aimed at the United States and its policies, such as its opposition to “unilateral” sanctions and “bloc confrontation.” By employing the GSI and GDI as tools in its competition against the United States, Beijing has automatically limited the extent of their global acceptance and influence.

The West and its partners are not Beijing’s target audience, however. Chinese leadership increasingly sees the United States and its allies as inherently hostile, and that view is compelling them to forge new partnerships and economic relationships. China’s leaders believe they can find more fertile ground for the initiatives in the Global South, as noted above. Other autocratic states that share Beijing’s political outlook and distrust of Washington are likely to support the initiatives. It should come as no surprise that Russia was an early adherent of the GSI. Beijing believes that the principles of the GSI and GDI better represent the “majority” of nations when compared to the liberal ideals of the Western powers and their allies, which China’s political elite consider a “minority” that has held outsize and undue influence over world affairs. Some governments in the Global South may find the GSI and GDI appealing as alternatives to what has been a unipolar order, as well as avenues to alleviate frustrations with their own slow pace of development.

That strategy has its limitations, however. It could rack up votes at the United Nations without gaining real clout in international diplomacy. Research firm Capital Economics once estimated that the 53 countries that voted in support of China’s repressive national security law for Hong Kong at the United Nations in 2020 collectively accounted for only 4 percent of global gross domestic product (GDP).⁶⁵ Even in the Global South, support for the twin initiatives is far from automatic. In a divided world, many members of the Global South will be as wary of alienating the United States and Europe as they are of alienating China. An increasingly multipolar geopolitical map means China may not be able to garner sufficient sway within the developing world on all issues.

More than that, it is not at all certain that Beijing will find a ready audience in the Global South for its ideals, especially those in the GSI. Democracy still holds tremendous appeal in the Global South. Many nations in the developing world have long experience with representative government or have had their own democratic awakenings, and thus their political elites do not necessarily share China’s authoritarian values. Attitudes and aspirations for democracy remain relatively positive among the wider populations within the developing world. Afrobarometer found in its surveys across Africa that most indicators of support for democracy there are “strong and steady,” with seven in ten survey respondents agreeing that democracy is preferable to any other form of government and with large majorities rejecting authoritarian alternatives.⁶⁶ Research by Vanderbilt University showed that support for democracy in Latin American countries also remains relatively strong, at 61 percent in 2021.⁶⁷ Such independent surveys suggest that even as Chinese influence and economic importance grows in the emerging world, liberal political values are still paramount among citizens in the Global South, indicating that Beijing may find greater resistance to its twin initiatives there than expected.

Nor is it a given that China will be able to convince the leaders of the Global South that its vision for a new world order will be more beneficial to their interests and welfare. For example, Xi Jinping has sold the BRI as a sustainable development program, another of the “public goods” China is presenting to the international community. While the BRI did increase the volume of development financing available to low-income countries, it has hardly been an unmitigated success. Dogged by accusations of mismanagement and corruption, BRI projects have contributed to the emerging world’s debt and financial stress. A study released in March by research lab AidData, the World Bank, and Harvard’s Kennedy School showed that Chinese lenders had to extend $240 billion in emergency rescue operations to 22 debtor countries by the end of 2021⁶⁸—a clear indication that many BRI projects were not financially sound or sustainable. Pakistan has been among the most prominent participants in the BRI, but that partnership with China has not improved its economic prospects. Instead, the country is teetering on the brink of a sovereign default, desperate for an IMF rescue, and more and more indebted to China.⁶⁹ ⁷⁰ Chinese lending also contributed to a high-profile debt crisis in Sri Lanka in 2022,⁷¹ Zambia’s sovereign defaulted in 2020.⁷²

Though China is the largest official, bilateral creditor, Chinese lending is certainly not the sole cause of the debt crisis now facing low-income countries worldwide. Contrary to what some Beijing critics claim, these instances do not prove that China deliberately sets “debt traps” to compel poor countries to hand over strategic assets. Nevertheless, these difficulties raise serious questions about Beijing’s agenda in the Global South. Some lending was not done on a concessional basis but rather was designed to favor Chinese business interests. A 2021 examination of loan contracts between Chinese state banks and governments in developing countries found that in many cases the terms were highly commercial and structured to ensure the loans were paid back—with interest. Even more, the report asserts that “several contracts with Chinese lenders contain novel terms, and many adapt standard commercial terms in ways that can go beyond maximizing commercial advantage. Such terms can amplify the lender’s influence over the debtor’s economic and foreign policies.”⁷³ A 2022 study by the World Bank analyzed Chinese debt restructurings and determined that Beijing’s banks rarely granted their poorer partners deep debt relief,⁷⁴ while China has faced stiff criticism for complicating debt resolution for developing countries by insisting on the full repayment of its loans.⁷⁵ A May 2023 investigation by the Associated Press blamed the reluctance of Chinese banks to forgive debt for pushing several poor nations to the brink of financial crisis.⁷⁶

This pattern of behavior does not square with the idealistic language of the GDI or, more broadly, Beijing’s claims to represent the interests of the emerging world. The contradiction has not gone unnoticed. Leaders of poor countries do not perceive China as a constructive development partner. A survey of nearly 7,000 prominent figures in the emerging world conducted in 2020 by AidData revealed that while China’s influence was growing rapidly in global development, that influence was not seen as positively as that of many other major players. At number 32, Beijing ranked poorly in the survey in its helpfulness in development, well behind the United States (at 7) and even Taiwan (19). “China must overcome a perception challenge, if it is to live up to its positioning as a development partner who seeks to promote a ‘community of common destiny,’” noted Samantha Custer, AidData’s director of policy analysis.⁷⁷

India, which also believes itself to be a voice for the Global South, has criticized China for protecting its banks in debt restructurings at the expense of poor nations.⁷⁸ While India made financing assurances for Sri Lanka in January that were important in helping the stricken island nation obtain IMF loans, China dragged its feet on an offer of debt restructuring and thus holding up the IMF rescue package.⁷⁹ This suggests that China’s dominance in the Global South is far from inevitable, and that Beijing cannot assume countries in the developing world will support its aims to reform global governance.

China faces similar challenges with the security principles of the GSI. Brokering the Iran-Saudi deal could be the start of a new phase of Chinese foreign policy, in which Beijing plays a more active and direct role in trying to resolve disputes around the world as a way to assert its methods of diplomacy and concepts of global governance as superior to those of the current rules-based order. For instance, in April, Chinese Foreign Minister Qin Gang offered to facilitate a peace settlement between Israel and the Palestinians.⁸⁰ At the same time, though, the more deeply Beijing involves itself in international diplomacy, the more obvious the inconsistencies and biases of its approach become. For example, China’s attempt to mediate in the Ukraine war and preach the inviolability of sovereignty while repeatedly failing to denounce or even acknowledge its blatant and ongoing violation by Xi’s “best and e friend” Russian President Vladimir Putin has exposed the inherent contradictions between the lofty principles of the GSI and Beijing’s pursuit of its political and economic interests. Ukraine’s government has seized upon Beijing’s purported commitment to territorial integrity to throw a spotlight on what it sees as the hypocrisy of Beijing’s calls for peace.⁸¹

Many governments interested in closer ties to China or hostile to the West will overlook these self-serving inconsistencies in Beijing’s foreign policy. Other observers may take Xi’s attempts to play peacemaker at face value. Yet only the most naive will fail to recognize that the GSI and GDI are not a “public good” as much as a “China good” meant to promote Chinese power and influence. Many of their elements quite brazenly promote China’s interests. For instance, the GSI’s planks of noninterference and territorial integrity are meant to ward off Western support for Taiwan and criticism of China’s abysmal human rights record. Its call for an end to “unilateral” sanctions targets Washington’s tools to extend its influence and elevate the costs for governments that act contrary to US preferences.

Policy recommendations

In the end, the GSI and GDI are arms of Beijing’s superpower struggle with the United States, and global policymakers will treat them as such. Washington’s opposition to the twin initiatives is not likely to completely suppress them. However, U.S. policymakers could take steps aimed at preventing these initiatives from becoming the ideological glue of an alternative Chinese-led system—one that coexists uncomfortably with the existing model based on practices and institutions supported by the United States and its partners.

More assertively market the successes of the current global order: Much of the messaging from Washington is focused on the perceived “bad” behavior of China and the threat that poses to the rules-based world order. A shift to a more positive message might be worthwhile. Beijing is promoting its twin initiatives as the antidote to a US-led governance system that is unable to solve the world’s pressing problems. But history tells us otherwise. Under the rules-based order, the world has witnessed an unprecedented surge in prosperity. The security provided by the system has also benefited many countries (including China) and remains the foundation for the flows of trade and investment that have propelled the global economy. The current order has also seen a significant improvement in human rights and civil liberties for many members of the international community. This is a positive story of real benefits that the United States and its partners can use to counter Chinese claims and Chinese authoritarian principles.

Engage more deeply with the emerging world: The United States and its allies must counter growing Chinese influence by engaging with governments and other stakeholders in developing nations to prove that Washington remains concerned, interested, and committed to development and other issues of importance to poorer nations. Democratic allies should capitalize on China’s weakness in engaging with wider elements of societies in developing countries by engaging with civil society, business leaders, and others outside of the government to expand support for the current order and its ideals. This effort may necessitate more aid, but money only needs to be part of the deeper involvement. More importantly, the United States, its partners, and their institutions need to prove that they can still “deliver the goods” the world requires on a range of issues, including climate change and conflict resolution.

Take China’s GSI and GDI seriously: It is too easy to dismiss China’s initiatives as vague, aimless, and often contradictory documents that serve Beijing as talking points but have no greater purpose. That would be a mistake. Beijing intends to promote the ideas in these initiatives with all the relentless force of its extensive propaganda machine, backed up by aid, trade, and finance from the country’s increasingly important economy. Washington should not underestimate Beijing’s power of persuasion, nor the potential for these ideas to take hold in certain parts of the world.

Strengthen multilateral institutions: China is exploiting its growing influence at international organizations such as the UN system to promote its initiatives and their principles. Washington and its partners must counter Beijing’s aims by deepening their engagement at these multilateral institutions and bolstering their governance to ensure they remain foundational pillars of the rules-based global order. This effort will require the United States to creatively use its organizations’ assemblies and guidelines to enhance dialogue on global governance with a wide range of states and stakeholders in these institutions.

Global China Hub

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China East Asia

1 “Joint Trilateral Statement by the People’s Republic of China, the Kingdom of Saudi Arabia, and the Islamic Republic of Iran,” Ministry of Foreign Affairs of the People’s Republic of China, March 10, 2023, https://www.mfa.gov.cn/eng/zxxx_662805/202303/t20230311_11039241.html.

2 “Saudi Arabia, Iran Agree to Resume Ties, Reopen Embassies, after Talks in Beijing,” Global Times, March 10, 2023, https://www.globaltimes.cn/page/202303/1287076.shtml.

3 “China’s Position on the Political Settlement of the Ukraine Crisis,” Ministry of Foreign Affairs of the People’s Republic of China, February 24, 2023, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202302/t20230224_11030713.html.

4 Xi Jinping, “Rising to Challenges and Building a Bright Future Through Cooperation,” transcript of speech delivered at the Boao Forum for Asia Annual Conference, Beijing, April 21, 2022, https://news.cgtn.com/news/2022-04-21/Full-text-Xi-Jinping-s-speech-at-2022-Boao-Forum-for-Asia-19ppiaI90Eo/index.html.

5 “The Global Security Initiative Concept Paper,” Ministry of Foreign Affairs of the People’s Republic of China, February 21, 2023, https://www.fmprc.gov.cn/mfa_eng/wjbxw/202302/t20230221_11028348.html.

6 Zhonghua Lun, “We Must Excel in Two Major Areas: Development and Security,” Xinhua, September 20, 2022, http://www.news.cn/sikepro/20220920/8da604339fb4483b96e85ec23d22ebff/c.html.

7 Kwok Chung Wong, “The Rise of China’s Developmental Peace: Can an Economic Approach to Peacebuilding Create Sustainable Peace?” Global Society 35, no. 4 (2021), 522-540.

8 “UN Chief Says China’s Global Development Initiative Helps Achieve Global Goals,” Xinhua, September 21, 2022, https://english.news.cn/20220921/61b03af7cfaa45c58ea3d31a34f6f3aa/c.html.

9 “Wang Yi on the Significance of the Global Development Initiative” (in Chinese), Foreign Ministry of the People’s Republic of China, September 26, 2021, https://www.fmprc.gov.cn/web/wjbzhd/202109/t20210926_9584091.shtml.

10 “Global Civilization Initiative Injects Fresh Energy into Human Development,” March 19, 2023, State Council Information Office, http://english.scio.gov.cn/topnews/2023-03/19/content_85177312.htm.

11 Weimin Wang, “Boosting National Security with Distinctive Diplomacy” (in Chinese), CSSN, May 12, 2023, http://www.cssn.cn/skgz/skwyc/202305/t20230512_5637546.shtml.

12 Wang, “Boosting National Security with Distinctive Diplomacy.”

13 Ibid.

14 Michael Swaine, “Chinese Views of U.S. Decline,” China Leadership Monitor, September 1, 2021. https://www.prcleader.org/swaine-2.

15 Johnny Erling, “Xi’s New Slogan for China’s Trajectory: ‘Time and Momentum Are on Our Side,’” Mercator Institute for China Studies, July 9, 2021, https://merics.org/en/comment/xis-new-slogan-chinas-trajectory-time-and-momentum-are-our-side.

16 Xi Jinping, “Work Together to Build a Community of Shared Future for Mankind,” transcript of speech delivered at the United Nations Office, Geneva, January 18, 2017, http://www.xinhuanet.com/english/2017-01/19/c_135994707.htm.

17 “Chair’s Statement of the High-Level Dialogue on Global Development,” Ministry of Foreign Affairs of the People’s Republic of China, June 24, 2022, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202206/t20220624_10709812.html.

18 “Wang Yi Attends the Launch of the Global Development Report,” Ministry of Foreign Affairs of the People’s Republic of China, June 20, 2022, https://www.fmprc.gov.cn/eng/zxxx_662805/202206/t20220620_10706381.html.

19 Xi Jinping, “Bolstering Confidence and Jointly Overcoming Difficulties to Build a Better World,” transcript of speech delivered at the United Nations General Assembly, New York September 21, 2021, https://www.chinadaily.com.cn/a/202109/22/WS614a8126a310cdd39bc6a935.html.

20 “Acting on the Global Security Initiative to Safeguard World Peace and Tranquility,” Ministry of Foreign Affairs of the People’s Republic of China, April 24, 2022, https://www.fmprc.gov.cn/eng/wjb_663304/wjbz_663308/2461_663310/202205/t20220505_10681820.html.

21 Andrew Cainey, “Time to Get the Measure of China’s Global Security Initiative,” Royal United Services Institute, November 21, 2022, https://rusi.org/explore-our-research/publications/commentary/time-get-measure-chinas-global-security-initiative.

22 Xi Jinping, “Rising to Challenges and Building a Bright Future Through Cooperation.”

23 “Xi’s Answer to ‘Questions of Our Time’ Reverberates Beyond Boao,” Xinhua Global Service, April 18, 2021, http://www.xinhuanet.com/english/2021-04/18/c_139888640.htm.

24 “Maintain Unity and Cooperation in Order to Move Toward a Brighter Future (Zhong Sheng)” (in Chinese), People’s Daily, February 22, 2022, http://paper.people.com.cn/rmrb/html/2022-02/22/nw.D110000renmrb_20220222_2-17.htm.

25 Nadège Rolland, China’s Vision for a New World Order, NBR Special Report no. 83 (January 2020), https://www.nbr.org/wp-content/uploads/pdfs/publications/sr83_chinasvision_jan2020.pdf.

26 Zheng Yongnian, “A Stable China Is the Greatest Source of Stability in a World Full of Uncertainty” (in Chinese), People’s Daily, December 26, 2019, https://www.sohu.com/a/363232251_828358.

27 Bu Xu, “Working Together to Maintain World Peace and Tranquility (In-depth Study and Implementation of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era)” (in Chinese), People’s Daily, http://paper.people.com.cn/rmrb/html/2022-08/30/nw.D110000renmrb_20220830_1-11.htm?utm_source=substack&utm_medium=email.

28 Deyu Miao, “Xi Jinping Thought on Diplomacy in Theory and Practice, Seizing the ‘Changes of the Times’ and Solving the ‘Questions of the World’” (in Chinese), Shanghai Institutes of International Studies, July 21, 2022, https://mp.weixin.qq.com/s?__biz=MzAwODc2MDY2Nw==&mid=2247504849&idx=1&sn=200bd1287649d97cb050eb2bf44d5833&chksm=9b6b6fe5ac1ce6f3879aa15441f0d4d1733b05afcd609360cfda3b5c0eaa4b537167641de034&scene=21#wechat_redirect.

29 Haiying Ming, “Writing ‘China’s Answer Sheet’ on Humanity’s Common Destiny” (in Chinese), CSSN, February 28, 2022, https://mp.weixin.qq.com/s? biz=MzA4NDUwMjMxNA==&mid=2650165098&idx=1&sn=24212893f7db86f0cea8bfee4f3e3c3f&chksm=87e4dd2fb0935439975c9ecf7322eab2a30da5b8517bdaa7c4df7d7ef09bfed7d1a99a56a281#rd.

30 “Xi Jinping Prescribes Chinese Medicine for World Economy” (in Chinese), People’s Daily (overseas edition), January 18, 2017, http://news.cctv.com/2017/01/18/ARTIoTmuP2yr2HQ8CWfMzW6Y170118.shtml.

31 Tuvia Gering, “Thoroughly Explore How to Dispel the Discourse of the West’s So-Called ‘Debt Trap’ Narrative,” Discourse Power, July 3, 2022, https://discoursepower.substack.com/p/discourse-power-july-3-2022.

32 Yu Yunquan, “China’s Worldview and Role in the New Era” (in Chinese), Shanghai Institute of International Studies, July 25, 2022, https://mp.weixin.qq.com/s?__biz=MzAwODc2MDY2Nw==&mid=2247505091&idx=1&sn=f668bc4a5b24786d121d92e73917f536&chksm=9b6b68f7ac1ce1e198ce3ad507e91c23e1bc99ca8174394c8a819ea1c9e59960b8d7d1793c8c#rd.

33 Liu Jianfei, “Developing Trends in Sino-US Relations in the New Era” (in Chinese), Aisixiang, September 23, 2021, http://www.aisixiang.com/data/128700.html.

34 Le Yucheng, “Acting on the Global Security Initiative to Safeguard World Peace and Tranquility,” transcript of speech delivered at “Seeking Peace and Promoting Development: An Online Dialogue of Global Think Tanks of 20 Countries,” June 5, 2022, https://www.fmprc.gov.cn/eng/wjbxw/202205/t20220506_10682621.html.

35 Zhang Weiwei, “China Now Episode 149: How ‘Color Revolutions’ Destroyed Ukraine” (in Chinese), Guancha, July 3, 2022, https://www.guancha.cn/ZhangWeiWei/2022_07_03_647631_s.shtml.

36 Qin Gang, “Forging Ahead on the New Journey Toward a Community with a Shared Future for Mankind,” transcript of speech delivered at the China Development Forum, Beijing, March 27, 2023, https://www.fmprc.gov.cn/eng/wjdt_665385/zyjh_665391/202303/t20230329_11051025.html#:~:text=China%20will%20stay%20firmly%20committed,%2C%20justice%2C%20democracy%20and%20freedom.

37 Cainey, “Time to Get the Measure of China’s Global Security Initiative.”

38 Chen Wenling, “The Battlefield Is in Ukraine, but the Whole World Is a Front” (in Chinese), Aisixiang, April 12, 2022, http://www.aisixiang.com/data/132635.html.

39 “Xi receives Order of the Golden Eagle awarded by Kazakh President Tokayev,” Xinhua, September 15, 2022, https://english.news.cn/20220915/9584d8a6a58240958218281164087912/c.html?utm_source=substack&utm_medium=email.

40 “Wang Yi Chairs the Ministerial Meeting of the Group of Friends of the Global Development Initiative,” September 21, 2022, Ministry of Foreign Affairs of the People’s Republic of China, https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/wshd_665389/202209/t20220922_10769737.html.

41 A ‘China Model’? Beijing’s Promotion of Alternative Global Norms and Standards, U.S.-China Economic and Security Review Commission, April 27, 2020 (Nadège Rolland, senior fellow for political and security affairs, National Bureau of Asian Research), https://www.nbr.org/publication/a-china-model-beijings-promotion-of-alternative-global-norms-and-standards/#_ftn6.

42 Hong Liu, “China Engages the Global South: From Bandung to the Belt and Road Initiative,” Global Policy 13, no. 1 (2022), 15.

43 Dawn C. Murphy, China’s Rise in the Global South: The Middle East, Africa, and Beijing’s Alternative World Order (Stanford: Stanford University Press, 2022), 2.

44 Murphy, China’s Rise in the Global South,19.

45 Rolland, China’s Vision for a New World Order, 14.

46 Permanent Mission of the People’s Republic of China to the United Nations and Other International Organizations in Vienna, “Xi Jinping Urges Breaking New Ground in Major Country Diplomacy with Chinese Characteristics,” June 25, 2018, http://www.xinhuanet.com/english/2018-06/24/c_137276269.htm.

47 Veronika Ertl and David Merkle, “China: A Developing Country as a Global Power?” Konrad Adenauer Stiftung, November 15, 2019, https://www.kas.de/en/web/auslandsinformationen/artikel/detail/-/content/china-a-developing-country-as-a-global-power.

48 Liu Zhen, “China Shows World an Alternative Path to Modern Future, Xi Jinping Says,” South China Morning Post, July 6, 2021, https://www.scmp.com/news/china/diplomacy/article/3140079/china-shows-world-alternative-path-modern-future-xi-jinping.

49 Lowell Dittmer, “China’s Rise, Global Identity, and the Developing World,” in China, the Developing World, and the New Global Dynamic, eds. Lowell Dittmer and George T. Yu (Boulder: Lynne Rienner Publishers, 2010), 211.

50 Liu, “China Engages the Global South,” 16.

51 Jevans Nyabiage, “China Hits Back at Africa Debt-Trap Claims with Loan Write-Off Offer,” South China Morning Post, August 24, 2022, https://www.scmp.com/news/china/diplomacy/article/3189998/china-hits-back-africa-debt-trap-claims-loan-write-offer.

52 “Xi Stresses Placing Development at Center of Intl Agenda,” China Daily, June 24, 2022, https://www.chinadaily.com.cn/a/202206/24/WS62b5a802a310fd2b29e68758_4.html.

53 “Chair’s Statement of the High-Level Dialogue on Global Development,” Ministry of Foreign Affairs of the People’s Republic of China, June 24, 2022, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202206/t20220624_10709812.html.

54 James Kynge, “China Grants Billions in Bailouts as Belt and Road Initiative Falters,” Financial Times, March 28, 2023, https://www.ft.com/content/9b2cb53f-e6f0-479e-bb94-a2e0c8680e88.

55 “China Offers Sri Lanka a 2-Year Debt Moratorium,” CNBC, January 25, 2023, https://www.cnbc.com/2023/01/25/china-offers-sri-lanka-a-2-year-debt-moratorium.html#

56 “‘Cope with Your Own Debt,’ China Tells US over Zambia Debt Relief,” Al Jazeera, January 25, 2023, https://www.aljazeera.com/news/2023/1/25/china-fires-back-at-us-over-zambia-debt-relief.

57 China International Development Cooperation Agency, “About Us: What We Do,” August 1, 2018, http://en.cidca.gov.cn/2018-08/01/c_259525.htm.

58 Hong Zhang, “China’s Manifesto for Leadership in Global Development,” Panda Paw Dragon Claw, February 8, 2021, https://pandapawdragonclaw.blog/2021/02/08/chinas-manifesto-for-leadership-in-global-development/.

59 “Xi Rejects ‘Westernization’ and Promotes China’s Self Reliance in New Policy Speech,” Time, February 8, 2023, https://time.com/6253825/xi-china-rejects-westernization/.

60 “Global Civilization Initiative Injects Fresh Energy into Human Development,” State Council Information Office.

61 See Alexander Cooley and Daniel Nexon, Exit from Hegemony: The Unraveling of the American Global Order (Oxford: Oxford University Press, 2020), 7-8.

62 Permanent Mission of the People’s Republic of China to the United Nations Office at Geneva and Other International Organizations in Switzerland, “Joint Statement of 69 Countries at the Interactive Dialogue on High Commissioner’s Annual Report at the 47th Session of the Human Rights Council,” June 22, 2021, http://geneva.china-mission.gov.cn/eng/dbdt/202106/t20210624_9103595.htm.

63 “US Hegemony and Its Perils,” Ministry of Foreign Affairs of the People’s Republic of China, February 20, 2023, https://www.fmprc.gov.cn/mfa_eng/wjbxw/202302/t20230220_11027664.html.

64 “The Global Security Initiative Concept Paper,” Ministry of Foreign Affairs of the People’s Republic of China, February 21, 2023, https://www.fmprc.gov.cn/mfa_eng/wjbxw/202302/t20230221_11028348.html.

65 Michael Schuman, “TikTok’s Fate Is a Bad Sign for China’s Rise,” Bloomberg Opinion, August 8, 2020, https://www.bloomberg.com/opinion/articles/2020-08-09/china-s-government-could-thwart-rise-of-chinese-tech-companies?sref=4LEYncfM.

66 E. Gyimah-Boadi and Joseph Asunka, “Do Africans Want Democracy–and Do They Think They’re Getting It?” Afrobarometer, November 2, 2021, https://www.afrobarometer.org/articles/do-africans-want-democracy-and-do-they-think-theyre-getting-it/.

67 “Support for Democracy Across Americas Remains Lower than a Decade Ago, New Vanderbilt University LAPOP Lab Survey Finds,” Vanderbilt University, November 16, 2021, https://news.vanderbilt.edu/2021/11/16/support-for-democracy-across-americas-remains-lower-than-a-decade-ago-new-vanderbilt-university-lapop-lab-survey-finds/.

68 Alex Wooley, “Belt and Road Bailout Lending Reaches Record Levels, Raising Questions about the Future of China’s Flagship Infrastructure Program,” AidData, March 27, 2023, https://www.aiddata.org/blog/belt-and-road-bailout-lending-reaches-record-levels.

69 Faseeh Mangi, “Why Pakistan Is Struggling to Get Another IMF Bailout,” Bloomberg, Feb. 5, 2023 https://www.bloomberg.com/news/articles/2023-02-05/why-pakistan-is-struggling-to-get-another-imf-bailout?sref=4LEYncfM.

70 John Caalbrese, “Pakistan and Egypt: China’s Troubled Assets,” Middle East Institute, Feb. 2, 2023. https://www.mei.edu/publications/pakistan-and-egypt-chinas-distressed-assets.

71 Ishaan Tharoor, “China Has a Role in Sri Lanka’s Economic Calamity,” Washington Post, July 20, 2022, https://www.washingtonpost.com/world/2022/07/20/sri-lanka-china-debt-trap/; Alexander Saeedy and Philip Wen, “Sri Lanka’s Debt Crisis Test China’s Role as Financier to Poor Countries,” Wall Street Journal, July 13, 2022, https://www.wsj.com/articles/sri-lankas-debt-crisis-tests-chinas-role-as-financier-to-poor-countries-imf-bailout-11657735179.

72 Chris Anstey, “World Bank Head Seeks New Debt Resolution Process for Developing Nations,” Bloomberg, April 20, 2022, https://www.bloomberg.com/news/articles/2022-04-20/malpass-calls-for-new-debt-resolution-process-amid-china-worries; Joseph Cotterill and Jonathan Wheatley, “China Agrees Landmark Debt Relief Deal for Zambia,” Financial Times, July 30, 2022, https://www.ft.com/content/45521cfc-0eb3-4f11-be31-4ac08ac98a8c; Rachel Savage and Leigh Thomas, “Test Case Zambia Exposes China’s Rookie Status on Debt Relief,” Reuters, May, 31, 2022, https://www.reuters.com/world/africa/test-case-zambia-exposes-chinas-rookie-status-debt-relief-sources-2022-05-31/.

73 Anna Gelpern et al., How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments, AidData, March 31, 2021, https://www.aiddata.org/publications/how-china-lends.

74 Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesc, Hidden Defaults, World Bank Group, 2022, https://documents1.worldbank.org/curated/en/773311643912553263/pdf/Hidden-Defaults.pdf.

75 Vasuki Shastry and Jeremy Mark, “China and Private Creditors Are Blocking a Solution to the Global Debt Crisis. The G20 Must Step In,” Atlantic Council, February 22, 2023, https://www.atlanticcouncil.org/blogs/new-atlanticist/china-and-private-lenders-are-blocking-a-solution-to-the-global-debt-crisis-the-g20-must-step-in/.

76 Bernard Condon, “China’s Loans Pushing World’s Poorest Countries to Brink of Collapse,” Associated Press, May 18, 2023, https://apnews.com/article/china-debt-banking-loans-financial-developing-countries-collapse-8df6f9fac3e1e758d0e6d8d5dfbd3ed6.

77 Alex Wooley, “China Rises Sharply in Influence Among Developing-Country Leaders, but Does Not Yet Surpass the US and G7 Countries, According to New Report,” AidData, July 12, 2021, https://www.aiddata.org/blog/china-rises-sharply-in-influence-among-developing-country-leaders-but-does-not-yet-surpass-the-us-and-g7-countries-according-to-new-report.

78 Meera Srinivasan, “China Must Take a Haircut on Its Loans to Poor Countries, Says India’s G20 Sherpa,” The Hindu, February 15, 2023, https://www.thehindu.com/news/international/china-must-take-a-haircut-on-its-loans-to-poor-countries-says-indias-g20-sherpa/article66512408.ece.

79 Philip Wen and Alexander Saeedy, “IMF Approves $3 Billion Bailout for Sri Lanka,” Wall Street Journal, updated March 20, 2023, https://www.wsj.com/articles/imf-approves-3-billion-bailout-for-sri-lanka-efe11ab6.

80 “China Offers to Facilitate Israeli-Palestinian Peace Talks,” Associated Press, April 19, 2023, https://apnews.com/article/china-israel-palestinians-peace-talks-32c9f5176c5b295d2d20111af2053351.

81 “China Hopes Russia and Ukraine Will Hold Peace Talks, Says Senior Chinese Diplomat,” Reuters, March 16, 2023, https://www.reuters.com/world/europe/china-hopes-ukraine-russia-will-not-close-door-political-solution-senior-chinese-2023-03-16/.

The post How Beijing’s newest global initiatives seek to remake the world order appeared first on Atlantic Council.

Read Imran Khan’s full Atlantic Council interview on failed peace with India, Pakistan’s plight, and his own fate

Atlantic Council — Wed, 21 Jun 2023 02:27:35 +0000

On June 18, 2023, Wajahat S. Khan, a nonresident senior fellow with the Atlantic Council’s Pakistan Initiative, spent nearly an hour interviewing former Pakistani Prime Minister Imran Khan. Khan, who was ousted from power in April 2022, revealed new details about why efforts to achieve a historic peace with India collapsed and spoke to the worries he heard his army chief express about the state of Pakistani military readiness relative to India. He also lamented the steep decline of Pakistan’s economy and democracy and explained why he’s preparing himself for the possibility of being jailed or even assassinated.

Check out the transcript of the interview below, and Wajahat S. Khan’s analysis of the big takeaways from his conversation with the ex-Pakistani leader here.

Read the recap of this conversation

New Atlanticist

Jun 20, 2023

Imran Khan on the failed India-Pakistan thaw and why he’s ‘prepared for everything’—even death

By Wajahat Khan

The former Pakistani prime minister spoke with the Atlantic Council about unsuccessful plans to meet with Indian Prime Minister Narendra Modi and much more.

Corruption Economy & Business

Watch the full interview

WAJAHAT SAEED KHAN: Good morning, good afternoon, and a very good evening to you, wherever you may be. My name is Wajahat Saeed Khan, I’m the senior fellow at the Atlantic Council in Washington. However, I am here in New York City with the chairman of the Pakistan Tehreek-e-Insaf, Pakistan’s former prime minister, the one and only Imran Khan. Good evening, Khan Sahib. How are you doing?

IMRAN KHAN: As good as in the circumstances, living in interesting times.

WAJAHAT SAEED KHAN: Well, speaking of the times, is your famous exercise regime still in play considering your bullet injuries and considering your schedule these days with your 150-something court cases?

IMRAN KHAN: I still haven’t fully recovered from my bullet wound because it damaged my nerve in my right foot, so therefore, exercise is very limited. And then I have, well, almost 160 cases now, so my time is really spent from one courtroom to the other. Plus, I mean a lot of them are terrorism cases. I mean, I’m supposed to have committed terrorism, so about forty odd cases are related to terrorism.

WAJAHAT SAEED KHAN: Well, let’s start with that, let’s start with the big picture and go to the… Let’s time travel back to April 2022 when all of this started and begin with the so-called American connection with your ouster. A lot of people are interested, at least in this neck of the woods, about whether it was shortsighted of you to blame the US, target the Americans after your ouster, considering how you and your party are now hoping for their support. The State Department has just recently called you a private citizen and said that it’s not going to comment on your status. I see you smiling, interestingly, but do you think it was shortsighted to really tick off the Americans considering where you stand now regarding their support?

IMRAN KHAN: Well, let’s just break it up. First of all, the facts. What happened? I get a cipher—a cipher is this coded message—from my ambassador in Washington. He sends me this coded message, and now you tell me how should have I responded, I mean anyone, if they had got a message like that: prime minister of a country gets a message, an official meeting taking place between the undersecretary of state, US, and the Pakistan ambassador in Washington, and the message reads, here’s the prime minister reading the message that unless the Prime Minister, Imran Khan, is removed in a vote of no confidence, there’ll be consequences for Pakistan. There were other things in the cipher, but I mean imagine a prime minister of a country—elected prime minister of a country—reads this message that an American official is telling my ambassador that Pakistan should get rid of me, otherwise there’ll be consequences.

So, I took this to the cabinet because I thought this was deeply insulting for a country of 250 million people. I thought it was humiliating for anyone to write… Any official from any country writing a letter like that or sending a message like that to the prime minister—elected prime minister. Then I put it in front of the National Security Council, the National Security Council, which is headed by all the service chiefs, including the army chief. The National Security Council then gives a demarche to the US, protest that this is meddling in the internal affairs of Pakistan. But what happened was that after the cipher, the next day, the vote of [no] confidence is tabled in the National Assembly and within weeks my govern goes. So, I basically narrated the fact this is not anti-Americanism. This is a fact.

After my government goes, the government of Shehbaz Sharif, who was part of this conspiracy, they then hold a National Security Council meeting. They call the ambassador from the US, Asad Majeed, and they asked him, “Were the contents in the cipher true? Does he stand by them?” And he stood by them. He said, “This is exactly what happened.” So, I was basically narrating a fact. Now, when you… As subsequently things unfolded, it turns out that our ex-army chief, who was then the army chief, General Bajwa, he was actually campaigning through his lobbyist Husain Haqqani,¹ who was paid thirty thousand dollars by my government, he was lobbying with the US to say that Imran Khan was anti-American. He tweeted, “General Bajwa was pro-American, I was anti-American.” So therefore, what transpired later on was that actually my own army chief was campaigning against me, that I was anti-American and I think he was feeding them because that’s how this cipher must have come because I had perfectly good relationship with the Trump administration.

WAJAHAT SAEED KHAN: So premised on that, I understand it’s a long arc, it’s a long narrative, but they say that your positions have been inconsistent. There was first, of course, the letter, then there wasn’t a letter, then there was the cipher, which was then admonished by the ambassador himself: Asad Majeed Khan. Then there was the Donald Lu² connection, the threat by Donald Lu, so to say. Then there was, of course, you premising all of this after the vote of confidence saying, “This is because I didn’t… I said, ‘absolutely not’ to their drone bases.” Then, of course, in all of this is compounded by you politicking, telling millions of Pakistanis almost on a nightly basis that there’s a clear American conspiracy for regime change, then comes the Haqqani connection where you said that, “He’s taken money and he’s convinced all of Washington against me.”

Then you finally put it down in the court of Bajwa, General Bajwa, the former army chief. The question is then I understand there was a lot happening, it was over months, but today the positioning is quite simple. You said it’s less the Americans, it’s more Bajwa. That was not where you were a year ago, fourteen months ago. And that has hurt your credibility, at least in this neck of the woods, in Washington. So, would you have done it differently?

IMRAN KHAN: Well, look, Wajahat, look, I used the word “unfolded,” as things unfolded. At the time, this is first week of March, I received this cipher, and so I didn’t immediately talk about the cipher because there was an OIC [Organization of Islamic Countries] conference in Pakistan and I didn’t want this thing to break before the OIC conference, which was about 22nd or 23rd of March. And so therefore after that, on the 28th of March, I first disclosed this. And at that time, I was convinced that… I mean, who would not be convinced reading that cipher? Who would not be convinced that the Americans are demanding that they get rid of the prime minister? I mean, what inference should I get from that? Clearly, it was clear. So, therefore, I did blame them that they were responsible. I never used the word “bases,” I never used what reasons.

All I give the facts that here is the cipher, this is what happened. The moment the cipher came, the vote of no confidence is tabled. And then those members of our back benches in our party, who we had knowledge that they were visiting the American embassy for the past two months before, and they were the first ones to jump ship. So, what am I supposed to gather from that? So therefore, that’s exactly what I said. Now, subsequently, how did we find out? Because I think FARA [Foreign Agents Registration Act], which is in the United States, you have to register, all lobbies have to register there. And FARA, then this thing came out that Husain Haqqani was on my government’s payroll, but then not hired by us, hired by Bajwa. And then there was a Haqqani tweet, which came in the end of March, which said that General Bajwa is pro-American and Imran Khan is anti-American.

So, then you put two and two together exactly what had happened because General Bajwa wanted the extension. So, that extension he wanted—he later on told the United States too. So, these things subsequently came out. Therefore, whatever I said was at the time exactly what I believed, and in the end, what was the conclusion? My conclusion was that General Bajwa had lobbied: he was lobbying for himself. He had deliberately campaigned against me to make me the bad guy because the conspiracy was then his, and as it unfolded.

WAJAHAT SAEED KHAN: I’m with you about the unfolding bit and especially that it went over months and that you adjusted your positions accordingly, Khan Sahib. But again, in retrospect, was it shortsighted to have so much vitriol, so much venom, so much rhetoric on a daily basis, convincing millions of Pakistanis, angering them about the so-called American connection and thus alienating Washington, alienating the Biden administration, which today calls you a “private citizen” and won’t back you up, even though clearly you need that backing.

IMRAN KHAN: Listen, Wajahat, I don’t want any backing from anyone. Look, if the people of Pakistan decide that they want to elect me as the prime minister, fine. If they don’t, I don’t care. I mean, I’ve seen everything. I’ve been to the top. I mean, I have more love and respect in this country than anyone else, why would all the twelve parties together, including the military establishment, with one aim: somehow the whole policy is how to get rid of one man? The whole country’s democracy is being dismantled just to get rid of one man. So, I have more love and respect in this country. I don’t care whether I become the prime minister or not. But the truth is that this is exactly what happened. How humiliating is it for a country? How come the US thinks of me as anti-American? Why don’t they want to ask the question that how could their official make such an arrogant statement that a country should… an ambassador should give a message to get rid of the elected prime minister?

And you didn’t think that there should be any response because the US would be annoyed with me? I mean, I should shut up and allow this thing to happen? Well, if they are angry at me, so be it. I mean, all I want the US… I don’t want any backing for myself—they professed values, the Western values are democracy, human rights, rule of law. Whenever they have to whip up China in Hong Kong or in Uyghurs or the Russians, they use these things. All I want them to do is to say all these things are being violated in Pakistan; human rights, custodial torture going on, democracy being dismantled. They should talk about that. I don’t care if they say nothing about me, I’m quite happy being a private citizen.

WAJAHAT SAEED KHAN: All right, well, when you were not a private citizen, when you were Pakistan’s prime minister, you were praised. Let’s go back to even further, forget last year. Let’s go back to your career. Let’s pivot to India. So, 2019, February, as you remember, there was a military escalation with India, Pakistan Air Force jets shot down Indian aircraft. You were praised globally in those tense, twenty-four, forty-eight hours for the stance you took against war. You deescalated what could have been a potential nuclear face-off between these two rivals. Again, I’m going to say it on the record because it needs to be said, you were quite responsible in your statements and praised globally, even in India. However, eventually the criticism is that you missed an opportunity to establish long-term peace with India.

General Bajwa—I know you’re not a fan—but General Bajwa came with a peace plan, which was constructed very delicately over years. There was a ceasefire, there were trade talks, there was a potential visit in the offing, and you rejected the trade talks, even though as commerce minister, which you wore that hat, you first approved the trade ties, but then as prime minister, you rejected them. It was quite awkward to see the same man, Imran Khan, the commerce minister saying, yes, peace with India, normalization with India, saying no as prime minister, no peace with India, no normalization with India. Well, what caused that irregularity? Was there ISI interference? Did you get a second reckoning? Why did you change your mind?

IMRAN KHAN: Look, I do not believe in settling issues through military action. I have always been anti-military settling of issues through war or through using arms. And this is not now. It’s been my view for three decades. Now, what happened was that when that happened, when the Pulwama [attack] happened and we returned the pilot [who was shot down], I mean, it was clear that it is unthinkable for two nuclear-armed countries to even think of escalation. I am worried about what’s happening in Ukraine right now and I worry that this could go out of hand. So as someone who is against nuclear arms and the idea of the world committing suicide through nuclear war…So what happened was that in [August] 2019, India took away the statehood of Kashmir unilaterally.

Now, we all know that there’s a United Nations Security Council, not one, two resolutions on Kashmir that Kashmir was a disputed territory between Pakistan and India, and through a plebiscite, it was to be decided. The people of Kashmir were supposed to decide. Now, that was the status. Suddenly, on 5th August 2019, India unilaterally got rid of that treaty and the UN resolutions and took away the statehood. What were we supposed to do? A hundred thousand Kashmiris have been martyred in their quest for independence, and so what was Pakistan supposed to do? Accept the fait accompli? Or actually stand with the people of Kashmir who had given such sacrifices? So that’s what we decided. And by the way, I tried my best before then to improve our relationship with India. In fact, my first statement was, “You come one step towards us, we’ll come two towards you.”

I mean, I tried everything, but I came across this brick wall, and I realized it’s something to do with the RSS-BJP mentality where they’ve cashed in on hostility with Pakistan. That’s all. But, frankly, it was never a question of being misled by anyone. And, Bajwa, I don’t know what he’s talking about because the idea which he was floating, it was that first India would give some concession, then we would invite them to Pakistan. The concession was that they would gradually take steps that would undo what they had done on 5th August. But that never happened. So, we had never moved forward. I don’t know what he is talking about because Bajwa keeps shifting his positions.

WAJAHAT SAEED KHAN: So, what about the bit which your office did? Forget Bajwa. You accepted during all of this, during this potential breakthrough, when there was a ceasefire in place, when there was a visit by Prime Minister Modi in the offing where you would’ve hosted him, if I may… this is a Nobel Prize being presented to you and here you are as commerce minister, where you accept trade talks and then a few days later you reject your own trade talks. I’m trying to get to the bottom of, was it forces within the military? Was it the ISI? Did you get intelligence briefings from someone? What caused you to change your mind when you were almost there along with your chief in trying to repair ties, even convincing India to back off from Article 370?

IMRAN KHAN: Look, I don’t remember the trade talks. All I know is that there was supposed to be a quid pro quo. India was supposed to give some concession, give some sort of a roadmap to Kashmir, and I was going to then host Prime Minister Modi in Pakistan. But it never materialized. So, it never went further than that. That’s how it was.

WAJAHAT SAEED KHAN: Speaking of that era as well, it was around the same time, now recent reports have emerged, that General Bajwa went public at that time, he said it privately, he said it to a bunch of journalists, that Pakistan has lost military parity with India. Pakistan’s tanks are rusted, Pakistan doesn’t have the fuel to provide its forces to fight a war, and that’s why peace with India is inevitable because Pakistan can’t keep up. You’ve seen this in recent news items. Did that intelligence, did that briefing from your chief of army staff ever come to your office? Did he ever consult you or confront you with this data?

IMRAN KHAN: Look, even if that was the case, for an army chief to make these statement is so ridiculous. What army chief makes these foolish statements even if it is the case? So, number one, yes, General Bajwa would make these statements, but I mean for an army chief, he is basically saying, “We are just too weak.” You never make such a statement. But more to the point, who wants war with India? I mean, why would we want war with India? Why would anyone want to see a confrontation between the two countries? The thing is, like two civilized countries, we should solve our issues through dialogue, and if we can’t solve them through dialogue, we just keep talking. But war is never an option. So, firstly, war is not an option. Secondly, for an army chief to keep saying that, I can’t imagine an army chief saying such a stupid thing as that.

WAJAHAT SAEED KHAN: But you were not privy to it? He did not inform you of this lack of security preparedness vis-à-vis India?

IMRAN KHAN: No, no. He used to talk about it frequently. All I’m saying is, why would he talk to journalists about this? This is supposed to be a secret. Would you disclose, if you have a problem with another country, and our problem is Kashmir, would you make a statement like that if you are the army chief? No, you wouldn’t say that. You would say, “We are ready to defend our country.” Even if you can’t, but you would say that. So, all I’m saying is for an army chief to make a statement, what more can I say?

WAJAHAT SAEED KHAN: So, moving on from India, let’s pivot back to our friends and allies. Now, of course, you had very warm ties with regional leadership, with [Former Prime Minister of Malaysia] Mahathir, of course, with [Turkish President Recep Tayyip] Erdoğan. You’ve made a lot of friends especially in the OIC community. But two or three things. Firstly, they say that the moment Imran Khan lost the Americans was the day after the Taliban took over when he went to a hotel in Islamabad and said, “Oh, the Afghans have broken the shackles of slavery.” I know that was rhetorical, you’ve commented on this before, but two days later… your words were in the Wall Street Journal and that’s how you were perceived. But moving beyond that, they also say here, there are assessments that you lost the confidence of the Chinese. You lost the confidence of the Saudis.

Early on in your tenure, Razak Dawood, your senior advisor, said, “We’re not happy with the lack of transparency with CPEC, nor is the Skipper.” He said that. Then he rolled that back. Then, of course, you miffed the Saudis for a quick minute when they refused to back up Pakistan with the OIC, admonishing Kashmir Article 370. You threatened the Saudis that, “I’m going to have my own OIC. I’m going to have my own meeting on Kashmir. Take a walk.” And the Saudis rolled back a bunch of loans, which they were going to [grant]. The larger question is: Imran Khan was on a rampage. He managed to upset the Americans. Of course, he’d shot down an Indian plane while he was at it. Those are the tasks of the job, hazards of the job, but also the Saudis and the Chinese? “Is there anyone,” they say, “that he didn’t miff?” How do you take that?

IMRAN KHAN: Well, first, the Americans. I mean, this thing was completely taken out of context. I was speaking in Urdu and then they translated it, and because the US was hurting at the time, that whole drama, which I actually don’t blame President Biden, because how was he expected to know that three hundred thousand Afghan troops would give up without a fight? And so, it collapsed so quickly, and when President Ghani left Kabul, the whole thing collapsed so there was chaos. So, I could see that the US, they were in shock and awe of what happened. They were taken by complete surprise, and they didn’t know how to react. So, I could see they were hurting, and this one comment would be misconstrued because I was talking about mental colonialism.

But the thing is, I mean, I was always right about Afghanistan. I kept saying for years that, look, firstly, your idea of victory no one quite understands. Is it either liberate Afghan women or bring democracy? I mean, such a vague idea of victory. But then there was never going to be a military solution. Anyone who knows Afghan history… So, I think that maybe they took that as anti-American, because if you are from a weaker country and you criticize the US foreign policy, you’re immediately dubbed as anti-American. I was just simply because anyone who knows the history of Afghanistan and we knew the whole Soviet adventure in Afghanistan, we knew where it was going to be headed. Anyway, I think the US was feeling very vulnerable and hurt and I think that’s why. But that’s not the reason why the US administration disliked me. I think there were other reasons.

They blamed me for going to Russia, for instance. Now, the Russian trip was organized by the foreign office. They’d been asking for months for my trip to Russia. They wanted to mend the relationship and the army chief wanted me to go there, the service chiefs, because they wanted to buy hardware from Russia. So how would I know that I arrived in Russia and the next morning they invaded Ukraine? I mean, how was I supposed to know? That was held against me.

WAJAHAT SAEED KHAN: I mean, it was a pretty tenuous time.

IMRAN KHAN: Let me just be clear. This idea that Saudis were upset, the Chinese were upset, it is so ridiculous. Who says so? Because my government, the vote of [no] confidence came on the 7th or 8th of March. On the 20th or 21st of March, this was the second time Pakistan hosted a foreign minister’s OIC meeting—second time in four months. Before that, it was fourteen or fifteen years ago Pakistan had hosted a meeting. A meeting of the OIC cannot take place without the Saudis’ agreement. So why would they agree to, just before I’m leaving power in two months, three months, two OIC meetings? And, secondly, the Chinese foreign minister came as a special guest. Why would he come if the Chinese were not happy?

So, this whole myth that I had upset, who was behind this? Guess who was promoting these myths? Because compare the foreign policy in my time to what is happening right now, Pakistan today is totally isolated. I mean, it doesn’t even feature anywhere. In our time, Pakistan was being taken seriously. And I’m telling you, this relationship between Iran and Saudi, on behest of MBS, Prince Mohammed bin Salman, I went to Iran to speak to them. Remember, there were tensions at the time—some missile attack had taken place—so the Saudi prince sent me to Iran and he wanted me to bring down the tensions. And so I played my part. And even on Yemen, I mean, Yemen, we tried to end this war and play our role in it and this is because the Saudis and the Iranians asked us. So, this idea that we were isolated and I had upset friends is just total nonsense.

WAJAHAT SAEED KHAN: Right. Well, thanks for that. But the reports about your reservations about CPEC [China Pakistan Economic Corridor] precede all of this. They go way back. The reports about you threatening a secondary meeting, an alternative meeting, when the Saudis didn’t back you up on Kashmir after Article 370 via the OIC. You’re right about the fact that you have hosted… multiple meetings of the OIC. You’re right about the fact that you have hosted meetings, multiple meetings of the OIC. You did mend those fences, yes, I will give you that, eventually towards the end of your tenure.

But in the early part of your tenure, they said he was just being a cowboy. He was shooting from all cylinders and just going all out. And that may have been why some of these people are quite silent today about what’s going on with you, your party, and your country.

IMRAN KHAN: Countries never interfere. I know, I was in power for three and a half years. I know that countries never interfere in other countries’ businesses. Never. This hardly ever happens. Only thing they should talk about are human rights. But normally, I mean, it’s just not done. I mean, unless it is your country, which you don’t have good relationship with. So, the US would talk about Hong Kong or Uyghurs.

But I mean India, when they clearly violated international law in Kashmir and put them in a open prison, they basically put a curfew in Kashmir. I mean, did any of the big power, Western power, criticize India for it? No. No one said anything. Some UN human rights organizations spoke against it, but none of the Western countries said anything against India.

WAJAHAT SAEED KHAN: Let’s move on. Let’s take it in-house. We need to start wrapping up as well. But let’s be introspective about the famous “same page” with the military …. There are dozens of examples of the “same-pagedness” as it was called famously, from giving the military so much space in the affairs of the country, to even, I would say the highlight is really General Bajwa’s extension, number one. And then number two, allowing Nawaz Sharif to leave the country.

I’m assuming you’ve said this before, but I would like to hear you again. When did the “same page” change? When did the same page stop? When you were playing ball consistently, what was it that just the “same page” just ran out of space and you ran out of ink. What happened?

IMRAN KHAN: Look, first of all, let’s understand one thing. The military has been in power directly or indirectly for seventy-five years. So let there be no illusion about this. So, either they’re directly in power or indirectly.

WAJAHAT SAEED KHAN: Sure.

IMRAN KHAN: And they’re entrenched. So, they’re entrenched. Now, when I became the prime minister, it is wrong to say that the army supported me or they rigged the elections, because they actually rigged the election for Nawaz Sharif in 2013, when we asked for just four constituencies out of 133 to open them up, they refused. And when they were opened up, the election was rigged.

In our case, we offered from day one, I said, open the elections. So, the army didn’t oppose me, but they didn’t rig the elections for us. But I knew from day one that I had to work with them. And so for a while, the working relationship with army means army chief, really. There’s no democracy in the army. It’s just one man. So it worked well in the beginning. The problem started when I gave him the extension. And I admit it was the biggest blunder I made. I admit. And I was actually ambushed in this. I mean, it is a long story. But anyway…

WAJAHAT SAEED KHAN: I’d really like to hear it Khan… because this story is the story of our country at this point. Isn’t it? Well, Imran Khan comes in on a mandate where he can do pretty much everything he wants. And yet he gives a man of, well, limited reputation an extension, then allows his rival, Nawaz Sharif, his lifelong rival, to leave even though you came in on the platform of justice.

IMRAN KHAN: So let me clarify. We had just come in, I was due and the army as an institution is the only institution that works in Pakistan because it’s intact. All other institutions when I took power were in a terrible condition. I mean, they had been tampered with, politicized, they weren’t working properly. So, if you wanted things done, you got it done through the Army. I mean, I’m talking about, say for instance, COVID-19. We wanted logistics support. We wanted the whole country to—data from all the hospitals. I’m just giving an example. And the best way we could do was the army. It would immediately get us all the data.

So, in that sense, so it worked. It worked. We did well in the beginning. The only problem is after the extension what happened, there was a different General Bajwa. And so the problem, what I faced with them is that my whole platform was bringing the powerful under the law. So, rule of law is what I started off with twenty-seven years back. And when I tried to bring the powerful under the law, I discovered that unless General Bajwa wanted it, I couldn’t do it. So because NAB, the [national] accountability bureau was controlled by him. So, we had no control over what was going on. All these guys who are now in the government, they would blame me for their corruption cases. But we inherited all the corruption cases.

WAJAHAT SAEED KHAN: But Khan-

IMRAN KHAN: But what was happening-

WAJAHAT SAEED KHAN: Didn’t you let the fox into the house?

IMRAN KHAN: Let me first complete. So, because he controlled the accountability Bureau, I could not bring the powerful under the law because I was helpless, and he didn’t want to, because he was already dealing with them. So “one page” was good, it went on. And then I worked with him. I realized that if he didn’t want accountability, I was stuck. But our main thing, priority at the time was the economy.

Because we had two years of COVID everywhere the world, the impact of COVID-19 and the commodity super cycle. So, the whole concentration was there. And so as far as the economy went, we did the best economic performance in the last seventeen years. Our last two years we grew at almost 6 percent. But General Bajwa at some point decided to change horses. I didn’t betray him. He decided to change horses. And he is the one who pulled the rug [from] under my feet.

WAJAHAT SAEED KHAN: But I’m personally shocked that for a man who used to threaten to walk away from his own team, if he wasn’t allowed to pick it, if he wasn’t allowed to literally pick his own men in his own cricket squad—they’ve written about this; you have written about this—someone who is so adamant about control, about his vision, about his strategy when it’s interfered with is now saying that he was new, he was inexperienced. And I understand the same page about COVID, I’ll give you that, for example, right.

But I don’t understand the “same page” about pretty much every contract going to the FWO or tons of generals going on as ambassadors or even a colonel running PTV. I mean you had the wherewithal, you had the manpower, you had the mandate, and yet you just kept on ceding them space and eventually ended up in a situation where you led the fox into the hen house. So, is there regret? Is there regret about your decision making?

IMRAN KHAN: Well, the only thing, when I look back, and I’ve said this before, if I had to go back again, I would not… Bearing in mind that I wanted to bring in reforms, main reform is rule of law. Bringing the powerful under the law, which has never happened in Pakistan’s history before. The powerful are above law and the masses have no access to justice. So that was my main theme. I discovered that unless you have a powerful mandate by the public, the public must give you a strong mandate. You must have a strong government. Only then can you implement your reform program. Unfortunately, I had a weak coalition government. So, the moment I used to go after the powerful, the problem used to be to keep my majority intact. And we could only keep our majority intact by telling the army, the ISI, look, you must make sure that they come, my members appear for voting.

This is what happened. With hindsight, I should have immediately called for elections and if I had not got a good enough mandate, I should have stayed out. Because it is not possible. If you want a reform program and to take on the big mafias, you cannot do it if you have a coalition with government, with a thin majority, you can’t do it. So that is the mistake I made. And that’s why I became more and more dependent on the army chief because he could get a budget passed because they have the clout. It’s exactly what’s happening right now. If the military withdraws support, this coalition would fall apart in days.

WAJAHAT SAEED KHAN: So, speaking of current affairs, coalitions, electoral politics, Khan Sahib, leadership is the undergirding of all of this. And currently I see the PTI’s flag right behind you. And the PTI is a shadow today of what it was just a few weeks ago. People have left in droves. Just this morning you were kind enough to send me a story by the New York Times about how people are leaving in droves. They’re being forced to leave in droves. Some of your old school, old guard has stuck around. Most of your “electables,” of your new guard who you praised so highly, you gave them high office and appointments, they’ve left. And yet, this brings me to the question of leadership where again, a man who was famous for his captaincy in the cricket field, who used to claim that, “Listen, trust me, I can put together the right unit. This is what they pay me for. This is what I do”—today, has been left by much of his unit. Which then makes me compare the plight of the PTI today to the plight of, for example, the PML-N in the late 1990s where they were under pressure too after a military coup. But nobody left Nawaz Sharif in the droves, in the mass exodus that we are seeing with the PTI. Does that say something about your captaincy and your leadership? Or does that say something about the weak structure of the PTI?

IMRAN KHAN: Let me, let me first tell you exactly what happened because I was in the opposition in 2002. The entire PML-N became PML-Q. So, there were only ten members left. What are you talking about there? Nawaz Sharif was left by his entire party, which formed government under PML-Q. So, I mean, I’m just correcting you.

WAJAHAT SAEED KHAN: They went through a couple of years of jail, some of them, not like a couple of weeks.

IMRAN KHAN: No, no, it’s not true. There were five or ten people who went to jail this time. I mean, what people have gone through now, they’ve been thrown in jails and they’ve been shut in these cells with a lot of people and dead cells. I mean, their businesses have been destroyed. They’ve been warned. I mean their families have been threatened. This has never happened in this country before. The way they have been making people leave my party, it’s unprecedented. But Wajahat, today PTI is stronger than ever in its history. PTI today is the strongest party in Pakistan’s history. Why? Because PTI has the biggest vote bank. It doesn’t matter if people leave you. If “electables” leave you, it doesn’t matter. I’ll just give you an example of Punjab. We gave almost four hundred tickets in the Punjab election. Punjab is 60 percent Pakistan’s population. So I gave four hundred tickets. Only forty people have left. And do you know what about the rest? They’re all hiding. None of them are staying in their houses. Their houses are broken in, the relatives are picked up, their businesses are shut. And yet out of four hundred, only forty people have left. Why aren’t they leaving? Because they all realize that the moment they leave the party, it’s the end of their politics. Because the people in this country have never stood with any party as they stand with PTI today. Which is why you have the whole government machinery, the whole intelligence agencies, all institutions [have] one-point agenda somehow to dismantle PTI. And they’re failing because the vote bank is growing rather than the vote bank shrinking. The vote bank of PTI is growing, which is why people are not leaving us.

The vote bank of PTI is growing, which is why people are not leaving us. You would imagine, it’s never happened here before. My sisters’ houses, the police has gone in there. They picked up the servants when the son was there. One sister has a huge corruption case thrown on her. She was not even in government. So, my house, my wife, they have cases against my wife. They’ve gone after everyone. So, they’re doing this to all ticket holders. Despite all that, people are not leaving the party. Only a few people you see have left.

WAJAHAT SAEED KHAN: But Khan-Saab, they’re saying you tried to trigger a coup. They’re saying you’ve been in touch with the former army officers. They were saying you tried to divide the ranks of the world’s fifth-largest military. Which begs the question, have you been in touch with, for example, General Faiz? I know you were in touch with General Bajwa even after your ouster, and you said so accordingly. Which surprises me, by the way. The same man who kicks you out, you end up trying to negotiate with him. But are you in touch with General Faiz? Have you been in touch with military brass? Because that’s what they say. They say, “This man is trouble and he thinks the rules don’t apply to him. And his party tweets, that he’s a red line. Why can’t he turn up to court like everybody else has since Maulana Mohammad Ali Jauhar, Pakistani or Indian Muslim leaders have suffered court cases and have gone to jail. What’s so special about Imran Ahmad Khan Niazi?” That’s what they say.

IMRAN KHAN: Special…? I have 160 court cases, 160 cases against me, and I do nothing but most of my time is going from one court to the other to get bail. Tomorrow again, nineteen cases tomorrow, I’m trying to get bail. nineteen cases. It’s never happened in our history before. No political leader has ever had… At the age of seventy, he does not have one criminal case. And suddenly in the last few months, he has 170 cases, 160 cases. People have known me for fifty years. They’ve just slapped a murder case on me. People know me. So, I repeat. The only time I couldn’t go to attend the courts was when I was shot and I was housebound and they knew about it. They knew my reports. I had my leg broken, so therefore I couldn’t attend. But since I’ve been recovered, I attend every case.

Now, I have never, the only people I knew in the army, one was General Faiz, the other one was General Bajwa. Faiz because he was the ISI chief. I had to deal with him. General Bajwa because he was the army chief. I dealt with Bajwa after I was ousted only for the sake of Pakistan because I wanted to ask him, “Where are we heading? Because at the moment we are going nowhere.” The country is going into a black hole. They have no policy. The only policy is to get rid of Imran Khan. That’s no policy. I mean, what is the future of Pakistan? The only reason I met General Bajwa was look the only way ahead of free and fair elections, which will bring political stability and that then will bring economic stability. Right now, we have the worst economic indicators in our history.

The country’s going down, we are heading towards default. We already have 38 percent inflation. We are heading towards hyperinflation. So, my talks with only for the country and trying to make him understand that unless you have elections, you will not have political stability. General Faiz, I might have spoken to him three times since I left government and since he was not the army chief…I mean the ISI chief. This is all nonsense. They’re just trying to get rid of me because for some reason the current army chief has decided that whatever happens, I cannot come into power.

So, they’re throwing all these things on me. I mean, I go to be… army court. These military courts. The reason why these military courts have been set up is to try me because in civil courts there’s no way any of these bogus cases can throw me in jail. So that’s why all this is going on. These conspiracy theories, I don’t know anyone in the army. I don’t know any of the generals. I had no business for them. It was not my job to know—except the ones I was dealing with. I don’t know the other generals.

WAJAHAT SAEED KHAN: Khan-Saab, about the current army chief. You singled him out after you were released from prison. You-last

IMRAN KHAN: Last question please, Wajahat. I have to go. It’s eleven o’clock.

WAJAHAT SAEED KHAN: Sure, Khan-Saab. Thank you. So, then I’ll compound this question with another question. I’ll give you one and a half questions. One, you singled out the army chief. You said, “It’s not about the army, it’s about one man.” What’s the problem here with him? Was it because you sacked him when you were prime minister, when he was ISI Chief. Does it go back to that episode? That’s question number one. What’s the beef here between you and General Asim Munir? I’d like to know, because you’ve said that there’s beef, so that’s question one. And then question two, Khan-Saab before I let you go. What would you do differently? What would you do differently if you were in a time machine today, and you were allowed to go back to August 2018. What would Imran Ahmad Khan Niazi do differently?

IMRAN KHAN: Firstly, it’s not about me or General Asim. It’s about Pakistan. I mean, I have no personal thing against him. He clearly has something, I don’t know, which is why I offered to meet and hold dialogue and not now, since he came to power, since he became the army chief, I have been since then saying that, look, it’s about Pakistan, it’s not about us. So, I need to understand why this whole country is… “There’s only one mission, get rid of Imran. He should not come into power.”

So, what alternative have they got? I mean, maybe he can convince me that I’m so bad for the country, but there is some other plan which will be good for the country. At the moment, there is no other plan. There’s only one plan. So that’s why I wanted to meet him. And remember, it’s not about us. It’s not whether I like him or he likes me. It’s about the country. And the country is going down rapidly. People are losing hope in the country. Almost a million professionals, quality people, have left the country in the last few months. There’s a flight of capital. So that’s my point.

WAJAHAT SAEED KHAN: But I must interject. Why did you fire him when he was ISI chief, Khan Sahib? What happened?

IMRAN KHAN: Well, there were issues. I had issues with him and so therefore I couldn’t work with him. But that’s in the past. I have no issue with him. So, I think right now it’s not about personal likes and dislikes. It’s about the country. Now, secondly, if I had to go back again to 2018, I would’ve called for elections. I would’ve dissolved the parliament and gone for general elections again and only taken power—

WAJAHAT SAEED KHAN: When you were asked for an extension, at that point, when would you have asked for elections again, I’m just trying to figure out—

IMRAN KHAN: No, straightforward, straightaway. I mean, had I known how difficult it was to implement your program… We inherited the biggest current account deficit in our history. So, the country was bankrupt. So, we inherited two big deficits, the fiscal deficit and the current account deficit. So, the economy was in shambles, and we were the first time in government. And here I had this ambitious program of rule of law to bringing the mafias under control. There was no way I could have done it with a coalition government with a thin majority. It was just not possible. So, with hindsight, I should have immediately called for elections and only taken government if I had a substantial majority.

WAJAHAT SAEED KHAN: And moving on this week, you are faced with a lot of court charges. You’re going to Islamabad, you’re going to Baluchistan, a sensitive area, an insecure area. Do you still fear that you might be targeted, your life might be targeted, Imran Khan?

IMRAN KHAN: Yes, I do. Well, the government, I mean the interior minister has said my life is a danger. I mean, he said from foreign agencies, but, actually, it’s the government itself who were… I mean there were two assassination attempts on me. One was on the 3rd of November last year. One was on 18th of March in Islamabad. So, will there be another one? I think there’s a strong possibility because they would imagine that even if I am put in jail, which I just know that in the next two weeks they’ll find somewhere to put me in jail. So, they would worry that even if I’m in jail, my party would still win. So, I think they’d be thinking of the final solution. So mentally, I’m prepared—

WAJAHAT SAEED KHAN: I’m sorry-—

IMRAN KHAN: —that anything could happen.

WAJAHAT SAEED KHAN: Imran, did you just say that you’re mentally prepared to be killed? Is that what you just said to me?

IMRAN KHAN: No, I’m mentally prepared that anything could happen. I mean, someone who’s faced two assassination attempts is going to be prepared that there’s a possibility because the same reasons, the reasons are still there when they tried to kill me twice before. The reason is that the party’s popular will win the next election. So, as long as that reason is there, they could try again. So, in that sense, mentally, I mean I have overcome the fear of dying. I feel that I should be prepared for everything. But jail, I know in the next two weeks they’ll put me in jail because there’s so many cases. All they have to do is cancel one bail and I’ll be inside.

WAJAHAT SAEED KHAN: Imran Ahmad Khan Niazi—

IMRAN KHAN: Okay, Wajahat

WAJAHAT SAEED KHAN: Good luck. Thank you, sir.

IMRAN KHAN: Thank you.

WAJAHAT SAEED KHAN: Stay safe.

IMRAN KHAN: Thank you. Okay.

Imran Khan on the failed India-Pakistan thaw and why he’s ‘prepared for everything’—even death

By Wajahat Khan

The former Pakistani prime minister spoke with the Atlantic Council about unsuccessful plans to meet with Indian Prime Minister Narendra Modi and much more.

Corruption Economy & Business

SouthAsiaSource May 22, 2023

In Pakistan, populist Imran Khan faces the biggest challenge of his political career

By Roohan Ahmed

Imran Khan, Pakistan’s populist former prime minister, is facing the biggest test of his political career as he challenges the very same security establishment that accelerated his journey to power in the 2018 elections.

Corruption Elections

SouthAsiaSource May 10, 2023

Experts react: Former Prime Minister Imran Khan’s arrest and implications for Pakistan

By South Asia Center and other experts

On March 9, 2023, former Prime Minister of Pakistan Imran Khan was arrested over corruption charges. We asked experts to react to this decision.

Corruption Elections

1 When asked for comment on these allegations, Haqqani told the Atlantic Council: “Like all conspiracy theorists and demagogues, Imran Khan does not feel the need to offer any evidence of allegations he makes.” Haqqani’s attorney has also issued a cease-and-desist letter to Khan for making “false and defamatory statements” about Haqqani.

2 In November 2022, when asked about Imran Khan’s allegations that US officials such as Donald Lu, the assistant secretary of state for the Bureau of South and Central Asian Affairs, was involved in removing him from power, State Department Principal Deputy Spokesperson Vedant Patel said that “there is not and there has never been a truth to these allegations” and that “ultimately, we will not let propaganda, misinformation, and disinformation get in the way of any bilateral relationship, including our valued bilateral partner with Pakistan.”

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Imran Khan on the failed India-Pakistan thaw and why he’s ‘prepared for everything’—even death

Wajahat Khan — Wed, 21 Jun 2023 00:54:23 +0000

This article was updated on June 21.

Imran Khan, Pakistan’s former prime minister, has been on the warpath in the streets of Pakistan against the military-led establishment ever since he was voted out by parliament last year. Once seen as the military’s darling and reportedly assisted by the military and its intelligence agencies in the elections that brought him to power in 2018, he has now turned on the army and its chief. In an interview with the Atlantic Council this week, he also claimed that the former army chief General Qamar Javed Bajwa told him “frequently” that the army was not equipped or prepared for a war with India.

In the interview, conducted June 18, Khan confirmed that there was indeed an opening for peace with India—despite New Delhi’s rescinding of disputed Jammu and Kashmir’s semi-autonomous status in 2019—and the Pakistani army chief favored it. (Bajwa had previously revealed this plan to reporters.) Normalizing trade between the two nuclear-armed countries was reportedly one of the steps that was to be taken before Indian Prime Minister Narendra Modi could visit Pakistan.

Watch the full interview

However, despite successfully deescalating a military standoff in 2019, Khan couldn’t explain why he faltered on trade normalization with New Delhi after India changed its relationship with the disputed territory of Kashmir by removing its special status in the Indian union. Khan responded to India’s Kashmir move by closing the border for trade with India.

“I don’t remember the trade talks,” Khan said. “All I know is that there was supposed to be a quid pro quo. India was supposed to give some concession, give some sort of a roadmap to Kashmir, and I was going to then host Prime Minister Modi in Pakistan. But it never materialized.”

Bajwa’s plan, which included a ceasefire with Indian forces on the Line of Control in Kashmir, was a lost opportunity for establishing long-term peace with Pakistan’s archrival. “I tried everything, but I came across this brick wall,” Khan said. “And I realized it’s something to do with the RSS-BJP [the Modi-aligned ideological movement and political party] mentality where they’ve cashed in on hostility with Pakistan. That’s all.”

Transcript

Jun 20, 2023

Read Imran Khan’s full Atlantic Council interview on failed peace with India, Pakistan’s plight, and his own fate

By Atlantic Council

In an Atlantic Council conversation, former Pakistani Prime Minister Imran Khan shared details about a potential peace plan with India and discussed the future economic and political prospects for Pakistan.

Economy & Business Elections

Currently, Khan says he is facing nearly 160 legal cases, ranging from terrorism to corruption to conspiracy against the state—a roster that keeps him busy court-hopping to secure bail or relief. The seventy-year-old former cricket champion-turned-populist firebrand spends his weekdays commuting from city to city in protective gear to attend court hearings. Every evening, he addresses his followers on YouTube from his residence in Lahore, which just last month was surrounded by security forces.

Khan said he fears that he may be incarcerated over the next two weeks but admitted that he’s “prepared for everything,” including the prospect of being assassinated. (Khan was wounded in an assassination attempt last November and claims to have survived another plot in March.)

Reviewing his performance as premier, Khan admitted to political blunders during his tenure, including granting an extension of service to Bajwa, who Khan claims was responsible for engineering his ouster. He did not elaborate on the exact reasons for their break-up.

Khan confessed that he was dependent on the military’s clout to push his reforms through parliament because he had a weak coalition government with a razor-thin majority. But this admission—needing the military to remain in power—runs counter to his claim that he didn’t need or get the military’s support to achieve power in the 2018 general elections.

“If you want a reform program and to take on the big mafias, you cannot do it if you have a coalition with government, with a thin majority, you can’t do it,” Khan said. “So that is the mistake I made. And that’s why I became more and more dependent on the army chief, because he could get a budget passed because they have the clout. It’s exactly what’s happening right now. If the military withdraws support, this coalition would fall apart in days.”

Crucially, Khan also said he sacked the current army chief, General Asim Munir, from his previous position as the director-general of the Inter-Services Intelligence (ISI) because he “couldn’t work with him.” He did not explain why. Yet he went on to declare his willingness to talk to the all-powerful chief of army staff now—but not to his civilian counterparts—an unsustainable position in a multi-party parliamentary democracy that he wants to lead again. Claims by former members of Khan’s own party suggest that Khan sacked Munir because he had alleged that Khan’s wife was involved in corruption; Khan has denied these allegations.

While Khan defended his economic and foreign policy record and claimed that his Pakistan Tehreek-e-Insaf (PTI, or Movement for Justice) is the most popular party in the country’s history, he also claimed that ceding further space to Pakistan’s all-powerful military while he was in power was the right thing to do—until it wasn’t.

But as Pakistan faces the prospect of economic default, and his quest for an immediate election seems to be waning, Khan stands isolated. Over one hundred of his party leaders, including many senior deputies, have left the PTI, through what he claims is coercion by the military. Thousands of party workers face trials over the riots of May 9, when many Pakistanis took to the streets to attack government and military installations while protesting what Khan says was his provocative detention, designed to trigger mass outrage.

“The country is going into a black hole,” he said. “The only policy is to get rid of Imran Khan. That’s no policy. I mean, what is the future of Pakistan?”

Meanwhile, the military-backed regime continues its legal and information crackdown against sections of the press and public who dare to support Khan on mainstream and social media. Also, as the military claims that Khan and the PTI leadership tried to sow dissent in the rank and file of the all-powerful army—treason by definition and law—Khan has denied that he has any active links to senior military leadership.

None of Pakistan’s foreign friends and allies have issued any statements in favor of Khan. The US State Department said last week that it would refrain from comment as Khan is a “private citizen”—a categorization that he shrugged off without expressing regrets about his bashing of the United States following his ouster. Khan continued to blame a senior US official for, as Khan claims, making his removal as prime minister a condition for US assistance and goodwill—a claim that he watered down earlier this year while blaming Bajwa for poisoning the US view of Khan through Husain Haqqani, Pakistan’s former ambassador to Washington. (Haqqani has rejected Khan’s allegations as baseless and his attorney has issued a cease-and-desist notice to Khan, threatening legal action if Khan keeps on alleging Haqqani’s involvement in the former premier’s ouster. The US State Department has said that “there is not and there has never been a truth to” Khan’s claims that the United States was involved in removing him from power, adding that “we will not let propaganda, misinformation, and disinformation get in the way of any bilateral relationship, including our valued bilateral [partnership] with Pakistan.”)*

Further evidence of Khan’s shifting position is his party’s active support for lobbying efforts inside the United States, including letters from members of the US Congress admonishing the Pakistani military’s crackdown. Furthermore, not a single influential member of the fifty-seven-state Organization of Islamic Cooperation (OIC), a grouping that Khan claims to have galvanized, has come out in support of him.

Khan has responded by saying that as long as he has the people of Pakistan behind him, he doesn’t need foreign help. How he will do this now is unclear considering that many of his party’s senior leaders have deserted him after having been arrested and released by the authorities. Khan claims they were coerced and has named new, younger members to replace them. He believes strongly that he is still the most popular political leader in Pakistan and this will help him yet again in the elections that currently are expected to be held in October or November.

Khan said that popularity is the reason why his enemies have tried to kill him. “As long as that reason is there, they could try again,” he said. “So, in that sense, mentally, I mean I have overcome the fear of dying. I feel that I should be prepared for everything.”

Wajahat S. Khan is a nonresident senior fellow at the Atlantic Council’s South Asia Center and an Emmy-nominated journalist and author. He is the former bureau chief in Kabul and Islamabad for NBC News.

This article was updated to include the US State Department’s denials of Khan’s allegations about US involvement in his ouster.

The post Imran Khan on the failed India-Pakistan thaw and why he’s ‘prepared for everything’—even death appeared first on Atlantic Council.

A blueprint for Turkey’s resilient reconstruction and recovery post-earthquake

Karim Elgendy — Tue, 20 Jun 2023 19:36:30 +0000

The earthquake that struck Turkey and Syria on February 6, 2023, caused widespread devastation. The death toll was estimated at over fifty thousand people, of which around 46,000 were in Turkey. In addition, the earthquake initially left millions of people homeless and without access to basic necessities across the two-hundred-mile-long path of destruction.

In the aftermath of such disasters, there is often a rush to quickly rebuild and restore affected areas. However, Turkey must rebuild its affected cities in a sustainable way that provides for both the short- and long-term needs of its residents. This requires holistic planning, community engagement, and integrating urban sustainability and resilience.

In Turkey, more than 160,000 buildings containing 520,000 apartments collapsed or were severely damaged across provinces such as Hatay, Kahramanmaraş, Adıyaman, Gaziantep, and Malatya. According to data from the Turkish Ministry of Environment, Urbanization, and Climate Change, the vast majority of the affected buildings were built before 1999. In addition, official estimates in the months after the earthquake indicated that more than 230,000 buildings would have to be demolished, representing approximately 30 percent of the existing building stock.

In response, the Turkish government announced an ambitious plan to build 488,000 homes in the affected region within a year. It also pledged to build an unspecified number of nonresidential buildings such as schools and hospitals. The plan also includes retrofitting and strengthening the existing properties that have sustained light, nonstructural damage, as well as redeveloping infrastructure such as roads and bridges.

The plan is overseen by the Ministry of Environment, Urbanization, and Climate Change, and the work is being assigned to the Turkish Housing Development Administration (TOKI), a government agency that has been building public housing for the last four decades. TOKI had recently reported that 134,000 of the houses it built in the earthquake zone did not suffer any structural damage. It did not, however, rule out that any of its buildings were affected.

Construction is already under way in some areas. On May 3, the outgoing minister of environment, urbanization, and climate change announced that 132,000 housing units are already under construction. The total reconstruction cost is estimated to exceed one hundred billion dollars.

Sustainable reconstruction

As long as builders follow Turkey’s earthquake codes for construction, those units and others will be built to be earthquake-resistant. Yet to capitalize on this massive investment and to reduce future risks, the planned neighborhoods and buildings should not merely be resilient to future earthquakes: They should also be rebuilt resilient to known hazards caused or intensified by climate change.

According to the United Nations Intergovernmental Panel on Climate Change, Southern Turkey is expected to experience more frequent heatwaves and droughts, in addition to higher temperatures and sea levels. If newly built homes become unlivable in a just few decades because builders didn’t take into account future cooling and ventilation needs, or if neighborhoods rebuilt after this earthquake suffer from congestion and pollution in the future, such large-scale investments could become stranded assets. Major reconstruction at this scale should also not only adapt to climate change but also mitigate it; cities should be sustainably rebuilt so that their damage to the environment—and contribution to climate change—is limited.

Turkish officials’ desires to reconstruct quickly is understandable given the urgency to restore normalcy. However, the benefits of rebuilding with long-term viability in mind—by taking the time to plan for more sustainable, resilient, and inclusive neighborhoods—far outweigh the short-term gains of hasty reconstruction.

In order to rebuild sustainably, builders should approach reconstruction with a wider focus on districts and neighborhoods rather than a narrow focus on individual buildings and infrastructure. These new neighborhoods should use land efficiently, with buildings that have smaller footprints, in order to make more land available for public green spaces—which offer nearby residents improved air quality, among other benefits—urban agriculture, and pedestrian and cycling paths.

Despite the availability of bus networks, cars still represent a significant share of transportation in the five most affected provinces, which contributes to air pollution and traffic congestion. Planning for future neighborhoods should mix residential and commercial areas to reduce the need for commuting. The planning should also develop reliable and sustainable transportation networks, similar to the Kahramanmaraş 2030 transportation plans. This includes measures to reduce air pollution such as encouraging residents to use public transportation and minimizing spaces dedicated to car parking.

The planning that shapes these new neighborhoods should also aim to create a more comfortable environment for residents. This includes orienting the street network and designing buildings in a way that allows for breezes during hot seasons. It also includes planting trees and vegetation and using new materials for roofs and pavements. These measures help keep the sun’s heat at bay while managing rainfall naturally to reduce flooding risk. Local ecosystems such as forests, wetlands, and agricultural lands under threat from deforestation, pollution, and climate change should also be restored.

New neighborhoods also need to be planned with future energy and water use in mind. This includes reducing peak electricity demand by designing buildings that require minimal energy to heat and cool and providing spaces for power installations on rooftops and above pedestrian walkways. Improving water efficiency is also critical given that the five most affected provinces already face high levels of water stress.

The new neighborhoods should also be planned so that they do not displace vulnerable communities and disrupt their social networks and livelihoods. These risks can be avoided by including these communities in the planning, including at the local community level, and engaging stakeholders in the decision-making process.

Leveraging international assistance

In any humanitarian crisis, the pressure on local and national decision makers to act quickly is always immense. Yet, hasty reconstruction brings many risks: inefficient land use; the increased use of energy, water, and material resources; increased carbon emissions; a higher flooding risk; increased congestion; poor air quality; limited access to public spaces; loss of biodiversity; increased vulnerability to climate change impacts; and increased social and economic inequality. The long-term cost of failing to address these issues is nothing short of a failure to protect the surviving earthquake victims and other residents from future disasters.

Being less constrained by the pressure to rebuild hastily, international donors could play a role in ensuring a more positive outcome in Turkey. The European Union pledged six billion euros in grants and loans, while the World Bank pledged $1.78 billion in initial assistance to help with relief and recovery efforts in Turkey. If those institutions and future international donors encourage Turkish policymakers to create sustainable, resilient, and inclusive neighborhoods, they could have a positive impact on the trajectory of the reconstruction efforts.

The window of opportunity to create the foundations for more sustainable and resilient cities is narrow and closing quickly. Thoughtful and inclusive planning requires additional coordination and consultation and may result in a delay of a few weeks or months. Yet it remains the only way to capitalize on this opportunity for Turkey and to address the needs of both current residents and future generations.

Karim Elgendy is an urban sustainability and climate expert based in London. He is an associate director at Buro Happold, an associate fellow at Chatham House, and a nonresident scholar at the Middle East Institute in Washington. Elgendy is also the founder and coordinator of Carboun, an advocacy initiative promoting sustainability in cities of the Middle East and North Africa through research and communication.

The post A blueprint for Turkey’s resilient reconstruction and recovery post-earthquake appeared first on Atlantic Council.

Improving state governance, institutional capacity, and transparency

Pepe Zhang — Tue, 20 Jun 2023 16:00:00 +0000

Adrienne Arsht Latin America Center

This is the 3rd installment of the Unlocking Economic Development in Latin America and the Caribbean report, which explores five vital opportunities for the private sector to drive socioeconomic progress in LAC, with sixteen corresponding recommendations private firms can consider as they take steps to support the region.

Improving state governance, institutional capacity, and transparency

The private sector has a strong opportunity to contribute to, and benefit from, a better business climate in LAC by partnering with governments to improve state governance, particularly in three areas: “regulation and institutional environment,” “political instability,” and “corruption.” Every survey respondent named at least one of these issues as a regional detriment, while 85 percent selected two, as seen in Figure 8. Several indices of governance, such as the World Justice Project’s Rule of Law Index, rank LAC below the OECD average for measures of accountability, political stability, and government effectiveness, among other indicators, and below the global average for rule of law.¹

SOURCE: Atlantic Council survey 2022

Quality of government and respect for the rule of law—including transparency, accountability, and enforceability—are instrumental in improving effective delivery of public services, as well as creating a business climate that incentivizes domestic and foreign investment and supports private-sector development.

Recommendations for the private sector

Businesses in LAC can assist governments in combating institutional capacity and governance challenges. Private-sector know-how and technology, including digital and cloud-based tools, can streamline government-service delivery and improve user experience. Public-private collaboration on information access and analytics, regulatory issues, and integrity mechanisms can help expose graft, boost transparency, and establish best practices, while keeping citizens informed. Together, these steps can help mitigate the region’s trust deficit, cultivate an attractive business climate, and boost economic growth.

Improving digital-government services: Private-sector technology and expertise should be leveraged to optimize the provision of government services and boost trust in government.
Promoting information access and analytics: Firms and citizens can examine and disseminate governments’ open data in ways that enforce transparency and accountability in the public sector (for example, in public procurement).
Improving integrity and regulatory quality: Commitment by the private sector (and the public sector) is critical to enhancing governance in LAC, from combating corruption to improving regulations.

About the author

Staff

Pepe Zhang

Senior Fellow

China Coronavirus

Report Jun 5, 2023

Enhancing market size, scalability, and regional integration in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can strengthen the hard and soft infrastructure supporting Latin America and the Caribbean’s economies, while drawing them closer together through trade, regulatory, and other integration.

Americas Economy & Business

Report Jun 16, 2023

Accelerating digitalization and innovation in Latin America and the Caribbean

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. The private sector can improve infrastructure, foster skills, and promote adoption to help the region transform its digital potential into development gains.

Americas Economy & Business

Report Jun 22, 2023

Addressing multidimensional inequality

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private-sector actions to reduce gender inequality, like level the playing field between SMEs and large firms and narrow the urban-rural divide, can enable a more inclusive economy for LAC.

Americas Inclusive Growth

Report Jun 26, 2023

Meaningfully advancing the green agenda

By Pepe Zhang

To sustain the ongoing recovery against short-term headwinds and boost inclusive, productive, and sustainable development in the long term, governments cannot, and should not, act alone. Private firms can help advance the green agenda by working to create green jobs, taking measures to promote a transition to a circular-economy model, and partaking in green finance.

Americas Climate Change & Climate Action

Online Event Thu, February 17, 2022 • 9:00 am ET

#ProactiveLAC: A digital future for regional prosperity

A virtual conversation on the role of public-private partnerships and policy actions in increasing digital connectivity across Latin America and the Caribbean.

Coronavirus Digital Policy Inclusive Growth Latin America

1 “Worldwide Governance Indicators,” World Bank, last visited January 25, 2022, https://info.worldbank.org/governance/wgi/Home/Reports. Results derived from the World Justice Project’s Rule of Law Index, available at: https://worldjusticeproject.org/our-work/research-and-data/wjp-rule-law-index-2021/current-historical-data. LAC average: 0.523; global average: 0.557 (author’s calculations).

The post Improving state governance, institutional capacity, and transparency appeared first on Atlantic Council.

Western companies are still financing the Russian invasion of Ukraine

Nataliya Popovych — Tue, 20 Jun 2023 11:39:15 +0000

Despite tremendous business interest in Ukraine’s reconstruction and development, a large number of Western companies continue to undermine Kyiv’s efforts by contributing to the Kremlin’s war chest. This ongoing corporate complicity must be stopped if Ukraine’s meaningful recovery is to happen any time soon.

The recent destruction of the Kakhovka dam is one of over 90,000 suspected Russian war crimes in Ukraine. Clearly, no reconstruction of Ukraine can succeed unless Russia is completely deprived of the resources to continue its invasion. The international community cannot have a meaningful conversation on recovery or reconstruction unless international companies that continue to feed Putin’s war chest cease their business operations in Russia entirely.

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When Russia’s full-scale invasion of Ukraine first began in February 2022, some Western businesses demonstrated swift and early exits from the Russian market, putting values over profit. While these often high profile departures generated a lot of media coverage, in reality the majority of Western firms have chosen to remain in Russia.

According to data from the Kyiv School of Economics (KSE), out of 1,361 Western companies with Russian subsidiaries at the start of the full-scale invasion, only 241 (17%) have completely exited Russia. The remaining Western companies generated $136 billion in revenues during 2022, thus helping the Kremlin to finance the war in Ukraine.

Perhaps even more staggering than these numbers are the excuses used by the leadership of Western multinationals to justify their continued presence in Russia. The most common justifications for persisting with “business as usual” in Putin’s Russia primarily revolve around the provision of essential goods. This argument is widely cited despite the fact that it is rarely supported by the nature of the businesses in question.

Eurasia Center events