Monthly Archives: March 2022

The Purposes and Limits of Sanctions

The dramatic suite of sanctions that have been imposed upon Russia in the wake of the latter’s invasion of Ukraine represent the endpoint of a failed policy more than the beginning point of a potentially successful policy. The principal utility of sanctions lies in the threat of their use should the target engage in behavior that the wielder of sanctions seeks to discourage. By threatening costs contingent upon the target’s behavior, the state making the threat is engaging in an act of attempted deterrence. Should the target go ahead with the proscribed act, then this represents the failure of deterrence: the target either doubts the credibility of the deterrent threat or deems the costs to be imposed more than countered by the benefits to be gained from acting.

If the threat of sanctions fails, then the problem shifts from one of deterrence to compellence. Instead of seeking to dissuade the target from undertaking a proscribed act, the focus turns to reversing a step already taken or changing ongoing behavior. Compellence is much more difficult than deterrence. For one thing, once the act has occurred, it might prove difficult or even impossible to fully reverse the consequences. The damage brought by war, for instance, does not disappear once a cease fire is declared. Moreover, the target, once publicly committed to a course of action, would suffer political and reputational costs by buckling under to sanctions. Finally, as suggested above, if the cost of sanctions have already been priced into the target’s decision to act, then the likelihood of sanctions successfully serving the purpose of compellence will be low.

Beyond changing the target’s behavior, a more ambitious goal of sanctions might be to provoke the removal of the target’s leadership, through electoral loss, coup de etat or more thoroughgoing regime change. The actor may target elite supporters of the target state leadership in hopes they will abandon the leader. Sanctions may also seek to stimulate broader popular rebellion via sanctions that undermine the fundamental stability of the target state’s economy. If changing the behavior of a present set of target state leaders is difficult, removing them via sanctions is much more difficult.

Moreover, if leaders of the target state believe that the real purpose of sanctions is their removal, rather than just a change in their behavior, then they will be most unlikely to accede to demands. After all, no behavioral change on the part of the target state will suffice to relieve external pressures if regime change is the goal.

In fact, many studies have shown that sanctions seldom achieve all or a portion of the stated goals, whether the latter involve changes in behavior, leadership or both. So if sanctions fail for the purposes of deterrence and offer little prospect of success for the purposes of compellence, why impose them at all?

One purpose is to establish the credibility of future deterrent threats. Even if the threat of sanctions fails in the present case, a state will want to preserve the effectiveness of sanctions threats in future cases. That can only be accomplished by carrying through sanctions threats, even if there is little chance that such sanctions will compel the target to change behavior in the present case. The downside of doing so, of course, is that sanctions always involve costs to the states that imposes them, as well as to the target. There is, then, a price to preserving credibility.

Another purpose in imposing sanctions is not to alter the target’s behavior, but to convince politically significant domestic audiences that a leader is “doing something” about a problem, even if the “something” has little change of success. Indeed, rival political factions may compete over who is “tougher” on the issue by bidding upward the extent of sanctions. From the public’s standpoint, it may be sufficient that the sanctions “punish” the target state, even if they fail to alter that state’s behavior or leadership.

Which factors are driving Western sanctions on Russia? Preserving the future credibility of future sanctions threats does not require sanctions as broad and severe as those imposed upon Russia over the past week. So this would not appear a major factor.

Although the sanctions directed at Russia have been accompanied by demands that Russian troops leave Ukraine, it remains unclear whether Western policy-makers actually believe that this is a realistic goal. Reports suggest that some high-level officials are instead worried that the severity of Western sanctions may prompt escalatory moves on Russian President Vladimir Putin’s part, rather than retreat. Also, if the goal was near-term change in Russian behavior, we might expect some delineation of the conditions under which sanctions would be removed, so as to more precisely incentivize Putin’s conduct. So far, an explication of such conditionality has been missing in public statements by Western leaders.

There seems little doubt that the domestic demand for action has forced policy-makers in the US and Europe to impose sanctions far more severe than initially planned. This is linked to the determined resistance of the Ukrainian armed forces and population along with the extraordinarily effective messenging and leadership presented by Ukrainian President Volodymyr Zelensky.

There has been speculation that the West seeks to use sanctions as a tool to force Putin out of office. Some of the sanctions specifically target members of the Russian elite who are closely allied with Putin. The hope may be that these pillars of regime support can be stripped away. However, the severing of connections between Russian business elites and Western economies may simply make them all the more dependent upon their relationship with Putin. Regime change via ruptures in elite politics may be a goal of the West, but sanctions could nevertheless prove either ineffective or counterproductive for this purpose.

The most severe sanctions seek to isolate Russia’s Central Bank, force major Russian banks into bankruptcy and collapse the value of the ruble. Even if successful in destroying Russia’s economy, such measures will not impact the military situation on the ground in Ukraine in the near-term. But success is not assured, in part because China could provide a lifeline for Russian finance. The purpose of such thoroughgoing sanctions is not clear, but may rest upon the idea that Putin will pull back if faced with an economic downturn so severe as to produce popular unrest directed against his rule. Some Western officials may even hope that a popular uprising could remove Putin from office. If so, this expectation must be weighed against the possibility that the Russian people will direct their anger against the West rather than overthrow their rulers. One must also consider the morality of all-out economic warfare on a population which is, in a sense, hostage to the misdeeds of their ruler.

In the West’s clash with Russia over the invasion of Ukraine, sanctions are a second-best option. The focus on sanctions has somewhat obscured the more fundamental fact that Western leaders early on ruled out the threat of military force as a deterrent to Russian invasion or as a tool to repel or reverse such an invasion once it occurred. Indeed, it is the West that has been deterred from intervention in the conflict, mainly by Russia’s nuclear capabilities, and, to a lesser extent, by Russia’s conventional military superiority in the vicinity of Ukraine. Sanctions are what the West has left to wield once NATO’s military capabilities are removed from the equation. But they are unlikely to be enough to save Ukraine.

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Did China Just Swerve?

In October 2020, Chair of the U.S. Joint Chiefs of Staff Mark Milley received intelligence indicating that Chinese leaders feared that the U.S. sought to prod China into a war over Taiwan as a means for shoring up President Donald Trump’s political fortunes. Milley called his Chinese counterpart to assure the Chinese that U.S. intentions were peaceful.

Yet this brief moment of reassurance has not dissuaded the two superpowers from ramping up their game of chicken over Taiwan over the past year. President Biden has continued to raise the level of U.S. official contact with Taiwan’s government. Biden approved a major new arms package for Taiwan while deploying U.S. war ships through the Taiwan Strait and conducting naval and air exercises with Taiwanese and allied forces. Biden has openly courted Japanese and Australian engagement in future military contingencies involving Taiwan’s defense. Most recently, news reports revealed the secret deployment of a small contingent of U.S. Marines on a training mission to Taiwan over the past year.

For its parts, China has dramatically upped the tempo of PLA war planes crossing through Taiwan’s Air Defense Identification Zone and carried out threatening missile tests in the waters off of Taiwan. After a decade-long military buildup, American and Taiwanese analysts believe that China’s is now capable of successfully invading and occupying Taiwan, even if U.S. forces come to Taiwan’s assistance. China’s rhetorical warfare against Taiwan’s current policies and leadership has also reached new heights, with Chinese President Xi Jinping threatening in July to “smash” any Taiwanese move toward formal independence of the mainland.

Yet amidst these unprecedented tensions, Xi gave a relatively conciliatory speech on October 9 in which he declared: “achieving unification through peaceful means is most in line with the overall interests of Chinese people, including Taiwan compatriots.” Xi avoided repetition of his past insistence that Beijing reserves the right to use military force to resolve what the Chinese Communist Party regards as an internal matter that engages China’s sovereign rights. Moreover, Chinese spokespersons responded rather mildly to the explosive news of U.S. Marines stationed in Taiwan and apparently tamped down nationalist responses on social media.

Why the shift in tone? In part, Xi is no doubt responding to prior American moves that signal Biden’s desire to reduce tensions. These include a phone conversation between the two presidents in which Biden restated America’s commitment to a “one China” policy that recognizes the CCP as the sole government of mainland China. U.S. prosecutor’s also reached a deal that led to the release of Meng … by Canadian authorities and her return to China.

From another perspective, however, Xi’s apparent shift from threat to conciliation is illusory. From Beijing perspective, independence and unification are two very different things calling for differing responses. The CCP threatens military force as a tool to deter Taiwan from taking formal steps to declare independence from the mainland. Whenever Taiwan appears to be inching toward formal independence through incremental steps, the CCP responds with dire warnings and displays of military power.

While describing unification as “inevitable,” on the other hand, Xi and the CCP leadership consistently express a desire that this end be achieved through peaceful means. Moreover, Xi has refrained from setting a deadline for fulfilling the goal of unification. Taiwanese independence, in other words, must be resisted at all costs, including those entailed by war. Unification, however, can wait. The ambiguities of the status quo are tolerable, even if unsatisfactory from Beijing’s standpoint.

Xi understands that even a successful invasion of Taiwan would be tremendously costly and raise the risks of nuclear war.

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How China’s Ambitious Belt and Road Plans for East Africa Came Apart

 As China draws back from large scale infrastructure investments in Africa, it is worth considering why so many major Belt and Road (BRI) projects in the region, unveiled with great fanfare, have ultimately failed. A connecting thread across such cases has been China’s inability to manage the political complexities associated with infrastructure development.

Within China itself, the context for infrastructure development is defined by political continuity, deep-pocketed state actors, state-controlled media and a weak civil society. Authorities can plan and implement projects with few serious impediments.

The BRI was envisioned as an extension of this top-down, “China Model” of infrastructure development model to other countries. But, of course, the political circumstances familiar to Chinese actors at home are seldom duplicated abroad despite the fact that, according to Ding Yifan of China’s Development Research Centre of the State Council, Chinese companies “think other countries are just like China.”

Chinese actors typically approach BRI deals with two contradictory assumptions; first, the political leadership with whom they are dealing is either too weak or too venal to challenge contract terms that decidedly favor China; and, second, these same leaders will be strong enough to fend-off resistance to ambitious infrastructure projects by opposition politicians and civil society groups while also mobilizing the financial resources necessary to sustain expensive, long term projects.

In practice, few projects meet the “just right” conditions of this Goldilocks formula. Instead, conditions are “too hot”: strong leaders reject unfavorable terms; or “too cold”: weak leaders cannot defend bad deals against domestic opposition or rescue the projects once they run into trouble. The three case studies below each illuminate a different path to failure.

Strong Leader – Deal Nixed: Bagamoyo Port

            In March, 2013, Tanzanian President Jakaya Kikwete and Chinese President Xi Jinping signed an agreement for a $10 billion port designed to handle 20 million containers a year. China Merchants Holding was contracted to build the port with China’s Export-Import Bank providing the bulk of financing. The port would be connected to a large industrial city and the TAZARA Railway, allowing goods to move to-and-from central Africa.

            Situated in Kiwete’s home district of Bagamoyo, the port was well-positioned to shower benefits upon the president’s supporters. With his term in office ending less than a month later, Kiwete rushed to conclude port construction contracts in October 2015.

In a stunning move, incoming President John Magufuli quickly moved to cancel the contracts. In contrast with Kikweta, Magufuli was an economic nationalist inclined to hard bargaining with foreign investors. Magufuli was also a tough, often authoritarian, leader who brooked little opposition.

            After years of further negotiations, Magufuli pulled the plug in October 2019. Declaring Chinese demands “exploitative,” Magufuli complained: “Those investors are coming with tough conditions that can only be accepted by mad people.” Tanzania Ports Authority Chief Executive Deusdedit Kakoko rejected China Merchants Holding International’s five key conditions, which included a 99-year lease, a tax holiday, below market rates for water and electricity, relaxed regulation and restrictions on Tanzania’s ability to develop competing ports.

            Following Magufuli’s death in office, newly installed President Samia Suluhu Hassan announced, in June 2021, the resumption of negotiations with China over the Bagamoyo Port project. Hassan is closely aligned with former President Jakaya Kikwete’s political network within the ruling Chama Cha Mapinduzi (CCM) Party. Should Hassan prove pliable enough to accept China’s conditions, the port project would risk failure along our other two pathways.

Weak Leader – White Elephant: Kenya’s Standard Gauge Railway

Weak leaders accept terms favoring foreign lenders and investors. But one-sided projects often generate fatal opposition or, if implemented, risk becoming financial white elephants. Our two Kenya cases featured contract terms heavily favoring China. Both projects were negotiated by President Uhuru Kenyatta, widely considered to be a weaker than his predecessors: Uhuru’s father Jomo Kenyatta, a towering anti-colonial figure who served as Kenya’s first post-independence leader; and the autocratic Daniel arap Moi, who held the presidency for twenty-two years.

Despite his family pedigree, Uhuru Kenyatta was soundly defeated in his first bid for the presidency in 2002. He barely survived a court challenge to his 2013 victory. Although initial returns from the August 2017 election showed Kenyatta the winner, the Supreme Court ordered a new election after siding with a challenge mounted by the main opposition candidate. Following months of growing tension, Kenyatta’s challenger withdrew from the October revote, allowing Kenyatta to retain office.

To improve his precarious political position, Kenyatta sought to accelerate Kenyan economic development by attracting foreign capital, especially from China. In 2018, China held close to $10 billion or 73% of Kenya’s overall debt, among the highest in Africa. Even as Kenyan debt service tripled between 2013 and 2018, Kenyatta defiantly declared: “I will continue to borrow to develop.”

 Kenya’s Standard Gauge Railway (SGR) project served as the crown jewel of Kenyatta’s ambitious plan. The railway was designed to speed the flow and increase the capacity of goods moving to and from the Kenyan port of Mombasa. Kenya contracted with the China Road and Bridge Corporation (CRBC) to construct the SGR in three main stages. The plan also envisioned a fourth stage undertaken in cooperation with the government of Uganda, with a line running to the Ugandan capital of Kampala and eventually to the interior of East Africa. The financial viability of the project depended upon the expected volume of goods that an extended rail network would realize.

The bulk of financing for the first stage, from Mombasa to Nairobi, was provided by the China Export-Import Bank in the amount of $3.24 billion. A special purpose vehicle called the Kenyan Railway Corporation (KRC) contracted with CRBC to operate the line. Passenger and freight service were both operational by early 2018.

The terms of the SGR deal heavily favored the Chinese partners. Indeed, a Kenyan appeals court later ruled the original contract invalid due to the lack of competitive and transparent bidding. As collateral, Kenya was required to set up a special reserve account and to waive sovereign immunity for the port of Mombasa, making the latter vulnerable to seizure by Chinese creditors should Kenya default.

The loan for the first stage carried a high interest rate and quick repayment period. Conversely, to finance operations the CRBC borrowed from the KRC at zero interest and a generous grace period. Repayment made not in cash, but in services. Moreover, CRBC was relieved of liability for operating losses. Contract disputes were managed through arbitration in China under Chinese law.

Revenue from the initial year of operation came to less than half of projections and covered only half of operating costs. A Kenyan government report estimated that without subsidies freight transport along the new rail line cost twice that via truck. Despite hopes that the rail line would boost exports, the tonnage of goods shipped inland from Mombasa exceeded that shipped to the port by a ratio of almost 8 to 1. While the second stage of the SGR project is nearing completion, China’s Export-Import Bank pulled funding from the third stage due to concerns about financial viability as well as worries that Kenya is “politically unstable.”

In 2020, the SGR lost money at a rate of over $9 million per month, prompting the Kenyan government to require that government agencies and importers ship goods via train rather than truck, a demand resisted by importers and truckers. Kenya Railways defaulted on a $350 million payment to CRBC’s subsidiary Africa Star, which operates the SGR. In July 2020, KRC announced plans to take over management of the SGR from Africa Star, which, in turn, has demanded the full payment of past due debts before the full transfer of operations to KRC.

In sum, Kenyatta’s intended legacy project has become a financial morass while Kenya and China struggle to disentangle themselves from one another.

Weak Leader – Veto by Domestic Opponents: Lamu Power Project

In 2014, Kenya’s Ministry of Energy and Petroleum awarded a contract to Amu Power for construction of a $2 billion power plant, East Africa’s first to rely upon coal. Sixty percent of the total estimated project cost was to be financed by the Industrial and Commercial Bank of China, a Chinese state-owned commercial bank. The plant was to be built by state-owned China Huadian Corporation.

From the beginning, the project was bathed in controversy due to the close proximity of the plant to a UNESCO heritage site, Lamu Old Town, which served as the best preserved Swahili cultural settlement in East Africa. There were also worries about the environmental impact of the plant.

Opposition to the project arose within Kenya’s Energy Regulatory Commission before licensing approval was finally given in 2016 by the National Environment Management Authority. These bureaucratic delays allowed time for a coalition of local and international NGOs to coalesce in opposition. An umbrella organization called Save Lamu brought together forty local civil society groups. Save Lamu received international support from national NGOs such as the INUKA Trust Fund, and international NGOs, including South Africa-based Natural Justice. From 2016—2019, the coalition conducted a campaign of petitions, protests, public meetings and workshops under the “deCOALinize” banner.

Save Lamu repeatedly requested meetings with representatives of ICBC and the Chinese Embassy without response. In June 2019, a deCOALinize and Greenpeace march to the Chinese Embassy was interrupted by police. This succeeded, however, in securing a subsequent meeting with Chinese Ambassador to Kenya Wu Peng, along with representatives of two Chinese firms under contract to construct the plant. No ICBC representative was present.

Acknowledging that it was Kenya’s decision whether to proceed with the plant, Ambassador Wu expressed reluctance to engage with civil society groups: “You know the problem is who represents your people. As a country, how do we engage bilaterally? We cannot talk to each individual person. It is impossible. You have about 50 million people but you have one administration elected by your people. That is the only way as government to government.”

Save Lamu and other groups sued to halt the project. In 2019, the Kenya National Environmental Tribunal cancelled the license for the Lamu power plant project, ruling that officials had failed to carry out adequate environmental assessments or public consultations. In November 2020, ICBC withdrew from the project, as did General Electric, which had planned an equity investment.

In retrospect, ICBC and the other Chinese entities were hampered by their discomfort and unfamiliarity in navigating the political complexities posed by operating in a country with democratic institutions, an independent judiciary and a vibrant, transnationally-connected civil society. Director of the Green Belt and Road Initiative Center Christoph Nedopil Wang observes that foreign companies have little choice but to consult with civil society since “agreements between businesses and government are insufficient to ensure the implementation of a project.”

Environmental journalist Shi Yi writes: “State-owned enterprises rarely speak to the Chinese media or public and generally do so only for self-promotion. The same approach is often followed overseas. Any public communication may need approval from the headquarters in China, and Chinese companies often discourage their employees from interacting with local people. This means company leaders may not be aware of investment risks in time.”

Conclusion

The evident bargaining advantages that Chinese state-owned firms enjoy in relation to many host states often produce one-sided contracts favoring China, but do not endow Chinese agents with sufficient control over the political variables necessary to project success. One-sided deals may be rejected once a strong leader assumes office, fall prey to domestic opposition or prove financially unviable. The political Goldilocks solution sought by Chinese actors – a host country leadership too weak to drive a hard bargain but strong enough to push a project to successful conclusion against domestic opposition and financial constraints – is elusive at best. These considerations suggest limits on the possibility of projecting a “China Model” via the BRI. When it comes to Chinese infrastructure investment, perhaps Dorothy put it best: “There’s no place like home!”

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