July 15, 2018

China's AI plan lays foundation for long-term strength


China's AI plan lays foundation for long-term strength

Monday, July 9, 2018

China is ploughing money into a nationwide multi-billion-dollar programme to gain the lead in artificial intelligence

China's artificial intelligence (AI) industry received investment of 28 billion dollars last year, according to the China Academy of Information and Communications Technology. The government last July issued a Next generation artificial intelligence development plan, which sets a 1-trillion-renminbi (151-billion-dollar) 2030 target for China's core AI industry and a 10-trillion-renminbi target for related industries. A Three-year action plan for promoting development of a new generation artificial intelligence industry followed in December, setting numerous quantitative targets for 2020.

What next

Firms and public institutions will enjoy generous public funding for AI-related initiatives. There is a danger of a policy-induced investment bubble but even if most of these individual investments fail in narrow financial terms, the combined effect on the national level will still upgrade China's AI-related infrastructure and human resource base significantly, laying a foundation for long-term strength in the field.

Subsidiary Impacts

Foreign AI professionals will be able to find well-paid employment in Chinese firms and institutions.Foreign firms working in AI will find eager partners and investors in China.Chinese experts will participate in international standard-setting and debates about ethics and safety.Close cooperation with the military on AI development will feed suspicion of Chinese technology firms overseas.


China's national-level AI development plans are aspirational, doing little to establish priorities or allocate resources and clearly define responsibilities (see CHINA: Artificial intelligence could transform China - September 21, 2017).

However, they establish AI overall as a high national priority, explicitly state an ambition to lead the world in the field by 2030 and signal that initiatives in AI by subsidiary levels of the state system will be rewarded.

Decentralised implementation

Concrete policies are left to ministries, local governments and public institutions such as universities and the Chinese Academy of Sciences.

By mid-April this year, 18 provinces and cities had their own AI development plans, with a combined target output of 400 billion renminbi in 2020.

For example, Beijing municipality announced in January a 13.8-billion-renminbi AI development park, and Tianjin announced in May a 100-billion-renminbi fund to subsidise AI research institutions to set up in the city and attract top talent with salaries of up to 2 million renminbi.

The real figures will probably fall short of those announced in many cases but will be very significant nevertheless.

Decentralisation allows local experimentation and innovation, but it also carries risks

Investment bubble?

Local governments will follow political signals by ploughing resources into AI projects. Inter-regional competition will inflate the costs of incentives to attract businesses and talent as regional centres vie to become 'China's Silicon Valley' (China has no one leading technology hub). Private firms will leap into an area they know enjoys government favour and funding.

The result may be overcapacity and the collapse of many unviable investments (see CHINA: Monopolies and abuses hold back tech sector - February 12, 2018).

A possible warning sign is the seemingly opportunistic entry of firms with no relevant experience. For example, real estate conglomerate Evergrande announced in April a 100-billion-renminbi investment in three cutting-edge technology centres, with AI as one focus.

However, even investments that miss their desired objectives may create capacity that can be recycled for other, more successful innovative activities. This occurred in the United States after the end of the space race, when thousands of laid-off engineers built much of the US tech industry.

Government funding

Enterprises will carry out the majority of R&D, but often in partnership with public institutions or with state funding.

The central government will directly fund some projects. For example, the first half of 2018 saw the Ministry of Science and Technology allocate 2.73 billion renminbi to eight AI-related research projects.

However, 'government guidance funds' could be a much larger source. These are established mainly by provincial and city governments, and function like venture capital funds, raising private capital and adding public money to invest in start-ups in priority sectors. By end-2016, around 1,000 such funds had raised 1.9 trillion renminbi. Their two top priorities now are healthcare and AI. Most recently, Shanghai municipality launched on July 4 a 100-billion-renminbi AI investment fund.

The rapid launch of new funds could contribute to an investment bubble, and to its collapse if too many funds reach maturity simultaneously and M&A or stock market demand falls short of this supply.

Public procurement

China's AI industry will benefit from government procurement, with domestic firms having exclusive access in sensitive areas such as security. For example, SenseTime, which in April raised 600 million dollars to become the world's highest-valued AI start-up, valued at 4.5 billion dollars, derives at least one-third of its business selling real-time facial recognition surveillance systems to Chinese police forces.

The scale of military research and procurement is undisclosed but will be significant. The government promotes 'military-civil fusion', in which the military forges links with civilian research institutes, universities and private firms to pool resources and personnel, develop dual-use technologies, adopt shared standards and avoid duplication.

AI is a particularly attractive field for military-civil fusion because the private sector is on the cutting edge, rather than the state-owned defence firms that traditionally supply the military.

Private sector pivotal

The technology sector is unusual among China's major industries in that large private firms dominate it, namely Baidu, Alibaba and Tencent. These will be the preferred partners and major beneficiaries of public spending on AI. For example, the National Development and Reform Commission will fund Baidu's national deep-learning lab.

China's tech giants will come under heavy political pressure to contribute their resources to state objectives. Two months after the publication of the national AI strategy last year, Baidu launched a 1.5-billion-dollar fund to invest in AI companies. The month after that Alibaba announced a 15-billion-dollar programme to build seven labs in four countries focusing on AI and quantum computing. Such moves are not necessarily taken simply to please powerful politicians; state and commercial objectives will often converge.

The private sector is at the heart of China's AI plans

These private firms are also crucial to China's AI development because they collect the huge datasets necessary for training machine-learning algorithms. They will come under pressure to share them, for example, through partnerships with universities such as that announced between Alibaba and Tsinghua University in March.

The Ministry of Science and Technology last November designated the three largest private firms, Baidu, Alibaba and Tencent, as 'national champions' in developing self-driving cars, smart cities and computer vision for medical diagnostics respectively, and a fourth firm, iFlytek, the leader in speech recognition. These designations may indicate the central government's priority areas.

The national champions have good prospects. They are already world-class firms and can expect state support in their efforts to compete overseas and play a policy role domestically (such as assisting urbanisation through 'smart cities'). That means a huge captive market.

Technology transfer

The most controversial elements of China's AI policies will be its promotion of inward and outward foreign investment as a means to catch up with the world leader, the United States.

China has had some success in attracting foreign firms. Google announced plans last December to open an AI research centre in Beijing. Microsoft last month revealed plans to cooperate with four Chinese universities to create an open AI platform.

However, China will have to calibrate its efforts carefully. US firms may be deterred if Chinese partners apply too much pressure to share technology. For example, AmCham China reported last year that 36% of US firms held back investment because of technology transfer requirements. These requirements also risk political backlash; they are among the major grievances cited in the 'Section 301' report that underpins the Trump administration's tariffs on Chinese exports.

Overseas acquisitions

Chinese investments in the United States will sometimes face barriers too.

Baidu opened an AI lab in Silicon Valley in 2014 and plans another in the near future. Tencent set up an AI lab in Seattle in May, led by a former Microsoft scientist. Eleven Chinese 'accelerators' in San Francisco provide assistance to technology start-ups, some of them using government funding. Such initiatives give Chinese firms access to talent unavailable in China, including Chinese graduates of US institutions who do not wish to return.

US politicians and officials cite AI as a field with implications for national security when arguing for restrictions on Chinese investments in the US technology sector. Legislation now going through Congress would expand the powers of the Committee on Foreign Investment in the United States (CFIUS), which screens incoming foreign investment.

Fears will deepen when the cyberespionage and conventional espionage that will form an unspoken part of China's AI strategy are occasionally exposed.

Human resources

The Ministry of Education in April issued an 'AI Innovation Action Plan for Colleges and Universities' and a programme to train 500 teachers of AI and 5,000 students at top universities. The previous month it approved 2,311 new majors in high-technology subjects, including data science, robotics and AI. The first school textbook specifically on AI was published in April and pilot classes have been introduced in 40 high schools. A scholarship programme will fund Chinese postgraduate students to study AI in North America.

Training new talent in China will be a slow process because it requires hiring qualified instructors who must either be trained themselves or attracted from overseas.

Chinese recruiters visit US universities to head-hunt experts. The AI plan calls in particular for the recruitment of world-class scientists through the 'Thousand Talents' programme and similar initiatives, which offer scientists grants, higher salaries and more generous perks than they can get overseas.

The decentralisation of foreign talent recruitment makes definitive totals impossible, but state news agency Xinhua last year claimed that 40,000 "high-end professionals" have been recruited through the Thousand Talents programme since its launch in 2008. The US government in April put the current number at 2,629.

Overseas recruitment efforts struggle against the disadvantages of living in China compared to US industry centres such as California. These include pollution, poor choice of schools for children, censorship and conflicting political values or loyalties. Higher salaries cannot always compensate.

China may have more success attracting professionals from the Global South, for whom the pay hike may be relatively greater and the drop in living standards less severe.

The Trump administration's moves to restrict visas for Chinese science and technology students and restrict Chinese nationals from projects deemed sensitive could aid China's efforts to retain and repatriate talent.


China's government eyes a leading role in setting technical standards for AI, which is still in its early stages.

The Standards Administration of China issued a white paper on AI standardisation in January to coordinate the national effort. In April, Beijing hosted the first ever meeting of 'Subcommittee 42', established under the International Organization for Standardization and the International Electrotechnical Commission to coordinate AI standard-setting internationally.

Setting standards will help the industry by promoting interoperability and allowing the pooling of data. It will also reduce the risk of accidents or scandals that turn public opinion against AI.

Participating in setting global standards provides the opportunity to push for Chinese patents to be incorporated, bringing royalties to Chinese firms, and ensures that global standards are not crafted in a way that disadvantages China's large firms (or the Communist Party).

International exchange

Institutions and local governments in China organise academic and commercial conferences and forums in China. Such events do not always live up to their grandiose names, but do attract international participation. Microsoft attended the 'World Intelligence Congress' hosted by Tianjin in May, and Intel is supporting a competition related to the central-government-backed 'AI World 2018' conference in Shanghai in September.

Chinese firms and institutions also pursue partnerships with Western institutions, such as the five-year research agreement signed between Chinese voice-recognition firm iFlytek and MIT's AI lab in June.

Many in the West are keen to cooperate with China

Chinese researchers are encouraged to participate in international conferences. Last month, China's AI Industry Alliance co-hosted a 'US-China AI Tech Summit' with the AI Alliance of Silicon Valley and the Future Society, attended by academic researchers and representatives from major US and Chinese tech firms.

Such exchange is likely to be well received in the West, not just because of the advanced technical content China contributes, but because some researchers fear that a country or group that reaches a major AI breakthrough might deploy it without adequately considering the ethical and safety implications (see INTERNATIONAL: The singularity is distant - October 11, 2017 and see INTERNATIONAL: Regulating AI - December 5, 2017). This concern is greater vis-a-vis states with opaque and authoritarian political systems such as China's.

Baidu's robot, Xiaodu (L) (Reuters/Kim Kyung)

July 09, 2018




Retired Colonel, U.S. Army Reserve

5:56 AM 07/09/2018

The U.S. Department of Defense Department just submitted to Congress its semiannual, June 2018 report titled “Enhancing Security and Stability in Afghanistan.”

The take-home message, like every such report for at least the last 10 years, remained the reassuring “progress is being made.” It is the contemporary equivalent to the Vietnam War assertion that there was “light at the end of the tunnel.”

Although the strategic conditions in the region have changed dramatically, the mission is the same:

“Our purpose in Afghanistan remains to prevent Afghanistan from again becoming a safe-haven from which terrorist groups can plan and execute attacks on the United States, or our allies and citizens abroad…To accomplish this, we continue to support Afghanistan and train, advise and assist its military and police forces.”

The strategy being implemented to achieve that mission is:

“The key to success remains sustained military pressure against the Taliban in order to eliminate the idea that they can achieve their objectives through violent conflict. The targeted investment of U.S. assets and personnel have increased the lethality of the [Afghan forces] this fighting season.”

In other words, progress is being made, but the Pentagon does not say just how much “lethality” will be needed to convince Taliban leaders that they cannot “achieve their objectives through violent conflict.”

There is an extensive Taliban infrastructure and support network in Pakistan along its border with Afghanistan, which includes education, recruiting, training and financial and command and control centers — none of which has been subjected to the “lethality.”

The enormous expansion of Islamic fundamentalist religious schools, madrassas, in Pakistan, largely through funding by Saudi Arabia, has provided a growing supply of potential jihadis to fight in Afghanistan. Well-organized and networked recruiters target the poor or disillusioned, reaching well beyond the Afghan refugee or Pashtun population in Pakistan and numbering in the tens of thousands. Pakistan will never run out of cannon fodder for its proxy war in Afghanistan.

Nazir, a typical potential recruit, is from the Balochi ethnic group, has no connection to the war in Afghanistan and lives hundreds of miles away from the border. In high school, he was subjected to a steady diet of the glories of jihad from his Arabic teacher and the school religious cleric, who distributed jihadi literature and cassettes to the students. After graduation, Nazir experienced a period of financial difficulties and was quickly referred to a Balochi Taliban recruiter based in Quetta, the headquarters and support base of the Taliban Quetta Shura. According to Nasir, nearly all the doctors in Quetta have been required to treat injured Taliban fighters in private hospitals far better supplied and equipped than hospitals for ordinary residents. Ultimately, Nazir did not go to Afghanistan, but scores of other young men from his region did.

It should be clear that the increase in “lethality” pursued by the Pentagon will, at best, only keep pace with the flow of jihadi fighters, educated, recruited, trained and supported in Pakistan.

It should also be clear that you get to the Taliban through Pakistan and you get to Pakistan through China. So, is “lethality” really the most relevant criterion?

U.S. strategy has simply not kept pace with the changing conditions on the ground in South Asia. The goal of those changes, primarily orchestrated by China, is to remove the U.S. presence from the region and position China as the peace mediator and alternative economic engine.

An American withdrawal from Afghanistan will only be a humiliating defeat, if the U.S. is forced into strategic retreat because we do not have a plan in place to address the changing conditions in South Asia.

The future of U.S. policy in South Asia does not reside solely in Afghanistan. Instead, the U.S. should be burden shifting and preparing to counter Chinese hegemony. Some of that effort involves learning to manage instability, to which our adversaries are no less susceptible and include national rivalries, ethnic separatism, and the Sunni-Shia divide.

The U.S. would actually gain greater leverage in Afghanistan by strategic disruption of Chinese ambitions in South Asia, particularly in Pakistan e.g. the China-Pakistan Economic Corridor, than by continuing a fruitless, exhaustive and thankless policy of trying to establish and maintain stability in Afghanistan from which we will accrue a diminishing number of strategic benefits.

Lawrence Sellin, Ph.D. is a retired US Army Reserve colonel, an IT command and control subject matter expert, trained in Arabic and Kurdish, and a veteran of Afghanistan, northern Iraq and a humanitarian mission to West Africa. He receives email at lawrence.sellin@gmail.com.

July 08, 2018

Evaluating Integrated Defense Systems: How to Proactively Defend the Final Frontier

The Strategy Bridge

Strategy Bridge 

 July 3, 2018

Frank Bednar, Jim Davitch, and Cara Treadwell

Militarily, the Italo-Turkish war of 1911-1912 stands out in aviation history for several reasons. To the Italian’s credit, they were the first to fly combat missions at night, as well as the first to employ aircraft-delivered ordnance. An Italian airman named Giulio Gavotti executed both of those feats, the latter accomplished by hurling grenades from a satchel on-board with him. Unfortunately for the nascent Italian Air Force, the conflict also represented the first time an aircraft was brought down by surface-to-air fire. Though primitive and uncoordinated in comparison to today’s integrated defenses, the Ottoman ability to deny Italy exclusive air supremacy exposed a truth: control of domains above the earth’s surface would be contested in the future.

In 2007, China successfully tested an anti-satellite weapon against one of their own weather satellites. This demonstrated China’s burgeoning strategy to hold space-based assets at risk, and further expand their military capability in the space domain. Today’s joint force may be on the verge of learning the same lesson in the space domain, as the Italian Air Force learned in the air, and should prepare by proactively employing proven offensive counter-air analytical and planning frameworks.

In this article, we present the merits of evaluating an adversary’s air defense system by looking at its component parts and argue for the application of the same schema with the space domain. Using this methodology to identify, analyze, and prioritize space domain threats will enhance the ability for joint force commanders to make critical decisions in the defense of U.S. space capabilities. Further, it will allow planning staffs to lean forward rather than just react to an adversary’s potential courses of action in the contested space domain.

For air power practitioners, the Italo-Turkish conflict demonstrated that military forces in the future would now need a plan to suppress enemy air defenses. Since then air warfare strategists have had to grapple with the problem of gaining and maintaining control of air and space, while dealing with enemy defenses designed to prevent exactly that. One of the most effective ways of evaluating an adversary’s air defenses is to break them down into component parts: air surveillance, battle management, and weapons control.


At its heart, an integrated air defense system (IADS) is a command and control organization, not a loose assembly of radars, control centers, and weapons. An integrated defense system involves sensors that provide situational awareness of the operating environment, a commander who is responsible for the control of a defined space, and weapons that can affect the environment. By analyzing an air defense’s functional components, planners can evaluate strengths and weaknesses, and then focus resources on how best to degrade or disrupt the system. Air Surveillance can employ a variety of sensors from visual observers wielding binoculars and a radio, to sophisticated radars capable of determining the precise location of a target in three dimensions. Battle management is comprised of the information fusion centers that ingest, process, and analyze surveillance data in order to recommend engagement courses of action to decision makers. When an air defense commander chooses to act, he or she may respond with fighter aircraft, surface-to-air missiles, air defense artillery and/or electromagnetic effects. These weapons represent the third component of and integrated air defense system: Weapons Control. The commander’s ability to successfully employ multiple weapons at the same time and place against an enemy defines the degree to which these defenses are integrated. Integration is made possible today by redundant, reliable command and control networks. A well-integrated defense system is more lethal because it can better allocate resources and respond to airspace incursions in a coordinated manner.

Any action taken to drive air defense components to an independent state is beneficial because it limits their integration. Therefore, one may see the benefits of viewing adversary defenses as part of a system and finding vulnerabilities within it. Using synchronized non-kinetic and kinetic effects to divide and isolate air defense system components represents the future of multi-domain counter-air defense operations. This approach of analyzing and targeting an air defense network can and should be applied to space.


In June 2017, Secretary of the Air Force, Dr. Heather Wilson called for the Air Force to “integrate, normalize and elevate space operations in the Air Force.” Accomplishing this task has been, and continues to be, a significant challenge. The Air Force was only 10 years old in 1957 when the Soviet Union launched Sputnik and seemed destined to surpass the United States in the battle for space. From that point until now, the United States and its global competitors have competed for space superiority. Similar to air superiority, Joint Publication 3-14, Space Operations defines space superiority as, “the ability to maintain freedom of action in, from, and to space, sufficient to sustain mission assurance.” In order to develop a method for analyzing and combating threats to space superiority, the joint force should adapt the same framework applied to air defenses. As discussed, the process of analyzing air defense functions as a component of an integrated system allows for focused effects-based targeting and defense.

As Bruce Sugden previously described here in The Strategy Bridge, over the past thirty years many have observed the manner in which the U.S. has executed major contingency operations. The U.S.’s use of space-based effects has been apparent to foreign observersevaluating U.S. operations at least from Operations Desert Storm to Inherent Resolve. Since the early 1990s, the joint force has increasingly integrated assets like the Global Positioning System constellationto communicationsto missile warning, to space-based intelligence, surveillance, and reconnaissance assets. These space-based sensors provide the unique ability to access enemy targets when the geometry of the battlefield would inhibit the use of airborne sensors. Therefore, space systems may be a priority target for adversaries who seek to quickly degrade the U.S. ability to effectively wage war. Understanding an adversary’s counterspace system is crucial in the defense of these assets.

Fortunately for joint planners, a nation’s counterspace system overlays nicely with the same components as a typical modern integrated air defense system. When applied to the space domain, terrestrial air surveillance becomes “space surveillance.” The battle management function that represents the commander and decision-making authority utilizes the same nomenclature (battle management), as does the weapons control function.

Space Situational Awareness and Space Object Surveillance & Identification are the two key components that make up Counterspace Surveillance. In the air domain, surveillance is accomplished through the use of radars, optical systems, and passive detection. Space surveillance uses the same type of tools and often the same tool itself, repurposed for surveillance of on-orbit systems. Ballistic missile early warning radars, for example, can be used to detect and track not only ballistic missiles, but satellites as well. Optical systems vary from civilian astronomy systems to advanced sensors such as the Space Surveillance Telescope. Like ground-based passive detection systems, passive space surveillance systems rely on the activity or emissions of a spacecraft in order to collect or receive information. Nations and civilian organizations can use the data collected through space surveillance to build extensive space object catalogs. Ostensibly, these catalogs are used to prevent unintended orbital collisions. However, these same catalogs support counterspace targeting and enable decision makers’ situational awareness of space order-of-battle.

Counterspace Battle Management fulfills the same function as described in the air domain. It is perhaps the most important component in the integrated space defense architecture, as all decision-making flows through it. Degradation of space battle management may have cascading and critically disruptive second and third order effects, especially in authoritarian nations that may rely on strict centralized control.

From a Counterspace Weapons Controlperspective, space defense systems share two commonalities with a typical air defense: non-kinetic and kinetic effects. Non-kinetic effects impacting space systems are expanding across the globe –– the most common development includes electronic attack directed against Global Positioning Service and Satellite Communications. Beyond these forms of interference, lasers and cyber-attack are also potential non-kinetic threats. On the kinetic side, similar to ground-based anti-aircraft missiles, countries like China and Russia are developing anti-satellite missile systems. In the future, satellites may be used in co-orbital engagements for defensive counter-space in a similar manner that aircraft are used today in a defensive counter-air role. The parallels between air and space systems coupled with the U.S. reliability on both necessitates a change to the traditional Integrated Air Defense System model.

In order to maintain information and space superiority the joint force requires a renewed focus on degrading an adversary’s Integrated Defense System. We prefer this term “Integrated Defense System” because it is more versatile than the traditional Integrated Air Defense System, which needlessly excludes the land, maritime, space, and cyber domains.

This methodology is useful for more than personnel working exclusively in space-related careers. Conventional force planners can and should use the surveillance, battle management, and weapons control framework to perform target development and red teaming on critical space capabilities they require respectively to be degraded or protected. Furthermore, if a conventional Air Force fighter or bomber unit identifies a particular space-based asset as necessary to conducting its mission, then defense of that space asset should become a priority. Changing this mindset, getting fighter and bomber war fighters to understand and appreciate how space-based assets affect their own missions is an important step toward Secretary Wilson’s call to normalize the relationship. Her call could even be fruitfully extended to the U.S. Air Force’s joint partners in the Departments of the Navy and the Army, and to a certain extent has already done so.

In evaluating and countering these threats, it is important to note that we are not advocating for the weaponization of space. Our recommendation is to employ a methodology focusing on the terrestrial components of the network before an adversary attacks U.S. assets in space. This approach allows the joint force commander to be more proactive rather than retaliating after an adversary has attacked critical U.S. space assets.

In conclusion, for too long the Air Force has viewed space operations as a subset of the service as a whole. In order to bridge this reticence, Air Force Chief of Staff General David Goldfein stated to an Air Warfare Symposium audience, “It is time for us as a service, regardless of specialty badge, to embrace space superiority with the same passion and sense of ownership as we apply to air superiority today.” To get from here to there, we suggest the Air Force treat the quest for space control similar to the pursuit of air superiority –– treat space systems’ component parts like a traditional air defense system, an Integrated Defense System.

Beyond the Air Force, the joint force should articulate in joint doctrine the Integrated Defense System model described above. By applying a similar model used in the air domain, operational-level planners can evaluate their own strengths and weaknesses as well as those of their adversary’s and better anticipate future contingencies and requirements. The traditional “IADS takedown,” which has become a central tenet of a successful air campaign now must also contain a plan to suppress or negate an adversary’s entire Integrated Defense System while also protecting our own critical capabilities. The joint community’s reliance on space makes this an imperative — never again will a joint force commander fight a conventional adversary that does not exploit this dependence. We must not wait for the 21st century equivalent of the Italo-Turkish war to demonstrate we are unprepared for an adversary’s capabilities.

Frank Bednar, Jim Davitch, and Cara Treadwell are U.S. Air Force officers. The views and conclusions expressed in this article are theirs alone and do not reflect the official position of the Colorado National Guard, the U.S. National Guard Bureau, the U.S. Air Force, the Department of Defense, or the U.S. Government.

July 06, 2018

RWR Advisory: Belt and Road at a Glance

Belt and Road at a Glance

Top Developments

Hambantota Controversy Re-Emerges
The June 25 publication of a New York Times report on China’s involvement inSri Lanka’s Hambantota Port has re-ignited controversy surrounding the facility. A group of lawmakers linked to former president Mahinda Rajapaksa held a news conference in which they claimed that two Sri Lankan Times journalists were working on behalf of the current government to undermine Rajapaksa, who also denied allegations that he had taken campaign contributions from the Chinese government. State tabloid Global Times added fuel to the fire, commenting: “Instead of the New York Timesdemonizing China’s efforts, isn’t it better if it explores how the U.S. can participate in aiding impoverished countries?”Bank of China Opens Branch in Mexico, Possibly Signaling Increase in Chinese Investment?
On June 26, Mexican regulator Comisión Nacional Bancaria y de Valores (CNBV) authorized the opening of a new branch of Bank of China, making it the second Chinese bank to have operations in the country. CNBV said in astatement that the branch will focus on corporate financial services for Chinese firms operating in the country, their suppliers, and other Mexican businesses involved in trade with China. With an initial capitalization of $44 million, its capacity will have to be increased before it is in a position to lend for potential Chinese infrastructure projects in Mexico. There is a good probability of new projects in this domain due to new President Andres Manuel Lopez Obrador’s interest in reviving plans to build a connection across the Isthumus of Tehuantepec, where the Atlantic and Pacific Oceans are only 200 km apart.Major Power, Rail Projects Announced during Nepal PM's Beijing Visit
Nepalese Prime Minister K.P. Sharma Oli made a state visit to Beijing on June 20. During his visit, Nepal and China signed eight different agreements, including memoranda of understanding (MoUs) regarding hydropower plants at each of Kali Gandaki Gorge, Siuri Nyadi, Marsyangdi, and Trishuli-Galchhi. There was no update, however, about the 1,200MW Budhi Gandaki hydropower plant, which was cancelled by Nepalese authorities in November 2017 due to “irregularities”, but saw talk of a “revival” in February 2018. Other MoUs signed during the visit called for the construction of a 540km rail link between Nepal and China’s Tibet Autonomous Region as well as a $144 million cement factory.Chinese Aid and Investment in Pakistan Deepens
On July 1, China lent Pakistan $1 billion to bolster the country’s foreign exchange reserves, the result of negotiations that have been underway since late May. Overall, China lent Pakistan $5 billion in the financial year that ended in June. Analysts say, however, that Pakistan may also be forced to take lending from the IMF. China is aiming to increase the depth of its relationship with Pakistan in other, “softer” ways as well. Also on July 1, it was announced that the China-Pakistan Economic Corridor Cultural Communication Center “Talent Corridor” will see 1,000 Pakistani students travel to China for a year of vocational training, with their departure slated for November. Countering the Chinese and Pakistani government message on the mutual benefits of CPEC, areport released by NGO International Crisis Group warned that many projects associated with CPEC “risk widening social divides and heightening political tensions along the route.”16+1 Summit Faces Local Frustration
As the Bulgarian capital of Sofia prepares to host the annual meeting of the “16+1” China-Central and Eastern Europe grouping, unease has been building among officials. In particular, Polish representatives expressed frustrationwith the way the summits are organized and the final communique put together. Warsaw also complained that Chinese firms abandoned several construction sites in Poland before the Euro 2012 soccer championships.Slovakian officials said there was no major Chinese investment there, and Romania said that there had been minimal progress on a 2015 agreement for China to build two nuclear reactors. Meanwhile, however, members fromHungary and Serbia continue to be enthusiastic supporters. Amidst this discord, there are reports of difficulty configuring a final communique.China, Belarus Scale Up Engagement
Newly-elected Malaysian Prime Minister Mahathir Mohamed appears to be making good on his campaign threat to review and possibly cancel major Chinese investments. In early July, work on the East Coast Rail Link was halted, along with two oil and gas pipelines. Finance Minister Lim Guan Engconfirmed that Malaysia had suspended a $813 million gas and petroleum pipeline linking Malacca to a Petronas refinery and petrochemical integrated development project at Pengerang. Minister Lim said that Malaysian officials would likely travel to Beijing next week to negotiate the terms of the suspended projects, the total value of which is approximately $23 billion. Malaysian authorities are also investigating whether part of a $2.3 Chinese loan linked to the projects was used to repay dues of the controversial 1MDB fund, from which former Prime Minister Najib Razak is thought to have embezzled large sums.Air China Frames London-Chengdu Flight as “Belt and Road”
Air China’s new UK service from Chengdu to London’s Gatwick Airport was launched on July 3 and described by the state-run People’s Daily as “boosted by China’s Belt and Road.” This is the second time in recent weeks that Air China has promoted its activities as being intimately linked to BRI. The airline has also started marketing new services to Hanoi, Vietnam and Irkutsk, Russia as “Belt and Road routes”, as it did flights to Nha Trang, Vietnam; Bangkok,Thailand; and Copenhagen, Denmark. There is government support for commercial aviation being framed within the context of the Belt and Road Initiative, but designations such as this are increasingly contributing to skepticism over Belt and Road becoming a catch-all phrase for Chinese business abroad.CNPC Moves to Rescue Petrobras Refinery Project
State-owned oil company CNPC signed a letter of intent to help Braziliancounterpart Petrobras complete a Rio de Janeiro refinery that already cost $14 billion before construction was halted amid a investigation into the “Carwash” corruption case. The letter adds Comperj refinery to a partnership the companies signed last year, under which CNPC will also investigate investments in the offshore Marlim field. The Carwash investigation showed that contracts were rigged by a cartel of 16 engineering and construction conglomerates.China Development Bank, Vnesheconombank Sign Loan Agreement
On June 27, Russia’s Vnesheconombank (VEB) signed a framework agreement with China Development Bank (CDB) to receive $9.8 billion in five-year loans for financing joint projects. This is not the first time that CDB has positioned itself as a lender to VEB, Russia’s government-owned development bank. Prior to the current credit facility, CDB extended loans to VEB in each of 2017, 2016, 2015, 2013, and 2012, with the total amount available or disbursed standing at $12.39 billion. As VEB has been subject to U.S. economic sanctions since July 2014, this most recent loan can be observed in the context of Russia’s turn to China for financing support. Losses following the implementation of sanctions in 2014-2015 earlier prompted the Russian government to offer VEB a $5.28 billion bailout in 2015 as well as an $8 billion loan from CDB.Minister: $3 Billion Jamaica-Gansu SEZ Groundbreaking in December
Jamaican Minister-without-Portfolio Mike Henry said on June 27 that construction on the Jamaica-Gansu Special Economic Zone and Industrial Park will begin in December 2018. China’s Jiuquan Iron and Steel Company (JISCO) will invest over $3 billion in the development, which is located in Nairn, where JISCO also operates the Alpart alumina refinery. While Minister Henry said that, “there is no question of the scale, the developmental scope, and the economic imperatives of this project,” this is not entirely true. The $6 billion overall investment cited in the February framework agreement appears to have been lowered, and the project timeline is believed to be a murky period of between 2 and 8 years.

New Project Locations

Data from IntelTrak, June 19 - July 3

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What They're Saying

On India’s request for project financing from the Asian Infrastructure Investment Bank

"With 86 member countries, I don’t think anybody should consider [AIIB] belongs to any particular country. In a way it might be as Chinese as the World Bank is American. We have not seen any projects specifically funded on [the Belt and Road Initiative] where we have an issue, so far."

On deals that require African countries to mortgage their natural resources to China

"The scales are beginning to fall off from the eyes a bit in realizing that China’s not just a completely altruistic country."

Responding to the Center for Global Development’s report on Belt and Road debt risks

"It's biased to say that loans for [Belt and Road] projects have generated more debt for countries, and the bank operates in accordance with international conventions and market rules. We stick to projects that could bring economic benefits and are economically feasible. For some heavily indebted less-developed countries, [CDB] loan limits and requirements are in line with the IMF."


Speaking at the Construction Expo 2018 in Colombo

"In the next three years [China International Contractors Association] wants to increase their stake in the Sri Lankan construction industry to 70% of total projects. This can be detrimental to our local firms."


"Money and grants from China should be tied to projects not as loans, so as to reduce corruption and promote accountability."

Op-ed in The Kathmandu Post on China’s place in the new world order

"China has used multiple strategies to shape [the] global order by engaging in oil industries, mines and minerals, dams, trade, private business, developing infrastructure around the world. Such initiatives became powerful instruments for international expansion...Aim of all these initiatives seems [to be] weakening the hegemony of conventional power."

By the Numbers

Data from RWR's IntelTrak tool

Data from RWR's IntelTrak tool

Domestic Developments

Public Engagement

June 27: The inaugural Belt and Road Global Forum was held in Hong Kong,attended by more than 110 organizations, including chambers of commerce, industry associations, investment promotion agencies, and think tanks from 29 countries.June 28: The third Belt and Road Summit themed “Collaborate for Success” was held in Hong Kong, jointly organized by the government of Hong Kong and the Hong Kong Trade Development Council (HKTDC). China International Capital (CIC) served as the summit’s strategic partner and Bank of China (Hong Kong) served as the main sponsor. The summit featured investment and business matching sessions, a zone dedicated to global investment featuring international investment promotion agencies, and project pitch sessions focusing on transport and logistics infrastructure, energy/natural resources and public utilities, and rural and urban development.July 2-3: The Forum on the Belt and Road Legal Cooperation was held in Beijing, co-organized by the Ministry of Foreign Affairs and China Law Society. Sponsors included the Chinese Society of International Law, University of International Business and Economics, and Hong Kong Department of Justice.

Autonomous Regions

June 23: A $430 million comprehensive bonded zone was launched in Urumqi. 31 companies have expressed interest in participating. Xinjiang currently has two other bonded zones in Alataw Pass and Kashgar, where foreign goods can enter without paying customs or import/export duties.

Regional Developments

East Asia and the Pacific

June 27: Chinese steel company Win-Win Development Group signed an MoU with Australian Vanadium Limited, which owns the Gabanintha project in western Australia, on project financing and offtake of vanadium carbon nitride (VCN) for rebar production. Win-Win Development Group is currently building VCN production facilities in China. The companies were connected by Australian China consultancy, Mastermines.

Southeast Asia

June 27: Hong Kong Energy Infrastructure (HEI) of Kum Shing Group signed an MoU with the Metropolitan Electricity Authority of Thailand to conduct a feasibility study on moving overhead power lines underground in the greater Bangkok area.June 28: Several agreements were reached between private companies and the governments of Hong Kong and Thailand during the third Belt and Road Summit held in Hong Kong. China has emphasized Hong Kong’s key role in Belt and Road. This is likely to manifest in the use of Hong Kong entities to carry out Belt and Road transactions. Three such agreements signed at the summit include:

Hong Kong’s CLP Group signed an MoU with Thai industrial developer Amata Corporation to conduct a feasibility study on the construction of a floating solar farm at Chonburi Industrial City, located in the Thailand Eastern Economic Corridor;

Hong Kong’s Ho & Partners Architects (HPA) signed an agreement with Thai developer Life & Living on concept development and master planning for a tourism and leisure development in Thailand. HPA will also design and develop a $3 billion smart city in the Sriracha Creative District, also located on Thailand’s Eastern Economic Corridor; 

The Hong Kong Trade Development Council (HKTDC) signed MoUs with Thailand’s Ministry of Industry, Bangkok Bank, and Siam Commercial Bank on bilateral cooperation under the Belt and Road framework.

June 28: Hong Kong’s Kwan On Holdings and HPA signed an MoU with thePhilippines’ Aggregate Business Group on planning and marketing three infrastructure development projects in the Philippines, estimated at $3.5 billion. The projects include a subway connecting the Philippines’ Makati business district to Fort Bonifacio.June 29: The first joint China-Thailand think tank forum was held in Beijing, with discussions on bilateral cooperation under the Belt and Road framework by scholars from both countries. The forum was jointly hosted by the Chinese Academy of Social Sciences (CASS) and the National Research Council of Thailand (NRCT).July 1-3: The Lancang-Mekong Cooperation Media Summit was held in Vientiane, hosted by the Laos Ministry of Information, Culture, and Tourism in cooperation with the People’s Daily of China. Media officials and journalists from Cambodia, Laos, Myanmar, and Thailand completed a week-long training program in Kunming, China from June 12-19 in preparation for the summit. The training program was hosted by the Yunnan Daily Press Group and sponsored by China’s Department of International Cooperation and State Administration of Press, Publication, Radio, Film, and Television.

South Asia

June 20: The governments of Nepal and China and representative companies signed eight agreements during Prime Minister of Nepal KP Sharma Oli’s visit to Beijing. These include:

Investment Board Nepal and China's Huaxin Cement signed an MoU on constructing a $144 million cement factory;

Nepal’s Ministry of Energy, Water Resources, and Irrigation and China Communications Construction Company signed an MoU on preparing a feasibility study on Eastern Terai River Training (structural measures to improve a river, as flood control) for the Biring, Kankai, and Kamala rivers;

Nepal’s Fortuna Investment and Guizhou Maritime Silk Road International Investment Corporation signed an MoU on establishing a highland food park with an investment of $46 million;

Nepal’s Hydro Solutions, Yunnan Xinhua Water Conservancy and Hydropower Investment Company, and Shanghai Investigation, Design, and Research Institute signed an MoU on jointly developing the 164MW Kali Gandaki Gorge hydropower project in Nepal, in the BOOT (build, own, operate, transfer) model;

Nepal’s Siuri Nyadi Hydropower Plant Project and China’s National Electric Engineering Company signed an MoU on construction of the 40.27MW Siuri Nyadi hydropower plant, in the EPCF (engineering, procurement, construction, financing) model;

Nepal Pashmina Industries Association and the “One Belt, One Road” International Trade Platform of China Investment Corporation (CIC) signed an MoU on the sale of Nepali pashmina in China;

Nepal’s Butwal Power Company, Sichuan Investment Group Company, Chengdu Xingcheng Investment Group Company, and Sichuan Qingyuan Engineering Consulting Company signed an MoU on the construction of the 600MW Marsyangdi Cascade Hydropower Project; 

Nepal’s Siddhakali Power Company and Dongfang Electric International Corporation signed an MoU on construction of the 75MW Trishuli-Galchhi hydropower project.

June 21: Prime Minister of Nepal KP Sharma Oli and President Xi Jinping signed an MoU on the construction of a rail link between Tibet and Nepal. The link would extend 540-km from Xigaze to Gyirong in Tibet, as a continuation of the line between Tibet’s capital Lhasa and Xigaze. The completed line will reach Kathmandu and is expected to open by 2025.June 22: A consortium including India's Tata Projects, Capicite Infraprojects, and China’s CITIC Group was awarded a $1.7 billion residential and commercial redevelopment project by the Maharashtra government and the Maharashtra Housing Area Development Authority. The redevelopment project is located in a 26 million square-foot area in the Worli region of Mumbai.June 26: Nepal’s Ministry of Finance received a $1 million loan from the Asian Infrastructure Investment Bank (AIIB) for the Nepal Electricity Authority (NEA) power distribution system upgrade and expansion project that will increase access to electricity in the western regions of Nepal. The MoU wassigned on the sidelines of the third annual AIIB meeting held in Mumbai. This is part of a greater $100 million loan that will be extended to Nepal, which has submitted funding proposals to the AIIB for the Sharada-Babai hydropower project, Pokhara-Beni Jomsom road upgrading, and Samakhusi-Tokha-Chhahare road upgrading and extension project.June 29: The China Liaoning-Sri Lanka Business Forum was held on the sidelines of Sri Lanka’s seventh annual construction industry exhibition, “Construction Expo 2018,” in Colombo. Over 240 local and international vendors were in attendance, including 30 Chinese firms.July 1: The China-Pakistan Economic Corridor Cultural Communications Center (CPEC CCC), based at Suzhou Vocational University, will work with China’s Ministry of Education and Pakistan’s Ministry of Planning, Development & Reform to offer scholarships to 1,000 Pakistani students under CPEC CCC’s “Talent Corridor” program. The students will receive year-long vocational training on solar energy and hydropower engineering, space and high-speed train technology, and machinery operation at different universities and institutes in China.July 1: Pakistan received a $1 billion loan from China to bolster its foreign currency reserves. The loan had been under negotiation for several months.

Middle East and North Africa

June 20: China Railway Construction Corporation (CRCC) began testing the Mecca Light Rail in preparation for the Hajj pilgrimage in August, under a $93 million operation contract from Saudi Arabia. The light rail first beganoperating in November 2010, built under a turnkey contract by a CRCC-Beijing Railway Administration consortium using metro cars manufactured by CNR Changchun Railway Vehicles.June 26: China’s Fidu Properties announced plans to invest about $544 million in real estate projects in Dubai by the end of the year as part of its regional expansion strategy. Fidu has already signed multiple deals valued at $103 million with UAE developer Emaar Properties on residential and commercial projects in Dubai’s “The Grand” skyscraper.July 3: Tunisia and China signed a partnership agreement on developing the digital economy, focusing on areas such as telecommunications, fiber-optics, e-commerce, and network computing. The agreement was signed on the sidelines of the Belt and Road Digital Economy conference in Beijing.

Sub-Saharan Africa

June 25: Zambia launched its digital television project, which is part of the “Access to Satellite TV for 10,000 African Villages” initiative being carried out by Chinese television service provider StarTimes Group. This launch willprovide satellite television services to 500 villages across Zambia.June 25: Kenya hosted the sixth China-Africa Infrastructure Cooperation Seminar, with a focus on the Mombasa-Nairobi standard gauge railway (SGR) project. The seminar was jointly organized by the Chinese Embassy in Kenya, Kenya Ministry of Transport, and African Economic Research Consortium was held in Kenya.June 25: The UK’s Edenville Energy and China’s Sinohydro Corporation extended their MoU on project development and construction of the Rukwa coal-to-power project in Tanzania. Sinohydro has completed a feasibility study on a 120MW power plant, but is now considering expanding it to 300MW. The companies will have until December 2019 to complete technical and financial tasks, including facilitating construction of the Sumbawanga-Tunduma section of the Zambia-Tanzania-Kenya (ZTL) power transmission line and associated infrastructure.June 26: China National Aero-Technology International Engineering (AVIC Engineering) was contracted to construct the first tarmac road linking Kitale,Kenya to the South Sudan border. The 60-km road is valued at $20 million and will be funded by the Kenyan government.June 26: The fourth Forum on China-Africa Media Cooperation was held in Beijing, where 12 cooperation agreements were signed between Chinese and African government officials and media representatives.June 28: The Institute of African Studies at Zhejiang Normal University, Heritage Africa-China Research Institute, and University of Abuja in Nigeriasigned an MoU on establishing exchange programs. The partnership willexplore language and culture, industrialization, and economic development.June 28: A workshop on “Africa-China Cooperation in Information Technology and Digital Economy: Prospects and Challenges” was held in Abuja, organized by the Nigerian Institute of International Affairs and the Chinese Embassy in Nigeria. Discussions were focused on developing Nigeria’s digital space through cooperation with China.June 29: Ghana’s Ashiaman Municipal Assembly signed an MoU with the Fujian Chamber of Commerce on investing about $50 million in development projects in Ashiaman, including the construction of an international truck terminal and affordable housing. The projects will be finalized during an upcoming meeting, after which funding will be released.July 1: The first conference of the Abuja Forum Series on China-Africa Cooperation, themed “Partnership for Peace, Security and Development,” was jointly organized by Nigeria’s Gusau Institute and the Center for Nigerian Studies of the Institute of African Studies at China’s Zhejiang Normal University.July 2: Following reports that a consortium of Chinese companies represented by Namibia Oriental Tobacco acquired 10,000 hectares of land in the Zambezi region to build a $1 billion plantation for tobacco production, the Zambezi Communal Land Board denied giving its approval and claims that it never received an environmental impact assessment report on the project. The board has rejected the project in the past for environmental and health reasons.July 2: China International Water & Electric (CWE) was awarded a $185 million contract for the construction of the Lowaat dam project in Turkana,Kenya. The contract was originally awarded to Sinotec Company and appealed by CWE, as Sinotec’s $300 million bid was over double the contract amount.

Russia and Eurasia

June 25: The Tajik Aluminum Company (Talco) and China's Tibet Huayu Mining broke ground on a new gold and antimony mining venture. The project is set to cost $200 million.June 27: Russia’s Vnesheconombank (VEB) signed a framework agreement with China Development Bank to receive up to $9.8 billion in five-year loans for financing joint projects. Over 70 potential projects have been identified,including projects in the infrastructure, transport, export support, and high-tech sectors.June 28: Georgia and Hong Kong signed a free trade agreement (FTA) at the third Belt and Road Summit held in Hong Kong.


June 20: Latvia’s Freeport of Riga Authority and China’s Shenzhen Port signed a cooperation agreement establishing a sister port relationship during a Latvian transport sector delegation visit to China led by the Ministry of Transport. The Freeport of Riga Authority, which is a member of the Belt and Road International Transport Alliance (BRITA), also signed agreements with Chinese logistics information exchange platforms: National Public Information Platform for Transportation & Logistics (LOGINK) and Global Logistics Alliance (GLA).June 27: Polish rail transport company PKP Linia Hutnicza Szerokotorowa (PKP LHS) began testing a new container route to China with the assistance of the Austrian Far East Land Bridge Company, a subsidiary of Russian Railways Logistics. The new land route takes the Trans-Caspian Route and runs throughUkraineGeorgiaAzerbaijan, and Kazakhstan, avoiding sea and air transport.June 28: Turkey secured a $600 million loan from the Asian Infrastructure Investment Bank (AIIB), co-financed with the World Bank, to expand the Tuz Golu underground gas storage facilities. This is the AIIB's first loan to Turkey.June 29: The Shanghai Stock Exchange (SSE), China-Belarus Industrial Park Development Company (CBIP), and China Merchants Securities (CMS) jointly organized a promotion event for Belt and Road investment opportunities in Belarus. The SSE Global Business Development Department and CBIP signed a memorandum of cooperation on increasing investment promotion to build CBIP into a “pearl of the Silk Road.” To facilitate the joint development of the two countries’ capital markets, the SSE will simplify regulatory procedures and establish a long-term financing exchange platform to provide Belarusian companies with cross-border financing services.June 29: China General Nuclear Power Corporation (CGNPC) signed an MoU with the UK Nuclear Advanced Manufacturing Research Center (Nuclear AMRC) to develop expertise and knowledge and to deepen commercial and academic connections between Chinese companies and their UK counterparts. CGNPC is currently developing the UK's Bradwell B nuclear power station project and is also involved in the Hinkley Point facility.July 3: French transportation conglomerate Bolloré Group signed an MoU with Alibaba Group on the development of joint projects between their respective business units and subsidiaries: Blue Solutions, Bolloré Logistics, Alibaba Cloud, and Cainiao Smart Logistic Network. The two groups willidentify cooperation opportunities in logistics and supply chain management, software and data management solutions, and internet capabilities for electric vehicles.July 3: China Merchants Group, SPF Group, and other unspecified Chinese companies entered into a partnership with UK-based Centricus Asset Management to launch China New Era Technology Fund, a new $15 billion global technology venture fund. China Merchants Capital Investment Management, a subsidiary of China Merchants Group, will contribute 40% of the the fund’s capital. Centricus will also form a China-based asset management company, Centricus SPF, with SPF Group. The new fund willinvite universities, leading technology firms, and other investors to participate.July 3: Chinese national carrier Air China launched a UK direct flight between Chengdu and London's Gatwick Airport, following a Chinese marketing campaign touting the flight as a development under the Belt and Road framework.

Latin America and the Caribbean

June 26: Bank of China Mexico was authorized to begin operations in Mexico with $44 million in initial capital, focusing on corporate financial services for Chinese companies operating in the country and Mexican companies involved in trade with China.June 27: Bolivia’s BacTech Environmental Corporation and China’s CACS International Investment signed an MoU on BacTech’s Bolivian tailings project. CASCI will design, manufacture, and install a mineral processing plant for reprocessing tailings in Bolivia’s mining area of Atocha. CASCI will alsocomplete a feasibility study and arrange for a Chinese financial institution to provide BacTech with 85% of the total project cost.June 27: Jamaican Minister without Portfolio, Hon. Mike Henry, indicated that the planned Jamaica-Gansu special economic zone (SEZ) and industrial park in Nain, St. Elizabeth will break ground in December 2018 and begindevelopment in January 2019. Jiuquan Iran & Steel Company (JISCO), which operates the JISCO Alpart alumina refinery in Nain, plans to invest over $3 billion in the project, which will focus on manufacturing for export.