Latin America: The East Wing of the New Silk Road

Article Latin America: The East Wing of the New Silk Road Francisco Javier Valderrey, Miguel A. Montoya and Adriana Sa ´nchez Tecnologico de Monterrey, Mexico Abstract As the Belt and Road Initiative (BRI), or the New Silk Road, as commonly known in Western countries, continues to grow in size and scope, some questions remain unanswered. Most skepticism arises about the primary purpose of the project, the contribution of members countries to the overall initiative, or the involvement of those territories that are neither touched by the land or the maritime side of the project. Latin America, for example, has significant interaction with China, but few countries may soon join the project. After taking a glance on the history of the Silk Road and the new project, we look at the current status of the BRI, and one of the main issues of concern which is the lack of homogenous contribution to the initiative. For that matter, we propose a much-needed adjustment to the BRI, using a new tool for evaluating the participation of member countries. Comparisons take into account the five collaboration variables established as the building blocks of the BRI: policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bond. To make a more detailed analysis, we include two measurement criteria per variable, which can be used either to test for suitability of new or existing members of the New Silk Road. A second issue under study is the feasibility analysis of the extension of the initiative into Latin America. We use the proposed mechanism comparing 10 active members of the BRI versus 10 countries in Latin America. Results show the adequacy of the region to join the initiative. Indeed, we demonstrate that Latin America is suitable to be the East Wind of the BRI. Keywords Belt and Road Initiative (BRI), China, Foreign Direct Investmente (FDI), infrastructure, Latin America, New Silk Road, Overseas Chinese Corresponding author: Francisco Javier Valderrey, Tecnologico de Monterrey, Avda Garza Sada S/N, Col. Cerro Gordo, Leon, Guanajuato 37138, Mexico. E-mail: [email protected] Competition and Regulation in Network Industries 2020, Vol. 21(1) 34–62 ªThe Author(s) 2019 Article reuse guidelines: sagepub.com/journals-permissions DOI: 10.1177/1783591719853537 journals.sagepub.com/home/crn CRNI CRNI Introduction The announcement of the New Silk Road initiative in 2013 came as a surprise to most people. Some governments rejoiced at Xi Jinping’s proposal, envisioning massive investment funds, with few credit requirements. Other nations interpreted the project as a well-devised plan for Chinese expansion, and many experts raised concerns about the severe challenges lying ahead. After a few name changes, Chinese authorities called the plan the Belt and Road Initiative (BRI). 1 Before long, results exceeded expectations in trade and investment, also showing success in promoting diplomatic relations with neighboring countries. Presently the project has no match in scope, size, resources, and the number of countries involved. Nevertheless, some voices start to raise their criticism versus the initiative, pointing at the unsurmountable debt acquired by impoverished nations and the unrestrained leadership of China. Those voices show opposing views to the cheerful messages coming from the authorities. In the end, neither faction leaves aside their Manichean view of the New Silk Road. Unfortunately, there are no clear procedures for measuring the contribution of member countries to the BRI or tools to compare their expectations with the hidden requirements of the initiative. From the beginning, the People’s Republic of China (PRC) 2 maintained an open door policy to those governments willing to join the group, with the result of a lack of standardized procedures and divergence from the primary strategy. So far, China has been pouring vast financial resources to the New Silk Road, but without proper evaluation tools, it has little to say to underperforming members and cannot profile those candidate nations that may be positive contributors to the initiative. According to many experts, China is spreading itself too thin, subsidizing some nations, while harnessing others with unintended consequences. Then, it is essential to evaluate the fitness of new candidates, in order to moderate deviations from the countries that are already involved. The issue is of no lesser importance; several European and Latin American nations are showing interest on joining the initiative. Before making any commitment, interested countries should understand the need to abide by the principles arising from the five central axes of the BRI: coordination, connectivity, trade facilitation, financial integration, and bounds between the different people. Participant governments should be willing and able to collaborate and to be subject to open scrutiny. For that purpose, we identify five collaboration variables and provide the measurement criteria to test for suitability of members of the BRI, either newcomers or the existing participants. To test those criteria with prominent Latin American nations, we compare this group to active members of the BRI. After all, the blueprint of this venture includes the central axis along Eurasia, and two wings, one in Europe and the opposing one in the Americas, named the East Wing. We aim at showing that some countries in Latin America have the potential for becoming positive contributors to the BRI, thus showing that the region is fitted to be the East Wind of the New Silk Road. 1. We use the terms BRI and New Silk Road indistinctly, throughout the entire document. Chinese authorities make continuous efforts toward naming the initiative as the BRI, but many scholars outside China show a preference for referring to this project as the New Silk Road. 2. The PRC is the official acronym of the People’s Republic of China, or China. We use both terms indistinctly, throughout the entire document. Valderrey et al. 35 Our work is exploratory, and therefore we leave it to future researchers the statistical modeling and the design of the general framework. There is much work ahead improving the measurement criteria that we develop from the five collaboration variables: policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bond. We present multicountry comparative scrutiny, based on available secondary data. Thus, we provide an instrument to evaluate the suitability of individual countries in Latin America for meaningful integration into the initiative. Such a tool may also be handy in other latitudes. It is paramount to understand whether or not the BRI is a project constrained to historical boundaries along the ancient Silk Road or there is room for geographical expansion. The issue is not trivial; the acceptance of worldwide expansion of the BRI allows the PRC to pursue a role of global hegemonic power, initially in terms of trade and economic dominance, while geopolitical leadership may follow until reaching the Pax Sinica, or the world peace kept under the surveillance of China (Yu, 2018). Thus, Chinese investment in Latin America goes beyond the concern of regional stakeholders. We divide this document into five sections. In the first one, the introduction, we share the purpose of our research. We start the second section with a brief account of the ancient Silk Road. We then look at the meaning of becoming a member of the BRI, with the benefits and cost that should ideally come after committing to the common undertaken. We also present a view of the six distinct corridors that are spreading through different regions, since those projects may be reshaping the overall initiative. Additionally, we take a glance at the literature covering the New Silk Road, before sharing some opinions about the future fate of the initiative. In the third section, we discuss the presence of China in Latin America. After some historical notes, we present a view of Chinese investment in the region, before shifting the discussion to the role of the Overseas Communities, and how ethnical Chinese provide leverage for the expansion of the PRC into the region. Then, we identify the collaboration variables for the BRI project, since we understand that new Chinese investment into Latin America will follow similar guidelines. The fourth section presents a multicountry comparison to identify those Latin American nations that may be suitable candidates for the BRI. We take a control group of 10 different countries recognized as active members of the New Silk Road, and we compare the group results against 10 selected Latin American nations. On the fifth section, we present an overview of our thoughts and some suggestions for future research, before sharing our final remarks. Understanding the New Silk Road China is at the center of numerous debates, coinciding with its economic expansion on a global scale. Africa provides an example of China’s ability to establish significant links with a wide variety of countries, even in the absence of cultural ties or previous trade. Those efforts are also reaching other markets throughout Eurasia, under the umbrella of the BRI and the pledge to revive the old trading routes that linked Europe with Eastern Asia, by camel caravans or by merchant’s vessels. As of today, more than 60 countries are adhering to the initiative, with China channeling large investments in infrastructure to many nations. The World Bank attributes “30 percent of global GDP, 62 percent of the population, and 75 percent of known energy reserves”to this initiative (The World Bank, 2018). Much of the area it covers coincide with the so-called “crisis 36 Competition and Regulation in Network Industries 21(1) arc of the new world order”(Olier, 2018), which adds strategic value and volatility to this initiative. Following, we take a glance at the Silk Road, both the ancient route and the modern project, along with some of its more relevant issues. Old or New Silk Road? The concept itself of the New Silk Road or the BRI is not easy to understand: the name makes allusion to the traditional routes used by merchants to transport silk and other luxury goods from Asia to the European continent, which reached their apogee during the Tang dynasty, between 618 and 906 of our era (Hansen, 2015). The traditional Silk Road did encompass some different paths that facilitated trade, either terrestrial or maritime. The new project separates the full route into two distinct projects, as well. The first one, One Belt One Road, also named as OBOR, Belt&Road, or B&R, targets the development of an infrastructure belt that extends by land from Eastern China to Western Europe, via Central Asia. The land side of the project also fosters a logistic corridor for dispatching merchandise across Eurasia. All along the belt, different logistic hubs link together modern facilities, primarily supported by Chinese financing. The second project, the XXI Century Maritime New Silk Road, aims to revive the commercial routes that extended the silk trade through a network of seaports. Those routes served to unite the coasts of China with places as remote as the African coasts of the Indian Ocean. Along the way, spices and other products from India and South East Asia were at the center of a prosperous trade. This route flourished mainly during the Ming Dynasty when Admiral Zheng He led several sea voyages favoring the exchange of Chinese products while showing neighboring nations the cultural superiority of China (Menzies, 2008). Some scholars suggest that the BRI encompasses all the previously mentioned elements from the ancient Silk Road, also adding economic gains and a broader vision set by the PRC (Van der Leer & Yau, 2016). Therefore, the initiative may take advantage of a nostalgic view of the historical Silk Road while promoting the national interest of China. The project extends into a broad area, is not static at all, and may also extend to other regions, as Figure 1 suggests. The geographical spread and the physical boundaries of the BRI are still unclear, as well as the criteria for drawing the line between countries that are active participants and those that are solely benefitting from the project, showing lack of interest for securing a more robust trade partnership with China. Finding a simple piece of information such as the list of member countries becomes a challenge on its own. The problem is not gathering such listing, as there are many; the hurdle is to see an official record of those nations that formally adhere to the initiative. Some sources account for as much as 117 members in 2018, although they clarify that latest additions are countries geographically distant and with little weight to add to the initiative (Joy-Pérez & Scissors, 2018). The PRC communicates to two separate audiences: the national population, to whom the message is victorious and shows Xi Jinping’s global leadership, while the second audience includes other member countries. When addressing this second audience, Chinese authorities make an effort to present those nations as equals, rather than blind followers of the PRC. Consequently, information coming from China differs from other sources; in the end, experts often use the statement of “more than 60 member countries,”instead of providing a precise number. The divide between the old and the new Silk Road lies in the role of China. In the old route, China was a key participant, but not to the extent of today’s leadership. The PRC is in charge of the design of the project, its operation and the procurement of abundant financial resources. It is hard to state the financial dimensions of the BRI and its economic impact among the participant Valderrey et al. 37 countries; this is not a matter of secrecy, but of tracing the aggregate resources invested. Estimates vary according to the source of information, mainly if it is coming from the PRC and associated institutions. Chinese authorities often mention figures above one trillion dollars and the more optimistic have occasionally claimed numbers as high as eight trillion dollars. More reliable estimates are close to $900 billion (Hillman, 2018). Despite the lack of a trusted figure for the total cost of the BRI, the cyclopean magnitude of the project is not under discussion. The money backing the project comes from different sources, although inevitably associated with the PRC. The relative contribution from the official entities supporting the BRI is as follows: big four state-owned commercial banks 51%, China Development Bank 38%, Export–Import Bank of China 8%, Silk Road Fund 1%, Asia Infrastructure Bank 1%, and New Development Bank 1% (Deloitte, 2018). As time goes by, multinational corporations from third countries and private enterprises, either Chinese or local, are joining the undertaking and adding their resources. Presumably, this should be the direction of the flow of investments expected during the next coming years, but the official financial entities involved from the first stage of the BRI will undoubtedly continue pouring resources, even if at a lesser rate. Membership has its privileges, or not? The New Silk Road is an endeavor of colossal proportions, with a growing number of nations and entities involved, although many of the actors are reluctant to accept Chinese leadership. The issue Figure 1. The New Silk Road and its possible extension to Latin America. Source: Higueras (2015). 38 Competition and Regulation in Network Industries 21(1) of membership into the BRI carry out significant weight into the relationship between China and the countries involved in the project. Some governments go to extremes to show submission to the BRI, mostly the recipients of massive aid and investment in Africa or Central Asia, while others are cautious as to what degree it is politically correct to declare collaboration with the initiative, as happens with India. The Japanese government prefers to distant itself altogether from the project, although diplomatically admits an interest in harmonious cooperation. In other cases, interested parties state that they are the ones calling upon Chinese investors, as recently happened in Italy. The question arises about the benefits of publicly joining the BRI versus keeping a lower profile. The first challenge becomes to differentiate members according to their degree of involvement and acceptance of formal or informal rules imposed by the PRC. The second question is to see whether or not membership has its privileges and what are the benefits for active members. Making bold statements about joining the BRI may impose a tool to some governments, who would prefer to welcome Chinese investments silently, without any formal declaration. The New Silk Road, in fact, may carry a stigma to those leaders that embrace the project in some countries, especially in South Asia, as demonstrated in a recent study that also shows that “the more frequently trade is mentioned in the media, the more negative a country’s perception of the BRI tends to be”(García-Herrero & Xu, 2019). Therefore, news that may appear initially positive may backfire to governments that are too eloquent about collaboration with the Chinese. There is no single procedure for joining the BRI and proposed candidates do not necessarily go through a series of protocolary steps. In the majority of cases, authorities from both sides make a joint statement or sign a memorandum of understanding (MOU). Often, the MOU will lead to a broader document, spelling out the terms for mutual assistance, protection of investment and trade issues, along with mechanisms for cooperation. Specific projects many times are announced during the same meeting, without inclusion into the MOUs. As happens to ordinary citizens with major credit cards, some nations receive something like a preapproved card, while others make an effort to request the plastic. Following the credit card analogy, membership has privileges, but also the potential for increasing debt beyond rational limits and, of course, those cards come with strings attached. Logistic corridors Chinese authorities allow different proposals to flourish under the umbrella of the New Silk Road. Such ambiguity also provides flexibility to China, although at the risk of undermining the underlying philosophy and the overall structure of the project. The so-called logistic corridors offer a clear example of how separate ventures may deviate attention toward bilateral agreements or even corporate deals, thus undermining the general aim of the BRI. Presently, there are six economic corridors, which are: 1. The New Eurasia Land Bridge Economic Corridor. 2. The China–Mongolia–Russia Economic Corridor. 3. China–Central Asia–West Asia Economic Corridor. 4. China–Indochina Peninsula Economic Corridor. 5. China–Pakistan Economic Corridor. 6. Bangladesh–China–India–Myanmar Economic Corridor. Valderrey et al. 39 The first one is a railway connecting Lianyungang, in central China, and the seaport of Amsterdam, in the Netherlands, which is mainly a logistics corridor. The second corridor aims at facilitating trade among China, Mongolia, and Russia, with a further purpose to enhance friendly relations for the three neighboring nations. The third one connects many countries, and it is probably the one with the most resemblance to the ancient route. Those nations are Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan, Iran, and Turkey and the purpose of the corridor goes beyond transportation of merchandise along the railway. This corridor aims at nations to embrace each other in projects of different nature, including investments, finance, or trade. The fourth corridor includes the nations sharing the Indochina Peninsula and targets the construction of a full transportation network and building a more comprehensive relationship among the countries involved. The fifth economic corridor communicates China and Pakistan, providing commercial bonds among both nations. This corridor is significant in terms of the size of the investment, although it is also the subject of most controversy from both governments and neighboring India. The sixth economic corridor connects Bangladesh, China, India, and Myanmar, targeting a wide range of goals and is probably the one with the most challenges lining ahead (HKTDC Research, 2018). A glance at the literature covering the New Silk Road The New Silk Road is a recent initiative. Not so long ago the project changed its name to the BRI, and it will not be surprising to see a new acronym if there is one that better suits the desires of the leading authorities. Many scholars have already focused their interest on the BRI, but this is a project in the making, and so is the literature covering the topic. During the first few years, most information about the New Silk Road was descriptive of a phenomenon that was constantly changing; therefore, the media covered those initial stages as news kept developing. Some academics attempted to compare both routes, without much understanding of the very different nature of the old and the new courses. Lately, think tanks, mainly in China, have been analyzing a full range of aspects relevant to the BRI, with questionable success in providing clarity and academic guidance. In any event, we present in Table 1 the work of Sarker, Hossin, Yin, and Sarkar, covering the landmarks reached so far (Sarker, Hossin, Yin, & Sarkar, 2018). As the authors declare, their study opens a line of research about the effects of this initiative at a much larger scale. Previous contributions were more focused on policy issues, with little in-depth analysis about the fundamental aspects of the BRI that are already reshaping the geopolitical map of the world. There is a need to expand knowledge on many other areas, including geographical dimensions, changing alliances as tensions grow within the members of the BRI and between the PRC and the United States, the military implications between hegemonic nations or, fundamentally, how this initiative is affecting the lives of the people involved. There is another aspect which we address in this article, which is profiling member nations and candidates to see which ones are better suited for joining the BRI, their strengths, and weaknesses, before undertaking more significant risks. The PRC itself will benefit by looking for ideal candidates, rather than following the open doors policy that is yielding little benefits with some nations hunted by unpayable debts. We focus on Latin America, but our comparative model may be useful to researchers covering countries in other latitudes. Presently, indeed, comparisons concentrate on individual aspects of the initiative, thus neglecting the holistic approach to the equilibrium of coordination, connectivity, trade, finance, and people, 40 Competition and Regulation in Network Industries 21(1) Table 1. Literature landmarks on the New Silk Road. Author and date Title Journal HKTDC (2017) Analysis of six economic corridors in the OBOR. Key areas of co-operation are policy, finance, and others. Hong Kong Trade Development Council Du (2016) Compare the OBOR with the TPP, claiming the former to be the Chinese version of globalization. The Chinese Journal of Global Governance Tian (2016) OBOR is China’s grand strategy encountering the US’s TPP promotion or rebalancing in Asia. Voices Hsueh (2016) The OBOR would provide a great opportunity for the internationalization of the renminbi since more trade and investment can be settled with renminbi. Journal of Contemporary East Asia Studies Tian, Yu, and Zhang (2016) Outward FDI of China has become economically important to touch international investment with a 50% annual growth rate. China Economic Journal Hali, Shukui, and Iqbal (2015) The OBOR has been perceived by Chinese planners and their well-wishers as a game changer for the entire region. Strategic Studies Yang et al. (2016) The railway infrastructure can connect China to Europe as an important part of the OBOR initiative. Logistics and Transportation Review Wolff (2016) The Belt and Road initiative has common approaches to infrastructure development and regional cooperation by institutions, particularly the development banks. German Development Institute Xu (2016) China impetuses to reach well-adjusted regional development between coastal and inland regions and places a priority on investment by OBOR Initiative. China Economic Review Xue (2016) China’s foreign policy agenda will change significantly from “keeping a low profile” to “proactively and enterprisingly striving for achievements” as it implements the One Belt One Road strategy. Journal of Contemporary East Asia Studies Yang et al. (2016) Some major challenges of OBOR are complex natural features, mismatched resources, shared ecological issues, and diverse socioeconomic conditions. Ecosystem Health and Sustainability Haggai (2016) OBOR initiative has huge potential in promoting economic development in the partner nations. World Journal of Social Sciences and Humanities Yuqing (2016) China plans to achieve diplomatic, economic and political objectives through the AIIB through facilitating OBOR strategy and steering regional cooperation and integration. Chinese Political Science Review Ferdinand (2016) China’s foreign policy has moved from risk-averse caution to optimistic “dreaming” about a better world in which China will have recovered its rightful place. International Affairs Grieger (2016) The initiative is unprecedented in terms of China’s financial engagement and the innovative network-based project design which is intended to contribute to a more inclusive global governance. European Parliament Briefing Source: Sarker, Hossin, Yin, and Sarkar (2018). Valderrey et al. 41 which are the five pillars of the BRI. Information from independent sources is limited, and there is an obvious need for gathering more reliable sources. A future that is hard to discern The first announcement by Xi Jinping received both an enthusiastic response from many governments chasing after new investors and the skepticism from many international experts. In the following year, there was no shortage of funding for a variety of infrastructure proposals. Hardly any suggestion favoring the expansion of logistics in Eurasia could be turned down. High ranking authorities of countries, the big and the small, did welcome the Chinese messengers carrying the good news and the promise of financial resources. Bonanza did continue for a while, with little opposition of any kind; as the money kept pouring, no significant concerns arose about the real intentions behind the BRI. Recently, though, critics point at the negative externalities to the environment, the frequent misunderstandings among management and authorities from both sides, the one-sided contracts, as well as the fear from many governments of acquiring excessive debts (Chandran, 2019). Even some of the countries receiving a generous inflow of resources are questioning the benefits of their participation in the BRI (Yusuf, 2018). Criticism grows domestically in China, as well, because of the vast amounts of money going abroad to dubious projects, corrupt governments, and untrustworthy allies. Some voices present the BRI as an effort from the ruling political party to cover up the lack of ability addressing pressing needs of the Chinese population, uncontrolled spending, and the concentration of political power in presidential hands (Shrader, 2019). Eventually, the BRI may encounter unexpected obstacles, such as the trade tension with the United States or the need to allocate resources to finance the overall shift of the PRC toward a serviceoriented economy. There is a further consideration of the true nature of the BRI. Is this initiative a geostrategic project, a roadmap for developing infrastructure along logistic corridors or is something of epic proportions, where east meets west, bridging millions of people (see Figure 2)? Unfortunately, there is no easy answer, since the information related to the BRI is, at best, insufficient. Many think tanks devote their efforts to this initiative, although the vast majority are somehow associated with the PRC. Inevitably, expansionism leads to a confrontation with other powers with hegemonic ambitions. So far the Chinese authorities maintain a working dialogue with Japan and South Korea, their most immediate economic rivals, a cordial relationship with India, the other colossus of the region, and an upcoming collaboration with Russia. In this last case, the renewed friendship comes along with multimillion dollar agreements for the acquisition and transportation of oil and natural gas, broader commercial exchanges, and cooperation in multiple areas. With the European Union, the relationship has been strengthened in various sectors, while different issues moderate the potential for more meaningful collaboration. Lastly, we have to consider several factors that may compromise the overall success of the BRI. The New Silk Road requires additional funding, and the increase in military spending goes along with the new role of the PRC as a regional hegemon and the growing tensions in the South China Sea and neighboring territories. At the same time, the government is in constant need of allocating massive resources for carrying out national reforms, overhauling entire industries and transitioning to a service economy. There is only one factor that may support the BRI, the clear leadership of the president. The initiative itself is Xi Jinping’s preferred plan, and if his prestige happens to be at risk, all the necessary funds will shift to the project. 42 Competition and Regulation in Network Industries 21(1) Cuba and adding Panama. In the first case, the country has no formal diplomatic relations with the PRC; in the case of Cuba, the island nation does not report to several international agencies, thus making comparisons overly tricky. Finally, we included Panama because the country has recently joined the New Silk Road and signed agreements that will allow China to have a high degree of control over the Canal. Table 3 shows general data for the selected countries. We also selected 10 active participant nations at the BRI, to provide grounds for comparison with solid members of the initiative. We based our selection on Chinese Overseas Direct Investment stock values in Belt and Road countries, 2016 (Zhou, 2018). Table 3 also includes general information for those nations. In both cases, the mix of countries is heterogeneous, with the very small as Singapore or Panama, and the very large, as Russia and Brazil. Average figures for GDP and per capita income are not that different on a group comparison level. The relevant differences are evident within each group, especially with the BRI groups, with some of the wealthiest citizens in the world sharing statistics with those in desperate need. Singapore and the United Arab Emirates are among the most prosperous nations on Earth, while Laos, Vietnam, Myanmar, and Pakistan are low-income countries. In Latin, America wealth shows uneven distribution, but nominal per capita indicators tell a more positive story. Other notable differences will surface when conducting a comparison between both groups, all across the board. The model requires five variables, and each of the variables includes two different sub-variables that serve as evaluation criteria to test the suitability of a nation to join the BRI. We identified two different types of sub-variables, those that allow statistical analysis over the expected performance of a member country and those sub-variables that are complementary. The last ones are not included in the statistical analysis but contribute to a more holistic view. We used a proof of hypothesis to test the statistical significance of the difference between two sample means or confidence intervals for small sample sizes to test if those variables are valid parameters to verify if a country meets the requirements to become be a part of the New Silk Road. In all cases, we set at 95% the confidence level, with α= 0.05. We used the T Proof for two samples, assuming unequal variances to generate a specific hypothesis, according to each type of sub-variables. Table 3. General data for selected countries from the BRI and Latin America. Country Population* (million) GDP billion GDP per capita* Country Population* (million) GDP billion GDP per capita* Brazil 201 $2000.25 $11,503 Singapore 6 $274.70 $50,709 Mexico 116 $1000.18 $12,447 Russia 143 $2000.01 $14,037 Colombia 46 $369.79 $7384 Indonesia 251 $878.19 $3557 Argentina 43 $470.53 $14,866 Laos 7 $9.30 $1399 Peru 30 $196.96 $9324 Kazakhstan 18 $200.48 $11,935 Venezuela 29 $381.29 $12,846 Vietnam 92 $141.67 $1595 Chile 17 $268.19 $14,296 UAE 6 $348.59 $39,057 Ecuador 15 $84.04 $8059 Pakistan 193 $231.18 $1290 Bolivia 11 $27.04 $4602 Myanmar 55 $67.00 $1210 Panama 4 $36.25 $13,160 Thailand 68 $365.87 $5479 Source: Data from Nation Master. BRI: Belt and Road Initiative; GDP: gross domestic product. *Numbers are rounded and figures are expressed in US dollars. Valderrey et al. 49 Following, we present general information about each one of the five variables, along with the calculations that we performed, and a summary table for each group. After the analysis performed for each variable, we conclude that the choice of factors is appropriate, given the results from statistical analysis. Policy coordination When Xi Jinping launched the BRI, critics raised concern about the future success of the initiative, based on the financial strain to his nation and the difficulties to collaborate with countries where vast segments of the population maintained a traditional animosity versus the Chinese. No matter the proven skills of the president, the BRI requires strong leadership to set and push the agenda, along with the soft skills and the necessary empathy to negotiate with world leaders. Policy coordination is hard to measure, but we base our comparison on the current state of the bilateral relationship between China and Latin American nations. A more solid relationship means that the BRI will have better chances for success, as approval for signing commercial treaties and bilateral coordination will go smoothly. We took as the related factors the existence of an Free Trade Agreement (FTA) and the number of meetings of president Xi with the highest authorities on a country. Table 4 shows the results of Table 4. Bilateral relationship with the PRC. a Latin American countries FTA with PRC Highest ranking meeting with Xi Jinping BRI countries FTA with PRC Highest ranking meeting with Xi Jinping Data Score Data Score Data Score Data Score Brazil None 0 8 1.67 Singapore FTA 5 2 0.42 Mexico None 0 5 1.04 Russia None 0 24 5 Colombia FTA (consideration) 1 1 0.21 Indonesia None 0 7 1.46 Argentina None 0 5 1.04 Laos None 0 8 1.67 Peru FTA 5 4 0.83 Kazakhstan None 0 7 1.46 Venezuela None 0 4 0.83 Vietnam None 0 4 0.83 Chile FTA 5 4 0.83 UAE None 0 1 0.21 Ecuador None 0 4 0.83 Pakistan FTA 5 4 0.83 Bolivia None 0 1 0.21 Myanmar None 0 6 1.25 Panama FTA (negotiation) 3 2 0.42 Thailand None 0 2 0.42 SCORE FTA with PRC SCORE presidential meetings with Xi Jinping FTA = 5 points Includes highest ranking authorities (monarch, presidents, prime ministers, etc.) FTA negotiation = 3 points SCORE = Number of visits/24 5 FTA consideration = 1 point 24 visits to Russia = 5 points Source: China FTA Network and China Vitae. BRI: Belt and Road Initiative; PRC: People’s Republic of China; FTA: Free Trade Agreement. a Selected Latin American and BRI countries, 2018. 50 Competition and Regulation in Network Industries 21(1) such comparison, including both groups of countries. We arbitrarily assigned a maximum of five points to those nations with an FTA with China, three points to those nations with an FTA under negotiation at the time of this writing, one point to those countries publicly announcing the negotiation of such treaty, and zero points to those with no treaty finalized or in the making. As a balancing variable, we chose the number of meetings of the highest authority with Xi Jinping. We took as based number 24, which is the number of visits recorded between Russian president Putin and Xi Jinping. There were a few exceptions, such little omission in our primary source for this information, the Web page China Vitae. The sub-variables FTAs with China and presidential meetings with Xi Jinping (Presi) evaluate policy coordination. In this case, we used FTA as a complementary subvariable and Presi as statistical sum variable. Following are the alternative and the null hypothesis >0 Ha : =PresiBri PresiLAme=¼0 <0 Ho : =PresiBri PresiLAme=¼0 Data behavior from the sample data demonstrates a similar performance, and we could not reject Ho. Facilities connectivity Connecting countries and enterprises is a fundamental part of the BRI. One of the promised benefits of the BRI is to add efficiency to many operations, through establishing common standards that eventually will lead to facilitating trade, the movement of people and merchandise and the optimization in resources allocation. Despite sharing the prevailing culture and language, Latin American countries have historically failed to agree on much-needed standardization, raising invisible barriers to the flow of goods and services. T-test for two small samples, assuming unequal variances. Variable 1 Variable 2 Mean 1.355 0.791 Variance 1.89211667 0.19061 Observations 10 10 Hypothetical mean difference 0 Degrees of freedom 11 T-statistic 1.23584204 p(T<¼t) one tail 0.12112928 Critical value of t(one tail) 1.79588482 p(T<¼t) (two tail) 0.24225857 Critical value of t(two tails) 2.20098516 p(T<¼t) two tails 0.2422 > 0.05. Valderrey et al. 51 Even if many inter-regional agreements address the issue, more often than not, signed agreements change according to the will of new governments or upon their concern over matters where their nation has a vested interest. The idea of bringing in an outsider makes little sense, at first, but there is an opportunity for advancing in this area when the newcomer brings a sense of perceived neutrality in regional matters and an abundant supply of money to invest. For this variable, we based our comparison on two indicators from the World Bank: logistics competence, measuring the quality of those services, and the quality of infrastructure intended for trade and transportation. Table 5 summarizes the results. Facilities connectivity includes sub-variables logistic competency (Logis) and quality of traderelated infrastructure (Infra). Both sub-variables are part of the statistical analysis. Following are the alternative and the null hypothesis >0 Ha : =FacilitiesBri FacilitiesLA=¼0 <0 Ho : =FacilitiesBri FacilitiesLA=¼0 Table 5. Connectivity: Selected Latin American and BRI countries. Latin American countries Infrastructure Logistics competence BRI countries Infrastructure Logistics competence Data Score Data Score Data Score Data Score Brazil 2.99 2.99 3.1 3.1 Singapore 4.14 4.14 4.08 4.08 Mexico 2.9 2.9 3.06 3.06 Russia 2.64 2.64 2.74 2.74 Colombia 2.58 2.58 2.79 2.79 Indonesia 2.81 2.81 3.07 3.07 Argentina 2.81 2.81 2.82 2.82 Laos 2.23 2.23 2.45 2.45 Peru 2.46 2.46 2.62 2.62 Kazakhstan 2.59 2.59 2.6 2.6 Venezuela 2.24 2.24 2.32 2.32 Vietnam 2.92 2.92 3.17 3.17 Chile 3.09 3.09 3.09 3.09 UAE 3.98 3.98 3.83 3.83 Ecuador 2.62 2.62 2.7 2.7 Pakistan 2.43 2.43 2.69 2.69 Bolivia 2.16 2.16 2.21 2.21 Myanmar 2.11 2.11 2.28 2.28 Panama 3.14 3.14 3.2 3.2 Thailand 3.17 3.17 3.29 3.29 SCORE logistics competence SCORE infrastructure “The competence and quality of logistics services— trucking, forwarding, and customs brokerage,” The World Bank “The quality of trade and transport infrastructure,” The World Bank SCORE = Index from the International LPI rank, Logistics competence SCORE = Index from the International LPI rank, Infrastructure Source: World Bank, International LPI (2018). BRI: Belt and Road Initiative. 52 Competition and Regulation in Network Industries 21(1) The sample means do not show a significative difference, and we could not reject Ho. Consequently, this factor may be considered efficient for country evaluation. Unimpeded trade At the cornerstone of the BRI stands liberalization of trade barriers and the promotion of free commerce. We measured unimpeded trade using two general indicators from The World Bank: easiness of doing business and trade coefficient. The coefficient measures the removal of barriers to do business in a given country, while the second coefficient estimates the ratio between aggregate traded goods of a nation and its GDP. Table 6 shows the results for the comparison of this variable. Unimpeded trade combines trade coefficient (Trade) and easiness to do business (Easin). We considered Trade as a statistical sub-variable and Easin as the complementary one. Following are the alternative and the null hypothesis >0 Ha : =TradeBri TradeLA=¼0 <0 Ho : =TradeBri TradeLA=¼0 T-test for two small samples, assuming unequal variances. Variable 1 Variable 2 Mean 2.961 2.745 Variance 0.39086211 0.112005263 Observations 20 20 Hypothetical mean difference 0 Degrees of freedom 29 T-statistic 1.36220359 p(T<¼t) one tail 0.09181056 The critical value of t(one tail) 1.69912703 p(T<¼t) (two tail) 0.18362112 Critical value of t(two tails) 2.04522964 p(T<¼t) two tails 0.1836 > 0.05. T-test for two small samples, assuming unequal variances. Variable 1 Variable 2 Mean 1.731 0.774 Variance 2.16027667 0.10344889 Observations 10 10 Hypothetical mean difference 0 Degrees of freedom 10 T-statistic 2.01140743 p(T<¼t) one tail 0.03600272 The critical value of t(one tail) 1.81246112 p(T<¼t) (two tails) 0.07200544 The critical value of t(two tails) 2.22813885 p(T<¼t) two tails 0.0720 > 0.05. Valderrey et al. 53 Given the results, we could not reject Ho. There is no difference regarding behavior to barriers to commerce. Financial integration Probably, the most enticing benefit of the BRI is the possibility of obtaining easy financing from the financial institutions supporting the initiative. Member nations may procure long term loans under favorable conditions to invest in infrastructure and other projects aimed at the modernization of facilities and the betterment of the local economy. Dealing with financially reliable partners is a must for the PRC, as extending loans with few requirements is a characteristic of financing this sort of projects. To compare countries under this variable, we chose two international indicators: central government debt as a % of GDP, and the sovereign credit rating assigned by Fitch, as shown in Table 7. Financial integration includes sub-variables debt to GDP, % (Debt) and sovereign debt (Sover). Sover is a statistical sub-variable and Debt a complementary one. Following are the alternative and the null hypothesis >0 Ha : =SoverBri SoverLA=¼0 <0 Ho : =SoverBri SoverLA=¼0 Table 6. Opportunities for trade optimization. Latin American countries Easiness to do business Trade coefficient (2017) BRI countries Easiness to do business Trade coefficient (2017) Data Score Data Score Data Score Data Score Brazil 60.01 3 24.12 0.37 Singapore 85.24 4.26 322.43 5 Mexico 72.09 3.6 77.54 1.2 Russia 77.37 3.87 46.73 0.73 Colombia 69.24 3.46 34.26 0.53 Indonesia 67.96 3.4 39.54 0.61 Argentina 58.8 2.94 25.02 0.39 Laos 51.26 2.56 75.83 1.18 Peru 68.83 3.44 46.87 0.73 Kazakhstan 77.89 3.89 60.62 0.94 Venezuela 30.61 1.53 48.09 0.75 Vietnam 68.36 3.42 200.38 3.11 Chile 71.81 3.59 55.7 0.87 UAE 81.28 4.06 172.41 2.68 Ecuador 57.94 2.9 42.42 0.66 Pakistan 55.31 2.77 25.79 0.4 Bolivia 50.32 2.52 56.7 0.88 Myanmar 44.72 2.24 47.95 0.75 Panama 66.12 3.31 87.57 1.36 Thailand 78.45 3.92 122.8 1.91 SCORE easiness to do business SCORE trade coefficient (2017) SCORE = Index Doing Business World Bank/100 5 SCORE = Index World Bank/322 5 100 points from Index/100 = 5 points 322 points from Index/322 = 5 points Source: The World Bank. BRI: Belt and Road Initiative. 54 Competition and Regulation in Network Industries 21(1) T-test for two small samples, assuming unequal variances. Variable 1 Variable 2 Mean 1.8 1.4 Variance 2.84444444 1.15555556 Observations 10 10 Hypothetical mean difference 0 Degrees of freedom 15 T-statistic 0.63245553 p(T<¼t) one tail 0.26830579 Critical value of t(one tail) 2.6024803 p(T<¼t) (two tails) 0.53661159 Critical value of t(two tails) 2.94671288 p(T<¼t) two tails 0.5361 > 0.05. Table 7. Financial integration. Latin American countries Government debt as % of GDP Sovereign credit rating BRI countries Government debt as % of GDP Sovereign credit rating Data Score Data Score Data Score Data Score Brazil 74.04 1.3 BB2 Singapore 110.6 1 AAA 5 Mexico 46.4 2.68 BBB+ 2 Russia 13.5 4.88 BBB2 Colombia 48.5 2.58 BBB 2 Indonesia 29.8 4.06 BBB 2 Argentina 57.1 2.15 B 0 Laos 50.03 3.05 n/a 0 Peru 25.5 3.73 BBB+ 2 Kazakhstan 17.4 4.68 BBB 2 Venezuela 23 3.85 RD 0 Vietnam 61.5 2.48 BB 1 Chile 23.6 3.82 A 3 UAE 20.7 4.51 AA 4 Ecuador 32.5 3.38 B0 Pakistan 72.5 1.93 B0 Bolivia 45.7 2.72 BB1 Myanmar 33.64 3.87 n/a 0 Panama 39.2 3.04 BBB 2 Thailand 41.8 3.46 BBB+ 2 SCORE government debt as % of GDP SCORE sovereign debt (Fitch Ratings) SCORE = 111 Index Central Government Debt  5/100 Prime (AAA) = 5 100 points from Index/100 = 5 points 322 points from Index/322 = 5 points 111 points from Index/111 = 1 point High grade (AA+, AA, AA)=4 Upper medium grade (A+, A, A)=3 Lower medium grade (BBB+, BBB, BBB)=2 Speculative (BB+, BB, BB)=1 Not rated or near default (B, C, and D categories, RD, not listed, not available) = 0 Source: Trading Economics and Countryeconomy.com. GDP: gross domestic product; BRI: Belt and Road Initiative. Valderrey et al. 55 Given this result, we could not reject Ho. There is no difference regarding behavior to financial integration. People-to-people bond The BRI authorities emphasize the need for creating people-to-people bonds. In reality, communication is probably the area with fewer results to this date. Many people are reluctant to receive foreigners in their countries, especially when there is a cultural distance from the native population. Also, there is a widespread fear of people taking jobs and opportunities away from the locals. The numbers for the last category are tough to measure, and we relayed on the little information available. We tried first with Overseas Chinese living in the country, migrants, tourists and exchange students, in both directions. Data proved to be unreliable or incomplete. There are many obstacles for keeping track of immigrants, especially because many of them are not sure of remaining into a specific country. Eventually, we based the comparison on a ranking of international mobility, the Henley Passport Index, and the number of Confucius Institutes in the country. The first index lists the number of states that citizens can visit with their national passport, which may be a predictor of mobility. Confucius Institutes promotes knowledge and understanding of the Chinese culture, often leading to language courses in China. To many experts, those institutes resemble a trojan horse for cultural imperialism from the PRC, and the Institute faces a credibility problem in some countries for fear of promoting the geopolitical interests of the PRC (see Table 8). The variable people-to-people bond includes as sub-variables the number of countries that citizens may visit (Mobil) and number of Confucius Institutes (Confu). The last one, Confu, is a statistic sub-variable and Mobil the complementary one. Following are the alternative and the null hypothesis >0 Ha : =ConfuBri ConfuLA=¼0 <0 Ho : =ConfuBri ConfuLA=¼0 T-test for two small samples, assuming unequal variances. Variable 1 Variable 2 Mean 1.5 0.789 Variance 3.016844444 0.55476556 Observations 10 10 Hypothetical mean difference 0 Degrees of freedom 12 T-statistic 1.18970034 p(T<¼t) one tail 0.128585443 Critical value of t(one tail) 2.680997993 p(T<¼t) (two tails) 0.257170885 Critical value of t(two tails) 3.054539589 p(T<¼t) two tails 0.2571 > 0.05. 56 Competition and Regulation in Network Industries 21(1) Given this result, we could not reject Ho. There is no difference regarding behavior toward Confucius Institutes. Multicountry comparison Tables 9 summarizes the data for the five collaboration variables for Latin American countries, while Table 10 shows similar information for the BRI countries. The grand plan The presence of China in Latin America is growing solidly, with no indications for a slowdown. For many years, China has been handing out easy money for infrastructure projects to Latin American countries on the brink of collapse. Governments in precarious economic conditions gladly accepted loans with minor political and commercial requirements or backed by their commodities, but such assistance will be limited in the future. The region desperately needs new infrastructure and a wide range of financial tools to sustain it, but presumably, Latin American governments will find it increasingly hard to reach their traditional lender of last resort. Many of the Chinese newcomers into the region are private enterprises, with the same interest in making money as their local counterparts. Those companies will use hard bargaining as soon as they feel prepared to compete in global markets. This investigation evaluated the suitability of Latin American nations to join the BRI, but the lessons may well go to a much larger audience, including the Chinese authorities. Until now, the PRC has put on the table a vast array of resources for those countries interested in the New Silk Table 8. People-to-people bond, Latin American countries. Latin American countries International mobility Confucius Institutes BRI countries International mobility Confucius Institutes Data Score Data Score Data Score Data Score Brazil 171 4.52 10 2.63 Singapore 189 5 1 0.26 Mexico 158 4.18 5 1.32 Russia 119 3.15 19 5 Colombia 127 3.36 3 0.79 Indonesia 71 1.88 7 1.84 Argentina 170 4.5 2 0.53 Laos 52 1.38 2 0.53 Peru 134 3.54 4 1.05 Kazakhstan 76 2.01 5 1.32 Venezuela 138 3.65 1 0.26 Vietnam 51 1.35 1 0.26 Chile 175 4.53 2 0.53 UAE 164 4.34 2 0.53 Ecuador 93 4.92 1 0.26 Pakistan 33 0.87 4 1.05 Bolivia 79 2.09 1 0.26 Myanmar 48 1.27 0 0 Panama 141 3.73 1 0.26 Thailand 75 1.98 16 4.21 SCORE international mobility SCORE Confucius Institutes SCORE = Henley Passport Index/189 5 SCORE = # Confucius Institutes/19 5 189 countries = 5 points 19 Confucius Institutes = 5 points Source: Henley and Partners (2019) and Confucius Institute (2019). BRI: Belt and Road Initiative. Valderrey et al. 57 Table 9. Selected Latin American nations: Collaboration variables for the BRI. Policy coordination Facilities connectivity Unimpeded trade Financial integration People-topeople bond Total FTA Presi Logis Infra Easin Trade Debt Sover Mobil Confu 100/100 1 Brazil 0.00 1.67 2.99 3.10 3.00 0.37 1.85 2.00 4.52 2.63 2.21 2 Mexico 0.00 1.04 2.90 3.06 3.60 1.20 3.23 2.00 4.18 1.32 2.25 3 Colombia 1.00 0.21 2.58 2.79 3.46 0.53 3.13 2.00 3.36 0.79 1.99 4 Argentina 0.00 1.04 2.81 2.82 2.94 0.39 2.70 0.00 4.50 0.53 1.77 5 Peru 5.00 0.83 2.46 2.62 3.44 0.73 4.28 2.00 3.54 1.05 2.60 6 Venezuela 0.00 0.83 2.24 2.32 1.53 0.75 4.40 0.00 3.65 0.26 1.60 7 Chile 5.00 0.83 3.09 3.09 3.59 0.87 4.37 3.00 4.53 0.53 2.89 8 Ecuador 0.00 0.83 2.62 2.70 2.90 0.66 3.93 0.00 4.92 0.26 1.88 9 Bolivia 0.00 0.21 2.16 2.21 2.52 0.88 3.27 1.00 2.09 0.26 1.46 10 Panama 3.00 0.42 3.14 3.20 3.31 1.36 3.59 2.00 3.73 0.26 2.40 FTA = Free Trade Agreements with China Trade = Trade coefficient Presi = Presidential meetings with Xi Jinping, 2013–2018 Debt = Debt to GDP, % Logis = Competence, and quality of logistics services Sover = Sovereign debt Infra = Quality of trade-related infrastructure Mobil = Number of countries that citizens may visit Easin = Easiness to do business Confu = number of Confucius Institutes GDP: gross domestic product; BRI: Belt and Road Initiative. Table 10. Active BRI nations: Collaboration variables for the BRI. Policy coordination Facilities connectivity Unimpeded trade Financial integration People-topeople bond Total FTA Presi Logis Infra Easin Trade Debt Sover Mobil Confu 100/100 1 Singapore 5.00 0.42 4.14 4.08 4.26 5.00 1.00 5.00 5.00 0.26 3.42 2 Russia 0.00 5.00 2.64 2.74 3.87 0.73 4.88 2.00 3.15 5.00 3.00 3 Indonesia 0.00 1.46 2.81 3.07 3.40 0.61 4.06 2.00 1.88 1.84 2.11 4 Laos 0.00 1.67 2.23 2.45 2.56 1.18 3.05 0.00 1.38 0.53 1.51 5 Kazakhstan 0.00 1.46 2.59 2.60 3.89 0.94 4.68 2.00 2.01 1.32 2.15 6 Vietnam 0.00 0.83 2.92 3.17 3.42 3.11 2.48 1.00 1.35 0.26 1.85 7 UAE 0.00 0.21 3.98 3.83 4.06 2.68 4.51 4.00 4.34 0.53 2.81 8 Pakistan 5.00 0.83 2.43 2.69 2.77 0.40 1.93 0.00 0.87 1.05 1.80 9 Myanmar 0.00 1.25 2.11 2.28 2.24 0.75 3.87 0.00 1.27 0.00 1.38 10 Thailand 0.00 0.42 3.17 3.29 3.92 1.91 3.46 2.00 1.98 4.21 2.44 FTA = Free Trade Agreements with China Trade = Trade coefficient Presi = Presidential meetings with Xi Jinping, 2013–2018 Debt = Debt to GDP, % Logis = Competence, and quality of logistics services Sover = Sovereign debt Infra = Quality of trade-related infrastructure Mobil = Number of countries that citizens may visit Easin = Easiness to do business Confu = number of Confucius Institutes GDP: gross domestic product; BRI: Belt and Road Initiative. 58 Competition and Regulation in Network Industries 21(1)