China Recognizes Dominican Republic — We Should Worry

I would like to share with you my just-published article on the Dominican Republic's May 1, 2018 establishment of diplomatic relations with the PRC.  The work examines the activities which are likely to follow, based on other countries which have changed their diplomatic posture toward China in recent years.  It looks at the implications for the Dominican Republic and the region, and concludes with recommendations for US policymakers.The article is originally published by Newsmax.

On May 1, 2018, the Dominican Republic established diplomatic ties with the People’s Republic of China (PRC), obligating the Republic of China (ROC) to cut its own 77-year long political relationship with the country. The change by the Dominican government left just 19 countries globally that officially recognize the ROC as the legitimate government of all of China.

Of these, 10 of the remaining (more than half) are in Latin America and the Caribbean.

The official acceptance of the Dominican government’s action by the PRC provided further indication that the informal "diplomatic truce" that prevailed with the PRC during the KMT government of Ma Jing-yeou in Taiwan from 2008 until 2016 has come to an end. Following elections in Taiwan in January 2016 that brought to power Tsai Ing-wen and her Democratic Progressive Party to power led the PRC to again accept the offers of (and even to court), countries wishing to change their diplomatic relations from Taiwan to the PRC.

The initial PRC steps in this direction began in Africa with the PRC establishing diplomatic relations with Gambia in March 2016, followed by Sao Tome and Principe in December. That renewed competition extended to Latin America in June of 2017 with Panama’s recognition of the PRC.

The recent similar act by the Dominican Republic indicates that the PRC will continue its diplomatic struggle with Taiwan in the Western Hemisphere, with further recognizing the PRC even prior to the end of 2018 not unthinkable. Yet whichever country is next to change its diplomatic posture on China, the concentration of the countries still recognizing the ROC in Central America (Belize, El Salvador Guatemala, Honduras and Nicaragua) and the Caribbean (Haiti, St. Kitts and Nevis, the Grenadines and St. Lucia) suggests that the struggle, and the gestures that accompany it on China’s part, will bring about a significant increase in Chinese commerce, loans, investment activities, and even military engagement in the near term, in uncomfortably close proximity to US shores.

In the days since the Dominican Republic’s change, the associated activity and discourse has followed a familiar pattern. The Dominican government gave Taiwan 30 days to retire its diplomatic personnel, and Taiwan announced the immediate suspension of its aid programs.

Although the Taiwanese government accused the PRC of bribing the Dominican Republic with $3 billion in loans to change their position (a criticism echoed by U.S. Sen. Marco Rubio, R-Fla.), the Dominican government denied that it had received any quid pro quo from the PRC for its action, other than assurances that Dominicans studying in Taiwan on scholarships would have the opportunity to continue their studies in the PRC (presumably via funds from the PRC organization Hanban).

As in other cases, the change in diplomatic recognition by the Dominican Republic has raised hope within its business community for an expansion in the nation’s exports to the PRC. The country’s lopsided trade balance with mainland China is not atypical, particularly for states lacking relations with mainland China. During the period 2012 to 2016, the Dominican Republic’s total exports to the PRC, $1.3 billion, were eclipsed by imports from China of $6.54 billion.

Indeed, prior to the change, Dominican exports to the PRC had been steadily declining, from $273.8 million in 2015 to $85 million in 2017. Also paralleling the experience of many other Latin American and Caribbean countries, Dominican exports to the PRC are mostly comprised of low value added commodities, including copper, nickel, and zinc, while its imports from the PRC include a broad range of higher value added manufactured goods.

While some Dominican businessmen have expressed the hope that their government’s diplomatic recognition of the PRC will help expand the country’s traditional agricultural exports to continental China, such benefits have been limited in other cases, due to the cost-prohibitive nature of shipping perishable food products long distances across the Pacific, where the PRC has more cost-effective ways of obtaining such undifferentiated goods from its Asian neighbors.

Beyond expanded commerce, Dominicans clearly hope that diplomatically recognizing the PRC will attract more investment in the Caribbean country from PRC-based firms. Reflecting the prior lack of incentives for Chinese companies to invest in the Dominican Republic without diplomatic relations (and the difficulties of doing so), only nine PRC-based companies currently operate in the country, although another three are reportedly setting up shop.

The PRC’s commercial representative in the Dominican Republic Fu Xinrong expressed optimism that diplomatic recognition would facilitate the advance of an estimated $800 million in proposed investment by these Chinese firms in progress prior to the announcement (to include a project on the Yuna river, the construction of low cost housing, and a plant for generating energy by recycling trash). Yet the more significant investment, to the extent it arrives, will likely come from other PRC-based companies.

Dynamics to Watch For

While neither the Dominican nor the Chinese governments have advanced a roadmap of actions to develop their newly forged relationship in the coming months, the record of other governments in the region that have gone through the process with the PRC suggest a number of likely activities:

First Dominican Republic will likely open an embassy in Beijing in the coming weeks, leveraging preparations that have probably been underway in secret in the PRC for some time. In the Dominican Republic, where keeping secrets involving buildings, people, and major administrative arrangements is not as easy, an embassy for the PRC will probably be opened in several months.

Beyond diplomatic activities, negotiations are probably already underway regarding which of the Dominican Republic’s universities will host the Confucius Institute that will almost inevitably be established in Santo Domingo to facilitate the promulgation of PRC- sanctioned Chinese language and cultural studies in the country.

As occurred after Panama recognized the PRC, the Dominican Republic could open negotiations for a free trade agreement, which would not only facilitate commerce with the PRC, but position the Dominican Republic to receive investment from Chinese companies interested in exporting goods into the U.S. market taking advantage of the access provided to the U.S. from the country under the terms of the Central American Free Trade Accord (CAFTA-DR), to which the Dominican Republic is a signatory.

The expanded investment and loan-funded projects that occur in the Dominican Republic are likely to principally occur in the six business areas officially sanctioned by the PRC government in its "1 plus 3 plus 6" engagement concept (and the 2019-2021 China-CELAC plan) as priorities (energy and resources; infrastructure construction; agriculture; manufacturing; scientific and technological innovation; and information technology).

Candidates for Chinese projects include mining, construction (with companies such as China Harbour, Sinohydro, and China State Construction and Engineering already established in the Caribbean), electricity (including both large Chinese companies such as State Grid, and component providers for wind and solar generation), manufacturing (such as the assembly of Chinese goods for export to the U.S) and retail (including the import of Chinese motorcycles, cars, appliances, consumer electronics, and other products).

As in other parts of the Caribbean such as Guyana and Suriname, projects performed by Chinese companies will likely bring Chinese workers into the country, or facilitate the arrival of others through human smuggling networks, affecting the size and dynamics of the ethnic Chinese community there. Prior to the diplomatic recognition of the PRC, that community had been shrinking, and is currently estimated to number approximately 3,000 people,with an estimated 500-700 Chinese restaurants and other small stores in Santo Domingo’s "Chinatown" district.

The incoming PRC ambassador, when he or she arrives, will confront the task of not only reaching out to Dominican business and other interest groups, but also in building ties with the Chinese-Dominican community, which for almost a century, until just last week, had arguably been a pillar of the Taiwanese government’s engagement with the country.

Beyond its expansion and its relationship to the PRC embassy, the Chinese-Dominican community will likely, in part, try to exploit the new engagement with the PRC as a business opportunity, focusing on marketing themselves as culturally aligned, knowledgeable, politically-connected insiders for the wave of Chinese businessmen who will soon be making officially-encouraged trips to the island, as well as for the Dominican businessmen who seek to travel to the PRC.

Indeed, one of the principal leaders of the Chinese-Dominican community in Santo Domingo, Rosa Ng, was part of the official delegation that traveled to the PRC with Dominican foreign Minister Miguel Vargas, meeting with Chinese Vice President Wang Qishan, among others.

Beyond the country’s borders, the Dominican Republic’s recognition of the PRC will also affect its neighbor Haiti. Although Haiti has declared its intention to continue its own diplomatic relations with Taiwan, the new contrast between the diplomatic choice of two countries sharing the island of Hispaniola will only reinforce other differences and historic sources of tension between them.

Outside Hispaniola, the nine nations in Central America and the Caribbean continuing to recognize Taiwan will closely watch how PRC engagement with the Dominican Republic plays out, in order to decide whether the time has come for them to also "make their move," and thus avoid the lesser benefits they may ultimately receive from Beijing if they are one of the last states in the region to change their own diplomatic position.

Recommendations

From a U.S. perspective, the Dominican Republic’s recognition of the PRC makes it more important than ever to remain engaged with the country, and with the Caribbean and Latin America more broadly, as a pillar of US security and prosperity.

On the economic front, the U.S. should be particularly attentive to Chinese companies setting up manufacturing facilities to import Chinese goods into the US from the Dominican Republic, to ensure that the domestic content provisions of CAFTA-DR are adhered to.

In the security domain, U.S. Southern Command and the Office of the Secretary of Defense for Western Hemisphere Affairs should monitor (to the extent possible) the likely forthcoming People’s Liberation Army initiatives to bring senior Dominican officials to the PRC for training, professional military education activities, and other official visits which may give the Chinese the opportunity to evaluate and secure leverage over them. U.S. defense authorities should similarly monitor gifts of military materiel (including non-lethal goods) and the sale of military hardware (likely on credit) to the under-resourced Dominican army.

The Dominican Armed Forces have a close relationship with the U.S., including almost universal training of the Dominican officer corps in U.S. doctrine and procedures at the Western Hemisphere Institute for Security Cooperation (WHINSEC), yet are arguably vulnerable to courtship at both the personal and institutional levels by the Chinese. Similarly, appropriate U.S. authorities should closely follow Chinese law enforcement collaboration against organized crime, where such collaboraton is publicly acknowledged by the Chinese as an area of interest in working more closely with the region, and which will logically be sought by the Dominicans to replace help previously provided by the Taiwanese government.

Indeed, the PRC has already provided such assistance to the Argentine government (in the fight against the Chinese triad Pixiu, and probably in Panama and elsewhere), yet such law enforcement collaboration would also facilitate expanded security collaboration with the PRC, and by association. Organizations that currently work closely with the U.S., such as the country’s counterdrug organization DNCD, are arguably particularly important in this regard.

In strategic terms, the change in diplomatic recognition by the Dominican Republic should expand attention by U.S. analysts and policymakers regarding the expansion of Chinese influence in areas close to the U.S., such as Central America and the Caribbean.

Indeed, beyond the impact on the Dominican Republic itself, the perceived benefits of such engagement may prompt other nations in those subregions and the Caribbean to follow the Dominican lead to switch diplomatic recognition from Taiwan to the PRC, creating a cascading effect that expands the PRC’s commercial and military presence and associated influence in the region far more rapidly than the Dominican Republic’s act of diplomatic recognition alone would indicate.

Expanding PRC influence in the region cascading from the Dominican Republic’s action could be also be magnified by other dynamics, including resentment toward Washington from states such as Honduras because of the loss of "temporary protected status" for their immigrants in the United States, or the search by Guatemalan elites for a counterweight to US support for the CICIG anti-crime commission.

In Mexico, if Andres Manuel Lopez Obrador (AMLO) wins the country’s July 2018 presidential election, which is likely, then his political discourse, in combination with Mexico’s historic influence in Central America and the Caribbean, could push the region toward greater political independence from the United States, just as its new diplomatic ties with the PRC is re-orienting and giving it the resources to pursue such a course.

The recognition of the PRC by the Dominican Republic, while not catastrophic for the U.S., should be a wake-up call for U.S. policymakers concerning the value of the region for the prosperity and security of the U.S., and the importance of dedicating to it the attention and resources that it deserves.