‘CHINA’S ROAD & BELT INITIATIVE: INDIAN PERSPECTIVE

Mr. JAYADEVA RANADE  May 2016

                                                                                                                                                   

                                                                                                                                                  Dated: 16 May 2016                                                                                                                                          
                                                     ‘CHINA’S ROAD & BELT INITIATIVE:  INDIAN PERSPECTIVE’
                                                                           by JAYADEVA  RANADE
China’s ‘One Belt, One Road’, which was first proposed in September 2013 and combines the twin initiatives of the Silk Road Economic Belt and 21st Century Maritime Silk Road, is a grand concept that envisions China girdling the globe. Potentially covering 55 percent of the world GNP, 70 percent of the global population, and 75 percent of known energy reserves, it is essentially a plan for a China-built land and sea transportation artery to link China’s production centres with markets and natural resource centres around the world. At the same time it will harness much of China’s hitherto idle economy, manpower and infrastructure-technology reserves to get much needed returns. It has the potential to bend borders and alter the status quo in China’s neighbourhood – as it already has begun to do in South Asia – and adversely impacts India directly. The initiative blends geopolitical and diplomatic objectives and has a strong domestic agenda.
The proposed “One Belt, One Road” (OBOR) is an approximately US$ 1.4 trillion project. China claims to be willing to make a huge financial commitment upwards of US$ 300 billion in infrastructure financing for the project in the coming years, though some multilateral and bilateral pledges may overlap. Underscoring China’s commitment, the official China Daily reported on May 28, 2015 that Beijing plans to invest US$ 900 billion. The OBOR is planned to be completed over 35 years, in time for the 100th anniversary of the People’s Republic of China in 2049! 
The ‘Belt Corridors’ run along the major Eurasian Land Bridges, through China-Mongolia-Russia, China-Central and West Asia, China-Indochina Peninsula, China-Pakistan, Bangladesh-China-India-Myanmar. The Maritime Silk Route or “Road” is the maritime equivalent of the 
‘Belt Corridors’ and comprises a network of planned ports and other coastal infrastructure projects that dot the map from South and Southeast Asia to East Africa and the northern Mediterranean Sea.
The most publicised recent bilateral commitment to OBOR was the investment pledged for the China-Pakistan Economic Corridor (CPEC) by Xi Jinping during his two-day visit to Pakistan in April 2015. Pakistani analysts have valued it at US$ 46 billion. Deals valued at a further US$ 15.7 billion were subsequently signed in Belarus that May. More might have been signed during Xi Jinping’s visits to Kazakhstan and Russia on the same trip. Discussions are known to be underway with Russia on overland transport, energy, and cyber-connectivity. Concrete data in respect of OBOR-related agreements is, however, not easily available in published Chinese sources. 
International financial institutions, some of them new, are getting involved with OBOR like the Asian Infrastructure Investment Bank (AIIB), BRICS’ New Development Bank, Silk Road Fund, a CIC-backed fund (announced recently, during Li Keqiang’s visit to Brazil), and, possibly, a SCO Development Bank. This has had an effect on private investors, lenders and countries in the region. Japan, for example, announced a $110 billion infrastructure fund for Asia and the Asian Development Bank (ADB) revised its disbursement rules to increase lending capacity. The AIIB is to serve as the financing arm of OBOR. 
An effort by China to use these banks, especially the AIIB, to extend fiscal assistance to Pakistan for projects in the CPEC in furtherance of its strategic objectives immediately puts India to the test. On May 9, 2016, the official English-language China Daily reported that the AIIB announced it would co-finance a US$ 300 million motorway project in Pakistan with the Asian Development Bank. Asserting that “Pakistan is a strong ally of China”, the report indicated there would be more such projects. To advance its national interest, China had used its economic clout with the ADB to block developmental assistance for poverty alleviation projects in India’s north-eastern state of Arunachal Pradesh on the ground that it was disputed. Identically, the CPEC goes through India-claimed and disputed territory. 
While Chinese officials and academics emphasise the economic aspects and commercial advantages of OBOR, it is definitely a geopolitical and diplomatic offensive. Chinese President Xi Jinping’s articulation of a “community of destiny” among Asians is relevant. Despite Chinese interlocutors insisting that China seeks to “supplement” the existing international order rather than revise it, the numerous statements by influential Chinese strategists asserting that the time is now opportune for China to alter the status quo, are strong in the background.  Implementation of OBOR will also augment China’s economic influence in the participating countries. The strategy of disbursing them large sums as loans and aid will enhance the financial power that China already exercises through its trading relationship.  
Huang Yiping, a Professor of Economics at Peking University's National School of Development, assessed in February 2015, that OBOR represents a sea change in China’s international profile. According to him, OBOR has ended the phase of low-profile diplomacy based on Deng Xiaoping’s advice to “hide your capabilities and bide your time” and transformed China into “a new great power” which “is trying to supplement the international economic order”. Huang Yiping sought to justify China’s more active role as an attempt to redress the limited role given to developing countries in international institutions and in line with US President Barack Obama’s demand that China take on more responsibility for providing international public goods. A Renmin University report similarly asserted the need to “supplement, not challenge” the existing order because of the “zero-sum thinking” which ensured that OBOR projects were greeted with scepticism including in China’s immediate neighbourhood. Taking note of the challenges ahead, Huang Yiping conceded that: "One Belt, One Road is a good international economic strategy, but for now it is certainly not an easy one".
A report in 2014 from Renmin University, described by the official Xinhua news agency as the first think tank report on the projects, clearly outlined the scale of the project’s ambition and limits of current planning. It revealed that China will commence strategic planning in 2016 and this would take five years. The report estimates that the Silk Road (OBOR) projects will be fully realised in about 35 years by 2049, the 100th anniversary of the foundation of the People’s Republic of China! Chinese President Xi Jinping was quoted by Xinhua on December 6, 2014, as describing the OBOR at a Politburo session as a "new round of opening to the world." This was echoed by a Ministry of Commerce official who – implicitly underscored the domestic political agenda – by telling Caijing magazine that the “new 30 years” will put today’s China on the threshold of a third era comparable to those begun by Mao Zedong and Deng Xiaoping!
While the basis for OBOR appears to be geopolitics and export of its huge infrastructure-building capacities, there are foreseeable difficulties. Geographical and geopolitical conditions differ widely outside China and the investment climates are uncertain in many of the countries which can be categorised as low-return and high-risk countries. This has triggered debate among government academics and strategists as to the advisability of making massive investments in such countries. There is additionally, concern about overreliance on public financing and State-owned Enterprises.  There is also concern about the reactions from China’s neighbours. 
Acknowledging the “great potential” of OBOR, Jia Qingguo, a member of the Standing Committee of the Chinese People’s Political Consultative Conference (CPPCC) and Dean of the University of International relations at Beijing University, highlighted the need for caution and said China should not succumb to “wishful thinking”. Confirming the differences between academics and government officials about the goal and scope of the project, he said for OBOR to succeed it will need a clear plan and solutions will have to be found to the problems of harsh terrain, political instability, and geopolitical threats. Stating that regional powers like Russia are wary of China’s rise, he said China must avoid giving rise to the perception that it is challenging Russia’s position in Central Asia. Interestingly, linking with Russia was an afterthought and not in the original OBOR plan. Russia was included only after Putin called Xi Jinping in the Spring of 2015 and Moscow dispatched an emissary to Moscow after which the Russian "loop" was included. Problems, however, remain regarding routing of the railway. Jia Qingguo pointed out that many of the target countries for the Maritime Silk Road project are currently involved in territorial disputes with China, which may make them reluctant to cooperate. To overcome their scepticism, China should use its growing strength to persuade its neighbours to “shelve disputes and pursue joint development.”

In similar vein Chu Yin, an Associate Professor of International Relations at the prestigious Tsinghua University in Beijing, in an article in January 2015 focussed on political risk and warned China not to take smaller countries for granted. He said: “Although we are a righteous country, free of Western imperialism, colonialism, and racism, we and the OBOR countries are absolutely not equals”. He pointed out that Chinese planners had frequently failed to consider local and regional politics, which exposed projects to political risk both from local opposition parties and from competing regional powers. He said recent events in Thailand and Myanmar showed that political instability is a major risk. In an interesting observation, he said the defeat of a Beijing-friendly government during the elections in Sri Lanka could disrupt the construction of a key port there since, in contrast to the US during the Marshall Plan, China does not have the luxury of militarily occupying the countries in which it invests. He said on a regional level, India, the US, Russia, and Japan are all important players in OBOR countries and could use their power to block China’s plans. 

Security is obviously a major challenge. For example, protection of the 81,000 kilometers (about 50,000 miles) of high-speed railway that China proposes to build through 65 countries, will be a major task. Similar will be the case with the 51 planned projects in the CPEC, which passes through Baluchistan -- among the world’s most vulnerable and domestic insurgency-ridden territories.  

As reflected by the ongoing military reforms, China has begun to address some of these issues. The Conference on Peripheral Diplomacy held in Beijing on October 24-25, 2013, prepared the ground for the OBOR. Identifying countries for the first time ever as “friend” and “enemy”, it decided that ‘friends’ would receive “untold benefits”, including those flowing from China’s international standing and diplomatic clout. It promised that China could even offer “security alliances”. The China-Pakistan Economic Corridor (CPEC), which is part of OBOR and envisages road links, pipelines, energy centres and ports, is a good example. It combines financial assistance with diplomatic support reinforced by military muscle. 

By announcing the CPEC, Beijing dispelled the ambiguity maintained by China thus far on the issue of Kashmir. It is also preparing to protect the CPEC inside Pakistan. A secure fibre-optic link has been laid connecting Kashgar with Rawalpindi, highlighting the close military coordination between Pakistan and China. The establishment early this year of the People’s Liberation Army (PLA)’s West Zone is intended to safeguard Chinese investments and projects in the CPEC in addition to protecting China’s land frontiers. China has at the same time informed Islamabad that it is creating a Division-strength “private army” for deployment in the areas covered by the CPEC. The West Zone’s operational jurisdiction is anticipated, in course of time, to include eastern Africa where China has considerable economic interests and where it has very recently signed an agreement for a base at Djibouti. China has already put in place a domestic legal basis for the deployment of Chinese troops and security personnel to protect Chinese investments and workers abroad. The operational tasks assigned to the PLA’s West Zone represent the first of more such arrangements. 

For India the Bangladesh-China-India-Myanmar (BCIM) corridor, which is part of OBOR and which Beijing is pressurising India to sign on to, is not feasible.  Opening the BCIM would mean that Chinese goods -- neither Myanmar nor Bangladesh produce goods in demand in India -- will flood India’s northeast where poor connectivity presently makes access difficult for Indian products and people. There is the additional risk of thousands of Chinese illegally settling in India’s sparsely populated north-eastern states, as they have in other countries. A detailed posting on a PLA-maintained website had, in fact, a few years earlier enumerated the advantages of “recovering” Arunachal Pradesh including to settle China’s growing population.

The economic import of the OBOR has correctly been emphasised by Chinese academics and officials. Jia Qingguo observed that OBOR is an international strategy, but its success will be measured by its effects on China’s domestic economic rebalancing. While China will send out its own capital, technology, and management experience and promote the development and prosperity of neighbouring countries, he was emphatic that the yardstick for gauging OBOR’s success would be whether it encourages China’s own economic transformation and makes it the centre of the regional economy. He recommended that to ensure that investment is allocated efficiently and state assets are protected, private capital should take the lead. Jia Qingguo recommended making private enterprises the ‘backbone’ of the project – to leverage their energy, flexibility, and sensitivity to investment efficiency, and avoid the “drainage” effect of SoEs.

Caution has been expressed also by Chen Gong, Chief Researcher at Anbound, a Chinese consulting firm and think-tank of the PRC State Council. He suggested that OBOR projects are a large-scale reproduction of China’s unbalanced model of development over the last ten years: based on public actors and infrastructure spending, and excessively supply-based. He said this goes against the government’s desire to put these stimulus-based growth levers aside – but agreed that perhaps using them outside China is more acceptable and less contentious. Chen Gong particularly questioned the advantage of the Maritime Silk Route, saying: “What China produces, ASEAN countries also produce, and what China thinks about developing, ASEAN also wants to develop”. Therefore, the two regions are bound to compete more intensively, and China will face much greater difficulties along the Maritime Silk Road than it would have if it had focused only on the western route.

The main players in OBOR projects will, however, be China’s State-owned Enterprises (SoEs). According to Xu Gao, Chief Economist at Guangda Securities and former economist for the IMF and the World Bank, this implies that the opportunity cost would actually be negative for China. He has assessed that because China’s economic structure is dominated by SoEs, further investment should actually reduce waste in the public sector and help to stabilise employment as well as the economy. It will offer a new investment opportunity for China’s huge foreign exchange reserves, which have so far been heavily invested in low-return US bonds. 

Meanwhile, data released at the end of 2014 by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) gives an overview of the preparedness of Chinese SoEs for participating in ‘OBOR’. The report shows that 107 SoEs out of 110 had set up 8,515 braches overseas by the end of 2014, and among them over 80 Chinese SoEs had established branches in countries and regions along the "Belt and Road." Statistics show that the total overseas assets of Chinese SoEs had risen from 2.7 trillion yuan to 4.6 trillion yuan since the implementation of the 12th Five-Year Plan. Chinese SoEs have undertaken major projects like crude-oil pipelines of China-Russia, China-Kazakhstan, and China-Myanmar, natural gas pipelines of China-Russia, China-Central Asia, and China-Myanmar, and railway construction with Myanmar, Thailand, Laos etc. The SASAC report added that over 40 SoEs have set up International Business Management Departments and over 30 have drawn-up overseas legal risk prevention plans. 

Separately, Xinhua quoted China’s State Administration of Taxation as announcing on March 14, 2016, that Tax treaties with countries along the “Belt and Road” will save financial  institutions in China 9.6 billion yuan (about US$ 1.5 billion) in taxes.  

While for the present countries cannot ignore China’s economic strength or track record in building massive infrastructure, serious doubts remain as to Beijing’s real objectives. That Beijing is aware of these concerns is evident in Chinese Foreign Minister Wang Yi’s annual address to the press on the sidelines of the CPPCC-NPC sessions in March 2015 and 2016. He asserted that the OBOR was not a “tool of geopolitics” and should not be viewed through an “out-dated Cold War mentality”. This March, Wang Yi again emphasised that China is a responsible emerging country and promotes periphery diplomacy with reciprocal benefits. He said the "Belt and Road" initiative has made significant progress, including establishment of the Asia Infrastructure Investment Bank (AIIB) and launch of the New Silk Road Fund, and enhanced connectivity with participating countries in economic and trade cooperation, cultural and educational exchanges. China’s Vice Foreign Minister, Zhang Yesui, echoed this message of reassurance at the China Development Forum in March 2015. Later the same month he described China as fully integrated into the international system and reiterated that OBOR is “not directed against any specific country or organisation” but intended to “complement” existing international and regional institutions. 
Nevertheless, major difficulties confront the OBOR. The slowing domestic economy is one. Chinese economists have warned the Chinese government against taking on too much of the project, saying this would risk repeating the errors made in the development of China’s west, but this time on an international scale. The problem is compounded by the desire of many local and provincial governments in more than 22 provinces to participate in OBOR.  An article in February 2015 in the ‘Guoji Jinrong Bao’ cautioned that this could lead to wastage. It pointed out that many international railway projects are coming up on expensive and often underused routes and that a number of provinces have poured subsidies into projects that are not economically viable. Another future complication affecting social stability could stem from plans for cooperation with Central Asian countries developed by local officials and focused on narrow regional interests.  
Though 20 European countries are engaged in talks with China on the OBOR and despite China’s offers of economic assistance, the EU in May 2016 declined to give China market economy status (MES) based on the 2001 terms of China’s accession to the World Trade Organization (WTO). Differences over interest rates, with Thailand complaining in March 2016 that they are too high, now threaten the Chinese-Thai Rail project. 

Problems of harsh terrain, political instability, and geopolitical threats, are likely to get accentuated by the inherent political turbulence in many of the regions that the OBOR traverses. The rising tide of Islamic extremism in Pakistan, Afghanistan and potentially soon in the Central Asian Republics, will threaten stability in the Xinjiang Uyghur Autonomous Region and other Muslim areas in China. Safeguarding the CPEC’s 51 projects in Baluchistan -- among the world’s most vulnerable and domestic insurgency-ridden territory – will also be difficult. Together, these cast serious doubts about the viability of the OBOR.

                                                              -----------------------------------

(The author is a former Additional Secretary in the Cabinet Secretariat, Government of India and is President of the Centre for China Analysis and Strategy.)



 
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