CHINA’S GLOBAL EMPIRE
BEIJING IS LAYING OUT A GRAND ECONOMIC DESIGN AIMED AT GLOBAL SUPREMACY. THE ONE BELT, ONE ROAD INITIATIVE IS JUST A PART OF IT
As the ambitious Chinese leader unfurls his plans for a new economic order, India mulls how it can counter China’s growing influence
APROJECT FOR THE CENTURY was how China’s leader Xi Jinping described on May 14 his grand plan to remake the world. In the presence of 29 foreign leaders in Beijing, Xi unveiled his pet initiative, the rather harmless-sounding One Belt, One Road (OBOR), which seeks to establish Beijing at the centre of the world’s economy through a series of massive infrastructure projects linking China with the world. India was the only major absentee—the opacity surrounding China’s goals, coupled with India’s concerns over China’s projects in Pakistan-occupied Kashmir (PoK), prompted Delhi to boycott the summit.
If OBOR was named so with the hope of signalling to the world China’s benign intentions, the country’s leading thinkers in Beijing are aware that a lot more is at stake. Through OBOR, China is for the first time staking claim to global leadership. With the United States, under Donald Trump, distracted, many in Beijing see a China moment, and for the rest of the world a decision to be made.
“Two alternatives await us,” says leading Chinese thinker Zheng Bijian. “One is trade protectionism. The other is to guide globalisation into a new phase and reform the economic and political order. The first alternative takes the world back to square one and is unthinkable. We are at a historical turning point, and we must embrace this new phase.”
China is careful enough to state it doesn’t aspire for global leadership. But the view among diplomats and China-watchers is that the ‘guiding globalisation’ that Zheng speaks of is merely a euphemism for reshaping the world order and placing China firmly at its summit.
China’s push for global supremacy didn’t begin with OBOR, but it has emerged as the instrument through which China is signalling its ambitions. For two decades, China pushed its state-owned enterprises (SOEs) to ‘go out’ to secure the country’s interests, from natural resources to access to ports. Today, the SOEs are building
“To subdue the enemy without fighting is the pinnacle of strategy” —Sun Tzu in The Art of War Through OBOR, China is for the first time staking claim to global leadership
railways in Africa, acquiring and operating mines all over the world, from Latin America to Afghanistan, constructing dams from Argentina to Myanmar, and building ports at every crucial littoral Indian Ocean state as Beijing builds a blue-water navy to protect its expanding overseas interests.
“What China is trying to do— and to some extent has achieved success in doing—is create a psychology that there is an inevitability of China’s hegemony, and the sooner countries adjust to it the better for them,” says former Indian foreign secretary Shyam Saran. “OBOR is aimed at reinforcing this narrative at a time when the US is either in decline or preoccupied. So most countries find that either they have to shut up or accept Chinese hegemony, as there appears to be no countervailing force.”
Xi’s Chinese Dream
“Some foreigners with full bellies and nothing better to do engage in finger-pointing at us. First, China does not export revolution. Second, it does not export famine and poverty. And third, it does not mess around with you. So what else is there to say?” In those sentences in 1999, Xi, then China’s vice-president, had summed up Beijing’s view of the world and his disdain for a US-led world order. In the eight years since then, Xi hasn’t been as undiplomatic in his public speeches, but neither has he disguised his ambitions.
More than his predecessors, Xi has been aggressive in championing China’s greater role globally. Since taking office in November 2012, he made the campaign slogan of his administration what he calls “the Chinese dream” (zhongguo meng) of the “great rejuvenation of the Chinese nation” (zhonghua minzu de weida fuxing). This isn’t new. Every leader since Sun Yat-sen has spoken of China’s revival, but “it is something Xi has pushed more than anyone else”, says Tom Miller, economist and author of China’s Asian Dream. “The key word in this is fuxing, or revival, and it gets to the heart of what China is now trying to do with its foreign policy,” says Miller. “It means making China secure—a strong economy, a China that will be a great nation on the world stage.”
Given China’s three-decade experience since its reforms, it’s no surprise its leaders see their economy and trade as key to their global mission. The first step was securing the resources to fuel the country’s rise. OBOR is the second, aimed at consolidating China’s sway over countries in its economic orbit. The third will be securing China’s assets overseas. Beijing has so far eschewed a global role for its military, but it has last year opened its first naval base, in Africa. More are on the way.
In 1996, then leader Jiang Zemin pushed what was then called a ‘going out’ strategy for SOEs. In a decade, China’s overseas investments surged from $3 billion to $100 billion. This was buttressed by China’s rising share of global trade following its entry into the World Trade Organization in 2001.
AT THAT TIME, China accounted for less than 5 per cent of global exports. Today, it is the world’s largest exporter, with a 14 per cent share. It is the largest trading partner for more than 100 countries and has emerged as the biggest source of foreign
For many of its neighbours, China’s economic orbit is too strong to resist
investment for countries, from Venezuela and Angola to Nepal and Sri Lanka. China Development Bank (CDB) and the Export-Import (EXIM) Bank are funding this investment spree and lending more in Africa than the World Bank and IMF combined.
In Africa and Central Asia, more and more countries fell into China’s economic orbit as its SOEs embarked on massive ‘resources for infrastructure’ deals. China was offering to regimes from South America to Africa a different way of doing business. Gobbling up their resources, China is today the world’s biggest producer and consumer of everything—from coal and iron ore to copper and rare earths. It built them roads, railways and dams.
In Africa, the China Road and Bridge Corporation is constructing the continent’s most expensive project, a railway linking Nairobi and Mombasa that will eventually link six countries in East Africa. In Zambia, China has acquired one of Africa’s biggest copper mines. China’s biggest trade partner in Africa is, unsurprisingly, resource-rich Angola, which supplies everything from oil to minerals and agricultural commodities. China, in return, has offered more than $15 billion in loans. When Venezuela’s economy was on the brink of collapse, the CDB stepped in with a $50 billion loan. When foreign banks refused to loan Ecuador funds for a hydropower dam, Chinese companies pitched in. Altruism isn’t the motive, though; Ecuador, according to reports, will pay a high 6-7 per cent interest on loans.
Building the Belt
The Belt and Road plan was first unveiled as a land ‘Silk Road Economic Belt’ by Xi during a 2013 visit to Kazakhstan. When he was in Indonesia a month later, Xi announced a ‘Maritime Silk Road’ to link the region’s ports with China’s. The plan was then christened ‘One Belt, One Road’, though subsequently renamed in English as the ‘Belt and Road Initiative’ to assuage global concerns about a Chinese-led initiative.
As China’s state investment driven model runs out of steam, it is no longer devouring the resources that fuelled its rise. Beijing now needs new markets. It’s doing this in three ways: connectivity projects that will bring markets closer, by setting up projects overseas, and through massive lending. In two years, Chinese companies have signed close to $180 billion worth of contracts in 60-odd OBOR countries, according to the Chinese government.
The projects will create new infrastructure to suit China’s strategic goals as well as open up new
avenues for companies struggling with a slowing economy at home. For instance, to reduce reliance on the Malacca Straits for oil imports, China has opened a pipeline connecting the Kyaukphyu port in Myanmar with Kunming in Yunnan, giving China access to the Bay of Bengal for shipments. Pakistan’s Gwadar port in the Arabian Sea has been conceived to open up alternative access to sea routes. Chinese economists, however, find the idea of a pipeline across the Himalayas far-fetched.
To open up Eurasian markets, the first major OBOR project to materialise was a transcontinental rail network linking China’s manufacturing hubs to Europe. While the network has long existed, China added routes and doubled the number of trains to 1,700. From the world’s biggest commodity market Yiwu and the western metropolis Chongqing, freight trains laden with everything from electrical machinery and laptops to toys and clothes travel all the way to London, Hamburg and Duisburg in Germany. Again, the long-term feasibility remains unclear. While it halves the 30-day travel by sea, the cost doubles.
China is also financing many of the overseas projects for its own companies. In addition to a $50 billion Silk Road Fund, the CDB and EXIM Bank have said they will lend up to $100 billion annually in the next decade for such projects, many of which will be undertaken by Chinese companies. This is being welcomed by countries in dire need of infrastructure, says Wang Yiwei, an international relations scholar at the Renmin University of China. “We are sharing our 30-year experience and that is why we are being welcomed. In China, we say what you need to become rich is to build roads and bridges. We have all seen the ca-
tastrophe of the global financial crisis. We offer something different,” he says.
Whether this plan will work is far from certain. Top Chinese economists have expressed fears that China is overextending itself. In some partner countries, the debt burdens are becoming impossible to finance for local governments, which are also facing criticism because Chinese companies are being given all the contracts. “One big worry is if many of these countries fail to pay back their loans as they have incentives not to, eventually China will suffer from defaults,” says Xu Chenggang, a leading Chinese economist.
XU WORRIES POLITICAL considerations are driving the plan, and this could negatively impact China’s economy, which is dealing with a rising debt problem—the debt to GDP ratio is at a record 282 per cent—and has failed to carry out long-pending reforms in SOEs. He says: “Rather than carry out reforms to privatise the state sector, OBOR is designed to overcome overcapacity by exporting machines, steel and cement to other countries, to let them borrow from China and purchase Chinese capacities. We are not only dealing with this disease but exporting it to other countries.”
Sri Lanka is among the debtors struggling to repay loans, notes Xu. Miller says some policymakers in Beijing estimate China is likely to lose 80 per cent of investments in Pakistan, 50 per cent in Myanmar and 30 per cent in Central Asia.
China’s new ambitions will fundamentally change its relations with the world. For the past three decades, China’s diplomacy has followed Deng Xiaoping’s cautious maxim known as ‘tao guang yang hui’, which literally means ‘hide your brightness and seek obscurity’. The new phrase of choice in Beijing is ‘ fen fa you wei’, which means to forge ahead. Wang says the US, with its superior military, remains the world’s superpower, but as Beijing’s commercial interests overseas expand rapidly, it will naturally have greater stakes globally.
Last year, when China opened its first military facility overseas by building a naval facility in Djibouti, in the Horn of Africa near the Gulf of Aden, there wasn’t even a word of acknowledgement that it was abandoning a decades-old policy of not operating foreign bases. Chinese firms have been seeking port projects throughout the Indian Ocean region, where China has built or managed ports in Indonesia, Hambantota and Colombo in Sri Lanka, Kyaukphyu in Myanmar, Chittagong in Bangladesh and Karachi and
Gwadar in Pakistan. The projects, Beijing says, were purely economic, but it is no coincidence that China is accelerating the expansion of its blue-water navy and its aircraft carrier programme. Its second carrier was launched in April and a third is being built in Shanghai.
NOWHERE IS CHINA’S proactive approach more evident than in Pakistan, which for many Chinese planners is a test case in how far its involvement in other countries can go. The ‘flagship’ OBOR project is the China Pakistan Economic Corridor (CPEC). A leaked draft master plan, published by Pakistan’s Dawn newspaper, underlines the extent to which China is exporting almost every aspect of its development model to Pakistan. Besides building roads and dams, Chinese firms will even take up agricultural land in Pakistan as well as build tourism and cultural projects.
Many scholars believe it’s only a matter of time before Chinese boots are on the ground to protect their assets and personnel, including in PoK where China and Pakistan have already begun limited joint army patrols. “It is almost a takeover. I don’t think the master plan will succeed, as the Chinese are overextending themselves and have become overambitious,” says Saran. “They have so far been pragmatic in relations with countries without such a transformational role, and I find it incredible that China is making that commitment.”
For many of China’s Asian neighbours, the pull of its economic orbit appears too strong to resist, especially when the US appears unwilling to offer an economic counter. The Trans Pacific Partnership trade deal, which excludes China, was pushed by the Barack Obama administration, but one of Trump’s first acts was to withdraw from it. For now, the US appears more interested in securing contracts for its companies under OBOR than resisting the plan. Trump sent Matt Pottinger, a senior official in his National Security Council, with several major US companies to the Beijing summit.
The American and European hope is to shape the initiative from within by pressuring China to be more open, and to ensure projects don’t just go to Chinese companies. “While Washington is right to view the initiative through a strategic lens, its attitude should not be hostile,” says Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy in Beijing. “At the same time, China should find ways to more proactively engage with the US and other developed nations on its objectives.”
In Delhi, the thinking is there is little likelihood of China adopting a more democratic approach. “It is clear the entire initiative is Chinacentric and China-led,” says Ashok Kantha, former Indian ambassador to China. “They are trying to project jointness, but even at the summit, all the announcements and decisions are coming from the Chinese side. Others have to fit into the structure that China is laying down. For India, it is difficult to emerge as a junior partner in a grand Chinese enterprise.”
No wonder India boycotted the summit. The decision also factored in China’s unwillingness to address its concerns on CPEC projects in PoK. Opposing OBOR—and puncturing China’s narrative about its inevitable global dominance—may have been a bold step, but Delhi now faces the more difficult challenge of responding to the rising Chinese influence in its backyard and offering an alternative to its neighbours. If China’s plans succeed, India will have to deal with a fundamentally changed neighbourhood that is already gravitating into China’s economic orbit. Some exp-
erts suggest that Delhi’s response should begin with consolidating its interests in its immediate neighbourhood, where its core interests lie, rather than attempting to counter China’s moves in Africa or Southeast Asia. India could begin, for instance, by leveraging and opening its market and integrating with the neighbourhood, even if it comes at some domestic cost.
It also needs to more robustly push its own connectivity agenda. New Delhi has no dearth of such projects, from ‘Go West’, where it’s working with Iran on the Chabahar port, to the ‘International North South Transport Corridor’ to Central Asia. But on scale and speed, China is in another league. “We need to focus on delivery of existing commitments because that’s where China scores over you all the time,” says Saran. One long proposed solution was the setting up of an independent agency empowered to deliver on projects by avoiding the webs of bureaucracy. It was stymied on account of turf battles between ministries. This needs to be revived.
Dance With the Dragon
Then there is the question of managing India’s relations with China. Boycotting OBOR is unlikely to have a major impact on the relationship, say officials. The two sides are already dealing with a long list of thorny issues, from China’s opposition to India’s entry into the Nuclear Suppliers Group to its protection of Pakistani terrorists against UN Security Council sanctions. But it is not in Delhi’s interest to allow the relationship to descend into outright hostility. In the lead-up to September’s BRICS Summit in Xiamen, to be attended by Prime Minister Narendra Modi, three Indian ministers and National Security Advisor Ajit Doval will travel to Beijing and continue engaging with China on everything.
Delhi is also building closer ties with other regional powers, from Japan and Australia to Indonesia and Vietnam. But given their own sensitive economic and political equations with China, this can only go so far.
The Modi government has adopted the pragmatic approach of attempting to leverage China’s strengths by roping in its companies for major infrastructure projects and create new pro-India constituencies in
China. This has been somewhat successful—last year, Chinese investment in India crossed $1 billion for the first time. China’s mobile companies and real estate giants are looking at India as their biggest foreign opportunity.
Kantha suggests exploring synergies with China and looking at projects that both sides can work on under their different connectivity initiatives. He cautions against framing India’s position as rejecting China’s and adds it’s unrealistic for Beijing to expect India to endorse OBOR and unwise to insist on OBOR labels for bilateral projects.
India’s only recourse is to focus on its own growth and close the ever-widening gap with China. “International perception will only change once India is seen narrowing the gap with China,” says Saran. “We are the only country with the area, population and potential market to be in the same league. Even if we narrow the gap and grow at 8-9 per cent every year, the world will look at us differently.”
New Delhi has certainly raised the stakes by declaring it will not necessarily acquiesce to a Chinese-dominated order. But ultimately, it will also need to present a credible alternative. The time starts now.
India’s only recourse is to close the everwidening economic gap with China
Xi Jinping arrives with world leaders for a group photo during the Belt and Road initiative in Beijing on May 15
Prime Minister Narendra Modi with Chinese President Xi Jinping at the BRICS Summit in Goa in 2016