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

India Today - - INSIDE - By Ananth Kr­ish­nan in Bei­jing

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.”

In­dia’s Op­tions

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

DAMIR SAGOLJ / REUTERS

Xi Jin­ping ar­rives with world lead­ers for a group photo dur­ing the Belt and Road ini­tia­tive in Bei­jing on May 15

MONEY SHARMA/GETTY IMAGES

Prime Min­is­ter Naren­dra Modi with Chi­nese Pres­i­dent Xi Jin­ping at the BRICS Sum­mit in Goa in 2016

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