The Chinese way or highway
Last Sunday China hosted a wellattended and hugely touted conference to promote its One Belt, One Road (OBOR) initiative. This initiative also known sometimes as the New Silk Road and Maritime Silk Route initiatives have been hailed or condemned by commentators all over the world as a “game changer” and China’s big play to seek world domination. Both the fears and the optimism are unfounded. The OBOR is a project meant to very simply get out Chinese reserves invested in western banks into investments where it will fetch a higher rate of return; and to take up the slack from the huge over capacity problem that plagues the Chinese economy. Speaking at the conference, President Xi Jinping announced that Beijing would advance 380 billion Yuan or $55 billion to support OBOR. This is a far cry from the huge figures, sometimes as high as $750 billion to $ 1 trillion, bandied about. While economists are generally skeptical about China’s goals and intentions, strategists — mostly the garden-variety Indian military types — have endowed this project with sinister overtones. I was on a TV show a couple of days ago where both the prominent anchor and a prominent commentator of the unempirical stuff that passes off as strategic thought, raised the issue of the so-called “String of Pearls” (SOP). To them it seemed that every port or airport where a Chinese company is the contractor had a military purpose.
The “String of Pearls” is a bogus idea. It was cooked up by consultants working for a CIA and US DOD tied company called Booz Allen Hamilton and was given much traction by some well known Indian “strategic thinkers.” I was once in a conference where Admiral Dennis Blair former Chief of the US Navy and later Director of National Intelligence to President Obama was asked about it. He called it a stupid notion and said that no one who has run a navy or held a responsible position in a navy will ever say an Oceanside blockade is possible. He explicitly and loudly said to Indian strategists who harped on SOP that no navy could encircle a country with a few ports.
The question that we need to ponder over a bit is as to how long will these “ports” survive after the outbreak of general hostilities? The IAF and IN have enough airpower at hand to sort them out, and our navy can effectively blockade hostile ports in the neighborhood. It may be noted that the IAF has operationalised an airbase in Thanjavur and will fly SU30 MKI’s from there.
The IN deploys MIG29K fighters as well as P-8 Poseidon maritime surveillance and attack aircraft and a formidable fleet of combat vessels. We have not been exactly sleeping or need to be overly worried. The same Sri Lanka that once hosted a Chinese Jinn class nuclear submarine ostensibly on a goodwill mission last week turned away a PLAN conventional submarine wanting to puck up supplies.
Now to the economics of OBOR. China claims that OBOR is “based on principles of mutual benefit and that it is not interested in interfering in the participating countries’ internal affairs.” But there is a reality most of our commentators do not see or understand. China has accumulated foreign exchange reserves of $3.5 trillion. The capital it claims it is prepared to subscribe for the NDB, AIIB and Silk Road Fund would amount to only around 7 per cent of its total foreign exchange reserves invested in western banks. Since these China promoted institutions will be providing infrastructure lending rather than grants, the return on capital from these investments could be significantly higher than the returns China is getting from its foreign exchange reserves currently invested in low-yielding US government bonds. It’s very simple. China needs to get value for its money and also help its demand starved industries. And they have found a typically Chinese solution to it and are making a virtue of a necessity.
Look at it from another angle. The US dollar is also steadily depreciating in the long term against other major currencies. With no interest and with depreciation factored in China’s huge reserves, accumulated by extracting surpluses in its sweat shops, are steadily shrinking in value.
The question that Beijing seeks to grapple is this. One way is to put these funds to work in investment starved countries in Africa and Asia and assures themselves of returns for a long time to come. In some, the birds have come home to roost quite early. The grandiose Hamban-tota port project in Sri Lanka, which once had the same bunch of Indian “strategic thinkers” in a tizzy hosts no ships and doesn’t earn very much. China is now pressurising the Sri Lankans to service the debt and is seeking to extract some more in lieu of that. Much of the Hambantota investment has already been recouped by China by way of material and labour supplied to complete the project. That’s why one prominent European commentator calls OBOR — One Belt, One Road and One Trap.
Like Sri Lanka, some of other intended beneficiaries have now begun to ask questions about the utility and intentions of OBOR. The Pakistani newspaper Dawn has said: “But the main thrust of the plan actually lies in agriculture, contrary to the image of CPEC as a massive industrial and transport undertaking, involving power plants and highways.
The plan acquires its greatest specificity, and lays out the largest number of projects and plans for their facilitation, in agriculture.” This top Pakistani newspaper then questions the benefits that will arise from linking mostly dry and barren Xinjiang, and in particular the predominantly Turkestani Muslim Kashgar prefecture with its restive four million people to an increasingly water starved and already much troubled Pakistan? Much is being made about the overland link between China and Europe by rail and road links. Most commentators seem to miss that the TransSiberian Railway line from Vladivostok to Moscow is almost a 100 years old. Its capacity can be beefed up. Yet overland freight costs will always be much more expensive than sea freight costs. Business is about cuttings costs and taking the least expensive options. No one with common sense will prefer to shift by land what can be shipped. Others make much of the so-called Malacca dilemma. Well the Artic route is opening up and the real Malacca dilemma soon will be the rapid decrease in freighters through it.
The writer, a policy analyst studying economic and security issues, held senior positions in government and industry. He also specialises in the Chinese economy.
The Chinese are playing their One Belt One Road (OBOR) move, a massive once-in-alifetime geopolitical lunge in multiple domains, as a benign attempt at infrastructure-building and economic connectivity. For all practical purposes Beijing has criticised India for keeping away from OBOR which, it says, will be a significant factor for stability and meta-regional development, and therefore peace and prosperity.
This is a bit rich. Since when did Beijing care for infrastructure and regional connectivity unless it was in the driver’s seat? It is evident that China is upset with India for calling a spade a spade and making it clear that it wasn't ready to bless its strategic quests.
For those who are not blind, Afghanistan to Dhaka would have been a seamless journey for road traffic by now — in the process transforming lives through billions of dollars of trade and investments — if Pakistan had not played mischief and prevented the flow of goods from Bangladesh and India through its territory into Afghanistan.
Kabul’s and New Delhi’s pleadings fell on deaf ears in Islamabad. It is hard to recall a single instance when the politburo in Beijing urged its all-weather friends, Pakistan’s topshots in olive green, to think of connectivity, stability and development and letting Afghanistan prosper by trading as far afield as Bangladesh.
We should go back further. Pakistan placed roadblocks in every SAARC forum dedicated to the expansion of trade, investments and connectivity within the grouping. China, which at one stage desired to participate in SAARC, did not see it fit to advise the generals in Rawalpindi to reflect on the virtuous cycle that would be generated if their “nyet” mentality was forsaken in the context of SAARC connectivity. It can be argued that what China, along with Pakistan, want to see most dearly is the closing down of SAARC and luring of SAARC members into the OBOR network. In that way they envisage the loosening of India’s commercial, financial, infrastructure and economic linkages with the sub-continent (minus Pakistan). This is an impossibility, of course.
Among most SAARC countries, it is not just capital and finance that move, but also labour and culture, and there are no inimical distances and harsh terrains to traverse, as in the OBOR case, against which Jia Qingguo, a Beijing university scholar and member of the Study Committee of the People’s Political Consultative Conference, had cautioned. And much of the labour force moves to take advantage of the markets in India.
Jia had worried about the “wishful thinking” aspect of OBOR, which (in its maritime as well as land avatars) would touch the eastern regions of Africa, besides the Maldives, Sri Lanka, Nepal, Bangladesh, Myanmar and the wholly unpredictable regions of Central and West Asia, to say nothing of the territories from the Karakoram to Balochistan in Pakistan that are ripe with upheavals of many kinds and degrees.
But Beijing still thinks the iron is hot, although some of its lead thinkers on geopolitical affairs worry. Xi Jinping is lord and master and his word is law as he is already sitting in the pantheon which has only two other occupants, Mao and Deng Xiaoping. In his lifetime Xi hopes to transcend beyond mere economic influence to seek to radiate extensive geopolitical power.
In this effort China’s investible surpluses are indispensable. These can’t travel eastward. South Korea and Japan can do without Chinese infrastructure support. Therefore, it is desperate to go westward, a much poorer part of the world for a long stretch.
The real focus, in the foreseeable future is, of course, Pakistan, which is China’s gateway to Gwadar port on the Makran coast and the Arabian Sea, where a major naval facility to harbour nuclear-powered submarines is envisioned as another useful check on India. The vehicle for this is the China-Pakistan Economic Corridor (CPEC) on which the Pakistanis placed a value of $46 billion (over an undefined period).
In the event, Beijing has little choice, but to ride roughshod on India’s sovereignty concerns in PoK.
People’s Liberation Army (PLA) West Zone troops moved into PoK in the guise of workers on infrastructure projects some time agonot only in Gilgit-Baltistan, but also in the Jhelum and Neelum River valleys, just across from Baramullah on the Indian side. (It is not unlikely that a Chinese trooper might be hit if the Indian Army shells with medium artillery in that area!)
Since early 2015, when Xi Jinping, first made a reference to CPEC and OBOR on a visit to Pakistan, colonies of Chinese labourers and supervisors, PLA’s sappers and miners in effect, have proliferated. They are already thought to be a division-strong, although it is hard to be certain about figures.
The Indians raised red flags in 2009-10. The point made was that a Chinese road cannot be built through Indian territory (even if it is under Pakistan’s occupation). In Gilgit-Baltistan, the ADB had declined to finance power projects unless a noobjection certificate was obtained from India, but the “social imperialists” sitting in Beijing have had no qualms about the same projects. Spreading strategic influence has trumped theory and morality.
On this and related issues, India has practically been silent on the diplomatic front since Xi’s 2015 visit to Pakistan, the effective date for announcing OBOR to the world. It is extraordinary that New Delhi kept its thoughts to itself until the very last minute even on the issue of attending the twoday Belt Road Forum conclave in Beijing last Sunday and Monday. This is the lowest ebb that pusillanimity can reach.
New Delhi should have been out campaigning long before that — telling all concerned that the social imperialists were trying to spread their wings, and that eventually not much was likely to accrue to the smaller nations that look to be taken in. Look at the example of Sri Lanka, they might have been told, where every dollar supposedly invested as soft loan by China was taken out with neat profit. India evidently has some way to go in its geopolitical positioning.