In Debt to the Dragon

Vice Ad­mi­ral Arun Kumar Singh on China’s ‘Cheque-Book Diplo­macy’

Vayu Aerospace and Defence - - Opinion -

With a $12 tril­lion econ­omy and still grow­ing at about 6.5 per cent an­nu­ally, with $3 tril­lion in for­eign ex­change re­serves, China is mov­ing very rapidly to be­come a true global power with a two-ocean Navy. Its an­nual de­fence bud­get of $152 bil­lion is nearly four times that of In­dia’s mod­est $40 bil­lion, while the Chi­nese Navy’s share of the de­fence bud­get is about $50 bil­lion, as com­pared to ap­prox­i­mately $5 bil­lion al­lo­cated to the Indian Navy.

All this at a time when dis­turb­ing me­dia re­ports in­di­cate that a bank­rupt Amer­i­can West­ing­house (owned by Toshiba) is still try­ing to sell six civil­ian nu­clear re­ac­tors to In­dia, even as the US is try­ing to get Pak­istani help in ex­tri­cat­ing its forces from Afghanistan, is now ex­pected to “re­hy­phen­ate” Pak­istan with In­dia by of­fer­ing it a sim­i­lar nu­clear deal, and In­dia’s open woo­ing of the USA since 2006 has alien­ated our age-old strate­gic part­ner Rus­sia, who is now sell­ing arms to Pak­istan, and sup­ported China’s “one belt, one road (OBOR)”, at a time when ten­sions are ris­ing fur­ther with Pak­istan sen­tenc­ing Kulb­hushan Jad­hav to death for “spy­ing”!

In fact, China is us­ing “cheque book diplo­macy” to make friends and also ac­quire real es­tate in strate­gi­cally-lo­cated for­eign lands as part of its global OBOR, which us­ing the China-Pak­istan Eco­nomic Cor­ri­dor (CPEC) will con­nect it to Europe by sea and land for “trade.”

On 12 July 2016, when the Per­ma­nent Court of Ar­bi­tra­tion (PCA) at The Hague ruled against China stat­ing that it had “no his­toric rights based on the Nine- Dash Line”and cre­ation of ar­ti­fi­cial is­lands in the South China Sea, the Chi­nese waived-off all out­stand­ing loans of Cam­bo­dia, which pre­vented the ASEAN na­tions from is­su­ing a joint state­ment sup­port­ing the PCA rul­ing about the South China Sea. Sim­i­larly, it of­fered aid and as­sis­tance to the Philip­pines, whose new Pres­i­dent, Ro­drigo Duterte, has been mak­ing over­tures to Bei­jing.

The first na­tion to learn a bit­ter les­son from China’s “cheque book diplo­macy” was Sri Lanka, which un­der the pre­vi­ous pro-China Pres­i­dent Mahinda Ra­japaksa,

al­lowed the Chi­nese to build a new rail­way, a new con­tainer ter­mi­nal at Colombo port, su­per high­ways con­nect­ing Colombo to the tourist cen­tre of Galle and then on­wards to the new Chi­nese-built port of Ham­ban­tota, with the new Chi­nese-built Mat­tala Ra­japaksa In­ter­na­tional Air­port also near Ham­ban­tota. To­day, both the new Ham­ban­tota port and its nearby air­port, lie un­used and have be­come a fi­nan­cial bur­den on cash-strapped Sri Lanka. The Chi­nese in­vested about $9 bil­lion, and when the Sri Lankans ex­pressed in­abil­ity to start re­pay­ment of the loan (about $1.1 bil­lion for the Ham­ban­tota port), a con­tro­ver­sial agree­ment is be­ing worked out as “debt re­lief”, which would per­mit a Chi­nese com­pany to hold 60 to 80 per cent of the man­age­ment con­trol for a 50- or 99-year lease. If this agree­ment between Sri Lanka and China is fi­nalised, a Chi­nese naval base in Ham­ban­tota port and air­base in the nearby air­port may well be­come a re­al­ity.

To re­solve its “Malacca Dilemma” in 2016, China agreed to in­vest $14 bil­lion in build­ing a new Malaysian port named Me­laka Gate­way to be ini­tially ready by 2019, with other fa­cil­i­ties to re­place Sin­ga­pore as a “tourist-cum-com­mer­cial hub” by 2025, with the abil­ity to han­dle 100,000 ships an­nu­ally.

While the new Chi­nese base at Dji­bouti (ex­pected to be fully op­er­a­tional by Septem­ber 2017) will give it a pres­ence in this Red Sea choke point, China has also moved to in­vest in the land near the brand new Duqm port, in Oman. In 2016, Oman an­nounced that China had been per­mit­ted to in­vest $10 bil­lion to build an in­dus­trial park by 2022 in an area ad­ja­cent to the Duqm port and that Chi­nese com­pa­nies build­ing this in­dus­trial park would be “al­lowed to lease the land to Chi­nese in­vestors”. Duqm port is strate­gi­cally lo­cated as its near the Oman oil fields and far­away from the Strait of Hor­muz, where global oil ex­ports by mer­chant ships are vul­ner­a­ble to block­ade.

In­dia has also shown some in­ter­est in Duqm port for in­dus­trial in­vest­ment and con­nec­tiv­ity, and as an “en­ergy cor­ri­dor”. China has also in­vested $800 mil­lion in the Mal­dives to con­struct a sec­ond 2.5 km run­way on Hul­hulé Is­land, is build­ing a 1.39 km sea bridge to con­nect Hul­hulé Is­land to Male and a 15 km road on Laamu Atoll. Mal­dives re­lies on tourism and ma­jor­ity of the tourists are Chi­nese, so its econ­omy is now de­pen­dent on China, which will in­vari­ably de­mand a mil­i­tary base–in In­dia’s back­yard.

China is in­vest­ing $56 bil­lion in CPEC and Pak­istan’s loan re­pay­ment starts in 2020 at an an­nual rate vary­ing between $2.5 to $3.5 bil­lion, with a to­tal debt bur­den of $90 bil­lion to be re­paid in 30 years. Pak­istan will be in no con­di­tion to re­pay this enor­mous debt. Hence, we are likely to see an­other “lease agree­ment”, or hand­ing over some strate­gic parts of Pak­istani ter­ri­tory to the Chi­nese.

Ex­perts pre­dict that the next 10 years will be crit­i­cal for In­dia as the “eco­nomic gap” with China will con­tinue to widen, but af­ter 2027 this gap will start to “re­duce.” To ex­pe­dite Indian growth, Prime Min­is­ter Naren­dra Modi needs to ur­gently amend our laws to en­cour­age FDI from Ja­pan, South Korea, Tai­wan and the UAE. Other Indian counter mea­sures will in­volve de­ter­ring war by dou­bling its naval bud­get, mod­i­fy­ing its no first use nu­clear doc­trine, find­ing an asym­met­ric non-nu­clear re­sponse to China’s grow­ing sea power and us­ing some of our 1,197 off­shore is­lands as mil­i­tary bases, and also as at­trac­tive for­eign tourist des­ti­na­tions akin to the Mal­dives.

And fi­nally, me­dia re­ports in­di­cate that Sin­ga­pore, Malaysia, In­done­sia and Thai­land are ex­pected to in­clude Indian Navy war­ships in their joint/co-or­di­nated pa­trols of the strate­gic Strait of Malacca. This move, if true, will go a long way in re­gional mar­itime co­op­er­a­tion to counter the “Sea Dragon”.

Strate­gic Chi­nese in­vest­ments in de­vel­op­ing coun­tries around the IOR mean PLAN sub­marines will be­come an in­creas­ingly fa­mil­iar sight at ports in the re­gion (photo: Reuters)

The deep wa­ter port at Gwadar in Balochis­tan is key to China’s eco­nomic and strate­gic am­bi­tions in South Asia

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