India runs against the tide on Belt and Road

By Ajai Shukla

Business Standard, 22nd May 17

President Xi Jinping was a satisfied leader last weekend as he beamed at officials from over 70 countries, including 28 heads of state, gathered in Beijing for the coming-out party of his signature project – formerly called One Belt, One Road; and now dubbed the Belt and Road Initiative (BRI).

“In the autumn of 2013, respectively in Kazakhstan and Indonesia, I proposed the building of the Silk Road Economic Belt and the 21st Century Maritime Silk Road, which I call the Belt and Road Initiative… Four years on, over 100 countries and international organizations have supported and got involved in this initiative. Important resolutions passed by the UN General Assembly and Security Council contain reference to it. Thanks to our efforts, the vision of the Belt and Road Initiative is becoming a reality and bearing rich fruit”, declared the Chinese strongman.

The belt in this awkward label is the “Silk Road Economic Belt” – a network of road, rail and telecommunication links and energy pipelines that are planned to seamlessly connect China, through Central Asia, with Europe. It also includes the China-Pakistan Economic Corridor (CPEC), running from China’s north-western Xinjiang province to Pakistan’s Gwadar port, on the Arabian Sea. Meanwhile, the road, in “Belt and Road”, refers to a sea route connecting southern China with east Africa and the Mediterranean Sea.

With an estimated investment of $900 billion going over several years into BRI infrastructure, The Guardian cites a McKinsey report to conclude: “The plan has the potential to massively overshadow the US’ post-war Marshall reconstruction plan, involving about 65% of the world’s population, one-third of its GDP and helping to move about a quarter of all its goods and services. Some describe Xi’s scheme as the biggest development push in history.”

That is why it was a Great Power moment for China last weekend as friends, allies and even adversaries like the United States, Japan, South Korea and Vietnam sent senior representatives to Beijing. India boycotted the forum to protest China’s routing of the CPEC, without adequate consultation with India, through Gilgit-Baltistan, in Jammu & Kashmir (J&K), which India claims, but Pakistan occupies.

“We are of [the] firm belief that connectivity initiatives must be based on universally recognized international norms, good governance, rule of law, openness, transparency and equality… Connectivity projects must be pursued in a manner that respects sovereignty and territorial integrity”, said India’s ministry of external affairs in an official statement on Saturday.

In an unusual frontal assault, New Delhi assailed the BRI as a giant Ponzi scheme that would – like China’s disastrous development of Hambantota in Sri Lanka – leave infrastructural white elephants and indebtedness in its wake. In the foreign ministry’s words: “Connectivity initiatives must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities; balanced ecological and environmental protection and preservation standards; transparent assessment of project costs; and skill and technology transfer to help long term running and maintenance of the assets created by local communities.”

Opinion is divided on whether India is making a foreign policy blunder, and is now the bad fairy left out of the party. Global Times, a shrill English-language newspaper controlled by the Chinese Communist Party, gloated: “When the participants have no problem, why does the onlooker?”

What is the Belt and Road?

China describes Belt and Road Initiative as a “win-win” economic strategy that will galvanize global trade, just like the series of Silk Roads that made China an economic powerhouse until the industrial revolution, backed by western naval power, muscled China and India out of their pre-eminence in global trade.

According to Xi, trade between China and OBOR countries has exceeded $3 trillion over the period 2014-16. Chinese companies have established 56 economic cooperation zones in more than 20 countries, creating 180,000 jobs and over a billion dollars in tax revenues. Chinese investment in those countries has surpassed $50 billion, and will be scaled up sharply as projects are implemented. The CPEC alone will require an estimated $56 billion of investment. To do so, Chinese companies are working on railway lines that connect Jakarta-Bandung, China-Laos, Addis Ababa-Djibouti and Hungary-Serbia railway. China has upgraded Piraeus port in Greece and Gwadar in Pakistan.

Beijing rarely mentions that the network of roads and railway lines that undergird BRI generate badly needed work for Chinese infrastructure building companies that have built the new China, but are now running out of work projects in their home country. Chinese banks will provide loans to countries to pay for this infrastructure building, but those loans would require servicing and repayment, potentially creating the debt trap that India has warned about.

Beijing allays these fears, pointing out that enhanced trade flows would provide the income needed to service the loans, while also creating employment for millions along the trade highways. Yet, this is not what transpired in Sri Lanka, where the Hambantota infrastructure development project generated far less income than had been anticipated, while piling up crushing debt for Colombo. Currently, the Sri Lankan government is dealing with the political fallout of restructuring unmanageable debt into equity holding for Chinese firms, which locals object to as a violation of sovereignty.

However, countries like the Central Asian Republics that are already benefiting from Chinese-built infrastructure, including roads, railway lines and power generation, strongly back the Belt and Road Initiative. With little domestic industry to protect, they welcome cheap Chinese manufactured goods, and are happily providing new homes for Chinese steel and cement factories that Beijing is shifting out of the saturated Chinese market. Meanwhile, vast tracts of empty Central Asia steppe has been leased to Chinese farming companies, which supply agricultural produce back to farmland-stressed China and, after adding value in Chinese agri-business factories, re-exporting it to the countries where it was grown.

Besides providing China with employment, income and markets, this additionally provides Beijing with geopolitical clout. With a bumbling President Donald Trump looking to Make America Great Again by withdrawing from a leadership role in China’s vicinity, Beijing has a god-sent opportunity to posture as a responsible leader and driver of global trade for the benefit of all. So Beijing also paints the Belt and Road Initiative as a boost to regional development strategies like Russia’s Eurasian Economic Union, the Master Plan on ASEAN connectivity, Turkey’s Middle Corridor initiative, China-Mongolia-Russia Economic Corridor, the New Eurasian Continental Bridge and others.

Is India missing out?

Interestingly, there are more critics inside India of New Delhi’s scorning of the BRI than there are abroad. Mani Shankar Aiyar, in a scathing op-ed for NDTV, suggested that India was isolated since 29 heads of state/government and 130 national delegations attended the Forum in Beijing. These included all India’s neighbours, except for Bhutan. Even Washington sent a Trump “top aide”.

The reality, of course, is that sending a delegate to Beijing does not necessarily mean support to BRI. Washington certainly does not support it; nor does the Group of Seven, of which only Italy fielded a head of government. Many countries in China’s geographical vicinity sent delegates despite serious concerns about what Belt and Road might mean for them. They attended, nevertheless, so as not to attract the Dragon’s ire. In the circumstances, India’s very public boycott could be interpreted as an unusual display of spine.

By going along with the crowd, India has seriously damaged its own interests in the past. After the People’s Liberation Army invaded Tibet in October 1950, India’s reluctance to criticise China in the United Nations led to practically the entire international community following suit, thus permitting Beijing to annex Tibet – for which we paid the price in 1962 and continue to do so today.

Prem Shankar Jha argues that India is unjustified in citing sovereignty violation by routing the CPEC through Gilgit-Baltistan, since China and Pakistan had been using the Karakoram Highway, which has the same alignment, since the 1960s, a period in which India-China trade increased twenty-fold.

Others have argued that India should support the CPEC as it could itself benefit from branch corridors to India. That argument overlooks the fact that far greater benefits and trade volumes could flow between China and India through direct corridors – such as a China-Nepal-India corridor linking Lhasa with Kolkata, via Kathmandu; another one linking them via Sikkim; and a third via Lohit and Guwahati. It is political differences, especially China’s hardening stance on the border dispute and its insistence that India cede Tawang to China, that stands in the way of India’s support to corridors with China.

None of these arguments recognise that India’s hard stance against the CPEC also stems from New Delhi’s anger at China making common cause with Pakistan in blocking India’s membership of the Nuclear Suppliers Group and the blocking in the UN of Jaish-e-Mohammed chief Azhar Masood’s designation as a terrorist entity. Current Sino-India dynamics are also shaped by China’s overblown reaction to the Dalai Lama’s visit to Tawang (accompanied by a Union minister), and his reception by President Pranab Mukherjee in the presidential palace in New Delhi. Given the fraught nature of the overall relationship India could hardly be expected to ignore Beijing’s blithe disregard for India’s sovereignty concerns.