SRINIVASAN RAMANI
June 29, 2015
There is not enough understanding in India that the Chinese Belt and the Road project is a consequence of an economic imperative in China, which is undergoing structural change, and has less to do with geopolitics as is easily assumed.
A first-time visitor to hot and humid Shenzhen, the port city of Guangdong province in southeast China, will be stuck by the grandeur of what is clearly a modern mega-city. The city, which abuts Hong Kong and a gateway to southern China, is a showcase of the country’s reforms era (1978-present).
What was once a fishing village in the late 1970s, has transformed itself after a special economic zone was designated there in 1979. Many parts were built up to accommodate businesses and factories to aid in the rapid urbanisation that was wrought out from foreign investment, dedicated urban governance and by leveraging the coasts of the Pearl River delta and the South China Sea. Within four decades, the city has grown into a tertiary hub, host to high-technology companies, highly skilled manpower and an equivalent of the Silicon Valley of the United States. Today, the port city serves an important function in China’s outreach to the world by being a major outpost in the Maritime Silk Road project. It is also the base of some of the busiest container terminals on the Pearl River delta.
The Belt and the Road project is an ambitious exercise that was announced by the Chinese President Xi Jinping-led regime in 2013. It encompasses trade and investment hubs to the north of China by reaching out to Eurasia including a link via Myanmar to India (the New Silk Road Economic Belt). The other component, the Maritime Silk Road begins from the south of the land mass via the South China Sea, then going on towards Indo-China, south-East Asia and then traversing around the Indian Ocean by reaching out to Africa and Europe. Officials of the National Development and Reform Commission (NDRC) in China were upbeat about the initiative, explaining to a group of mediapersons, this writer included, and think tank representatives who visited China early in June, that it could play an important role in “global economic recovery”. They asserted that this would happen by allowing for better allocation of resources and investment in the Asian region in infrastructure, transport, maritime cooperation, resources and energy.
Economic imperative
The seriousness of the Chinese government in implementing this project was evident in the manner in which border provinces are being made responsible in leading initiatives for it. For example, Guangdong, among the most prosperous provinces in China — its nominal GDP topped $1.1 trillion in 2014 — has led the way in leveraging its strengths as the premier largest export/import zone in the country. The emphasis in Guangdong was evident to us. The Guangdong provincial government believes that engaging in the Maritime Silk Road project to enhance economic and people-to-people relations with nations on the Road will enable it in further pursuing its own structural transformation. India figures high in the list of priorities for the Guangdong government, which is keen to increase Indian tourist footfalls and promote collaboration with the Indian private sector with its own advanced firms in the private and the state-owned sectors.
Guangdong, which was a relative economic backwater, dependent on agriculture and traditional sectors before the reforms period, has now become a largely tertiary sector reliant economy. Government officials pointed out that only 4.7 per cent of the province’s GDP was reliant on the primary sector — agriculture — while the secondary and tertiary sectors contributed 42 per cent and 49 per cent respectively. The emphasis was on structurally changing Guangdong into a hub of services and “advanced manufacturing” as labour-intensive industries were either moved to relatively less prosperous provinces within China or to countries such as Vietnam which offered low wage labour. That said, Guangdong province is richer in areas that are closer to the coasts while the inland areas were relatively less prosperous.
The enthusiasm in Guangdong for the Maritime Silk Road project is a reflection of an economic imperative that is driving China to promote the Belt and the Road. Chinese officials are aware that their economy is undergoing a structural change, from one that was export and investment-led, labour intensive and manufacturing driven to a more diversified, industrially transformed, internal consumption driven, economic one. This push for a structural change came about after the drop in global demand for Chinese exports following the global financial crisis in the late 2000s which forced China to spur domestic demand by a massive economic stimulus in 2008. The consequence was an increase in investment in the construction and housing sectors, which created a situation of overcapacity in the industrial sector that persists today and one which China seeks to desperately address, including a need to ease an overheated real estate market. These have, apart from other reasons, resulted in a slowing down of the economy to a projected growth rate of about 7 per cent (still quite high in comparison to other countries) for 2015, which the government is not too worried about as it is more keen on structural change.
Indian response
Here is where the Belt and the Road strategy is expected to come in handy. While the Maritime Silk Road would be a way to build a route for the rerouting/export of Chinese capital and consumer goods, the Silk Road Belt will be a conduit for land-based projects that will provide for fixed asset investment in building pipelines, and infrastructure such as roads and rail-lines with partnering countries along the routes. China has committed $40 billion in initial investments for the Silk Road Infrastructure fund, over and above the investments that are to be funded by the newly constituted Asian Infrastructure Investment Bank (AIIB).
Chinese officials see a lot of synergy with the Indian ‘Act East’ policy initiative and the development of the Bangladesh-China-India-Myanmar corridor. They also reckon that participation in the Silk Road project and increased Chinese investment in infrastructure projects in India will ease the massive trade deficit that exists between the two countries and which the governments have pledged to address as part of joint agreements.
That said, the response from the Indian government to its participation in the Belt and the Road projects (the latter especially) has been lukewarm, even though India has become a founding member of the AIIB along with China. There is not enough understanding in India that the Belt and the Road project is a consequence of an economic imperative in China and less to do with a geostrategic perspective as is easily assumed. Western commentators in particular have tended to explain Chinese engagement in its near-neighbourhood especially in its northern neighbourhood to be akin to “Great Power” behaviour and an assertion of its status as an economic power.
Strategic dilemma
Some commentators among the “strategic community” in India have caught on to this rhetoric and have viewed this project as representing a major strategic initiative by China. They consider the Maritime Silk Road as a way of establishing a “String of Pearls” — strategic bases encircling India — and constituting a challenge of a geopolitical kind. This view does not consider the fact that India’s neighbours, Sri Lanka, Pakistan and even Nepal have largely and willingly wanted to partner with China in projects related to port and infrastructure development in the form of rail links among others. These strategic concerns seem overblown and derived from the fact that there are significant political issues, the boundary question in particular, that are unresolved between India and China.
In sum, there is an official ambivalence and a wariness from the strategic community in India about the project. Some of this is also the consequence of a degree of shift in Indian foreign policy and strategic thinking in the recent past that had turned pro-West for certain periods and was even willing to conceive a role for India in the “contain China” strategy promoted by the United States. To its credit, the Narendra Modi-led government has thus far followed a “horses for courses” policy. It has kept up its engagement at various levels with both the U.S. and China, seeking to, on the one hand keep commonality on strategic initiatives with the former, and expanding its economic relations with the latter on the other.
In line with this, it would be prudent for the Indian government to shed its reticence towards participation in the Silk Road project even as it is engaged with the Chinese government to whittle down its political differences. The boundary negotiations have been tortuous to say the least, but there is a recognition in China that relations between the two countries are at a propitious phase because of the high degree of legitimacy and popularity enjoyed by the respective regimes and their leadership.
Chinese foreign ministry officials that this writer met in Beijing were guarded in their response to concerns about the relative lack of progress in the boundary negotiations. It is clear that there is far more potential in addressing aspects of the economic ties in even more substantial terms than what has been arrived at, following reciprocal state visits that have set a positive tone. There are avenues that can be explored to leverage India’s advantages in the tertiary sector and China’s strengths in capital investment for what could be a “win-win” deal. Therefore, a more open assessment of the Belt and the Road initiative in this regard would be a step in the right direction. China’s NDRC has promised a summit of various countries to take the project forward both bilaterally and multilaterally in 2016. A signal of participation by India could herald the first step.
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