November 22, 2016
The Belt and Road Initiative (BRI), China’s gargantuan cross-continental infrastructure project, launched by President Xi Jinping in September 2013, is not only a foreign policy initiative, but an idea linked to saving the life of Communist Party of China (CPC) which could otherwise tumble like the Communist Party of the Soviet Union did after 74 years of its birth, bringing down the Soviet Union in its wake.
The corridor project has singularly focussed attention within China and outside and aims to improve cross-regional and international connectivity infrastructure to bolster China’s outbound investment and trade. It is essentially about creating a belt of new networks; roads, highways, railways, ports, logistics zones, and economic zones that will begin and end in China.
Internal Factors
For China, after lifting over 600 million of its people out of poverty, sustaining standards of living for people adapted to consumerism is becoming the biggest challenge. Over the years, China has witnessed massive slowing down of economy, mangled by excessive internal debt and surplus industrial output. In fact, some of the traditional easing measures, including numerous stimulus measures (rate cuts, credit backing and currency devaluation) to get the slumping economy moving again, seem to be giving diminishing returns. The massive stimulus package of the past may have spurred debt build-up.
The country has been struggling over how to restructure the massive underperforming state-owned enterprises (SOEs) that are carrying a ton of debt. Most are identified as suffering from overcapacity or marked for clean-up. The task will not be easy; recently, the State Council issued new guidelines to classify SOEs into — strategic, innovative, merger, clean-up - by 2020. Xi has launched a drive to “clean up” these corruption-ridden SOEs –realising that their continuation could bring China’s financial system to its knees and risk hundreds of thousands of workers losing jobs.
Already the spike in cost of living is triggering friction between poorer farmers and affluent State elite. Xi’s corruption drive against the rich and mighty is aimed at averting a domestic economic crisis that would affect the CPC’s lifespan.
Xi’s measures also include reducing the Party’s management hold into the marketplace, thus putting an end to endemic and rampant corruption. Apart from sacking corrupt executives, the State-Owned Assets Supervision and Administration Commission (SASAC) has sought to separate government functions from enterprise management. The new measures allow private firms to hold stakes in SOEs in order to improve their competency, management skills and transparency. The idea is to make them more agile in acquiring overseas investment and acquisition in supply chain. In fact, new guidelines now compel companies to follow labour rights, environmental protection and community relations abroad.
Maximising Returns on Investments Abroad
All this comes after the Chinese Investment Corporation (CIC), China’s largest sovereign wealth fund with a corpus of $575 billion, suffered investment losses abroad. Also, Beijing has been using interventions at the foreign policy level to get a level playing ground for Chinese companies in foreign markets. For example, it is seeking bilateral investment agreements (BIT) as a new way to circumvent restrictions imposed by foreign governments on national security grounds. The US has agreed to provide a level playing field to Chinese companies after subjecting them to transparency and security review measures. Once implemented, Beijing will pursue more BIT initiatives with its other major trading partners, including India. All these steps are centred on pushing China’s economic expansion overseas under the BRI that Xi wants to be successful at all cost. The recent exalting of the “core leader” title to Xi by the Party is meant to reinforce his authority to push through his vision in the face of a rising sense of peril threatening the Party. He has pushed for internationalizing the Renminbi to make it the main currency standard for trade across the BRI nations.
Beijing’s focus on South China Sea and on CPEC is to ensure that Chinese trade remains unhindered and any attempts to thwart it by the US and India must be countered.
China has created support clusters to fund infrastructure projects outside through AIIB, Silk Route Fund, and through its own CITIC, China Exim Bank. Moreover, after having realised that its forte in manufacturing is untenable, Chinese companies are seeking investments into foreign markets to acquire human capital abroad— acquiring high-tech intellectual property rights (IPR) including internet technologies to establish its own standards at the global stage.
Following their investment failures in Africa and elsewhere where the practice of cutting-deals with local leaders has not paid off, the Chinese are making course corrections under BRI while providing incentives to citizens through the guise of people-to-people exchange. The BRI aims to ease bottlenecks for cross-border trade and reduce transportation costs. Essentially, it is about reviving the past practice of borderless trade connectivity along which the trade caravans moved to markets following the natural routes. India was at the centre of that connectivity link in what was known as the Silk Route.
Benefitting from the BRI
Theoretically, there is nothing wrong with the tone set by China under BRI and India should avail the unique opportunity to join the debate. Even Washington seems to be closely watching the BRI and under the Trump administration, Washington could favour joining it provided it can negotiate a level playing field for trade.
India needs to consider the following:
In the past, goods from India travelled through a web of trade networks, especially on the fabled Silk Route and Sea Routes to distant East Asia while connecting various Asian regions cutting across races and cultures. During the age of Hindu-Buddhist globalization, monks, merchants, traders and artisans even carried with them philosophy, ideas to distant parts infusing a powerful common cultural coherence and spiritual belief for people hitherto living in an ill-defined ‘Asia’. In fact, Buddhism became synonymous with trade and even the kings and monarchs used the channels for building ties.
Connectivity helped India acquire an identity as a cradle of wisdom, an embracer and enlightener – not a conqueror. In the words of a high profile Chinese Ambassador Hu Shih, “India conquered and dominated China culturally for 20 centuries without ever having to send a single soldier across her border.” His word is a rare admission and even the Chinese media China daily recently commented that it was a “narrative of the sustained conquests of hearts and minds for such a long time”.
These connectivity links that were interrupted during the Moghul period and British rule should quickly be reclaimed by India while announcing its own Belt and Road Initiative to reset its trading ties with Eurasia and East Asia.
A similar initiative is needed to enhance India’s own trade flows – which currently constitutes only 2 per cent of global trade. China is already in every multilateral grouping that India intends to join and India should not hold back on that count.
Such an initiative, even if it meets with China’s BRI, may offer a unique potential for India in terms of enhanced access to Eurasia – the key hub of a transcontinental transport network. India’s initiative could genuinely facilitate an economic power shift from Europe to Asia with India equally benefiting from it. Whereas, sitting in isolation would only allow Chinese goods swamping further markets not only in Central Asia and West Asia, but also South Asia.
Joining the CPEC might even be beneficial; it would not only provide access to areas hitherto inaccessible for India but may also help neutralize the notorious Sino-Pak nexus long designed as a strategic denial via-a-vis India. In fact, Russia’s speedy move to join the Sino-Pak axis could pose a disturbing scenario for India.
While connecting to BRI or CPEC, India need not abandon its legal claim over Pakistan Occupied Kashmir (PoK). A framework favouring a consultative approach among disputant parties which is already in practice for financing projects under AIIB could well be replicated while joining connectivity projects. In this way, transport infrastructure projects could be delinked from territorial and boundary disputes. India could continue to claim that BRI or CPEC is passing through Indian territory.
Seeking connectivity to Eurasia either through the International North-South Transport Corridor INSTC (via Iran) or the Bangladesh-China-India-Myanmar (BCIM) economic corridor is neither feasible nor practical. The only option is to seek a direct access through Chinese territory across the Himalayas. One plausible option is to seek Chinese acquiescence to jointly use China National Highway 219 that passes through the disputed Aksai Chin - again not contingent to giving up Indian claims but to use only for purely commercial purposes. It could even be a trade-off for allowing the Chinese push for a corridor to BCIM.
Clearly, India needs to get out of the current limbo and find a skilful means to enter the increasing mosaic of transportation networks in Asia. Any robust Indian connectivity initiative could initially stun the Chinese, but they are unlikely to respond adversely.
As it is, Beijing is worried about other smaller neighbours that have started to view BRI as “free money” from China to create infrastructure. This causes concerns for China, for it wants some strong economic returns from the initiative. Therefore, China is fully aware that India alone could ultimately become the lynchpin for BRI success.
For India, the current engagements with China are single-threaded with boundary issue, China’s support to Pakistan on terror and concerns over CPEC running through PoK. Putting the “economic relationship” on top of the agenda could force China to seek “new negotiation’ on host of issues even to the point of making concessions to India.
Therefore, India stands to gain more cushion to bargain with China on an equal footing. As a next step, and if manoeuvred adroitly, India should offer a separate India-China Economic Corridor (ICEC) originating from an Indian port to connect with a border point with China – something that China cannot refuse. This could even help to blunt the CPEC.
The proposal could spring multiple advantages, ranging from attracting Chinese investment, earning billions as transit fee to nudging Beijing to depend on India, thereby buying guarantee against any Chinese misadventure across the Line of Actual Control (LAC). In return, China gets a more reliable economic corridor than risking investments in terrorism-plagued Pakistan.
Any Indian initiative which is economically prudent and culturally appropriate could neutralise those advantages China seeks to draw from its Belt and Road Initiative vis-à-vis India, and even maximise its benefits.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
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