Editor’s Note
The Belt and Road Initiative Forum is scheduled to run at Beijing from 26 to 27 April, 2019. The Chinese expect a fairly long list of countries to attend the forum with either their heads of state or very senior leaders representing their countries. However, BRI is on shaky wickets with a lot of countries, initially most enthusiastic, now dropping large numbers of planned projects. The author analyses BRI’s current status and appeal globally, the fact that it seems to have lost its sheen, and alternatives that could be put together to give BRI a competitive wicket to be operating upon.
The Story of BRI So Far—Loose Belt and Bumpy Road
The Belt and Road Initiative (BRI), dubbed as the “Project of the Century” evokes sharp reactions, divided opinions and polarized views. The divide is clear – for or against. The views expressed here are those I consider best in India’s National Interests.
Image Courtesy: Jason Lee/Reuters
The Second BRI Forum is to be held in Bejing on 26 Aril 2019. 37 Heads of State are expected to attend the event. During the first forum held in May 2017, the Chinese sun was fully shining. Two years down the line the Belt is a bit Loose and the Road is Bumpy. The BRI infrastructure development and construction projects – Railways, Highways, Ports, Energy Projects and Industrial Estate Developments which started off in a frenzy are facing head winds.
Whether the slowdown is the lull before the storm or not, it will affect all of us. It will need a constant watch and analysis. The project covers about 70 odd countries spanning all continents. They include Djibouti, Kenya, Ethiopia, Nigeria, Sudan, Uganda, Angola, South Africa, Chad, Egypt, Sri Lanka, Myanmar, Nepal and Bangladesh, Italy, Montenegro, Armenia, Serbia, Greece, Luxembourg, Laos, Cambodia, Hong Kong, Indonesia, Thailand, Argentina, Chile, Kazakhstan, Tajikistan, Uzbekistan, Russia, Iran Georgia, Oman, UAE, Saudi Arabia and more. The crown jewel being the CPEC in Pakistan
Chinese Ambitions
Despite repeated denials, the Chinese ambitions are clear. Firstly. BRI is the chosen vehicle to displace the USA and propel China to numero- uno status. Secondly. Engage maximum countries in bilateral economic partnerships. Draw them into a geopolitical world centered around China – The Middle Kingdom. Thirdly. Deploy excess Chinese capital and capacity in industry and manufacturing in overseas projects to boost up its economy. The Belts and Roads from China will carry Chinese merchandise in a one-way outbound stream while inbound traffic is all about ensuring energy and resource security for China. Fourthly. Political consolidation within China is largely to ensure Xi Jinping’s rule in perpetuity.
Image Courtesy: Strategy+Business
Characteristics
The BRI is a trillion-dollar initiative with the current outlay of about $200 billion. $62 billion is to be invested in the show piece CPEC in Pakistan. However, when details are delved into there is a lot of fog about projects. However certain characteristics stand out. The bilateral deals are closely guarded. Rarely are the projects multilateral. The partnerships are between China and economically weak politically fragile nations or China and autocratic nations like the Gulf Countries. In most cases the financing is based on Chinese loans positioned enticingly but most likely to lead to a debt trap. There is no element of grant or aid in the programs. There are no free lunches. In almost all cases the execution is by Chinese contractors to the exclusion of local participation, depriving low-income host countries of even trickle-down employment. All BRI projects are opaque, overpriced and tainted with corruption. In this context, the BRI which started off well, is clearly slowing down. This pushback must be examined in two parts – Rest of BRI and CPEC.
Pushback Status
Rest of BRI. China is aggressively wooing and investing in countries where it seeks (a) energy and other resources, (b) developed markets for its Made in China 2025 plan or (c) geopolitical advantage. To that extent it has established itself well in the Gulf Countries where it has entered energy and infrastructure deals.
Getting Italy (the only G7 Country) into BRI has been a major landmark. Developed and stable economies have largely steered clear of BRI. In fact, they oppose it. It is now clear that impoverished but resource rich countries or geo-strategically important countries with skewed political establishments have bitten the BRI poison apple.
Image Courtesy: Economy Next
The reality surfaced in Sri Lanka which had to give away Hambantota for a 99 years lease. Chinese loans for the 1st phase of a 165 km highway, christened “Road to Nowhere”, has sent Montenegro’s debt soaring to an unaffordable 80% of its GDP. The new government in Maldives is exploring ways to terminate BRI projects since they are unaffordable. Malaysia has scrapped $22 billion worth of BRI projects since the terms were “inimical” to its economy. The Mahathir Mohamad government said, “We can’t afford, we can’t repay, they aren’t needed”.
In 2011, Myanmar suspended the $3.6 billion Myitsone dam project, on the Irrawaddy. Currently, the $9 billion Kyaukpyu port project is under review. It could go under Chinese control like Hambantota if Myanmar cannot service its debts. Thailand has initiated talks with Cambodia, Laos, Myanmar, and Vietnam to set up a regional infrastructure fund for the Mekong region to cut dependence on Chinese financing. All these cases are forcing other host countries including Nepal, Tajikistan and Bangladesh to relook and renegotiate. The going is getting uphill for China.
Image Courtesy: The News International
CPEC. The CPEC which started as a $62 billion project to ‘Change the Fortunes of Iron Brother Pakistan’ has been scaled down to between $45-50 billion. While the first phase has been completed (about $13-15 billion) the second phase is delayed due to renegotiation. The restart seems a bit distant since Pakistan has started having self-doubts about CPEC! In fact, FDI into Pakistan has gone down in 2018-2019 due to this. With Pakistani economy in tatters, lack of visibility on return of income or debt repayment and opacity in projects, the CPEC, in my opinion is facing failure. The fundamental planning is poor.
The Chinese short cut to the warm oil of the Gulf, bypassing Malacca Straits, goes through a geographically earthquake prone unstable area (Karakoram’s), disputed territory (J&K) and restive areas / terrorist havens (Gilgit and Baltistan, Khyber Paktunwa and Baluchistan). India has objections to CPEC. Rest of Pakistan has objections to Punjab (which has got eth lion’s share of projects). Gwadar, the flag ship of CPEC, is facing major issues. Violence against Chinese is increasing. The cup is full. Much of what happens to BRI will depend on outcomes in CPEC. The coffee does not smell well.
Image Courtesy : Financial Times
Analysis
Internal issues. The outcomes of BRI will largely depend on how China resolves its internal issues. The economic slowdown of China signified by uncompetitive manufacturing, expanding debt bubble and lack of domestic consumption will shrink the Chinese treasure chest. Also, China has entered the Middle-Income Trap. Efforts to get out of it through the Made in China 2025 plan hinges on technological advances and exports which are iffy at present. All this is under worldwide threat by emergence of disruptive technologies (like 3D printing) which are going to turn established systems on their head anyway.
Besides this, there are signs of internal political disaffection, religious revival and growing unrest in its outlying areas (Xinjang and Tibet). These will suck up resources. The military is reorganizing to be an outbound force but is inexperienced as per old PLA stalwarts. All these will impact the progress of BRI depending on how they are resolved. Indications are clear that it will be a bumpy road.
External Issues. Trumps Trade War is not going China’s way. The USA is a far more experienced hegemon and is not going to keel over. In fact, it can and will hurt China. Doklam, showed the limits of Chinese military capability. India’s rejection of BRI on sovereignty issues means that CPEC cannot succeed. No Indian Government can join BRI unless it gives up on J&K! External alliances like the Quad are forming up. India and Japan are offering better project terms in some cases. The competition is scaling up. The point to be noted is that there is no need to outdo China. All one must do is provide cheaper and better alternatives. Then Chinese investments become unremunerative over the long run. Lastly as BRI expands, Chinese overseas assets will rise, become vulnerable and demand protection. It means that China will be stretched.
The Indian Perspective. CPEC, the show piece of BRI violates Indian sovereignty without a care about our sensitivities. Also, China has constantly used Pakistan as its catspaw to deal with India. Its veto has ensured that terrorists like Azhar Masood are not declared as terrorists by UN. In such conditions it would be unthinkable to align with China on the BRI. In fact, in my opinion, the CPEC is the third internal front and weakness of Pakistan, to be targeted to keep it in check. Also, India should form alignments with other likeminded nations to provide viable alternates to BRI.
Sociological Issues. The BRI is also caught up in a lot of sociological issues. Communism is widely distrusted in many societies. The Chinese business model is identified with corruption and weak governments. Mega projects are being taken up in haste, which the people do not need; by selling dreams. Hence, they either become unviable or unrelated to social needs. It leads to alienation of the projects from the people. Further, in democracies it has led to change of governments and pushbacks apart from societal disconnect. China must learn. Otherwise far from entering stable democracies, BRI will keep floundering at the gates of weak democracies. Overall inability to merge with the local landscape will inhibit BRI significantly. BRI seems to be flourishing in weak or autocratic societies, only.
Future Prospects.
What then are the prospects for the BRI in the future? In a nutshell, they appear to be tough. A cooling Chinese economy, a potentially overstretched and inexperienced military, weak partners and general distrust do not portend well for the CPEC. The winds of Isolationism are at odds with the globalization drive of BRI. Historically, the great corridors envisioned in the past like the Berlin Baghdad Railway have collapsed due their sheer weight. Can BRI buck the trend? The main factors which might help in bucking this trend are the drive of Chinese ambitions and the need/ greed of nations partnering China in this “Project of the Century”. That is to be tracked. However, till then it is safe to presume that it will be a Bumpy Road Initiative,
Lt Gen PR Shankar (Retd)
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of BharatShakti.in)
