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C3S Dialogue on ‘China and BRI: Dismal Outlook?’

Image Courtesy: Huffingtonpost

Article No. 05/2019

The following is a text of a virtual dialogue conducted by C3S members and researchers. The theme revolved around ‘Developments related to China’s Belt and Road Initiative projects’. Various perspectives were put forth on the future of various projects which come under the Belt and Road Initiative and the implications on the domestic and international economy of China.

Cmde. Vasan, (I.N Retd.), Former Regional Commander, Coast Guard Region (East); Director, C3S

Reality check: Its a trap despite justification of the die-hard supporters of this project which is hurting both the domestic and external economy of PRC.

Mr. Sundeep Kumar Samraj, Associate Member, C3S

Yes, the BRI has several bottlenecks. It has proven to be a debt trap for several countries as seen in the case of Sri Lanka. But the question remains that PRC being the state that it is, will it correct its course of action? Or will these hurdles stop BRI? I strongly doubt it because China has proven to be a ‘go-getter’ authoritative state. I say this without any bias. Malaysia cancelling few projects could be a strategy to gain some bargaining space with the Chinese on some other projects which are under the pipeline. This, of course, we will not know until its finalised and is out for public consumption. It could even be a people-pleasing move by Mahathir’s government after coming to power to show they have acted. Any foreign investment or project is bound to face challenges domestically, the best example would be India’s difficulties in Iran and the Chabahar port (we are partly to be blamed too for inefficiency). But I do not think these challenges will deter a nation like China to review their policy.

On the financial side, China might be losing money over BRI today and maybe even in the long run. But we also have to keep in mind that it is a cost they are willing to pay to grow high up in the world order. In that sense, these are strategic investments. Unfortunately, it all boils down to money which today’s China has in plenty. To be very frank, it is a world where inter-governmental business deals are made over corruption and vices such as alcohol, drugs and women. The Chinese are spreading this culture across the globe at great speed. I am not being pessimistic, but it is a reality we have to deal with. And the optimism lies with the way India could potentially deal with such advances by the Chinese. BRI, good or bad, is real and we must find the best ways to deal with it. With great humility, I feel that we must look at BRI as something that is not going to change for at least another two decades and try to come up with answers to safeguard our interests instead of selectively looking at the possibility of failure of BRI itself.

Shri B.S. Raghavan, IAS (Retd.), Former Policy Advisor to UN (FAO), Chief Secretary, State Governments of West Bengal and Tripura, Secretary to the Ministry of Food and Agriculture, Government of India; Patron, C3S

I am in tune with Sundeep’s thinking which shows a grasp of the ground realities and the way things work.

Mr T.V. Krishnamurthy, Investment Banker and Business Strategist; Member, C3S

I cannot agree more with Sundeep’s broader comments. We should come up with our own ideas instead of taking refuge in the imaginary collapse of BRI. That is not going to happen given the tenacity of Chinese perseverance and their mentality of taking every fall as a challenge. Here we are not dealing with the people of a nation or even the CPC we are dealing with the civilizational values and inheritance of a legendary nation. Other nations should reinvent their brains.

Cmde. Vasan 

This will be an ever ending debate. On some of the premises of Sundeep, one can make concessions and agree. I am talking about the gamble of PRC to enhance its footprint even if it loses money. If a country loses money but gets Hambantota to serve long term strategic interests in IOR, BRI has served China’s ambitions. Ditto in other countries.

Please remember that the money earned is colossal and more than a third of its reserves. For me in principle, I am totally opposed to anything that undermines our sovereignty. The CPEC is a violation of that norm which China itself expects from others.

One must note the fact of India taking over operation of Chabahar. We have options and need to work using like-minded countries who want to provide benign alternative investment opportunities. The Asia Africa Growth Corridor (AAGC) is one. We must also use NDF, BRICS fund, ADB, etc. and protect our own long term interests. China will do everything outside the book. Anything that it does in our neighbourhood that affects our long term interests should be countered. There are options and ways and one chooses how to use them.

China will leave no stone unturned to gain foot-holds from Asia to Africa to Europe. BRI is just one malignant route. More and more nations are becoming cautious and will perhaps exercise due care while dealing with China. Good for them if China mends its way. Here is where you need to work harder to create mechanisms instead of remaining silent and watching China making inroads. Oh yes, every news of bottlenecks for BRI, which is happening more frequently now rings alarm bells for China. There are enough reports to indicate the negative domestic economic impact and slow down.

Mr T.V. Krishnamurthy

No doubt, on the issue of CPEC, all Indians will be against it. Because it is against our national interests. On the matter of BRI, China will be happy if recipient countries fail to pay. Then they will take over strategic territory, land and ports. That is why I said we will have to re-invent our thinking to safeguard our interests and spheres of influence in geopolitics.

Mr Sundeep Kumar Samraj

We all are principally against CPEC and any other project by any country, not just China, that undermines our interests and security. 

Working with like-minded countries is an option. We have been talking about working with Japan, the U.S, Australia and whichever country that wants to check Chinese expansionism or balance the power equation.

AAGC was proposed two years back (2017). There haven’t been any reports on how it has progressed since then. One asks whether it catching up with the pace at which China executes its projects.  

BRICS is nothing without the C in it. ADB is short of funds and so is NDF. The ADB had come out with a report in 2017 which stated that Asia is in need of not less than USD 26 trillion for sustainable infrastructure development till 2030. The same report also pointed out the lack of required funds within Asian countries.

I do not intend to discourage or disprove any initiative such as the AAGC. While such initiatives can go forward and India can put in its best foot forward (are we?) to work with like-minded nations, we must also build alternate narratives. The problem with democracies is the inconsistency in policy, a classic example is Trump. Assuming there is a new leader coming into power in Japan in place of Abe, how can we be assured that Abe’s policy with India and AAGC will continue without any shifts?

The point is we must not follow the western narrative of reporting the bottlenecks that the BRI is facing, instead, we must build our own narrative which is to look inward and come up with our own answers without relying on other countries. How can we deal with a bullish China by ourselves? How can we maintain the balance? Most importantly how can we safeguard our interests? India’s strategic autonomy is more needed than ever before. This we have to try finding answers for keeping in mind that there is no absolute shunning of the Chinese and that they will be around, getting closer whether we like it or not.

Mr T.V. Krishnamurthy

@Sundeep: This should be your next step- Take the Chinese GDP projections up to 2025, take the surplus generated by the GDP in the hands of the Government-Private companies, look at proposed Chinese investments on BRI year by year up to 2025. Look at the cash flows. Add to this reserves in the economy. You will get a good picture of their financial planning even if there are zero payments from beneficiary countries. As of date in the last fifteen years, China has invested close to US$200 billion  in Africa alone. The rest of the world including the US has not invested even an aggregate of 100 billion dollars. Now the US has announced they will invest US$ 60 billion in Africa. This is like trying to mount the horses after they have bolted and run away.

Mr Subramanyam Sridharan, Member, Young Minds of C3S

One thing we have to disabuse ourselves of is the notion that somehow we can deal with China all by ourselves and we can devise our own strategies for every aspect of the Chinese threat we are facing. There are bilateral issues which certainly demand our own solutions. But, there are many others for which we cannot act alone.

Even in 1962, with our strident non-alignment at its peak, we weren’t averse to seeking help. In fact, we had to.

Col. Hariharan, VSM (Retd.), Retired Officer of Intelligence Corps, Government of India; Member C3S

Thank you, Sundeep for your take on OBOR

My comments-

1. The success of OBOR is linked to the future of Xi as the all-powerful leader. So he cannot afford it to fail.

2. At the same time, he can slow down the investments if the economic situation is tight in the host country. This is what has happened in Pakistan. After publicising investment plans upto US$62 billion latest, Pakistan’s figures show only $40.6 bn has been invested.

3. Xi will probably pay attention to key countries that could help in making OBOR profitable, regardless of their affinities. These will probably include Iran, India, Thailand, Philippines and Indonesia.

4. BRI’s progress will be tailored to suit Xi’s internal and external priorities. Considering this we can expect China to play down differences with India and pay greater attention to increase its clout in Iran-Afghanistan-India region (Pakistan is already in the bag) as the environment is vulnerable after US under Trump recasting its military involvement.

5. Hence India should try to maximize its bargaining position rather than adopting a hostile posture because China has invested both Xi’s reputation and lots of money that makes it very difficult to give up on OBOR.

Mr Sundeep Kumar Samraj

@Mr Subramanyam: One does not never imply that we shouldn’t work with other countries and isolate ourselves. While all the joint initiatives are being implemented and negotiated we must also try to provide indigenous answers to the China challenge (BRI). There is no wishing away BRI. I would also like to draw a clear distinction between treating BRI as real and acknowledging it. Both are two different aspects. 

Also thinking beyond BRI, as it is just one factor in the emerging world order, I strongly believe it is time to reinvent our strategic autonomy with an eye 30 years down the line. We are in desperate need of developing our own strategic culture to adapt to the changes.

As a start, when we speak about BRI, we could maybe develop a fresh narrative for our neighbourhood policy which is currently in shambles and pro-China purely in terms of business instead of the western narrative which speaks only about the challenges BRI is facing.

Cmde. Vasan 

Directly or indirectly all of us agree with the stark realities that challenge our aspirations. To me, China is the biggest obstacle. It will want concessions and will not yield a quarter. The will be no change in view on NSG, UNSC, Masood Azhar , Arunachal Pradesh, support to Pakistan to prop it up against us, etc. There is no need to oblige PRC unconditionally. Let China change its position on these crucial issues and then we can have a dialogue. At the moment China is trying to use India to stem the new challenges that it is facing trade, slow down, domestic issues etc. The post-Wuhan truce is transient. Even in Afghanistan, they want to use the goodwill of India to make inroads in a place of great strategic importance. Xi promised some 20 billion investment. Where is it? Not even a fraction has reached us. Mr T. V. Krishnamurthy spoke about some 250 mn in MSME. It’s chicken feed. It must remind all of us that  Indian companies have been competitive and are exporters to EU and Western markets on some very high-quality components. This is not today and did not need China’s expertise. Yes, there are things that we can learn from anyone and not necessarily only China. They want India’s markets. The trade deficit will only widen even more, so we need to tread cautiously.

There are options and other big economies like EU, Japan, UK who want to invest. The bullet train project is funded up to 20 billion USD by Japan at 0.5 per cent over a long period. Taiwan has shown interest in joining AAGC. Every speaker from USA, Canada, EU, Australia and world leaders in Raisina dialogue have advocated greater economic and other forms of engagements with India. Please see the emphasis of every speaker by following the Twitter handle #Raisina 2019. It would be foolhardy to not use this momentum that helps to move away from China’s uncomfortable embrace.

We need self-belief and confidence to engage others to keep China in check. Why this constant appeal for us to bend backwards to please China even when China is insensitive to our issues. Have never fathomed this lack of self-belief and obsession with China. It is pointless saying we haven’t done this well or that well in the past. Move on, change your ways or be subsumed by China. We have shown we can do it. Chahbahar was completed almost on time. There are more recent examples of success.

The climate is conducive us to look beyond China to protect our interests and sovereignty. Most countries are looking at us. While admitting that we cannot do it on our own, why are we not thinking beyond China? It baffles me. We cannot let them and ourselves down. I am disappointed with this pessimism about what we can do.

Mr Subramanyam Sridharan

@Col Hariharan: The investment in Pakistan by China is not slackening; the rest of the investment is in the pipeline. In fact, we should expect increasingly more investments flowing into Pakistan from China. Pakistan is the only BRI country that is utterly subservient to China, incapable of rejecting ‘Emperor’ Xi’s diktats.

Col. Hariharan

@Mr. Subramanyam Sridharan: I suggest you read the just published detailed article in DailyO by Ali Salman Sandani on China’s actual investment figures given by Pakistan to IMF which are US$20 billion short of the much publicised US$62 billion. 

Mr T.S. Krishnamoorthy, Former Head, Analytical Chemistry, Bhaba Atomic Research Center (B.A.R.C); Member C3S

@Cmde. Vasan: Your response raises very valid points.  In spite of the bonhomie post-Doklam, the fact remains that China’s antagonism to India has not changed.  You have pointed at them all-“NSG, UNSC, Masood Azhar , Arunachal Pradesh, support to Pakistan to prop it up against us, etc.”. Their stand on the border is exactly what it always was. They show no sign of serious engagement, but use it as a pressure point as and when suits them. Will the relations ever become normal and friendly? It looks doubtful. The China-Pakistan relationship is “all-weather friendship” forged out of anti-India feelings, and will continue.  We have very few bargaining points. We can neither live with them nor without them. Geography has put us in that situation. 

BRI is a reality. China will continue with that. They have enough cash and are ready to use it, even if part of it is a dead investment, to achieve their goal of world dominance. The entire Southeast Asian region is uneasy about the emerging scenario.

The present US-China trade war will get resolved ultimately. The way US is behaving, how much reliance can India place on them? Europe and Britain are in turmoil.

On the whole, the global picture is gloomy. If India ends up with an unstable coalition after the coming elections, as it looks likely, it will be even more problematic for India in dealing with China. We should forge close friendship/ understanding with as many countries as possible, and keep all options open.

Mr K. Subramanian, Former Joint Secretary (Retd.), Ministry of Finance, Government of India,  Treasurer, C3S

Are you suggesting that a “stable” (!) government under the NDA to get back to power as the prospects of  “weak and unstable” coalitions meeting the challenges are in doubt? Despite a stable government (and no coalition?), what has this (NDA) government achieved? Narasimha Rao was heading the weakest coalition and could get diplomatic victories by playing the cards well. In diplomacy, sound and noise are for the public; but it requires cold and calculated games to be played backstage by seasoned (professional) diplomats who are tight-lipped.   There were a few signs (stray swallows)  of earlier gains, but these have been wasted. We would require more time and resources (finance!) to regain them before we undertake new initiatives. Pray, what are the broad outlines? There was a time recently when AAGC seemed an option. With Trump coming to power and Japan trying to move closer to China to save its economic growth, Japan might not be as enthusiastic. Japan’s Foreign Minister Kono has already said in public that Japan would be interested to invest in CPEC Projects. As reports suggest, “Japan is not opposing CPEC.” JETRO and Japan Bank for International Cooperation as bullish on more investments there.  I don’t want to say much about the other leg of our strategy: QUAD. With successive meetings held annually, each side seems to move away from the core objective. Even formal statements are not issued after the meetings!

Mr Subramanyam Sridharan

Col. Hariharan: The link is a trove of information. For the first time, the outside world including the inside Pakistan, may have some vague numbers regarding the otherwise opaque CPEC. I have two observations.

One, the Pakistanis have deliberately furnished wrong data about their economy to the IMF at least twice before in the last decade. Ever since they are being scrutinized very closely by the IMF for their data. Trump has added to that scrutiny recently by demanding that an  IMF bailout shouldn’t lead to these funds being used to settle interest, loans and RoIs promised to Chinese entities. So, the Pakistanis may have every incentive to paint a rosier picture, with actual inflows & outflows smudged.

Two, the report itself says that investment inflows would flow until c. 2030.

Col. Hariharan

@Mr. Subramanyam Sridharan: I agree with your observations. Pakistan’s economy is passing through a critical situation and Chinese had been lukewarm to bale out Pakistan. So Imran is literally begging for UAE and Saudis to help the country.

I think unless the dynamics of this situation is cleared, China is likely to play it by the ear in making further investments. As military strategists say better to reinforce a success than invest in failure. Same thumb rule applies to business investments.

Mr T.S. Krishnamoorthy

@Mr. K. Subramanian: No Sir, I am not making any such suggestions, or expressing any preferences. As it looks now, the political picture and landscape are very different now compared to 2014, and I will be surprised if NDA gets a majority. No one will have a majority, and whoever forms the government will be at the mercy of regional parties. Inherently such a set up will be ‘unstable’ and less conducive to clear planning and determined quick actions. China today is far stronger in every respect the when PVN was the PM. I have no off the shelf solutions. I am advocating neither confrontation nor surrender. That is why I said India should forge close friendship/understanding with as many countries as possible, and keep all options open. Be pragmatic and learn to use opportunities as they arise. Also, if any understanding with China looks possible, go for it.

(The views expressed are the members’/researchers’ own.)

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