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C3S Dialogue: Time to Contend with China

Image Courtesy: India Today/ Reuters

Article No. 27/2019

The following is text of a virtual dialogue conducted by C3S members and members of Young Minds of C3S, from June 18-19 2019. The theme was based on current developments viz. the status of India-China-U.S.A relations and the Belt and Road Initiative (BRI). The views expressed are the members’ own.

Mr. M. R. Sivaraman IAS (Retd.),

Former Revenue Secretary, Ministry of Finance, GoI

ED IMF and Adviser UN SC CTC

In the present era, half a century after colonialism ended, power equations are changing across the world. In fact, the GDP of India and China will tilt the balance toward Asia and the Chinese technological thrust, with India joining in, will tend to equalize the technology balance.

If Chinese, Indian and Japanese military strengths are combined, their strength would be much greater than that of NATO. The three nations are capable of building any weapons system including aircraft carriers, nuclear powered submarines and ICBMs. In other words, the erstwhile superpowers’ positions will no longer go unchallenged. This is the motivation behind US President Donald Trump’s trade war on China, who aims to put the upcoming power at a disadvantage.  By seeking to neutralize China’s trade surplus, the Trump administration believes China’s ascendancy over the Western world can be stopped. With India too, the US is issuing veiled threats and trying to buy India out, knowing India has the potential to tip the scales. The GSP withdrawal, pressuring India to cut off oil supply from Iran and also force out Russian weaponry along with the new H1B visa restriction are all indications of what is to come. One hopes that the new External Affairs Minister, S. Jaishankar does not become a lever for such US policies towards India.  Minister Jaishankar should keep away from the tender for the new fighters as he has previously been associated with TATA in their marketing, potentially including that of defence manufacturing. TATA is interested in the new fighter jet contract with USA. The US wants to ship its outdated equipment, which would have been depreciated to zero and below in the manufacture of F16s, to TATA for the company to make outdated F16s (under a new name) in India. In the interest of impartiality, PM Modi should ensure that matters relating to weapon system purchase in which TATA is interested should not be dealt with by Jaishankar.

India should also be cautioned that every weapon bought from the US would possibly carry embedded chips transmitting the location of its wielder back to the US. This, coupled with the possibility of a renewed US-Pakistan alliance even if not for anything else other than to acquire a base to counter Russia, is a dangerous situation. One cannot emphasize enough the extent the Pakistani army would be prepared to go to get back on the rails with the US.

The results of this would be disastrous for India. Acquiring spare parts for the billions of dollars worth of military hardware bought from the US could become difficult. The positions of US-manufactured weapons systems in India would be vulnerable to detection by Pakistan.  After all, did the US take any punitive action against Pakistan for harboring Osama Bin Laden, the man who carried out an attack against the US on its own soil unlike any other in the history of the US? The USA did not make any such move because it looks at keeping that small window open to have a military base close to the Russian border. USA knows that India will never be able to do it; the LEMOA agreement could not have happened even with any other party in power in India. The potential threats stated above may be imaginary for now but cannot be dismissed from India’s calculus of foreign policy.

It is time now, that like a major nation, Indians stop ranting every other day against Pakistan and riling China on BRI and its debt traps in other countries etc. Let the participating nations worry about the BRI. One questions on why India is concerned with the issue even when the country is out of the BRI. Too much repetition of such aspects by politicians may even become counter-productive.

One cannot be sure whether all these calculations are being done in regard to measuring India’s policy toward the US. Armed forces officials can also fall into the trap with foreign training in the US and post-retirement employment opportunities with visas for children, etc. as incentives. Most people would prefer visiting New York, Seattle and Washington D.C. in the US than the somber cities of Russia.

Indian foreign policy cannot be based solely on individual camaraderie and token symbolism but on cold logic and calculations that would make India seem as a relevant power and not a mere vassal state of the US.

While Modi has been a professional politician with personal integrity intact, Trump is a hard core businessman through and through and will never allow any country to acquire economic or military might that will pose a threat to the US.  The former may still be given to considerations beyond simply the monetary but for the latter profit motive has been the only compelling factor in every decision, as evidenced by his threatening of even long term allies in Europe.

The hubris of election victory must be relegated to the background and hard reality should dictate India’s policies.

Shubham Swaroop

Intern, C3S

Through this presumably safe whataboutery tactic and given the fact that fewer smaller nations in the region rallied behind Washington, there is a clear message of not being forced into choosing sides towards either US or China. As Malaysian Prime Minister Dr. Mahathir puts it, “US claims Huawei has the technology to potentially spy on them, sure that’s ground for condemnation, but that’s not the way to go about it. CIA has been heavily running its operations in Malaysia and other East Asian countries, but we do not ban US, when they have the capability. Now Huawei has the capability, let them do the worse”. In terms of India, it would be highly interesting if regional blocs start signaling New Delhi towards a greater role in stabilizing and reducing such trade war tensions. India’s progress on RCEP despite a USD 60 billion trade deficit with China and a growing push by Australia towards financing the infrastructure in the Indo-Pacific region, against the backdrop of BRI are policy changes indicative of a regime change at least in the long term. (vide “Australia urges India to play a greater role in shaping regional trade order”, LiveMint, June 12 2019).

Commodore R. S. Vasan IN ( Retd.)

Director, C3S

There is not much that other nations can do except to acknowledge the arrival of another big power. Trump, even with his threat to impose more sanctions, has limited options. Even in the South China Sea, except for the so-called FONOPs, there is precious little that the US can do to change the status quo.

While acknowledging the growing might and influence of China across oceans, there is a need to have greater clarity on the part of India on how it would shape its own course without being reactive all the time.

Mr. K. Subramanian

Former Joint Secretary (Retd.)

Ministry of Finance, Government of India

Some of the later developments regarding the BRI need to be considered. First is the BRI Forum held in Beijing where Xi made a speech assuring members of the course correction China will make to safeguard against some of the fears such as “debt trap” as expressed by BRI members. Secondly, Malaysia has softened significantly and is renegotiating some projects and the terms with China. Pakistan is not the last case and is not collapsing because of the China Pakistan Economic Corridor (CPEC). Debt hang is a legacy dating back to many years and not wholly or only due to CPEC. The IMF will not lend USD 6 billion if Pakistan is collapsing.

Cmde. R. S. Vasan

By and large, one agrees with K. Subramanian that China, after suffering some setbacks in BRI and also due to the criticism by others about leading small nations into a debt trap, is applying course corrections. Ultimately, the BRI is a pet project of Xi Jinping and he will do everything to ensure that the core objectives of expanding its sphere of influence through market investments succeed.  The credit for renegotiating the MSR/BRI investments in Malaysia goes to Mahathir. He was able to get a concession of more than 30 % by hard bargaining. Who does not want FDI? The question is on what the terms and long term implications of those investments.  Others will learn to get better bargains in the light of the experience of Sri Lanka, Pakistan, Maldives, some African countries and Malaysia. China needs to recalibrate its strategy to ensure that more nations do not opt out or look at alternate options.

By all accounts of Dawn and other analysts in Pakistan, it is clear that the problems of debt trap has accentuated post the one-sided investments in BRI with most of the benefits going to China. Whether it is the export of obsolete coal-fired thermal plants which could not be used in China due to the commitments on green energy (and for its renewable energy initiatives) or the heavy investments in fertile lands for food security in China, it is clear that China is not on a charity drive. The question arises on how China is helping recipient nations by exporting this obsolete technology. It will only increase the carbon footprint of the BRI recipients and will not help global climate change initiatives. China cannot say that its commitment to green energy is a hundred per cent within its borders but zero outside.

The BRI has been discussed at C3S on countless occasions and yes there are two views and there is a need to strike a balance based on the actual experience of the recipient nations who are under serious stress in repaying loans. India had to provide 1.4 billion USD as a package to Maldives to enable paying back some stressful loans.

Mr. K. Subramanian

Japan’s interest in port development in Sri Lanka is not a new story. An MOU was signed early last year during the visit of Mr. Kono, Japan’s Foreign Minister (vide The Diplomat).  Both the reports indicate that the project is not free from nagging uncertainties attached to strategies. As another article by Meera Srinivasan expresses, India’s involvement was not readily welcomed but was the result of intense political infighting. Secondly, for Japan, the strategic objectives/implications are not clear. Neither Japan nor Sri Lanka would like to get involved in major power (China versus US/India) rivalry. Japan may like to view it purely as a project which helps its port machinery companies and consultants. Moreover, as far as Japan is concerned, its recent postures vis-à-vis China would show that, thanks to Trump, it is moving closer to China and away from the US even in its Indo-Pacific Region (IOR) strategies. It will not like to be seen as an enemy of China. QUAD is still an unformed distant possibility which could unite members. One concludes that this MOU on Colombo Port development is by no means a threat to BRI.

Cmde. R. S. Vasan

One would find it unlikely that the Chinese will agree with the conclusion that the above will not pose a threat to BRI. Knowing the importance attached to BRI by the core leader, they will be very wary of such competition in whatever small measure. Mahathir gave them the first jolt by putting the BRI projects on hold and in the end renegotiating the projects to bring down the cost to 70% of the original projection. If Sri Lanka has not given this project to China (which was equally interested purely due to economic reasons), Xi has all the reasons to worry. More nations will be encouraged to look at more viable options (long term soft loans at 0.1%). Xi will not be happy with such developments which interfere with his dream as the Rate of Interest will be much less and it also impinges on the strategic ambitions.  But there is one silver lining and that is for the smaller nations which were on the radar of China’s BRI projects. The projects and investments would now hopefully be more transparent and less burdensome. China has no choice but to make it viable by recalibrating its investment portfolios. Hence the original profits will come down and the economic exploitation of nations can be averted. Nonetheless, China will undoubtedly persist with the BRI, as it has to expand its markets to match its excess capacity and sustain its GDP.

The CEO of Huawei has for the first time admitted that the kind of sanctions imposed by Trump are hurting them both in terms of technology and trade (vide “Huawei CEO admits $30bn hit to 2020 sales as US offensive bites”, Nikkei Asian Review, June 17 2019) The loss of business amounts to the tune of USD 30 billion to 2020 sales. Also, this amount is USD 10 billion more than what Xi promised to invest in India during his visit. So the cumulative effect of the need to invest and then to ward off the ill effects of the war will make China worry on all counts. It is pointless to pretend that China is immune to the sanctions, trade war and the kind of joint ventures by Japan, India, E.U, USA and other big economies. The Chinese are cautious people. Therefore they will learn their lessons and work to ensure that there is better receptivity to BRI by tweaking their bilateral initiatives.

On the issue of Japan getting close to China, these are bonds of convenience for both sides just as it is for other economies. The recent issue of Chinese vessels carrying out a hydrographic survey in contested waters has angered Japan. The traditional rivalries will continue to be there and where convenient, they will join hands. No one has given up on the QUAD as was re-emphasized during the Indo Pacific Regional Dialogue in New Delhi.  It is a work in progress and whether one likes it or not China will be under pressure with what it considers as an anti-China coalition.

Mr. M. R. Sivaraman

Roping in foreign actors for developing national assets remains a politically sensitive theme amongst trade unions. It is a slightly simplistic comment especially when the Hambantota port- a piece of Sri Lankan territory, has been handed over to the Chinese for 100 years. Xi must be seeing his BRI running into brick walls wherever there is some semblance of democracy- Malaysia, Maldives, Sri Lanka now, earlier Myanmar and so on. The sale of BRI is easy where there are dictators. In democracies with functioning Parliaments, there are bound to be queried on the cost-benefit analysis, IRR of the project, the tendering procedure, loan-terms, etc. BRI projects are not amenable to these disciplines.

On US-China relations- Donald Trump has dealt Huawei a major blow. Trump will capitalize on this victory and take his pound of flesh by ensuring that the US achieves some semblance of a balanced trade with China. China will not like India keeping a flotilla near Taiwan and similarly India does not like China building ‘mini-China’ in Sri Lanka or the Maldives. It is necessary for India to ensure that the country does not have a Chinese military or even civilian bases around, howsoever friendly India maybe.

Mr. Subramanyam Sridharan

Former Computer Scientist Retired from Leading MNC

In Mr. T.V.Paul’s article, there are two issues to be highlighted. One was the apparent lack of a military coalition to take on the militarily strengthening China and the other was a reference to China weaning away members from joining alliances against its interests. He particularly refers to the Malabar Exercise and the (non) emergence of the QUAD.

On the first issue, it is easy for one country to ramp up its military but quite difficult for other countries to form a military alliance to challenge that one country. WW-II started in 1939 but the ‘Allies’ group was formally announced only on January 1, 1942. Therefore, there is no wonder that a formal alliance of ‘QUAD’ is also taking time.

On the Malabar Exercise issue, it is true that India has been wary of including the Royal Australian Navy. It was expected that in 2018, that would happen, but India possibly decided to take a more cautious approach, as Mr. Paul says. The important Wuhan Summit was taking place in the last week of April, 2018 while the Malabar Exercises were scheduled just over a month later in the first week of June. Probably, India felt it prudent to give a longer rope to China.

Besides, India has had some trust issues with Australia earlier. The first QUAD meeting was held as far back as 2007 and they also decided to have a QUAD maritime exercise among their navies. However, China strenuously objected to that. The Labour Prime Minister of Australia, the China-leaning Kevin Rudd immediately announced the withdrawal from the grouping in 2008. Thus, the QUAD was almost stillborn until it was revived in 2017.

It was this bitter experience with Australia, apart from Australia’s refusal to sell Uranium to India (again by Rudd), that resulted in India objecting to the US & Japan requests for including Australia in the annual Malabar Exercise of their navies. It was only after the Tony Abbott government signed the nuclear deal with India in 2014 that the thaw happened. It was in 2015 that India and Australia signed the Framework for Security Cooperation Agreement. Hence the re-emergence of QUAD in 2017 was understandably a slow development. This is just one example of why defensive alliances take time to form.

But, these do not mean that the informal alliance wasn’t strengthening under covers. India, Australia & Japan have been having trilateral defence dialogues since 2015. India and Australia decided to have their first joint naval exercise AUSINDEX in 2018 and have already ramped up the complexity in AUSINDEX 2019.

Hence the basic building blocks are already strongly in place. It is only a matter of time.

  Mr. K. Subramanian

@Mr. Subramanyam Sridharan: It is difficult to buy the argument about military coalitions and why they make time. It is to turn the argument on its head. Unless there is geographical contiguity and a common perception of threat from another, there is no possibility of any alliance. Alliances are not made to take care of imaginary threats; nor should they take time. The Second World War analogy is not correct; that alliance took time since the war threat reached other shores and those threatened decided to join. The US joined only after the Japanese attack on Pearl Harbour.

On QUAD and the Malabar Exercises, one would request a reading of the statement issued last week by the Australian High Commissioner.

The “wise’ Chinese know how to handle Japan. Even as their relations are quite complex and economic involvement get deeper, the US postures create a new dimension and seem to drive them closer. One does not attach great value to the Colombo Port as a game changer or as one which will impact the course of BRI. In fact, it may not take off at all. Nonetheless, the flexibility and adaptability of China’s policymakers should not be underestimated.

On the Huawei issue: As of date, Mr. Trump is at the receiving end. Even friends of U.S.A are tying up with it. Of course, the company faces threats to its existence through not wholly legal tactics. Let us not mix it up with BRI or India’s relations with China.

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

Kindly read the following links:

Mr. K. Subramanian

One has always viewed that India should not be acting with false pride or that our country would be considered inferior to China if India joins BRI. It is clear that today India is isolated. There are ways of resolving sovereignty issues and China, has also given signals. Wuhan was perhaps the closest. Most of all, Indians have to realize that U.S.A will not carry the can for us. BRI, SCO, ASEAN, etc. are the forums where Asia can liberate itself from the West if it is believed that the future is Asia’s.

Cmde. R. S. Vasan

Not joining the BRI means nothing as far as economic engagements with China are concerned. There is a lot of economic activity taking place between India and China, without any linkages to BRI. So there is no need whatsoever to endorse the BRI. India has made its stand very clear from the time that it abstained from the first summit. There is no false pride involved in not joining the bandwagon painted as something that will benefit all nations. The examples of various countries which have paid a heavy price make it very clear that China wants economic subjugation.

Getting financial support for development or infrastructure from any of the banks does not mean that such loans for investments would be available only if a country joins the BRI. China is learning the hard way that there is no universal support for BRI with the lack of transparency as well as the debt trap which countries faced with the investments made along the Maritime Silk Road.

A country does not have to join the BRI if investments are available from China or any other investor on better terms without any linkage to BRI (on specific development projects on bilateral arrangements). Moreover, India not joining the BRI is a principled stand as it impinges on our country’s sovereignty concerns.

The assertion that India is isolated is false. India was the sole major absentee in the first BRI. The number of countries which refrained from attending rose to 28 in the latest edition. That does not indicate increased isolation.

India has to carry its own can and has to steer an independent policy without worrying about what China will think or not think about our course of action. If we have to join hands with Japan or the USA or EU or any other country including China, it is up to India to decide how it should engage with them. Working with Japan to invest in Sri Lanka is one small step and there will be many more avenues for such initiatives in India’s neighbourhood.

What are these signals post Wuhan about CPokEC that have mentioned? Even a faint suggestion that China could consider changing the name of CPokEC by the Chinese Ambassador was removed from all records. Even a visit of the Indian PM or any dignitary to Arunachal Pradesh is objected to by China vehemently. It is China today that feels cornered and requires the support of India and not the other way around. This has nothing to do with false pride but more to do with harsh reality.

It is also important to remember that China has been a major violator of international laws/norms including IPR. There is enough recorded data on the industrial espionage and unfair ways in which China has derived advantage by indulging in unethical practices. Even in the South China Sea, despite a ruling by an international court of law, China has not accepted the verdict even though it is a signatory to UNCLOS. As you sow, so you reap.

As long as the global economy continues to depend on the US dollar, there is no way that China or Asia can liberate itself from the West. There is a very long way before the world can achieve this status. China is trying hard to ensure that its own currency replaces the dollar but that is still a distant dream.

(Compiled by Asma Masood, Research Officer, C3S and Devika Makkat, Intern, C3S.)

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