China wants to move its manufacturing up the value chain to become a producer and exporter of high-value goods, for which Europe can be the best market.
By Manoh Joshi
On May 14 and May 15, Beijing hosted one of those mega events that the Chinese revel in. But the two-day meeting of the Belt & Road Forum – yielding an unfortunate acronym, BARF – will, not be the event of 2017. That will be the 19th Communist Party of China Congress slated for November which will sacralise the Xi Jinping era. And before that, there is the BRICS summit in Xiamen and the 90th anniversary parade of the People’s Liberation Army’s founding.
Significantly, this massive scheme, known as the Belt Road Initiative (BRI) or the One Belt One Road (OBOR), the signature foreign policy initiative of Xi Jinping, combines the Silk Road Economic Belt going overland to Europe across Asia, and the 21st Century Maritime Silk Route through the Indian Ocean to Europe, via the Suez or the Cape of Good Hope.
The problem with trying to understand what it is all about is that it is a combination of many things: an economic plan for taking the Chinese economy on to the path of sustainable growth, a scheme for market development and dominance, an effort to export of excess capacity in key infrastructure industries, all adding up to a geopolitical assertion of China’s major power status.
India missed the party in Beijing which was attended by 28 heads of government or state, including Russian President Vladimir Putin and many of our neighbours, like Pakistan, Myanmar, Nepal, Bangladesh and Sri Lanka.
The BRI takes on a range of already existing and ongoing Chinese governmental and state owned enterprise (SOE) projects and seeks to provide them with an overall coherence and direction. The first phase of the project is connectivity, not surprisingly, from and to China, through new highways, railways, ports and pipelines. This is the “hardwiring” that has in some instances already taken place, or is taking place.
But most important, it is a destination called Europe. Even though all maps and schemas of BRI clearly indicate this, most people get distracted by its side-shows like the China Pakistan Economic Corridor (CPEC), or its schemes to avoid Indian Ocean choke-points.
Why Europe? Because OBOR is crucially linked to what China wants to do with its economy – move its manufacturing up the value chain to enable the country to become a producer and exporter of high-value goods. For this, it needs a rich market, and what could be better than Europe, the richest region in the world ? China sees Europe as a source of technology, lifestyle goods like fashion garments, wine, cheese, olive oil for its rising middle class and a market for its high-end products.
Central Asia, South Asia, or the ports of Indian Ocean, are merely way-stations through which the China-Europe Express will run.
The BRI is a major playground for China’s SOEs, 47 of whom are carrying out some 1,700 projects in the 65-odd countries associated with the scheme. While fantastic sums, in excess of $ 1 trillion are spoken of, for the BRI, investment currently is a bit more modest. As of now, despite the smoke and sound, the BRI is not the main destination of Chinese overseas investment. As a David Dollar, a former head of the World Bank in China and now a Brookings Institution scholar notes, China is probably the biggest financier to the world with its outward direct investment totalling $170 billion and its policy banks – China Development Bank and the Export-Import Bank – another $ 100 billion. But he says, only a small proportion of this is going to the OBOR projects currently. Even the policy banks which have lent some $675 billion, have only allocated $101.8 billion of 15% for OBOR linked lending by the end of 2016. Dollar’s estimates tend to ignore Europe as a factor in the project and there is, it would appear, a small cottage industry in the western press to diss the BRI.
However, the scheme is still young, having gotten underway in just 2015. Even the institutions the Chinese have created to push it are just about a year or two old. The Asia Infrastructure Investment Bank (AIIB), the New Development Bank (NDB) and the Silk Road Fund currently have a paid up capital of $240 billion. Their lending has so far been far short of their potential. But the wily Chinese have let it be known that they are open to funding from all sources, including the Asian Development Bank (ADB), the World Bank and the European Bank for Reconstruction and Development (EBRD) to co-fund their projects.
Perhaps the most frenetic activity is in building and developing railroads – 750 km long, linking Addis Ababa with Djibouti, 480 kms of the Mombasa-Nairobi railway in Kenya, 414 kms linking Kunming with Vientane in Laos, with extensions to Bangkok and Singapore.
With the three gas and one oil pipeline from Central Asia to Xinjiang, a significant proportion of Central Asian oil and gas is going to China. Now, work has begun on a fourth line from Central Asia, as well as the pipelines bringing oil from Russia to northern China.
Central Asia is also a key junction for the grand Chinese vision of high-speed railway networks linking Chinese cities to Europe. These or not just plans but reality today. Freight trains have been carrying cargoes from Chinese cities since the first train traveled in 2008 from Xiangtuan in Huynan province to Hamburg. Subsequently HP demonstrated the economic value of its Chongqing-Duisberg trains running four times a week. Now a dozen Chinese cities are linked to 15 European cities. 2016 saw Chinese trains arrive in Teheran and Mazar-e-Sharif through newly developed links.
These trains travel to Kazakhstan and then taking a northern route via the Trans Siberian to the Polish border. A new container terminal at Khorgos has opened an alternate route which will be developed to link to the Russian line, or to avoid Russia altogether and go through the Caucasus or Iran to Turkey and Europe.
The maritime component is being developed through a string of ports in the Indian Ocean Region (IOR), these include Kyakapu in Myanmar, Bagamayo in Tanzania, Lamu in Kenya, Hambantota in Sri Lanka and Gwadar in Pakistan.
Countries like Japan, India and the US have not been particularly enthusiastic about the BRI, saying that this is a Chinese funded scheme, to be executed by the Chinese, to serve Chinese national goals. There has been little consultation with others whose participation the Chinese are seeking.
After facing some resistance China has begun to adopt a more accommodative approach. It now says that the scheme has no geographical limits, that it is about inclusion and global integration and far from challenging the US, China would like to play a role in rebuilding its dilapidated infrastructure.
Even so, the Chinese do realise that trust is still wanting. One reason for this is the rapidity with which the flag has followed the trade. In the Indian Ocean region, from 2014 onward Chinese submarines have shown up. And as of 2015, the first Chinese military base has been created in Djibouti.
Indian concerns have been projected as arising from the fact that the CPEC runs through Pakistan Occupied Kashmir. But this is just a pretext. The POK route has been active since the 1970s and New Delhi did not make much of it. What India is concerned about is Chinese naval activities in the northern Arabian Sea, in Karachi and Gwadar and the fact that CPEC involves a closer integration of Pakistani economy with that of China.
Indeed, what India is worried about is that through its generous lending, China is creating dependencies in our South Asian backyard, which means these countries will have little alternative but to back Beijing’s political goals.
The choices before New Delhi are not too many. We do not have the kind of monetary resources China has, nor the kind of exprienced SOE’s who excel in executing infrastructure projects. Further, unlike China, India has a huge infrastructure development agenda within the country. Some of these schemes such as the Delhi-Mumbai Industrial Corridor or the Bengaluru-Chennai corridor are underway. We have a number of important new port projects such as the one in Vizhinjam, Kerala and the Enayam, Tamil Nadu.
Even so, it may be a good idea for New Delhi to see this as an opportunity to attract companies, including those of China, to fund and develop our infrastructure along with those like Japan and South Korea. India can leverage funds from Asian Infrastructure Investment Bank, New Development Bank, the Asian Development Bank and the World Bank to undertake infrastructure development within the country and its neighbourhood.
New Delhi has been lackadaiscal in executing projects like the Chah Bahar Port project, or the Kaladan Multimodal Project. We need to come up with our own version of the Silk Road Economic Belt by taking up the International North South Transportation Corridor, a multimodal scheme to take goods from western Indian ports to Europe, via Iran.
More than that, we need a clearer strategic vision for India going on to the 2030s and 2050s. All we get from the Narendra Modi government are a succession of slogans. In that sense, China has total clarity. It intends to become a significant Indian Ocean power by the 2030s and by the 2050s it seeks to be a world power, if not the world power.
The OBOR will provide the sinews and muscle to fulfill that Chinese dream.
This article originally appeared in The Wire.