China's Belt and Road Initiative (BRI): The assessment, implications and India's response

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China's Belt and Road Initiative (BRI): The assessment, implications and India's response 28.06.2017 12:02

June 7, 2017 at the Institute of Chinese Studies (ICS, India) evaluated the Chinese initiative Belt and Road Initiative (BRI or OBOR). Ambassador Ashok Kanta was the moderator of this event.

Ambassador Shiyam Saran, the former Indian foreign minister, believes that the BRI is not a multilateral project. In contrast, for example, concerning the Asian Bank for Infrastructure Investments or the New BRICS Development Bank, which have the appropriate structure and conduct a multi-pronged credit policy. Moreover, the OBOR initiative is a chain of bilateral projects aimed at realizing China's national interests in any part of the world.

If a bilateral project between China and India makes sense, nothing would stop Delhi from implementing it. At the same time, it was not necessary to sign an agreement within the framework of the BRI initiative. And if Chinese companies prefer to stay away from India, it will be unprofitable primarily for themselves.

BRI is an initiative through which China declares itself in the world as a "new hegemon" and declares the inevitability of such domination, which the United States, Japan and other countries must accept. However, there are certain obstacles to the positioning of China as the world leader. One of them is India, which is under serious pressure from the PRC.

Given the foregoing, one should think of the Chinese BRI initiative outside the China-Pakistan Economic Corridor (CPEC). And it is also necessary to understand the motivation of other countries that are ready to act together with China. It is a kind of return to the past. And one needs to be careful not to fall into the Chinese trap. For example, Chinese banks provide loans to several Chinese state-owned enterprises that generate electricity from thermal coal-fired power plants. And Chinese loans are not allocated to Pakistani companies, and the previously agreed plan was to use locally-produced coal for power generation. Now the Chinese argue that local coal is of low quality, so you need to import a large amount of coal from the PRC.

Many of these Chinese state-owned enterprises were confident in return on investment of 12-16%. And if one of the factors explains the cost of production and distribution of electricity in Pakistan (16-17 Pakistani rupees per unit), then it becomes increasingly unbearable for Pakistan to sell electricity or declare a default on these loans, etc. The Chinese, for security reasons, ask for an additional 4% increase in the profit from investment. In this regard, in Pakistan, there are serious concerns and even parallels with the activities of the East India Company in the past.

Ambassador Pundi Srinivasan Raghavan, chairman of the National Security Advisory Council (NSAB), considers the issue of India's need to join the BRI, as it is not a bank or some sort of formalized structure. In fact, this is the union of the projects of the past, present and future. From it, India was isolated because of its unwillingness to participate in the Forum "Belt and the way for international cooperation", which was held in Beijing on June 14 - 15, 2017. However, in Delhi they can join any infrastructure projects as soon as they consider it necessary.

India was the only country whose sovereignty suffered from the implementation of BRI (the Sino-Pakistani economic corridor passes through disputed territories in Kashmir). Consequently, in Delhi there was a good reason not to attend the Forum "Belt and the way for international cooperation". And in South Asia, only two countries sent heads of state to this forum: Pakistan and Sri Lanka. In this regard, China should ask itself why only 29 heads of state were represented at the Forum.

The lack of transparency, the Chinese's inclination toward bilateral rather than multilateral negotiations, China's desire for agreements with local elites, rather than participation in large-scale cooperation, as well as other problems such as opaque funding structures that are more in charge of lending than investment projects, labor standards etc. All these factors call BRI into question.

As noted by the speakers, India's attitude towards this Chinese initiative was not sufficiently voiced outside the country. Basically, this was seen as a question of relations between India and Pakistan or only the Sino-Pakistani economic corridor. Therefore, the Government of India should more clearly explain its position on the issue under consideration. In addition to the China-Pakistan Economic Corridor, Delhi should explain, both within the country and the international community, the problems of debt and transparency in the framework of BRI. At the same time, it is necessary to preserve the idea of creating an economic corridor between India, China, Bangladesh and Myanmar, separating it from the considered Chinese initiative. And also it is necessary to invite China to create a committee of stakeholders, which will consider the implementation of these projects. At the same time, it should be understood that China has a serious impact on the UN international structures, in particular the Development Program (UNDP) and the Economic and Social Commission for Asia and the Pacific (UNESACP).

Dr. Jabin Jakob, a researcher at the Institute of Chinese Studies, noted that the Sino-Pakistani economic corridor in Islamabad is seen as a priority project. The expectation of the Pakistani side is excessive, as it is believed that it will be able to radically improve the situation in the national economy and significantly reduce political disagreements. So, in 2016 Pakistan's gross domestic product (GDP) amounted up to $280 billion. It is alleged that the creation of the China-Pakistan economic corridor will lead to GDP growth of 1.5-2.0%.

However, Pakistan's annual trade deficit with China now stands at $6.2 billion. As a result, in the first quarter of 2017, the debt of Islamabad to Beijing reached $75 billion, it is expected to increase to $110 billion. Even the current external debt is covered by a quarter of Pakistan's exports. The validity of Chinese loans in Islamabad is being questioned, especially given the involvement of Sri Lanka in this. And reports from the Parliament of Pakistan show that Chinese banks actually charge higher interest rates in their country. Therefore, in Islamabad, they demand to reduce such interest rate, proceeding from the constant increase in the volume of Chinese investments in this project, which have already reached $71 billion.

Security is the sphere in which jobs should be created. But this did not happen after the signing of the Sino-Pakistani Free Trade Agreement (FTA) in 2007. So, only 20,000 jobs in Pakistan were lost in the production of footwear for China. And no Pakistani company was invited to enter the nine special economic zones created. As a result, in view of the introduced tax incentives since 2007, Pakistan has lost about $200 million.

Moreover, the Pakistani side is not allowed to look at the books of the Port Authority of Gwadar, although earlier Islamabad was promised 15% of the income from that port. In connection with this a member of the Senate of Pakistan said: "The Chinese are brothers, but business is business."

After the presentation of the reports, a discussion was held at the Institute of Chinese Studies. Thus, Eric Nelson noted that BRI allows projecting their "soft power". On the other hand, this initiative-oriented initiative should be considered in the light of the preparations for the 19-th Party Congress. Now in China there is a high level of political turbulence. This was confirmed by Wang Xishan, the head of the disciplinary commitee, there have been 20-25 assassination attempts on him.

Undoubtedly, India needs to get its act together with its closest neighbors. Even with a shortage of resources, they need to be given priority attention. The main reason for this is that in 2004-2005, India and China actively cooperated at the bilateral and multilateral levels. Now there is no common opinion on the ways of further development of Indian-Chinese relations.

The Chinese are considering the global financial crisis of 2007-2008. As a basis for changing the rules of the game. And India and China worked together at the 2009 Copenhagen Summit (United Nations Climate Change Conference), and Beijing and New Delhi signed an agreement several months before the UN Climate Conference in Paris (2015). This reflects the Chinese understanding that the global balance of power has changed. Nevertheless, in Beijing, India is considered a regional power compared to the US as a world power. In Delhi, this is not recognized, which causes friction within the framework of bilateral relations.