China’s Belt Road Initiative

China’s Belt Road Initiative

Introduction

the idea of Silk Road Economic Belt (SREB) and 21st century Maritime Silk Road (MSR) was mooted by Chinese President Xi Jinping during his visits to Kazakhstan and Indonesia in September and October, 2013, respectively.

Subsequently, the two projects together came to be known as ‘One Belt One Road’ (OBOR) Initiative.

 

The Concept was re-named as ‘’Belt and Road Initiative’’ (BRI) when opposition surfaced to the idea of one nation dictating the existence of ’one belt, one road’ in a globalised world in which ‘many belts and many roads’ exist.

 

Greater clarity was provided on the idea at the Belt Road Forum (BRF) organized in Beijing in mid-May, 2017. According to Chinese authorities, more than 100 countries participated in the Forum, many of them at Head of State/Government level. India was the only major country that did not attend.

 

In his address at the BRF on May 14, President Xi called BRI as the project of the century to benefit people across the world.

Xi declared that BRI will promote friendship, shared development, peace, harmony and a better future for all countries.

High Points:

BRI spans some 65 countries in Asia, Africa and Europe covering 70 per cent of the world population, three-quarters of its energy resources, a quarter of goods and services, and 28 per cent of global GDP ($21 trillion).

 

Beijing’s rationale appears to be clear: these are large, resource-rich nations in close proximity to it with a severe infrastructure deficit, which China has the resources and expertise to redress.

 

By boosting connectivity, China can hope to spur growth in the short term, gain access to valuable natural resources in the mid-term and create new booming markets for its goods into the extended future.

 

China’s inability to fully absorb its supply-side production capacity — the problem of under-absorption — has been an inherent feature of China’s economic story. Since the 2008 global economic crisis, China’s investment-intensive export-oriented model,

 

The key motive for China appears to be much bigger and more ambitious. It wants to consolidate its position at the centre of global supply and manufacturing networks..

China understands that as its economy matures and income levels rise, the lower-wage industries that have fuelled the country’s growth so far will migrate to less-developed nations where labour costs are lower.

 

An overriding objective of BRI is to address China’s deepening regional disparity as the country’s economy modernises. Beijing hopes its transnational infrastructure building program will spur growth in China’s underdeveloped hinterland and rustbelt.
By investing in infrastructure, Xi hopes to find a more profitable home for China’s vast foreign-exchange reserves, most of which are in low-interest-bearing American government securities. It is estimated that financial resources to the tune of $4.4 trillion ($1.4 trillion for SREB and $3 trillion for the maritime component) would be required to implement the initiative. China has claimed that nearly $900 billion worth of deals are already underway.

 

He also hopes to create new markets for Chinese companies, such as high-speed rail firms, and to export some of his country’s vast excess capacity in cement, steel and other metals. And by encouraging more Chinese projects around the South China Sea, the initiative could bolster China’s claims in that area.

 

Thus far, a significant amount of Belt Road investment has flowed to countries with relatively weak credit profiles. 42 out of the 68 countries identified under BRI are either rated below investment grade or not rated by Moody’s at all. At the same time, China’s armed forces are being upgraded and reoriented to protect Chinese investments and personnel abroad. According to informed estimates, China’s Navy, for instance, plans to build 400 warships and 100 submarines by 2030.

 

There is an equally important strategic imperative. If it materialises, BRI, which will girdle the globe, will extend China’s economic, diplomatic and military power well beyond its borders and across the world and place China virtually on par with the US. China’s ambition is to achieve this by 2049, the hundredth anniversary of the founding of the People’s Republic of China.

 

 

 

 

Fallouts

China will need its neighbors’ cooperation for realization of its objectives. However, its handling of regional antagonism in recent years has further exacerbated tensions in the area.

The BRI vision statement claims “Principles of Peaceful Coexistence” which include a “mutual respect for each other’s sovereignty.” Contrary to this, China has escalated sovereignty disputes by pressing territorial claims against its neighbors.

 

A vital reason for India to stay away from the Belt Road Forum on May 14-15, 2017 in Beijing was China’s utter disregard for India’s core concerns on its sovereignty and territorial integrity with respect to the $ 56 billion China-Pakistan Economic Corridor (CPEC) which has been billed as the flagship project of this initiative.

 

In the South China Sea, China has challenged Vietnamese claims by moving a state-owned oil rig into disputed waters and constructed airstrips suitable for military aircraft on disputed features in the Spratly Islands.

 

China has shown total contempt for international law by rejecting the ruling of the UN tribunal regarding its claims in the South China Sea.

 

On the Doklam Plateau in 2017, China challenged Bhutan’s sovereignty by attempting to extend a road into disputed territory leading to a military standoff with India.

These actions directly contradict the BRI vision statement and send a signal to China’s neighbors that it will aggressively use its instruments of power to assert claims over disputed territories.

 

China’s approach to CPEC, Bhutanese and South China Sea disputes increases the perception that China is unwilling to harmonize regional stability and security with its nationalist objectives.

A few recent cracks in Beijing’s plans for dominance and influence highlight the complicated road to infrastructure based leverage faced by China.

 

On November 14, 2017, according to a South China Morning Post report, the government of Nepal decided to abandon the $2.5 billion deal to build the Budhigandaki hydroelectric project dam with the Chinese state company China Gezhouba Group. The deal was scrapped because it was signed without an open tender process, which was required by law. Ironically, the agreement was originally signed a few weeks after Nepal joined the BRI.

Then, last week, Pakistan, China’s all-weather friend, also decided to pull out of the $14 billion Diamer-Bhasha dam with China because it refused to accept the strict deal conditions.

Two major projects therefore have been cancelled within a week, in both cases because the terms were considered by the recipient countries, which are closely tied to China, to be unfair and inequitable.

 

This inevitably also raises issues about the commercial viability and financial credibility of some other projects. The Belt and Road seems to be faltering in its initial, conceptual financial stage.

Another glaring example is that of Hambantota port which has become the proverbial millstone around Sri Lanka’s neck. A worrying development emerged in July, 2017 when Sri Lanka was forced to give control of the deep-water port to China for 99 years in exchange for Chinese debt settlement. Huge delays in implementation of high profile, prestigious projects in Singapore, Indonesia and several other countries have occurred due to serious local obstacles and problems.

If full transparency is ensured through competing public tenders, the adequacy, suitability and quality of the Chinese equipment being used could also soon become issues of concern.
The importation of tens of thousands of Chinese workers to install Chinese equipment displacing the employment for locals also leads to significant political fallout.

Conclusion

The above discussion points to an urgent need for China to rethink and reconfigure its financing strategy for overseas development projects.

 

When declining China’s invitation to participate in the Belt Road Forum in Beijing in May, 2017, India had stated:

We are of firm belief that connectivity initiatives must be based on universally recognized international norms, good governance, rule of law, openness, transparency and equality. Connectivity projects must be pursued in a manner that respects sovereignty and territorial integrity.

It is essential for China to go back to the drawing board, engage in serious and sincere dialogue with its neighbours and participants in BRI, ensure respect for territorial integrity and sovereignty, uphold the internationally accepted norms of transparency, good governance and observe principles of financial responsibility, skill and technology transfer etc for the Initiative to have some possibility of success


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