The Belt and Road Initiative (BRI), dubbed the “Project of the Century”, evokes sharp reactions, divided opinions and polarised views. The divide is clear—for or against. The views expressed here are those I consider best in India’s national interests. The second Belt and Road Forum is to be held in Beijing from 25-27 April 2019, with 37 heads of state expected to attend. During the first forum held in May 2017, the Chinese sun was fully shining. Two years down the line the Belt is a bit loose and the road is bumpy. The BRI infrastructure development and construction projects—railways, highways, ports, energy projects and industrial estate development which started off in a frenzy are facing headwinds. Irrespective of whether the slowdown is lull before the storm or not, it will affect all of us. It will need constant watch and analysis. The project covers 70-odd countries spanning all continents, the jewel in the crown being the China-Pakistan Economic Corridor (CPEC) in Pakistan.
Chinese Ambitions
Despite repeated denials, the Chinese ambitions are clear. First, BRI is the chosen vehicle to displace the United States and propel China to numero-uno status. Second, engage maximum countries in bilateral economic partnerships. Draw them into a geopolitical world centered on China—The Middle Kingdom. Third, deploy excess Chinese capital and capacity in industry and manufacturing in overseas projects to boost its economy. The Belts and Roads from China will carry Chinese merchandise in a one-way outbound stream while inbound traffic is all about ensuring energy and resource security for China. Fourth, political consolidation within China is largely to ensure Xi Jinping’s rule in perpetuity.
Characteristics
The BRI is a trillion-dollar initiative with the current outlay of about $200 billion. $62 billion is to be invested in the showpiece CPEC in Pakistan. When details are delved into there is a lot of fog about projects; however, certain characteristics stand out. The bilateral deals are closely guarded. Rarely are the projects multilateral. The partnerships are between China and economically weak, politically fragile nations or China and autocratic nations like the Gulf countries. In most cases the financing is based on Chinese loans positioned enticingly but most likely to lead to a debt trap. There is no element of grant or aid in the programmes. There are no free lunches. In almost all cases, the execution is by Chinese contractors to the exclusion of local participation, depriving low-income host countries of even trickle-down employment. All BRI projects are opaque, overpriced and tainted with corruption. In this context, the BRI which started off well is clearly slowing down. This pushback must be examined in two parts—Rest of BRI and CPEC.
Rest of BRI
China is aggressively wooing and investing in countries where it seeks (a) energy and other resources, (b) developed markets for its Made in China 2025 plan or (c) geopolitical advantage. To that extent, it has established itself well in the Gulf countries where it has entered into energy and infrastructure deals. Getting Italy (the only G7 country) into BRI has been a major landmark. Developed and stable economies have largely steered clear of BRI. In fact, they oppose it. It is now clear that impoverished but resource-rich countries or geo-strategically important countries with skewed political establishments have bitten the BRI poison apple. The reality surfaced in Sri Lanka which had to give away Hambantota on a 99-year lease. Chinese loans for the first phase of a 165-km highway, christened “Road to Nowhere”, have sent Montenegro’s debt soaring to an unaffordable 80 per cent of its GDP. The new government in Maldives is exploring ways to terminate BRI projects since they are unaffordable. Malaysia has scrapped $22 billion worth of BRI projects since the terms were “inimical” to its economy. The Mahathir Mohamad government said, “we can’t afford, we can’t repay, they aren’t needed”. In 2011, Myanmar suspended the $3.6 billion Myitsone dam project on the Irrawaddy. Currently, the $9 billion Kyaukpyu port project is under review. It could go under Chinese control like Hambantota if Myanmar cannot service its debts. Thailand has initiated talks with Cambodia, Laos, Myanmar and Vietnam to set up a regional infrastructure fund for the Mekong region to cut dependence on Chinese financing. All these cases are forcing other host countries including Nepal, Tajikistan and Bangladesh to relook and renegotiate. The going is getting uphill for China.
CPEC
The CPEC which started as a $62 billion project to ‘Change the Fortunes of Iron Brother Pakistan’ has been scaled down to $45-50 billion. While the first phase has been completed (about $13-15 billion) the second phase is delayed due to renegotiation. The restart seems a bit distant since Pakistan has started having self-doubts about CPEC! In fact, FDI into Pakistan has gone down in 2018-2019 due to this. With the Pakistani economy in tatters, lack of visibility on return of income or debt repayment and opacity in projects, the CPEC, in my opinion is facing failure. The fundamental planning is poor. The Chinese short cut to the warm oil of the Gulf, bypassing the Malacca Straits, goes through a geographically earthquake prone unstable area (Karakoram), disputed territory (PoK) and restive areas/terrorist havens (Gilgit and Baltistan, Khyber Pakhtunkhwa and Baluchistan). India has objections to CPEC. Rest of Pakistan has objections to Punjab (which has got a lion’s share of projects). Gwadar, the flag ship of CPEC, is facing major issues. Violence against Chinese is increasing. The cup is full. Much of what happens to BRI will depend on outcomes in CPEC. The coffee does not smell well.
Internal Issues
The outcomes of BRI will largely depend on how China resolves its internal issues. The economic slowdown signified by uncompetitive manufacturing, expanding debt bubble and lack of domestic consumption will shrink the Chinese treasure chest. Also, China has entered the Middle-Income Trap. Efforts to get out of it through the Made in China 2025 plan hinges on technological advances and exports which are iffy at present. All this is under worldwide threat by the emergence of disruptive technologies (like 3D printing) which are going to turn established systems on their head anyway. Besides, there are signs of internal political disaffection, religious revival and growing unrest in its outlying areas (Xinjiang and Tibet). These will suck up resources. The military is reorganising to be an outbound force but is inexperienced as per old PLA stalwarts. All these will impact the progress of BRI depending on how they are resolved. Indications are clear that it will be a bumpy road.
External Issues
Trump’s trade war is not going China’s way. The United States is a far more experienced hegemon and is not going to keel over. In fact, it can and will hurt China. Doklam showed the limits of Chinese military capability. India’s rejection of BRI on sovereignty issues means that CPEC cannot succeed. No Indian Government can join BRI unless it gives up on J&K! External alliances like the Quad are forming up. India and Japan are offering better project terms in some cases. The competition is scaling up. The point to be noted is that there is no need to outdo China. All one must do is provide cheaper and better alternatives. Then Chinese investments become unremunerative over the long run. Lastly as BRI expands, Chinese overseas assets will rise, become vulnerable and demand protection. It means that China will be stretched.
The Indian Perspective
CPEC, the showpiece of BRI, violates Indian sovereignty without a care about our sensitivity. Also, China has constantly used Pakistan as its catspaw to deal with India. Its veto has ensured that terrorists like Masood Azhar are not declared so by the United Nations. In such conditions, it would be unthinkable to align with China on the BRI. In fact, in my opinion, the CPEC is the third internal front and weakness of Pakistan, to be targeted to keep it in check. Also, India should form alignments with other like-minded nations to provide viable alternates to BRI.
Sociological Issues
The BRI is also caught up in a lot of sociological issues. Communism is widely distrusted in many societies. The Chinese business model is identified with corruption and weak governments. Mega projects are being taken up in haste, which the people do not need, by selling dreams. Hence, they either become unviable or unrelated to social needs. It leads to alienation of the projects from the people. Further, in democracies it has led to change of governments and pushbacks apart from societal disconnect. China must learn. Otherwise, far from entering stable democracies, BRI will keep floundering at the gates of weak democracies. Overall inability to meld with the local landscape will inhibit BRI significantly. BRI seems to be flourishing in weak or autocratic societies only.
Future Prospects
What are the prospects for the BRI in the future? In a nutshell, they appear to be tough. A cooling Chinese economy, a potentially overstretched and inexperienced military, weak partners and general distrust do not portend well for the CPEC. The winds of isolationism are at odds with the globalisation drive of BRI. Historically, the great corridors envisioned in the past, like the Berlin-Baghdad Railway, have collapsed due to their sheer weight. Can BRI buck the trend? The main factors which might help in bucking this trend are the drive of Chinese ambitions and the need/greed of nations partnering China in this “Project of the Century”. That is to be seen. However, till then it is safe to presume that it will be a Bumpy Road Initiative.
(The author has served four decades in the Indian Army in multiple operational areas and is currently a professor at the Aerospace Department of IIT Madras. Views are personal)
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