Author : Manoj Joshi

Originally Published 2017-05-23 07:16:15 Published on May 23, 2017
Given the quantity of investments, China can’t afford to have the OBOR initiative fail. Sceptics like India can use that to persuade China to make modifications.
Can the OBOR project be made to work for countries other than China?

Around the world, and especially in India, there is a lot of disbelief and suspicion about China’s One Belt One Road (OBOR) scheme. Many of its projects have actually been around for years, but its economics are questionable, as are its aims. However, it is clearly attractive to countries looking for development. So while critiquing it is legitimate, there is also need to ask why there is no comparable vision emanating from other countries.

In a speech at the recent Belt and Road Forum in Beijing, China’s President Xi Jinping put across the initiative as one aimed at promoting global development and trade liberalisation and as a factor in boosting peace and security. He added another $124 billion to the already massive commitments to the initiatives’s schemes of connecting China to other parts of Asia, Europe and Africa.

Looking for comparisons

Countries like the US, Japan, Germany, the UK and others have provided (and continue to provide) tens of billions of dollars in development assistance and grants through national agencies or through institutions like the World Bank and the Asian Development Bank for decades. Not many people know that India has been one of the biggest recipients of US economic assistance in the period 1946-2012. And India and China have been, and continue to be, major recipients of funds from these multilateral banks. But in recent times, the US has preferred to fritter away its great economic powers in military ventures in Iraq, Afghanistan and in propping up Pakistan.

Japan remains important in the developmental narrative, with its generous Overseas Development Assistance and other schemes run by agencies like the Japan International Cooperation Agency and the Japan Bank for International Cooperation. Following OBOR, in 2015, Japan said it would provide $110 billion over five years for financing “high quality and innovative infrastructure.” Half this sum would be spent through the ADB and the other half through other Japanese official aid agencies.

But comparing them with the OBOR is difficult because the Chinese goals are more complex. They are not just development assistance or investment. The OBOR is a mix of economic planning, market development, market dominance and political assertion – geoeconomics combined with geopolitics. Its schemes are shaped by its goals and those are layered.

At one level, it is to export China’s over capacity in the infrastructure industry, at another, develop markets and routes for high-end goods that China intends to produce in the next phase of its economic growth, this means the rich European market. Several projects and naval activity in the Indian Ocean littoral suggest that one of its aims is to overcome the so-called Malacca Dilemma, or the possibility of its oil sea lanes being blocked. Then, there are schemes which work on the traditional plan of helping China access commodities from resource-rich Africa.

There is no comparable vision, because there is no other country that has the political economy of a rising China. In contrast, the US has been moving away from its past global commitments. A lot of its money has been frittered in wars.

In the past decade and a half, Japan’s focus has become more political. Japan has been active in overseas development since the 1970s. Beginning in the 1980s, Japan has played a significant role in China’s modernisation by providing the latter with $24 billion in loans and $7.7 billion in grants, mainly in the period 1980-2000.

Now, Tokyo’s focus has shifted towards South and Southeast Asia. It has been playing a major role in India’s infrastructure development in the last two decades. It has many high-profile projects to its credit, including the Delhi Metro and the Delhi-Mumbai Freight Corridor. In 2014, Japan committed $33 billion for the next five years in a range of areas like transport systems, river development, clean energy and skill development.

Japan is also now taking up the challenge of developing India’s northeast region, with $744 million road projects in Assam, Mizoram and Meghalaya. Another project focuses on the development of the Andaman and Nicobar Islands. India and Japan are also in discussions for cooperating in Chabahar and the Trincomalee port development schemes. In its own way, Japan’s assistance to the development of India’s infrastructure is no less than what is said about OBOR. Japan may have geopolitical objectives in aiding India, but its schemes, whether in India or Myanmar, Sri Lanka and Vietnam, are not seen as overwhelming in scope and size.

On the other hand, that is exactly what worries people about OBOR. The indebtedness issue has already begun to rankle in Sri Lanka and Central Asia. There has been little consultation in the various schemes China has taken up and it is difficult to get away from the impression that OBOR investments are by China and for China.

China’s investment strategies

In a bid to calm those concerns, Xi announced in his speech inaugurating the Belt and Road Forum that among the new institutions China will set up to boost the OBOR will be a Multilateral Development Financial Cooperation Centre, in cooperation with various other multilateral development banks like the World Bank and ADB, and an IMF-China Capacity Building Centre. Presumably this is with the view of promoting international best practices in the OBOR investments as well.

Despite this, concerns over the lack of commitment to social and environmental sustainability and transparency prevented the EU from endorsing a statement on trade prepared by China as part of the Belt and Road summit outcome.

There is a lot of hype with OBOR. Some of the schemes are enormous in scope, but they will only prove their value in decades, not years. This is especially true of the centrepiece of the project – closer economic integration with the European economy. Investments being made in rail connectivity to Europe seem to defy the fact that marine transport is by far the cheapest way of shipping goods. It is true that some trains have been successful because of the respective businesses they service, but a lot of them are not economical as yet and may never be. Countries in Central Asia worry that they will merely be way stations on the Chinese route to Europe and not receive much investment. The Belt and Road Initiative bandwagon has also led to a number of unviable projects being funded that will in time be abandoned.

Yet Chinese investments offer a powerful allure and have already-visible geopolitical consequences. For example, the Chinese aid and investment programmes have more or less sundered ASEAN unity. Likewise, the Chinese have succeeded in luring Eastern and Central Europe with investments sufficient to get them to water down the EU statement on the South China Sea arbitration. In the end, the EU merely acknowledged the decision, rather than supported it. More recently, Australia refused to go along with the EU in rejecting the trade statement after the Belt and Road Forum in Beijing.

Among the more interesting aspects of OBOR are Chinese activities in the relatively poorer Eastern and Central Europe. They have created an entity called the 16+1 grouping or the China-Central and East Europe cooperation arrangement which have held five summits so far, the last in Suzhou attended by Chinese premier Li Keqiang.

Besides a China-CEE think tank in Hungary, there is a China-CEE Investment Cooperation Fund funded at $435 million for investing in CEE countries. In 2016, a $11 billion Sino-CEE Fund was created by the Industrial and Commercial Bank of China which aimed at raising 50 billion euro to finance projects in infrastructure, high-tech manufacturing and consumer goods.

The Asian Infrastructure Investment Bank’s (AIIB’s) total lending is now around $2 billion. Recent loans included $125 million for dam improvements in Indonesia co-financed by the World Bank. Another $100 million, again, along with the World Bank was approved for developing regional infrastructure. A $60-million loan was given to Bangladesh for developing natural gas infrastructure. Earlier this month, the AIIB approved the first loan of $160 million to support the Andhra Pradesh 24×7 Power for All scheme. Andhra Pradesh is also seeking money for developing its new capital city of Amaravati. There are several other projects from India on the AIIB table.

It is difficult to argue that all of them are there to serve Chinese interests. Indeed, when it comes to financing projects which have a strategic content, China uses the option of its official policy banks such as the China Development Bank or the Export Import Bank of China which, in turn, fund the big Chinese state-owned enterprises involved in projects such as the China-Pakistan Economic Corridor or the Jakarta-Bandung and Kunming-Vientiane railway projects. These banks have already put up $200 billion worth of loans in Asia, Middle East and Africa.

In addition, there are commercial banks such as the Bank of China, Agricultural Bank of China, China Construction Bank and the Industrial and Commercial Bank of China which offer money at commercial rates.

There is also the $40-billion Silk Road Fund controlled by the Chinese government, which has funded part of the Nairobi-Mombasa railway, the Karot hydropower project in Pakistan and the acquisition of an LNG project in Siberia. It has committed some $4 billion.

There is also an interesting financing mechanism for Beijing’s European ventures. Of the additional $124 billion announced by Xi in Beijing at the forum, $14.50 billion will go the the Silk Road Fund, also the CDB and ExIm bank have been authorised to set up special loans of $36 billion and $18 billion respectively for infrastructure, industrial capacity and financing. Another $40-50 billion will be spent by the commercial banks.

With investments of this scale, clearly China cannot afford to fail. And this is the point of entry for the sceptics like India. The need to succeed can persuade China to modify the OBOR in a way that limits its single-minded commitment to Chinese goals. In other words, projects can be shaped and modified in such a way that they serve a wider purpose than to merely meet some perceived need by Beijing. This can set the stage for a more equitable framework of globalisation. China may still be a big, if not the biggest, winner, but others too will gain.

This commentary originally appeared in The Wire.

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Manoj Joshi

Manoj Joshi

Manoj Joshi is a Distinguished Fellow at the ORF. He has been a journalist specialising on national and international politics and is a commentator and ...

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