Event ReportsPublished on Apr 25, 2017
Economics will trump over geopolitics of OBOR: Sanjaya Baru

Economics, in the end, will trump over geopolitics of One Belt One Road (OBOR) initiative of the Chinese government, according to Dr. Sanjaya Baru, because at some point, the Central Bank of China and the Ministry of Finance in China will raise questions about the ability of the Chinese economy to sustain it.

Chairing a discussion on "Geopolitics and geo-economics of OBOR" on 3 April at Observer Research Foundation, New Delhi, Dr. Baru, Honorary Senior Fellow of Centre for Policy Research, said that in India we can afford to look at it as a purely economic initiative as we have had economic initiatives in the past. However, unlike in the past, as stated by other speakers as well, OBOR seems to be driven more by China's economic needs.

He noted that although there are certain positive aspects of the initiatives, such as creation of public goods, however, it also ends up creating dependency, both in the economic as well as strategic fields.

Dr. Baru laid stress on the geopolitics of the OBOR, also known as the BRI (Belt Road Initiative) alongside emphasising China's economic conditions. He said there was a need for China to recalibrate its investment cycle so as to sustain its economic growth. China’s domestic economy has an increasing need to diversify it investment as it is mired with problems of overcapacity and debt accumulation.

In the meeting, the topic "Geopolitics and geo-economics of OBOR" was addressed by three speakers from diverse backgrounds.

First speaker Dr. Manoj Joshi, Distinguished Fellow at ORF, emphasised the multiple goals of BRI, ranging from economic planning for sustaining growth to market development and geopolitics. A crucial aspect of BRI for China is the connectivity it seeks to develop to Western Europe which is a source of newer technology and a market for the high end/high value products the Chinese wish to export in future. Since China wants to move away from low-end manufacturing to high-end manufacturing, it intends to shift its light manufacturing units to other countries, especially in Southeast Asia. As China has abundant funds, it seeks to deploy its financial institutions to make investments in these growing economies.

An important point raised by Dr. Joshi was with regard to China's geostrategic aims. OBOR is yet to gain trust as it is essentially a Chinese national project. Countries like Russia, India and USA worry that it will erode their geopolitical standing. However, in his view it stands as an opportunity for India rather than a threat. He urged India to link its internal connectivity plans such as the Delhi-Mumbai, Delhi-Kolkata transportation corridor with the overland and maritime parts of the BRI.

Taking the discussion forward, Ritika Passi, Associate Fellow at ORF, discussed the economic motivations and objectives of the BRI. Her focus was specifically on the Silk Road Economic Belt (SREB), the overland leg of the project. She that said China was trying to fulfill a number of economic objectives, for example move away from its labour-intensive, manufacturing-led economy to one led by services, domestic consumption and technology; internationalise its currency; develop its underdeveloped provinces; and reduce dependence on US-secured maritime trade routes to ensure energy security. The two key motivations for pursuing the SREB is the model of growth China has pursued since starting reforms and the anti-globalisation sentiment that is prevalent today in the west.

Ritika concluded that the question is how to reconcile the economics with the non-economics of the project. One answer lies in the geo-economic approach. China has previously used economic instruments to derive non-economic benefit (especially against its maritime neighbours). It is possible that with a more favourable geopolitical climate, China could use the SREB for political influence and advantage. However, Ritika stressed that geo-economics is not a sufficient approach in itself to respond to the BRI. This is because geo-economics encourages zero-sum thinking on what can be argued is the only solution being forwarded today to the common problem of global trade that in particular affects developing and emerging countries.

Commander M.H. Rajesh, Senior Fellow at the United Services Institution, noted that six out of seven corridors of BRI are in the west. Having a western bias on BRI is going along the global grain of growth in the maritime arena. The bias also becomes relevant in light of China's domestic politics on land since western provinces of Xinjiang and Tibet are economically backward and politically volatile. Thus, BRI is also a continuum of the Go West Policy.

He stated that maritime centres of growth also emerging as economic centres of growth is no coincidence. As an economy overheats, adjacent areas pick up momentum and spread that growth. Connectivity played a huge part in enabling this growth. Focusing on the CPEC, he said that it has four separate sections in Pakistan — energy, infrastructure, Gwadar and industrial cooperation. We are currently witnessing the first three, with the proportion of the total Chinese investment being spread 70%, 28% and 2% respectively. Talking specifically about ports, he said the main investment is in the Gwadar port as it is a geographic spot in BRI where land and maritime networks converge.

Commander Rajesh, however, raised doubts regarding the commercial viability of Gwadar because of its distance from the circum equatorial navigation route. He also raised issues about CPEC being seen as an alternate to the Malacca Straits route. Currently there is a shortage in pipeline capacity for oil, opening scope for transporting oil via CPEC to China. In his opinion, the Karakoram Highway can best serve as a provincial trade with Xinxiang. He said CPEC is the DNA of BRI, where economic ties and the security aspects weigh over the economic arena. Thus, CPEC is more about energy and less about a corridor. China’s tactics were to handpick existing gaps to gain larger strategic foothold and alter the regional dynamics significantly.

This report was prepared by Saakshi Saxena, Digital Intern, ORF New Delhi.

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