China’s BRI runs into a wall

Published: November 28, 2017 - 18:31

Smaller nations like Nepal and Sri Lanka are increasingly subjecting the Chinese investment model to greater scrutiny as they realise that it takes away more from them than it offers

There is a long, eight-page hagiographical analysis by Chinese official news agency Xinhua of Chinese President Xi Jinping’s speech at the 19th Party Congress in Beijing held on October 18. The news agency claims it was loved by all those who read the speech in which Xi unveiled his vision of China and the world. The report also tells how different countries extended special treatment to President Xi during the 57 foreign visits he has made during his first five-year term. Russian President Vladimir Putin’s warm relationship with President Xi occupies much space and so does ties with US President Donald Trump. The only honourable exception is India and Prime Minister Narendra Modi, who had serenaded him on a swing in Ahmedabad when President Xi visited India immediately after the change in government in 2014. India and Modi just do not figure in the detailed commentary and there are many reasons. 

In the last three years that Modi has been in power in Delhi, frostiness has replaced the warmth that President Xi and China displayed when the former came to power. So much so that now Modi is seen as the only leader in Asia who has taken on the Chinese.

In 2014, China saw an opportunity to rebuild ties with India with Modi in power—as he had visited the Middle Kingdom twice and had displayed great admiration for the way the Chinese went about building their economy and nation. The fact that the view of the world from Gujarat is quite different from that of Delhi cannot be more appropriate for anyone other than Narendra Modi. As soon as he came to power, there was a large intrusion by Chinese armymen that brought to the fore the traditional unsettled dispute between the two countries and how seemingly normal trade ties could blow up into nothing if differences between the two Asian giants are not resolved soonest. Modi, on a steep learning curve on China, also realised that the northern neighbor by its phenomenal rise was also challenging India in its traditional neighbourhood. Nepal, Sri Lanka, Bangladesh and the Maldives—India’s friendly neighbours—were all getting seduced by a prosperous and ready-to-invest-in-any-project China. This was worrying for Modi from the standpoint of foreign policy, as well as from the Sangh Parivar’s vision to recreate Akhand Bharat or Greater India. 

Post the global meltdown the world needs lots of funds for development, but it also needs jobs. The Chinese model factors in jobs for the Chinese and less for local people. This is a story that is being told from different countries, but with a common theme of how the Chinese bring in their own people and do not create local jobs.

The contestation between the two powers first showed up in Sri Lanka, where a Chinese submarine was seen at Colombo port. This was in some ways the last straw on the camel’s back for India after the manner in which the government of Mahinda Rajapaksa had been taking the island nation closer to the Chinese after other countries refused to touch him in the aftermath of the Tamil genocide in Jaffna. Chinese invested $8 billion in building Sri Lanka’s infrastructure that included the Colombo and Hambantota ports plus the highway that connects the two cities. These projects neither saved Rajapaksa from an electoral disaster, which he blamed on India, nor his own country, Sri Lanka, from walking into a debt trap. 

The new government in Colombo put both the Colombo and Hambantota projects on hold—dealing a major setback to China and its plans to build an inter-country One Belt One Road (OBOR) project. Quickly, they revived a project that was put in deep freeze—the China-Pakistan Economic Corridor (CPEC) —to connect Gwadar port of Baluchistan province of Pakistan with Kashghar in Xinxiang, China. This was a gamechanger for cash-strapped Pakistan as it provided an opportunity to revive its economic fortunes that had been savaged by years of domestic terrorism. For India, the CPEC, which meandered through the disputed part of Kashmir, made it amply clear that China will deepen its ties with Pakistan—at its expense. Though trade with China has galloped since the two countries rebuilt their ties, it is amply acknowledged that it is no guarantor against conflict on the border as earlier believed. 

In the early ’90s, India was encouraged by the US to increase its trade and other ties to manage the rise of China. The belief then was that as countries traded more, it would ensure that neighbours did not fight. It’s a pious thought that has been challenged by subsequent events as trade and business only create a chimera of normalization of ties, allowing the bigger power to enlarge influence on smaller or weaker nations. Sri Lanka and Pakistan are examples where a bigger power has pretty much managed to strike deals that endanger their sovereignty. 

Armed with this understanding, India, pretty early in the life cycle of OBOR or the Belt and Road Initiative (BRI), had questioned the Chinese model that involved large investments for infrastructure projects in countries that did not have the absorption capacity like Sri Lanka and Nepal. Misgivings were expressed by commentators in Dhaka about the capacity of their economy to use large loans from China. They were quick to wonder why Beijing was forthcoming in giving a big loan when they could do with less than half the amount. The Indian government, while refusing the invitation to join the BRI conference in May this year, brought to the fore how sovereignty gets compromised as it did in Sri Lanka when it was compelled to give the strategically important Hambantota port on a 99-year lease. This issue has destabilised the government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe and has become the reason for the Opposition to craft a new nationalist platform. Though the government seems safe for now, in a small country, big countries can create big messes. 

Similar instability is visible in Nepal, where the existing coalition led by Sher Bahadur Deuba has been rocked by the coming together of the left parties. The grapevine has it that a Chinese company, Gezouba Water and Power Group, which was awarded the 1,200 MW Budhi Gandaki project by the government of Pushpa Kumar Dahal or Prachanda, had worked towards the alliance of three left parties. Deputy PM Kamal Thapa cancelled the project, claiming that a parliamentary committee had recommended the scrapping of the project due to irregularities and lack of transparency. Reports suggest that the left parties have promised to restore the project when they get elected to power—hopefully next year. 

Nepal is not the only country that cancelled a dam project. Even Pakistan decided to pull the plug on the $14-billion Diamar-Bhasha project, which is an important component of CPEC due to its strict conditionalities that included funding arrangements that Islamabad found not “doable” and takeover and construction of another dam. The South China Morning Post (SCMP) quoted an expert, Sun Shihai, who said that Pakistan had to cancel the project as it could not raise funds because of the route that the corridor had taken and where the project was located. “India has strongly opposed the CPEC because it includes projects in the disputed region. So there are many more factors China should take into consideration,” said Sun.

All these conditions and more were found troubling by Pakistan from the point of sovereignty as it was constantly reminded by its media of what Colombo was going through. Pakistan has also been told about the phenomenal amount that they would have to give by way of debt servicing. Though Pakistani elite is using bluster instead of logic by claiming everything will be fine, there is little clarity about how much revenue will rise due to revival of power-starved industry. 

The cancellation of these two projects is considered to be a major setback for China’s BRI. Observers claim that, more than the location of these projects, it is the design of the Chinese investment model that has created problems—lack of transparency that involves open bidding and insistence of Chinese companies to use their own labour. All these reasons cause disquiet in the countries where the Chinese propose to invest as it diminishes democratically elected governments when they seem to fail in living up to their electoral promises. 

Post the global meltdown the world needs lots of funds for development, but it also needs jobs. The Chinese model factors in jobs for the Chinese and less for local people. This is a story that is being told from different countries, but with a common theme of how the Chinese bring in their own people and do not create local jobs. In Hambantota, the local people fear that they will not just lose their ancestral homes and their livelihoods—most are farmers or fishermen—they will also not get jobs in the giant projects that China is constructing on their land. In Africa, where the Chinese are heavily invested, media reports claim that even petty businesses like juice selling are now owned by them. Some economists have estimated that for every billion-dollar investment the Chinese bring in anywhere from 10-20,000 workers. In Pakistan, for such a bulky investment almost a million Chinese will relocate there. Media reports suggest that China is now an integral part of Pakistan’s cityscape. 

All these developments are lending credibility to the manner in which it invests in other South Asian countries. Most of the projects funded by India allow freedom to the recipient countries in how they want them executed. Also, they create jobs for the local people. A major problem for Indian investments in infrastructure projects are cost and time overruns, but that has also to do with local factors. Countries like Sri Lanka have begun to see wisdom in balancing the Chinese investments with those from India as well as from the West, though tedious does not behave like the East India Company. 

Interestingly, the ASEAN summit that took place immediately after the Chinese Party Congress saw the revival of the Quad comprising the US, Australia, Japan and India after 2007. Political observers rightly see it as a counterpoint to China’s growing military power that is enlarging as BRI finds its feet in different geographies. India has been ambivalent about being part of such a compact that has manifest military intent, but realises that membership in a First World grouping gives it a heft that China can hate to ignore after the Doklam standoff a few months ago on Bhutanese soil. India stood its ground and forced China to see reason and abandon its seemingly innocuous road-building projects. These provocations will increase as China tests its influence and military power.

Editor of Delhi's Hardnews magazine and author of Bad Money Bad Politics- the untold story of Hawala scandal.

Read more stories by Sanjay Kapoor

This story is from print issue of HardNews