One Belt One Road: Prospects & Challenges

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China’s launching of “One Belt, One Road” initiative to build connectivity between Asia, Africa, and Europe is a novel, ambitious and grand project. It has an ideal dimension that no one can find fault with. Construction of a host of ports, highways, roads and possibly airports to facilitate trade, investment and several other economic activities can bring development, prosperity and peace in a region where almost sixty percent of the global population lives and one-third of global GDP is already generated. If it succeeds, large-scale employment generation is possible, poverty alleviation can be affected, regional cooperation can deepen, and peace and prosperity can be assured.

However, ideal is never real. It is the goal and not the journey. And thus relevant questions need to be asked to understand various dimensions of this initiative. Difficulties along the journey need to be assessed to minimize adverse affects of OBOR initiative. The questions are: Who is going to finance this project—one country, a group of countries or all the stakeholders? Who will provide the technicians, engineers and laborers? Will the investors do so free of cost or would provide loans to local governments? What will be the rate of interest? What will be the duration of the loan repayments?  In any case, will terms and conditions of construction activities be a series of bilateral agreements or multilaterally arrived at? Will the project be financed by international funding agencies fully or partially, or only a national government or companies of a particular country be involved in this?

When China organized a big event to inaugurate this initiative in Beijing, representatives from about 100 countries attended it. But only 28 of them were represented by the heads of states; and only about 60 countries will be part of the OBOR project. India was conspicuous by its absence. It shows reactions of various countries to China’s OBOR initiative are truly diverse.

In the backdrop of all these, it is important to analyze why China is pushing this project and why all the potential stakeholders are not on the same page.

First of all, China’s interest in the OBOR project can be explained by its economic rationale. The Chinese economic growth rate has slowed down and the double-digit growth rate of the Chinese economy is now a thing of the past. In the meantime, China's infrastructure abilities are overcapacitated and the domestic market seems to have become saturated. China, moreover, has huge savings, including the low-interest driven American treasury bonds that need to be invested in more fruitful areas at the time of economic slowdown. A large number of Chinese companies too are looking for areas to move in, so that their laborers are not laid off.

It makes perfect sense for Chinese President Xi Jinping to deploy the country’s economic wherewithal elsewhere. The relative weakening of the international trade scenario, the persistent economic troubles in the European Union, slow recovery of the global recession and the Trump Administration’s penchant for “America First” economic policy provide a perfectly fertile ground for China to emphasize the importance of free trade and benefits of globalization. It is ironic that American President Donald Trump, quite contrary to the US tradition of support for free and open trade, is advocating protectionist economic policy and communist leader Xi Jinping has emerged as a new champion of free trade and open markets.

Herein lies the significance of underlining the reasons when, why and how a country promotes the ideas of free trade and open market. Communist China benefited a great deal from the liberal economic order, established and sustained by the US since the end of the Second World War, since its decision to selectively open its market in the late 1970s and adoption of a strategy of “export-oriented” industrial expansion. Now it seeks to sustain it in the face of US hesitation, since the alternative would be worse for its economy.

The question is whether China would behave like an imperial power, if it invests in huge infrastructure projects in other countries. One thing is clear though. China will not behave like a Santa Claus. Thus what would be the cost of welcoming huge economic projects of China needs to be examined and analyzed by the leadership in countries that would participate in the OBOR project. In fact, some of them are already doing this exercise and various critical questions have been raised in various countries. Building infrastructure is relatively easy, but what about sustaining it?

Sri Lanka’s experience in this provides an example. The port in Humbantota--built with Chinese capital, technical and other assistance--has caused concerns in certain quarters of the country. After about seven years of its construction, other connectivity projects are yet to be in place, and use of this port is yet to be optimized. But Sri Lanka government has been overburdened with debt repayment, including interest rates. Same is the situation in the case of Maldives, where the little island nation has become dependent on China, and is spending a huge amount of money in loan servicing. Similar examples can be found in Africa and Latin America as well. Billions of dollars of Chinese investments and bilateral loans there do not have the story of win-win arguments often made by scholars and some officials.

Big countries and medium powers actually have less to worry, compared to small nation states. Yet one finds Australia is not completely on board with the OBOR project of China. The European countries have expressed concerns over the possibility of Chinese geopolitical influence spreading to poorer regions of the European Union. Saudi Arabia and several other countries view this project as a big bonanza for Iran—their geopolitical rival, and hence are wary of the political outcome of the Chinese dream. Even African analysts have expressed concerns over the geopolitical consequences of a project that is not purely an economic project with altruistic goals.

One of the key countries in the OBOR project is Pakistan. China and Pakistan have planned for an Economic Corridor linking the two countries. On the surface, it is a grand project that can bring enormous amount of energy and developmental benefits to Pakistan, and enable China to protect the route of its energy imports from the Persian Gulf and natural resources imports from Africa. China will also have a very strong naval presence in a strategically located port in Gwadar, along the Indian Ocean rim.

The Pakistani government has completely accepted the Chinese offer of close to 50 billion dollars to complete the China-Pakistan Economic Corridor. While the mutual trust between the Pakistani government and the Chinese government is beyond question, the Pakistani civil society does not appear to be fully behind the CPEC. First of all, there is a federal problem where various states will be left out of the CPEC, and people in these states are questioning the benefit of CPEC to them. Secondly, economists have raised questions about the nature, terms and conditions of the Chinese soft loan and its impact. Economists are also concerned over large number of Chinese technicians and laborers coming to Pakistan to do the constructions. How do the local people benefit then? Third problem is fear of pollution. Common people in Gilgit-Baltistan have pointed out how highways and big trucks plying in the region can destroy the environment, and local people are gaining nothing out of it.

Both the Chinese government and the Pakistani government, however, appear perturbed over the security situation. To protect about 10, 000 Chinese workers and technicians, the Pakistan government has raised a security force of 12, 000! If it is a win-win project, why has this security question arisen? Why are the Chinese targeted in Pakistan? After all, they are there to build up infrastructure that can facilitate development in the country. This aspect needs more careful examination and analysis.

Concluding Observations:

India has been singled out by some analysts as the lone opponent of the Chinese OBOR project. The above observations make it clear that India is not alone in demonstrating certain skepticism on the OBOR idea. India’s main objection is over the issue of sovereignty of an area that is disputed between India and Pakistan. No one should have any objection to this principled stand, since sovereignty issues are contested in all parts of the globe.

India, otherwise, is not against cooperating with China on economic and developmental issues. India, after all, conducts more trade with China than Pakistan does. India and China are also part of many regional cooperative mechanisms, including BIMSTEC, BCIM, BRICS and more recently SCO. India is not going to suffer, if Pakistani economy grows and Pakistan becomes more peaceful and stable. A developed and stable Pakistan will be able to cooperate more with India in trade, investment and other areas. Thus India is not opposed to the CPEC. It simply cannot compromise on the issue of sovereignty.

Other countries should also be aware of how China treats the sovereignty issues in South China Sea and other areas. This would help in understanding India’s objection to OBOR.

There is no such thing as a free lunch in international political economy. Secondly, the global order always has a built-in inequality. There are large, medium and small countries in the international system. The real big challenge is always for the smaller nations, and their economic and political security. Small countries survive and prosper on the basis of their diplomatic skills and the ability to negotiate deftly with major powers, so that their political sovereignty remains intact and they do not become plaything of external powers.

Nepal thus has to debate, discuss, analyze and then conclude the cost and benefits of the OBOR for its populace. The benefits of OBOR for Nepali economy are easy to understand, but the short, medium and long-term consequences are not simple, and thus require careful examination.                          

Finally, one has to realize that the OBOR project is not without challenges. Unless these challenges are dealt with, the project cannot be optimally put in place. China’s wealth, its economic requirements in the neighborhood and the demand for better infrastructure and regional connectivity make the prospects of OBOR bright, but the challenges need to be met.

(Mahapatra is Rector, Professor at JNU. This is an edited version of the speech he delivered in an event “Dialogues for Sustainable Alternatives’ organized by the South Asian Dialogues on Ecological Democracy at Hotel Woodland, Durbar Marg, Kathmandu on the 9th of June, 2017)