INTRODUCTION
OBOR was
presented to the world by China in March 2015, as a comprehensive infrastructure
& economic development program.[i]
Its land component, the new Silk Road, echoes ESCAP's Asian highway, Asian
Railway and Asian Economic Corridor Plans from the 1980s and 1990s.[ii]
But more importantly it fills in what may be considered missing links,
connecting China to the rest of Asia and into Europe.[iii]
The naval parts echo what was termed the "String of Pearls" in the
Indian Ocean, but extends these Westwards to Europe through the Red Sea and Eastwards
to the South China Sea.[iv]
Questions and concerns have however been raised about its less defined
Strategic aspects, just as they were raised about the "String of Pearls,"
which was also presented as an economic infrastructure project for development
of ports.
ECONOMIC Aspects
The economic development part
is driven and supported by massive overcapacity in China's manufacturing and
construction industries and zero or negative returns to domestic investment (on
the margin). Thus the opportunity cost of funds is low enough to allow low
profit, high economic risk, investment in
foreign infrastructure that could support its quest for future raw materials
supplies and open its markets to sale of manufactured goods; a modern version of the Prebisch-Singer
hypothesis of trade between the colonial "Center" and the
colonized "Periphery".
As current account surpluses are a basic feature of the existing "party
capitalism" model of development, a moderate reduction of foreign exchange
reserves through capital outflows, still leaves substantial net foreign
exchange assets to finance the foreign exchange costs of these
investments. As much of the foreign investment in OBOR will be done by
Chinese companies, Chinese labor and Chinese materials, the foreign exchange
component is a small fraction of the total cost of these projects. The primary
purpose of AIIB is therefore not to supply foreign exchange funds to OBOR
projects, but to herald the arrival of China on the global financial stage and
to act as the foundation for its global financial diplomacy.
The
land based infrastructure (road, rail, pipelines, digital backbone) aims to
connect China to all parts of the Eurasian continent and to the Seas & Oceans surrounding Asia. The countries that such
infrastructure passes through (rail, road, pipeline, fiber optic cables) or is
located in (port, airport, industrial estate) have to provide the land on which
it is built. They may also have to take on debt to pay for part of the
real/full cost of this infrastructure. It is uncertain whether the economic
benefits they will receive will exceed the costs they incur in terms of land,
debts to China etc. I know an economic expert who has been hired by a Central
Asian country to evaluate the benefits of a China proposed rail line that will
cross its territory, and he was hard put to think of the benefits to this
country which may become feasible (e.g. new exports). OBOR countries have to be
extremely careful in evaluating the benefits and costs to them of any
infrastructure built by China. The cost of permanently transferring land to
Chinese Companies and/or taking on debt on behalf of projects, could prove very
onerous to host countries in the medium-long term.
If the infrastructure is
genuinely economic & not strategic, every country in the World should be
able to use it once built, as this improves its economic viability, given sunk
cost. So third countries, including India, have nothing additional to gain from
"joining" the OBOR which will be built by Chinese Construction/
infrastructure companies. All Commercial companies, including Indian
ones, have the option of using the infrastructure (roads, railway, ports,
airports, industrial estates) if it reduces costs and improves profitability.
The AIIB is unlikely to be the primary source
of funding for the OBOR, which from available numbers, requires funds of an
order way beyond the capacity of the AIIB. As the bulk of financing will be
domestic currency financing needed by Chinese construction companies, all that
the AIIB can do is to provide the fraction of funds needed in the form of
foreign exchange. More importantly, the AIIB is(in my view), needed to provide
an international stamp of respectability to OBOR projects. This is suggested
among other things, by the timing of the announcement of AIIB so soon after the
formation of the New Development Bank (NDB) also referred to as the BRICS bank.
The agreement to form the NDB was signed in Brazil in July 2014, after years of
discussion.[v]
China signed an MOU with 24 countries in October 2014 for the formation of the
AIIB, five months after the unveiling of the new silk road and three months
after the agreement to form the NDB.[vi]
A
Chinese scholar was recently asked about his estimate of the economic risks and
returns to China of OBOR projects. His answer as reported without attribution,
was that he didn't expect repayment of 80% of loans to CPEC projects, while
repayment on other OBOR project loans would be between 30% and 50%. This implies, (a) That the rate of return on 80% of CPE projects and 60 to 70% is negative. It is not too far-fetched to assume that the rest of the
benefits to China would be non-economic, i.e. Diplomatic and Strategic. Even in the projects with a positive rate of return, the economic and social return to the host country, accounting for the contribution of land, oil/mineral resources and natural resources like harbours & dam sites, is likely to be negative.
DIPLOMATIC Aspects
The OBOR is however, much more than
a connectivity cum economic program, it
is also a comprehensive diplomatic initiative of a rising China. It is a an instrument of China's diplomatic
objective of ensuring that Asia and the World recognize China as a Great Power.
According to the Virmani(2004) Index of
Power Potential (VIPP), China became a "potential great power"
about seven years ago, with its economic
power exceeding 25% of that of the USA.[vii] Its relative economic power has grown rapidly
since then to reach 42% in 2015, as per this index VIPP. The OROP is viewed by the party leadership as
an umbrella program for interaction with every country in Asia and the
surrounding Seas.
The
diplomatic initiative can be seen at three levels: Intellectual, Political and
Financial:
(1) Intellectual: OBOR provides a framework for interaction with
Academics, Think Tanks and Media, interested in economic development,
infrastructure investment and trade & economic relations. This can facilitate
movement in both directions; Chinese financed visits of foreign interlocutors
to Chinese institutions and invitations for Chinese academics to these
countries.
(2) Political: OBOR provides a framework for interaction with the political
establishment, including government ministers, of each country. As in the case
with intellectuals and academics, the Chinese can facilitate the visits of
foreign politicians to China for the purpose of discussing OBOR. It provides a
very useful cover for Chinese experts to explain their national position on
every issue, including the South China Sea, Japan and USA.
(3) Financial: Every government minister is looking for funds to
relieve budget constraints and finance pet projects. OBOR provides a framework
for Chinese officials (Party, Govt) concerned with Chinese economy to interact
with their counterparts in potential host countries, on their projects, programs and economic development objectives. At
some stage it also involves the highest political authorities such as the
Finance Minister and the Prime Minister/President of the country, allowing
China's views on any subject of their choosing to be heard respectfully.
Announcements of
large financial projects and Programs attract widespread attention of all
segments of society, even without any hard economic & financial analysis to
determine viability. The personal contacts built during discussions can also be
used to finance individual pro-China leaders, politicians & others, as
allegedly happened in some S E Asian countries.
STRATEGIC Aspects
The general strategic
objective of OBOR is to increase China's
influence in the countries covered, to reduce US influence in these countries,
and to pre-empt any potential increase in influence of US or its allies (existing or future).
More concretely, the goal is to establish a strategic presence in these
countries, including through sale of military equipment. The strategic dimension of OBOR has two clear
components. The continental and the maritime:
(1) Continental: This takes the name of the old silk road's disparate tracks
across Central Asia, and applies the name to a "Hub and Spoke" system of highways and railways radiating
from China at its Center or Hub. Given
that oil pipelines and fiber optic info-ways did not exist at the time of the silk road, this is obviously a modern
and valid add-on to traditional highways. Given China's dependence on imported energy,
the oil and gas pipelines are particularly important for diversifying both
sources and supply routes for energy. The immediate strategic objectives are,
(a) To secure Central Asian and other
neighboring Islamic States (Pakistan, Afghanistan, Iran) from becoming a base for Xinjiang Liberation
Movements, and (b) A revival of the old "Great Game", to develop land
routes from continental Asia (China) to the Indian Ocean (through the Bay of
Bengal, Arabian Sea and Gulf of Iran).
(2) Maritime: As "silk" is associated with China and the
"Silk road" with connectivity, the Maritime dimension has
disingenuously been called "Maritime Silk Road".[viii] The "maritime
silk road", clearly represents an evolution of what many called the
"String of Pearls strategy". All analysts writing on the "String of
Pearls" agreed, that what had been done and planned so far was primarily
economic. However, those who were most
suspicious about the "String of Pearls" warned that it was not merely
possible but likely that these Pearls would be transformed into strategic bases,
once the economic part was developed. The "Maritime Silk road"
concept and the new security strategy[ix]
has brought this potential development right into the present. The strategic maritime dimension of OBOR is
to develop a string of logistics basis in the Indian Ocean region, with likely conversion
in future, of a few of them into naval bases. From China's perspective, the
most desirable geographical locations for naval bases are those at the
intersection of the "Maritime silk road" and the "New silk
road" i.e. those Ports that can be connected
by overland route to China.[x]
CONCLUSION
The post
World War II, Marshall Plan was explicitly designed to help the revival of devastated
European allies and to complement the makeover of Germany in its own image. This
paid good social, economic and diplomatic dividends to the USA. However it was
complemented by creation of NATO & other military blocks explicitly
designed for Strategic purpose. Eventually each complemented the other, even
though they may not initially have been part of an integrated economic,
diplomatic and national security strategy.[xi]
OBOR is
presented to the world by China, as an infrastructure & economic development
program. It is in reality an umbrella for a comprehensive but evolving,
Economic, Diplomatic & Security strategy.[xii]
It is part of a "Middle Kingdom Doctrine"
(authors characterization) that seeks to make China the Central power in Asia:
A (soon to become) Super Power that dominates Asia and its surrounding Seas and
Oceans & exercises varying degrees of "suzerainty" over
peripheral areas (including less well off parts of East Europe).[xiii] One
strategic implication of this doctrine is to reduce and eventually eliminate US
strategic power and influence in Asia and the surrounding seas.
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A version of this article appeared in the Salute Magazine, July-August 2016: http://www.salute.co.in/one-belt-one-road-obor-economic-diplomatic-and-strategic-dimensions/
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A version of this article appeared in the Salute Magazine, July-August 2016: http://www.salute.co.in/one-belt-one-road-obor-economic-diplomatic-and-strategic-dimensions/
Footnotes:-
[i] http://news.xinhuanet.com/english/china/2015-03/28/c_134105858.htm
. In May 2015, we heard about it
personally from Chinese scholars, one of who frankly admitted that even
scholars like him were not aware of it a 3-4 months earlier, when they were
asked to start work on fleshing out the concept of OBOR.
[ii] http://www.unescap.org/our-work/transport/asian-highway,
http://www.unescap.org/our-work/transport/trans-asian-railway, https://en.wikipedia.org/wiki/Asian_Highway_Network
, https://en.wikipedia.org/wiki/Trans-Asian_Railway
[iii]
The new silk road was unveiled in May 2014 (not in 2013 as now claimed by some:
A tentative mention of an idea by a leader is very different from a reasonably
worked out Government initiative). https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjd37PR3ODMAhVEFZQKHadmDfcQFgghMAE&url=http%3A%2F%2Fthediplomat.com%2F2014%2F11%2Fthe-new-silk-road-chinas-marshall-plan%2F&usg=AFQjCNESJKb91Dup4gkiXit38EjW7eNmEA
http://thediplomat.com/2014/05/chinas-new-silk-road-vision-revealed/
[iv] https://en.wikipedia.org/wiki/String_of_Pearls_%28Indian_Ocean%29
, http://thediplomat.com/2015/12/is-chinas-maritime-silk-road-a-military-strategy/,
http://csis.org/files/publication/140624_issuesinsights_vol14no7.pdf
[v] I
was personally involved in some of these discussions, as Executive director at
the IMF, Washington DC, from November 2009 to October 2012, charged with
overseeing financial discussions among the BRICS. During this period there was
no hint that an AIIB may be formed at the initiative of China.
[vi] https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2
[vii]
See references at https://sites.google.com/site/drarvindvirmani/india-great-power
.
[viii]
The inclusion of "road" in the designation of a maritime initiative
is puzzling to all but those who think every word that CCP leaders use is a
nugget of philosophy.
[ix] https://muse.jhu.edu/article/611561/pdf
, http://www.chinadaily.com.cn/china/2015-05/26/content_20820628.htm ;
[x]
This explains China's keenness to develop ports in Pakistan, Bangladesh and
Myanmar. But it also suggests that China may be willing to complement the
development of a naval base at Gwadar, Pakistan (CPEC), by participating in
development of connectivity to Chabhar port in Iran.
[xi]
Chinese Admiral Sun apparently admitted that OBOR has strategic dimension at
Singapore Strategic Dialogue 2016: https://twitter.com/d_jaishankar/status/739277268237746177
[xii] Chinese
scholars indicated to us (about 20 people), all of them have been instructed to
work on OBOR & come up with something (presumably every think tank" in
China),
[xiii]
According to the VIPP index, China will become a "potential Super
Power" at the end of this decade.
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