China-India Brief #106


Published Twice a Month
November 29 - December 12, 2017

Centre on Asia and Globalisation
Lee Kuan Yew School of Public Policy


Guest Column

The Belt and Road Initiative and China’s Growing Presence in South Asia 

By Jingdong Yuan

The Belt and Road Initiative and China’s Growing Presence in South Asia 

While analyses of post-Cold War Chinese foreign policy have typically focused on its relations with the United States, and its various diplomatic entanglements in East and Southeast Asia, the South Asia subcontinent has received far less attention. During the Cold War, Chinese diplomacy in the region was driven largely by tensions between the two countries due to their unresolved territorial disputes. This entailed a policy of supporting Islamabad in its conflict vis-a-vis India and providing military assistance to the other South Asian states beginning in the 1980s. With the end of the Cold War, however, Beijing has sought to take a more balanced approach towards its relations with both New Delhi and Islamabad. Over the past three decades, Sino-Indian relations have improved with regular high-level summit meetings, the expansion of trade and investment, and increasing dialogues on important diplomatic and security issues.

China’s announcement of the ambitious Silk Road Economic Belt (SREB) and 21st Century Maritime Silk Road Initiative (MSRI) in 2013 drew the attention of both scholars and policy analysts. The Belt and Road Initiative (BRI) has been enthusiastically received by many countries in the region, but has yet to be formally endorsed by India. In fact, India’s absence from the first ever BRI Forum in May 2017 has been interpreted as New Delhi’s continuing reservation, if not outright opposition to the initiative. India’s reluctance to join the BRI is a highly complex problem involving issues related to nationalism and regional geopolitics. For cooperation to be possible, both sides must engage in meaningful dialogue and communication, and seek to dispel any existing misperceptions and misunderstandings.

The BRI consists of six economic corridors, two of which — the China-Pakistan Economic Corridor (CPEC) and the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor – pass through the South Asian subcontinent. The initiative focuses on the development of connectivity-based infrastructure projects such as roads, railways, and ports. It also seeks to develop industrial zones, special economic zones, and other relevant projects. The aim is to leverage the infrastructure to stimulate local economies, facilitate better trade flows and investment opportunities, as well as promote tourism, education, and overall living standards. From Beijing’s perspective, these development projects not only allow China to address its energy security needs and industrial overcapacity, but also potentially help develop and expand the markets for its consumer goods.

Since its announcement in 2013, the BRI has evolved into a coordinated strategy that addresses several challenges facing China. These include its slowing economy, its growing energy security concerns, the development needs of its vast north-western and south-western regions, and the rising security threats from terrorism and ethnic separatism. In this context, South Asia has emerged as an important region for China to address these challenges. However, the region suffers from a long list of perennial problems of its own: infrastructure deficits, political instability, insurgencies, terrorist threats, and an overall lack of economic development. Cooperation would certainly be mutually beneficial. The injection of capital for infrastructure development into the region could stimulate economic growth and increase local employment opportunities. The improved economic environment could in turn mitigate some of the socio-economic problems. For China, closer economic cooperation would strengthen its influence in the region. More importantly, the construction of ports and roads could help shorten the transport distance of energy imports and lower delivery costs.

The BRI and China’s growing presence in South Asia must be placed within the larger context of Beijing’s evolving policy toward the region. The focus of China’s foreign policy has traditionally been on the United States and on Northeast and Southeast Asia. However, three post-Cold War developments have elevated the South Asia subcontinent’s importance in Chinese foreign policy formulation. The first concerns the rise of India not just as a regional power, but increasingly also as a global one. A strong India could become an important ally, working with China to promote a multipolar world order, or it could become a thorn in Beijing’s side, aligning with other powers against it. The second concerns Pakistan’s place in China’s South Asia strategy. Pakistan not only represents an important ally in the context of a potential Sino-Indian conflict, but also plays a crucial role in assisting China in dealing with ethnic separatist and terrorist activities in Xinjiang. The third concern relates to China’s growing demands for energy. This has resulted in greater Chinese interest in the Indian Ocean and its ties with the littoral states. Among these, Pakistan and Sri Lanka have emerged as states of key importance to Beijing.

Designated as a major component of the BRI, the CPEC was formally launched in 2015. Beijing committed over $62 billion towards various infrastructure development projects such as highways, pipelines, economic zones, and even power plants to help Pakistan address its chronic power shortage. Facing growing demand for raw materials and resources at home, China envisioned the CPEC as a secure alternative transportation route for goods and commodities from the Persian Gulf through Pakistan and into Western China. However, given the overall security situation in Pakistan, the ambitious economic development plan faces enormous challenges and risks.

In Sri Lanka, China’s growing presence has drawn significant attention. During Mahinda Rajapaksa’s presidency, there was a strengthening of economic ties between Colombo and Beijing. Several major infrastructural projects in Sri Lanka were funded with Chinese investments. These included a $1.4 billion project funded by China Communications Construction Company to build a new port city in Colombo, which included 35-year leases for four out of seven container berths to a Chinese company; the $103 million Lotus Tower being built by two well-known Chinese defence trading companies; as well as the $1.5 billion Hambantota Port Development Project.

Unsurprisingly, India has become increasingly concerned over China’s growing presence in its backyard. China’s presence in Sri Lanka was particularly worrying due to its great strategic importance and deep cultural ties with India. In September 2014, the docking of a Chinese Navy submarine and a submarine support ship in Colombo greatly alarmed New Delhi. From India’s perspective, China was encroaching in an area seen traditionally a part of its sphere of influence. Sri Lanka was increasingly becoming the geopolitical battlefront between China and India, with both sides intensifying efforts to gain influence in Colombo. The 2015 Sri Lankan elections seemed to tilt things in India’s favour. The pro-China Rajapaksa government was ousted and replaced by Maithripala Sirisena, who thereafter sought to mend relations with India.

The BRI is an ambitious project that aims to transform the economic landscape along its route in terms of trade, investment, and energy supplies. South Asia’s location presents China with significant strategic opportunities as Beijing seeks to expand its economic footprint in the subcontinent by providing resources for infrastructure development and, in particular, for the construction of seaports. Given the longstanding strategic distrust and unresolved territorial disputes, the BRI could further intensify the Sino-Indian rivalry, but it can also provide an opportunity for Asia’s two rising powers to work toward a cooperative, win-win future.

It is critical that Beijing addresses New Delhi’s concerns over the BRI in terms of transparency, norms, consultation, and financial feasibility with regards to the various projects, especially India’s concerns over the CPEC which goes through Jammu and Kashmir, regions claimed by both India and Pakistan. Likewise, the fact that India is already a part of the BCIM shows that there is room for multilateral cooperation between the two powers. India should pursue a more positive attitude of engagement with China and begin discussing the terms of its participation in the BRI. Just like its involvement in the establishment of the Asian Infrastructure Investment Bank (AIIB), India can help influence and shape the BRI to be a truly win-win multilateral undertaking.

 

Jingdong Yuan is an Associate Professor with the Centre for International Security Studies at the University of Sydney. He specializes in Asia-Pacific security, Chinese defence and foreign policy, and global and regional arms control and non-proliferation issues.

 

The views expressed in the article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.


 

News Reports

Bilateral relations

Handling of Doklam shows importance of India-China ties: Wang Yi
The Hindu, December 11
Chinese Foreign Minister Wang Yi has said India and China’s strategic interests outweigh “partial frictions” and handling of the Doklam standoff through diplomatic means reflects the importance of bilateral ties. Ahead of his visit to India to attend the Russia-India-China (RIC) Foreign Ministers’ meeting, Mr. Wang said China always values good neighbourliness and friendship between the two countries as “we are each other’s big neighbours and ancient civilisations.”

In first winter stay, 1,800 Chinese troops camping at Doklam
The Times of India, December 11
Around 1,600-1,800 Chinese troops have now virtually established a permanent presence in the Doklam area, near the Sikkim-Bhutan-Tibet trijunction, with the construction of two helipads, upgraded roads, scores of pre-fabricated huts, shelters and stores. Indian security establishment sources said while India "achieved its strategic objective" of not letting China extend its existing road in Doklam southwards towards the Jampheri ridge, the fallout has been "the almost permanent stationing of People's Liberation Army (PLA) troops in the region ".

Indian drone crashes after entering Chinese airspace
South China Morning Post, December 7
Beijing accused India of infringing on its territorial sovereignty after an Indian drone “invaded” Chinese airspace before crashing, triggering fresh tensions between the two nations ahead of Chinese Foreign Minister Wang Yi’s trip to New Delhi. India said the incident was caused by a “technical problem”, but Beijing said it was “dissatisfied with” and opposed India’s drone activities. No details were given about when the incident happened, with Beijing only saying it occurred “recently” at the border separating India’s northeastern Sikkim state and China’s Tibet region.

News Reports

China and India in the Regions

Ignore what you’ve read about China and the Singapore-India Naval Pact
South China Morning Post, December 10
It’s not always about China, or so say defence analysts amid the hoopla over Singapore’s decision to grant Indian warships greater access to its Changi Naval Base, a logistics hub for the US military. Some Indian media outlets immediately characterised last week’s agreement as a deliberate move done with an “an eye on China”, while one Singaporean opposition politician derided the government for a deal he said would derail efforts to “repair our damaged relations with China”.

India eyes Asean pivot to counterbalance China's One Belt One Road
The Times of India, December 10
Amid fresh controversy over China's One Belt, One Road (OBOR) projects in South Asia, India will next week host the first ever Asean-India Connectivity Summit with help, not surprisingly, from Japan, which has emerged as the linchpin of India's Act East Policy.

CPEC funds halted: China wants Pakistan army to take over projects?
The Times of India, December 9
Beijing's "new guidelines" overseeing the release of funds to Pakistan as part of its ambitious China-Pakistan Economic Corridor may stipulate greater involvement of the Pakistan army in the multi-billion dollar project, a report by global think-tank European Foundation for South Asian Studies (EFSAS) suggests.

Sri Lanka formally hands over Hambantota port to China
The Times of India, December 9
Sri Lanka on Saturday (December 9) formally handed over the southern sea port of Hambantota to China on a 99-year lease. Two Chinese firms, namely Hambantota International Port Group (HIPG) and Hambantota International Port Services (HIPS) managed by the China Merchants Port Holdings Company (CMPort) and the Sri Lanka Ports Authority will own the port and the investment zone around it, officials said.

Chabahar phase one launched; India, Afghanistan can now skip Pakistan
The Times of India, December 4
The first phase of the strategically located Chabahar port was inaugurated on Sunday (December 3) by Iranian President Hassan Rouhani. The port that will contribute to bilateral and regional trade and economic development, apart from providing land-locked Afghanistan an alternative access to regional and global markets. The Chabahar project, located on the Gulf of Oman, only 85km from China's Gwadar port in Pakistan, is important for India as it will allow it to bypass Pakistan in accessing Afghanistan and Central Asia.

 

News Reports

Trade and Economy

India enters non-proliferation regime Wassenaar Arrangement, slap on China for NSG stand
The Times of India, December 9
After its entry into the Missile Technology Control Regime in June 2016, India was on Thursday (December 7) admitted as the 42nd member of the Wassenaar Arrangement - a global grouping that regulates transfer and access to conventional weapons and dual-use technologies. In the coming months, India expects to be included in the Australia Group as well, leaving the Nuclear Suppliers Group (NSG) - where it faces stiff opposition from China - as the last non-proliferation regime that India expects to enter.

Singapore top destination for Chinese investment, India 37th
The Economic Times, December 7
India has slipped six notches to 37th position among 60 major economies in the world in terms of their attractiveness to Chinese firms, while Singapore topped the list compiled by the Economist Intelligence Unit. According to the latest EIU's China Going Global Investment Index, Singapore overtook the US as the most attractive destination for Chinese overseas direct investment. Hong Kong, Malaysia and Australia rounded the top five.

Indian and Chinese banks' interests collide over Reliance Com
Nikkei Asian Review, December 5
Indian banks with exposure to Reliance Communications will soon face a China Development Bank-led syndicate in court, trying to block insolvency proceedings for the beleaguered telecommunications company in a case symbolizing Indian lenders desperate to secure their interests as the local telecom industry's 4.6 trillion rupees ($71.4 billion) in total debt weigh on the banks.The Mumbai bench of the National Company Law Tribunal will hear from the parties involved this week to decide whether Reliance Com should go into insolvency.

India’s air traffic grows at double that of China in October, says IATA
Livemint, December 5
India’s domestic air traffic clocked double-digit growth for the 38th straight month in October, at a rate double that of China, the International Air Transport Association (IATA) said on Monday (December 4). Growing by 20.4% in October, India’s domestic air traffic beat out China at 10%, Brazil at 7.7%, Russia at 6.1%, the US at 5.3%, Australia at 2.8% and Japan at 2.3%.India is set to become the third largest aviation market by 2025, toppling the UK, IATA had said in October. China will be the top market, followed by the US. By 2036, India will have about 478 million air passengers, more than that of Japan (just under 225 million) and Germany (just over 200 million) combined.

India And China Have The Most Risky Corporate Debt In Asia
Bloomberg, November 29
India and China are most at risk from high corporate leverage in the Asia-Pacific region even as most economies see a slowdown in debt accumulation amid higher economic growth expectations. Around 17 percent of the corporate debt in India was at the risk of a default by 2016-end, as it is held with companies with interest coverage ratios less than one, according to a report by Moody's Investors Services. For China, the same metric stands at 15 percent.

 

News Reports

Energy and Environment

Interconnected power market a clear win for South Asia: ADB
Livemint, December 10
South Asian countries will greatly benefit from a single interconnected power market that will also give India a chance to replace its fossil fuel-based generation with cleaner hydropower from countries like Bhutan and Nepal, according to the Asian Development Bank. A single interconnected power market is a clear win for the South Asia Subregional Economic Cooperation (SASEC) countries as the power systems of all countries would be integrated through adequate cross border transmission capacity to share power with each other, said Priyantha Wijayatunga, ADB Director (Energy Division) for South Asia Regional Department.

China denies polluting Siang, its ‘own river’
The Times of India, December 3
Reacting to an earlier report on the waters of the Siang river turning black, a report in China's state-run Global Times stated Arunachal Pradesh was a part of China and, therefore, there was no question of China polluting its own river. Indian authorities believe the waters turned dark because of slag carried by the river from across the border.

China focus on clean energy may sink oil prices in 2018, Saxo Bank predicts
The National, November 29
Oil prices may fall to as low as $35 per barrel in 2018, prompted by Chinese and Indian efforts to tackle pollution and the increased worldwide uptake of electric cars, according to Steen Jakobsen, the chief economist of the Danish investment bank Saxo Bank. "The two most populous nations in the world will lead the charge towards electrification and as that happens, investment into batteries and alternative energy will explode because this is going to be the single biggest concentration of growth in one sector since the internet. If you get better batteries, you reduce the demand for fossil oil,” Mr Jakobsen said.

U.S. ethanol makers call on Mexico, India to reduce biofuel glut
Reuters, November 29
Reuters, November 29 U.S. ethanol producers, looking to relieve a growing domestic glut, are hunting for new international fuel markets to replace China and Brazil after trade disputes slashed exports to those top buyers. Without new markets, U.S. producers may have to pare output after spending hundreds of millions of dollars on biofuel production plants in recent years. Currently, the most promising potential destinations for U.S. fuel exports appear to be Mexico and India, industry executives said.

 


Analyses

India’s strategic unicorn in Chabahar
Livemint, December 11
India’s external affairs minister, Sushma Swaraj, made an unscheduled stop in Tehran on her way back from Russia, weeks after India flagged off the first shipments of wheat to Afghanistan using the much anticipated Chabahar port, on Iran’s south-eastern seaboard. The port, inaugurated by Iran’s President Hassan Rouhani a day after Swaraj’s visit, is marketed as a strategic home run by New Delhi. However, after more than a decade of abstraction, the very concept of “strategy” eludes this flagship undertaking.

A Chinese connection that will prove costly for the Maldives
Hindustan Times, December 10
The Maldives, an island paradise for tourists, is ruled by a geopolitical serpent. The Maldivian president, Abdulla Yameen Abdul Gayoom, has been using Chinese money and Saudi Arabia-backed Islamicism to throttle his country’s democratic polity. The direction he is taking the strategically important Indian Ocean archipelagic state is raising eyebrows in New Delhi.

China leverages Belt and Road investment to shape Pakistan’s political environment
Huffington Post, December 10
A Chinese decision to redevelop criteria for the funding of infrastructure projects that are part of the $50 billion plus China Pakistan Economic Corridor (CPEC), a key pillar of the People’s Republic’s Belt and Road Initiative, seemingly amounts to an effort to enhance the Pakistani military’s stake in the country’s economy at a time that the armed forces are flexing their political muscle.

Nepal, Maldives poised to move out of Indian orbit
Asia Times, December 9
The South Asian region’s political map is transforming phenomenally. The early counting from Nepal’s parliamentary elections, which concluded on Thursday (December 7), suggests that the ‘pro-China’ Left Alliance, is surging ahead and will form the next government in Kathmandu. Simultaneously, the President of the Maldives, Abdulla Yameen Abdul Gayoom, has begun a four-day state visit to China. The two events signal an atrophy in India’s influence in the South Asia region, which can only be regarded as a foreign-policy failure on the part of the Modi government.

How Myanmar is benefiting from the China-India rivalry
South China Morning Post, December 2
A flurry of activity has taken place between officials of China and Myanmar amid the ongoing Rakhine crisis. When he visited Naypyidaw, Chinese Foreign Minister Wang Yi proposed an economic corridor with Myanmar – an idea that was endorsed by his host, State Counsellor Aung San Suu Kyi. Suu Kyi said the initiative highly matched her country’s national development plan, especially with its focus on transport and electricity.

 


Books and Journals

China and India: Asia's Emergent Great Powers
Polity, May 2017

By Chris Ogden

The author is a Senior Lecturer in Asian Security at the University of St Andrews.

China and India are becoming increasingly influential, powerful and prominent countries – but what kind of states do their leaders and people wish them to become? Will they act and behave like major Western entities or like something altogether different, hence changing the very nature of international affairs? And as the Asian twenty– first century takes shape, how will these dynamics affect the wider geopolitical landscape and the balance of power?

In this in–depth study, Chris Ogden evaluates the prospective impact of China and India upon the definition and nature of great power in the contemporary world. Whilst many contend that they will rise in a similar way to current and previous great powers – namely via traditional material, economic and military measures – Ogden explores the extent to which domestic political and cultural values as well as historical identities and perceptions are also central driving forces behind their common status, ambitions and worldviews. In so doing, he offers a new and comprehensive analysis of these two countries' past, contemporary and future global significance, in particular their shared status as the world's first such post–imperial great powers.

 


Compiled and sent to you by Centre on Asia and Globalisation and
the Lee Kuan Yew School of Public Policy, National University of Singapore