China-India Brief #74

Guest Column

China's One Belt One Road – Viability and Implications

by Jayadeva Ranade

China’s ‘One Belt, One Road’ (OBOR), which was first proposed in September 2013 and combines the twin initiatives of the Silk Road Economic Belt and 21^st Century Maritime Silk Road, is a grand concept that envisions China girdling the globe. Essentially it is a plan for a China-built land and sea transportation artery to link production centres in China with markets and natural resource centres around the world. At the same time it will harness China’s massive, but hitherto idle, economic, manpower and technological reserves and get much needed returns on the investment. The initiative blends geopolitical and diplomatic objectives and has a strong domestic agenda. The latter was highlighted when an official of China’s Ministry of Commerce told Caijing magazine in May 2014 that the “new 30 years” will put today’s China on the threshold of a third era comparable to those begun by Mao Zedong and Deng Xiaoping.

The approximately US$ 1.4 trillion project potentially covers 55 percent of the world GNP, 70 percent of the global population, and 75 percent of the earth’s known energy reserves. China also claims to be willing to make a huge financial commitment in infrastructure financing and, though some multilateral and bilateral pledges may overlap, it is still estimated to exceed US$300 billion. The initiative has the potential to bend borders and alter geostrategic dynamics and the status quo in China’s extended neighborhood. Its completion is planned to coincide with the 100th anniversary of the People’s Republic of China in 2049.

The OBOR’s most publicized segment is the China-Pakistan Economic Corridor (CPEC),which directly impacts India and was announced by Chinese President Xi Jinping in Islamabad in April 2015 and is valued by Pakistani analysts at US $46 billion. Another section was operationalised in May 2015 when Xi Jinping committed US $15.7 billion in Belarus and concluded other agreements during visits to Kazakhstan and Russia. The CPEC is an example of the diplomatic and military support that China plans for OBOR. With the CPEC, Beijing seems to be overtly supporting Pakistan’s territorial claims and dispelled the ambiguity it had maintained for over six decades on the issue of Kashmir. The recent restructuring of the People’s Liberation Army (PLA) similarly anticipated the need to protect China’s overseas assets and the PLA’s new West Zone’s tasks will include safeguarding Chinese investments and projects abroad, including the CPEC. China has additionally indicated it is establishing a Division-strength “private army” for deployment in the CPEC.

The Bangladesh-China-India-Myanmar (BCIM) corridor is also part of OBOR and Beijing is pressurising India to sign on to this too. Opening the BCIM would, however, mean that Chinese goods will flood India’s northeast where poor connectivity presently makes access difficult for Indian products and people. There is the additional risk of thousands of Chinese illegally settling in India’s sparsely populated north-eastern states, as they have in other countries.

The disbursal of large sums as loans and aid for countries participating in OBOR will enhance China’s economic influence and the financial power it exercises through trading relationships. International financial institutions like the Asian Infrastructure Investment Bank (AIIB), BRICS’ New Development Bank, Silk Road Fund, a CIC-backed fund, and a SCO Development Bank, are getting involved with OBOR. Private investors and lenders have expressed interest and at least 20 European countries are in talks with China.

Meanwhile, China’s cash-rich State-owned Enterprises (SoEs) are ready to participate. Official Chinese reports disclose that more than 80 SoEs had established branches in countries and regions participating in OBOR by the end of 2014 and over 30 had overseas legal risk prevention plans. Separately, on March 14, 2016, China’s State Administration of Taxation announced that tax treaties with countries along the “Belt and Road” will save financial institutions in China almost US$1.5 billion in taxes.

Major difficulties, however, confront OBOR. Jia Qingguo, member of the CPPCC Standing Committee and Dean of the University of International Relations at Beijing University, sounded a note of caution in March 2015 and pointed to the problems of harsh terrain, political instability, and geopolitical threats. Saying Russia is wary of China’s rise, he cautioned China against appearing to challenge Russia’s position in Central Asia. Other Chinese academics and strategic analysts have observed that India, US, Russia, and Japan are all important players in OBOR countries and the region and could block China’s plans. Among the major security challenges for China will be: protection of 81,000 kilometers of high-speed railway that China proposes to build through 65 countries; inclusion in OBOR of the Central Asian Republics and Turkey which will facilitate Islamic extremist groups assist Uyghurs in Xinjiang; and safeguarding the CPEC’s 51 projects in Baluchistan -- among the world’s most vulnerable and domestic insurgency-ridden territory. These cast serious doubts about the viability of the OBOR.

Jayadeva Ranade is a former Additional Secretary in the Cabinet Secretariat, Government of India and is President of the Centre for China Analysis and Strategy.

The views expressed in this 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.

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News Reports

Bilateral Relations

China can’t have double standards on terrorism: V K Singh
The Indian Express, May 7
After China blocked India’s bid at the United Nations to ban Jaish-e-Mohammad chief Masood Azhar, the neighbouring country was told that it cannot have double standards on terrorism, Union Minister of State for External Affairs V K Singh said. “We have conveyed to China in very clear terms that you cannot have two standards on terrorism. You cannot say that you don’t accept or you are against terrorism and at the same time you support a leader of a terrorist outfit,” Singh said. India’s view has been conveyed to China at many fora, including the External Affairs ministry, the former Army chief said here on the sidelines of a seminar by Centre for Eastern and North Eastern Regional Studies Kolkata (CENERS-K). Last month China had blocked India’s bid at the UN to ban Azhar, the Jaish-e-Mohammad (JeM) chief and mastermind of the Pathankot terror attack.

China to have more Tagore readers than India: Chinese diplomat
Xinhua, May 8
Indian bard Rabindranath Tagore will soon have more readers in China, where his works have been part of middle-school curriculum for decades, than in his home country, Chinese Consul General in Kolkata Ma Zhanwu was quoted as saying by Indian daily DNA India. "We will soon have more Tagore readers in China than you have in India," Ma said, noting that the poet has a huge following in Asia, but nowhere is he more alive than in China. He also said that the ideas of Tagore, who went to China in 1924, could serve as a useful guide to deepen mutual trust between the two neighboring countries.

India, China have an ‘evolving relationship’: Jaitley
The New Indian Express, May 15
Despite growing differences between India and China, both on the strategic as well as on economic front, Union Finance Minister Arun Jaitley has said both nations have an ‘evolving relationship’ and expressed hope that the bilateral ties between New Delhi and Beijing improves in the long run. Despite growing differences between India and China, both on the strategic as well as on economic front, Union Finance Minister Arun Jaitley has said both nations have an ‘evolving relationship’ and expressed hope that the bilateral ties between New Delhi and Beijing improves in the long run.

India, China to renew decade old counter-terror pact
Hindustan Times, May 17
India and China have agreed to renew and expand their decade-old counter terrorism pact though dusts are yet to settle over Beijing blocking New Delhi’s efforts to designate Mazood Azhar, the chief of Pakistan-based militant outfit Jaish-e-Mohammed it had blamed for the attack on Pathankot airbase in January. However, this amounts to a breakthrough in an area of crucial significance for the neighbours ahead of President Pranab Mukherjee’s four-day visit to China from May 24. The Memorandum of Understanding (MoU) on cooperation between Ministry of Home Affairs and Ministry of Public Security on counter terrorism measures were signed in 2005.

News Reports

China and India in the Regions

BRICS think tanks agree to create digital diplomacy: S. African expert
Xinhua, May 3
Think tanks from the five BRICS countries -- Brazil, India, China, Russia and South Africa, have agreed to come up with a road map to create digital diplomacy. This merged from the just ended BRICS digital conference which was held in New Delhi, India on April 28-29, Sandiso Ngcobo, who joined a South African think tank delegation to the conference, said. BRICS think tanks had gathered to find a common ground in addressing the regulation of cyber space and shared skills, Ngcobo told Xinhua upon return from India.

Interview: China making immense contributions to Bangladesh’s development: minister
Xinhua, May 6
China has made immense contributions to Bangladesh's efforts to meet its development goals with a key focus on building economic independence for the country, said an influential member of Prime Minister Sheikh Hasina's Cabinet. In an exclusive interview with Xinhua on Tuesday in Bangladeshi's capital Dhaka, the country's Information Minister Hasanul Huq Inu said "If we look back we see that from Day one (of diplomatic relations between Bangladesh and China established in 1975), China has come up very boldly and energetically to cooperate in our economic emancipation." The minister sought more Chinese support for the further development of cultural activities, social activities and activities in other areas.

Spotlight: Int'l community calls for peaceful solution to South China Sea issue, opposes internationalization
Xinhua, May 10
Countries around the world have voiced their support for a peaceful negotiation on the South China Sea issue between the parties directly concerned, opposing its internationalization.Russian Foreign Minister Sergey Lavrov said recently that any disputes in the South China Sea should be resolved through dialogue and attempts to internationalize the issue must be stopped. "We believe that all countries involved in the disputes should follow the principles of non-use of force, and continue seeking mutually acceptable political and diplomatic solutions," Lavrov said in a joint interview with Chinese, Japanese and Mongolian media in Moscow. "I am convinced that they (attempts to internationalize the issue) are completely counterproductive," said Lavrov. "Only negotiations, which China and the ASEAN are pursuing, can bring the desired result, namely, mutually acceptable agreements."

China opens new trade route to Nepal amid India tensions
India Today, May 12
China on Thursday announced the opening of a new rail and road trading route to Nepal, coming amid fresh strains in the country's relations with India following the cancellation of its president's visit and the recalling of its envoy from New Delhi earlier this week. Months of strains in ties with India, first sparked by unrest over the new Constitution and an ensuing trade blockade, has seen Kathmandu turning increasingly to Beijing, primarily to step up fuel imports amid an energy crisis caused by the blockade.Further tensions were triggered this week after Nepal announced the cancellation of a scheduled visit by its president to India, with Kathmandu blaming New Delhi for what it described as efforts to destabilise Prime Minister KP Sharma Oli's government.

China is raising troop strength on border with India: Pentagon
The Times of India, May 15
China is deploying more troops on the border with India while modernizing its nuclear force and improving its strike capabilities, the Pentagon has said, even as the Obama administration challenged Beijing's assertion that New Delhi does not meet the criteria to be a member of the Nuclear Suppliers Group. The state department, referring to Obama's statement in 2015, said India "meets missile technology control regime requirements and is ready for NSG membership". The shadow play between Washington, Beijing, and New Delhi was very much in evidence as the US defence establishment highlighted China's growing military strength in the region, ostensibly with an eye on courting India as a strategic counterweight.

China slams US report that spoke of rising troop presence on India border
Hindustan Times, May 15
China said a US report had deliberately distorted facts about its defence policies and unfairly depicted Beijing’s activities in the South and East China seas, “severely damaging” trust between the two major powers. The annual report of the US Defence Department had also said that China was increasing its troop presence along the disputed border with India. The Chinese reaction did not specifically mention India but dismissed the report in its entirety. Defence ministry spokesperson Yang Yujun expressed “strong dissatisfaction” and “firm opposition” to the report, saying it misrepresented China's military development. Yang said the report hyped “China's military threat” and “the so-called lack of transparency,” deliberately distorted China's defence policies, and unfairly depicted China's activities in the East China Sea and South China Sea, state media reported.

Nepal completes laying optical fibre at Nepal-China border
The Economic Times, May 15
Nepal Telecom (NT), the state-owned Nepalese telecommunication company, has completed laying optical fibre to Rasuwagadi area at the Nepal-China border from the capital city Kathmandu, with an eye to boosting Nepal-China connectivity. "We completed laying optical fibre to Nepal-China border point Rasuwagadi from Kathmandu via Galchhi of Dhading district and Dhunche of Rasuwa district three days ago. This has paved the way for interconnecting service of the NT with the China Telecom," NT spokesperson Pratibha Vaidya said. The NT has planned to finish trial for direct traffic exchange among Nepal, China and India within this month.

China, India capable of solving disputes, Beijing tells U.S.
The Hindu, May 17
Asking the U.S. to respect the efforts by China and India to resolve their boundary dispute peacefully, a top Chinese official on Monday said the two nations are wise enough to deal with it after the Pentagon accused Beijing of deploying more troops along the Sino-India borders. “The Chinese side is committed to safeguarding peace and tranquillity of the border areas between China and India and resolving the boundary question through negotiation,” the Chinese Foreign Ministry said. The U.S. military report also warned of increasing Chinese military presence in various parts of the world, particularly in Pakistan.

China harps on consensus for India’s NSG bid
The Hindu, May 17
Asking the U.S. to respect the efforts by China and India to resolve their boundary dispute peacefully, a top Chinese official on Monday said the two nations are wise enough to deal with it after the Pentagon accused Beijing of deploying more troops along the Sino-India borders. “The Chinese side is committed to safeguarding peace and tranquillity of the border areas between China and India and resolving the boundary question through negotiation,” the Chinese Foreign Ministry said. The U.S. military report also warned of increasing Chinese military presence in various parts of the world, particularly in Pakistan.

Economy and Trade

China to boost cooperation with South Asia: MOC
Xinhua, May 5
China's cooperation with South Asian countries will be very broad thanks to growing shared interests and market demand, said an official on Thursday. A round of key projects has been launched following the China-proposed Belt and Road Initiative to promote economic growth of the countries and boost regional cooperation, Vice Minister of the Ministry of Commerce Gao Yan said. By the end of 2015, China's direct investment in South Asian countries stood at 12.29 billion U.S. dollars, and South Asia's investment in China totaled 890 million U.S. dollars, she said.

Synergy between India & China to benefit world: Chinese leader
The Times of India, May 9
China today reached out to the Indian industry, saying bilateral cooperation between the two will benefit the entire world. "At present, India is an important country and our mutual cooperation will benefit not just the two countries but the entire world... co-operation is the only way to success," Han Zheng, a member of the political bureau of the Chinese Communist party and party secretary of Shanghai, told an industry gathering here this evening. "We are looking at how Shanghai can partner with the Indian industry in science and technology, innovation, financial and IT services and contribute towards greater Indo-China economic engagement."

China is Asia’s most attractive consumer market: Bloomberg
Xinhua, May 12
China was the most promising consumer market in Asia in 2015, and will probably remain so in the next four years, according to a Bloomberg report. "Even as China's economy slows and its population ages, it appears set to remain the most attractive Asian market for retailers in the years ahead," said Bloomberg economists in "Insight: Asia retail forecasts show China market to stay No. 1." The report said the Asia-Pacific region accounted for just under a third of Apple's revenue, and more than half of the revenue of Yum! Brands, operator of fast food chains including KFC and Pizza Hut, in 2015. In ranking of the most promising consumer markets in 2015 by Bloomberg Intelligence Economics, China, Japan and India came first, second and third. "For China and India, that reflects their massive young populations and large economies," the report said.

India, China sign global pact to help tax MNCs
The Times of India, May 13
In a move aimed at ensuring that multinational corporations don't get away without paying taxes anywhere, India and China joined a club of countries that agreed to automatically share information, laying bare the structure of operations of these companies. Apart from the two Asian countries, Canada, Iceland, Israel and New Zealand also signed the the Multilateral Competent Authority agreement for the automatic exchange of Country-by-Country reports ("CbC MCAA"), bringing the total number of signatories to 39 countries.

News Reports

Energy and Environment

How India’s river row with China shows the growing importance of water security
The Wall Street Journal, May 9
A river that flows through India, China, Bangladesh and Bhutan is churning up the issue of water security in a fast-developing region. The river–which is called Brahmaputra in India–is a source of tension between India and China and how those two countries are managing it affects Bangladesh downstream, a new report by Washington-based nonprofit, CNA Analysis and Solutions says. The report, titled “Water Resource Competition in the Brahmaputra River Basin: China, India, and Bangladesh,” recommends ways the countries can stop the issues from drifting out of control.

Beijing builds 1,178 water conservation projects
India Today, May 15
Chinese capital Beijing, which once relied heavily on groundwater that led to its depletion, has built more than 1,000 conservation projects saving up to 100 million cubic metres of water annually, officials said today. Beijing water authorities said about 1,178 water-saving projects have been built in Beijing, saving up to 100 million cubic metres of water every year. Water permeable bricks, sunken green fields and rainwater recycling facilities have been widely adopted in the city, according to the authority chief Jin Shudong. Jin said Beijing recycled and utilised 162 million cubic metres of rainwater in 2015, state-run Xinhua news agency reported.

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Analyses and Commentaries

Beijing’s terror conundrum
The Indian Express, May 4
Ever since China’s decision to block UN sanctions against Masood Azhar, many Indians have concluded their superpower neighbour’s policies are driven by moral blindness, even malice. Chinese nationals make up the largest cohort, by far, of foreign jihadists from Asia. Although the world sees China as a fire-breathing dragon, its leaders know their power rests on pillars of the most fragile porcelain. The armies massing in West Asia, Beijing fears, could bring the roof down on their half-century-long effort to build a great power. Facing a serious transnational terrorism threat, China’s security establishment finds itself under-resourced and ill-prepared. Its intelligence services don’t have the global reach of the US. Beijing, moreover, is sceptical of America’s expensive way of war. Instead, Beijing seeks to use regional clients like Pakistan to contain the threat.

India watches anxiously as Chinese influence grows
Financial Times, May 9
Talk of a new Silk Road may be intended to evoke romantic, non-threatening images of desert caravans, ancient ships and trade in exotic commodities. But China’s grand plan for a network of railways, highways, pipelines and ports across central Asia, and around Southeast Asia is generating anxiety in New Delhi. With the 3,488km border between the two Asian neighbours still a matter of formal dispute, Indian strategic policy analysts are divided on whether China’s new Silk Road project is a strategic and economic threat to their country — or an opportunity. Many see the project — which the Chinese have called One Belt, One Road (OBOR) — as something that must be carefully navigated, as Beijing develops large projects in countries that India considers part of its natural sphere of influence. However, New Delhi lacks the financial power to offer a credible alternative.

China is making gains in South Asia at the expense of India and we should be concerned
India Times, May 13
In May 2014, when the BJP won the general elections, Narendra Modi surprised everyone by inviting country heads of all South Asian Association for Regional Cooperation (SAARC) member states including Pakistan to his swearing-in ceremony. While the move was hailed as a diplomatic masterstroke, it also outlined the importance the new government in Delhi has placed on having good relations with its immediate neighbours. This outreach also had a larger aim behind it - to counter the growing influence of the other superpower in the region, China. China now has huge investments in countries including Pakistan, Afghanistan, Nepal Sri Lanka and Maldives, almost encircling India with its strategic investments. Of all these investments, the most damaging for India is the $46 billion China Pakistan Economic Corridor (CPEC) which connects Pakistan's Gwadar Port in Balochistan with Xinjiang province in China, with a network of roads and bridges.

India’s self-defeating paranoia over China in Nepal
The Diplomatic, May 14
India must also be more comfortable with the idea of Nepal dealing more with the rest of the world, including with China. Just because Nepal wants better relations with China does not mean it undervalues its relations with India or is working against Indian interests. In fact, all the major political parties in Nepal are acutely aware of Indian sensitivities. They also realize that the deep people-to-people contacts between Nepal and India would be hard, if not impossible, to replicate with China. The cultural influence of India remains as formidable. Hindi songs, movies and soap operas are wildly popular in Nepal, but most Nepalis don’t know a single word of Mandarin. Likewise, the people of India and Nepal easily commingle through the open border, but the border with China is strictly regulated and Beijing will not agree to completely open Tibet just for the benefit of Nepal.

China, India and what a new ‘red phone’ would mean for the world
Japan Today, May 15
For centuries, the relationship between China and India was the diplomatic Dog that Didn’t Bark. The two largest, most populous, most durable Asian countries, for most of their collective history, have lived alongside each other with an almost studied indifference to the military, economic and cultural activities of the other. This dynamic began to change in the postcolonial period, but slowly, unevenly and with as much backtracking as forward progress. However, the recent news that Delhi and Beijing may be establishing a military hotline - reminiscent of the admittedly apocryphal “red telephone” between the White House and the Kremlin - has shown how much the Sino-Indian relationship has expanded and matured in recent years - and also how much distance still remains.

Why investors think India is a better bet than China
Newsweek, May 16
Amid all the debates (including one at AEI on May 10) on whether Modinomics has been more about style or substance, Indian Prime Minister Narendra Modi can boast at least one significant accomplishment. According to a recent report by fDi Intelligence, an affiliate of the Financial Times, India replaced China as the top recipient of pledged greenfield foreign direct investment (FDI) in the world last year. Greenfield FDI, a subset of FDI more broadly, refers to investment flows that build new assets in the host country. India’s haul of $63 billion in pledged greenfield FDI last year — nearly triple what it received in 2014 — looks promising. Why the sudden spike?

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Books and Journals

Bridging Greenhouse Gas Emissions and Renewable Energy Deployment Target: Comparative Assessment of China and India
Applied Energy, March 2016
Renewable energy has a critical role in limiting the greenhouse gas (GHG) emissions. This paper, by Shivika Mittal, Hancheng Dai, Shinichiro Fujimori and Toshihiko Masui, assesses the implication of aligning renewable energy deployment target with national emission reduction target for mitigation cost. The assessment methodology uses Asia-Pacific Integrated Assessment/computable general equilibrium (AIM/CGE) model to determine the mitigation cost in terms of GDP and welfare loss under alternative renewable targets in different climate-constrained scenarios. A range of country-specific emission constraints is taken to address the uncertainties related to global emission pathway and emission entitlement scheme. Comparative results show that China needs to increase its share of non-fossil fuel significantly in the primary energy mix to achieve the stringent emission reduction target compared to India. The mitigation cost in terms of economic and welfare loss can be reduced by increasing the penetration of the renewable energy to achieve the same emission reduction target. The modeling results show that coordinated national climate and renewable energy policies help to achieve the GHG emission reduction target in an efficient and cost-effective manner.

This Brave New World: India, China and the United States
Simon and Schuster, 2016
In the next decade and a half, China and India will become two of the world’s indispensable powers—whether they rise peacefully or not. During that time, Asia will surpass the combined strength of North America and Europe in economic might, population size, and military spending. Both India and China will have vetoes over many international decisions, from climate change to global trade, human rights, and business standards. The author, Anja Manuel, escorts the reader on an intimate tour of the corridors of power in Delhi and Beijing. Her encounters with political and business leaders reveal how each country’s history and politics influences their conduct today. Through vibrant stories, she reveals how each country is working to surmount enormous challenges—from the crushing poverty of Indian slum dwellers and Chinese factory workers, to outrageous corruption scandals, rotting rivers, unbreathable air, and managing their citizens’ discontent.

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