China-India Brief #125

Guest Column

Superpowers and Small States:
The Role of Small Strategic Nations in the Geopolitics of the Indo-Pacific

By Jonathan D. T. Ward   

The Indo-Pacific is the region in which the most consequential geopolitical competition of our lifetimes will play out. Spanning two of the world’s great oceans, the Pacific and the Indian Ocean, the Indo-Pacific is defined by the rise of both India and China. In order to understand strategic competition in the Indo-Pacific, we must examine not only the contest between the major powers, but also the underappreciated role of smaller nations.

Two simultaneous major power rivalries are taking place in the region: that of the US and China, principally in the West Pacific and that of China and India, chiefly in the Indian Ocean Region. China is growing from an East Asian regional power to a multi-regional power, consolidating its influence in the East and South China Seas and moving swiftly now into the Indian Ocean. China is taking on two major power contests at once, a strategy that is not new for the People’s Republic of China. During the Cold War, China’s leadership confronted both superpowers simultaneously for a time, despite a massive gap in economic and military strength. In the coming decade and beyond, China’s ability to maintain this two-front, intercontinental position may hinge on its ability to secure influence in small, vital nations.

Small states and superpowers have always had a troubled relationship.

In the superpower contest of the 20^th Century, the most dangerous flashpoints and deadly conflicts of the entire multi-decade contest were in places far smaller than the superpower competitors: Cuba, Taiwan, Korea, and Vietnam. Today, in the contest across the Indo-Pacific, certain important states are even smaller than those which animated the Cold War world.

From Bhutan in the Himalayas, where India and China saw their most dangerous standoff in years at  Doklam in 2017, to the Maldives in the Indian Ocean, where this September’s elections meant a turning point for either Chinese or democratic influence, small nations and island states have begun to play a critical role in the balance of power between the three primary actors in this new Indo-Pacific contest. In Sri Lanka, China’s acquisition of a 99-year lease on the port of Hambantota changed the global narrative on the ‘Belt and Road Initiative’ and was recently called out by the White House as a possible future Chinese naval station. In Nepal, China vies for influence with India through investment packages and infrastructure bids. In Djibouti, China’s first overseas naval base positions the East Asian nation for naval access to the Western Indian Ocean at the opposite end of critical sea lines of communication that straddle the region. In the South Pacific, an important extension of the Indo-Pacific strategic game, China’s financial influence in island nations like Fiji and Tonga has brought alarm to Indo-Pacific democracies, especially Australia and New Zealand, both Five Eyes partners of the United States. In the two West Pacific island chains, Taiwan remains perhaps the most important US-China flashpoint. Chinese state media has described it as the ‘lock’ to the First Island Chain. In the words of one military article, if Taiwan can be ‘resolved’, it would substantially improve ‘China’s ability to break through the Second Island Chain’.

The contest for influence in small nations is driven primarily by the expansion of Chinese maritime and economic power, and the US and Indian response. The naval dimension deals with a choke point-based strategic geography from the Strait of Hormuz through to Malacca and the Pacific island chains, but another dimension is equally important to today’s strategic contest: financial power.

The combination of naval build-up and state-backed financing is the essence of China’s blueprint for Indo-Pacific power. At present, however, there are significant weaknesses in both the US and Indian response.

In smaller nations, where single nation debt load can reach stratospheric levels compared to national GDP, China’s influence goes even further, and has been well documented. What is problematic for India and America at present may be the lack of an appropriate toolkit to compete. China’s engineering and construction companies have ballooned to many times the size of their American and Indian counterparts. Chinese banks and Chinese-led multilateral development banks had over $700 billion in overseas loans outstanding as of 2016, more than the total assets of six of the major multilateral development banks combined. While the conversation has begun in Washington about how to counter excessive Chinese influence across the ‘Belt and Road’, the real question will turn on the ability for different political-economic systems to build economic as well as military influence across this region. China’s state-backed model has shown successes thus far but has begun to result in push back from both host nations and from democratic powers that aim to play a balancing role. The United States must improve its ability to apply capital to national strategic ends in this critical region as private investment institutions looking for ‘bankable’ projects do not play a direct role in geopolitics. In contrast, Chinese state-led financial institutions and companies readily execute on projects to further national strategic ends. India, focused at present on national infrastructure and investment programmes like Sagarmala simply lacks the capital and economic clout to offset Chinese economic engagement in the region. While other Indo-Pacific democracies, especially Japan, have made forays into the game of strategic finance, there may also be a much larger role for small states to play themselves.

Singapore stands out as a nation which can offer expertise and leadership to strategically located small nations around the Indo-Pacific. Existing institutions including the IMF, the World Bank, and the UK-led Commonwealth of Nations all acknowledge small states as a political category, but do not operate within a geostrategic or security-based framework. Coordination between the United States, India, Japan, and a major small state partner such as Singapore, or series of small state partners, could be vital in advancing programmes that recognize the crucial role of small nations in major power competition. Together these countries could advance best practices for development, economic security, sovereignty protection, and transparency, while addressing urgent development and security needs of the region. Singapore is already an important advocate of a ‘rules-based’ system and the island nation’s role as a hub for global business positions it to become an important actor in a competitive game in which finance will play an essential role. Though the risks run high as Chinese power winds its way across the Indo-Pacific, the role of smaller nations will be essential, and the more that like-minded nations can build economic and financial bulwarks in smaller nations, the better the chance of the preservation of the ‘rules-based order’ that has brought decades of wealth and stability.

Dr. Jonathan D. T. Ward is the Founder of Atlas Organization, a consultancy focused on the rise of India and China, and US-China strategic competition. He earned his PhD in China-India relations at the University of Oxford and is completing a new book on Chinese global strategy and its consequences for the United States.

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

Cooperation, rivalry to define India-China ties in coming years, say experts
Hindustan Times, October 7
India-China relations in the coming years will be characterised by a mix of cooperation and competition, especially in the Indian Ocean region, and the isolationist approach adopted by the US could see the two countries working together on multilateral forums, experts said on Saturday (October 6).

Pakistan, China plan to destroy Indian Army through drugs
The Economic Times, October 6
Punjab Chief Minister Amarinder Singh on Saturday (October 6) said Pakistan and China had a long-term strategy to destroy Indian Army by smuggling in vast quantities of drugs in the country.

India’s Sikkim Airport Borders China in Sign of Modi’s Intent
South China Morning Post, October 6
When India’s Prime Minister Narendra Modi recently inaugurated the country’s 100th operational airport in the northeastern state of Sikkim, nestled in the Himalayan range, he took pains to mention what an engineering marvel it was. What he commented on more obliquely, however, was the strategic advantage the Pakyong airport provides, given Sikkim’s proximity to the Chinese border and his administration’s desire to cement the state’s bond with the rest of the country.

Chinese bunkers at Lhasa airport, just 1,350 km from Delhi, worry India
Hindustan Times, October 3
China’s construction of underground bomb-proof shelters to house fighters at Lhasa’s Gonggar airport in the Tibet Autonomous Region (TAR) has New Delhi concerned, said three officials familiar with the development who asked not to be identified.

News Reports

China and India in the Region

New railway set to fuel Tibet’s economy, trade with India and Nepal: experts
Global Times, October 11
The construction of the Sichuan-Tibet railway, dubbed the world's most challenging railway, will have a big influence in boosting Tibet's integration into South Asia and the China-proposed Belt and Road initiative (BRI), as well as facilitating its trade connectivity with China's developed regions, industry observers said on Thursday (October 11).

Chinese premier arrives in Tajikistan for SCO meeting, official visit
Xinhua, October 11
Chinese Premier Li Keqiang arrived in Dushanbe on Thursday (October 11) for an annual meeting of heads of government of the Shanghai Cooperation Organization (SCO) member states and an official visit to Tajikistan.

Uzbek-Afghan railway to put 'China-India Plus' plan on track
CGTN, October 10
A key rail link extension project connecting Uzbekistan and Afghanistan could see collaboration between Beijing and New Delhi in what could be demonstrative of the "China-India Plus" model which was recently proposed by Beijing enabling the two Asian giants to cooperate in development and connectivity projects in other countries.

China offers Pakistan drones but India is not ruffled 
The Times of India, October 10
A new battle-line is being drawn between India and Pakistan in the arena of armed drones. Even as India is engaged in advanced talks with the US to acquire armed Predator-B or weaponized Sea Guardian drones, China is now going to sell 48 of its latest Wing Loong-II strike drones to Pakistan as well as jointly manufacture them with its “all weather ally” at a later stage.

Pakistani PM vows early implementation of China-Pakistan Economic Corridor projects
Xinhua, October 8
Pakistani Prime Minister Imran Khan Monday (October 8) said that strengthening all-weather Pakistan-China strategic cooperative partnership is the cornerstone of Pakistan's foreign policy.

Yameen out, China woos Maldives president-elect Ibrahim Mohamed Solih
Livemint, October 8
China is making determined efforts to woo the Maldives’ president-elect Ibrahim Mohamed Solih in a bid to ensure the strategic gains it has made in the Indian Ocean atoll nation in recent years do not get diluted by the exit of Abdulla Yameen, the former president who was considered pro-China.

When Putin’s Russia Arms India, China and the US Keep One Eye Open
South China Morning Post, October 4
Russian President Vladimir Putin will begin his two-day visit to India today, with agreements on defence, trade, and space technology on the agenda, along with discussions over the military transition in Afghanistan. But the most significant outcome of the summit is expected to be India’s purchase of the S-400 Triumf missile system from Russia.

India, Uzbekistan sign 17 agreements for cooperation in security, tourism, health sectors
The Times of India, October 1
India and Uzbekistan inked 17 agreements on Monday (October 1), including for visa free travel for diplomatic passport holders and cooperation in the fields of tourism, national security, training of diplomats and trafficking.

News Reports

Trade and Economy

Amid US friction, China wants India to deepen trade ties
The Times of India, October 11
Amid trade friction between China and the US, Beijing has called for India and China to deepen their cooperation to fight trade protectionism.

US-China trade war gives India chance to contain its trade deficit
Financial Express, October 10
According to a commerce ministry study, of the 603 American tariff lines (items) on which Beijing has imposed extra duties in the range of 15-25%, India can ship out more in case of 44 items without much difficulty, as it currently has access to the Chinese market in these products.

IMF Retains India 2018 Growth Forecast At 7.3%
Bloomberg Quint, October 9
The International Monetary Fund on Tuesday (October 9) forecasted a growth rate of 7.3 percent for India in the current year of 2018 and that of 7.4 percent in 2019. Growth is projected to moderate in China, from 6.9 percent in 2017 to 6.6 percent in 2018 and 6.2 percent in 2019, reflecting a slowing external demand growth and necessary financial regulatory tightening, the report said.

China’s central bank to pump US$110 billion into economy as US trade war intensifies
South China Morning Post, October 7
China on Sunday (October 7) announced a big cut in the amount of cash commercial banks have to put aside at the central bank, a move that will make an extra US$110 billion available for lending as Beijing works to shore up confidence in its economy and markets.

India facing 'economic crisis' due to huge oil imports: transport minister
Reuters, October 4
India is facing an “economic crisis” due to its huge oil imports, two local TV channels cited Transport Minister Nitin Gadkari as saying on Thursday (October 4), ahead of a meeting of key ministers to discuss the falling rupee and the nation’s widening trade deficit.

India fights to avert credit crisis
Nikkei Asian Review, October 1
India's financial authorities are battling to avert a major credit crisis in the wake of a series of defaults by one of the country's biggest public infrastructure lenders.

News Reports

Energy and Environment

Magnified sunlight: China boots up its first solar thermal power plant
CGTN, October 11
China's first commercial large-scale solar thermal power plant was put into operation on Wednesday (October 10) in Qinghai Province with a 50-megawatt capacity.

India may continue with Iranian oil imports post sanctions
Livemint, October 8
India would continue its energy imports from Iran even in the wake of the US government’s 4 November deadline, hinted petroleum minister Dharmendra Pradhan on Monday (October 8).

China Slams Brakes on U.S. Crude Oil Imports
Bloomberg Quint, October 6
Beijing, once an enthusiastic buyer of U.S. crude after Washington lifted its restrictions on exports in December 2015, has even jockeyed with Canada for the position of top importer at times. Yet, China’s interest in American oil has diminished amid the escalating trade spat between the two nations.

Modi clinches deal with Putin for joint Arctic LNG development
Nikkei Asian Review, October 5
Indian Prime Minister Narendra Modi on Friday (October 5) announced an agreement with Russian President Vladimir Putin to jointly develop a liquefied natural gas project on the Arctic shelf, in a statement following a summit between the two leaders.

China's Funding for Coal Draws Scrutiny as Climate Concern Grows
Bloomberg Quint, October 4
China's leading role in financing a wave of new coal plants across Asia is drawing fresh scrutiny as the world’s top climate scientists weigh calling for much deeper cuts in emissions.

Air pollution is killing 1 million people and costing Chinese economy 267 billion yuan a year, research from CUHK shows
South China Morning Post, October 2
Air pollution from smog-inducing ozone and fine particles may be shaving an estimated 267 billion yuan (US$38 billion) off the Chinese economy each year in the form of early deaths and lost food production, a new study has found.

Analyses

China investor risks grow as Trump expands trade war
Nikkei Asian Review, October 8
By William Pesek, Author and Award-Winning Journalist

Mike Pence does not normally factor into investment decisions in Asia. But the U.S. vice president has just answered the biggest question in the markets: When might Donald Trump call a truce in his China trade war?

How India can crack open the Chinese fortune cookie
Livemint, October 8
By G. Parthasarthy, Former High Commissioner to Pakistan and Myanmar

India and China are destined to have a complex relationship combining competition with cooperation and friendship with suspicion.

How India’s Rise Can Complement U.S. Strategy
Lawfare, October 7
By Arzan Tarapore, Nonresident Fellow at the National Bureau of Asian Research (NBR)

How can India’s rise complement U.S. strategy? Rather than simply assuming that a rising India will intrinsically counter-balance China, U.S. strategy requires a clear appreciation of India’s specific constraints and advantages. In particular, the United States should not expect India to challenge China militarily on their land border, but it should support Indian efforts to build strategic leverage in the Indian Ocean region.

Modi meets Putin: And discovers non-alignment, which would have saved us the somersault over China
The Times of India, October 6
By Kanti Bajpai, Director of the Centre on Asia and Globalisation and Wilmar Professor of Asian Studies at the Lee Kuan Yew School of Public Policy

When Prime Minister Narendra Modi came to power, he was going to change everything. In trying to do so, he made a mess of most things, including foreign policy. As President Vladimir Putin comes calling, it is worth asking: whither foreign policy?

Can Putin's visit to India kill two birds with one stone?
CGTN, October 5
By Pavel Felgenhauer, Nonresident Senior Research Fellow with the Jamestown Foundation

Russian President Vladimir Putin is visiting New Delhi this week and the Kremlin has confirmed: Arms trade will dominate the visit's agenda. In particular, a major deal reportedly worth some 5.43 billion US dollars to provide the Indians with up to five regiments of the new and sophisticated S-400 antiaircraft missile system.

Books and Journals

A New Game Started? China’s ‘Overseas Strategic Pivots’ in the Indian Ocean Region
China Report Vol 54, Issue 3, July 2, 2018, pp. 267–284

By Mike Chia-Yu Huang, Nanfang College of Sun Yat-Sen University, China

China’s port facility construction projects in the Indian Ocean (IO) region, particularly those in Gwadar and Djibouti, have led to a heated debate among strategists over whether the country has been carrying out a ‘string of pearls’ strategy, an alleged Chinese scheme to challenge America’s military predominance in South Asia. Although Beijing has denied the existence of such a strategy, it has enhanced its strategic ties with littoral countries in the IO region over the past few years. This article discusses the evolution of Beijing’s IO strategy and examines the nature of these Chinese port projects.