The Belt and Road Forum held on May 14 and 15 this year was China’s show of might to the world. However, China is trying to aggrandize an otherwise lackluster collection of bilateral agreements designed to build dependencies through bilateral deals with smaller nations and, therefore, further Chinese interests.
The One Belt, One Road (OBOR) initiative lacks the transparency that an initiative of the given magnitude must have. In addition, the absence of a multi-lateral forum gives China excessive and unchecked leverage over smaller nations who are ill-equipped to match the economic might of the Chinese.
The financing mother lode for the OBOR initiative will continue to come from bilateral lending by Chinese policy banks, with the Asian Infrastructure Investment Bank being viewed as the key financier. China also has other major financial resources, such as its sovereign wealth fund and foreign exchange reserves.
Some, such as Noriyoshi Ehara, chief economist at the Tokyo based Institute for International Trade and Investment, argue that the financial infrastructure for the initiative is gradually beginning to take shape. Ehara further believes that the scope of the OBOR initiative could be extended to laying a foundation for bilateral free trade regions, giving China further leverage.
For connectivity, the OBOR initiative is strikingly different from the current treaty based integration concepts in which geographical projection region, partner countries, rules and principles are made clear at the outset. The initiative relies on a unilateral state-controlled strategy implemented by corporate investments and catalyzed by the $40 billion Silk Road Fund, to leverage a proposed investment of $1.4 trillion, unlike the conventional development-cooperation model based on aid.
The initiative is, therefore, more about a geo-strategic realm that aims to place China at the epicenter of geo-economics and geopolitics than about physical connectivity. It outlines China’s grand strategy of looking both eastward and westward, as the project will help China establish strategic clout across Asia, Europe and Africa.
China, in the absence of any multilateral forum, can use the OBOR initiative to create long lasting dominant-dependent relationships. China, through the OBOR, aims to support infrastructure projects in strategically located developing countries in the form of huge loans to their governments. Beijing also plans to expand its strategic footprints beyond its own sea lanes of communication.
Historical precedent has shown that, as a result, countries become ensnared in a debt trap that leaves them vulnerable to Chinese influence. The heavier the debt burden on smaller countries, the greater China’s own debt leverage becomes. Countries overwhelmed by their debt to China have in the past been forced to sell stakes in those projects to China. Additionally, China placed pressure on nations to award it additional contracts due to delays in payment on part of the dependent nation.
China-sponsored infrastructural projects are often intended not to support the local economy, but to facilitate Chinese access to natural resources or to open the market for Chinese exports. Several countries that lie along the path of the OBOR project, having been a subject of historical neglect by institutional forms of investment coupled with urgent domestic infrastructural requirements, can fall prey to Beijing’s advances.
The OBOR initiative, if implemented along expected lines, has the possibility of ridding China of the “Malacca dilemma.” The Malacca Dilemma is a term coined by former Chinese leader Hu Jintao in 2003 concerning the nation's over-reliance on the Malacca Straits sea route through which 80 percent of its oil imports pass.
A strategic victory with OBOR could have serious implications, as it alters the economic and military equations of Beijing with countries it views through an adversarial lens, particularly in the widely contested Indo-Pacific region. India, in particular faces a daunting challenge. The Indian economy is about one fifth the size of China’s - its heft in global economy being minuscule in comparison to its eastern neighbor, with a long way to go before it attains a state of reasonable parity with the Chinese economy.
India however possesses certain tools in its arsenal that can be deployed to reshape political and economic relationships to its advantage. First, India’s cultural impact continues to be visible and uncontested in the South and Southeast Asian region. This could and must be coupled with people to people linkages along economic and cultural lines. India must state that as a democracy it has a very good idea in the complex approach of incorporating the demands and expectations of a diverse people unlike the unilateral and non-transparent approach of its Eastern neighbor. Recognition of the Indian state’s democratic outlook in foreign lands can serve as a vital prerequisite for better diplomatic ties.
Finally, a market-driven India can, by efficient use of its available capital, harness a consultative neighborhood network that binds the Indian market more tightly with the rest of South Asia and with ASEAN. Such a tight binding, achieved with the help of other powers like Japan and multilateral institutions such as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), would offer a credible alternative, as it would be backed by historical, cultural and religious ties at its foundation. India should, therefore, focus exclusively on expanding its own infrastructure rather than towing the Chinese line on the OBOR initiative.
Rakshit Mohan is a student of Development Studies at Tata Institute of Social Sciences, Mumbai, India.
Aditya Menon is a student of Regulatory Governance at Tata Institute of Social Sciences, Mumbai.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.