“God invented war, so that Chinese study geography”
Prior to the initiation of economic reforms and trade liberalization 36 years ago, China maintained policies,that kept the economy very poor, stagnant, centrally-controller, vastly inefficient, and relatively isolated from the global economy. Since opening up to foreign trade and investment and implementing free market reforms in 1979, China has been among the world‟s faster-growing economies, with real annual gross domestic product (GDP) growth averaging nearly 10% through 2014. In recent years, China has emerged as a major global economic power. It is now the world‟s largest economy (on a purchasing power parity basis), manufacturer, merchandise traders, and holder of foreign exchange reserves.
The global economic crisis that began in 2008 greatly affected China‟s economy. China‟s exports, imports, and foreign direct investment (FDI) inflows declined, GDP growth slowed, and millions of Chinese workers reportedly lost their jobs. The Chinese government responded by implementing a $ 585 billion economic stimulus package and loosening monetary policies to increase bank lending. Such policies enable China to effectively weather the effects of the sharp global fall in demand for Chinese products. However, the Chinese economy has slowed in recent years, due in part to sharp slowdowns in the growth rates of export and fixed investment. Real GDP fell from 10.4% in 2010 to 7.8% in 2012, to 7.3% in 2014. The IMF projected that China‟s real GDP growth has been 6.8% in 2015 and 6.3% in 2016.
Earlier growth has been attributed to high rate of domestic savings, productivity gains and Foreign Direct Investment (FDI), but the things have changed now:-
1. China‟s internal debt is 377% of GDP, total outstanding bonds are 37 Trillion RMB, maturing at the end of this year. Growth of outstanding bonds is 23% at GDP growth is stagnant below 10%.
2. Many of China‟s soft power projects have failed like dry canal project in Colombia & Nicaragua, Mexico has cancelled $ 43 bn project, Honduras project is a non-starter due to environmental problems.
3. Many are worried about RMB devaluation as it may trigger currency wars or shady hedge funds especially when RMB has golden basket status by International Monetary Fund (IMF)
4. There is a large over capacity in infrastructure, cement and steel industry. This has resulted large scale lay-offs to the extent of 16-25 mn. workers and large NPAs with banks to the extent of $ 40 bn, 20% of which is in infrastructure companies resulting in re-valuation of credit ratings.
On this background, OBOR (now, Belt & Road Initiative) should be analyzed. China has announced 13th 5 Year Plan “New Normal”. This changes the emphasis from heavy industry to higher end of the value chain like electronics and telecommunications. This requires low resource extraction. Also Chinese overseas direct investments are yielding good return on investment to the extent of 19%. While this should be their focus, China is still keeping up investments in large infrastructure projects, typically with 14 years pay-back period. Last year these projects grew by 18.4%. Interestingly, China has acquired Holcim Sri Lanka Cement Company with valuation of $ 18.4%. Interestingly, China has acquired Holcim Sri Lanka cement company with valuation of $ 250 mn. China paid $ 500 mn. primarily to get hold on Trincomalee Port. Thus it must be noted that, for China there is nothing economic, Defence, foreign affairs but everything is strategic.
e, besides to consolidate Xi‟s position and divert attention from internal problems. Hence, India must be very cautious in dealing with BRI (OBOR). It must be borne in mind that wherever Chinese have given soft loans, the costs are exorbitant. China has provided Sri Lanka over $ 5 Bn from 1971- 2012 for infrastructure development and $ 2 Bn. for deep sea port at Hambantota, Mattala Airport and Colombo City Port at 6.3% interest rate and as Sri Lanka is unable to repay the debt, it has been converted into equity. Today China has 80% of total share and 99 year lease of Hambantota. Similar is the fate of China-Pakistan-Economic-Corridor (CPEC). Besides, CPEC passes through Gilgit-Baltistan and POK and therefore is absolute no-no for India.
BRI which spans 65 nations, 62% of world‟s population and 30% of economic output, is estimated to be $ 7 Tr. Project. Nearly $ 500 bn. worth of projects and M & A deals were announced 2016 across seven infrastructure sectors including utilities and telecoms, a decline from 2015. A third of those deals are in China which has committed, merely $ 115 bn. as extra funding. Thus many thinkers are skeptical about the economic feasibility itself on the project. China itself is apprehensive about CPEC due to,
a) competition among political parties in Pakistan for power grabbing
b) religious rivalries among Shias & Sunnis and resultant turbulence
c) Tribal afflictions in CPEC adjoining areas
d) terrorist activities in Balochistan
e) Interference of western countries, meaning primarily the US.
Here the author has used two quantitative techniques to assess India‟s position:
i) Braess‟s paradox: This is an explanation for India‟s position of non-participating in the BRI based on Network Theory. This paradox suggests that India should refrain from participating in BRI.
ii) Selfish Routing: This game theoretic approach explains how China can gain with less investment due to private information and supports India stand of not taking part in BRI.
Thus the author proposes that India does not participate in BRI.
India's Options:
1. Complete as early as possible, India-Bangladesh-Myanmar-Thailand initiative.
2. Fix North-East before Act East.
3. Expansion of Chhabar Port and connectivity through Milak, Zaranj & Delaram by Garland Road connecting Heart, Kandhahar, Kabul and Mazar-E-Sharif. Supporting the development with the help of Japan and Exim Bank of India.
4. Implementing the MOU signed for financing Chhabhar-Zahedan Railway line as a part of North-South Transport Corridor linking Iran, Afghanistan and Russia. This has been delayed as Iran has not yet completed loan application to Exim Bank of India.
5. North-South Transport corridor involving ships, road and rail routes connecting India, Russia, Afghanistan, Central Asia & Europe.
6. Opening up Central Asian Connectivity.
7. For energy security India has to be very careful about Turkmenistan-AfghanistanPakistan-India or Iran-Pakistan-India pipeline. Middle East to India Deep-water pipeline (MEIDP) seems a better option.
8. India’s Tibet card seems less and less effective and merely symbolic. India should engage actively with Taiwan, not only for diplomatic reasons but also for FDI & Technology.
9. More active role in South China Sea as China enters Indian Ocean Region.
10. Frustrate Chinese ambitions with CPEC.
CONCLUSION
India, due to her unique geographic position is a major force in the new Global Order. India should recognize China‟s strategic designs and refrain from taking part in Belt Road Initiative (OBOR). India needs to develop her own trade links and open sea lines of communication to support strategic and economic initiatives like Make-in-India.
