war on the rocks

India and the United States Should Revisit Their Opposition to China-Led Connectivity

December 26, 2017

Editor’s Note: This is the fourteenth installment of “Southern (Dis)Comfort,” a new series from War on the Rocks and theStimson Center. The series seeks to unpack the dynamics of intensifying competition — military, economic, diplomatic — in Southern Asia, principally between China, India, Pakistan, and the United States. Catch up on the rest of the series.

 

For the last several months, there has been a concurrent rise in criticism from the United States and India of China’s Belt and Road Initiative — the trillion-dollar, 65-country connectivity project that encompasses the breadth of the Eurasian and Indian Ocean regions.

Shortly after his visit to New Delhi in September, Secretary of Defense James Mattis told Congress that the Belt and Road Initiative was an attempt by Beijing to dictate connectivity and that the project runs through “disputed territory.” His sentiments were echoed weeks later by Secretary of State Rex Tillerson, who insinuated that the project was an example of “predatory economics.” And in its National Security Strategy released last week, the Trump administration — in an indirect swipe at Belt and Road —pledged to “help South Asian nations maintain their sovereignty as China increases its influence in the region.”

The Trump administration’s more critical posture toward the connectivity project is a departure from its initial tacit embrace. Washington sent a delegation to the Belt and Road Forum in May, while New Delhi boycotted the event, stating that “connectivity initiatives must be based on universally recognized international norms, good governance, rule of law, openness, transparency, and equality” — implying that the Belt and Road Initiative contravenes these norms. India stands out as one of the few Asian countries that have yet to join.

With nearly identical oppositional language now emanating from official and semi-official corridors in India and the United States, a bilateral consensus appears to be emerging.

Given New Delhi’s aspirations to become a great power, its reluctance to embrace projects that seem to advantage Beijing is understandable. But India’s strategic community — as well as U.S. analysts and policymakers influenced by New Delhi’s discourse — ought to revisit some of their complaints about the Belt and Road Initiative and the “closely related” China-Pakistan Economic Corridor (CPEC), as they largely do not hold up to scrutiny. These contentions revolve around a misplaced belief that China’s underlying goals are to exclusively dictate connectivity, deploy a strategic project disguised as an economic one, and redraw India’s borders. In fact, both the Belt and Road Initiative and CPEC are massive connectivity initiatives with a clear economic logic. Far from a coherent effort to establish China’s strategic dominance over its neighbors, the projects are in fact aimed at fueling the next generation of growth both in China and throughout the Eurasian and Indian Ocean regions.

Contention 1: China Is Dictating Connectivity

Along with Mattis, officials in New Delhi have argued that Beijing is aiming to dictate connectivity or impose on other countries a physical dependence on China-bound logistics networks for trade.

These claims wrongly presume a level of coherence to the Belt and Road Inititative as a business model or grand strategy. China-based or Chinese state-owned enterprises are investing in ports and special economic zones in relatively close proximity to one another: Abu Dhabi, Colombo, Duqm, Gwadar, Hambantota, and Karachi. With different project sponsors — the Duqm project in Oman, for instance, is led by companies based in the Ningxia Hui Autonomous Region — it’s unclear how these ports will compete with or complement one another. Rather than a grand strategic plan, the Belt and Road is perhaps better viewed as a series of asymmetrical parts — projects in dozens of countries that may or may not fit together a decade or two from now. As Alexander Gabuev at the Carnegie Moscow Center notes, the initiative “has become so inflated, that it’s no longer helpful in understanding anything about China’s relationship with the outside world.”

Perceptions of Belt and Road as a hegemonic venture also stem in part from its original name: the One Belt, One Road initiative. But Beijing dropped the word “one” from the initiative’s name in 2016 in response to these criticisms, renaming it simply the Belt and Road Initiative. While the change could be symbolic, it does suggest that Beijing is responsive to criticism and its approach toward the initiative can be influenced by external criticism. China is also careful to describe the Belt and Road as an “initiative” and not a “strategy” to emphasize that its objectives are economic, not military.

Similarly, Indian commentators describe CPEC as a Chinese effort to unilaterally redraw the region’s economic geography in Beijing’s favor. Retired Indian Army officer Lt. Gen. PK Singh argues that CPEC “draws Pakistan further away from South Asia towards China.” Indeed, the corridor could very well drive Pakistan away from the South Asian economic ecosystem toward China — though, as I will discuss later, it also provides a potential opportunity for northwestern India to reach western Chinese markets. By boosting economic activity between and along the belt from Kashgar in China to Pakistan’s Arabian Sea coast, linking the world’s second-largest economy with South Asia’s second-largest economy, CPEC is likely to weaken India’s potential to serve as the linchpin of intraregional trade in South Asia. India must reconcile and work with this rather than simply protest. While “India, Inc.” is a global player in banking, information technology services, and energy, it lags behind China in the scope and reach of its merchandise trade. China also offers Pakistan greater potential as an export market. Presently, most trade between China and Pakistan is by sea. But with more efficient and reliable ground connectivity with western China and investment in Pakistani commercial agriculture and livestock industries, Pakistani exporters will make greater use of overland access to China.

Importantly, China is not unilaterally building or financing any roads to Pakistan’s Arabian Sea ports. China is financing and constructing the Gwadar Port and the upgrade of the Karakoram Highway in Pakistan’s Gilgit-Baltistan region, but the new highway networks that actually connect China to these ports in Pakistan are mainly funded by other lenders. The Hazara Motorway, which links the Karakoram Highway to the Rawalpindi-Islamabad area, is funded by the Japan-led Asian Development Bank and Britain’s Department for International Development. The rehabilitation of a section of CPEC’s “western route” in Balochistan was funded by USAID (the road is part of Pakistan’s national highway network and the USAID project was launched well before the road was notionally included as part of CPEC). The corridor’s single-largest road project in terms of cost is a section of the Karachi-Lahore Motorway. One of its other sections is funded by a consortium of Pakistani banks and it overlaps with a highway funded by the Saudi-led Islamic Development Bank. In short, China has no potential unilateral route to the Arabian Sea. It must cross through Pakistan’s national highway network, which is mainly financed by Pakistani and other foreign lenders.

Contention 2: Belt and Road and CPEC Are Strategic Projects Masked by an Economic Façade

Indian strategist Brahma Chellaney has described the Belt and Road Initiative as a form of “debt-trap diplomacy” in which China saddles poor countries with debt they have little odds of paying back, which it then leverages to exact concessions that undermine those countries’ sovereignty and autonomy. Chellaney claims that BRI heralds the “dawn of a new colonial era.” His view reflects an Indo-American consensus, as suggested by Tillerson’s reference to “predatory economics.”

But neither Belt and Road nor CPEC is a strategic ploy masquerading as investments, as some allege. CPEC specifically has a real and powerful economic logic for Pakistan, China, and even India. The corridor does offer China some indirect strategic benefits — it consolidates Beijing’s alliance with Islamabad and reduces its dependence on the Malacca chokepoint. But CPEC is ultimately about economics. It not only raises the potential for cross-border Sino-Pak trade, it also enhances Pakistan’s ability to trade with the outside world beyond China. Most of the nodes that constitute the project’s road network bolster Pakistan’s domestic connectivity and with the outside world.

In fact, the aforementioned Karachi-Lahore Motorway resembles India’s own planned Delhi-Mumbai Industrial Corridor and runs parallel to it. Much like the Indian highway, the Karachi-Lahore Motorway cuts transport time between Pakistan’s two largest cities. There are also planned industrial zones along the route. And the Karachi-Lahore Motorway will be complemented by upgrades to Pakistan’s main rail line.

Not only do the two highways run parallel to one another, CPEC can potentially fill the gaps in between. For example, with the completion of the Karachi-Lahore Motorway in 2020, Karachi could be the fastest route to sea by road for traders in Amritsar in India’s Punjab state. Additionally, with the completion of the Karakoram Highway realignment, traders in northwestern India may also be able to access western China’s markets more readily through Pakistan, potentially reducing the trade deficit with China that India routinely complains about. While India often thinks of Pakistan as an overland trade route to Afghanistan, there is also potential for India-China transit trade through Pakistan.

Indian commentators, such as Singh, also describe the Gwadar port as a strategic project that is not economically viable. But in fact, that is a more accurate description of India’s Chabahar port project. Gwadar may be able to absorb some of China’s transshipment with the Persian Gulf and East Africa and host industries like mineral processing and petrochemicals. Meanwhile, Chabahar is oriented around Afghanistan, a narco-state whose documented economy has grown at an annual average 1.65% over the past four years, according to the World Bank. India has used Chabahar to send food aid to Afghanistan to bypass the Pakistan transit route and replace Pakistan as Afghanistan’s primary source of imported wheat. But the fact that Indian wheat had to be sent to Afghanistan fully subsidized indicates that the prospects for Chabahar-based Afghanistan trade are dim.

Critics of China’s overseas investments point to the case of the Sri Lankan port of Hambantota — the Sri Lankan government was compelled to swap equity in the loss-making venture to China in exchange for debt forgiveness — but ignore the Greek port of Piraeus, which a Chinese state-owned operator has catapulted into one of the world’s top 40 container ports in less than eight years. As Belt and Road rolls out, its infrastructure portfolio is likely to include Hambantotas, Piraeuses, and outcomes in between.

Hambantota, it should be noted, was at its heart a vanity project for the previous Sri Lankan president, Mahindra Rajapaksa. Chinese financers and sponsors went forward with a grandiose project that Western and other multilateral donors and investors would have rejected. The indulgence of foreign rulers is, in fact, a characteristic of Chinese foreign assistance. A study of Chinese aid in Africa shows that it’s far more likely to go toward the home districts of African rulers than compared to aid given by other donors and lenders.

With CPEC, the Chinese appear to be adopting greater prudence, emphasizing the fiscal and commercial viability of projects. While the bulk of the aid is directed toward the Pakistani ruling party’s base of Punjab, the province is also home to a majority of the country’s population and the bulk of its industrial centers. And Pakistan’s railways minister said that when Pakistani officials asked the Chinese for a bullet train, “they laughed at us.”

Contention 3: CPEC Moves Through ‘Disputed Territory’ and Is an Attempt to Reconfigure Borders

Indian and American officials have said that CPEC moves through “disputed territory,” but this is another red herring. The term “disputed territory” refers to the Karakoram Highway that passes through Gilgit-Baltistan, also claimed by India as part of the ongoing territorial dispute over Jammu and Kashmir.

But the Karakoram Highway has been in existence for nearly four decades. Under CPEC, the road network is merely being realigned and enhanced to facilitate commercial traffic. China is also developing hydroelectric power projects in the regions of Kashmir under Pakistan’s administration, Gilgit-Baltistan and Azad Jammu and Kashmir. But the United States and multilateral lenders have previously financed similar projects in Pakistani Kashmir. And India has is planning upwards of $15 billion in hydroelectric power projects in the portion of Kashmir that it controls.

These projects do not alter the boundaries of these disputed regions. And in any event, in Gilgit-Baltistan, the prevailing demand is for greater integration within the Pakistani federation.

Will India Be the Odd Man Out?

Neither the Belt and Road Initiative nor CPEC are manifestations of Beijing’s altruism. Through both projects, Chinese banks are financing the overseas operations of state-owned enterprises that are facing overcapacity and oversupply at home. Foreign countries will gain new infrastructure and electric power that they will pay back through direct repayment or indirectly via electric power bills.

Still, Pakistan is bound to gain from CPEC. The best option for India, as well as Japan, is to compete in areas where they can offer value.

Others in this series have noted the need for more pragmatic realism in Pakistan’s foreign policy, but India too would benefit from a dose of realism about the gap between it and China and what it gains from absolute opposition to the Belt and Road Initiative. In terms of physical infrastructure, India is in many ways better positioned to be a beneficiary of multilateral support than a leader or lender. Its road infrastructure is at least a decade behind China’s. It needs Chinese, Japanese, and South Korean expertise in developing and financing road and high-speed railway networks. India, whose productivity pales in comparison to other large economies, also lacks the ability to build the successful industrial zones that are generally paired with thriving ports.

But India, along with Japan and South Korea, can compete with China on electric power projects and, perhaps down the road, on metro rail transport projects. India and Japan have had success in outcompeting China in Bangladesh’s power sector.

In a previous contribution to this series, Daniel Markey noted that “China’s deeper involvement in Southern Asia is stirring competitive Indian tendencies rather than cooperative ones.” A decade from now, India will have to assess what it has gained in opposing the Belt and Road Initiative and instead spending hundreds of millions of dollars on connectivity with countries like Afghanistan (assuming New Delhi fulfills its pledges on Chabahar). India may find itself to be the odd man out.

India’s interests and regional stability will be better served by a greater effort to look for economic convergences with China and Pakistan. That does not mean India should return to its pre-1962 war naivete and call for Sino-Indian brotherhood (Hindi-Chini Bhai Bhai). The two countries are and remain strategic competitors. But strategic competition has not inhibited trade between the two Asian giants, which grew from $2 billion to $70 billion from 2000 to 2014. India ought to view Chinese investments in Pakistan with similar pragmatism. And to unleash the region’s economic potential, New Delhi should engage Islamabad in dialogue to find pathways toward de-escalation in Afghanistan and Pakistani Balochistan, where India and Pakistan are engaged in shadow wars. By 2019, when the general elections in Afghanistan, India, and Pakistan are complete, deescalation can perhaps yield to a composite bilateral dialogue on resolving outstanding issues — including Kashmir — allowing South Asia’s two largest economies to redevote energy toward regional economic cooperation.

 

Arif Rafiq (@arifcrafiq) is president of Vizier Consulting, LLC, a political risk advisor company focusing on the Middle East and South Asia, and a non-resident fellow at the Middle East Institute.

Have your say on the future of War on the Rocks

We'd be so grateful if you'd spend 10 minutes filling out our annual survey.

We have some big decisions ahead of us and want to be sure you are heard.