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China’s Silk Road Looks to Revive its Economic Fortunes

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On January 18 a locomotive with 34 carriages pulled into Barking Rail Freight Terminal in London’s east end. Normally, this would not be in any way out of the ordinary. This particular train, however, had travelled 7,456 miles to reach its destination. Departing from Yiwu, China, the journey took 16 days and travelled across eight different countries to deliver its goods to the UK market.

The Yiwu-London route is just the most recent development of China’s One Belt, One Road (OBOR) policy; a massive international infrastructure development program which spans Eurasia and aims to remove the divide between separate European and Asian trading blocs. This investment program is the brainchild of current president Xi Jinping who sees it vital to the success of his presidency and China’s future economic prosperity.

A Slowing Economy

As Mr. Xi succeeded the outgoing Hu Jintao in 2013, it became clear that the country as a whole was also beginning to transition. China has been the engine of world economic growth for the last several decades due to its large manufacturing sector, powered by an almost unlimited supply of cheap labor in a constant human stream moving from rural areas to urban ones. This job powered movement has been described as the greatest migration of people in human history. The parallel construction of factories and accommodating infrastructure helped China achieve double digit economic growth rates during Mr. Jintao’s decade long presidency.

This remarkable growth started to slow as Mr. Xi took office partly due to the increasing wages and gradual aging of the working population. With an annual growth rate of 6.7% in 2016, the lowest in 25 years, concern has started to spread. Foreign owned factories began looking towards other regions to build their facilities. Countries like Vietnam have seen an increase in investment both in their development and in migrants working across the border in China for smaller wages. Worldwide commodity prices have tumbled at any rumor of a slowdown of the Chinese economy. Additionally, the 2008 economic crisis brought with it a massive debt burden. Currently nearing 44% of debt to GDP, China’s borrowing has not slowed, which makes it susceptible to another 2008 style crisis.

Mr. Xi’s answer to the economic slowdown came in the form of a throwback to China’s Golden Age; a time when a romanticized silk road linked the European and Asian markets in a constant stream of merchants, goods, and ideas. Much more than a romanticized notion, the economic benefits of an infrastructure and capital injection of a scale not seen since the post-war Marshall Plan, could rejuvenate a faltering economy and make Beijing a center of world trade and diplomacy.

Silk Road Redux

OBOR, at its heart, is a trade infrastructure investment program which aims to build or upgrade existing overland and maritime trade routes. The official figures associated with OBOR are so impressive that it is difficult to find a historical precedent which matches it in scale (apart from the aforementioned Marshall Plan). There are roughly 900 projects currently underway according to official state media. This puts a total valuation of both overland and maritime routes at approximately $890 billion. The Chinese ambassador to the UK even boasted that OBOR would include 60 different countries with about two-thirds of the world’s population. Clearly these figures should be taken with a grain of salt, but if they are anywhere close to reality, then it would be plain to see that China is tying much of its economic and strategic future to OBOR.

Individual projects include a planned dam in Pakistan, a new railroad in Uzbekistan, a transport hub in Germany as well as a stake in Greece’s second largest port, among many others. The Chinese government finances these projects through its sovereign wealth fund as well as through an investment bank created specifically for OBOR, called the Asian Infrastructure Investment Bank (AIIB). These combined funds currently provide a startup amount of about $140 billion. Additionally, private enterprise is encouraged to take part with Chinese regions and companies attempting to connect to the Silk Road network.

The increased activity of Chinese construction companies is a central facet of OBOR as the country looks abroad for economic opportunity. As part of its attempt to reign in state credit lending and debt, China is trying to offset the increasing production costs associated with Chinese goods with lower transportation costs to European and Asian markets. It also stands to make Chinese banks attractive to foreign lending as they standby to lend increasing amounts of currency in the form of Yuan to Silk Road countries to finance OBOR construction. Naturally, there are also some soft power incentives for Chinese officials as well. At a time when the struggles for influence over Central Asia, the Middle East, and even parts of Europe dominate the headlines, a potential finance power like China could consolidate its influence over these regions through strategic lending. If managed correctly, OBOR could be a multi-pronged approach to ensuring long term economic and diplomatic success for China.

If managed incorrectly, however, China could potentially be in a more precarious economic situation. As discussed previously, the $140 billion raised through the sovereign wealth fund and the AIIB is far short of what is needed for an $890 billion valuation of the projects. There has been little mention of how China may go about funding the rest of OBOR, but if the decision is made to risk borrowing the required funds, the world’s second biggest economy will be disappointed with anything short of complete success. The situation may become more unstable when taking into account the endemic corruption and potential for default of many of OBOR nations. Also, any nation involved in such an extensive undertaking would be in untested waters. Would Chinese construction companies and banks be capable and flexible to manage diverse projects in dozens of countries? And finally, the lack of clear framework and timeframe for completion leaves plenty of ambiguity for what a completed Silk Road may look like.

The One Belt, One Road development program is still in its initial stages. What becomes of it is still entirely up in the air with plenty of variables, moving parts, and agreements still to be made. The program’s ambition, however, cannot be doubted. If nothing else, an attempt to seamlessly link European and Asian markets is a noble one in terms of diplomacy. Economically, China has much riding on OBOR’s outcome. Its economy will not return to being what it once was, nor do most Chinese want that to happen. With new environmental regulations and a growing middle class, China seeks a new more modern way to prosperity. The foreign adviser to Mr. Xi, Yang Jiechi, who is also closely tied to OBOR, outlined China’s aims of being a well-off society by 2020 and a strong and prosperous one by 2050. If China’s future reality matches its present ambitions, then it is extremely likely that Mr. Yang’s aims will be realized.

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East Asia

Nepal-China Boundary Treaty: An example of peaceful Himalayan frontiers

Birat Anupam

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image source: Chinese Embassy in Nepal

Chairman Mao: How is everything with Your Excellency? Have all the problems been solved?

King Mahendra: Everything is settled.

Chairman Mao: Fair and reasonable?

King Mahendra: Yes. We all agree.

Chairman Mao: It is good that we agree. There is goodwill on both sides. We hope that will get along well, and you hope we shall get along well too. We do not want to harm you, nor do you want to harm us.

King Mahendra: We fully understand.

Chairman Mao: We are equals; we cannot say one country is superior or inferior to the other.

King Mahendra: We very much appreciate the way of speaking.

This was a snippet of the candid conversation between founding father of People’s Republic of China Mao Zedong and Nepal’s the then king Mahendra on the historic Nepal-China Border Treaty day of 5 October 1961. A book titled ‘MAO ZEDUNG ON DIPLOMACY’ has detailed this conversation. The conversation is mentioned under the topic of ”Talk with Nepal’s king Mahendra Bir Bikram Shah Deva and the queen’ (page 366 and 367) in the book.

This famous diplomatic book of Mao was compiled by The Ministry of Foreign Affairs of the People’s Republic of China and the Party Literature Research Center under the Central Committee of the Communist Party of China and was published by Foreign Languages Press Beijing on 1998.

This conversation, from the verbatim records, speaks volumes about the level of trust and the height of friendship between two neighbors Nepal and China.

Nepal-China boundary: An example of speedy settlement

Nepal and China boundary settlement has reached 59 years of its signing ceremony at Beijing. It is an extraordinary example of speedy settlement. Nepal and China formally established diplomatic relationship on 1 August 1955.

Few years later on 21 March 1960, Nepal and China signed Boundary Agreement. Nepal’s first democratically elected Prime Minister Bishweshwar Prashad Koirala signed it during the official China visit. The friendly diplomatic dialogue of Koirala and Mao is also included in the book ”MAO ZEDUNG ON DIPLOMACY’ under the topic of ”The Sino-Nepal Border Must be Peaceful and Friendly Forever.”  

On 5 October 1961, Nepal and China signed Boundary Treaty at Beijing during the state visit of the then king Mahendra. The 1414-kilometer-long border treaty protocol was finally inscribed on 20 January 1963.

The adjustment was made on equal footing by land-swapping with Nepal gaining more land than it gave. According to a working paper presented at ”International Cross-Border Conference on Border Regions in Transition (BRIT)-XII Fukuoka (Japan)-Busan (South Korea) 13-16 November 2012” by Nepal’s former Director General of Survey Department and the author of the book titled ‘Boundary of Nepal’, China had given 302.75 square kilometer more land to Nepal.

The paper says, ”the adjustment was made on the basis of ‘give’ and ‘take’ and the inclusion of some pasture land within Nepalese territory. With this principle, Nepal had given 1,836.25 square kilometer of land to China and Nepal had taken 2,139.00 square kilometer, as it has been added 302.75 square kilometer of Chinese territory into Nepal.”

Nepal-China border settlement is an excellent example of speedy border settlement compared to Nepal’s southern neighbor India. Since the formal diplomatic engagement of 1955, it just took around eight years to ink full-fledged technical border adjustment between Nepal and China.

Tragically, Nepal and India are at odds over the border demarked by 204-year-old Treaty of Sugauli. The recent issue of Lipulekh, Kalapani and Limpiyadhura and new political map of Nepal unanimously approved by lower and upper houses of the federal parliament point to the long-pending friendly border settlements between Nepal and India.

Media myths on China’s encroachment of Nepal’s territory

Nepal and India has not resolved much of their border tensions since long. Lately, there are some media reports, mainly from India, about so-called Chinese ‘encroachment’ of Nepal’s territory. There was report about missed pillar number 11. However, it came out to be untrue with the finding of the pillar.  After field inspection and technical studies, Chief District Officer of Humla district, Chiranjibi Giri, made it clear that the rumored border encroachment from China was not the fact.

Similar incident was reported few weeks ago when Nepal’s leading daily Kantipur claimed China’s encroachment of Nepal’s territory citing unverified Ministry of Agriculture, the ministry that has nothing to do with border issues. However, after formal clarification from Nepal Government, the report was found to be false and the biggest daily of the nation apologized.

There is a section in Nepal that desperately wants to draw parallel between factual Nepal-India border tensions with fictitious Nepal-China border rows. However, so far, this mission has proven wrong at times.

Nepal does not have any serious border tension with China. The only concern Nepal has it about China-India agreement to ‘boost border trade at Quiangla/Lipu-Lekh Pass’ as said in the 28th point of the  joint communiqué issued by visiting Indian Prime Minister Narendra Modi and his Chinese counterpart Li Keqiang on 15 May 2015.

Nepal has diplomatically protested about this agreement by two countries as Lipulekh falls in Nepali territory not only based on the Treaty of Sugauli of 1816 but also the Nepal-China Boundary Treaty of 5 October 1961. Given China’s generosity and friendliness towards Nepal, it is not a big issue to address. Nepalese citizens are optimistic on China’s support on Nepal’s sovereignty over Lipulekh.

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East Asia

Why doesn’t China take India seriously?

Shalabh Chopra

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India needs to formulate a long-term strategy on China, lest it be lurching from one crisis to another.

Amid rising anti-China sentiment in the aftermath of the bloody border clash with China, India has announced a slew of measures to curtail Chinese presence in the Indian economy. Building on previously imposed restrictions on foreign direct investment (FDI) from China, the latest round of regulations constitute banning over 200 Chinese apps and clamping down on Chinese investments in Indian startups. These measures, while drawing applause from Western governments such as the US and helping massage the nationalistic ego, have seemingly failed to irk the Chinese administration as much as India would have intended, let alone compel the PLA to pull back from the disputed areas along the long and undemarcated Indo-China border. In previous instances as well, India’s signalling to China of allying more closely with the United States in response to China’s aggressive posture on the border has failed to yield desirable results. This begs the question: why does not China take India seriously? The answer may lie in India’s China policy which can be described as reactive at best and incoherent at worst.

India’s Policy Conundrum

Although its geopolitical rise has been significant – next only to China, India still finds itself bereft of a world order concept or a guiding foreign policy framework. The lack of which, when it comes to dealing with China, has translated into a foreign policy muddle. Mohan Malik, for instance, points out that there are three schools of thought in India’s policy-making with regards to China – pragmatism, hyperrealism, and appeasement. Pragmatists maintain that India should balance China both internally (increasing its economic and military strength w.r.t. China) and externally (by forging alliances and enhancing interstate cooperation with other powers) while mitigating differences through economic and diplomatic engagement. Hyperrealists decry pragmatists’ optimism that increased trade and economic engagement can win over a territorially unsatiated China and instead argue for an unabashed encirclement strategy towards it with other China-wary powers. Appeasers posit that China is a benign and friendly power, meaning no harm to India and that it should be enthusiastically engaged. In trying to accommodate such plethora of views in dealing with China, successive Indian governments have found themselves muddling through one approach to another.

Current Government and Policy Flip-Flops

Following the Galwan clash, India appears to be hinting at a change of tack as evinced by India’s External Affairs Minister S. Jaishankar’s repeated assertions that realism should shape India’s China policy and that peace and tranquillity on the border cannot be separated from the overall architecture of bilateral ties. India’s slashing of Chinese presence in the Indian economy suggests a move in that direction. China’s rather staid response to India’s manoeuvres stems from a general under appreciation of Indian resolve to follow through on such a policy initiative. China’s belief in Indian irresoluteness is not without basis either. The new dispensation led by Narendra Modi started off by trying to bring the “pragmatic” element more into play in India’s dealings with China. To this end, it resorted to a two-pronged strategy of bolstering strategic ties with other regional partners alarmed by China’s newfound boldness such as Vietnam, Japan, Indonesia, Australia among others and spurred up defense and strategic ties with the US, while simultaneously trying to improve relations with China by enhancing bilateral trade (which was already heavily-tilted in China’s favour). However, relations nosedived with the Doklam standoff in June 2017 which lasted for over three months. Cognizant of its power differential with China, and therefore not keen on antagonizing it any further, India broached the idea of organizing an informal summit between Chinese President Xi Jinping and India’s PM Narendra Modi. As the two leaders met in picturesque Wuhan, India had by then made up its mind to drop the “pragmatic” yet somewhat “confrontational” approach and decided in favour of going full throttle with appeasement vis-à-vis China. Following the summit, the Indian government scaled down its contact with the Tibet’s India-based government-in-exile and refused to back Australia’s bid to participate in the annual Malabar exercise. What exactly did India hope to achieve with such tactics is anyone’s guess as China continued to brazenly oppose India’s membership to the Nuclear Suppliers Group (NSG) and block India’s efforts to get Pakistan-based terrorist Masood Azhar admitted to the UN Sanctions list – eventually relenting on the latter (courtesy of US pressure) while continuing to hyphenate India’s cause with Pakistan’s in the case of former.

A Long History of Fluctuating China Policy

As a matter of fact, the blame for such a vacillating policy cannot be squarely put at Modi’s doorsteps. Historical precedents abound where previous Indian governments too have struggled to come up with a comprehensive and coherent strategy on China. Notable examples include Jawaharlal Nehru’s flip-flops on China threat which not only cost India loss of territory but also resulted in a personal loss of face for Nehru. Some twenty-five years later, Rajiv Gandhi who showed remarkable courage in standing up to the Chinese challenge in a serious military provocation along the eastern flank of the LAC let go of the chance to articulate India’s long-term strategy vis-à-vis China and instead sought a quick return to normalcy in bilateral ties following his visit to Beijing in 1988. A decade later, AB Vajpayee, after having justified India’s nuclear tests as a response to Chinese nuclear weapons, ended up describing China as a “good neighbour” in his address at the Peking University only a couple of years later. Indeed, India’s foreign policy history is riddled with complacency on the part of successive Indian governments in dealing with its largest neighbour, and a continual cause of strategic concern.

It is clear that unless India does away with policy ad-hocism and sticks with a clear, long-term China policy,it would not be able to effect a change in China’s attitude towards itself. In this regard, Jaishankar’s recoupling of economic and trade ties with the larger border question is a welcome move, but a lot would depend on how determined India is to persevere through the demanding nature of realpolitik.

Notes:

  1. Mohan Malik’s article on three schools of thought on India’s China policy: accessible at: https://apps.dtic.mil/dtic/tr/fulltext/u2/a591916.pdf

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East Asia

India-China Relations: A Turbulent Future?

Leoni Connah

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On the 10th May 2020, Indian and Chinese troops engaged in a cross-border dispute in Sikkim. After built up tensions, a month later another clash began in The Galwan Valley. By September, shots had been fired for the first time in over 40 years. Such confrontations are the worst India and China have seen in recent years. Although face-offs between the two sides are not uncommon, border disputes do pose a challenge for Indian and Chinese security. Also, their economic relationship could be strained if the two rising giants do not resolve their territorial dispute. Therefore, this article looks at the recent tensions between the two states and considers what this means for the future of their bilateral relationship.

Where did it Begin?

The Sino-Indian war took place in 1962, when Indian and Chinese troops fought over the Himalayan territory of Aksai Chin. Aksai Chin is located between Tibet, Xinjiang and Ladakh and territory was the primary cause of the war, as well as other issues including sporadic violence. China had gradually exerted its influence over Aksai Chin for four years before the war. At the time, India placed its forces along the border, but China’s strategy was to launch a full-blown attack. China’s standpoint was that the territory they were fighting over was deemed the Line of Actual Control (LAC) and they should have sovereignty over it. As India’s strategy was one of defence, they were outnumbered and lacked sufficient weaponry. Therefore, they suffered heavy casualties with many of the army killed, wounded, missing and captured. The war lasted until China announced a unilateral ceasefire on 21stNovember 1962.India was left defeated and humiliated as it was never prepared for a war with China. Until 1962, India had always focused on the security threat posed by Pakistan and had the upper hand militarily.

Cross-border Disputes

Since the 1962 war there have occurred numerous infrequent stand-offs between Indian armed forces and Chinese armed forces along the disputed territory. There is a competitive nature between the two states whereby these stand-offs become an opportunity to militarily flex their muscles. Episodes occurred in Northern Ladakh in 2013 and Eastern Ladakh in 2014. In 2017, the situation escalated when China attempted to form a road that would extend its border into India. India opposed this and feared that if the road was built, China would have increased access to the Siliguri Corridor, also known as the ‘chicken’s neck’. This is a highly contentious area for India as they believe it is a strategic asset to them because it connects the North Eastern states to the mainland. The high-altitude stand-off lasted for over a month. In September 2019, another violent clash took place near the Pangong Tso (lake), an area that China has control over two thirds of. The most recent disputes involved pushing, shoving, fists, wooden clubs, and stone throwing. The skirmish in May resulted in 11 injured in total, 4 Indian forces and 7 Chinese forces. It was resolved by local brigadier-level sector commanders who were able to discuss the tensions and come to a resolution. However, the clash in June saw 20 Indian soldiers dead and up to 40 Chinese casualties. In late July, it was believed that troops were withdrawing from the border region. However, this remained incomplete and throughout August and September, Indian troops were continuing to deploy along the LAC. For over 40 years, no bullets were fired in these skirmishes because of the de facto border code that prohibits the use of firearms. However, this changed in September when the first shots were fired. The most recent disputes are believed to have been triggered by a disagreement over the location of Chinese observation towers and tents. It seems, tensions have been building since India’s revocation of Article 370 in 2019 and China’s resistance against India’s infrastructure plans in the borderlands.

A Turbulent Future?

In 2018, PM Modi and President Jinping agreed to maintain peace along the border at the Wuhan summit. India and China’s collective economies make up over 17% of the entire global economy. Also, China is India’s primary trading partner with annual trade worth $92 billion. They have attempted to increase cooperation and build confidence measures by undertaking joint projects including a training program for Afghan diplomats and reviving the Bangladesh-China-India-Myanmar (BCIM) corridor. However, these efforts are undermined by the pervasive feeling of distrust between the two states and the echoes of Cold War history. Also, the summits and efforts of cooperation have not stopped the outbreaks of violence, nor have they solved any of the underlying issues. Underlying issues that strain the Sino-Indian relationship include nuclear weapons, China’s support for Pakistan, the situation in Tibet and India’s sheltering of the Dalai Lama, the Chinese navy making an appearance in Indian waters and Indian foreign policy. The Covid-19 pandemic has added pressure to Sino-Indian relations as the Indian general public blame China for the outbreak thus causing an anti-China sentiment. Both states have downplayed the recent stand-off’s as short-term and temporary incidents. However, if relations continue to sour over territorial boundaries and the border remains unresolved, this could compromise their economic relationship. To prevent prolonged crisis, China would need to withdraw its aggressive position voluntarily through peaceful negotiations with India. India could attempt a forceful removal of Chinese forces, but that would lead to increased escalation. Further, India should tread with caution as neighbouring countries including Sri Lanka and Nepal are becoming increasingly supportive of China. In other words, unless India and China find a way to trust each other, it is highly likely that they will be pushed to the brink of war once again.

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