In 2018 China hosted a well-attended and hugely touted conference to promote its One Belt, One Road (OBOR) initiative, or now as the Belt and Road Initiative (BRI). This initiative also is known sometimes as the New Silk Road and Maritime Silk Route initiatives have been hailed or condemned by commentators all over the world as a “game-changer” and China’s big play to seek world domination. Both the fears and optimism are unfounded. We need to take a cold hard look at what the Chinese are up to.
The Belt and Road Initiative has created a common pattern of economic clientelism. Beijing first offers countries loans from Chinese banks for large-scale infrastructure projects. Once the countries are in debt, the party forces their leaders to align with China’s foreign-policy agenda and the goal of displacing the influence of the United States and its key partners. Although Chinese leaders often depict these deals as win-win, most of them have just one real winner.
The OBOR is a project meant to very simply get out Chinese reserves invested in western banks into investments where it will fetch a higher rate of return, and to take up the slack from the huge overcapacity problem that plagues the Chinese economy. Speaking at the conference, President Xi Jinping announced that Beijing would advance 380 billion Yuan or $55 billion to support OBOR. This is a far cry from the huge figures, sometimes as high as $750 billion to $ One trillion, bandied about.
The “Belt and Road Initiative” calls for more than $1 trillion in new infrastructure investments across the Indo-Pacific region, Eurasia, and beyond. "Its true purpose is to place China at the hub of trade routes and communications networks. While the initiative at first received an enthusiastic reception from nations that saw opportunities for economic growth, many of those nations soon realized that Chinese investment came with strings attached."
While economists are generally skeptical about China’s goals and intentions, strategists — mostly the garden-variety Indian military types — have endowed this project with sinister overtones. I was on a TV show a couple of days ago where both the prominent anchor and a prominent commentator of the unempirical stuff that passes off as strategic thought, raised the issue of the so-called “String of Pearls” (SOP). To them, it seemed that every port or airport where a Chinese company is a contractor had a military purpose?
One way is to put these funds to work in investment starved countries in Africa and Asia and assures themselves of returns for a long time to come. In some, the birds have come home to roost quite early.
The “String of Pearls” is a bogus idea. It was cooked up by consultants working for a CIA and US DOD tied company called Booz Allen Hamilton and was given much traction by some well known Indian “strategic thinkers.” I was once in a conference where Admiral Dennis Blair former Chief of the US Navy and later Director of National Intelligence to President Obama was asked about it. He called it a stupid notion and said that no one who has run a large navy or held a responsible position in a navy will ever say an oceanside blockade is possible. He explicitly and loudly said to Indian strategists who harped on SOP that no navy could encircle a country with a few ports.
The question that we need to ponder over a bit is as to how long will these “ports” survive after the outbreak of general hostilities? The Indian Air Force and the Indian Navy have enough airpower at hand to sort them out, and our navy can effectively blockade hostile ports in the neighborhood. It may be noted that the IAF has operationalized an airbase in Thanjavur and will fly SU30 MKI’s from there. The IN deploys MIG29K fighters as well as P-8i Poseidon maritime surveillance and attack aircraft and a formidable fleet of combat vessels. We have not been exactly sleeping or need to be overly worried. The same Sri Lanka that once hosted a Chinese Jinn class nuclear submarine ostensibly on a goodwill mission turned away a PLAN conventional submarine wanting to pick up supplies.
Now to the economics of OBOR. China claims that OBOR is “based on principles of mutual benefit and that it is not interested in interfering in the participating countries’ internal affairs.” But there is a reality most of our commentators do not see or cannot understand. China has accumulated foreign exchange reserves of $ 3.5 trillion. The capital it claims it is prepared to subscribe for the NDB, AIIB, and Silk Road Fund would amount to only around 6–7% of its total foreign exchange reserves invested in western banks.
The “String of Pearls” is a bogus idea. It was cooked up by consultants working for a CIA and US DOD tied company called Booz Allen Hamilton and was given much traction by some well known Indian “strategic thinkers.”
Since these China promoted institutions will be providing infrastructure lending rather than grants, the return on capital from these investments could be significantly higher than the returns China is getting from its foreign exchange reserves currently invested in low-yielding US government bonds. It’s very simple. China needs to get value for its money and also help its demand for starved industries. And they have found a typically Chinese solution to it and are making a virtue of a necessity.
Look at it from another angle. The US dollar is also steadily depreciating in the long term against other major currencies. With no interest and with depreciation factored in China’s huge reserves, accumulated by extracting surpluses in its sweatshops, are steadily shrinking in value. The problem that Beijing seeks to grapple is this.
One way is to put these funds to work in investment starved countries in Africa and Asia and assures themselves of returns for a long time to come. In some, the birds have come home to roost quite early. The grandiose Hambantota port project in Sri Lanka, which once had the same bunch of Indian “strategic thinkers” in a tizzy hosts no ships and doesn’t earn very much. China is now pressurizing the Sri Lankans to service the debt and is seeking to extract some more in lieu of that. Much of the Hambantota investment has already been recouped by China by way of material and labor supplied to complete the project.
That’s why one prominent European commentator calls OBOR — One Belt, One Road, and One Trap.
About the Expert:
Mr. Mohan Guruswamy is the Chairman & Founder, Centre for Policy Alternatives, and former advisor to the Finance Minister (1998), Government of India. He has over three decades of experience in government, industry, and academia. He was educated at Osmania University, Hyderabad, and John F. Kennedy School of Government, Harvard University.
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