India must counter China’s aid games

The BRICS summit in Goa has had a salutary effect. For too long, people in India have been carried away by the illusion that China will show better understanding of India’s strategic imperatives if only we opened our doors to trade and investment and obliged Beijing, ‘accommodating’ its wishes by diluting our relations with the US.

Such illusions about China prevailed despite the fact that we refrained from voicing concerns about its unprecedented assistance to Pakistan’s exclusively ‘India-centric’ nuclear weapons and missile programmes. President Xi Jinping made it clear in Goa that China would not countenance even an oblique reference to Pakistan’s sponsorship of cross-border terrorism, or its involvement in the Uri attack. To add insult to injury, China announced its intention to supply Pakistan eight submarines, barely a week after President Xi left India.

Pakistan has been and remains Beijing’s principal tool in its “strategic containment” of India. China’s mandarins have also been more than forthcoming in providing military and economic assistance to India’s South Asian neighbours, to undermine India ’s regional influence. Beijing has sought to back leaders in South Asia who are less than friendly to India — most notably recently in Sri Lanka and Nepal.

India has to, however, recognise the reality that it just does not have the resources to match Chinese economic assistance to governments in its neighbourhood and beyond, to the shores of Africa. We should also understand the realities that shape Chinese economic assistance worldwide. The Chinese Export Import Bank and the apex China Development Bank fund Beijing’s aid projects, with interest rates generally varying between 2 per cent and 3 per cent.

With its foreign exchange reserves now crossing $4 trillion, following double-digit economic growth over a decade, China’s overseas development assistance has averaged around $174 billion annually in recent years. This poses a challenge to the US and western/OECD aid organisations, including the World Bank and Asian Development Bank. But, unlike the terms of western assistance, which are largely untied and concessional, Chinese assistance has conditions that give it an exploitative orientation.

Chinese assistance is marked by very substantial use of Chinese labour, machinery and equipment, with very little transfer of technology, or expertise. Some 50 per cent of imports required for ‘aid’ projects have to be sourced from China. Moreover, experiences in Africa have shown that while the large number of Chinese workers in infrastructure and mining projects are required to be provided comfortable living conditions, the Chinese are parsimonious in payments to local labour.

China’s dependence on import of oil and gas is steadily growing. Chinese investments and economic assistance in minerals and energy-related projects are simultaneously growing significantly in Africa, the Gulf region, Central Asia, and Latin America. China is involved in exploring for gold in Eritrea and Zimbabwe, for platinum and diamonds in Zimbabwe and South Africa, for uranium in Niger, and aluminium in Egypt. China has secured a $2-billion contract for the Kingfisher oilfield in Uganda. It has built the largest hydropower project in Africa, along the Ethiopia-Sudan border. China’s ability to move swiftly and act decisively in the wake of the shale revolution, has led to its securing large investment opportunities in Iraq and Iran in the oil and gas sector. This is reportedly evoking Saudi concern.

Closer to India in South Asia, there is growing awareness of the mercantilist elements in so-called Chinese ‘aid’; Sri Lanka realised that the Colombo port city project was a Chinese rip-off. Likewise, in Myanmar, there is growing resistance to Chinese involvement in mining precious stones and its callous disregard for environmental considerations in huge projects such as the proposed Myitsone dam.

Healthy scepticism about Chinese offers of aid is also evident in Bangladesh. During the recent visit of Jinping to Bangladesh, China agreed to ‘aid’ 22 projects amidst calls for careful scrutiny of repayment liabilities.

Pakistan received Chinese financing worth $135 billion between 2001 and 2014. It is now scheduled to receive $46 billion in financial assistance for its much-touted One Belt One Road project linking China’s Xinjiang province with Gwadar port in Baluchistan. This project has become controversial because it primarily benefits only the dominant Punjab province. It has evoked criticism in the provinces of Khyber Pakhtunkhwa and Baluchistan.

The Baluchis are already not too pleased by the way that their province has received virtually no benefits/royalty from the exploration of gold, silver and copper from the Aynak mine in Chagai hills where Pakistan’s nuclear tests were carried out. Moreover, while the Chinese would evidently like the Pakistan army to take over providing of facilities and security for the project, the Nawaz Sharif government does not relish the idea. Also, the IMF has made it clear that the project, in the coming years, will create new problems on debt repayment and current account deficit, given the way repayment liabilities are structured.

Despite all these factors, India has to recognise that whether in Sri Lanka, Bangladesh or Nepal, the essential political thrust of Chinese economic support is to prop up regimes that are given to being anti-Indian. It is noteworthy that when Jinping was in Dhaka, he met Begum Khaleda Zia (who avoided calling on President Pranab Mukherjee) and even proposed party-to-party links, between the Communist Party of China and the Bangladesh Nationalist Party. (China recognised Bangladesh in 1976, a year after Sheikh Mujibur Rehman was assassinated.)

It is evident that India does not have the resources to quantitatively match Chinese assistance even to its South Asian neighbour. But, we need to recognise our relative strengths and weaknesses and firm up our assistance programmes accordingly. We also need to carefully study the strengths and weaknesses of Chinese aid programmes. The agenda of the tripartite India-US-Japan dialogue should be expanded to discuss how best this grouping could pool its resources to meet the challenges posed by the growing economic clout of China. Japan and the US can, in turn, carry out a similar exercise with their OECD partners. Given the Chinese hostility, it is imperative for New Delhi to devise a comprehensive strategy to protect and promote its interests across its Indian Ocean neighbourhood and indeed across the entire Indo-Pacific region.

The writer is a former High Commissioner to Pakistan

COMMENT NOW