Chinese President Xi Jingping officially unveiled the One Belt One Road (OBOR) initiative in 2014 along with the establishment of a $40 billion Silk fund. One Belt will be a land based economic corridor slated to run from Shaanxi province, China, to Venice in Italy passing through Central Asia and Europe, whereas the Road is a 21st Century Maritime Silk Route — a sea based route originating from Quanzhou in Fijian province China, passing through the Strait of Malacca and Nairobi (Kenya), before merging with the Belt at Venice.
The OBOR covers about 40 to 60 countries consisting of about 65 per cent of the world’s population generating 30 per cent of the World’s GDP and likely to be completed in 2049.
OBOR has four major explicit objectives to connect participating countries, such as development of road and rail infrastructure; high speed optic fibre cables and energy pipelines; development of ports and establishment of trade logistics and institutions.Infrastructure push
The Chinese economy is experiencing a new normal growth rate of 6-7 per cent after an average growth rate 10 per cent over the last three decades. Rising labour costs, declining global demand for exports leading to excess capacity, weakening of stock markets and rising income inequality are some signs of overheating.
Therefore, the Chinese economy needs a new momentum for balanced growth.
As OBOR connects its landlocked and underdeveloped southern and western provinces with Central Asia and Europe, offering new markets for Chinese firms, it is expected that the future manufacturing hub would be based in this region allowing for the underdeveloped part of China to industrialise, develop and modernise.
Further, Chinese interests in strategically important regions to its West are a response to the much-hyped “pivot to Asia” by the US. As most of the OBOR projects need huge funds in billions dollars and can be funded by China and institutions supported by China, all infrastructure demand orders pertaining to cement, steel, power will go to Chinese companies with excess capacity.
China with $4 trillion forex will be the principal funding country in infrastructure projects of OBOR, thereby by getting a significant voice in the recipient or participant countries’ economic policies favouring its own industries.The currency factor
Further, China’s investment in the form of a credit line would be used for trade in goods and services between China and participant countries, paving the way for faster internationalisation of the Renminbi.
Internationalisation of the RMB offers advantages for China such as shifting from its dollar dominated exposure, thereby sharing its currency risk with rest of the world. It would facilitate faster financial sector reforms, including opening up the capital account and making its currency as one of the reserve currencies of the world.
All this would not only help China to increase its trade and investment within the region, but also its position and say in the international financial architecture.
Further, as Chinese firms and institutions invest in OBOR projects, there is a possibility of participant countries giving preferential treatment, market access and fiscal concessions to China, creating trade diversion which would hurt countries like India, particularly in certain sectors like steel, coal, cement.
Further, higher output along with quality infrastructure connectivity with participant countries will make Chinese manufactured goods like steel, petrochemicals, telecommunication cement and machinery globally more competitive, thereby hurting ‘Make in India’ .
Preferential treatment in trade and investment to China in lieu of funding infrastructure projects not only leads to trade diversion but also decline in investment in excluded countries. In countries like Myanmar, Maldives and Pakistan, existing policies are being tweaked to suit Chinese interest post receipt of aid or investment.
There are also other examples — like the Kashagan oil field sale in Kazakhstan 2013 to Chinese energy firms like CNPC and CNOOC instead of an Indian company and termination of international airport contract given to an Indian company by the Government of Maldives.
Given that OBOR initiative of China may hamper India’s efforts in increasing its share in global trade and commerce, India needs to have strategy of its own. The best is ‘join them if you can not fight’. China has reached out to India to partner in OBOR.
OBOR is multi trillion dollars project passing through many different countries and China alone cannot lead it without taking India on board. India should partner and negotiate to gain maximum economic and geopolitical advantage out of the Corridor.
In the process India should seek to add more Indian nodes in the OBOR Schemes, re-route the China-Pakistan economic Corridor to pass through the Indian portion of Kashmir, connect more Indian ports like Kochi or Mumbai along the Maritime Road and demand connecting Bangladesh-China-India-Myanmar (BCIM) corridor with OBOR.
Further, India should try to make OBOR Initiative an international project by convincing countries like the United States, Japan, Australia and multilateral financial institutions such as the World Bank, the Asian Development Bank to invest financially and technologically in OBOR projects. The road ahead for China is long. Execution of cross national and large projects is full of challenges.
It is beneficial for China to convince India to be a partner and accept India’s needs. However, India should be there from these early days in finalising OBOR schemes.
At the same time, India should have its own plan to link with its trading partners for trade and geo-political strategy. The Indian government has recently initiated ‘Mausam’ and ‘Spice Route’.
While ‘Mausam’ is a foreign policy initiative that attempts to re-establish India’s ancient maritime routes with its traditional trading partners, the ‘Spice Route’ envisages linking India’s historic sea routes in Asia, Europe and Africa. India does not have any plan to invest and develop economic infrastructure along ‘Mausam’ and ‘Spice Route’ projects like OBOR. These projects are foreign policy initiatives and meant to improve cultural linkages.
Overall, OBOR, if implemented successfully, will serve multiple objectives of rebooting the Chinese economy and maintaining its geo-political dominance.
The writer is with the Institute of Economic Growth