Issue

Context:

• Recently, China held its 2nd Belt and Road Forum (BRF) to showcase its trillion-dollar Belt and Road Initiative (BRI) without India's presence for the second consecutive time, while 37 heads of the state and government, including from Pakistan, attended the three-day grand event.
• India has been boycotting the BRI to protest over the USD 60 billion China-Pakistan Economic Corridor (CPEC) being laid through the Pakistan-occupied Kashmir.
• Besides India's protests over the CPEC, China's doling out of huge sums of money specially to smaller countries raised concerns after Beijing acquired Sri Lanka's strategic Hambantota port on a 99-year lease as a debt swap.

Analysis

What is BRI?

• The Belt and Road Initiative (BRI) is a development strategy adopted by the Chinese government involving infrastructure development and investments in countries and international organizations in Europe, Middle East, Central Asia, Gulf Region, Africa, South Asia and Southeast Asia.
• “Belt” refers to the overland routes for road and rail transportation, called "the Silk Road Economic Belt". Beside the historical silk road through Central Asia, West Asia, the Middle East, and Europe this new silk road includes South Asia and Southeast Asia. The “Road” refers to the sea routes or the “21st Century Maritime Silk Road”.
• The project was launched by Chinese President Xi Jinping when he came to power in 2013. Earlier it was known as One Belt One Road.
• The project has a targeted completion date of 2049, which coincides with the 100th anniversary of the People's Republic of China.
• This project is seen as a competitor to the two US-centric trading arrangements, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.
• Theme of this year: Belt and Road Cooperation, Shaping a Brighter Shared Future

BRF 2017 vs BRF 2019:

• When it was announced in 2013, the BRI was an initiative focused solely on building infrastructure projects; it now has a much broader framework, which includes financial and humanitarian aid projects.
• In the first BRF in 2017, more than 60 countries and international organisations were involved. That figure in 2019 now is - 126 countries and 29 international organisations i.e. it is more than double now.
• New countries such as Italy (the first G7 Nation to join) and Luxembourg have brought into the project, concerns raised by other European Union countries notwithstanding.
• The funding model has this year undergone changes. Initially funds were sought from the China-headed Asian Infrastructure Investment Bank, and several other financial institutions within the country, Beijing is now pushing for “third-party market cooperation” under which investments are shared by more than one country.

Progress of the project:

• The trade volume between China and countries joining the BRI has surpassed 6 trillion US dollars, with more than 80 billion US dollars of Chinese investment in the countries.
• 82 overseas cooperative parks had been jointly built by China and the countries along the route, creating nearly 300,000 jobs for local people.

Concerns of the project:

• Sri Lanka:
  • China's main investment in Sri Lanka was the Magampura Mahinda Rajapaksa Port, mostly funded by the Chinese government and built by two Chinese companies.
  • It claims to be the largest port in Sri Lanka after the Port of Colombo and the biggest port constructed on land to date in the country.
  • It was initially intended to be owned by the Government of Sri Lanka and operated by the Sri Lanka Ports Authority, however it incurred heavy operational losses and the Sri Lankan government was unable to service the debt to China.
  • In a debt restructuring plan on 9 December 2017, 70% of the port was leased and port operations were handed over to China for 99 years, the deal gave the Sri Lankan government $1.4 billion that they will be using to pay off the debt to China. This led to accusations that China was practicing debt-trap diplomacy.
• Malaysia:
  • PM Mahathir Mohamad expressed disapproval of Chinese investment in Malaysia, comparing it to selling off the country to foreigners.
  • He labelled the China-funded projects as unfair deals authorized by former PM Najib Razak and would leave Malaysia indebted to China.
  • In August 2018, at the end of an official visit to China, Mahathir cancelled the East Coast Rail Link project and two other pipeline projects that were awarded to the China Petroleum Pipeline Bureau, citing a need to reduce debt incurred by the previous government.
  • The project undergo negotiations for several months and close to be cancelled off. After rounds of negotiation and diplomatic mission, the ECRL project is resumed after Malaysia and China agreed to continue the project with reduced cost.
• Nepal:
  • Nepal is delaying on signing an agreement worth $56 billion to establish a Trans-Himalayan Multi-dimensional Connectivity Network under the BRI, which also includes a cross-border railway.
  • Nepal is apprehensive of signing the commercial agreement because of concerns over the financing of the project and environmental issues in the Himalayan region.
• Pakistan: It has walked out of the $14 billion Diamer-Bhasha dam project that was part of the CPEC, citing stringent monetary conditions imposed by Beijing.

India’s position:

• CPEC:
  • Amongst the first countries to oppose the project, India had signalled its strong displeasure ahead of the second BRF over the inclusion of the China-Pakistan Economic Corridor (CPEC) as a BRI project.
  • The CPEC passes through Pakistan-Occupied Kashmir and is the main reason for India not participating in the BRI.
  • CPEC which is being projected as the flagship project of the BRI ignores our core concerns on sovereignty and territorial integrity. Connectivity projects must be pursued in a manner that respects sovereignty and territorial integrity.
  • While China has painted CPEC as a commercial project, it has also deployed security personnel over the years to protect the corridor. This makes it an active participant in domestic politics in the subcontinent.
• Hambantota port:
  • The port's strategic location and subsequent ownership by China spurred concern over China's growing economic footprint in the Indian Ocean and speculation that it could be used as a naval base for the Chinese Navy.
  • However, the Sri Lankan government promised that it would be "purely intended for civilian use".

Way forward:

• The CPEC passes through Pakistan-Occupied Kashmir and is the main reason for India not participating in the BRI. No country can accept a project that ignores its core concerns on sovereignty and territorial integrity. The best way forward is China should respect other country’s sovereignty issues.
• China should make this Belt and Road Initiative sustainable and prevent debt risks. It should support financing via multiple channels. One step it has already taken in this direction by using third-party market cooperation in addition to earlier funding from AIIB only.
• Local currencies should be used for investments to curb exchange rate risks.
• China should follow market principles and rely on commercial funds for Belt and Road financing.

Learning Aid

Practice Question:

What are the concerns arising due to implementation of BRI projects? Why India is not joining this initiative and what is the way forward?