Today's Editorial

29 October 2016

Chinese business model - II


Source: By Shantanu Basu: The Statesman


There are gains too for the People's Republic of China and the recipients of CPEC-like investment. Low-cost PRC imports would flood the recipient country's markets. These countries would gain by physical infrastructure, somewhat greater low-wage employment and relatively cheaper and deeper access to markets, old and new. However, repayment defaults could cause concessions for establishing EPZs in recipient countries for PRC manufacturing and distribution hubs that, in turn, would cause a situation akin to indigo cultivation by the British in India in the 18th century. Access to several ports stretching from Chittagong to Bandar Abbas and Gwadar combined by 4/6-lane network of motorways from port and rail heads and dotted with international airport and tax-free EPZs will no longer remain a pipe dream for PRC and its client countries. Backing PRC's business pincer movement is the rapidly modernising People's Liberation Army.

What do the PRC's investments imply for India's strategic policy? For one, India has neither the financial muscle nor industrial and military wherewithal to rival PRC. Prime Minister Modi's offer of a $2 billion line of credit to Bangladesh pales in comparison to PRC's recent $ 24 billion. Second, given the short-term political attractions of PRC investments for recipients, most Indian diplomatic sops will remain insignificant. Equally, India may find itself increasingly isolated from its extended neighbourhood as no recipient country will sacrifice PRC's politico-economic savvy offers for supporting India in its bilateral strategic disputes with Pakistan and PRC or for NSG/SCO membership. For those would imperil PRC's 'generosity' given its steadfast refusal to go along with India in condemning Pakistan for its alleged support to terror strikes in Kashmir. India's 'surgical strikes' have therefore predictably not caught the fancy of the BRICS summiteers in their recent joint statement in Goa nor brought any pressure to bear upon PRC to remove its UN embargo on declaring Hafiz Sayeed a wanted terrorist.

Third, India's vast littoral advantage may be negated by overland transit arrangements that PRC's OBOR contemplates, leaving India a bit player in South Asia. Fourth, India's 10:1 trade imbalance with PRC undermines the integrity of India's recent overtures to the US. India's pronounced inability to stop non-essential imports from PRC, including decorative Diwali lights and mosquito swatters, would be at the cost of the trade deficit widening with retaliatory measures by PRC. Let us also not forget the 50,000 Indian nationals who live in PRC and another 15,000 students. Fifth, India's recent Western bias, particularly in defence cooperation, is not much different from the PRC investment model, since the Americans, French and other western powers see the relationship in purely commercial terms, something they seldom did with Pakistan. Finally, India shares an extensively disputed border with PRC and Indian defence services currently are not in the pink of fighting health, notwithstanding protestations to the contrary. With CPEC cutting through Pakistan-occupied Indian Territory, PRC has virtually announced its commitment to retain the status quo ante and upping the stakes in Ladakh and Arunachal Pradesh to keep the pot boiling as a counterfoil to India. Moreover, slow construction progress on Chabahar, just a 6-hour and 356 km drive from Gwadar, may drive more shipping to Gwadar and Bandar Abbas (956 km) and make Chabahar a commercial millstone around India's neck unless this port becomes fully operational by 2018-19.

OBOR has found a new client in Bangladesh very recently. China Railway Group, one of the world's largest construction companies, won a $3.10 billion project to build a rail network in Bangladesh connecting Dhaka to Jessore. Among other projects contemplated are a coastal expressway, a satellite township, a railway line and port expansion, including ports like Chittagong and Cox's Bazar. Other probable projects are the Padma Bridge Rail Link ($3.30 billion), Marine Drive Expressway ($2.80 billion), strengthening power networks ($3.36 billion), Dhaka-Sylhet motorway ($1.60 billion), etc. Bangladesh has strongly backed both PRC's geo-economic initiatives like OBOR and Maritime Silk Route even as India has reacted to these warily. Bangladeshi ministers have also been strongly advocating the Bangladesh-China-India-Myanmar (BCIM) trade corridor, another Chinese initiative to which the Indian reaction has been muted. On 14 October, Bangladesh and China signed 40 agreements totalling about $20 billion, including CPEC-like infrastructure projects.

On a different plane, Beijing has concluded a series of contracts with Kazakhstan worth $30 billion, 31 agreements of $15 billion value with Uzbekistan, and natural gas transactions with Turkmenistan in 2013, which reached about $16 billion. China has also provided loans and aid worth $8 billion to Turkmenistan and is expected to provide at least $1 billion to Tajikistan. Turkmenistan, which has the world's fourth largest gas reserves, is the biggest supplier of natural gas to China, accounting for more than 50 per cent of the total imports. CNPC has already beaten India's ONGC in a $4.18 billion bid for Petro Kazakhstan. PRC has expended $48 billion in Kazakhstan. In Tajikistan, CNPC and France's TOTAL in June 2013 agreed with Tethys Petroleum Ltd to develop oil and gas assets under the country's Bokhtar project which is estimated to have 3.22 trillion cubic metres of gas and 8.50 billion barrels of oil. Tajikistan's reserves could meet China's natural gas consumption for an estimated 24 years.

SINOPEC bought a portion of Russian producer Udmurtneft in 2006. In 2013, PRC acquired 12.50 per cent of Russia's Uralkali, the biggest producer of potash, and CNPC agreed to prepay OAO Rosneft about $70 billion as part of a $270 billion, 25-year supply deal. That was followed by Rosneft's $85 billion, 10-year accord with China Petrochemical Corp and CNPC's purchase of 20 per cent of an Arctic gas project from Novatek for an undisclosed sum. A Russia-China pipeline would double pipe capacity from 300000 to 600000 bpd by end-2016. In fact, in 2014, China overtook Germany as Russia's biggest buyer of crude oil, thanks to Rosneft securing deals to boost supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan. PRC and Russia also signed a $400 billion mega gas deal for 30 years for 1.3 trillion cubic feet of natural gas per year, starting from 2018. In 2015, CNPC acquired 20 per cent of a $27 billion LNG project in Russia's far north and is now looking at Russian equity offers in oil licence blocks in the Arctic and East Siberia.

Having taken care of its energy and deep-water Arabian Sea port needs, China has also sought to develop high-speed rail links with Russia. Among recently signed projects is the construction of an ambitious high-speed rail link from Moscow to Beijing that would cut the journey from six days on the Trans-Siberian Railway to just two. The project would cost more than $230 billion and run over 7,000 km with Chelyabinsk, Ekaterinburg and Kazakhstan, en route. China will participate in financing the railway's construction, as well as in geological research. The China Railway Corporation will finance and construct the Samara-Togliatti railroad in SE Russia. Russia's Far East to China is proposed to be covered in a 250 km high-speed rail link.

Earlier this year, China agreed to provide a $6.20 billion loan for East-Central Russia's Moscow-Kazan High Speed Rail Project. Going further, the 11000 km long Yiwu-Teheran line saw the first freight train chug into Teheran in mid-January 2016. PRC-Iran trade rose from $4 billion in 2003 to $53 billion in 2013.  In January 2016, during the visit of President Xi Jinping to Iran, the two sides agreed to increase trade to $600 billion over the coming decade. While building a railway over the Karakoram is a major engineering challenge, China's Iran corridor only needs to modernise the existing road and rail links between China, Central Asia and Iran for access up to Bandar Abbas and Chabahar and beyond to Europe.

The PRC's strategic business model deserves accolades as it treads though a minefield of corruption, ethnic strife, inhospitable terrain, competing intra-national claims, international border disputes, militancy and terrorism and many more adversities, yet adding to that country's wealth and political significance. India has therefore many lessons to learn from the Chinese experience.  This country has tremendous internal strength and resilience, natural resources and favourable climate, a 6000 km littoral frontier and a young labour force. Regrettably, historical apathy of its political and economic stewardship has been and remains India's greatest failure as also the lack of any long-term strategic vision. India has to get its domestic economy ticking again and await an anti-PRC sentiment to emerge when default and dissension in the recipient countries emerge. Till then grandstanding would remain its sole virtue and vice.



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