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Secretary Pompeo to welcome Nepal’s FM Gyawali

Nepal’s Foreign Minister Pradeep Gyawali is all set to visit Washington DC from December 17-21. He will be accompanied by Nepal’s Foreign Secretary Shanker Bairagi, and the US Ambassador to Nepal H E Randy Berry will arrive in DC soon. The visit will be quite significant since after 17 years the foreign ministerial meeting is going to take place. Minister Gyawali will lead bilateral consultations with his American counterpart, and will also discuss about areas of economy and trade, security and developmental aid, people-to-people relations among others with high level officials from different agencies in Washington DC. HE Dr. Arjun Karki in Washington told Nepal Matters for America that “first time we are going to have a political meeting”, therefore this visit will be of “very high significance.”

The visit signifies the growing convergence between the two nations, which of late was labeled as a secondary kind of relationship, in that while the US is prioritizing Nepal in its Indo-Pacific vision, in Nepal also there is growing realization of strongly “reviving” its ties with the long-time friend US. In the quickly changing dynamics of South Asia, Nepal especially being a nation sandwiched between the giants China and India, the US-Nepal relationship has a particular significance  in terms of Nepal’s peace and stability, democracy and rule of law, and economic growth and development. It is particularly important to note for stakeholders on both sides that Nepalis want result-oriented policies from its old allies especially in the time in which Nepal has new options available and new narratives are becoming stronger.

Nepal is the 12th biggest source of international students in the US universities. About 300, 000 people of Nepali heritage live in the US. Every year thousands of Americans visit Nepal. The US is the biggest development donor of Nepal at present. The US is willing to commit more fund for Nepal’s infrastructure development and regional connectivity in South Asia.

Nepal Matters for America, December 2018

Secretary Pompeo to welcome Nepal FM Gyawali

Nepal’s Foreign Minister Pradeep Gyawali is all set to visit Washington DC from December 17-21. He will accompanied by Nepal’s Foreign Secretary Shanker Bairagi, and the US Ambassador to Nepal H E Randy Berry will arrive in DC soon. The visit is quite significant since after 17 years the foreign ministerial meeting is going to take place. Minister Gyawali will lead bilateral consultations with his American counterpart, and will also conduct discuss areas of economy and trade, security and developmental aid, people-to-people relations among others with high level officials from different agencies in Washington DC.

The visit signifies the growing convergence between the two nations, which of late was labeled as a secondary kind of relationship, in that while the US is prioritizing Nepal in its Indo-Pacific vision, in Nepal also there is growing realization of strongly “reviving” its ties with the long-time friend US. In the quickly changing dynamics of South Asia, Nepal especially being a nation sandwiched between the giants China and India, the US-Nepal relationship has a particular significance  in terms of Nepal’s peace and stability, democracy and rule of law, and economic growth and development. It is particularly important to note for stakeholders on both sides that Nepalis want result-oriented policies from its old allies especially in the time in which Nepal has new options available and new narratives are becoming stronger.

Nepal is the 12th biggest source of international students in the US universities. About 300, 000 people of Nepali heritage live in the US. Every year thousands of Americans visit Nepal. The US is the biggest development donor of Nepal at present. The US is willing to commit more fund for Nepal’s infrastructure development and regional connectivity in South Asia.

Nepal Matters for America, December 2018

Chinese investment raises concerns in Nepal

Nepal’s strategic imperative to engage with China deeply vis-à-vis India is gradually causing trouble

In the first eight months of the fiscal year 2017/18, Chinese investors, nearly double the Indians, received investment approval from the Nepal government. Although in terms of the investment India covers the largest portion, with 1200 companies China surpasses India, which has 700 firms. India holds 35 percent of the total foreign investment in the country, and China and Hongkong have 26 and 11 percent respectively. Altogether 92 countries have investment in Nepal.

But recently the Nepal government seems to favor Chinese companies by granting them projects without competitive legal process. There is a legal provision in which the ministerial council has the discretion to fact-track the process.  The government right now is interested in granting contract directly to Chinese companies in projects such as the outer ring road of Kathmandu (to China Energy Engineering Corporation), for which dozens of other firms had applied, or to revive the contract with Gezhouba for the 1200 MW Budi Gandaki which was revoked by the Nepali Congress or the Deuba government.

Therefore, stakeholders in Nepal are gradually voicing their concerns  about this non-transparency trend which can increase the cost of projects and lead to financial irregularities. The government has 3 major motivating factors for this preference – strategic imperative to engage more with China vis-à-vis India as PM Oli has singed energy cooperation agreement with China, confidence in Chinese companies’ capacity to finance projects, and the high-priority given to these projects. In one case, apparently a free DPR offer by a Chinse firm cut the deal. Nevertheless, Nepal’s decision to give the Arun III to India also did not follow the standard procedure. But in any case,  it is in Nepal’s interest to  stick with legal process than ad-hoc decision makings. (Data Source: BBC Nepali)

10/02/2018

Nepal Matters for America

Give Development a Chance: US-China-India and OBOR

China undoubtedly needs others’ cooperation and the US and India have the capability to play a critical role

In 2013 China introduced a vast intercontinental connectivity plan called “One Belt One Road”  initiative,” later renamed “Belt and Road Initiative” (BnR), that connects Asia with Europe and Africa by land and sea.  Under BnR, the Silk Road Economic Belt contains land connectivity as its core area—road, railway, fiber optics, energy— between Asia and Europe, and China and the Indian Ocean. Then the 21st -Century Maritime Silk Road Initiative connects South China Sea with Mediterranean via Indian Ocean.  By some estimates, BnR will cover more than 65 countries, and stimulate about US $ 4 trillion in investment in the next three decades.

BnR has come at a time when Western economies have struggled to come out of the 2008 financial crisis, and, there are serious threats to international peace and stability. In the face of these considerable challenges, it is in the interest of the international community to join efforts in making good use of the opportunities BnR may generate and carry out projects transparently, inclusively and effectively. BnR has a great potential for cooperation given the region’s need for massive infrastructure development that would in turn boost economic growth, development and foster security and stability.

However, as China prioritizes infrastructure investment towards the west, in regions such as Central Asia and South Asia, regional power rivalry and territorial dispute might well get into BnR’s way. In Central Asia, Russia has not ceased to see those former Soviet states as its backyard, US has already introduced its own infrastructure plans –New Silk Road –in the region as it drew down its forces in Afghanistan, and India for its growing economic clout also eyes influence in the region. Similarly, regarding the beneficiary countries, there are apprehensions and concerns about Chinese-led projects, primarily in terms of the advantages for the host countries. Therefore, China undoubtedly needs cooperation from other partners.

Importantly, India has of late given the signal that there is room for India and China to work together. Despite concerns and mistrust in some areas, India’s and China’s interests have overlapped in other areas, for instance, Bangladesh-China-India-Myanmar corridor (though slow in progress), China-led Asian Infrastructure Investment Bank (AIIB) and so on; in fact, China already has significant investment in India on infrastructure. In fact, India has become the largest recipient of AIIB financing.

For its part, the United States has the capability to play a critical role to help overcome the aforementioned challenges, but it would act only if it has sufficient incentives from BnR to do so, and if BnR is truly meant for the service of international development ; or perhaps if China cooperates with US on security matters.  Despite the bumps on the road in US-China engagement, as the former US Vice president Joe Biden put it, “cooperation and competition with China will coexist.” And there is room for these powers to engage constructively because China is willing to invest massively, is encouraging co-investment with Chinese contractors, and the US is not discarding the possibility of putting its expertise into play.

According to some US experts, BnR projects create opportunities for US firms especially in their areas of strength — telecommunications and clean energy.  In addition, there are areas where both China and the US need security on the ground. They can have mutually reinforcing roles in ensuring it; China through its investments and the US through its already established role in the area of security, whether it is Afghanistan or Horn of Africa, among others.

In terms of funding, China plans to finance BnR through AIIB, Silk Road Fund, New Development Bank, Chinese government funds, and the BRICS Development Bank. By some estimates the existing international banks’ capacity to finance Asia’s infrastructure building only covers about 10 percent of the needs, and that together with China’s funding sources will not generate enough funds either. Hence, if US is involved, that is going to draw the IMF, World Bank, and other Asian and European investors into BnR.

Finally, all stakeholders should work together in terms of needs assessment and sustainability of projects, establishing working relationships between different companies, transparency, inclusiveness, social, political and environmental considerations, and not repeating past failures.

Nepal Matters for America;  June 29, 2018

 

Expert Interview on China’s OBOR – Maj Gen Rajiv Narayanan, New Delhi

“India is ready to work with China for the larger good of the region”

Jennifer Loy interviews Retired Major General Rajiv Narayanan from India, Distinguished Fellow at the USI of India, on China ’s OBOR/BRI and the motivations behind it.

Q: In a simple way, can you explain China’s One Belt One Road (OBOR)/Belt Road Initiative (BRI)?

A: It is the deployment of the Chinese overcapacities of their factories and their labor to enable China’s growth. Concurrently, it plans to utilize this opportunity to gain geo-strategic space in Asia, especially East, SE, South and Central Asia.

Q:Do you believe Xi Jinping’s intentions are truly economic and almost nation-building, or do you think there are military motives as well?

A: Xi Jinping’s intention are purely to gain geo-strategic space using the geo-economic squeeze / ‘debt-o-nomics’ to ensure that it garners enhanced space for PLA to sustain itself well beyond its borders, viz., Gwadar, Hambantotta, Djibouti.

Q:The BRI is an incredible endeavor, a modern Silk Road.  How is the Chinese government funding this project?

A: The BRI is not something that was started by Xi Jinping. Most of these projects were on going under Hu Jintao, and a few under Jiang Xemin, viz., Hambantotta port construction began in 2009. Xi Jinping has coined this phrase and clubbed all these ongoing projects under one umbrella. Anyway, the Silk Route was not one road but a multiplicity of roads, connecting China, Central Asia, South Asia and West Asia. Under the umbrella of BRI, only one corridor, the China – Central Asia – West Asia corridor corresponds to the ancient Silk Route.

Q: How do the Chinese people view such an extensive project?

A: The common man is only able to read what the government wants him to know. The media and internet censorship within China is very harsh. As such he / she can only mouth what the Communist Party of China wants them to know.
Q: BRI projects would truly benefit the host nation if locals are employed.  Where are examples that they have been?

A: The BRI project is to provide jobs to the Chinese and not to the host countries. Very limited labor is being utilized from the host country – the CPEC is a classic case in point.

Q: In Xi Jinping’s first address to the UN in 2013, he stressed, “We should build partnerships in which countries treat each other as equals, engage in mutual consultation, and show mutual understanding.”  What can you say to this in terms of the BRI?

A: What XI Jinping stated was only meant for media consumption and for the US and West to treat China as equals. The manner in which the BRI has been invoked, and made part of the Constitution, tells the story. No host country was even consulted. India has never coveted another country’s territory, but China creates issues by specious territorial claims and creeping assertiveness – as it has done in the South China Sea. Post the 1962 fiasco, India has learnt its lessons, and the in subsequent border battles in 1967 in Sikkim China was decisively defeated. Similarly, in 1987 when China tried to create an incident in Arunachal Pradesh (Sumdurong Chu), it was surprised by India’s response and China blinked, pulled back and it led to the meeting between Den Xiaoping and PM Rajiv Gandhi. The Doklam standoff in Bhutan is a lesson to the major powers that if it militarily supports a smaller nation it can stand up to China’s arm-twisting, like Bhutan did with India’s support.

Q: India appears to be losing influence in Nepal, Sri Lanka, and the Maldives.  What do they need to do to regain this, or should they wait and see how the BRI aids the region?

A: Loss of influence depends on long term interests, and that I do not think will change in any of the three countries. Though temporarily it may seem so, the economic dependency cannot be wished away. All three understand that trade with China is not a viable option, but as with any country, they would prefer to hedge between two major countries to maximize the gains for their country.

Q: A couple months ago, India and China “reset” their relations. Was this for show or do you think it has worked?

A: China seems to understand that in the near to medium term, rapprochement with India would be a win-win for all. The two major powers in Asia need to work together and build on the convergences rather than allow the divergences to create sensitivities that could lead to avoidable contest. As such, India is ready to work with China for the larger good of the region.

Q: It appears Nepali Prime Minister Oli is interested in increasing relations with China.  Besides China Telecom Global and a Beijing funded railway into China, what other projects will Nepal benefit from with the BRI?

A: No corridor of the BRI touches Nepal. So, at best Nepal can look towards a link that could then connect it to the Central Asia-West Asia corridor. Any infrastructure needs to be economically viable to be able to repay the loans provided for executing the same. Hence, the projects that China proposes needs to be closely scrutinized for its economic viability. Accordingly, Mr Oli, Nepal’s prime minister, has stated categorically that concurrently he desires to maintain good relations with India also.

Q: How far do you think Sino-Nepali relations can extend before India intervenes, perhaps militarily?

A: Why would India intervene militarily at all? Nepal has very close relations with India, and it still continues. The Nepalese do not need any visa to visit India, or any work permit to take up jobs here. This will continue. So despite good relations with China, Nepal will also maintain its traditional relations with India – it’s not a zero-sum game.

Q: In 2017 at the World Expo in Astana, Kazakhstan, the China Pavilion was concerned with clean, green technology. How have they already taken steps to implement this within the BRI?

A: It does not seem so, as is evident from the projects planned for CPEC. Pakistan currently is electricity grid based on gas fired technology – considered rather green; but the energy grid being made by China is mostly Thermal that is not green.

Q: Chinese tourists make up the largest percentage in the Maldives.  How will the BRI improve the Maldivian economy besides tourism?

A: The BRI will not improve Maldivian economy, since the infrastructure costs are not covered by the visiting tourists. Thus if Maldives goes ahead with executing projects without any assessment of their economic viability,  it could also end up in a debt trap like Sri Lanka and Myanmar (Pakistan?).

Q: Besides the 99-year lease on the Sri Lankan port of Hambantota, how else will the BRI affect the island nation?

A: The nation is already in a debt trap. It needs to carefully weigh the fine print for the other projects that China has proposed around Colombo.

Q: The landlocked Kingdom of Bhutan is secluded and unique because of its geography as well as its environment and lifestyle.  Will the BRI affect it?

A: No. It has no connectivity with China. The Nation does not look at GDP but at Gross National Happiness (GNH).

Q: Bangladesh is often a forgotten South Asian nation.  It is poor and suffers from great infrastructure concerns and it would greatly benefit from the BRI.  Are there any such projects?

A: The India – Bangladesh – Myanmar – China project that was already in place had been unilaterally subsumed by China into BRI, which India has objected too. China is going slow on this project. However, due to the debt issues being faced by Sri Lanka and Myanmar, Bangladesh is wary of projects with China and is carefully selecting only those that would be economically viable to it.

Q: What are the prospects for Gwadar and Kyaukphyu as Indian Ocean ports for China to decrease sea shipping?

A: Neither would reduce China’s maritime trade footprint.

Q: How is the “China Model” affecting nations in Africa?

A: The ground swell against ‘China Model’ of exporting its men and material for execution of projects is rising.

Q: The BRI will extend to Europe eventually. Explain those that are and are not interested and their reasoning.

A: The extension of BRI to Europe is basically for optics and is not economically viable. The train from Yuili (Eastern Seaboard of China) to UK took 21 days and carried 200 x 20 ft containers. There were 11 x transshipment involved. Due to this, in a month only about 10 trains can run in a month, i.e., 2000 x containers can be shipped to UK. Compared to it the larger container ships can carry 12000 x 20 ft containers with almost 20 x ships being handled in a month, i.e., 240,000 x containers can be shipped in a month. The economics are stark.

Q: Xi described the BRI as a “win-win” for the nations involved.  I understand it is too soon to truly tell.  Regardless, what needs to happen for it to be a “win-win” for those involved?

A: As has emerged from the experience of both Sri Lanka and Myanmar, the win-win appears to be only for China – win in the near term and another win in the medium to long term. In the near term it gains space and in the medium term with geo-economic squeeze due to debt it gains geo-strategic space.

Jennifer is Research Associate at Nepal Matters for America in Washington.

Image source: Tibetan Review (customized)

 

Expert Interview — Priyajit Debsarkar

“One Bill One Ruin (OBOR)  / Bankrupt Ruin Initiative (BRI)”

Jennifer Loy interviews Priyajit Debsarkar, author of Pakistan’s Atlantique Attack & Arbitration  and the previous book The Last Raja of West Pakistan,  on China ’s OBOR/BRI and the motivations behind it.

  1. In a simple way, can you explain China’s One Belt One Road (OBOR)/Belt Road Initiative (BRI)?

My honest candid explanation would be one Belt of Debt, Road to nowhere. One Road Multiple traps. One Bill One Ruin (OBOR)  / Bankrupt Ruin Initiative (BRI).

  1. Do you believe Xi Jinping’s intentions are truly economic and almost nation-building, or do you think there are military motives as well?

Most certainly martial myth of double digit growth to keep the deep seeded socio- economic issues at bay. Domestic debt, poverty and climate change linked pollution are the key spheres that President Xi should concentrate on.

  1. The BRI is an incredible endeavor, a modern Silk Road.  How is the Chinese government funding this project?

Estimates for the capital needs of projects under its scope range from US$4 trillion to US$8 trillion over an indefinite period. China will try to provide concessional funding through institutions like the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund, But Chinese banks alone will not be able to fully fund these Belt and Road projects as the scale of the initiative expands. That’s when private capital will come in and public-private partnerships (PPP) have an important role to play. Port in Pakistan, Bridges in Bangladesh and Railways to Russia can’t be conceived out of thin air.

4. How do the Chinese people view such an extensive project?

I really doubt how much information the common Chinese has access to make an educated assessment of the entire project. It’s highly likely they will not have access to any real-time debt to GDP figures at best they can guess.

  1. BRI projects would truly benefit the host nation if locals are employed.  Where are examples that they have been?

The best example is Tibet were locals have been involved in Chinese sponsored infrastructure development model.

6. In Xi Jinping’s first address to the UN in 2013, he stressed, “We should build partnerships in which countries treat each other as equals, engage in mutual consultation, and show mutual understanding.”  I feel this does not prove true today with Sino-Indian relations, especially as China is gaining influence in South Asia.  What can you say to this in terms of the BRI?

Delhi-Beijing aligning can work to Kabul’s advantage; this was reportedly decided at the informal summit in Wuhan on April 27-28 between Prime Minister Narendra Modi and Chinese President Xi Jinping. If this gets operationalized, it has the potential to reshape the geopolitics in and around Afghanistan.

  1. India appears to be losing influence in Nepal, Sri Lanka, and the Maldives.  What do they need to do to regain this, or should they wait and see how the BRI aids the region?

India must show pivotal role to ensure Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation emerges the prime alliance in South East Asia a beacon of hope in the region.

  1. A couple months ago, India and China “reset” their relations. Was this for show or do you think it has worked?

China inaugurated its first overseas military base in Djibouti, increasing India’s anxiety about China’s growing profile in western Indian Ocean; maybe the Reset Button is made in China.

  1. It appears Nepali Prime Minister Oli is interested in increasing relations with China.  Besides China Telcom Global and a Beijing funded railway into China, what other projects will Nepal benefit from with the BRI?

India and Nepal agree on key infrastructure and agriculture projects, two countries agree to expand rail links from Raxaul to Kathmandu apart from key Electricity projects. It’s not all doom and gloom. India and Nepal are connected by the same umbilical cord after all.

  1. With positive and seemingly strengthening Sino-Nepali relations, it is odd that in early May Nepal withdrew from the Budhi Gandaki hydroelectricity project. Can you elaborate?

“Political prejudice or pressure from rival companies may have been instrumental in the scrapping of the project. But for us, hydropower is a main focus and come what may, we will revive the Budhi Gandaki project”, these are Nepal PM K P Oli’s own words; it can rise as a phoenix.

  1. How far do you think Sino-Nepali relations can extend before India intervenes, perhaps militarily?

The historical angle of Gorkha war, an invasion of Tibet by Nepal from 1788-1792 should be made more accessible to the youth of today to understand the founding stone of Sino- Nepali Relationships.

  1. In 2017 at the World Expo in Astana, Kazakhstan, the China Pavillion was concerned with clean, green technology. How have they already taken steps to implement this within the BRI?

Yes they have progressed – A new report released by the Institute for Energy Economics and Financial Analysis (IEEFA) delves deep into the country’s efforts to lead the world in laying an international foundation for renewable energy generation.

  1. Chinese tourists make up the largest percentage in the Maldives.  How will the BRI improve the Maldivan economy besides tourism?

Ex-president Mohamed Nasheed said Chinese interests had leased at least 16 islets among the 1,192 scattered coral islands and were building ports and other infrastructure there, they are on route of becoming the Sri Lanka 2.

  1. Besides the 99-year lease on the Sri Lankan port of Hambantota, how else will the BRI affect the island nation?

Mattala Rajapaksa International Airport is a perfect example of Ghost town developmental model which will benefit the Island Kingdom.

  1. The landlocked Kingdom of Bhutan is secluded and unique because of its geography as well as its environment and lifestyle.  Will the BRI affect it?

The taste of Doklam dim sums along with a fuzzy Beijing bluff  will live in the memories of Bhutan for a long time to come.

  1. Bangladesh is often a forgotten South Asian nation.  It is poor and suffers from great infrastructure concerns and it would greatly benefit from the BRI.  Are there any such projects?

The Dhaka Stock Exchange is the most recent Sino-progress in Bangladesh. It will not benefit in the long run as China has aggressively in recent times come up with export oriented finished garments. The political leadership in Bangladesh has resolved a 70- year old land dispute with India in the most amicable way possible. They are working closely to implement the Indira Mujib Accord signed in 1971.

  1. What are the prospects for Gwadar and Kyaukphyu as Indian Ocean ports for China to decrease sea shipping?

The string of Pearls from Myanmar to West Pakistan might not be beneficial to the dreams of Deep Sea shipping alternatives for China. With regards to Pakistan the entire region from Kashgar to Gwadar is plagued with security concerns and runs into foreign sovereign disputed territory. With an impending IMP bailout package with high premium of FATF black list its most likely to derail.

  1. How is the “China Model” affecting nations in Africa?

Offer the honey of cheap infrastructure loans, with the sting of default coming if smaller economies can’t generate enough free cash to pay their interest down. It’s a road of multiple traps.

  1. The BRI will extend to Europe eventually. Explain those that are and are not interested and their reasoning.

Only if it succeeds to lift off in Asia and Africa, which looks highly unlikely at the present time.

  1. Xi described the BRI as a “win-win” for the nations involved.  I understand it is too soon to truly tell.  Regardless, what needs to happen for it to be a “win-win” for those involved?

Win for some, Multiple Debt trap for all.

Jennifer is a Research Associate at Nepal Matters for America, Washington DC.

Photo Courtesy: South China Morning Post

Expert Interview – Frank O’Donnell

Jennifer Loy interviews Frank O’Donnell on China’s OBOR/BRI and the motivations behind it. Frank is a Stanton Nuclear Security Junior Faculty Fellow, International Security Program/Project on Managing the Atom.

ODonnell - Photo
In a simple way, can you explain China’s One Belt One Road (OBOR)/Belt Road Initiative (BRI)?

OBOR aims to fulfil multiple geopolitical objectives for China. The first is as a statement and demonstration of global influence. The Pakistan-specific element of OBOR alone, entitled China-Pakistan Economic Cooperation (CPEC), features an infrastructure loan to the Pakistan government of $46bn. This sum, as only one part of the overall OBOR initiative, has been estimated to be worth more than the total devoted to the Marshall Plan when converted into today’s dollar equivalents. The principal land corridor branch creates a land transport and infrastructure route from Chinese east coast cities through Xinjiang. It then enters Central Asia, Iran, Turkey and Russia, and terminates in Western Europe, China can improve its access to crucial energy resources in these states while elevating its influence in their politics. This will also serve to economically develop and further lock Xinjiang into the Chinese economic system – this province has been one the poorest and most isolated within China, and suffers from continuing Muslim extremism and brutal PLA Army crackdowns.

A branch of this corridor will also extend from Kashgar in Xinjiang through to the Gwadar port in Balochistan in southwestern Pakistan, sitting on the Arabian Sea. Both of these branches enable China to create viable alternative energy and other supply routes should the Malacca Strait become blocked for some reason. This second Pakistan branch also allows China to provide the aforementioned huge economic stimulus to Pakistan, to enable it to remain economically viable and also to upgrade its road and rail infrastructure. The latter is of relevance to Pakistan’s military, as these new networks can easily be commandeered for improved military logistics (for example surging Pakistani forces toward the Indian border) in a crisis.  As such, this second corridor – CPEC – enables Pakistan to remain militarily competitive with India, a core long-term foreign policy goal of Beijing.

The second major component of OBOR is the Maritime Silk Route. This intends to start from Chinese east coast ports and move through Hanoi, Jakarta, Singapore, Kuala Lumpur, Sri Lanka, the Maldives, East African port cities such as Mombasa and Dijibouti, before crossing through the Suez Canal to European Mediterranean ports. The Gwadar port in Pakistan could easily be added to this network. This Route extends Chinese political and economic influence to these states through port construction projects and associated generous loans. Building this network helps justify and regularize a growing Chinese military naval presence across the Indian Ocean. Many of these ports, such as Gwadar and Djibouti, are intended to be used for both Chinese military and commercial naval traffic.

The third major component of OBOR is ultimately domestic. While economically developing Xinjiang, the initiative more broadly aims to address a major long-term economic problem for China: its oversupply of steel, cement and other similar factories, with insufficient demand within China for their products. This is part of China’s general problem of its previous investment-heavy economic model, which relied upon international and domestic capital to invest in new factories to increase supply. While it is attempting to move toward more reliance upon domestic consumption as a driver of economic growth, all of these rail, road, energy, and port infrastructure projects create international demand for the products of these existing factories, and thus avoids the politically and economically difficult challenge for Beijing of overseeing their shuttering and deliberate contraction of this sector of the economy.

Click on the image to enlarge:

obor

Sources: South China Morning Post; Mercator Institute for China Studies (Merics), IMF, World Bank, International Monetary Institute, Renmin University of China, Rhodium Group, HSBC, Daiwa Capital Markets, Geography Cement, hongxiang100.com

 

Do you believe Xi Jinping’s intentions are truly economic and almost nation-building, or do you think there are military motives as well?

There are clear military motives to OBOR. I have already pointed out their implications for Pakistan’s military competition with India, and for China’s naval ambitions. More subtly, the generous infrastructure projects and loans offered to OBOR member states are partly offered to bring certain of these states (such as Sri Lanka, Maldives, Nepal) more into China’s sphere of influence. This has obvious military implications in terms of threatening the continued ability of the United States to assemble and maintain a loose coalition of regional states that oppose the aggressive nature of China’s naval expansion. According to an excellent new report, titled “Harbored Ambitions,” on Chinese perspectives and management of the Maritime Silk Road project, they consistently view these projects as having greater strategic/military than economic importance.

 

The BRI is an incredible endeavor, a modern Silk Road.  How is the Chinese government funding this project?

It is being funded by multiple sources, but the most significant are Chinese state-owned banks, which are under direct control of the government, and therefore can be seen as spending from the central government budget by one remove. Second come international development banks in which China plays a leading role, such as the Asian Infrastructure Investment Bank (AIIB), BRICS New Development Bank, and the China Silk Road Fund sovereign wealth fund. Two good briefings on funding sources are available here and here

How do the Chinese people view such an extensive project?

 

It is difficult to accurately determine the level and quality of support for the initiative among the mass public. However, a useful recent article by Michael Swaine indicates that China’s political and strategic elite express consistent positive support for OBOR, but occasionally raise reasonable concerns relating to the sheer scale of the project and the accordant consequences of failure.

BRI projects would truly benefit the host nation if locals are employed.  Is this part of the BRI?

The majority of OBOR contracts go to Chinese state-owned construction and engineering enterprises who send Chinese workers and engineers to the host country to do the work. See here and the “Harbored Ambitions” report for details of this. This system permits maximum Chinese government control over the political and financial aspects of each project. In effect, it means that most projects take the form of a Chinese state-owned bank lending a recipient state a large sum of money with significant interest to pay for the project, which then goes directly to a Chinese state-owned construction or engineering firm that employs Chinese nationals. The Chinese firm may partner with a local firm from the recipient country, but it remains the lead contractor and in charge of the project.

Are the free-trade agreements China recently made in South Asia also part of the BRI or are they separate?

They are formally separate, but support the overarching Chinese effort to build economic and thus strategic influence within these countries, and lower political and economic barriers within these countries toward this end.

In Xi Jinping’s first address to the UN in 2013, he stressed, “We should build partnerships in which countries treat each other as equals, engage in mutual consultation, and show mutual understanding.”  I feel this does not prove true today with Sino-Indian relations, especially as China is gaining influence in South Asia.  What can you say to this in terms of the BRI?

I agree, and this is also shown by the nature of the OBOR projects I have discussed above. This demonstrates that this rhetoric by Xi Jinping is indeed just rhetoric.

India appears to be losing influence in Nepal, Sri Lanka, and the Maldives.  What do they need to do to regain this, or should they wait and see how the BRI aids the region?

Indian diplomats should warn their counterparts in these states of the dangers of agreeing direct OBOR projects, as evidenced by the recent Sri Lankan concession of the Hambantota port to China on a 99-year lease because it could not meet the payments of its loan agreement with China. India should, as far as is fiscally possible, offer its own competing economic development projects within these states that grant more of the contract to construction and engineering firms within those states, and on better loan terms. It should also seek to leverage the AIIB and New Development Bank to provide general and project-specific development loans to these states, to reduce their demand for the kinds of projects China would offer. Finally, given that it is now in greater direct competition for influence in these states with China, self-defeating Indian policies that only reduce its influence, such as the trade blockade with Nepal in 2015-16, should not be repeated (see here for the background).

 

What benefit(s) will India receive from the BRI?  What does it need to do to benefit from it?  Does Indian Prime Minister Modi even want Chinese investment?

Modi wants Chinese investment to help build Indian infrastructure, but is far more comfortable receiving it through the avenue of AIIB project funding, with the AIIB authorizing $1.5 billion of funding in 2018. This will largely be because India has a position on the AIIB board and ownership stake, and thus a greater degree of control in the terms of the loan. India actively opposes both the OBOR project and the idea of receiving direct Chinese funding through an OBOR-type agreement. New Delhi is also aware that withholding its support and cooperation with the broader OBOR network is a major point of leverage it has over Beijing. Scholars and analysts I spoke to in Beijing in January and February were well aware of the importance of Indian participation for the success of OBOR and that India had accordant leverage over China in continuing to refuse to participate.

Xi described the BRI as a “win-win” for the nations involved.  I understand it is too soon to truly tell.  Regardless, what needs to happen for it to be a “win-win” for those involved?

The OBOR projects would have to be structured as loans at low interest rates, if not grants, to support infrastructure development in the recipient countries, with the majority of contracts going to firms in those countries. There would need to be little military relevance to these projects, for example in the nature of port design. In such a way, the recipient countries would be able to modernise their infrastructure, while China would accrue important soft power benefits and be able to build a more positive image for itself in global politics and within the societies of the recipient countries.    

Jennifer is a Research Associate for Nepal Matters for America, Washington DC.   

 

The Dragon and the Elephant: Communication Rebooted

Jennifer Loy

There is no doubt major clashes have affected Sino-Indian relations over the decades.  The 1959 Tibetan Uprising protesting Chinese rule resulted in Indian recognition and promised sanctuary of the Dalai Lama.  A disputed Himalayan border caused clashes with troops from both sides culminating a Chinese win in the 1962 Sino-Indian War.  Further border incidents occurred in 1967 and 1987.  Most recently, when China pursued building a road in Doklam, on the disputed Sino-Bhutanese border last year, another standoff ensued.  The Doklam Incident that began in June was quite reminiscent of 1962, but troops withdrew in August “shortly before Modi came to Xiamen for an emerging market summit.”

Borders are not the only issue between the two neighbors.  According to Dr. Siwei Liu of the Institute of Peace and Conflict Studies, he believes third-party actors are also involved.  These include the Belt Road Initiative, the Quad, and the role of media. On the one hand, India is concerned with the growing Chinese presence in the Indian Ocean and South Asia.  The BRI is the world’s largest economic endeavor potentially involving 60 nations and more than 4.4 billion people.  In recreating the famed Silk Road, Chinese investment has attracted many players, some of whom were strong benefactors of India.  After political upheaval in the Maldives, the island nation is looking more towards China for assistance than India.  Beijing garnered a 99-year lease of the Sri Lankan port Hambantota.  They are investing heavily in the Pakistani port cities of Jiwani and Gwadar, as well as the nation itself—perhaps the most concerning for India.  The late 2017 election of Communist Prime Minister Oli of Nepal also seems a blessing to China.  Perhaps India feels like Sinicization is closing in.

On the other hand, China’s third party actor may be with the Quad.  This potential alliance involves the United States, Japan, Australia, and India.  Dr. Liu writes, “these actors undoubtedly hope to make use of the contradictions and differences between China and India and seek their own best interests in the Indo-Pacific region and forcefully advocate for the revived ‘Quad’, a strategic alliance designed to have a negative impact on China.”  With the docking of the USS Carl Vinson in Vietnam and Trump’s recent tariffs on Chinese imports, Beijing may feel overwhelmed with a growing American presence.

Both nations also feel an increased negativity with the media, both domestically and internationally.  They fuel nationalist fervor and spread false information.  Dr. Liu explains, “his kind of reporting frequently and demonstrably results in…action traps for the respective leaderships, where compromise or even a basic explanation of positions to the satisfaction of the other is seen as retreat.Things seem to have reset.  In early March, Chinese foreign minister Wang Yi said to his Indian counterpart Vijay Gokhale, “‘the two sides should increase strategic mutual trust and accelerate common development based on the political consensus of the leaders of the two countries. It is hoped that India will handle sensitive issues with prudence and work toward the same goal of promoting healthy development of China-India relations.’”

In a South China Morning Post interview, Indian ambassador to China, Gautam Bambawale proves communication is consistent.  He explains that there is an existing Joint Economic Group between the two led by their respective commerce ministers.  “Chinese Commerce Minister Zhong Shan will be in India later this week…where they will discuss how to improve the trade relations and investments between India and China.” He went on to explain that talks between foreign ministers would take place at the end of March and Prime Minister Modi will visit with President Xi Jinping in June for the Shanghai Cooperation Organization (SCO). That March visit was a success according to Suhasini Haidar of The Hindu.  They celebrated Sino-Indian trade which reached a growth of 20.3% from the previous year resulting in $84.4 billion; China maintained its position as India’s largest trade partner.  In addition, Chinese investments in India have become one of the most significant.

Mr. Zhong, who co-chaired the 11th meeting of the India-China Joint Group on Economic Relations, Trade, Science and Technology with Mr. Prabhu, said a free trade agreement (FTA) between India and China would be negotiated in due course, which would be a breakthrough in ties.”  As this is a future endeavor, there were four other foci of the meeting.  First, the two would promote the BRI and Indian investment projects equally.  Various campaigns including “Make in India” and “Digital India” would be exploited to its fullest.  The second is to promote Indian exports to China to aid in the trade imbalance.  Next, “the two sides agreed to set up a special working group to draw a road map for developing two-way trade…The two sides supported the multilateral trading system and safeguard the interests of developing members.”  Finally, in November 2018, Shanghai will host the first ever China International Import Expo.  More than 180 countries will attend with more than 1500 companies.  “The Indian government has made clear that it would actively organize Indian business to participate in the expo.”

Both China and India are powerful nations.  Their histories go back millennia as well as their inspiration in Asia.  The modern norm has always been a South Asian following of Indian influence and stimulus, but that is changing.  As China meets the demands of trade and infrastructure, some nations are straying from India, but have not turned their backs completely.  Globalization is changing the status quo worldwide, so why would Asia be any different?  The poorer nations that once looked only to India will grow immensely having two solid partners.  Standards of living will increase, and millions of lives will improve.  Pakistan, India’s greatest concern, will no doubt be forced by China’s BRI to quit harboring terrorists.  This win-win would be beneficial to all. These meetings appear to have given both Modi and Xi a solid footing in June.  In the end, regardless of Doklam, the increase in Chinese presence surrounding India, the potential for the Quad, other third-party actors, or the concerns of the neighboring countries, the Dragon and the Elephant must not get lost in translation.

Jennifer is Research Associate at Nepal Matters for America.

Why China is coming to Central Asia?

Dr. Janja Avgustin

Although China is a very important trading partner[i] for the former Soviet republics of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan), those same five countries together make up for only around 1% of all of China’s trade.[ii] Regarding trade, China[iii] mostly imports metals and mineral products (mainly petroleum gas and crude petroleum)[iv] and exports machines and textiles (mainly cotton)[v]. In both cases, Central Asia does not represent a significant source of import and export for China, even if trade has been steadily growing. So, why has China been attempting to enhance its relations with this region with a more assertive foreign policy, devising the so-called New Silk Road?[vi] The following paragraphs will briefly examine what scholars say about this.

Zhi (2016, 69) believes that the “New Silk Road Strategy provides an opportunity for China and the U.S. to cooperate in the region and reconsider their relationship within the context of their individual interests and strategy across the continent.” However, Rolland (2015, 4) argues that the “birth of a transcontinental economic corridor, as envisioned by the Chinese authorities, could change the global landscape, shifting the focus of strategy and commerce to the Eurasian landmass from the waters surrounding it and reducing the significance of U.S. naval supremacy. This corridor could further intensify intra-European divergences over Asia policy, cause deep differences between the United States and its European allies, and sharpen commercial rivalries.” A decade earlier Shambaugh (2005, 93) had already warned that “the United States views the increasing closeness between China and ASEAN with the same uncertainty that Beijing views the growing U.S. ties with India, Pakistan, and Central Asian states.”

Similarly, some point towards China’s fluctuating relationship with Russia. Odgaard (2017, 41), for example, finds that the “increased mutual concern for continued regional stability has encouraged Beijing and Moscow to coordinate their policies across a wide range of issue areas. Stability allows them to focus attention and resources on each of their different geostrategic priorities.” However, the difference in their priorities might take over making “future competition between Russia and China,[vii] as well as Russian and Chinese integration projects in Central Asia” indeed highly likely “due to their ambiguous bilateral relationship that involves close cooperation and intense competition simultaneously” (Muratshina 2017, 97). Samokhvalov (2018, 42) believes that “open conflict was prevented by close personal relations between Xi Jinping and Putin and signs of respect displayed by China to Russia in other spheres.”

From the perspective of Central Asia however, as Naarajärvi (2012, 113) concludes, “the actions and presence of China and Russia in Central Asia, together with inherently inauspicious characteristics of the region when compared to the post-Cold War new regionalist thinking, hinder the overall regionalisation in the area.” Also, “Central Asian states are at once desirous of the growing Chinese presence, wanting to take advantage of its economic dynamism and geostrategic influence, but also fearful of its potential demographic and cultural clout” (Peyrouse 2016, 14).

Stability[viii] of the region has been the cause of concern as well as a targeted aim.[ix] According to Rolland (2015, 2), “Beijing aims to build railways that will connect the Xinjiang region to its Kazakh and Kyrgyz neighbors, and then westward to the Middle East and Europe, in the hope that economic development brought by building infrastructure will enhance the political stability in these areas.” In fact, Musharaf and Manzoor (2017, 244) state that stability and security in the region is the only shared interest between China, Russia and the US. Naarajärvi (2012, 113) also points out that “regionalisation, hopefully in time leading to greater regional cooperation in Central Asia, is very much in the interests of Europe and the European Union (EU) as a potential peaceful way forward in the development of the region.” However, in his study Kavalski (2007, 855) predicted that “the inconclusive inference that the complexity of Central Asian interactions makes it unlikely to infer whether China, India or the EU would prevail as the model to be emulated by regional states. However, the likelihood of an extended rivalry (rather than cooperation) is something that is already apparent.”

It would seem that even though China’s strategy in Central Asia is clear, the existing complexity of relations, geostrategic importance of the region, and the political instability of the five countries makes it particularly difficult to gauge the consequences, impacts and possible combination of outcomes due to the diversity of actors and interests. Undoubtedly, the presence of China in Central Asia has been on the rise and while most look at the region from the perspective of interplay between China, US and Russia,[x] it is important to stress that in Central Asia itself there “is a predominant suspicion that China still has imperial designs on Central Asia and merely wants to conceal or delay them” (Peyrouse 2016, 22).

Janja is Academic Research Consultant at Nepal Matters for America.

Notes:

 

[i] For more information on trading partners see https://www.cia.gov/library/publications/the-world-factbook/fields/2061.html and https://www.cia.gov/library/publications/the-world-factbook/fields/2050.html

[ii] In 2016, all of China’s imports amounted to $1.32T and all its exports to $2.06T.

[iii] For more information, see the visualizations provided by the Observatory of Economic Complexity (OEC, MIT Media Lab) at https://atlas.media.mit.edu/en/

[iv] China controls large portions of the oil and gas fields in the region and is behind a large share of the investments in the region (Swanstörm 2005, 584).

[v] As Ma et al.  (2017, 45) confirm, “With regard to the export of agricultural products from Central Asia to China, we find that cotton is the top export product, which accounts for 64.32% of total agricultural export value.”

[vi] The idea of a new “Silk Road economic belt” was launched by President Xi during his tour of the Central Asian republics in October 2013 (Rolland 2015, 1).

[vii] Russia is promoting its integration policy in the region primarily through the Eurasian Economic Union and the Eurasian Development Bank, while China uses the Shanghai Cooperation Organisation and the Asian Infrastructure Investment Bank (Muratshina 2017, 97).

[viii] As Ferdinand points out, there aren’t only possible political risks of instability in Central Asia, but also “the danger of an increased Chinese presence in neighbouring regions stimulating fears about Beijing’s long-term intentions” (2016, 952).

[ix] Historically, the “PRC has done little to influence Central Asia, partly due to its own instability along its periphery, and internal problems in the Chinese heartland” (Sheives 2006, 205).

[x] As Musharaf and Manzoor (2017, 243) put it: “The energy rich newly independent Central Asian Republics became bone of contention among the world states in general and Russia, China and United States in particular.”

References

Ferdinand, Peter. 2016. Westward ho—the China dream and ‘one belt, one road’: Chinese foreign policy under Xi Jinping. In International Affairs 92(4): 941-57.

Iqbal, Musharaf and Manzoor Khan Afridi. 2017. New Great Game in Central Asia: Conflicts, Interests and Strategies of Russia, China and United States. In The Dialogue XII(3): 229-46.

Kavalski, Emilian. 2007. Partnership or Rivalry between the EU, China and India in Central Asia: The Normative Power of Regional Actors with Global Aspirations. In European Law Journal 13(6): 839-56.

Ma, Jiliang, Tomas Balezentis, Zhijun Zhao and Cheng Fang. 2017. One Bely One Road (OBOR) Initiative in Central Asia: The study of OBOR on China and Central Asia agricultural trade. In Transformations in Business & Economics 16(3): 41-55.

Muratshina, Ksenia. 2017. Asian Infrastructure Investment Bank and post-Soviet Central Asia: New Multilateral Bank Formation in the Context of China’s Economic Interaction with post-Soviet Central Asian Countries. In Central European Journal of International and Security Studies 11(3): 84-106.

Naarajärvi, Teemu. 2012. China, Russia and the Shanghai Cooperation Organisation: blessing or curse for new regionalism in Central Asia? In Asia Europe Journal 10: 113-26.

Odgaard, Liselotte. 2017. Beijing’s Quest for Stability in its Neighborhood: China’s Relations with Russia in Central Asia. In Asian Security 13(1): 41-58.

Peyrouse, Sébastien. 2016. Discussing China: Sinophilia and sinophobia in Central Asia. In Journal of Eurasian Studies 7: 14-23.

Reeves, Jeffrey. 2018. China’s Silk Road Economic Belt Initiative: Network and Influence Formation in Central Asia. In Journal of Contemporary China, accessible at: https://doi.org/10.1080/10670564.2018.1433480

Rolland, Nadège. 2015. China’s New Silk Road. Washington: The National Bureau of Asian Research.

Samokhvalov, Vsevolod. 2018. Russia and its shared neighbourhoods: A comparative analysis of Russia-EU and Russia-China relations in the EU’s Eastern neighbourhood and Central Asia. In Contemporary Politics 24(1): 30-45.

Shambaugh, David. 2005. China engages Asia: Reshaping the regional order. In International Security 29(3): 64-99.

Sheives, Kevin. 2006. China Turns West: Beijing’s Contemporary Strategy Towards Central Asia. In Pacific Affairs 79(2): 205-24.

Swanstörm, Niklas. 2005. China and Central Asia: a new Great Game or traditional vassal relations? In Journal of Contemporary China 14(45): 569-84.

Zhi, Wang. 2016. China’s New Silk Road Strategy and Foreign Policy Toward Central Asia. In Southeast Review of Asian Studies 38: 69-77.

 

Pakistan Maneuvers in Nepal to Revitalize the SAARC Process

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Ipshita Bhattacharya

Pakistan suggests to Nepal to use the Gwadar Port in Balochistan via the Kerung-Tibet railway

A joint military guard of honor was given to Pakistan’s Prime Minister Shahid Khaqan Abbasi, in Kathmandu, Nepal in the first week of March, 2018. Since, 1960 however, only a few bilateral visits have been there. Since the last two decades this has been the first official visit by any Pakistani head of the state. The last Pakistani visit was by PM Benazir Bhutto’s in 1994. Other than previous SAARC (South Asian Association for Regional Cooperation) summits like in 2014, this kind of bilateral visit by Islamabad is unusual.

One of the most important agenda of  this visit was  to ensure the continuation of  SAARC . Pakistan has been extremely skeptical about India’s stance taken in cancelling the last SAARC summit in Islamabad, Pakistan in 2016, citing Pakistan’s involvement in fomenting cross border terror attacks. The other South Asian nations of Bangladesh, Bhutan, and Afghanistan also supported India’s position on SAARC and joined the boycott.  Meanwhile India’s interest in another regional grouping, i.e. the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) — which includes Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan, and Nepal as members — is seen as an alternative to SAARC by Pakistan.

This visit is hence taken as to maneuver strategies to invigorate their bilateral relations and to push the SAARC agenda on the forefront as Nepal holds the current chair of SAARC. PM Abbasi also addressed the program organized by SAARC secretariat that clearly indicates Pakistan’s sheer interest in hosting for next SAARC summit. Moreover,, economic cooperation and bilateral trade relations, Pakistan’s PM also announced an increase in scholarships to Nepali students in Pakistan.

On the other hand Nepal has always been a significant and worthy neighbor for India in South Asia. Since China is set up to build a ‘Sino centric’ stage in Asia, and also looking into the current shaky relations between India and Nepal, China is more alert and inspiring to a strategic Nepal-Pakistan relation to counter and make its presence in India’s proximity.

There are certain issues which are of Indian concern, as Pakistan is diplomatically operating with Nepal with vested mutual interest of Beijing and Islamabad both. Prime Minister Khadga Prasad Sharma Oli, the new PM of Nepal is known as a pro-China and considers India’s role in the fall of his government in August 2016, hence there could be a possible development of a rugged situation between India and Nepal in near future. The differences arose after Nepal’s proclamation of new constitution that came up in September, 2015 as there were claims that the  new constitution politically discriminated against 51% of the Madhesis, Tharus and other janjatis. India’s concern was its border as New Delhi wanted to stay away from protests and agitations taking place over political rights in Nepal that could seep into India through its porous border.

China and Pakistan already declared their all-weather friendship and China has been playing the big brother role to Pakistan. Nepal is already participating in the ambitious project of China’s Belt and Road Initiative. Moreover, recently China also ended India’s monopoly in internet services this year in Nepal. China’s infrastructural developments in Nepal, like building up of roads and railway lines, could lead to the end of dependency of Nepal on India for land routes trade. This weaning out of Nepal from India could be a major strategic achievement for Pakistan and China both in the region. The emboldening relations between Nepal and Pakistan will also advance their regional configuration which will give Nepal more options other than India and that is what precisely Pakistan and China want. One more area of concern for India would be to stop China’s entry in to SAARC, as Pakistan and Nepal are determined to bring China into the chapter. Before 2014, India successfully pushed back this proposal, but how far India would stall the move further as it did it in the past is a matter of concern.

The vibrant round of bilateral talks between Nepal and Pakistan to resurrect SAARC, regional connectivity and better economic relations ended with a suggestion to Nepal to use the Gwadar Port in Balochistan via the Kerung-Tibet railway line for its economic activities. Moreover, it seems that Pakistan is looking desperately towards Nepal as a game changer in South Asia.

Ipshita is a contributor for Nepal Matters for America