Hegemony is hard to do: China, globalization, and “debt traps”

As a result of an increasingly insular United States, with US President Donald Trump’s imposition of tariffs, China has been trying to find common cause with a number of countries, including US allies such as Japan, India and South Korea, on the issue of globalization.

While unequivocally batting in favor of an open economic world order, Chinese President Xi Jinping has also used forums like Boao to speak about the relevance of the Belt and Road Initiative (BRI) (also known as the One Belt and One Road Initiative, or OBOR). At the Boao Forum (April 2018), the Chinese President sought to dispel apprehensions with regard to suspected Chinese aspirations for hegemony:

China has no geopolitical calculations, seeks no exclusionary blocs and imposes no business deals on others.

There is absolutely no doubt that the BRI is a very ambitious project, and while it is likely to face numerous obstacles, it is a bit naïve to be dismissive of the project.

Debt Trap and China’s denial

Yet China, in promoting the BRI, is in denial with regard to one of the major problems of the project: the increasing concerns of participant countries about their increasing external debts resulting from China’s financial assistance. This phenomena has been dubbed as a ‘debt trap’. Chinese denialism is evident from an article in the English-language Chinese daily Global Times titled ‘Smaller economies can use Belt and Road Initiative as leverage to attract investment’. The article is dismissive of the argument that BRI has resulted in a debt trap:

It is a misunderstanding to worry that China’s B&R initiative may elevate debt risks in nations involved in massive infrastructure projects. Countries are queuing up to cooperate with China on its B&R initiative, but many Western observers claim the initiative will create a problem of debt sustainability in countries and regions along the routes, especially those with small economies.

The article begins by citing the example of Djibouti in Africa, and how infrastructure projects are generating jobs and also helping in local state-capacity building. It then cites other examples, like that of Myanmar, to put forward the point that accusations against Beijing of promoting exploitative economic relationships with participant countries in the BRI is far from the truth.

The article in Global Times conveniently quotes Myanmar’s union minister and security adviser, Thaung Tun, where he dubbed the Kyaukpu project a win-win deal, but it conveniently overlooked the interview of Planning and Finance Minister, Soe Win, who was skeptical with regard to the project. Said Soe Win in an interview with Nikkei:

[…] lessons that we learned from our neighboring countries, that overinvestment is not good sometimes.

Soe Win also drew attention to the need for projects to be feasible, and for the need to keep an eye on external debt (Myanmar’s external debt is nearly $10 billion, and 40 percent of this is due to China).

The case of Sri Lanka, where the strategically important Hambantota Port has been provided on lease to China (for 99 years) in order to repay debts, is too well known.

The new government in Malaysia, headed by Mahathir Mohammed, has put a halt on three projects estimated at over $22 billion. This includes the $20 billion East Coast Railway Link (ECRL), which seeks to connect the South China Sea (off the east coast of peninsular Malaysia) with the strategically important shipping routes of the Straits of Malacca to the West. A Chinese company, China Communications Construction Co Ltd, had been contracted to build 530km stretch of the ECRL. On July 5, 2018 it stated that it had suspended work temporarily on the project, on the request of Malaysia Rail Link Sdn Bhd.

The other two projects are a petroleum pipeline spread 600km along the west coast of peninsular Malaysia, and a 662km gas pipeline in Sabah, the Malaysian province on the island of Borneo.

During a visit to Japan, Mahathir had categorically said that he would like to have good relations with, but not be indebted to, China, and would look at other alternatives. The Malaysian PM shall also be visiting China in August 2018 to discuss these projects.

Conclusion

While Beijing has full right to promote its strategic interests, and also highlight the scale and relevance of the BRI, it needs to be more honest with regard to the issue of the ‘debt trap’ (especially if it claims to understand the sensitivities of other countries, and does not want to appear to be patronizing). While smaller countries may be economically dependent upon China, the latter should dismiss the growing resentment against some of its projects at its own peril. Countries like Japan have already sensed the growing ire against the Chinese, and have begun to step in, even in countries like Cambodia (considered close to China). A number of analysts are quick to state that there is no alternative to Chinese investment, but the worries in smaller countries with regard to Chinese debts proves the point that this is not the case. China needs to be more honest, at least, in recognizing some of its shortcomings in its dealings with other countries.

The Indo-Pacific narrative, US insularity, and China’s increasing influence

Over the past year, there has been a growing interest with regard to the vision of a Free and Fair ‘Indo-Pacific’. While this term has been used in recent years by policy makers from the US and Australia and has been pushed forward by a number of strategic analysts, a number of developments since last year have resulted in this narrative gaining some sort of traction.

US President Donald Trump, during his visit to South East Asia and East Asia in November 2017, used this term on more than one occasion, much to the discomfort of China (which prefers ‘Asia-Pacific’). On the eve of his visit to India last year, Former Secretary of State Richard Tillerson, while speaking at the Centre for Strategic and International Studies (CSIS, Washington DC), explicitly mentioned a larger role for India in the Indo-Pacific, and the need for India and US to work jointly. Said Tillerson:

The world’s center of gravity is shifting to the heart of the Indo-Pacific. The U.S. and India, with our shared goals of peace, security, freedom of navigation, and a free and open architecture, must serve as the Eastern and Western beacons of the Indo-Pacific, as the port and starboard lights between which the region can reach its greatest and best potential.

In November 2017, the Quad grouping (Australia, US, India, and Japan) met on the sidelines of the ASEAN Summit pitching not just for a rules based order, but also in favour of enhancing connectivity. Commenting on the meeting, an official statement from the US Department of State had said that the discussions were important and members of the Quad were “committed to deepening cooperation, which rests on a foundation of shared democratic values and principles.”

Earlier, too, the four countries had coalesced together, but as a consequence of Chinese pressure, the grouping could not last.

There have also been discussions of coming up with connectivity projects. This was discussed during Australian Prime Minister Malcolm Turnbull’s meeting with Donald Trump in February 2018, and between representatives of Japan, the US, and India in April 2018 when the three sides met in New Delhi, committing themselves to furthering connectivity between the countries.

China Factor

While members of the Quad have continuously denied that the Indo-Pacific concept is specifically targeted at China, it would be naïve to believe this assertion. In fact, during a visit to Australia, French President Emmanuel Macron, who is trying to position himself as one of the frontline protagonists of liberalism in the Western world, spoke about the need for India, Australia, and France to work together in order to ensure a rules-based order. Commenting on the need for India, France and Australia to jointly work for a rules based order, and checking hegemony (alluding to China), the French President stated:

What’s important is to preserve rules-based development in the region… and to preserve necessary balances in the region….It’s important with this new context not to have any hegemony.

Evolving relationship between China-India and China-Japan

While it is good to talk about a rules-based order, and a Free and Fair Indo-Pacific, it is important for members to do a rational appraisal of ensuring that the Indo-Pacific narrative remains relevant, especially in the context of two important events. First, the reset taking place between India-China, and second, the thaw between Japan-China.

This has already resulted in some very interesting developments.

First, Australia was kept out of the Malabar exercises last June (Japan, US, and India participated). Australia is a member of the Quad alliance and has been one of the vocal protagonists of the Free and Fair Indo-Pacific narrative. Canberra has also expressed vocally the need for a greater role for India in the Indo-Pacific. Australia has on more than one occasion expressed its desire to participate in the Malabar Exercises.

Many argue that the decision to exclude Australia from the exercises is a consequence of the significant shift taking place in India-China relations, though India has been dismissive of this argument.

Second, Japan has expressed its openness to participate in China’s Belt and Road Initiative (BRI) as long as international norms are met. During meetings between the Chinese and Japanese Foreign Ministers in April 2018, the Chinese Foreign Minister, Wang Yi, said such a possibility was discussed. Japanese Prime Minister Shinzo Abe, who is seeking to improve ties with China, recently reiterated the potential of the Belt and Road Initiative in giving a boost to the regional economy.

It would be pertinent to point out that a number of Japanese companies are already participating in countries which are part of the Belt and Road Initiative.

Interestingly, the Japanese-led Asian Development Bank (ADB), which has been funding many projects (spearheaded by Japan) projected to be components of the Indo-Pacific strategy, has even gone to the extent of stating that it does not perceive the Chinese-led Asian Infrastructure Investment Bank (AIIB) as a threat. Commenting on the possibility of cooperation between ADB and AIIB, the President of ADB, Takehiko Nakao, stated that “AIIB, it’s not the kind of threat to us. We can cooperate with AIIB because we need larger investment in Asia and we can collaborate.”

Where does the Indo-Pacific move from here?

In terms of strategic issues, especially ensuring that China is not an unfettered influence in the region, the narrative is relevant. The Chinese approach towards Indo-Pacific and Quad as being mere froth is an exaggeration. Addressing a press conference on the sidelines of the National People’s Congress, China’s Foreign Minister, Mr. Wang, had stated that there was “no shortage of headline grabbing ideas” but they were “like the foam on the sea” that “gets attention but will soon dissipate.”

Similarly, in terms of promoting democratic values it certainly makes sense. The real problem is in terms of connectivity projects (beyond India-Japan, none of the members of the Quad have elaborated a coherent vision for connectivity). The US has spoken about an Indo-Pacific Economic Corridor, but given the Trump Administration’s approach, it remains to be seen to what extent this can be taken further. While Australia has been steadfast in its opposition to China’s growing economic clout, it has its limitations, especially in terms of funding any concrete connectivity projects. Possible regions where Australia could play a key role should be identified.

Conclusion

It is fine to speak in terms of certain common values, but to assume that China can be the only glue is a bit of a stretch, especially given the fact that it has strong economic ties with key countries pushing ahead the Indo-Pacific vision. It is also important for the Indo-Pacific to come up with a cohesive connectivity plan. Currently, the narrative seems to be driven excessively by strong bilateral relationships, and the individual vision of leaders.

Recent developments in the context of Indo-Pacific

At a time when a massive churn is taking place in the Donald Trump Administration (HR Mcmaster was replaced as head of the NSA by John Bolton, while Secretary of State Rex Tillerson was replaced with the more hawkish Mike Pompeo), Alex Wong, Deputy Assistant Secretary of State for East Asian and Pacific Affairs, gave a briefing with regard to the US vision for ‘Indo-Pacific’ strategy, on April 3, 2018 (a day before a trilateral dialogue took place between senior officials from India, Japan and US). Wong outlined the contours of the strategy, and spoke not just about the strategic vision, but also the economic vision of the US, with regard to the Indo-Pacific.

A backgrounder to the Indo-Pacific, Quad, and the China Factor

For a long time, the US referred to the region as ‘Asia-Pacific’ (which China prefers), but the current Trump Administration has been using the term ‘Indo-Pacific’. During his visit to East Asia and South East Asia, in November 2017, the US President had used the term more than once (much to the discomfort of China) giving a brief overview of what he meant by a ‘Free and Fair Indo-Pacific’. While speaking to a business delegation at Asia-Pacific Economic Cooperation, Trump spoke about ‘rule of law’ and playing by the rules. Former Secretary of State Rex Tillerson had referred to the Indo-Pacific and the Quad Alliance (consisting of US, India, Japan, and Australia) in an address at the Center for Strategic and International Studies (a Washington think tank)  in October 2017, a week before his India visit.

In order to give a further thrust to the Quad, representatives of all four countries met on the eve of East Asia Summit in Manila. A statement of the Indian Foreign Ministry said: Continue reading