INTERNATIONAL  INSTITUTE FOR SOCIAL AND ECONOMIC STUDIES 
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Rethinking India’s Approach toChina’s Belt and Road Initiative

07.07/2019

The second Belt and Road Forumfor International Cooperation in April 2019 witnessed a transformeddiscourse on China’s grand connectivityinitiative. Evoking an agreeablegeo-economic vision, the joint communiquespoke of “extensive consultation,”“green,” “people-centred and sustainabledevelopment” as well as “high quality,sustainable infrastructure” that is “inclusiveand broadly benefi cial” (Belt andRoad Forum 2019a). There is little doubtthat China viewed the forum as a platformto exude more responsive and multilateralnorms, with Xi Jinping himself acknowledgingsome of the problems with theinitiative. There are three broader trendsthat might have convinced Beijing thatthe time was ripe for an adjustment. 


To begin with, China has faced agrowing tide of criticism against its ambitiousconnectivity plans in recent years,particularly from India and more advancedWestern economies. Some of it is not withoutbasis, as the Belt and Road Initiative(BRI) has faced problems ranging from costoverruns to allegations of corruption andlack of transparency in the conceptionof projects. Nevertheless, Western propaganda had reached a fever pitch that wascomplicating the pursuit of the initiative.

Second, contrary to the exaggeratedimage of Chinese banks sweeping vulnerablestates into the orbit of an empire,Beijing has discovered that some of thestates where the BRI is fi nding traction haveaccumulated massive Western debt overthe years and with few avenues to accessaffordable credit. Such precarious economiesview the BRI as a lifeline to recovertheir macroeconomic stability, often byservicing older Western debt throughChinese loans. Yet, being saddled with aportfolio of white elephants along theSilk Road is not the role China envisionedfor its fl agship initiative. Moreover, as economist Yasheng Huang cautions, “BRI’smassive scale, coupled with the lack ofprofi tability of China’s state sector, meansthat projects under the scheme may needsubstantial support from Chinese banks”(Huang 2019). Uns urpri sin gly, Chinaseeks to hedge its bets by cooperatingwith established players such as theAsian Development Bank, World Bank,and the International Monetary Fund, aswell as private lenders, who some Chinesepolicymakers believe “should be themainstay” for project fi na nce (Wong andAreddy 2019).

Third, stabilising the global economiclandscape and creating a conducive environmentfor Chinese capital and companiesto fl ourish in non-Western economiesis now vital for China’s continued growth.Prolonged trade tensions with Washingtonhave convinced Beijing that a successfulBRI is more necessary than it was twoyears ago. Chinese foreign direct investmentto the United States (US) plummetedby 80% in 2018 (Baker McKenzie 2019),exemplifying rising walls in the West forChinese capital. Since the Donald Trumpadministration imposed the fi rst round oftariffs in 2018, China’s exp orts to the UShave declined by 12% (Giles 2019). In co ntrast,China’s annual trade with BRI me mbercountries is now over $1.3 trillion andgrowing at 16% (Xinhua 2019), a pacefaster than Chi na’s overall external commerce.Ameri can protectionism againstmainland China’s exports is also increasingthe imp or tance of other Asian localestowards whom trade is being diverted(towards the US) and which could hostsome of China’s man ufac t uring industries.The BRI is one of the ways of creatingnew global value chains and deepeningSouth–south interdependence.

In short, the BRI remains a vital endeavourfor China’s continued economic transformationand stability, but it also needs other actors to share the risks of thisgrand initative.

India and BRI 2.0 

Even before the Narendra Modi governmenthad settled into its second term,the strategic community kick-started aconversation to review India’s attitude tothe BRI. Looking back, India’s May 2017position on the BRI was conceived in avery different context of intense competitionin India–China relations. India’sreasons extended beyond sovereignty concerns,on the China–Pakistan EconomicCorridor (CPEC) passing thr ough PakistanoccupiedKashmir, to a blanket oppositionto the entire venture. A thaw, if not a reset,since April 2018 offers both countries theopportunity to dovetail their connecti vityvisions and engage in a less prejudiceddialogue where overlapping interests canbe perceived more objectively. As onesenior offi cial remarked, “India’s [future]attitude to [BRI] has to be set in thelarger picture of the relationship withChina, which combines a strong economicpartnership with major strategic challenges,further complicated by the globalgeopolitical fl ux” (Raghavan 2019).

India’s debate is also occurring againstthe backdrop of new evidence on the BRI.Researchers have begun questioning thesimplistic assessment of the BRI as a“debt-trap.” Not only has little empiricalevidence been discovered of Chinese banks“deliberately over-lending or fundingloss-making projects to secure strategicadvantages for China” (Brautigam 2019a,2019b), in Latin America and Africa,research suggests that Chinese fi nancehas not pushed borrowing countries“over the debt sustainability thresholdsestablished by the IMF” (Ray and Wang2019). Assuming a two-decade horizon,“an $8 trillion investment program forBRI countries would amount to less than1.5% of GDP per annum, and about 2.5%excluding China” (Hurley et al 2018: 5).Even the infamous case of Hambantota, aSri Lankan port that slipped into China’shands after its commercial viability nevermaterialised, is now seen as an outlierrather than the trend. Around 90% ofColombo’s foreign debt is still held by non-Chinese creditors (Weerakoon andJayasuriya 2019).

India’s main concern has been that theBRI is designed to stamp China’s geopoliticaldominance. Some argue that sucha fear might be misplaced for “all greatinfrastructure and connectivity ventures—throughout history—have alte red the prevailinggeo-economic matrix, and hencethe resulting geopolitical balance. Whilethe geopolitical effects are short-lived, thegeo-economic benefi ts survive over time”(Bhoothalingam 2019). Or, put simply, newtrading linkages eventually trump geopolitics.But, it is still worth introspectingas to what extent the BRI has actuallyeroded India’s infl uence or destabilisedSouth Asia.

If we dispassionately notice the region’srhetoric, what stands out is a similar discoursebeing espoused by most of thesma ller South Asian states. Nearly all ofIndia’s neighbours have expressed a preferencefor: non-alignment or strategicautonomy as a guiding principle in theirforeign relations; multidirectional economicenga ge ment with India, China, US,Japan, and other powers; and, sensitivitytowards India, including publicly disavowingany move towards offering militaryfacilities or bases to external powers and,thus, reassu ring India on its vital interests.As one study recently observed, subcontinentalstates “lar gely still see India as thedominant power in South Asia, suggestingthat Chinese economic activity,while welcome, will not necessarily translateinto major mil itary or strategic gains”(Samaranayake 2019: 3–4). Obviously,South Asian states have their own agencyand are able to juggle foreign policies thatare deferential to core Indian interestswhile engaging China.

Order-building in the Subcontinent 

It is widely recognised that an underresourcedand incoherent policy settingstifl es India’s ability to offer quality andtime-bound regional infrastructure projects.Yet, overcoming such structuralproblems has been an elusive exercisebecause they are linked to a highlydistorted political economy that lacks theindustrial–technological repertoire andsurplus fi nance capital of East Asian economies.The result is for all to see: merely 5% of South Asian trade is intra-regionaland investment fl ows within the subcontinentconstitute less than 1% of totalinvestment in the region. Such a fragmentedsubregion with the barest formsof socio-economic interdependence is anunacceptable reality given the transformationsthat have occurred eslewhere in Asia.

In the meanwhile, dissuading Chinafrom altering the economic landscape is aself-defeating policy because a veto—tothe limited extent that India can continueto play a spolier’s role—does little toadvance India’s lofty vision for the subcontinent.Instead, the aim, as underscoredin India’s own critique of the BRI1.0, should be to espouse a set of normsthat encourage a range of projects. Publicdiplomacy and Track 2 dialogues thatattempt to socialise India’s neighbours inmore astute project choices and ass essmentsmust be part of the policy response.But, India also needs to pro-actively pursuejoint ventures with Chinese companiesand establish broader linkages andcommon standards between otherwisedisparate projects in the subcontinent; inother words, prioritising ambitious orderbuildingover the chimera of a sphereof infl uence.

An illustration of strategically levera gingthe BRI is Russia’s proposal, made at theApril 2019 BRI forum and subsequentlyendorsed by Xi Jinping, of lin king theNorthern Sea Passage to China’s “PolarSilk Road.” This was followed by a Russia–China joint venture to provide year-roundliquefi ed natural gas (LNG) transportationcapabilities in the Arctic. For sometimenow, Russia has been seeking to developthe northern shipping route to connectEurope with North East and South EastAsia. For its part, China “is actively lookingto both improve supply chains andshipping routes to Europe, and reducethe costs in doing so” (Devonshire-Ellis2019). Beijing is also looking for reliableaccess to Russian energy resources. But,most crucially, what China seeks is a shortergeo-economic connection to WesternEurasia that is beyond the reach of theUS navy. Just as Russia is drawing Chinesecapital to develop new infrastructure andcommercialise its maritime periphery inways that would also be advantegous toChina and to much of East Asia, India too must draw lessons from such typesof cooperation.

China’s “Malacca dilemma” is generallyrecognised as an important motive for theBRI’s manifestation in the CPEC and China–Myanmar Economic Corridor that aim toshorten lines of communication betweenmainland China, and South West Asia andAfrica. India as the key regional power inthis transit space can enable China topursue its maritime interests, while drawingChinese investment in strategicallyidentifi ed port and transport infrastructuresectors in the South Asian littoral.This would allow the subcontinent torecover its historical role as a fulcrum ofEurasia. After all, just like a millenniaago, India’s wealth and power will ultimatelyderive from South Asia’s abilityto tap into the overland and maritimegeo-economic links between West Asiaand Africa on the one hand, and East Asiaand mainland China on the other.

India’s position on the CPEC, as a formerforeign secretary suggests, “should notexclude working together with China onprojects where there is mutual benefi t andbenefi t to a third partner country.” India’splans for the International North–SouthTransport Corridor through Iran “can linkup most usefully with the Eurasian transportcorridor which China is developing.”India’s plan to link its North East regionwith South East Asia—the trilateralhighway through Myanmar and intoThailand—“could also be integrated withthe north–south rail and road links whichare joining southern China to the countriesof Indo–China and beyond, with Mandalayas a nodal point” (Saran 2019). Accordingto the World Bank, “BRI transport projectsare estimated to increase trade bybetween 2.8 and 9.7 percent for corridoreconomies” (Ruta et al 2019). In short, itmakes little sense for interregional connectivityroutes to remain disconnec tedwith each other as they collectivelyadvance economic interdependence.

China’s infrastructure projects couldalso increase South Asia’s internal connectivity.Much of the viability of logistical networksand energy projects is linked withIndia’s economy and access to its largemarket. For example, hydropower projectsdeveloped by China with India as themain eventual market could be a form of trilateral cooperation. Ano ther instanceis projects that increase interdependencebetween India and its neighbours, suchas the Chinese-constructed terminal atthe Chittagong port, which buttressedIndia–Bangladesh coa stal shipping cooperation(Samaranayake 2019: 13). Whathas been absent in Indian policy is theconceiving of creative ways of collaborationwith the BRI in the immediate andextended neighbourhood to transformthe region’s economic geography, presumablyone of the grand strategic tasksfor any Indian leadership.

Although typically associated withtran s port connectivity, the BRI has forayedinto new areas, particularly in the subcontinent.Nearly all the agreements(13 bilateral and 16 multilateral) withMyanmar, Bangladesh, Sri Lanka, Nepal,and Pakistan at the second BRI forumrelate to agriculture, rural development,rene wable energy, green development,disaster reduction, and science (Deepak2019; Belt and Road Forum 2019b). Whathas gone unnoticed is the BRI’s contributionto human capital development andtechnical knowledge in the global South,formerly an exclusive preserve of theWest. Since the BRI’s launch in 2013, theChinese Academy of Sciences (CAS) hasinve sted $270 million on fi ve research anddevelopment (R&D) facilities in China andnine in BRI partner countries in SouthAsia, South East Asia, South Ame rica, andAfrica. The CAS has trained 5,000 studentsfrom BRI countries in science and technologycourses as well as 200 PhD studentseach year. In 2017, nearly 40,000 studentsfrom BRI countries stu died in China onthe Silk Road scholarship programme,accounting for two-thirds of all Chinesescholarships (Offi ce of the Leading Groupfor Promoting the BRI 2019; CAS 2019).

For one, “India should look at the possibilitiesof S&T cooperation with China inareas of interest using the BRI platform”(Saran 2019). Delhi could leverage the BRIto establish a regional platform for jointscientifi c research—a public good—as ameans to transform the quality of humancapital in the neighbourhood. Today,for example, “mixed Chinese-Pakistanifaculty” are undertaking joint research aswell as offering advanced degrees in “artificial intelligence, food technology, mineral resources and railways” in Pakistaniuniversities (Masood 2019). Indians andChinese co-teaching courses for studentsacross the subcontinent would enableIndia’s neigh bours to absorb and sustainhigh-quality investment in a variety ofsectors like manufacturing, agriculture,and ecological protection, evaluate environmentalrisks of large infrastructure projects,and enhance water and disaster management.This would be another intelligentway to embed China into a common developmentalagenda for the subcontinent.

There is a quixotic belief in India that aperiod of sustained economic growth willby itself restore Indian authority in thesubcontinent. This is delusional bec auseIndia’s growth is, for the most part, notbeing accompanied by innovative institutions,scientifi c and industrial heft, orthe socialisation strategies that risingpowers have historically relied upon tocohere their regions. China’s presence isa reality that cannot be wis hed away orheld at bay through India’s negative vetopower over its neig hbours who, albeit ina clear-eyed fashion, are deepening theirgeo-economic links with Beijing. Shapingthis changing setting would require Indiato exercise leadership in more imaginativeways, recognise its domestic weaknesses,be attentive to its neighbours’ desire for abetter life, and tap into China’s strengths.

Above all, India’s policy debate mustshift away from an ideological and overlysec uritised posture to China’s geo-economicinvolvement, and towards an orderbuildingapproach where regional modernisationbecomes the heart of India’s geostrategy.Multilateralising China’s enga gementthrough a subcontinent-wide networkof norms is more likely to convert theBRI into an advantegous proposition ratherthan a purely competitive approach thatdisappoints India’s recipients with herfeeble outcomes, and frees China to pursuead hoc bilateral deals with little concernfor the regional political economy. Overtime, a sophisticated approach propelledby bilateral and multilateral projects,including partnerships between Indianand Chinese fi rms, and establishing subregional manufacturing zones and industrialparks—all driven by an overarchingvision for an open and interdependentsubcontinent—will be the shrew dest response to changing the way the BRI isoperationalised in the region.

References

Baker McKenzie (2019): “Chinese FDI into NorthAmerica and Europe in 2018 Falls 73% to Six-YearLow of $30 Billion,” 14 January, https://www.bakermckenzie.com/en/newsroom/2019/01/chinese-fdi. 

Belt and Road Forum (2019a): “Joint Communiquéof the Leaders’ Roundtable of the 2nd Belt andRoad Forum for International Cooperation,”27 April, http://www.beltandroadforum.org/english/n100/2019/0427/c36-1311.html. 

— (2019b): “List of Deliverables of the Second Beltand Road Forum for International Cooperation,”27 April, http://www.beltandroadforum.org/english/n100/2019/ 0427/c36-1312.html. 

Bhoothalingam, Ravi (2019): “India and China’s Beltand Road Initiative: A Turning Point?” Wire, 10 May.— (2019a): “Is China the World’s Loan Shark?”New York Times, 26 April. 

Brautigam, Deborah (2019b): “Misdiagnosing theChinese Infrastructure Push,” American Interest,4 April. 

CAS (2019): “Chinese Sciences Academy Provides268 million Dollars for BRI Projects,” ChineseAcademy of Sciences, Beijing, 19 April, http://english.cas.cn/newsroom/news/201904/t20190419_208623.shtml. 

Deepak, B R (2019): “It’s Time for India to RethinkIts Position on BRI,” China-India Review, Vol 31,No 4, pp 31–39. 

Devonshire-Ellis, Chris (2019): “EAEU and ChinaAgree on “Ice Silk Road,” 10 May, http://greater-europe.org/archives/6891. 

Giles, Chris (2019): “Escalating Trade Wars Chill InternationalCommerce,” Financial Times, 28 May. 

Huang, Yasheng (2019): “Can the Belt and Road Becomea Trap for China?” Project Syndicate, 22 May. 

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Masood, Ehsan (2019): “South Asia’s Pivot towardsChina,” Nature, Vol 569, No 7754, pp 24–27. 

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Samaranayake, Nilanthi (2019): “China’s Engagementwith Smaller South Asian Countries,” Special ReportNo 446, United States Institute of Peace, April.Saran, Shyam (2019): “China’s Emergence as a Scientific Power,” Business Standard, 7 May. 

Weerakoon, Dushni and Sisira Jayasuriya (2019):“Sri Lanka’s Debt Problem Isn’t Made in China,”28 February, https://www.eastasiaforum.org/2019/02/28/sri-lankas-debt-problem-isntmade-in-china/. 

Wong, Chun Han and James T Areddy (2019): “BeijingAppeals for Foreign Funds in Belt-and-RoadAdjustment,” Wall Street Journal, 26 April. 

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Source: Economic & Political