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Tag Archives | OBOR

Pakistan’s economic challenge

Thinking beyond CPEC

By Pranay Kotasthane (@pranaykotas)

The Dawn editorial (10th December) makes a case against Pakistan’s overreliance on CPEC to solve its economic woes.

there are multiple roads to integration, and placing all the emphasis on CPEC alone risks putting too many eggs in one basket. [The Dawn, 10th December 2016]

CPEC has been projected as a panacea for Pakistan’s economic woes. A Deloitte report from earlier this year estimated that:

if all the planned projects are implemented, the value of those projects would exceed all foreign direct investment in Pakistan since 1970 and would be equivalent to 17% of Pakistan’s 2015 gross domestic product. It is further estimated the CPEC project will create some 700,000 direct jobs during the period 2015–2030 and add up to 2.5 percentage points to the country’s growth rate. [Deloitte]

Unsurprisingly, the potential benefits accruing from CPEC have been played up by sections of the Pakistani press, government, and the army. Among other things, two separate force formations, each comprising of more than 15000 security personnel, have been mobilised in order to ensure security for the project and for Chinese workers. And as Khurram Hussain highlighted in another Dawn article titled ‘Hidden costs of CPEC‘, the cost of these forces is now being bundled into the power tariff and passed on to the consumers.

Thus, The Dawn editorial accurately identifies the need to think beyond CPEC. It suggests two alternatives: change in the terms of the FTA with China, and increasing trade with Iran, beginning with the natural gas pipeline. However, both these alternatives are unlikely to solve Pakistan’s economic woes for the following reasons.

A renewal of the FTA with China in no way reduces Pakistan’s dependence on China. Pakistan has already acceded unusual diplomatic and political maneuvering space for China in a bid to revive its economy. Take, for instance, the conduct of Muhammad Lijian Zhao, a Deputy Head of Mission at China’s Islamabad embassy, who single-handedly fends off the mildest of reservations against CPEC by Pakistanis on Twitter. It is unusual that the concerns of Pakistani citizens, instead of being addressed by the provincial government of Balochistan or the Federal Government, are being swatted off by a Chinese bureaucrat.

Images such as these common on Twitter

Building a China—Pakistan friendship narrative: Images such as these are common on Twitter

The issue of raising a Special Security Division also reflects Chinese domination in the China—Pakistan equation. Raising a special division for Chinese projects and nationals, in regions where ordinary Pakistanis themselves fear for their lives, is further stoking alienation.

The opening of trade with Iran, without a peaceful settlement of political issues in Balochistan and Afghanistan, is also an unfeasible alternative. Pakistan’s economic growth centres are near its eastern borders (in Punjab and Sindh) and any trade with Iran will have to pass through the troubled western areas. Thus, it is unlikely that trade with Iran will take off unless Pakistan addresses the aspirations of the Baloch, and stops its overt and covert support for the Afghan Taliban.

What might resolve Pakistan’s economic challenge, then? Moeed Yusuf suggests that Pakistan has no option but to open up economically to India.

He makes an excellent argument:

Even when we add up realistic appraisals of possible reforms, includes CPEC, and factor in new export markets Pakistan can tap, we still end up well short of what the country needs to keep competing with India and other peer countries.

More importantly, it is absolute, not relative, gains that matter. We need to be concerned about the additional growth we would generate from acting as a trade and transit hub for the near and far neighbourhood and the force-multiplier effect it would have rather than what India or others might get out of the arrangement. Plainly, the new chief must know that keeping the region closed guarantees that India and Pakistan’s differential will continue to grow in New Delhi’s favour. [Dawn, The Chief’s Choice]

Alas, it’s is a tragedy that even major geoeconomic decisions of Pakistan need approvals of the army chief.

[Also read my post Thoughts on India’s approach to China’s 1B1R initiative on how India should look at CPEC]

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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Thoughts on India’s approach to China’s 1B1R initiative

How can India respond to a Chinese project that is aimed at creating a geo-strategic realm for itself?

By Pranay Kotasthane (@pranaykotas)

Last week saw two articles in Indian media on the challenges and opportunities for India posed by China’s One Belt One Road (1B1R) project. This post looks at the arguments made in the two reports and puts down thoughts on India’s response to 1B1R.

To understand what 1B1R is, look no further than this succinct The Wire article by Shyam Saran. Suffice to quote this section in the piece that points to the strategic angle of the project:

China sees the twin-dimensional initiative as a long-term project to secure its geo-strategic realm, which has both a continental and a maritime dimension. It is not just an economic initiative. It has obvious political and security implications. In any case, China’s strategists do not draw lines separating economic and security objectives. Each dimension reinforces the other, even though the economic dimension may sometimes mask the security imperative.

1B1R then, is likely to remain the anchor around which China’s global outreach will be shaped. How should it be seen from an Indian National Interest perspective? Two pieces that appeared in the Indian newspapers last week offer a few leads while responding to this critical question.

One Belt One Road Plan. Source: China Daily Europe

One Belt One Road Plan. Source: China Daily Europe

The first piece in The Hindu while conceding that “Chinese political expansion and economic ambitions, packaged as 1B1R are two sides of the same coin” argues:

India needs to match ambition with commensurate augmentation of its capacities that allows it to be a net security provider in the Indian Ocean region. This will require New Delhi to not only overcome its chronic inability to take speedy decisions with respect to defence partnerships and procurement, but will also necessitate a sustained period of predictable economic growth; OBOR can assist in the latter.

Besides resuscitating economic engagement with the world, there are other advantages of being a part of groups such as 1B1R. A thumb rule helps: in the amoral setting of geopolitics, it benefits an entity to be a member of many clubs, rather than being outside them. It is easier to be a part of the clubs and use them to build one’s own capacities, rather than spend inordinate efforts on opposing such formations. Hence, this author strongly supports India’s presence at other clubs like BRICS, AIIB and SCO as well. Applying this thumb rule to 1B1R, India is better off being a part of it, particularly because the capabilities for India to float a competing vision altogether, possibly in partnership with the Japanese PQI just don’t exist.

Even if India decides to be a part of 1B1R, two critical questions raised by the authors remain unanswered: Can India seek reworking of the CPEC (China Pakistan Economic Corridor) by Beijing in return for its active participation? Furthermore, for the stability of the South Asian arm of OBOR, can Beijing be motivated to become a meaningful interlocutor prompting rational behaviour from Islamabad?

On the first question, India finds it unacceptable that the China Pakistan Economic Corridor passes through Pakistan occupied Kashmir. However, as the second editorial on 1B1R in Mint rightly points, New Delhi might now find it too late to extract Chinese concessions on CPEC in return for support on 1B1R. Moreover, India’s opposition or otherwise to CPEC will have little impact on the project itself. A more realist approach would be for India to de-hyphenate the CPEC leg from the overall 1B1R initiative.

On the second question, it is highly unlikely that China will restrain Pakistani actions against India in any meaningful way. In fact, China is most comfortable keeping the India—Pakistan conflict on the boil: on one hand, the conflict keeps India focused on its western border. On the other, the conflict allows gaining Pakistani friendship at minimal costs.

Overall, India can look at 1B1R from the dual lens of competition and complementation: In the Indian sub-continent, visualise 1B1R as an aggressive competitor: use it as an excuse to accelerate India’s own projects of connecting markets in India’s own neighbourhood. Outside the Indian sub-continent, look at complementing 1B1R. For instance, in East Africa, India can work with China under the aegis of 1B1R to expand its own reach.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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West Asia Engagement with Chinese Characteristics

Four parameters that are likely to guide China’s engagement in West Asia

By Pranay Kotasthane (@pranaykotas)

My previous post Talking about the Asia beyond Pakistan was in light of the Indian External Affairs Minister’s visit to Israel and Palestine. Using The Economist’s Grid of Grievances, the post argued that:

if India were to be mapped on this graphic, it would perhaps be the only state that maintains a non-adversarial relationship with every West Asian state.

Apart from India, there is another state which is missing from the mosaic, and one that has been the quickest off the mark in dealing with the transformed power structure of West Asia: China. President Xi’s visits to Saudi Arabia and Iran, coming immediately after lifting of international sanctions against Iran, have garnered widespread attention in policy circles.

There is a broad consensus that China will be a force to reckon with in the new West Asia but there is little discussion on the direction that China is likely to follow in the process. This post tries to sketch out the parameters of a greater Chinese engagement in West Asia.

First, the Chinese government sees West Asia as an unsaturated market. West Asia in general and Iran in particular have the potential to boost demand for Chinese production. It is no surprise then, that Xi’s arrival was greeted with talks about the ancient Silk Road, reminiscent of a time when the supply chains between China and West Asia were robust.

Second, the Chinese government wants West Asian countries to bandwagon on its side in its efforts to create a new world order that challenges the West. On the geopolitical axis, this means China wants more West Asian participation in institutions like the Shanghai Co-operation Organisation. On the geoeconomic axis, China will look to get greater West Asian commitment to the Asian Investment Infrastructure Bank (AIIB).

Third, China will side with the incumbent political leaderships in West Asia. As a geopolitical actor, China has shown less inclination to regime change except in conditions when a state’s internal political situation directly affects China’s security adversely, as seen in Afghanistan. Going ahead, China will continue to engage the ruling dispensations of all important West Asian countries.

Fourth, China will let others do the fighting against IS. Apart from supporting the incumbent leaderships militarily and economically, China will not put any feet on the ground against the IS, as long as the IS threat remains away from its borders.

These four parameters are likely to guide China’s greater engagement in West Asia. While it remains to be seen what aims this engagement will accomplish, China faces the same challenge as India does on the issue of increasing proximity with West Asian countries: thus far, the two countries have maintained fairly good terms of engagement with West Asia by allowing them to settle at a low level equilibrium, with none of the engagements taking the form of a strategic partnership. As these two states tries to scale these local maxima, the geopolitical environment is bound to throw up new challenges and tough choices that can upset the delicate balance they lie in currently.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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Three parameters for evaluating global governments

What are the parameters that can help us judge the effectiveness of supra-national political unions?

by Pranay Kotasthane (@pranaykotas)

For about a decade now, geopolitical analysts have been discussing about the emergence of a new world order. The formation (and mere formulation) of new supra-state constructs such as G-20, BRICS, SCO are an evidence for these expectations that demand a shuffle in the world order.

The call for new international institutions is exacerbated by the ineffectiveness of the dominant international governments of the day — the United Nations (UN), International Monetary Fund (IMF) and World Bank (WB). The fundamental reason for their ineffectiveness is the divergence between the power distribution inside these institutions and the power distribution in the world at large.

Consequently, any new formation that tries to compete with the existing system will have to prove its relative superiority over the existing system. But how does one measure this? Are there any parameters that can help us evaluate the effectiveness of supra-national political unions?

Hans Morgenthau’s classic work on political realism ‘Politics of nations’ offers us some interesting answers to these questions:

With regard to each of the attempts at international governments, three questions must be asked:
1. Where is the authority to govern vested, or who is to govern?
2. By what principle of justice is the government to be guided, or what is the conception of the common good to be realised by the government, and
3. To what extent has the government been able to maintain order and peace.

World Order

Image courtesy: username: wiertz, flickr. Creative commons.

Taking these parameters as a reference point, we can observe the following about today’s world order:

Parameter 1. Authority to govern has traditionally been vested in victors of major wars. For example, victors of World War 1 took the lead in forming the League of Nations. Similarly, the current system with the UN at its apex is a direct outcome of the World War 2. The writ of the UN is effectively the writ of the UN Security Council which has the allied powers as its permanent members. The UN General Assembly on the other hand, by design has very limited role in geopolitics.

However, we are now in a world where nuclear deterrence has made wars of a global scale less likely. This means that any new organisation seeking to challenge the current system must derive its authority from a source other than war invincibility. Given that we have had several global economic depressions, and no world wars, this source of authority can well be the economic prowess of a supra state. Global governments of the new age must possess collective a economic might that can tide over the world’s tougher problems.

Moreover, authority is a function of both, power and legitimacy. While economic power is a result of several other factors, legitimacy can be enhanced by effective response in times of crisis.  For example, the initial promises made by the G-20 group following the 2008 recession made the world take notice of this organisation.

Parameter 2. The system of justice to be realised by an international government is a resultant of the justice systems of the constituent great powers. Previous experiences of international governments show that the system of justice has come to mean two things. One, to maintain the political status quo achieved as a result of the war and two, to deal a debilitating blow to the defeated.

Based on the assumption that the emerging world order will be determined primarily in the economic domain, the corresponding justice system will lay emphasis on areas such as trade and monetary flows, investments in infrastructure and so on. Seen from this perspective, it doesn’t come as a surprise that all international formations are trying to build an economic system of their own. Thus, we have China investing in Asian Infrastructure Investment Bank (AIIB) and One Belt One Road (OBOR), while the BRICS are attempting a New Development Bank (NDB) of their own.

Parameter 3. While averting major wars, the UN system has been found wanting in countering terrorism and mass atrocity crimes. Norms such as Responsibility to Protect (R2P) have been applied selectively at best, taking up issues of direct concern to the great powers while ignoring issues which are out of their collective conscience. As a result, we see instances of human rights violations from Balochistan to Yemen, receiving nothing but wholesale ignorance.

In this regard, the new world order will have to perform better on countering terrorism and mass atrocities. Going ahead, maintaining order and peace will not be as much about preventing conventional wars but about responding to asymmetric violence.

Having observed the parameters from the contemporary perspective, one might ask, what should be the ideal size of an effective international government? Clearly, the current number (5) is too small, and having all countries (>200) on board will only slow down the response.

Morgenthau offers a solution for that question as well:

An international organisation cannot be so universal that all members are in it but it should be universal in that all nations likely to disturb the peace are under its jurisdiction.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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India & the One Belt One Road paradigm

On how OBOR is likely to interact with India’s foreign policy

by Hemant Chandak (@HemantChandak)

One Belt One Road (OBOR) is an initiative the Chinese envisioned in 2013 and are taking progressive steps to bring it to fruition. Execution of the plan will depend on how China is able to engage the countries involved in this perimeter, mainly in what it calls the Silk Road Initiatives. The OBOR has following two key components:

  1. New Silk Road Economic Belt that links China and Europe, through Central and Western Asia
  2. Maritime Silk Road (MSR) that will connect China and Southeast Asian countries, Africa and Europe.

OBOR’s grand vision seems to cover every continent except the Americas. It is aimed at further strengthening the Chinese role in economic integration with these nations and playing a larger role in global political affairs. As and when the infrastructure is ready, the Chinese are not only looking to push its indigenous technologies but also find means to export its surplus manufacturing.

As per the Chinese, OBOR initiative is in line with purposes and principles of UN Charter and is not restricted to the ancient Silk Route but open to other countries for wider benefits for all involved. President Xi Jinping and Premier Li Keqiang have visited more than few dozen countries promoting OBOR, and throwing their weight behind by bringing domestic ministries together to facilitate the project, providing policy support and funding billions of dollars to partner countries, such as $1.4 Billion funding to Sri Lanka to build Colombo Port City.

The strategy is long term and seems to have been in motion for not years, but decades. The Chinese have invested in several African countries over decades, and these countries are now expected to be part of its Maritime Silk Road. On other hand, many of the Asian countries that are going to be connected through New Silk Road Economic Belt are already part of Asian Infrastructure Investment Bank (AIIB) — another Chinese initiative, to invest in infrastructure in these countries. AIIB already has 56 member countries as signatories.

China’s economic power allows it to play it king size on the geopolitical game board. Recently, the Chinese have committed $40 Billion to Silk Road Fund that will go towards creating infrastructure in Asia for above projects, and building ties with the countries involved. Chinese have proven their capability with mega infrastructure projects before, the freight train connectivity to Spain or looking to build a tunnel system under the Mount Everest are a few examples. China also signed its first ever MoU with Hungary last month around OBOR. Hungary could become an integral logistics hub in Europe and Hungary-Siberia rail network is an opportunity for both countries in near future.

What’s in it for India?

China extended an invitation to India to join Maritime Silk Route during the 17th round of border talks between the Special Representatives of the two countries in New Delhi.

OBOR project will have a connected mix of not only developed European countries but also the bustling East Asian nations. India needs to be careful how China progresses on this. China-Pakistan Economic Corridor as well as the Bangladesh-China-India-Myanmar Economic Corridor are also closely related to this Initiative. Besides economic integration, these initiatives are also meant to showcase Chinese military might to the larger world and how it plans to use these sensitive corridors for its military mobilisation. The buildup of roads, highways, ports, tunnels and bridges over such a large unchartered terrain across all these countries will have a tacit approval from each one, who owns that particular stretch of land, air space or sea. One has to be thoughtful about an unseen future before falling into what could possibly be a trap.

Once all key players have undergone their own validation to become participants, these initiative led by the Chinese could augur well for the rising Asian century. The economic prosperity that the ancient Silk Route brought to the regions sitting on its path, could well be repeated in a much more impactful manner. The Indian government is progressive and looking to connect internally with initiatives such as Digital India, and it can marry gracefully with “Information Silk Route” where telecom connectivity between the countries through fiber, trunk line and under-sea cables is also a key component. This will expand the bandwidth capabilities for India significantly, without which offering eGovernance and delivering public services in an efficient manner will remain a pipe dream and a good marketing campaign.

Being a key participant to such a global infrastructural initiative would mean we will have excellent connectivity of various transport modes, and a great facilitator to Make In India initiative. Success for us depends on how we efficiently use these channels to find and grow new export markets for our products and enable efficient trade routes. The benefits to India while participating in a globally challenging project such as OBOR are immense. For one, the technical know-how they will bring back could be used to develop or iron out issues facing domestic infrastructure sector or for envisioning projects that we never had audacity to pursue before. An increased trust between the countries involved will not only increase opportunities for extended trade across their respective industries, but sharing the know-how, co-operating in research & development and improving mutual security through co-operation in areas such as customs, are just a beginning of immense possibilities.

Hemant Chandak is a GCPP10 graduate. He tweets @HemantChandak.

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