The secret anonymous Trade correspondent for this blog is back with Part 2 of the Trade Wars. Last week he wrote about the growing trade war concerns between US and China. In this article he writes about another arsenal in the trade area that China has which could be used in the constant struggle for world dominance. Read on to find out!
Trade War Series: Part 2
From one of the world’s most entertaining heads of state, Mr. Trump, we must now move to one of the world’s most secretive heads of state, the Chinese premier XI Jinping. The Chinese initiative for expansion termed “One Belt One Road” is one of Xi Jinping’s (Chinese Premier recently voted in for a life term in Presidency) most ambitious projects. On a general overview it sounds pretty fancy. Who doesn’t want better trade routes between Asia and Europe (It has planned land and maritime connection from Beijing to Vienna). But the real question is, what lies under the pretty fancy covering?
(On a side note, those who are weak in geography should probably open a world map or Google the proposed route of the OBOR).
Why is China willing to invest huge amounts in foreign countries merely to aid in creating a better economic connection between the continents? We always think that Indians are calculating when it comes to money, but the Chinese have always been one step ahead when it comes to investing sensibly and getting the best deal in the international arena.
So let us attempt to delve into the Chinese minds and understand exactly what the motivation is for the One Belt One Road initiative.
If we were to investigate into the status of the Chinese market and the nations policy considerations, it is evident that, at present, the Chinese (though the highest GDP in the world) are struggling to make the final shifts from a developing to a developed country. This problem is reflected in several issues currently in China such as:
- rising labour costs (which were once the Unique Selling Point of China)
- increase in aged population (a repercussion of the One Child Policy undertaken by the Government to stagnate population growth)
- inequality between the Eastern and Western coast of China (example: the people in Shanghai are approximately five times wealthier than the people of the inland province of Gansu, which was part of the original Silk Road).
China being all powerful and economically untouchable is a clear myth as their economy has its own vulnerabilities. Though they are recognized as the manufacturing kings of the world at present, due to increasing labour costs they are unable to continue manufacturing cheap low-end goods. They now hope to shift towards high end products where labour costs can be offset under the luxury tag price. While this may be one of their goals, another significant ancillary goal is to promote the acceptance of Chinese Standards as the Global Standard in particular products.
To understand what this means, let us take the example of High Speed Railway technology, which is one of the flagships of the Chinese, though they have stiff competition from Japanese in this area. China hopes to use the OBOR to make several countries adopt the Chinese standard of high end trains into their countries, so that they then become the Monopoly in this area across Asia. Through this they would create a near endless demand for Chinese products related to high speed railways.
Another problem that also gets resolved through the OBOR is the inequality between Eastern and Western provinces as the Silk Route would pass through the Eastern provinces which would thus receive extensive infrastructure development through investment (both domestic and foreign). [Again, refer the proposed OBOR route to better understand this]
The third important economic consideration is to help offset their excess manufacturing capacity. At present, China is producing far more goods than it can consume and it has enough money to invest in other countries and establish manufacturing in these territories. This would help in both creating more job opportunities and at the same time introducing more of Chinese goods in these markets and creating more demand for them. Killing two birds with one stone in one grand swoop.
So clearly, the economic considerations are overwhelming for China, and it thus seems like an innocent plan. Just China trying to be nice neighbors, developing nearby countries by investing their own money in them and in turn taking away some profit for themselves so that they may build their industry. Seems pretty sweet to be fair! But what really lies beneath these economic considerations?
Political Considerations and India’s opposition
So far, yes, this does seem like a dream come true for most countries. But why is India opposing this so vehemently. The primary reason which we constantly cite is the use of Balochistan and parts of Pakistan occupied Kashmir (which we still claim to be ours) to build one of the first projects under OBOR, namely, the China Pakistan Economic Corridor (CPEC).
While this may be the reason we cite and it’s a good reason to oppose, there is a greater underlying fear that India has (or should if it doesn’t already). This fear is that of China obtaining economic control over vast regions through the OBOR. Now let us understand exactly how China could accomplish this. Firstly, one should look at the genesis of the OBOR, which was formed through China’s working programme to create a foreign policy towards its neighbours. The distinction that must be understood here is that the OBOR was a diplomatic policy (or policy of how to deal with your neighbours), rather than a policy that came out of pure economic considerations (which would have emerged from within the commerce or finance department of China (weak moot argument you say, I would agree as well. So let’s just call this one in arguendo).
But looking further, China has adopted similar approach while aiding Zimbabwe and South Africa, which are economically far weaker countries by pumping in money into several key sectors. So much so that any rumors of economic slowdown in China causes alarm bells to ring in South African share markets. If we extend this argument to how Asian countries would be economically dependent on China post OBOR, one doesn’t need a very vivid imagination to understand that this could become a bloc even greater than the Soviet Union in the 1980s. (Once again I must ask some of you who are weak in geography to refer to a map as most of the proposed silk route passes through erstwhile Soviet countries like Kazakhstan, Uzbekistan and Turkmenistan. It further includes rich countries such as Iran which are currently oil rich, but may soon lose these resources by around 2030)
Military control may be one thing, which can be uprooted by uprisings and international outcry, but economic control is far more long term and takes even longer to reverse (I am not even sure it’s possible after a stage). If a whole country relies upon China for its industry and most of its major revenue is based on Chinese companies, countries may no longer have the independence to oppose China for fear of repercussions of the withdrawal of companies.
Thus, though the economic considerations for China are great and the potential benefits for several countries through this ambitious project are of an equal measure, it is clear that the political concerns must not be underscored. India must tread carefully or they may soon find themselves surrounded in Asia and cut off from most of the Western world.