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Chinas Belt & Road distracting US?

October 24, 2017

M K Bhadrakumar |

While addressing the Centre for International and Strategic Studies in Washington last Monday in a speech
titled Dening Our Relationship with India for the Next Century, Tillerson dwelt on the OBOR during the Q&A
session. When asked to dilate on a pithy expression hed used in the speech predatory economics in the
Asia-Pacic Tillerson responded as follows:

It is important that those emerging democracies and economies (in Asa-Pacic) have alternative means of
developing both the infrastructure they need but also developing the economies. We have watched the
activities and actions of others in the region, in particular, China, and the nancing mechanisms it brings to
many of these countries which result in saddling them with enormous levels of debt.

Encouraging regional development in China through better integration with neighboring economies;
upgrading Chinese industry while exporting Chinese standards; and addressing the problem of excess
capacity.
They dont often create the jobs, which infrastructure projects should be doing, as tremendous job creators
in these economies, but too often, foreign workers are brought in to execute these infrastructure projects.
Financing is structured in a way that makes it very difcult for them to obtain future nancing, and
oftentimes has very subtle triggers in the nancing that results in nancing default and the conversion of
debt to equity.

Chinese projects often dont create the jobs, which infrastructure projects should be doing, as
tremendous job creators in these economies, but too often, foreign workers are brought in to
execute these infrastructure projects Tillerson

Read more:Pakistan asks US not to see CPEC from the Indian lens

So, this is not a structure that supports the future growth of these countries. We think its important that we
begin to develop some means of countering that with alternative nancing measures, nancing structures.
And during the East Asia Summit Ministerial Summit in August, we began a quiet conversation with others
about what they were experiencing, what they need, and were starting a quiet conversation in a multilateral
way with: How can we create alternative nancing mechanisms? We will not be able to compete with the
kind of terms that China offers, and but countries have to decide: What are they willing to pay to secure
their sovereignty and their future control of their economies? And weve had those discussions with them, as
well.

Chinese structure nancing in a way that makes it very dicult for these countries to obtain
future nancing, and often these contracts have very subtle triggers in the nancing areas
that results in nancing default and the conversion of debt to equity Rex Tillerson

Tillerson added in Q&A:

Well, I think, in many respects, it is the case that has to be made to these countries that need the
infrastructure nancing that they really have to think about the long-term future of how do they want their
country and their economies to develop here are all the other benets you receive when you allow
investment dollars to ow to you in this way: You retain your sovereign control, you retain complete control
over the laws and the execution within your country. And that should have signicant value to them as
theyre thinking about the future.

The CPEC is a ne example. But, equally, it is easy to overstate the case. A startlingly original study was
done in this area by the well-known Australian think tank Lowy Institute.

And so it is while it is on a direct competitive basis, its hard to compete with someone whos offering
something on nancial terms that are worth a few points on the lending side, but we have to help them put
that in perspective of the longer-term ability to control their country, control the future of their country,
control the development of their economy in a rules-based system. And thats really what were promoting is
you retain your sovereignty, you retain your commitment to a rules-based order, we will come with other
options for you.

Read more:Why is US against CPEC?

Tillerson never once uttered the word OBOR while casting aspersions on it. Importantly, he disclosed that
the US is holding quiet conversations with regional states about what they were experiencing, what they
need and how alternate nancing mechanisms could be conceived in a multilateral way to counter the
OBOR with alternative nancing measures, nancing structures.

To be sure, the OBOR is driving the Americans crazy. China is doing reverse engineering on the western
blueprint of extending funding to stimulate trade. The Atlantic magazine has featured a thoughtful piece
(China Is Quietly Reshaping the World) on how the OBOR undermines the US regional inuence.

If China keeps nessing and improving the tools of its geo-economic push in the light of experience,
OBOR will profoundly reshape the world order in the direction of a more equitable international
system without unraveling the existing order.

What the US did through Marshall Plan to rebuild post-World War Europe was to provide the equivalent of
$800 billion as funds (calculated as a percentage of todays GDP), which in turn enabled it to emerge as the
worlds largest trading nation and the number1 lender. Now, China is following the same path by extending
funds to the tune of $300 already and planning to spend another $1 trillion in the coming decade.

Simply put, the US doesnt have the $1 trillion to match Chinas. The OBOR is driving the US to distraction. If
China keeps nessing and improving the tools of its geo-economic push in the light of experience, OBOR will
profoundly reshape the world order in the direction of a more equitable international system without
unraveling the existing order.

And China already gures as the number 1 trading partner (imports and/or exports) of as many as 92
countries (as against the US at 57.) China today is a bigger lender than World Bank. The turnaround has
been achieved in a remarkably short period of time. Sufce to say, China is adopting the same route that the
US took to expand its political sway and to leverage other countries that felt beholden to it. If the OBOR
initiative proves a success, the US will nd it harder to impose its will on other countries. The so-called
liberal international order will be in serious jeopardy. Tillerson admitted, We will not be able to compete
with the kind of terms that China offers.

Read more:Why is India doing propaganda against CPEC?

These are early days. And China is a quick learner. The strong likelihood is that in a near future, China
exposes the accusations that Tillerson made. Beijing announced this year stringent guidelines for its
outbound investors. Similarly, we may expect better labor, human rights and environmental standards in
Chinese projects as time passes. Beijing is already keen to showcase the Asian Infrastructure Investment
Bank as conforming to world-class standards.

If the OBOR initiative proves a success, the US will nd it harder to impose its will on other countries.
The so-called liberal international order will be in serious jeopardy.

Simply put, the US doesnt have the $1 trillion to match Chinas. The OBOR is driving the US to distraction. If
China keeps nessing and improving the tools of its geo-economic push in the light of experience, OBOR will
profoundly reshape the world order in the direction of a more equitable international system without
unraveling the existing order.

The bottom line is, what is driving the OBOR geostrategy or geo-economics? Especially in India, foreign-
policy analysts tend to view the OBOR largely through a geopolitical lens as an attempt by Beijing to create
political leverage over its neighbors. No doubt, China hopes to use its vast economic resources as a key tool
to maintain regional stability and project its leadership in the countrys neighborhood.

Read more:CPEC and Pakistans concerns: New policy for Chinese citizens

The CPEC is a ne example. But, equally, it is easy to overstate the case. A startlingly original study was
done in this area by the well-known Australian think tank Lowy Institute. The report estimated that
The two goals (geostrategic and geo-economic) are not, in fact, contradictory. China is using OBOR to
assert its regional leadership through a vast program of economic integration. Its aim is to create a
regional production chain, within which China would be a center of advanced manufacturing and
innovation and the standard setter.
But it is also true that OBOR will help China to meet some of its most pressing economic challenges. Of
these challenges, three, in particular, are important in understanding the key aims of OBOR: encouraging
regional development in China through better integration with neighboring economies; upgrading Chinese
industry while exporting Chinese standards; and addressing the problem of excess capacity.

The Lowy Institute report Understanding Chinas Belt and Road Initiative is here.

M. K. Bhadrakumar has served as a career diplomat in the Indian Foreign Service for over 29 years, with
postings as Indias ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001). He writes extensively
in Indian newspapers, Asia Times and the Indian Punchline. This piece was rst published inIndian
Punchline.The views expressed in this article are the authors own and do not necessarily reect Global
Village Spaceseditorial policy.

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