JabinTJacob CASS ChinaWorldEconomy BRI

78 China & World Economy / 78–100, Vol. 25, No.
5, 2017
China’s Belt and Road Initiative:

Perspectives from India
Jabin T. Jacob*
Abstract
China’s Belt and Road Initiative (BRI) is often simplistically understood as being
opposed by India and supported by Pakistan. The reality on the ground is rather more
complex. The emerging consensus in India appears to be that, far from being exclusively
an economic and infrastructure development program, the BRI may be understood as a
long-term strategic initiative that seeks to convert China’s current economic might into
diplomatic influence. While attempts have been made by Beijing, the reflexive Indian
suspicion of Chinese international projection, including of China’s BRI, has not yet
been met by a coherent discourse designed to specifically address Indian concerns. In
contrast, in Pakistan, widespread acceptance of the importance and necessity of the
China–Pakistan Economic Corridor is increasingly coupled with concerns within sectors
of Pakistani society over the fairness, transparency and eventual economic outcomes
of the project. Accordingly, this paper is divided into two parts: the first looks at how
Indian analysts have viewed and responded to the Chinese discourse and arguments on
the BRI; the second considers the debate over the China–Pakistan Economic Corridor
within Pakistan.
Key words: diplomacy, economic integration, infrastructure development, mutual

mistrust, strategic competition
JEL codes: H77, H81, L94, O19, O53
I. Introduction
A fundamental premise to properly frame the debate on China’s Belt and Road Initiative
(BRI) currently taking place in India is that such conversations are primarily conducted
within the realm of strategic studies, within a community comprising current and former
civilian policy-makers and military personnel, researchers in think-tanks, and university
academics. Despite a gradual improvement toward a more comprehensive engagement
*Jabin T. Jacob, Fellow, Institute of Chinese Studies, India. Email: jabinjacob@gmail.com. This essay has
benefited from multiple private conversations and interviews since 2015 with government officials in India, as
well as academics and analysts from Pakistan, China and India.
©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences
BRI: Perspectives from India 79
with the concept of the BRI, the attention currently being paid to it by the Indian
business community and civil society at large remains modest. In essence, the economic
dimension of the BRI does not appear to be the focus of Indian attention, either within
or beyond the government apparatus.
The present paper is divided in two sections. The first examines how Chinese
analysts have been debating India’s role in the context of the BRI, and contrasts this
with India’s own understanding of the implications of the BRI for its region. The second
discussion focuses on the China–Pakistan Economic Corridor (CPEC) as a case study
of the economic and strategic logic underpinning the BRI. In light of India’s official
position hitherto of not actively participating in the BRI (except in the case of the Asian
Infrastructure Investment Bank), how the CPEC develops, independent of the territorial
dispute between India and Pakistan, is likely to define India’s future attitude towards the
BRI in general.1
II. China, India and the Belt and Road Initiative:

Missing Interest Encapsulation
When Chinese President Xi Jinping officially announced his vision of a Silk Road
Economic Belt (sichou zhilu jingjidai) in a speech on 7 September 2013 at the
Nazarbayev University in Kazakhstan (MFA PRC, 2013) and the parallel launch of a
Maritime Silk Road (haishang sichou zhilu) during his visit to Indonesia the following
month (Wu and Zhang, 2013), the boldness of the twin initiatives was met with apparent
surprise among China’s neighbors and even within parts of the Chinese community of
strategic analysts.2
Beijing’s dynamism in promoting regional connectivity was not without precedent,
China already had a track-record across South Asia, having been a leading force behind
the Bangladesh–China–India–Myanmar regional economic cooperation forum (BCIM)
for well over a decade. This project is especially notable for two reasons: first, it saw
the provincial authorities of Yunnan (and not China’s central government) as the agency
spearheading trans-border cooperation; second, it constituted the most articulate attempt
by China to engage in deeper regional interaction as a way to boost the development
of a key province. Today, the BRI in many ways replicates on a larger scale this same
approach, first pursued in China’s south-western province as early as 1999.
1
For a summary of India’s official position, see the Ministry of External Affairs, Government of India (2016)
and Kasturi (2015).
2
This was admitted by Chinese scholars in several conversations and discussions in China and India in 2015
and 2016.
80 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017
In the context of Sino–Indian relations, the BCIM project has faced constant
opposition from India on several grounds, ranging from security issues to the lack
of economic development capacity in its frontier regions (Rana and Uberoi, 2012).
Nevertheless, the launch of the BCIM Economic Corridor (BCIM-EC) during the
visit of Chinese Premier Li Keqiang to India in May 2013 is evidence of an enduring
willingness by New Delhi to seize opportunities to engage with China when specific
windows of opportunity are available.3
The launch of the BRI later in 2013, with its implications for India’s neighborhood
and the apparent subsuming of the BCIM-EC within the BRI frame without explicit
consultations with all relevant parties, appear to have rekindled opposition within
sections of the Indian Government to both BCIM-EC and BRI.
This diplomatic change might be evidence of the fact that the contents of Beijing’s
initiative had not yet been fully defined at the time, mirroring Deng Xiaoping’s “crossing
the river by feeling the stones” uncharted path to reform in the late 1970s. In the logic
of trust-building through interest encapsulation (Hardin, 2006), such an open-ended
approach would normally give countries like India greater confidence in engaging
with connectivity projects promoted by other actors. However, Beijing’s seeming
unwillingness to substantially address Indian sensitivities, including the launch of
the China–Pakistan Economic Corridor (CPEC) passing through Pakistan-occupied
Kashmir, has allowed Indian strategic concerns to crystalize into disaffection and
suspicion toward the BRI.
Epistemic communities in the two countries have not significantly helped mitigate
the asymmetry of information. Beijing’s adoption of a new neighborhood policy
in October 2013 at the first work forum (zuotan) on diplomacy towards China’s
neighboring countries suggests that considerable intellectual and policy input was
included in the preparation for the launch of the BRI (Xinhua, 2013). Given the salience
of India in Beijing’s strategic calculus, any high-level work forum discussing China’s
neighborhood would necessarily have to consider Indian anxieties and expectations. The
Chinese Government’s decision to, nonetheless, go ahead and turn the BCIM-EC into
a component of the BRI (National Development and Reform Commission, Ministry of
Foreign Affairs, and Ministry of Commerce of the People’s Republic of China, 2015),
coupled with the launch of the CPEC through a territory that India claims is illegally
occupied by Pakistan, has been read in New Delhi as a statement of China’s lack of
commitment in engaging with India’s interests.
3
One indication came in the rather positive tenor of official Indian presentations at the 10th BCIM Forum
hosted by India in Kolkata in February 2012, which the author participated in. See Mathai (2012).
III. The Role of Semantics in China’s Belt and Road Initiative
The Chinese Government and scholarly community have carefully selected the lexicon
associated with the BRI to reassure different audiences about its objectives. The BRI
is, thus, presented domestically as a “strategy” aiming to improve China’s economic
structure and solve its industrial overcapacity problems. Externally, Chinese authors
and policy documents are careful to describe it as merely an “initiative.” This semantic
adjustment may help Chinese authorities explain the different pace and kind of results
that will be achieved through the BRI inside and outside China, while highlighting the
benign nature of this exercise with foreign interlocutors.
Well aware of the intrinsic danger faced by any large country during the delicate
phase of emergence as a regional or global power, China has traditionally paid attention
to the wording used to qualify its evolving role in the international system. Chinese
policy-makers quickly changed the expression “peaceful rise” (heping jueqi) to “peaceful
development” (heping fazhan) in the early 2000s over worries that the former expression
might make China appear overly assertive (Zheng and Tok, 2005).
However carefully chosen, words will hardly suffice by themselves to persuade
current and potential host nations of China’s BRI: Beijing’s conduct in a variety
of realms will have a major impact on the credibility of the Chinese Government’s
pronouncements. Indian authorities certainly do not distinguish between “strategy” and
“initiative” insofar as the BRI is concerned,4 while even Chinese scholars have recently
been willing to admit that although China’s BRI had no strategic considerations in the
beginning, later on it did have a few.5
Chinese analysts also emphasize the “open,” “equal” and “inclusive” nature of
the BRI, whereby “any country willing to cooperate can be a partner.” The key aspect
here seems to be the willingness to cooperate. In other words, as seen from the Indian
angle, the onus would be placed on the potential partners’ inclination to join Beijing’s
initiative, rather than on China’s predisposition to jointly define appropriate terms for
such cooperation. In this sense, “inclusiveness” means China treats all countries equally
in its invitation to join, with little clarity on the substantive outcome of the engagement.
The CPEC is a case in point. The CPEC is not just a single road or network for
Pakistan, but a vast network of road, energy and other infrastructure projects throughout
the country. It is also clearly built upon and around the existing Karakoram Highway,
4
Source: Conversations and interviews with Indian Government officials in 2016.
5
Another Chinese scholar, Wang Yiwei (2016), appears to be more willing to explicitly state that the BRI does
have strategic imperatives.
passing through Pakistan-occupied Kashmir and, therefore, impinging on Indian

sovereignty and core interests. In this situation, from New Delhi’s perspective, for China
to call the BRI “open,” “equal” or “inclusive” would be disingenuous: it clearly makes
Indian participation difficult unless the Indian side were to compromise or set aside
their concerns. Even though there is increasing acknowledgment within the Chinese
community of strategic analysts that China cannot ignore India and must find ways to
work with its southern neighbor on the BRI (in South Asia especially), Chinese scholars
tend to evade the issue of Indian sovereignty over Kashmir. Only recently have Chinese
scholars (e.g. Long, 2017) and officials (e.g. Liu, 2017) been willing to go on the record
to state that the CPEC does not imply that China is taking sides on the Kashmir issue.
If consistent, and possibly accompanied by actions that prove China is not taking sides,
such as supporting India’s membership to the Nuclear Suppliers Group or sanctioning
Pakistan-based terrorists at the United Nations, this development may have positive
consequences for the BRI.
IV. China’s Balancing Act as Perceived in India
Within China’s scholarly and policy communities much emphasis is placed on the “tough
task” Beijing faces as it endeavors not to choose sides between India and Pakistan,
and balance the two countries’ interests. In this light, the CPEC is presented as not
being aimed at India: it is argued that a weak Pakistan is neither in China’s nor India’s
interest, targeted as it is by terrorism. In Beijing’s eyes, there is “no need to focus on old
problems”: what is required is “new thinking and new methods.”
Indian observers tend to be skeptical of this assessment: while China is naturally
entitled to conduct its relations with neighbors in a way that best fit its national interests,
its conduct is widely considered to be misaligned with the narrative of not taking sides.
The most commonly held opinion in India is that China has not tried to strike a balance
between India’s and Pakistan’s interests, as balance against India with the support for
Parkistan. A long and continuing history of military exchanges between Beijing and
Islamabad is taken to point in this direction, as is the multiform support lent by China to
a Pakistani security establishment that has engaged in at least four conventional conflicts
with India and supported separatism, extremism and terrorism in India for several
decades. China’s role in the development of Pakistan’s nuclear arsenal is widely believed
to have emboldened the Pakistani security establishment, reducing fears of repercussions
in the instance of a conflict with India. These facts are often ignored or explained away
by Chinese scholars and officials as belonging to a previous era or related to different
logics, quoting, for instance, commercial motivations. While this might well be the case,
Chinese analysts and policy-makers do not appear to appreciate how pressing the need is
to engage in an effort to win back Indian trust to make the BRI work.
The most essential prerequisite for the BRI to meet its full potential is that security
and stability are maintained or established across the Eurasian continent. This calls into
question China’s complex position on terrorism. Beijing is keen to reiterate that Pakistan
is itself a victim of terrorism, while quietly acknowledging that terrorist threats are a
homegrown problem created and cultivated by elements of Pakistan’s own security
establishment. In contrast, terrorism in India is entirely of external origin: India’s
domestic cleavages that nurture violence or extremism, for example, the Naxalism
problem in central India and ethnic disaffection in north-eastern India, are not officially
classified as “terrorism” but as “extremism” or “insurgencies,” which Indian authorities
confront through domestic political means, including, to be sure, state violence.
However, in the case of terrorism that is sponsored by external forces, China’s insistence
that the Indian Government should not press Islamabad too forcefully on this issue
because it also suffers from the same menace, causes frustration in New Delhi. A more
clear distinction between the nature and origins of terrorism affecting India and Pakistan
would be a step in the right direction.
Most importantly, there seems to be a widespread lack of appreciation in China
of the internal logic and dynamics of Indian politics: any leadership in New Delhi
is constrained in its approach to Pakistan by specific contingencies. The Indian
Government cannot just engage Islamabad regardless of Pakistan’s own conduct, or in
the face of continued provocations. When Pakistani army general Pervez Musharraf
seized power in Pakistan, the Indian Government did not hesitate to open negotiations
over Kashmir and other bilateral issues; similarly, Prime Minister Modi invited Pakistani
Prime Minister Nawaz Sharif to his swearing-in ceremony in 2014 (Dawn, 2014) and
met him in Pakistan subsequently as well (Al Jazeera, 2015), indicating that Indian
Government members across party lines have been open to cooperation. However, there
are limits to the political viability of Indian outreach to Pakistan, and the fact that efforts
are made to build bridges should not be taken to absolve those elements within the
Pakistani security establishment that are responsible for sponsoring terrorism.
India’s salience in the Chinese strategic calculus with regards to the BRI has been
on the increase in the recent past, as Chinese policy-makers and analysts have featured
in opinion pieces and conferences noting that New Delhi is strategically involved in
multiple issues of regional and global significance, and that Pakistan is not the only
concern in relation to India’s external relations.6
6
This was especially the case through 2016 and 2017.
To be sure, there continues to exist a vocal school of thought in China that looks at
India–China–Pakistan relations as a zero-sum game, with statements to the effect that
China’s cooperation with Pakistan through the CPEC would allow “Pakistan to play a
more important role in the economic landscape of South Asia” (Hu, 2016b) or that India
“will perhaps end up simply watching China’s influence among its neighboring countries
rise” (Hu, 2016a). A subset of this group offers indirect criticism of “some countries” or
“some big countries” for their attitudes towards the BRI (Liu, 2016). According to these
authors, India may be actively bent on sabotaging China–Pakistan cooperation. A Global
Times opinion piece referred to “some hostile overseas forces” in this context, and quoted
Pakistani officials referring to “enemies of the country” attempting to “sabotage” the
CPEC, with reference to an attack in August 2016 in Quetta in Baluchistan (Wang, 2016).
However, alongside this hostility, there is also increasingly open reference to the
need to proactively engage with India to ensure the success of the BRI. “India’s poor
infrastructure is a challenge for Asian nations to become interconnected,” to quote
another op-ed (Hu, 2016a). While this is an instrumentalist way of looking at India’s role
in the BRI, it is noteworthy that at seminars and conferences India is openly referred to
as geopolitically too crucial a link in South Asia for China to ignore.
V. The Political Economy of the Belt and Road Initiative

in Sino–Indian Relations
One of the most effective value propositions of the BRI, including with regards to South
Asia, is that it can provide abundant capital to stimulate regional connectivity through
“complementary projects” and “joint projects” spearheaded by India and China in
neighboring countries. In fact, the impact of China’s push to help fill the infrastructure
gap in the region goes beyond specific projects: Beijing’s drive is by itself creating
momentum for the conversation on connectivity across the region, stimulating the
Indian Government to review its own approach to infrastructure development in South
Asia. One example is the Bangladesh–Bhutan–India–Nepal (BBIN) connectivity project
recently announced by Indian Prime Minister Narendra Modi.
At the broader regional level, Indian authorities have come to realize that the South
Asian Association for Regional Cooperation (SAARC) is unlikely to fully deploy its
potential, given that its decision-making mechanism functions by consensus, which
tends to be elusive given India–Pakistan dynamics. In this context, Indian analysts have
cautioned against engaging with processes that may, whether by design or unintended
consequence, result in China’s BRI undermining the SAARC and India’s central role
in South Asia, and position Beijing as a de facto arbitrator not only between India and
Pakistan, but also in the relations between India and other South Asian countries. While
this reading is rejected as overly political among Chinese analysts, suspicion remains
widespread in India that Pakistan’s opposition to New Delhi’s initiatives in SAARC is
determined by political, rather than economic, considerations.
Important cause for optimism comes from the political economy of bilateral
relations: Chinese scholars have suggested that the BRI complements Indian Prime
Minister Modi’s “Make in India” initiative to increase manufacturing in the country,
and could, thus, prove an ideal framework for more robust economic engagement
between the two countries. Both Indian analysts and policy-makers accept that Chinese
investments (both in manufacturing and the development of physical infrastructure)
could play a major role in spurring the desired growth of the manufacturing sector in
India. While the flow of Chinese investments into India has so far been well below
expectations, and a far cry from President Xi Jinping’s announcement in September
2014 of US$20bn over a period of 5 years (Indian Council of World Affairs, 2014),
available data suggest that in 2015 and 2016 India received approximately US$2.4bn in
Chinese investment, effectively doubling the investment inflow from China during 2015
to 2016 (Zhang, 2017).
Chinese private investors are showing interest in India, although this trend is largely
confined to the services sector, which does not generate as much employment as India
would require. However, financial commitment by Chinese state-owned enterprises
(SOEs) remains limited, possibly because of India’s strict regulations and difficulties in
land acquisition for planned Chinese industrial clusters. As is widely reported, India’s
security agencies can be excessively conservative and cautious in their approach to
Chinese companies and investors, while administrative procedures related to foreign
investment remain slow, complicated and confusing. Chinese managers also point at
the different management systems and cultures, uneven workforce efficiency, and poor
logistics and infrastructure as root causes for the relatively modest performance of Sino–
Indian investment.
One source of major concern that Indian authorities and analysts have repeatedly
alluded to is the nature and ownership of Chinese enterprises. As even private enterprises
have extensive linkages and access to Chinese Government resources, it is argued that
many private Chinese companies investing in India have received financial support by
state banks precisely because such investments are seen as being under the framework
of the BRI. Because similar claims, as well as the ownership structure of Chinese
companies, can rarely be fully verified, difficulties can arise in the operations of both
Chinese SOEs and private companies in India. Considering that political motivations
in the host country cannot be ruled out as engendering some of the complications
for Chinese companies, in the long run, greater transparency, full adherence to local
laws and regulations, and more widely perceived mutual benefit should allow these
companies to become seamlessly embedded within the Indian business ecosystem.
Another subset of ownership issues that Chinese companies have been facing in
India and across international markets is related to foreign governments’ concerns
about a disproportionate share of strategic assets coming under Chinese ownership or
control. Such assets could include both private companies and SOEs in key sectors.
Chinese players tend to emphasize China’s own success in ensuring high employment
and technology transfers from foreign companies rather than worrying about the shares
foreign companies hold in Chinese companies, and they insist on the effectiveness
of promoting joint ventures between Chinese and foreign companies.7 However, this
argument overlooks the fact that, because of the nature of its legal system, the Chinese
Government has never been in danger of losing control over enterprises, whether
Chinese or foreign. Several countries and private foreign investors involved in joint
projects in China, such as industrial parks and joint ventures, have seen the terms of
their contracts changed or ignored over time by their Chinese partners, often supported
by local authorities which control the administration of justice, as well as all levels of
administrative power.8 In India, given the separation of powers between the executive and
judiciary, the Indian Government and private enterprises could not discriminate or ignore
the terms of contracts without attracting punitive actions from Indian courts themselves,
indicating differences in the playing field for investors across the two countries.
VI. Economic Foundations of the China–Pakistan Economic Corridor
The CPEC is often described in Pakistani sources as a “flagship project” of the BRI
(Xinhua, 2015b) and a potential “game-changer” for the economy and global standing
of Pakistan (Xinhua, 2015c,d). There is much goodwill tied to the project and, despite
political tensions within Pakistan over issues, such as the number of projects launched
under the CPEC, the quantity of investments allotted to each province and the alignment
of routes (Siddique, 2015; Zaman, 2015), there is broad political consensus on the
desirability of the CPEC for Pakistan. The economic logic of the CPEC, however, is a
matter of debate among Pakistani economists as well as in the media.
7
Source: Chinese scholar in discussion at the Institute of Chinese Studies, Delhi in 2016.
8
Many foreign companies routinely complain of being discriminated against. See BBC News (2011) and The
Atlantic (2013).
Pakistan is widely regarded as facing a dire economic situation at present (Tirmizi,

2015). In this context, the role of Chinese investment in supporting those sectors seen
as critical to ensuring Pakistan’s political stability cannot be underestimated. A “1+4”
Sino–Pak cooperation structure has been envisaged, with the CPEC at the core and
the Gwadar Port, transport infrastructure, energy and industrial cooperation being the
four key areas (Xinhua, 2015a,e). According to one report, Chinese investment could
push Pakistan’s GDP growth rate to above 6 percent between 2016 and 2018, while
the CPEC is expected to help solve Pakistan’s severe energy crisis and infrastructure
deficit, with over 10 400 MW of energy generating capacity to be created between
2018 and 2020 (Pakistan Observer, 2017). Indeed, China’s promised investment in the
CPEC has increased several times since it was first announced at US$46bn in 2015,
rising to US$ 54.5bn in 2016, and to US$62bn today.9
Although an abundance of details about the CPEC, including layout, alignment of
routes and figures for investment, are now available in the public domain,10 data are
not always consistent, and there is no single repository offering the aggregate picture
(e.g. Ranjan, 2015). Pakistani analysts admit that there are many aspects that remain
unclear. 11 Indeed, issues such as the viability and progress of CPEC projects will
inevitably depend on a range of exogenous and endogenous factors, including China’s
own economic growth dynamics and domestic conditions in Pakistan. While Chinese
companies have considerable experience working in Pakistan, both the scale of the
CPEC and the specific difficulties posed by Pakistan’s economic underdevelopment,
political tensions and social conditions demand a different level of commitment by
Beijing to ensure that these investments are fruitful. The following paragraphs will
examine three key aspects related to the CPEC: employment, financial sustainability,
and India’s resulting concerns.
A central aspect of the CPEC is the volume and type of employment it will generate
for Pakistanis. There are high expectations in Pakistan but the number of jobs to be
generated for civilian Pakistanis by the CPEC projects are still far from clear. One
Pakistani minister speaking specifically in the context of the CPEC noted that Pakistan
needed to grow at 7–8 percent annually to create one million jobs annually (see The
News International, 2015). In June 2016, the Chinese ambassador Sun Weidong,
declared that “as of March (2016), ongoing CPEC projects have employed more than
9
The figures involved in the CPEC have varied widely. The original US$46bn figure has been disputed by
Chinese analysts who pegged it at closer to US$35bn. Subsequently, the figure increased to US$54.5bn before
increasing still further to the latest sum. See Siddiqui (2017a).
10
Much data can be obtained from the official website of the CPEC, available from: http://cpec.gov.pk/#.
11
Source: Conversations with Chinese and Pakistani scholars at conferences in China, 2016.
6000 Pakistanis” (Xinhua, 2016). In April 2017, Liu Jinsong, Deputy Chief of Mission
in the Chinese Embassy in New Delhi, stated in a speech in Mumbai that 13 000 jobs
had been created locally in Pakistan.12 The latest projected figure is of 2.32 million jobs
to be created over the 2017–2019 period, which would reduce Pakistan’s unemployment
rate from the current level of 5.9 to 3.3 percent (Luqman, 2017). If the latter projection
is accurate, it will no doubt have a significant impact on the well-being of Pakistani
society. It should also be noted that industrial employment has multiplier effects in terms
of ancillary or supporting activities and industries, and additional jobs would be created
as a result.
Meeting the full potential of the CPEC in terms of job creation may be more
complicated in certain contexts: in the specific instance of the Gwadar Port, one of
the flagship investments under the CPEC, there are doubts about the employability of
locals. Answering a direct question about whether employment would be generated
locally, Dostain Khan Jamaldini, Chairman of the Gwadar Port Authority, asked in turn
whether locals had the requisite skills (PCI, 2017).13 In addition, the fishing community
in Gwadar fears the loss of income and livelihood with the creation of the new port.
There is some concern that, instead of generating local employment, Chinese security
measures, such as building fencing around the Gwadar project area in Baluchistan
Province (Shah, 2016), might have adverse effects on local access and employment.
Political leaders have tried to mitigate citizens’ anxiety: the leader of the National Party
in the Baluchistan Assembly, Zamruk Khan Achakzai, has expressed his belief that the
CPEC “will create thousands of jobs for people of the province” (The Express Tribune,
2017). Security requirements might, in fact, boost local employment: figures range
from a force of 15 000 personnel (Rana, 2016) to 18 000 personnel (Krishnan, 2016), to
protect Chinese investment and citizens.
It also needs to be noted that Pakistani reports on the impact of the China–
Pakistan Free Trade Area (FTA) signed in 2007 highlight the stress that it has placed on
Pakistan’s domestic industries (The Pakistan Business Council, 2015). One news report
cites a figure of 20 000 jobs in the shoe-manufacturing sector alone having moved from
Pakistan to China (Jamal, 2016). Thus, in the view of some Pakistani analysts, not only
will the CPEC have to generate new jobs: it will also have to replace some jobs lost to
China since 2007. There are similar concerns about the CPEC, which some fear will
produce a more robust influx of low-cost Chinese goods that would drive Pakistani
products out of the local market (Mangi, 2017).
12
See: https://twitter.com/pcipakchina and http://www.cpecinfo.com/cpec-facts-vs-fiction.
13
Efforts to build a modern technical training institute are under way. See Waheed (2016) and Awan (2017).
Besides immediate economic and social benefits, the BRI posits significant long-
term financial sustainability issues. As a combination of equity investments and loans, the
BRI is expected to be supported by a combination of government and private investors,
as well as by both existing and new international organizations. However, a sustainable
balance of equity and loans over the long term is difficult to achieve in the best of
scenarios, and Pakistan’s conditions are far from ideal. Many analysts in India question
what kind of profit Chinese investors can see in CPEC-sponsored initiatives, many of
which are related to energy infrastructure projects. This is where issues of pricing and
the terms of the contract, as well as the larger objective of the Sino–Pak relationship as
represented by the CPEC, emerge into sharper focus. The terms of the CPEC contracts
are not available to the public: this is significant because China has not provided grants
or aid for CPEC projects, but concessional loans. These concessional loans are believed
to cover approximately US$10bn worth of infrastructure projects, according to Houreld
(2015), with export credit and non-reimbursable assistance by Chinese policy and
commercial banks supporting the rest of the projects (Ranjan, 2015).
A member of the infrastructure and regional connectivity department of Pakistan’s
Planning Commission revealed in September 2015 that China would extend financial
assistance to Pakistan at 1.6 percent interest for CPEC infrastructure projects, which are
worth aproximately US$11.8bn. The same official also explained how Pakistan asked their
Chinese counterparts to reduce the rate further from 1.6 to 1 percent and that negotiations
were ongoing. Such bargaining suggests that the Pakistani side was dissatisfied with the
terms. In constrast, China had also agreed to convert PkRs.23bn worth of loans for Gwadar
International Airport into a grant and extended an interest-free loan of PkRs.13.5bn for
the construction of the Gwadar East Bay Expressway (Butt, 2015). China’s Export-Import
bank has also agreed to support a cross-border optic fiber project with a concessional loan
at an interest rate of 2 percent per annum (Butt, 2015). The liquefied natural gas pipeline
in Gwadar being laid by the China Petroleum Pipeline Bureau is being carried out under a
loan from the Chinese Government which covers 85 percent of the project cost, with the
Pakistani Government contributing the rest (Butt, 2015).
According to a Pakistani report, Islamabad could end up paying China US$90bn for
CPEC-related projects over a 30-year period for loans and investments worth US$50bn,
meaning average annual payments in the range of US$3bn to US$4bn after 2020
(Siddiqui, 2017b). While exports were expected to grow by 4.5 percent each year till
fiscal year 2025, higher than the previous decade’s 3 percent average, at present figures
available for 2016−2017 show that exports have declined by 1.3 percent while imports
increased by 9 percent, leading to a current account deficit 88 percent higher than in
2016 (Siddiqui, 2017b). However, Ishrat Husain, former governor of the State Bank of
Pakistan, has pointed out that Pakistan’s exports have to grow at least 15 percent per
annum to meet CPEC debt servicing requirements (Husain I., 2017).
Another aspect that is generating increasing discussion in Pakistan relates to the
perceived “fairness” of various CPEC deals. For example, the aforementioned Pakistani
Senate hearing found that only Chinese businessmen, and not Pakistanis, would be
allowed to invest in the nine special economic zones (SEZs) around the country (Rafi,
2017). To a specific question on whether the Chinese operator of the Gwadar Port would
be subject to regular audits, the Chairman of the Port Authority replied in a negative
way, citing the need to encourage investors even as he tried to underline that the
authority could request financial details and documents any time (PCI, 2017). This sort
of open-ended arrangement has prompted serious questions about transparency.
The China–Pakistan Economic Corridor project also involves various kinds of tax
exemptions for Chinese companies. A 2015 report by the Pakistan Business Council on
the 2007 China–Pakistan FTA quantified revenue loss from the agreement at PKRs.22bn
per annum, on account of tax exemptions granted to imports from China (The Pakistan
Business Council, 2015). A number of Pakistani observers argue that the CPEC appears
to continue along the same lines, with one analyst raising specific questions about the
SEZs, out of concern that industries set up in these zones may not have to pay direct
taxes. In this context, he asked whether their procurement would rely on local sources,
or, if not, whether their imports would be dutiable, while expressing alarm at the possible
exemption from local taxation (Husain K., 2017). Early evidence appears to support
these concerns: some reports indicate that power stations under the CPEC initiative are
being equipped with Chinese cables that have been exempted from Pakistani import duty
and sales tax (The New York Times, 2017). Another case comes from Balochistan, which
signed a 43-year lease with the China Overseas Port Holding Company in November
2015, handing over a 923-hectare swathe of tax-exempt land to be developed as a SEZ as
part of the CPEC (The Express Tribune, 2015a). According to Jamaldini, the chairman of
the Gwadar Port Authority (GPA), the land acquisition by the Baluchistan Government
had cost it approximately US$62m in 2015 (Muhammad, 2015). The remarkable aspect
is not just the length of the lease, nor the land being offered free of cost, which might be
considered standard practice in the world, but the volume of forsaken tax revenue. The
GPA’s proposed receipts of 15 percent of the gross revenue of the Gwadar Free Zone
Company, including fees from the companies inside its tax-free premises, and covering
rent and utilities, does not seem adequate to make up this loss.14
14
One reason provided for the tax exemption is that the Chinese operatior is bringing in all the required
investment for operating and expanding the port’s infrastructure. See PCI (2017) and Abbasi (2017).
The ambitions of the CPEC have naturally led to a number of other debates. The
Chairman of the Pakistan National Assembly’s Standing Committee on Planning and
Development, Abdul Majeed Khan Khanan Khail, has gone on record to caution his
government over the use of Pakistani roads by Chinese vehicles without payment being
provided for such use (Moneycontrol, 2017). Other issues include alleged unfair bidding
practices where Chinese companies are involved: for example, it has been reported that
only Chinese companies were allowed to participate in the bidding for the Havelian–
Thakot section of the Karakoram Highway (the bids submitted were more than double
the National Highway Authority’s cost estimate) (Rashid, 2015) .
Even more critical are the cases of Chinese investors withdrawing from projects,
as was the case with the 6600-MW power project in Gadani, Baluchistan, which was
launched as part of the CPEC. By Islamabad’s own admission, the withdrawal was due
to concerns on the part of Chinese companies, which questioned the financial viability of
the project, even though Pakistani authorities had offered to set up an ad hoc revolving
fund (Pal, 2015). Chinese players have similarly pulled out of five power projects in
Punjab, which would have generated 6600 MW. Altogether, these two projects totaled
some US$16bn in value, or nearly half of the original outlay for power projects under
CPEC (Pal, 2015). The concerns within Pakistan about the terms of CPEC deals, their
expected returns and their timelines have become rather serious, which is evident in the
recent statement by Pakistani Senate Planning and Development Committee Chairman
Syed Tahir Hussain Mashhadi, who declared that “China is our brother, but business is
business” (Rafi, 2017).
VII. India’s Perceptions on the China–Pakistan Economic Corridor
Chinese analysts often assume that India fundamentally wishes for Pakistan to be in a
state of permanent weakness or even instability. This view is based on a perception of
the nature of the India−Pakistan relationship as being inherently antagonistic because of
historical and religious differences. Indeed, this opinion is widespread both in the media
and among the public, as well as sporadically features in the scholarly communities
of India and Pakistan. However, realists in the Indian Government and across policy
circles take the view that a stable and democratic Pakistan serves India’s interests best.
It is thanks to this approach that official and back-channel dialogues between India
and Pakistan have taken place at various junctures despite the entrenched difficulties
in the relationship. It might even be argued that some members of the Indian strategic
community would prefer to see a military regime installed in Islamabad for the sake
of greater stability and willingness to take decisions. The talks between the Indian
leadership and General Pervez Musharraf, when he was in power in Pakistan, seemed
to nearly reach agreement on converting the military line of control between the two
countries in Kashmir into a full-fledged international boundary. While such an agreement
was eventually not reached, the fact remains that Indian policy-makers and analysts are
not opposed to a stable and economically prosperous Pakistan as is sometimes believed
in China.15 In fact, although there is official Indian opposition to the CPEC on the
grounds that it passes through Pakistan-occupied Kashmir, there has actually been little
to no opposition to the idea of China supporting Pakistan in economic terms. In contrast,
Indian analysts have highlighted the economic possibilities that the CPEC could offer
India if China and Pakistan were willing to invite India into the project (Jacob, 2017a,b;
Bhoothalingam, 2016).
On the other hand, Indian observers cannot afford to ignore opposition or concerns
within Pakistan over the CPEC, for this indirectly impinges on India−Pakistan relations.
Among the oft-quoted positive externalities of China’s investments in Pakistan, one
of the key propositions is that the ensuing economic development would reduce the
chances of Pakistani youth falling prey to radicalism and terrorism.16 The implication is
that in the event of a failure of the CPEC, there would be greater likelihood of Pakistanis
resorting to violence for lack of better opportunities. Therefore, the conditions that affect
the progress of the CPEC, including the number and quality of jobs generated, are also
of concern to Indian policy-makers.
Among such conditions is the fractiousness that the CPEC has engendered in
Pakistani domestic politics. In light of the huge funds involved in the CPEC, various
interest groups in Pakistan have claimed a share of the pie and expressed concerns about
being cut out by more powerful parties. Regional political parties are already quarreling
about the specific geographical location of the CPEC’s projects, while certain provinces
complain of being left out or discriminated against. A complaint initiated by Khyber
Pakhtoonkhwa and Baluchistan against Punjab, for example, was that it was trying to
acquire a disproportionate amount of the benefits (The Express Tribune, 2015b). Even
though then Pakistan prime minister Nawaz Sharif called for the completion of the
western route of the CPEC (The Express Tribune, 2015c), the Chairman of the Pakistani
Senate’s Standing Committee on Communications, Muhammad Daud Khan Achakzai,
highlighted the lack of funding for this route while the Chief Secretary of Baluchistan
acknowledged that a committee formed to acquire land in Baluchistan and Khyber
15
Source: Conversations and discussions with Chinese scholars in China and India during 2014–2017.
16
Several Chinese scholars made this point at various conferences that the author attended in China in 2016.
Pakhtunkhwa to complete the western route had not met since its formation (Rafi, 2017).
There have been reports that the Pakistani Army and other players within the
country are dissatisfied with the pace of progress and that the many political tensions
are persuading some of the necessity for the Army to take over its implementation
(Rana, 2016). A Pakistani analyst, Tariq Osman Hyder, writing for China’s Global
Times commented on his country’s “past indifferent record” on seeing projects through
to completion, warning that with “the whole world competing for Chinese investment,
there is no room for backsliding”(Hyder, 2015). Therefore, the concerns within Pakistan
are that the slow pace of implementation of the CPEC might cause the Chinese
Government either to dilute its commitment to the project, or to support the Pakistani
army’s taking over the implementation of the project, thereby further weakening the
elected civilian government. The weakening of Pakistan’s civilian government is a
concern that extends to India, given that there are more avenues for interaction and
cooperation between India and Pakistan when a civilian government is in power in
Islamabad than otherwise. Were China to support a broader role for Pakistan’s army in
the name of the efficiency of the CPEC, not only would it destroy the civilian initiative
necessary for the long-term success of the CPEC, it would revive fears in India of a
Sino–Pak military nexus in operation against India.17
Meanwhile, Pakistani intellectuals have wider concerns about whether such Chinese
largesse actually makes Pakistan beholden to China in ways that are unhelpful for
Pakistan in the long run. For instance, some commentators wonder whether Pakistan
can pay China back (Rafi, 2017), and question what the Chinese might demand in return
if debt repayment were to be impossible. Could such dependence on China stymie or
create an opportunity to use the current Pakistani economic crisis to engage in a larger,
more comprehensive reform process (Tirmizi and Masooma, 2017)? These are questions
that are being raised by both liberals and conservatives among the Pakistani elite.
From the Indian perspective, if even Pakistan, which sees China as an “all-
weather friend,” has tangible concerns over the economic viability, transparency and
distribution of CPEC projects, it is natural that the BRI should be subject to intense
scrutiny. Beijing argues that China is willing to invest at considerable risk to build
infrastructure in countries that have not received adequate attention from the developed
economies or from international development agencies. This is undisputable and India’s
efforts have lagged far behind China’s. Nevertheless, as a country that has itself been
engaged in development activities, including connectivity projects (Ahmad, 2016),
in other countries and as the one that stands to face, at least in South Asia, the direct
17
Source: Conversations with Indian security officials and analysts during 2015–2017.
consequences of potential dissatisfaction with (or failure of) the BRI, India certainly has
reasons to both watch closely and raise questions where necessary.
VIII. Concluding Remarks
Since late 2015, when Beijing realized that Indian opposition to the BRI remained
vibrant, Chinese scholars and diplomats have frequently stressed that China sees for
India a very important role in the BRI across South Asia, trying to assuage India’s
worries (Liu, 2017). There is no doubt about the sincerity of such pronouncements but
there remains a general lack of official details provided by Chinese authorities. What
is more, Indian analysts have begun to use China’s resistance to Indian aspirations for
membership to the Nuclear Suppliers Group and the UN Security Council (UNSC),
as well as India’s attempts to sanction Pakistan-based terrorists under the UNSC’s
Resolution 1267 as additional reasons for India to oppose the BRI. Although the wisdom
of linking such disparate matters is questionable, there is no denying that the BRI is now
part of the larger matrix of bilateral concerns between India and China.
Meanwhile, the developments within Pakistan in the wake of the launch of the BRI
have consequences for India and imply similar consequences for other countries where
Chinese investments are being directed under the BRI rubric. As suggested by the case
of the CPEC, even leaving aside the political dimensions, BRI projects invite scrutiny
on economic grounds alone. The specific terms of contracts, the financial sustainability
of the debt burden, the increase in jobs and the distribution of longer-term economic
benefits all still need to be fully ascertained even in the case of the CPEC.
Therefore, the BRI is bound to generate much careful study and consideration in
India. On the one hand, BRI operations are seen as dominated by connectivity concerns
and infrastructure building, while on the other hand, its larger objectives still tend
to be viewed through a realist prism, as subtly extending Chinese political influence
and interests. A more thorough effort to promote substantive Sino–Indian bilateral
engagement on the joint development of the BRI across South Asia would be a critical
step forward on the part of Beijing.
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JabinTJacob CASS ChinaWorldEconomy BRI

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78 China & World Economy / 78–100, Vol. 25, No.

China’s Belt and Road Initiative:

Key words: diplomacy, economic integration, infrastructure development, mutual

II. China, India and the Belt and Road Initiative:

III. The Role of Semantics in China’s Belt and Road Initiative

passing through Pakistan-occupied Kashmir and, therefore, impinging on Indian

IV. China’s Balancing Act as Perceived in India

V. The Political Economy of the Belt and Road Initiative

VI. Economic Foundations of the China–Pakistan Economic Corridor

Pakistan is widely regarded as facing a dire economic situation at present (Tirmizi,

VII. India’s Perceptions on the China–Pakistan Economic Corridor

VIII. Concluding Remarks

destiny,” 22 April [online; cited 26 April 2017]. Available from: http://news.xinhuanet.com/

(Edited by Zhinan Zhang)

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