China strengthens its grip on south Asia

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By:
Elliot Wilson
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Pakistan has long been as enamoured of the BRI as India is suspicious. But BRI-related projects are now springing up in the likes of Bangladesh and Nepal, suggesting that whatever New Delhi’s reservations, the Beijing-led scheme is here to stay



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If the Belt and Road Initiative has a blind spot, it is surely to be found in south Asia. The region is home to one country that can’t get enough of the project (Pakistan), and another (India) that wants nothing to do with it.

Does this matter? Well, yes and no. On the plus side, Pakistan, which is chronically short of friends and capital, shows no sign of falling out of love with a project that continues to shower it with financial largesse. The list of Chinese-funded and Chinese-built infrastructure projects is long and impressive. 

Take the $2.9 billion, 400-kilometre stretch of the M5 Motorway funded by China Development Bank (CDB) and built by China State Construction Engineering. When the motorway is completed later this year, the cities of Karachi and Lahore will finally be linked, by a project that was first drawn up as long ago as the 1990s.

CDB is the financial driving force behind many of the big local BRI deals. In December 2017, the policy bank was a key player in a 10-year, $700 million syndicated term loan raised for the finance ministry, a deal that included partial guarantees from the World Bank. It is funding an $883 million coal-fired power plant at Port Qasim. And in April, CDB shelled out $1 billion to a government that, not for the first time, faces a looming financing crisis. Pakistan’s foreign exchange reserves dipped below the $10 billion mark this July, for the first time since 2014.

China is unlikely to turn off the spigot, even though the position of prime minister, vacated after the arrest of Nawaz Sharif in July, has been filled by Imran Khan, the former cricketer who campaigned hard against alleged corruption in local China-backed construction projects. Yet Beijing is clearly keen to keep Khan on-side: days after his election, it handed Pakistan another $2 billion, bolstering the perception that however bad its finances get, China will not turn its back on the south Asian state.

That should come as no surprise. Beijing plans to spend up to $57 billion by 2030 on a profusion of new domestic infrastructure projects – ports, airports, highways, power plants, transmission lines, solar parks – which are all part of the so-called China-Pakistan Economic Corridor (CPEC). Both can see clearly what they get out of this transactional alliance: for China, a reliable overland route to the Indian Ocean that bypasses the Malacca Strait, and for Pakistan, the infrastructure it always wanted and needed, but couldn’t afford.

And so we turn to India, which has, to say the least, a different relationship with its giant neighbour. It was a founding member of the Asian Infrastructure Investment Bank in 2014, and is the second-largest contributor after the People’s Republic, funding the China-led multilateral to the tune of $8.4 billion. It is also a founding member of another multilateral, the Shanghai-headquartered New Development Bank, which is chaired by KV Kamath, the former chairman of Indian IT firm Infosys.

Yet India adamantly refuses to be considered a belt-and-road nation.

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Rafiqul Islam

At a meeting of the Shanghai Cooperation Organization in June, India was the only member state that did not tacitly endorse the BRI programme. New Delhi resents the mere existence of the CPEC project with Pakistan, and fears being outflanked in its own backyard by Beijing, which is funding a series of massive infrastructure projects in states that border India, or are historically aligned with it.

The question arises: does India need to be part of the BRI project? There is no clamour at home to join, and, as Fraser Howie, co-author of ‘Privatizing China’, notes: “India most certainly does not trust China, so what do they gain by signing up? Their economy is doing just fine without BRI, so why burden [themselves] with it.”

Even so, every year, Beijing’s presence in the rest of the region grows. It owns Sri Lanka’s Hambantota Port, bought from Colombo in December 2017 for $1.12 billion. Beijing is also building a vast new international financial city in the capital that aims to become a trading centre for the Chinese yuan.

Over the last 18 months, China has also deepened its relationship with two other regional states that, at least in its early days, evinced little interest in the BRI. Once rarer than hen’s teeth, BRI deals in Bangladesh are now starting to proliferate. Construction began early this year on a new China-backed highway and tunnel complex set to link the port city of Chittagong with a Beijing-owned special economic zone on the other side of the Karnaphuli river. The project is set to cost $1.7 billion, of which $1.02 billion will be funded by a loan from Export-Import Bank of China, and the remainder provided by the Bangladesh government.

Local institutions have been quick to grab the initiative. Green Delta Capital (GDC), a seven-year-old, Dhaka-based investment bank, is the focal point of a number of projects with more than a whiff of BRI about them.

In April, it helped to raise $40 million to complete the construction of a 35-megawatt solar park in Dhaka, to be built by Wuxi-based, solar photovoltaic maker Suntech and co-owned by China Shunfeng Investment and local construction firm Spectra Engineers.

“Pakistan has historically been the heart of the BRI project in south Asia, but China sees Bangladesh as an increasingly important trading nation, geographically and economically,” says GDC’s chief executive and managing director Rafiqul Islam. “China is our biggest trading partner, and what we need more of – investment, capital, good infrastructure – China has, and can provide.”

Beijing is also making inroads in Nepal, where China Three Gorges Corporation is keen to build two hydroelectric dams on the Seti river, and where a new international airport, funded by a $216 million loan from Export-Import Bank of China and built by China CAMC Engineering, is set to open its doors by 2021.

Fast-growing India’s recalcitrance over BRI is understandable, just as Pakistan’s embrace of the vast geopolitical and geo-constructional project makes, for the struggling state, the greatest of sense.

New Delhi might seethe quietly behind the scenes at the BRI’s mere existence, but the project is going to happen, and is going to increasingly dominate events in south Asia, like it or not.