Calcutta Notebook


The first direct train from China to England reached London recently. It travelled 12,000 kilometres carrying a cargo of garments and other manufactured goods. This is the trailer of the times to come. China is aggressively pushing the Belt Road Initiative (BRI) to establish state of art road and rail transport facilities from China to Europe and Africa. The China-Pakistan Economic Corridor from China to Pakistan through the Pakistan Occupied Kashmir (POK) is part of this larger initiative.

The BRI will pass through 65 countries. Chinese State-owned Banks are borrowing money from global investors and using this borrowed money to give loans to the participating countries. These countries are, in turn, giving contracts to Chinese companies to construct the BRI. Thus global money, which is often controlled by the United States, is financing the BRI. European partners of the BRI have complained that their companies are being deprived of their fair share of the construction works. However, China's approach is similar to that followed by many western donors. The US Government, for example, may give aid for installing computers in Indian schools. The computers are then purchased from American manufacturers. In this way aid money was often recycled to the donors' economy. China has adopted the same strategy. It is giving loan to the BRI countries only to have the money recycled to its own companies.

The BRI will make it cheaper to transport goods from China to Europe. That will reduce the cost of Chinese goods in comparison to those supplied by American Multi-National Corporations (MNCs). Truly, this will promote global trade and improve welfare of the European people. However, in the process, Europe will slip out of the dominance of American MNCs. Say an American MNC is presently manufacturing an electrical equipment in France. At present the Chinese equipment of the same quality is more expensive. The BRI will reduce the cost of reaching the Chinese equipment to France. The French user will then buy from China rather than America. It is for this reason that the United States is opposing the BRI. No wonder, some commentators have said that the BRI will be the next version of the WTO. The China-dominated umbrella system managing the BRI will have greater clout than the WTO in determining the trade between Europe, Africa and Asia. The BRI, therefore, hides a contest between China and the United States for global economic supremacy. BRI will strengthen China's position in the global economy and correspondingly loosen the grip of the United States.

India has aligned itself with the United States in opposing the BRI. The issue raised by India is that the Pakistan stretch of the BRI passes through Pakistan Occupied Kashmir (POK). India's demand is justified. But, let us say, the Pakistan part of the BRI is abandoned under India's pressure. Will it really improve India's global economic position? The main objective of the BRI is to establish Chinese supremacy in the European markets. That BRI will not be affected by killing the POK stretch.

Moreover, it is highly unlikely that India will be able to actually stall the Pakistan stretch of the BRI. China is not seeking funds from multilateral agencies like the International Monetary Fund, the World Bank or an arm of the United Nations where the United States could have stalled the project.China is borrowing from private global investors and is entering into bilateral agreements with the 65 participating countries. The United States and India are bystanders in the game. They have very little leeway in stalling the project. They can pass resolutions in the United Nations condemning the violation of India's sovereignty and the environmental impacts of the BRI but that is all that they can do. No more.

Now the question is whether China's supremacy in the European markets is good or bad for India? One must view the question in the backdrop of the larger global economy. The developed countries which include the United States, Europe and Japan, have about 25 percent of the world population but enjoy 75 percent of the world income. The developing countries which include China and India, have about 75 percent of the world population but enjoy only 25 percent of the world income. Therefore, strengthening of China versus the United States is fundamentally a global rebalancing act. It will strengthen the developing countries against the developed countries.

India has a choice to make. It can either align with the United States and strengthen and perpetuate the United States' disproportionate share of the world income. Alternatively, it can work out some arrangement with China and seek rebalancing of the global economy in favour of the developing countries. Frankly speaking the latter is the way to go.

There are three steps that India must consider. The BRI will reduce the cost of manufactured goods. The global income, however, is being increasingly spent in the purchase of services such as computer games and space travel. India's strength lies in this services sector. India can beat China by launching a Global Services Pathway which increases the reach of Indian services into the global markets. For example, India can make a new internet pathways. It can develop an International Tourism Protection Force to increase the flow of tourists to India. The gains to China from the BRI will pale into insignificance in the face of India's clout in the supply of services.

The second step could be that India can demand the China pressurises Pakistan to provide India with a corridor from Kashmir to Afghanistan through the POK as a condition for extending her support to the BRI in international platforms. That will open a land route for India's exports to China just as it will open for China's exports. Indian manufacturing companies will be able to reduce the cost of their goods in Europe. In fact, India could join the BRI through Tibet and steer away from the contentious issue of POK.

The third step is to intervene in the New Development Bank. India and China are the major partners here. India's representative K V Kamath is the head of the Bank. Reportedly the New Development Bank is providing loans for the BRI. The least India can do is not to be a partner and indirectly support the BRI.

[Formerly Professor of Economics at IIM Bengaluru.]

Vol. 50, No.46, May 20 - 26, 2018