China’s Setbacks with UK, Australia Present India with Strategic Opportunities

With marquee Chinese projects running into trouble in the West, it is time Beijing aimed its investments more towards India.

 Hinkley Point A and B nuclear power stations. The £18bn project for a third site has been delayed by Theresa May. Credit: Darren Staples/Reuters

Hinkley Point A and B nuclear power stations. The £18bn project for a third site has been delayed by Theresa May. Credit: Darren Staples/Reuters

Two of the most powerful trading nations in the world appear set to cancel their critical infrastructure projects with China, raising questions about the economic future of the Asian giant.

Australia’s federal treasury has blocked the sale of state-owned power distributor Ausgrid to companies based in China and Hong Kong, while the British government has been hauled over the coals — no pun intended — for agreeing to let China build its nuclear power station at Hinkley Point in Somerset. The developments present a serious blow to Beijing’s economic diplomacy, and at the same time, an opportunity for India. If Ausgrid’s sale has been explicitly blocked on “national security” concerns, the Hinkley Point project has been delayed to allow Prime Minister Theresa May to “study” its feasibility. The high costs of the nuclear station are being touted as an obstacle, but the Tories are on record citing the project as the “selling [of] our national security to China”.

If both projects end up in the scrapyard, it is worth pondering whether China’s economic engines, which are now geared towards boosting the country’s export capacity, will further slow down for lack of demand.

Both controversies involve state-owned operators — the China General Nuclear Power Corporation and the China State Grid Corporation — creating a direct link between Beijing’s foreign policy and economic footprint. That both decisions have been  by conservative governments in the UK and Australia is worth noting, but there is hardly any opposition from across the aisle. If anything, criticism has piled on, dragging other Chinese companies into the middle. Sir Malcolm Rifkind, former British foreign secretary who was part of an intelligence committee to review Huawei’s investments in the UK, has argued that Western economies should be wary of Chinese infrastructure in their sensitive sectors. Raising the bogey of China’s private sector acting as a proxy for the government is perhaps unfair, but Sir Rifkind’s comments reflect a sentiment that is echoed not just in the West, but also in Asia. Chinese IT and cyber security companies may have penetrated South East Asian markets, for instance, but they are struggling to overcome a perception that they are hand in glove with Beijing’s security establishment.

The political rhetoric over China’s perceived global ambition presents India with economic and diplomatic opportunities.

To be sure, India’s manufacturers and public sector undertakings cannot compete with, or take the place of Chinese players in Western markets. Instead, Indian negotiators should cite the setbacks at Hinkley Point and Ausgrid as prime reasons why China should train its investments more towards India.

Chinese projects like the One Belt, One Road (OBOR) initiative may criss-cross Asian geographies, but they culminate in European destinations. OBOR reflects the prevalent Chinese thinking that the West will continue to be its most lucrative market. Controversies unfolding in the UK and Australia should challenge this assumption, and force Chinese policy planners to hedge against the growing unpopularity of their conglomerates. India, on the other hand, is a sound economic destination: public opinion towards Chinese companies is largely favourable, and consumption demand in high-tech goods is set to soar over the next decade. New Delhi should use the multiple currents working in its favour to woo Beijing, and wean it away from dead-end projects in the China-Pakistan Economic Corridor (CPEC).

Second, were Beijing inclined to see OBOR or CPEC as serving the dual purpose of encirclement, India can leverage popular sentiment against Chinese corporations to curtail their influence. This could be done in two ways: New Delhi can start a conversation on supply chain integrity in Asia, conditioning the Chinese private sector’s market operations on its perceived independence from the government. In the field of technology, this narrative has already gained ground, with companies like Huawei and Alibaba having the good sense to make it clear that their financial interests come first. Were India to embark on a norm-setting exercise, it would receive overwhelming political support from East and South East Asia. Alternatively, India could also harden its negotiating stance at the Regional Comprehensive Economic Partnership negotiations, limiting the tariff reduction available to commodities from China vis-a-vis other members. Political compulsions should not distort the effects of trading regimes, but India should not be reluctant to exercise this option in the face of adversarial signals from China.

Amid talk in New Delhi of identifying “asymmetric” vulnerabilities to counter Beijing’s embrace of Pakistan, it is worth remembering that China’s massive economy — marked by a manufacturing surplus, saturating domestic demand and poor intellectual property protection — is also its Achilles’ heel. The United States cemented its economic domination in the 20th century by conceiving norms (Marshall Plan), institutions (Bretton Woods) and market conditions (GATT rules) that would aid its private sector.  China has embarked on no such exercise, either through public diplomacy or norm-setting treaties. Hinkley Point and Ausgrid are the fallout of this oversight. Countries like India can use the opportunity presented to curtail Chinese influence, but such economic levers should be deployed carefully on account of their consequences on India’s own growth and the stability of the region.

Arun Mohan Sukumar is at the Observer Research Foundation, New Delhi.