For three years, Prime Minister Narendra Modi has been indulging in acts of bravado in foreign policy that he believes, or wants the people of India to believe, are acts of bravery. The most recent is his boycott of the One Belt One Road (OBOR) forum meeting in Beijing next week.
New Delhi’s official reason for not attending the meeting is that the China-Pakistan Economic Corridor (CPEC) passes through Gilgit, which has been illegally occupied by Pakistan since 1947. Attending the meeting would, therefore, risk conceding sovereignty over Pakistan Occupied Kashmir (POK) to Pakistan. But this is poppycock.
The CPEC passes through the same territory as the Karakoram highway that China built in the 1960s. India has been lodging formal protests over this for the past fifty years. But this has not prevented it from increasing its trade with China by more than 20 times, and cooperating with it on all kinds of strategic and environmental issues in various international fora.
Modi could have safeguarded India’s legal position on Gilgit by issuing a similar formal caveat. But by making the recognition of Gilgit’s disputed status by China a pre-condition, Modi has cut India’s nose off to spite China’s face.
For India, the gains from OBOR would not have accrued so much from the investments in roads, railways and ports that it envisages, but from the immense investments that China would have liked to make in India’s infrastructure. Indian strategic thinkers have been quick to conclude that China’s goal is to cut India off from the rest of Asia, and destroy its hegemony in South Asia. But this is a frog-in-the-well kind of perspective, for China has far more compelling reasons.
First, it is an industrial juggernaut that produces close to half of all the consumer goods traded in the world and therefore needs safe trade routes more than any other country. India does not lie on any global trade route so OBOR cannot go through India. But all India has to do to benefit from it is invest in links to it via Bangladesh and Myanmar, Sri Lanka, Nepal and, one day, Pakistan.
Second, China is willing to spend colossal sums on OBOR because it desperately wants alternatives to the sea lanes it relies on for its oil, and its trade with Europe and Africa. Half of its exports, and 90% of its oil passes through the Malacca straits and the South China Sea. With 400 US military installations spread in an arc around it and carrier fleets equipped with thousands of Tomahawk missiles cruising the South China Sea, its wish to insure against a blockade of the kind that the US imposed on oil supplies to Japan in 1940 is understandable.
But its most pressing concern is to find orders for its huge capital goods industry. While India’s industrial production is wasting away because of its acute shortage of up-to-date infrastructure, China is literally suffocating in excess capacity. China produces more than 800 million tonnes of steel a year, almost exactly half of the world’s output, and has run out of places in which to use it. The provincial governments have built all the airports, container ports and all-weather highway they could think of. Starting with a single line with 20 pairs of bullet trains in 2005, the Chinese have built 19,000 km of high speed train track and are running 2,300 pairs of bullet trains on them today. And residential and commercial space is so overbuilt that as far back as 2013 China had 55 million square metres of unoccupied apartments.
The world market too is saturated and in a recession. Beijing’s attempt to dump some of its steel on it last year caused a crash in prices that forced US Steel to lay off 39,000 employees, and precipitated a crisis in Arcelor-Mittal. The global outcry that followed forced it to promise to close down 150 million tonnes of steel making capacity by 2020. That is almost twice the entire steel-making capacity of India today.
Overcapacity is even greater in its heavy engineering industries – the industries that build the industries that manufacture its products. In the four years that ended in December 2015, China added more than 300,000 MW – more than India’s entire power generating capacity – to its coal power generating capacity. But it was able to bring only a fraction of it into use, and that too only by reducing the capacity utilisation in existing plants.
Today, the only orders these plants are getting are from enterprises that are modernising their existing production capacity.
OBOR is an extension of China’s original shift of investment to the western provinces, and is the only way left to keep the millions of workers in the heavy industries employed. But just the ‘belt’ and ‘road’ as conceived today will not suffice. For that China needs India to become a partner, for while the combined GDP (in hard currency) of the seven countries in which the bulk of OBOR investments are currently envisaged: Russia, Uzbekistan, Tajikistan Turkmenistan, Kazakhstan, Pakistan and Malaysia was $2.1 trillion in 2015, that of India alone was $2.256 trillion.
India’s joining OBOR could, therefore, make the difference between a quick, relatively painless recovery from its recession and a prolonged, painful one. Its keenness to have India join is reflected in two articles published in the Global Times on March 20 and May 7 this year.
In the first, the writer explicitly conceded the validity of India’s concerns over the sovereignty issue but asked New Delhi to distinguish between “normal commercial investment and ones that could violate India’s sovereignty”. In the second, written only last week, the writer said, “Beijing respects New Delhi’s sovereignty concerns” and pointed out that “China’s infrastructural initiative will not only bring economic benefits, but also fulfil India’s ambition to be an influential economic power in the region”.
The significance of these articles is that they were written after Modi replaced cooperation with confrontation in India’s relations with China. They indicate, therefore, that China still attaches greater importance to economic cooperation with India in OBOR than to its growing political differences with the Modi government. The benefits, especially in terms of ease of doing business and increase in employment that would flow to an investment starved India do not need to be spelt out. But these do not seem to matter to Modi.