Indian Defence Review

The Corridor is, first and foremost, a vital investment for Beijing, which is slowly ‘buying’ the strategic link. Beijing will soon control its new dominion, Pakistan. For India, it will be a game changer as it will then directly face China on two fronts, the Northern and the Western. The Modi government should ponder about this. It is a New Great but not easy Game. What looks like a masterstroke on paper could turn into a nightmare for both China and Pakistan, unless India is taken onboard. But at a time Pakistan continues to fuel unrest in the Kashmir Valley with the silent consent of China, how can Islamabad get New Delhi’s blessings for such a gigantic project? Today, China and Pakistan may be gambling, but China has no choice but to understand India’s concerns on this issue.

Although China has been screaming from the rooftops that bilateral relations with India have been severely damaged by the Dalai Lama’s visit to Arunachal Pradesh, Beijing is ready to woo New Delhi when it serves its interests. One good example is the One Belt and One Road (OBOR) initiative and its avatar, the China Pakistan Economic Corridor (CPEC). China wants India to participate in the Belt and Road Forum in Beijing in May. Prime Minister Narendra Modi has already declined, but Chinese Foreign Minister Wang Yi unilaterally announced, “India will have a representative. We welcome the Indian representative as well as members of the business and finance community to take part in the summit.”

India has, however, not confirmed its participation. Whether India joins its South Asian neighbours such as Pakistan, Sri Lanka and Myanmar for the summit in Beijing is not really relevant. The point is that the ‘initiative’, particularly the China Pakistan Economic Corridor (CPEC), is perceived in India as a project which first and foremost serves China’s interests. Beijing has been unable to dispel this feeling in the corridors of South Block and among the general public.

 Historical Perspective

In this connection, it is interesting to look at how communist China annexed the ‘New Dominion’, as Xinjiang is known. It was not only one of the greatest strategic feats in modern military annals but a great strategic move to connect with Central Asia, then under the Soviet Union. On February 04, 1949, during a meeting with Soviet Foreign Trade Minister Anastas Mikoyan, Mao Zedong raised the issue of Xinjiang and pointed to the North-Western district of Ili (today’s Ili Kazakh Autonomous Prefecture), where China had noted the presence of a Communist Party. Mikoyan said that he did not know about the existence of communists in the area, but he was aware of nationalist forces wanting independence, “This movement was triggered by the incorrect policy of the Chinese Government. If the nationalities of Xinjiang were given autonomy, the soil for the independence movement would likely disappear. We do not stand for the movement of independence of the Xinjiang nationalities and do not have any claims on Xinjiang territory.”

After Mao had been given the green light he needed, he explained that China planned on ‘giving Xinjiang autonomy’, something it never did. Interestingly, Mao enquired “whether there is a lot of oil in Xinjiang or a little”. He also suggested the construction of “a railroad connecting the Chinese railroads with the Soviet railroads through Xinjiang. This would have great significance for joint defence in case of a new war with the West”. Had the Great Helmsman in mind a new Silk Road to connect China to the Soviet Union? While the remnants of the nationalist forces on the mainland were systematically annihilated, in Xinjiang, Mao used a two-pronged ‘war’ tactic – First inducing the surrender of the nationalist forces and then sending a large number of troops in two different directions (North and South Xinjiang), the assurance of support received from the Soviets made things easier.

By swiftly taking over Xinjiang, the Communists would control the Western borders of the Middle Kingdom, access trade with Central Asia, block any possibility of Soviet advance in the region (in case the Soviet leaders changed their mind later) and come in contact with the Indian frontiers, particularly in the Aksai Chin area.

By the end of September 1949, a large contingent of communist troops started moving towards the New Dominion where a 70,000-strong nationalist force was still stationed. Despite poor communications, the communist forces advanced in Xinjiang; the distances were long, 1,253 km from Jiuquan to Urumqi and 2,547 km from Kashgar, “In order to overcome the communication and transportation difficulties, Soviet Union came for assistance with 40 transport planes so as to quickly transport soldiers from Jiuquan towards Urumqi”, notes a Chinese account.

Nearly 70 years later, one understands the enormous importance of the annexation of Xinjiang with its natural resources such as oil, but also the possibility for China of opening trade routes such as the OBOR or the CPEC.

The OBOR Initiative

In 2013, when President Xi first spoke of a project “envisioning a trade and infrastructure network that would connect Asia with Europe and Africa along the ancient land and sea routes,” very few realised that the OBOR ‘initiative’ had many similarities with the Great Game (Mao’s annexation of Xinjiang being a similar ‘dream’). At the time of its new birth, the OBOR’s declared objective was to increase connectivity with Europe. However, a simple look at a map shows that practically, India is left out of the scheme, while the creation of several economic corridors mainly benefits China.

In June 2015, Steve Levine wrote in Quartz magazine that the infrastructure that the British built everywhere during the 19th century “enabled their power like bones and veins in a body. …Great nations have done this since Rome paved 89,000 km of roads and aqueducts in Europe. In the 19th and 20th centuries, Russia and the US established their own imprint, skewering and taming nearby territories…Now it is the turn of the Chinese.”1

For Xi, the OBOR is an essential part of the great rejuvenation of the Chinese nation, the ‘Chinese Dream’ though Xi believes that the OBOR “will serve the long-term interests of all countries involved in the Belt and Road Initiative.” But haven’t trade and geopolitical control always worked hand in hand? Chinese experts say today that the project can benefit 4.4 billion people in more than 60 countries or 63 per cent of the global population”…if everyone agrees to participate, which is far from being the case. And as for Pakistan, the CPEC, a crucial constituent of the OBOR, will be a game changer, if and when it happens. The CPEC architects are aware that Pakistan is the plaque tournante for controlling the Belt and the Route; the 2,700-kilometre corridor stretching from Kashgar to Gwadar which will link two worlds – Central Asia (via Xinjiang) in the North and Europe and Africa (via the maritime route) in the South.

A Dream Come True

When President Xi Jinping visited Islamabad in April 2015, he pledged an eye-popping $46 billion for the CPEC. For Beijing, the mega project is a vital element of the OBOR and a ‘game-changer’ for Pakistan which believes that this could bring prosperity to the nation. It is true that Xi brought with him munificent gifts for Pakistan – the Chinese billions would boost Pakistan’s flagging economy with massive energy and infrastructure projects. This included an additional 12,000 MegaWatts (MW) to Pakistan’s national grid through coal, hydro and renewable energy projects. The Corridor would have railways, roads, optical fiber cables, dams, pipelines, you name it! Observers marveled at Beijing’s generosity (and wealth), but lately, the ‘beneficiaries’ have started realising that the project may first and foremost benefit only Beijing!

The Economy of the Corridor: Is It a Boon for Islamabad?

Not everyone agrees in Pakistan that the scheme will save the country. Salman Rafi Sheikh, a research analyst wrote in Asia Times, “The CPEC continues to look like a mystery, wrapped in an enigma. In the absence of agreements stipulating and documenting both countries’ interests, the CPEC is creating problems that would strip Pakistan of whatever benefits the multi-billion-dollar project promises.” He continued, “Claims about CPEC’s ability to change Pakistan’s economic outlook appear hollow and unreal.The question remains – what’s the game changer for the region when CPEC is changing nothing in Pakistan?” The author certainly has a point.

There is a lot of secrecy around the project. For example, Pakistan’s Public Accounts Committee (PAC) was recently curious to know the details of rate of interest for the loans obtained from China. The Secretary of the Ministry of Water and Power gave some figures. There were 19 power projects under the CPEC with the capacity of 12,114 MW, of which 3,960 MW were from coal, 2,714 MW from hydro projects, 900 MW from solar projects and 4,260 MW from imported coal.

The amazing part is that after the COP21 accords, while the planet is abandoning coal as an energy source, China is financing new coal projects in Pakistan, in some cases with Chinese coal! Beijing has agreed to provide a $6 billion loan for road infrastructure and Rs 2.8 billion for railways ‘on lowest interest rate’. While these loans are at a reasonable 1.6 per cent interest, in some other cases, they can be as high as 6 or 7 per cent. Will Pakistan be able to repay these loans?

By including the cost of insurance, also paid to a Chinese insurance company, the cost of borrowings could surge to 13 per cent, “Adding insult to injury, the government has already exempted income of Chinese financial institutions from dividend income tax,” said The Pakistan Herald. In March, The Nikkei Asian Review mentioned that two international lending institutions as well as Pakistan’s Central Bank raised serious concerns about the debt burden of the mega China-led infrastructure programme.

A New Hambantota in the Making?

“Surging Chinese imports for the initiative have complicated Pakistan’s balance of payments problems during its second year of economic recovery following a decade of conflict with Taliban insurgents and their al-Qaeda allies,” says The Nikkei. The Japanese newspaper added, “The World Bank and the International Monetary Fund have both expressed concerns about the financial strains caused by the CPEC programme.” In its Global Prospects Report for 2017, the World Bank said, “Sovereign guarantees associated with the CPEC project [will] elevate fiscal risks over the medium-term.”

For the IMF, the CPEC projects would create a surge in Foreign Direct Investment (FDI) and other external funding inflows, but the import requirements of these projects, “…will likely offset a significant share of these inflows, such that the current account deficit would widen.” On February 06, Fitch, the global credit ratings agency warned Pakistan that “…increasing gross external financing needs could increase the country’s vulnerability to shifts in investor sentiment.” The adage says that there is no free meal, but in this case, there are no interest-free loans.

Another issue is regional disparity. On February 28, Sardar Akhtar Jan Mengal, President, Balochistan National Party – Mengal (BNP-M), accused Islamabad of getting funds for the project in the name of Gwadar while using them in one province only, Punjab. Mengal argued that the people of Balochistan, a province through which a major portion of the Corridor passes, have neither been consulted nor taken into confidence on CPEC projects. Other provinces, particularly Khyber Pakhtunkhwa (for the CPEC Western route) and Gilgit-Baltistan have similar views. But that is not all.

High Cost of Security

There is a serious security issue. Now, suppose the scheme becomes ‘unstable’ due to terrorism (presently localised in Pakistan, but which can be easily exported to Xinjiang), the cost of the project would tremendously shoot up. This deeply worries Beijing. In January, The Dawn reported that Pakistan has deployed 15,000 military personnel to protect projects under the CPEC. Senator Mushahid Hussain Sayed, Chairman of the Parliamentary Committee on the CPEC noted, “Both forces will work under the interior ministry, in coordination with the provinces.” Pakistan’s Chief of Army Staff (COAS) General Qamar Javed Bajwa claimed that there is a ‘hostile agenda’ against CPEC but he affirmed that the Pakistani security forces were ready to counter any threat. Islamabad has deployed troops of the newly-formed Special Security Division (SSD) to provide protection to CPEC projects and it has created a special Maritime Security Force unit to defend Gwadar.

The question is who will pay? Pakistan for the time being, but many in Pakistan realise that the Chinese ‘gift’ is, in fact, a costly one. Will Chinese forces participate to the protection of the Corridor? Quoting military sources, The South China Morning Post affirms that the PLA would soon increase its fighting force to 100,000 personnel, “allowing for deployment in Djibouti in the Horn of Africa and Gwadar in Southwest Pakistan.” Troops of the People’s Liberation Army Navy Marine Corps (PLAMC) are already posted at Gwadar to protect Chinese naval facilities. On March 13, Liu Xiaojiang, an ex-Navy political commissar, told The South China Morning Post, “China is a maritime country and as we defend our maritime rights and develop our interests, the status of the navy will be more important.” Chinese troops in Gwadar, the maritime entry to the CPEC, is worrisome, to say the least.

Environment Issues

While the COP21 swore to reduce fossil fuels including coal, oil and natural gas – which produce high percentages of carbon and heavily contribute to Carbon Dioxide (CO2) emissions, the main factor behind climate change, several CPEC projects will use coal to produce electricity for Pakistan. Will China pay for the environmental damage? It is true, coal is economically tempting, if one does not take the environmental cost into account.

Thar, for example, possess the largest coal deposits in the world, with 175 billion tonnes of coal over 9,000 square kilometres. The Secretary Ministry of Water and Power told the Public Accounts Committee (PAC) that digging of 70 metres has been completed in Thar Coal projects and advance tariff of coal project in Thar is 5.8 cent and it is estimated that there are 175 billion tonnes of coal reservoir in the Thar. He told the committee it is estimated that around 26,000 MW of electricity will come into the national grid by the end of the December 2017 and it is expected that load shedding will end by March 2018. Climate Home which reports on environment issues, mentioned a seminar recently organised by the Express Tribune Media Group to discuss the coal development in Thar. The industrialists were satisfied and a CPEC spokesperson told the magazine, “…the coal sector in Pakistan is working very fast, mining is approved and we are expecting big changes in Pakistan.”

The CEO, Sindh Engro Coal Mining Company (SECM) developing a 1,320 MW coal power plant, said that the project is expected to be completed by June 2019. He added that SECM can ‘considerably’ reduce electricity costs to 6¢ per unit once its Thar coal production reaches a capacity of 4,000 MW. But Ali Akbar, Executive Director, Association for Water, Applied Education and Renewable Energy (AWARE) said that people are already feeling the effects of water scarcity and coal dust pollution due to mining activities. Due to climate change, droughts are getting worse in intensity, “The animals get weaker and people have to pull ropes by hand,” said Akbar, who added that “Thar needs solar or wind energy operated systems to drag out underground water.” But it was explained that the funding of renewable energy is thwarted by high interest rates (above 7-9 per cent). There is a serious problem here.

Dumping Cheap Chinese Goods

Many Pakistani companies expressed strong concerns over Chinese companies dumping cheap goods in Pakistan. These companies get heavy tax exemptions, which gives them an advantage vis-a-vis local entrepreneurs and once the CPEC is functional, Pakistani markets may be flooded with Chinese goods. China dismissed as ‘unnecessary’ the concerns of Pakistani businessmen, “As for the specifics, I am not aware of them, but I think your concerns are unnecessary,” said the Chinese Foreign Ministry spokesperson Hua Chunying, who added that the CPEC was an important project under the OBOR, “China adheres to the principle of planning, building and benefiting together in pushing forward the Belt and Road initiative, so in the same spirit, China and Pakistan will push for progress of the CPEC. As for the benefits and dividends of the CPEC, they will reach the Chinese and the Pakistani people and the people in the region at large.” But other than China, nobody is really convinced.

A Never-ending Shopping List

On April 14, 2017, The Global Times reported that China has approved a proposal to increase its investments in the CPEC to $62 billion. As mentioned early, when the project was kicked off, the original investment level was $46 billion. The announcement was made by some Pakistani officials during a recently-held infrastructure investment conference. According to the Economic Corridor Plan, most of these investments will be spent in the areas of electricity generation and distribution. The newly approved additional investments would be benefitting various industries including constructing industrial parks. Talks are underway to include the City Ring Railway of Karachi under the CPEC banner. As an analyst put it, it has become a ‘shopping list’ for Pakistani politicians.

India’s Position

When Prime Minister Narendra Modi met Chinese President Xi Jinping at the G20 Summit in Hangzhou in China, he is believed to have raised the topics of terrorism originating in Pakistan, as well as the CPEC project. Modi told Xi that New Delhi and Beijing must be sensitive to each other’s ‘strategic concerns’ which include terrorism from Pakistan, the CPEC crossing through Pakistan-occupied-Kashmir (PoK) and India’s membership in the Nuclear Suppliers Group? As the project crosses Indian territory in PoK, the CPEC is unacceptable for India. New Delhi cannot pretend that nothing is happening and forget about the legality of the accession of Jammu and Kashmir to India. In December 2016, while welcoming Zheng Xiaosong, the Vice Minister of International Department, Prime Minister Nawaz Shariff remarked, “The CPEC and its related projects symbolise the people-centric approach of the two countries.” In this case why does Islamabad or Beijing need India’s help?

The Corridor is, first and foremost, a vital investment for Beijing, which is slowly ‘buying’ the strategic link. Beijing will soon control its new dominion, Pakistan. For India, it will be a game changer as it will then directly face China on two fronts, the Northern and the Western. The Modi government should ponder about this. It is a New Great but not easy Game. What looks like a masterstroke on paper could turn into a nightmare for both China and Pakistan, unless India is taken onboard. But at a time Pakistan continues to fuel unrest in the Kashmir Valley with the silent consent of China, how can Islamabad get New Delhi’s blessings for such a gigantic project? Today, China and Pakistan may be gambling, but China has no choice but to understand India’s concerns on this issue.