Economic dynamics will determine the next super power

Why it is in West’s interest to scuttle BRI

The stakes are high. Who will be the next world leader for coming decades? With Chinese policy becoming more assertive, the US is deeply concerned about an economic surge by China, leading to it becoming a world leader. The time is now. This article explores the bigger picture of which CPEC and Gwadar form a part.

In 2013 China launched the Belt and Road initiative (BRI) a project that aims to build physical infrastructures across roughly 65 countries including Africa, Asia and Europe. Pledging $900 billion in the project, China is poised to pump in $150 billion in these projects every year. The project includes ports, bridges, railways, and a sea route aimed to link the Mediterranean and East Africa with the Chinese southern coast. The initiative has two levels: one is called the ‘21st Century Maritime Silk Road’ (the road) whereas the other is ‘Silk Road Economic Belt’ (the belt). The latter is a number of overland corridors that aimed at connecting China with Europe through the Middle East as well as via Central Asia.

One project is the Khorgos “dry port” on the Kazakh-Chinese border that was aimed to be a transit route for Chinese goods to Europe and Central Asia. China has envisaged some $60m for the project. Whereas the Chinese side of the border has developed infrastructures, the Kazakh side can boast of no such set up. It has only some buildings, many of which are abandoned. This makes this project slow moving and stretches over a long period of time.

The progress of BRI had been generally slow, hence in August 2016, President Xi made a call for “model projects” to be the forerunners for the BRI.

Enter China Pakistan Economic Corridor (CPEC).

The $62 billion worth CPEC is a part of the ambitious BRI. CPEC is a huge networking of port, roads, power plants, factories. Once completed CPEC will create roughly one million jobs in Pakistan. It includes various developmental projects consisting of industries, educational institutes, airports, ports and shipping infrastructures, rail links and upgrading of Mainline 1 (ML-I) not the mention the establishment of a New Dry Port at Havelian (Buldhair) District Haripur.

It is an extremely ambitious project that aims to involve many countries to invest and derive benefits from a well-planned and a well laid out transit line. Impressive progress has already been made that includes a detailed design of mining under progress for a surface mine in Block II of Thar Coal field, 6.5 metric ton per annum (mtpa); the HUBCO Coal Power Plant 1X660 MW, Hub Balochistan. The list is long and work is underway to make CPEC a reality as soon as possible.

Also, in 2016, Sri Lanka got its 100^th factory located in Cambodia in the Chinese operated industrial zone. Supported by governments of both countries, the zone offers favorable conditions to investors besides offering greater job opportunities to the locals.

Many countries that China wants to include in BRI urgently need infrastructure development. They need proper systems in place. Kyrgyzstan and Bangladesh for example do not have reliable electricity supply. This in turn adversely effected their production line lowering exports as well as job provisions. Indonesia lacks internal ports to coordinate transportation.

China aims to help these and other countries with funding. This will help the struggling nations overcome their disadvantages. The funding will not lead to desired development unless the implementation by governments of the nations’ being funded ensure a transparent process leading to building the systems not besieged by corruption.

The project is a huge outreach by China to the world, seeking international markets for export of goods and technology to boost their economy at the same time offering benefits to linking nations as well. Charles Parton, a former EU diplomat in China who has researched the initiative states that the project is, “ultimately a domestic policy with geo­strategic consequences rather than a foreign policy.”

‘Once completed, BRI could cover over 4.4 billion people and generate a Gross Domestic Product of over $21 trillion.’(Executive Summary from the Inaugural Belt and Road Summit, Hong Kong, 18 May 2016)

China’s BRI is going to address the aggregate demand of linking nations’ which in a nutshell is total demand for goods and services in any economy. The ambitious posture of China raises the fundamental question as to whether China or the United States will ultimately determine the rules for trade and investment. Economics drives politics.

George W. Bush had supported the TPP (Trans-Pacific Partnership) and Obama had given final touches to the plan to lay out rules for doing trade and investing in the Asia-Pacific region. Unfortunately, Trump pulled out of TPP on his very first day in office. By staying in TPP, the US would have been in a position to help countries wanting to be a part of BRI while minimising economic risks. Another advantage the US lost is the leverage to offer good terms of trade with the US market to countries where China is the main exporter. It can no longer offer a competitive investment plan to nations as opposed to BRI or TPP.

In 2017 China launched the ‘petro-yuan’. This allows crude oil futures contract to be priced in yuan convertible in gold. Not only does it allow trading countries to avoid US sanctions to trade oil in yuan, it also does not need conversion into US dollars or investing money in Chinese assets.

What the US is left with is a fear of China’s outreach. Leaving TPP – the pragmatic path of molding the economic game to its advantage, the US is playing the small game by joining hands with India to create unwarranted issues in the region. One example is of Secretary Mattis who while opposing BRI made a geographically incorrect statement that the road going through Pakistan passes through a disputed territory. The blame-game being played by the US, holding Pakistan responsible for issues in Afghanistan to the exclusion of everything else is all part of the same jigsaw puzzle.

If the Indo-US partnership succeeds in destabilizing Pakistan for the next few years, China will lose the momentum and the thrust of a “model project”. Very recently, in a speech Tillerson stated that “the Indo-Pacific – including the entire Indian Ocean, the Western Pacific, and the nations that surround them – will be the most consequential part of the globe in the 21st century” and that “the greatest challenge to a stable, rules-based Indo-Pacific is a China that has taken to reworking the international system to its own benefit.” (Oct 21, 2017). If China cannot make this project a success, BRI will suffer a severe setback.

However, if CPEC and later the other projects of BRI succeed and are delivered on time, the US economy will be hit hard. Predictably, hard enough to lead to a recession. The fate of the next super power will be determined here, in Pakistan.