March 19, 2018
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China’s signature Belt and Road Initiative (BRI) has valuable lessons for future connectivity initiatives in the Indo-Pacific. Although it is an economic connectivity project, the BRI lacks a distinct economic framework comparable to other regional initiatives like the Asia-Pacific Economic Cooperation (APEC) or Association of Southeast Asian Nations (ASEAN). This focuses attention on its geopolitical implications and generates concerns among national and local communities over strategic compromise.
Mistrust about the ‘missing economics’ of the BRI can be avoided by future connectivity initiatives in the Indo-Pacific, by developing required economic frameworks and a multilateral approach founded on wider consultations within and across stakeholder countries.
The BRI economically connects disparate geographies. It encompasses multiple regions (East Asia, Southeast Asia, South Asia, West Asia, Central Asia, East Asia, East Europe, West Europe, South Pacific and Oceania) and continents (Asia, Africa and Europe). Connected through land, sea and cyberspace, the identity of this massive economic geography will supersede its constituent physical spaces. Given the overlap of maritime spaces between the BRI and Indo-Pacific, it will also affect how we look at the Indo-Pacific.
The geostrategic implications of an overarching economic geography like the BRI are obvious. As a primarily China-funded initiative, the BRI will shape a China-led pan-regional order. The manifestations of this order will be most apparent in countries ‘core’ to its geography, such as Sri Lanka.
Nestled among the Indian Ocean, the Bay of Bengal and the Arabian Sea, Sri Lanka is central to the BRI’s maritime space. The Chinese interest in Sri Lanka’s maritime infrastructure is obvious and is visible from investments in the country’s ports in Hambantota and Colombo. Such investments, whether through the BRI or other connectivity initiatives, make evident the links between maritime infrastructure and geostrategic influence.
Given these links between infrastructure and geostrategic influence, it is important that mega-connectivity initiatives are able to assure national and local communities in host countries about the preservation of strategic autonomy. This is a challenge not only for the BRI, but also for projects like the Asia-Africa Growth Corridor (AAGC) which aim to connect Asia and Africa in the Indo-Pacific.1
The BRI and the proposed AAGC, are not simply economic corridors which accelerate regional development, by linking economic agents across borders via new infrastructure. They also have geopolitical impact, as a result of the strategic benefits that accrue to owners of infrastructure assets. These benefits include control over extractive natural resources like energy and mineral deposits, which Chinese State-Owned Enterprises (SOEs) have gained through BRI projects.
Infrastructure-deficient economies, while welcoming investments, are nonetheless wary over the high price of compromise in strategic autonomy that these investments might entail. Chinese investments under the BRI in Sri Lanka, Pakistan and Maldives are pertinent examples. The high strategic cost for recipients makes it imperative for other connectivity initiatives to avoid similar consequences of national wariness or even mistrust.
The Indo-Pacific, while an increasingly popular geopolitical concept, lacks a cohesive economic architecture. Notwithstanding multiple regional associations (e.g. APEC, ASEAN, SAARC, BIMSTEC, IORA, SCO) and trade agreements (e.g. CPTPP, ASEAN FTA, SAFTA), there are no ‘Indo-Pacific’ economic institutions or frameworks as such. This is in contrast to APEC or ASEAN, which have acquired regional identities from economic programmes. It is easier for these organisations to upgrade regional economic agendas to security partnerships by incorporating common concerns flowing out of economic engagement, such as anti-corruption, counter-terrorism, data privacy, money-laundering, and transparency.
The BRI also lacks a pan-regional economic architecture in the form of, for example, trade agreements or organisations. The absence of this architecture inevitably drives attention to its geostrategic character. The impression of the BRI being a project for expanding China’s core interests is amplified by a lack of adequate consultations with regional organisations, and by the lack of any reference to non-China regional forums (e.g. South Asian Association for Regional Cooperation (SAARC) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)) in the BRI’s vision statement.2
In this regard, the BRI can learn from the contrasting experience of the Asian Infrastructure Investment Bank (AIIB). Many note the BRI and AIIB as mutually reinforcing, complementary, and part of a larger strategic approach for establishing a China-led regional order. Notwithstanding China being its largest capital contributor, the AIIB, as opposed to the BRI, is shaping as an effective, multi-country development finance institution. The greatest testimony to its plurilateral character and rules-based functioning is the fact that India – one of the strongest critics of the BRI – is the largest borrower from the AIIB.3
The economic rationale of humongous corridors like the BRI must be founded on a clear understanding of the institutional and regulatory characteristics of the regions and countries that they connect. Wider country participations need greater discussions with national and regional associations. Existing economic agreements can be templates for developing an economic architecture in new connectivity initiatives, which include economic frameworks for key business spheres like customs procedures, investment regulations, and environmental standards.
At a time when China’s internal debt is rising,4 the ability of Chinese SOEs to mobilise finances for long-term overseas investments is not assured. This might stall ongoing projects in recipient countries. Mega-connectivity projects can avoid such outcomes by enabling multiple institutions and investors to pick up the stakes in upcoming projects. Diversifying risks across countries and institutions is essential for greater credibility of these initiatives. Future initiatives for connectivity in the Indo-Pacific must note this necessity.
1 Eria.org. (2018). Available at: http://www.eria.org/Asia-Africa-Growth-Corridor-Document.pdf
2 Palit, A. (2017). India’s Economic and Strategic Perceptions of China’s Maritime Silk Road Initiative. Taylor & Francis Online. Available at: https://www.tandfonline.com/doi/abs/10.1080/14650045.2016.1274305
3 The Economic Times. (2018). India a top borrower from China-sponsored AIIB in 2017. Available at: https://economictimes.indiatimes.com/news/economy/finance/india-a-top-borrower-from-china-sponsored-aiib-in-2017/articleshow/62461954.cms
4 Bloomberg. (2018). China’s Debt Surge May Increase Risk of Financial Crisis. Available at: https://www.bloomberg.com/news/articles/2017-11-21/china-s-debt-surge-may-increase-risk-of-financial-crisis
*Amitendu Palit is a Senior Research Fellow and Research Lead (Trade and Economic Policy) at the Institute of South Asian Studies in the National University of Singapore. A longer version of this article was published on 28 February 2018 as a Griffith Asia Insight paper by the Griffith Asia Institute of the Griffith University, Brisbane, Australia. The opinions expressed in this article are the author’s own and not the institutional views of LKI, and do not necessarily reflect the position of any other institution or individual with which the author is affiliated.
Dr. Palit can be reached at email@example.com and firstname.lastname@example.org.