Could Belt and Road Initiative Create Financial Mess for China?

Prerna Gandhi, Research Associate, VIF

Since the 2000’s, predicting the timeline on collapse of Chinese economy has been a prominent theme among economists. However, the Chinese economy has proved all naysayers wrong by being resilient, and now joining the ten trillion dollars Gross Domestic Product (GDP) club. Ironically, the delay in the prophesied bubble burst can be credited to the rise of private sector in the socialist country that ensured better resource allocation. Yet, China’s modern economic journey is paved with many troubles.

From its vulnerabilities to US Federal Reserve rate hikes to expanding local government debts, China’s financial liabilities get even more complicated with the growing reach of its shadow banking sector that is beyond watch of its regulatory authorities. In such a scenario to undertake mammoth expenses of Belt and Road Initiative (BRI), a China-style Marshall Plan may be non-pragmatic. Funding of BRI is essentially China-led with about $500 billion¹ worth of BRI projects (both domestic and international) up to 2016 and expected to reach $4-8 trillion in entirety. Unlike the US’ Marshall Plan that covered largely one geopolitical entity, China’s BRI encompasses more than seven geopolitical regions of Asia, Africa, Eurasia and Oceania.

BRI is conceived on the premise of utilizing China’s excess capacities, while at the same time securing China’s energy and resource needs and markets for the future. Years of rapid economic growth with a devalued currency has led to large industrial over capacity and huge surplus savings, coupled with inefficient capital allocation and lagging regulatory oversight. Even though China’s external debt stands at about 13 per cent of GDP, China already has an estimated 270 per cent debt-to-GDP ratio (2016 stats). The liabilities of State-owned enterprises are estimated at about 115 per cent of GDP, which could undermine the country’s fiscal sustainability, especially in the wake of a rising fiscal deficit². Also over the last decade, China has simultaneously been plagued by ‘hot money’ (short-term speculative investments) and large domestic capital flight with an estimated $3.8 trillion in capital loss³. To cool the rapidly heating economy, China aims to transition from investment-driven to a productivity and consumption driven economy. It understands that to avoid middle-income trap, China needs to move to higher technology and upstream sectors as other developing countries catch up reducing China’s competitive advantages in cost. Today, services (50.2 per cent) comprise a larger share of China’s GDP than industry (40.2 per cent)⁴.

Thus, being capital, labor and technology intensive industry, infrastructure development in China and other countries offers the perfect platform for resolving China’s current pressing challenges. However, China’s growth has come at such a rapid pace that in less than three decades of rapid growth in the modern era it has come to reclaim its place as the world’s second largest economy, like two centuries earlier when it was the world’s largest economy. China created 139 per cent of GDP in new credit between the first quarter of 2009 and the third quarter of 2014. This is concerning when one looks at similar rapid credit expansion in the US and Japan that were followed by financial crises. US created 58 per cent of GDP from 2002-07 and faced the subprime mortgage crisis soon thereafter. Japan created credit equivalent to the entire size of its economy from 1985-90 and subsequently experienced more than 20 years of deflation - prolonged by lack of much needed structural reforms and declining demography⁵. In September 2016, a report from the Bank for International Settlements (BIS) had stated that China was within three years of a serious financial crisis⁶. Thus, rapid economic growth in China serves both to advance and postpone the inevitable financial burst as credit expansion creates security for large bailouts while deteriorating investment quality at the same time.

BRI’s priorities listed on the Belt & Road Portal mention Policy Coordination, Facilities Connectivity, Unimpeded Trade, Financial Integration and People-to-People bond. In May 2017, a United Nations Economic and Social Commission for Asia and the Pacific Study (UNESCAP) warned of financial risks in countries in south and central Asia where China's announced investment value under BRI is high compared to the relative size of the economy of the recipient country. The report states that “… at a broad level, relatively easy access to large foreign loans for infrastructure projects, even if most of them tend to be on a concessional basis, could undermine macroeconomic stability in small economies with underdeveloped financial markets and less effective debt management ability⁷”. The $15 billion China-Uzbekistan investment deal signed in late 2013 is roughly equivalent to a quarter of Uzbekistan's GDP. Similarly, the $37 billion China-Kazakhstan cooperation agreement signed in late 2014 and early 2015 and the $46 billion China-Pakistan agreement in April 2015 each represent over a fifth of GDP level in Kazakhstan and Pakistan, according to the UN study. China's commitment to Pakistan has now reached $ 62 billion. Similarly, the $24 billion China-Bangladesh agreement in October 2016 is equivalent to almost 20 percent of Bangladesh's GDP⁸. China may be primarily interested in redirecting its excess capital, but if they do not generate the expected revenues, the BRI loans will leave bad assets that will clog the already overburdened Chinese financial system.

Infrastructure needs ‘network effects’ to generate revenue through interlinking mechanisms with existing infrastructure that will allow more people to able to utilize it. This precipitates a need for policy coordination. However, in BRI’s case China may be relying too much on incentive caused bias while disregarding actual geopolitics. Incentives influence the way people act, based on how they’re rewarded. Incentive-Caused Bias is used to explain why people with a vested interest in something will tend to guide the outcome in the direction of their interest. With increasing pressure on governments to ramp up growth rates or build massive (public) infrastructure, China expects that the states owing to monetary incentives or cheap loans will naturally coordinate their policies with that of China. At the individual and institutional level an outright reward may directly be able to influence behavior, but at a country level it may not work out smoothly as a multitude of factors are in play. Planning Fallacy is inherent in all human planning as all initial planning will almost certainly be incomplete or inaccurate in a few important respects. Thus, there are possibilities for China suffering from a confirmation bias or the general tendency for people to pay attention to information that support their conclusion and ignore information that doesn’t.

In conclusion, Chinese leadership is more than aware of the above mentioned lurking dangers. In recent time, China has received warning from nearly all major international financial institutions. It has also faced a ratings downgrade from Standard & Poor and Moody’s Investor Service. In April earlier this year President Xi Jinping had chaired a gathering to discuss “safeguarding national financial-market security”, a day after the worst losses this year in Shanghai-traded shares. While the central bank governor and the various regulators were also there, the fact the Communist Party’s premier decision-making body, the Politburo, met and decided to act on financial risk suggests there’s acceptance of the risks at the very top⁹. On 18 August 2017, China’s State Council also published a set of investment guidelines to clamp down on the “irrational” or “non-genuine” investments in BRI. Since the BRI was proposed in 2013, an until June this year, Sinosure, a state owned insurance enterprise has paid a total compensation of $1.73 billion to enterprises and banks¹⁰. This may be an understated figure considering many flagship BRI projects have failed to materialize the expected revenue. The dramatic Venezuelan economic collapse despite being a rich country, and not coincidentally, a strong beneficiary of Chinese finances, bears strong parallels to the future for Pakistan and China Pakistan Economic Corridor¹¹. Thus, whether the Chinese regulators will be able to reign in financial hazards of the Belt and Road Initiative is over for the jury to decide.

Endnotes

1. Pricewater Coopers: China and Belt & Road Infrastructure, 2016 review and outlook, February 2017, https://www.pwchk.com/en/consulting/br-watch-infrastructure.pdf

2. Economic and Social Survey of Asia and the Pacific 2017: Governance and Fiscal Management, Chapter 2. Perspectives from Sub-regions, http://www.unescap.org/sites/default/files/Chapter2-Survey2017.pdf

3. Forbes: Why China Lost About $3.8 Trillion To Capital Flight In The Last Decade, February 22, 2017, https://www.forbes.com/sites/insideasia/2017/02/22/china-capital-flight-...

4. National Bureau of Statistics of China: Composition of GDP, http://www.stats.gov.cn/tjsj/ndsj/2016/html/0302EN.jpg

5. South China Morning Post: China’s credit excess is unlike anything the world has ever seen, April 21, 2017, http://www.scmp.com/business/global-economy/article/2089577/can-worlds-l...

6. Reuters: BIS warns China banks risk crisis within three years, September 19, 2016, https://www.reuters.com/article/us-china-banking/bis-warns-china-banks-r...

7. Economic and Social Survey of Asia and the Pacific 2017, Governance and Fiscal Management, Pg. 68 http://www.unescap.org/sites/default/files/publications/Survey%202017-Fi...

8. Economic Times: UN warns about financial risks in China’s One Belt One Road project, May 25, 2017, https://economictimes.indiatimes.com/news/defence/un-warns-about-financi...

9. Bloomberg: How China Is Tackling Dangers in Its Financial System, October 10, 2017 https://www.bloomberg.com/news/articles/2017-10-09/how-china-is-getting-...

10. China's insurance industry invests RMB700 bln for B&R construction, August 21, 2017, https://eng.yidaiyilu.gov.cn/home/rolling/24203.htm

11. Bloomberg: Is Pakistan China's Venezuela?, November 27, 2017, https://www.bloomberg.com/gadfly/articles/2017-11-27/is-pakistan-china-s...

(Views expressed are of the author and do not necessarily reflect the views of the VIF)

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Image Source: https://i.ytimg.com/vi/GrpAZ5qHSlU/maxresdefault.jpg

"China's Internal Dynamics, Cyber Security and Relations with India"

The Vivekananda International Foundation (VIF) organized a seminar titled "China's Internal Dynamics, Relations with India & Cyber Security", along with the Prospect Foundation from Taiwan on 01 November 2017. Dr. Arvind Gupta, Director VIF, and Dr. Tan-Sun Chen, Chairman, Prospect Foundation, delivered the opening remarks. Dr. I-Chung Lai, Dr. Yi-Bin Lu, and Mr. Fan Peng participated from the Prospect Foundations whereas Mr. Jayadeva Ranade, Amb. TCA Rangachari, Dr. Sujit Dutta and Lt Gen Davinder Kumar represented the Indian side. The Taiwanese Representative in India, Chung- Kwang Tien, Mr. Jason Huang, Mr. Chihlung Sheng, and Mr. Oliver Harn also participated. Many senior members of the strategic community, scholars from think tanks and universities attended the seminar.

The discussion was divided into three sessions: One, ‘Evaluation of 19th Party Congress; two, ‘China’s Rising Cyber Power’; and three, ‘A Case for India-Taiwan Strategic Cooperation’. Opinions expressed by the Taiwanese delegation in each Session are enumerated in the succeeding paragraphs.

Session 1 : The Chinese Communist Party (CCP) General Secretary Xi Jinping, who holds fourteen formal positions (more than any other CCP leader so far) has emerged stronger from the 19th Party Congress. The biggest takeaway from the 19th Party Congress was that there are no apparent successors, leading to strong speculation that Xi could seek a third term after concentrating his power. The Party Congress emphasised that the People’s Liberation Army should focus on realising ‘Chinese Dream’ for which it should develop “a new military strategy under the new situation”. China will complete the modernisation of its armed forces by 2035 and achieve a world-class military by 2050 that can fight and win wars across all theatres.

Session 2: China has leveraged cyber-enable theft of intellectual property to create its critical mass. Its ‘Internet Plus’ strategy will further help in building its cyber space capacity. However, China is unlikely to be a dominant cyber power as it has inward looking focus. Democratic countries are more deliberate and hence they can build better cyber power in the long run.

Session 3: India and Taiwan have democratic governments and can identify cyber security as a strategic enabler of their unofficial relations. Both have the potential to pool together critical mass capability for strategic cooperation in cyber security.

Event Date: 

November 1, 2017

शी को मिला दूसरा कार्यकाल, हुए पहले से ज्यादा ताकतवर, उत्तराधिकारी स्पष्ट नहीं

Arvind Gupta, Director - VIF

चीनी कम्युनिस्ट पार्टी (सीसीपी) का 19वां पार्टी अधिवेशन (कांग्रेस) 24 अक्टूबर, 2017 को समाप्त हुआ और शी चिनिफिंग को लगातार दूसरी बार पांच वर्ष के लिए पार्टी तथा देश का नेता चुना गया। पार्टी के विचारों में योगदान के लिए शी का नाम पार्टी के संविधान में भी लिखा गया। इसके साथ ही उनका कद माओ और तेंग के बराबर हो गया। 19वें पार्टी कांग्रेस में शी शायद माओ के बाद सबसे ताकतवर पार्टी नेता बन गए। पार्टी कांग्रेस आरंभ होने से पहले ही अधिकतर विश्लेषकों को यह बात पता थी कि शी को नेतृत्व के मामले में बड़ी चुनौती का सामना नहीं करना पड़ेगा हालांकि ऐसी अटकलें थीं कि पिछले पांच वर्ष में भ्रष्टाचार के विरुद्ध चलाए गए निर्मम अभियान का खमियाजा उन्हें भुगतना पड़ सकता है। लेकिन ऐसा नहीं हुआ।

पोलितब्यूरो की स्थायी समिति में बहुत बदलाव किए गए हैं। यह चीन पर नजर रखने वाले कई विश्लेषकों की अपेक्षाओं के एकदम उलट है क्योंकि उन्हें लगता था कि 7 सदस्यों वाली स्थायी समिति में एक या दो नए चेहरे आएंगे और केवल एक या दो सीटों पर ही मुकाबला होगा। लेकिन एकदम अलग तस्वीर उभरी। स्वयं शी और प्रधानमंत्री ली कच्यांग के अलावा सभी सदस्यों को हटा दिया गया है और उनके स्थान पर पांच नए सदस्य आ गए हैं। वे हैं: शांघाई के पार्टी नेता हान झेंग, पार्टी के केंद्रीय नीति अनुसंधान कार्यालय के निदेशक वांग हनिंग, शी के चीफ ऑफ स्टाफ और पार्टी मुख्यालय के निदेशक ली झांशू, उप प्रधानमंत्री वांग यांग और पार्टी के कार्मिक विभाग की जिम्मेदारी देखने वाले केंद्रीय संगठन विभाग के प्रमुख झाओ लेजी।

शीर्ष संगठनों में पूरी तरह फेरबदल कर दिया गया है। स्थायी समिति के अलावा पोलितब्यूरो के 25 में से 15 सदस्यों को बदल दिया गया है। 200 से अधिक सदस्यों वाली केंद्रीय समिति के अधिकतर सदस्यों को भी बदल दिया गया है। इस तरह शी के पास चीन को नई ऊर्जा देने, उसे वैश्विक अगुआ बनाने और चीन को 2050 तक संपन्न समाजवादी समाज बनाने के लिए काफी नई टीम आ गई है। ली झांशू (जन्म 1950) ने पार्टी के कई पदों पर काम किया है, जिनमें मुख्यालय निदेशक और राष्ट्रीय सुरक्षा कार्यालय के निदेशक के पद शामिल हैं। 2012 से ही वह केंद्रीय समिति के पूर्ण सदस्य हैं। वह पोलितब्यूरो में नहीं थे। 2017 में वह सीधे पोलितब्यूरो की स्थायी समिति में पहुंच गए हैं। उन्हें शी के करीब माना जाता है। झाओ लेजी (जन्म 1957) 2002 से केंद्रीय समिति के और 2012 से पोलितब्यूरो के सदस्य रहे हैं। वह पार्टी बिल्डिंग वर्क के लिए केंद्रीय शीर्ष समूह और इंस्पेक्शन वर्क के लिए केंद्रीय शीर्ष समूह के उप प्रमुख रहे हैं। हान झेंग शांघाई पार्टी समिति के सचिव हैं, 2012 से पोलितब्यूरो के सदस्रू हैं, 2002 से केंद्रीय समिति के पूर्ण सदस्य हैं और पूर्व चीनी नेता च्यांग झेमिन के करीबी माने जाते हैं। क्या वह च्यांग झेमिन गुट से हैं और शी को चुनौती दे सकते हैं? इस बारे में अटकलें शुरू हो जाएंगी। वांग यांग (जन्म 1955) 2013 से ही स्टेट काउंसिल के उपाध्यक्ष हैं। वह 2007 से पोलितब्यूरो के सदस्य और सीसीसी केंद्रीय समिति के पूर्ण सदस्य हैं। वांग हनिंग (जन्म 1955) 2002 से केंद्रीय समिति के केंद्रीय नीति अनुसंधान केंद्र के निदेशक हैं, 2013 से कॉम्प्रिहेंसिव डीपिंग ऑफ रिफॉर्म्स के केंद्रीय शीर्ष समूह के निदेशक हैं और 2002 से केंद्रीय समिति के पूर्ण सदस्य हैं।

एक को छोड़ दें तो सभी को पार्टी संगठनों में लंबा अनुभव है और वे सभी पिछले पांच वर्षों से शी के साथ काम करते रहे हैं। शांघाई के पार्टी सचिव हान झेंग एकमात्र अपवाद हैं। कई लोग कहेंगे कि जिन्हें शी का चहेता कहा जाता था, उन्हें छोड़ दिया गया है और पोलितब्यूरो स्थायी समिति के सदस्यों को देखकर लगता है कि विभिन्न गुटों में आपसी समझौता हुआ है। चीन में पार्टी व्यवस्था पूरी तरह अपारदर्शी है। निश्चित रूप से कुछ भी कह पाना बहुत कठिन है। लेकिन शी का अभूतपूर्व वर्चस्व ही 19वें पार्टी कांग्रेस की मुख्य बात रही है। विश्लेषकों के ध्यान में यह बात भी आई है कि 2022 में शी का कार्यकाल समाप्त होने पर उनका उत्तराधिकारी कौन होगा, यह स्पष्ट नहीं हुआ है। इसका यह मतलब भी हो सकता है कि शी ने दो कार्यकाल की अभी तक की परंपरा से इतर तीसरा कार्यकाल भी हासिल करने की संभावना जीवित रखी है। किंतु यह भविष्य की बात है।

भारत के लिए काम की बात यह है कि शी पहले से अधिक ताकतवर हो गए हैं। वह कट्टर कम्युनिस्ट भी हैं। वह पार्टी के प्रभुत्व और चीनी मिजाज वाले समाजवाद में यकीन रखते हैं। उन्होंने 2050 तक चीन को नई ऊर्जा देने का खाका तैयार कर लिया है, जिसकी हिम्मत पाश्चात्य शैली के लोकतंत्रों में बहुत कम नेता कर पाते हैं। वैश्विक संबंधों पर शी का प्रभाव स्पष्ट है। अपने दूसरे कार्यकाल के दौरान वह चीन को विश्व शक्ति के तौर पर और भी मजबूत बनाने के लिए प्रतिबद्ध रहेंगे और दुनिया की चाल तय करेंगे। वह पहले ही कई काम कर चुके हैं, जैसे चीन का वैश्विक प्रभाव बढ़ाने के लिए बेल्ट एंड रोड योजना शुरू करना। आगे जाकर चीनी युआन दुनिया भर में वैश्विक मुद्रा के तौर पर डॉलर के दबदबे को चुनौती देगा। शी ऐलान कर ही चुके हैं कि चीन बड़ी तकनीकी ताकत बनेगा क्योंकि इस दिशा में वह पश्चिम से काफी पिछड़ा हुआ है। संभावना है कि वह पीपुल्स लिबरेशन आर्मी को भी मजबूत बनाते रहेंगे। शी संप्रभुता से जुड़े मसलों पर समझौता नहीं करेंगे। दोनों देशों के बीच सीमा विवाद के कारण भारत को यह बात ध्यान में रखनी होगी।

कुल मिलाकर भारत को शी के नेतृत्व में अधिक मजबूत और प्रतिबद्ध चीन का सामना करना होगा।
(ये लेखक के निजी विचार हैं और आवश्यक नहीं कि वीआईएफ के भी ऐसे ही विचार हों)

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Translated by: Shiwanand Dwivedi (Original Article in English)
Image Source: http://www.straitstimes.com/asia/east-asia/xi-looks-to-cement-authority

Commentary - Modi's Manila Visit

Amb Satish Chandra, Dean, Centre for National Security and Strategic Studies, VIF

As is the norm with the Prime Minister's visits abroad he did India proud during his recent three day visit to Manila.

In an action packed agenda which inter alia comprised participation in the opening ceremony of the ASEAN Summit, the 12th ASEAN-India summit, the ASEAN business and investment summit and the 12th East Asia Summit, a host of bilateral’s and pull-aside meetings with most of the participating leaders, the Prime Minister successfully presented India as a serious, dynamic, and committed partner for ASEAN which while non-threatening was at the same time firmly wedded to the promotion of a rule based security architecture for the region.

From the Prime Minister's comments and remarks the following may be regarded as the major parameters of India's involvement with ASEAN:-

● ASEAN is central to the Indo-Pacific regional security architecture and India's Act East policy is shaped around it.
● India assures ASEAN of support towards achieving a rule based regional security architecture that best attests to the region’s interests and its peaceful development.
● India ASEAN cooperation is progressing well on a wide ranging agenda encompassing three crucial pillars of politico-security, economic and cultural partnership.
● India and ASEAN must jointly address the menace of terrorism and extremism.
● India ASEAN connectivity which has existed since time immemorial must be further enhanced. Towards this end, India is organising an ASEAN-India Connectivity Summit in New Delhi in December with ministers, officials and business representatives from all ASEAN countries participating.
● To coincide with the India ASEAN Commemorative Summit of ASEAN leaders being hosted by India in January 2018, India will also organise the ASEAN-India Business and Investment Meet and Expo as India wishes to participate in ASEAN's growth story and wants ASEAN to participate in ours.
The four MOU's concluded during the India Philippine bilateral’s reflect in some measure the all embracing nature of cooperation that India enjoys with ASEAN. One was on defence cooperation and logistics, inclusive of humanitarian assistance and disaster risk reduction, the second was on agriculture, the third was in micro, small and medium enterprises and the last on cooperation between the Indian Council for World Affairs and the Philippines Foreign Services Institute.

A major development, just on the eve of Modi's Manila visit, was a meeting at joint secretary level between USA, Japan, Australia and India. Such a quadrilateral dialogue had originally been mooted by Prime Minister Abe of Japan about a decade ago. The motivation was to uphold the principles of a rule based regional order and to promote free trade along with freedom of navigation in the region. Indeed, in 2007 the Malabar Exercises held by India with the US were a step in this direction by involving also the Japanese and Australian navies. However, in deference to strong Chinese demarches Australia opted out of these exercises and India restricted the same only to the US till 2015 from when it began to also invite Japan on a regular basis.

The recent initiation of the Quad talks comes once again upon Japan's call for a dialogue amongst these democracies for substantive cooperation in defence, maritime security and infrastructure development. The convening of these talks signals a waning of the earlier diffidence in this regard by Australia and India and an intensified anxiety on their part at the increasing stridency exemplifying Chinese foreign policy.

There can be little doubt that the Quad will be welcomed in the region which has for long felt threatened by a hegemonic China and sought involvement of a regional player which while non-threatening could be counterweight. India on its own cannot today be a viable balancer to China as it is dwarfed both militarily and economically by the latter. Moreover, its economic involvement in ASEAN with bilateral trade at $70 billion is less than 15 percent of Chinese trade with it. All this makes it important for India to link up with like minded democratic countries, as in the Quad, to work for the peace, prosperity and stability of the region and address the challenges posed by China.

The nature of the quad deliberations was well summed up in the following terms by the Australian Foreign Ministry which indicated that they were undertaken to " discuss a shared vision for increased prosperity and security in the Indo-Pacific region and to work together to ensure it remains free and open.

The officials examined ways to achieve common goals and address shared challenges in the region. This includes upholding the rules-based order in the Indo-Pacific and respect for international law, freedom of navigation and overflight; increase connectivity; coordinate on efforts to address the challenges of countering terrorism and upholding maritime security in the Indo-Pacific. Officials also agreed to work together to address threats to international peace and security posed by the proliferation of weapons of mass destruction, including the DPRK’s nuclear and missile programs. The participants committed to continuing quadrilateral discussions and deepening cooperation on the basis of shared values and principles".

It is to be hoped that the Quad not only survives but also flourishes which would inter alia involve its being held regularly at a much higher level as it has the potential of being ideally suited to devising appropriate instrumentalities and methodologies to address both the security related and belt and road challenges posed by a rampaging China. With regard to the latter it would need to devise more attractive alternatives which are locally driven and not externally dictated, enjoy complete transparency and are not opaque, provide a greater fillip to the domestic economy and not that of an external player, and are financed on the most liberal terms and not with onerous conditions.

While India must completely shed its earlier inhibitions on the Quad and be an active partner in its endeavours in the Indo- Pacific, it should additionally reach out on its own to all the countries in the region on developing the blue economy. India's greatest attraction as a development partner is that it is a totally non-threatening player unlike many others and particularly China. Addressing the blue economy in the region is most appropriate as the oceans are integral to region in which nearly all countries have long coastlines or are island nations. Our cooperation programmes should be carefully crafted and should be bottom up exercises geared to meet the local needs. They should not be exploitative but should be designed to transfer technology and the assistance provided should be on liberal terms. In the process India would become an expert on blue economy projects which would have enormous spin off benefits.

The future of Quad will depend upon the level of ambition of the foursome. One also needs to contend with the inevitable pushback from China. Furthermore, it is difficult to be sanguine about the US whose policies are in a flux. Each of the four countries also have a separate track with China. US and China are intertwined with each other economically and are prone to work out separate deals. If Quad is to be taken seriously, the four countries should take steps to formalise the group, set up a charter, devise a programme and roadmap of action and then decide whether or not to take new members. it will also be useful to open a dialogue with the ASEAN on Indo-Pacific security architecture.

(Author is a member of the VIF Advisory Council and a former Deputy National Security Advisor)

(Views expressed are of the author and do not necessarily reflect the views of the VIF)

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Analysis of China’s 19th Party Congress

Jayadeva Ranade

Already holding over fourteen formal positions -- more than any other Chinese communist Party (CCP) leader so far – CCP CC General Secretary Xi Jinping has, as anticipated, emerged considerably stronger from this Congress. By skilful use of the sustained anti-corruption campaign he has eliminated opposition in the Party and military and drastically reduced the influence wielded by his predecessor once removed, Jiang Zemin. In September 2017, China’s official media publicised that more than 176 CCP cadres equivalent to the rank of central Vice Minister and above had been dismissed and arrested for corruption and that more than 14,000 officers of the People’s Liberation Army (PLA) had been similarly dismissed. At least 120 officers of the PLA of and above the rank of Major General have been dismissed and retired.

Just weeks before the Congress, Xi Jinping publicly demonstrated his authority by arresting two top Generals (Fang Fengui and Zhang Yang), appointing 20 General Officers to command thirteen new Group Armies and promoting close associates to head the PLA Army (ground forces) and PLA Air Force. In a rare move, the names of thirteen delegates selected by Chongqing Municipality were deleted reducing the total number of delegates to 2287. A couple of days before commencement of the Congress another seven were ‘disqualified’. Politburo (PB) member and Chongqing Party Secretary Sun Zhengcai, viewed a likely candidate for the Politburo Standing Committee (PBSC), was also suddenly dismissed on charges of graft. He had been admonished in February for not doing enough to eliminate the influence of imprisoned former PB member Bo Xilai.

Xi Jinping had also been projecting himself since November 2012. The People’s Daily, for example, during Jiang Zemin’s tenure used to publish approximately 3,000 stories per year mentioning him and during Hu Jintao’s term it published 2,000 each year mentioning Hu Jintao. In stark contrast, the People’s Daily already publishes 5,000 stories each year mentioning Xi Jinping.

A major highlight of the week long (October 18-24, 2017) 19^th Congress of the CCP, which was held in Beijing, was its recognition of Xi Jinping’s contribution to Chinese communist ideology. The Congress unanimously approved its incorporation into the Party Constitution as ‘Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era’. He is the first CCP leader to have his contribution, attached to his name, enshrined in the Party Constitution while still alive. This places it next in heft to those of Mao Zedong and Deng Xiaoping, especially with the Chinese media already having begun to headline it as “Xi Jinping Thought”!

Xi Jinping’s ambition to be included in the pantheon of Chinese communist revolutionary thinkers was glimpsed early in June 2014 when the Party theoretical fortnightly ‘Qiu Shi’ (Seeking Truth) described him as “one of China’s greatest communist leaders” who had put forward “new thinking, new views and new conclusions”. The public campaign to promote inclusion of Xi Jinping’s thinking in the Party Constitution seriously kicked off in June 2017. The social media account of the overseas edition of the CCP’s official mouthpiece ‘People’s Daily’ had then revealed that the Director of the CCP Central Committee (CC) General Office Li Zhanshu had announced in an internal speech in February that President Xi Jinping’s political philosophy was “basically complete.” This was followed by a series of speeches eulogising Xi Jinping’s political wisdom. In the weeks leading to the 19th Party Congress and between August 7 and September 18, 2017, Party Secretaries of thirty one provinces and autonomous regions wrote signed articles in the official CCP newspaper ‘People’s Daily’.

Approval by the 19th Party Congress to the appointment of many Xi Jinping loyalists, who now constitute the majority of the membership of the PBSC, the PB, CCP CC Secretariat and the Central Military Commission (CMC), underscores the unmistakable -- and anticipated -- enhancement of Xi Jinping’s authority and influence. Pertinent in this context are the revelations by China’s official media, in the weeks before the 19th Party Congress, of the successes achieved by the campaign against corruption, and on the side lines of the Congress on October 20, by Liu Shiyu, Chairman of the China Securities Regulatory Commission, who said “Xi Jinping had saved socialism by bringing down high-ranking officials who intended to “usurp the party leadership and seize state power” describing Xi Jinping as a “saviour of the Communist Party”. Liu Shiyu has since been promoted to the CCP CC!

Interesting are the affiliations of the new leaders appointed to the PBSC, whose number remains at seven. The composition of the new PBSC shows that while Xi Jinping has followed the Party's informal rules and convention regarding retirement age of senior echelon cadres, he has avoided inducting younger cadres who could be potential successors in the PBSC. The field for advancement to the next PBSC and as successors to Xi Jinping and Li Keqiang have, therefore, been left wide open for the younger cadres now in the PB. The field is open too for Xi Jinping to continue in office as, which some of his acolytes have been saying since 2013, China enters a new thirty year era like those of Mao Zedong and Deng Xiaoping earlier!

The new PB, like the previous one, has 25 members. Apart from the seven PBSC members, Xi Jinping has a clear majority among the remaining 17 PB members also. At least 12 of them are long-time Xi Jinping loyalists not including the two Vice Chairmen of the CMC who are very close and long time associates of Xi Jinping. Some of the PB members are poised to take over as heads of Central Party organisations. They all owe their rise to him.

Equally important is the CCP CC Secretariat, which has in the past five years under Xi Jinping become a powerful body. It reports directly to Xi Jinping. Xi Jinping has packed the important new 7-member CCP CC Secretariat with loyalists and Wang Huning is its senior-most member. The previous 18th CCP CC Secretariat was headed by Liu Yunshan who, like Wang Huning is now, was in charge of ideology, the propaganda apparatus and Party organisation. Three of the Secretariat’s members are persons with a background in security or the military namely, Yang Xiaodu, Guo Shengkun and Huang Kunming. The indication is that Party controls on these sectors will continue to become progressively tougher.

At least two members of the new CCP CC Secretariat have a background in Tibet affairs. In addition to Wang Huning, who has in the past been a member of Tibet Autonomous Region (TAR) delegations to the National People’s Congress (NPC), these are Yang Xiaodu, a ‘sent down youth in the Cultural Revolution’ and till recently Minister of Supervision who served in the TAR from 1976-2001, and Guo Shengkun who as the Minister of Public Security (MPS) attended meetings of the Leading Small Work Group on Tibet. Huang Kunming, another member of the Secretariat has served in the PLA. As anticipated, TAR Party Secretary Wu Yingjie has been promoted to the new 19th CC as a Full Member. In addition, this time there are two ethnic Tibetans, Qi Zhala (Choedak) and Luosang Jiangcun (Lobsang Gyaltsen), as Full Members of the CC - one more than in the previous CC - and one, Norbu Dhondup, as an Alternate Member of the CC. Sun Chunlan who heads the CCP CC United Front Work Department (UFWD) and handles Tibet affairs, continues as the solitary woman in the PB despite being 67 years of age which actually puts her in the retirement zone. Interestingly Zhang Qingli, who was born in 1951 and earned a reputation as a hard-line TAR Party Secretary for his derogatory comments about the Dalai Lama, continues as a Full Member of the 19th CC. Zhang Yijiong, present Executive Deputy Head of the UFWD and Vice Minister who on the side lines of the 19th Party Congress outlined China’s new strong policy towards the Dalai Lama, has been promoted from Alternate Member of the 18th CC to Full Member of the 19th CC. All of them will have a strong voice in formulation of Tibet policy.

The new CMC consists of military officials who are all solid supporters of Xi Jinping. The composition and size of the new CMC has also changed. For the present, it comprises only four members and does not include the heads of the different services like the PLA Air Force (PLAAF), PLA Navy (PLAN) etc. The two CMC Vice Chairmen, former PLAAF Commander Xu Qiliang and PLA General Zhang Youxia, are both ‘princelings’ with long-time association with Xi Jinping. The new CMC Vice Chairman, Zhang Youxia’s father Zhang Zongxun fought alongside Xi Jinping’s father and they were called ‘partners in blood’. Zhang Youxia has fought in the Sino-Vietnam war in 1979. The presence of Xu Qiliang, Zhang Youxia and PLA Rocket Force Commander Wei Fenghe in the CMC point to an emphasis on the development and acquisition of modern, advanced defence technology. The induction of General Li Zuocheng, head of the Joint Staff Department under the CMC, and Lt. General Zhang Shengmin, Secretary of the PLA Discipline Inspection Commission, indicate that Xi Jinping will maintain the stress on a ‘clean’ and corruption free armed forces. Zhang Shengmin, incidentally, previously served in the 52th, 55th and 56th Bases of the Second Artillery in the Lanzhou Military Region and was Political Commissar of the Second Artillery Command College between 2012 and 2013. General Miao Hua as head of the Political Work department under the CMC will further Xi Jinping’s agenda of expanding Party control and supervision over China’s armed forces ensuring that the personnel are ‘red and expert’.

The new appointments in the CCP’s top bodies will allow Xi Jinping to pursue his ambitious agenda with few constraints. He will be free of any restraints in pursuing realisation of the “Two Hundreds” namely, the ‘China Dream’ (by 2021 which marks the CCP’s centenary) and making China an advanced developed nation (by 2049, or the hundredth year of the founding of the People’s Republic of China (PRC)). It additionally leaves open the possibility of him extending his term.

There were some important additional highlights of the 19^th Party Congress. The Party, China and Army were mentioned often in Xi Jinping’s Work Report along with a specific reference to the Belt and Road Initiative (BRI). Less mentioned were the economy, reform and development. Xi Jinping for the first time made a direct linkage between the completion of China’s second and final stage of development in 2035 and the PLA becoming a world class fighting force. There was emphasis on the PLA with the term ‘Army’ mentioned more than double the number of times than in the Work Reports presented at the 17^th and 18^th Congresses. It was mentioned 86 times in Xi Jinping’s Work Report to the 19th Party Congress and 49 and 54 times in the Work Reports presented at the 18^th and 17^th Party Congresses respectively. Xi Jinping announced that the Army’s focus will be on realisation of the ‘Chinese Dream’ for which it must develop “a new military strategy under the new situation” while national defense and military modernization will be promoted. Clarifying that by 2020, mechanization will basically be achieved and that the modernization of national defense and armed forces should be mostly completed by 2035, Xi Jinping said that “it (Army) has come a long way and strategic capabilities have seen a big improvement.” He underscored technology as the PLA’s “core combat capability”. Xi Jinping asserted that the goal is to make the PLA a “world class force” that “can fight and win” by 2050. This timeline coincides with realisation of the BRI and China becoming a nation with “pioneering global influence”. Xi Jinping also pointedly described the PLA as a “people’s army”.

The references to Hongkong, Macau and Taiwan were uncompromising with a strong suggestion of limits imposed on these. With regard to Taiwan, Xi Jinping said “we have the resolve, the confidence and the ability to defeat separatist attempts for Taiwan independence in any form. We will never allow anyone, any organisation or any political party, at any time or in any form, to separate any part of Chinese territory from China”. He asserted that the CCP “stands firm in safeguarding China’s sovereignty and territorial integrity, and will never allow the historical tragedy of national division to repeat itself”.

There was pronounced emphasis in the Work Report on “the Party exercising leadership over all areas of endeavour in every part of the country”, clearly indicating that Party controls will be expanded and ideology will remain predominant. Xi Jinping emphasised that “sweeping efforts” had been made to “strengthen party leadership and party building” while dismissing any notion of copying “western style democracy”. There were 331 references to the ‘Party’ in this Work Report, many more than in the Work Reports at the past eight Congresses.

Finally, Xi Jinping has lost no time in further consolidating his position and concentrating more power in his person. The first meeting of the new PB on October 27, in its notification, formally recognised Xi Jinping as the ruling Communist Party’s lingxiu – a reverential term for “leader” instead of the usual lingdao or lingji. It also stated that henceforth all PB members will not only inspect all organisations and cadres under them and submit annual reports to the concerned central Party organisations and the PB, but also to Party General Secretary Xi Jinping. He has already announced that the anti-corruption campaign will continue to be pursued with vigour and appointed his long-time loyalist and PBSC member Zhao Leji as head of the Central Discipline and Inspection Committee (CDIC).

A clear indication of China’s confidence in founding a modern socialist country by 2050 has already been articulated by the state-owned Global Times on October 25, 2017. Stating that some Westerners find this level of confidence challenging, it said they should actually see this as an opportunity and “it is time for these people to open their hearts to China”. Emphasising that China will not only be a strong nation with a first-class army, but will focus on its continued pursuit of harmony, balancing an ecological environment, and democracy, it said, “This modernized country will serve its people, rather than seek revenge upon the world in efforts to establish global hegemony”. At the same time, it warned that “China will not tolerate disruptions of any kind during this new phase of socialist modernization” adding that “if for whatever reason the nation's peaceful development is thwarted by external influence, China will not hesitate to strike back with sharp strategic force, or if necessary, prepare for a full-scale showdown. Of course, a situation of this nature will lead to consumption, and have a negative impact on the realization the nation's goal for 2050”. It also said that when “China's peaceful ascension is realized, it will be a watershed moment for humanity, a form of development completely removed from the laws of the jungle. The determination to grow into a powerful and peaceful nation will remain intact”. Pertinent to recall in this context is the resolution adopted at the Conference on Peripheral Diplomacy in October 2013, that countries which oppose China will face periods of sustained opposition and pressure!

In conclusion, the 19^th Party Congress has sent out the following clear messages:-

(i) The Party will pervade and dominate all sectors in China, i.e. government, military, economy and society;
(ii) China is confident it will achieve the developmental goals set out for the first time by Xi Jinping, i.e. period 2020-2035 to make China a technologically advanced and moderately developed country in the top ranks of the world, and period 2035-2050 to make China a strong developed nation having “pioneering global influence”;
(iii) ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’ is an alternate to western-style democracy; and
(iv) incorporation of the BRI in the Party Constitution now elevates it to a national development goal with the warning against its obstruction issued on October 25 taking on added significance.

(The author is a former Additional Secretary in the Cabinet Secretariat and is presently the President of the Centre for China Analysis and Strategy)
(Views expressed are of the author and do not necessarily reflect the views of the VIF)

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Image Source: http://fortune.com/2017/05/15/china-xi-jinping-belt-road-summit-protecti...

Commentary - In Complete Control: Xi Jinping is China’s Undisputed Leader

Brig Gurmeet Kanwal, Visiting Fellow, VIF

As had been widely anticipated, President Xi Jinping consolidated his position as the undisputed “core” leader of China at the 19^th National Congress of the Communist Party of China held at Beijing in the third week of October 2017. Xi was also re-elected to all three posts that he has been holding for almost five years since the 18th National Congress: President of China, General Secretary of the Communist Party of China and the Chairman of the Central Military Commission (CMC).

In a move that placed him on the same pedestal as Mao Zedong and Deng Xiaoping, the National Congress unanimously passed an amendment to the party’s constitution to include “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” in the party’s constitution as one of its guiding principles.

Xi’s “Belt and Road Initiative”, an ambitious infrastructure development programme designed to link China with its regional neighbours and beyond was also included in the party constitution. Xi ensured that only his protégés and those personally loyal to him were elected to the seven-member Standing Committee of the Politburo, China’s most powerful governing council.

Report Card

Reading out his report card at the marathon opening session of the National Congress, Xi presented China as an indispensable force in countering global economic sluggishness. He said China had contributed significantly to dealing with international peacekeeping, regulating global economic governance, reshaping multilateral institutions, spurring global efforts to fight climate change, enhancing energy security and improving global health. He made no mention of the instability caused by Chinese military assertiveness in the East and South China Seas and by the blatant disregard of a rules-based international order.

The princeling son of a revolutionary leader, Xi is the first civilian chairman of the CMC and presides over a 2.3 million-strong PLA, the world's largest armed forces. The 19th National Congress was utilised by Xi Jinping, who is also the Commander-in-Chief, to demonstrate his complete control over the People’s Liberation Army (PLA). One of the key stratagems that facilitated his rise to the position of undisputed numero uno was his carefully choreographed plan to gain control over the PLA.

Xi realised this goal through military reforms, the promotion of loyalists and the removal of Generals who did not happily toe the line. He launched a ruthless drive against corruption and had a large number of officers of the rank of Major General arrested. It has been reported that by March 2017, approximately 5,000 officers had been punished for graft; many other senior officers were forcibly retired.

Military Reforms and Strategic Outreach

Large-scale military reforms were initiated by Xi Jinping to make the PLA a more modern force that can preserve China’s territorial integrity and project power in China’s area of strategic interest to extend China’s strategic outreach through increased military presence overseas, especially in the Indo-Pacific region.

Sweeping reforms of the military to enhance combat readiness and operational efficiency included the cutting of troop levels by 300,000 personnel. Reforms have led to the disbandment of the four ‘traditional’ General Departments (General Staff, Political, Logistics and Equipment) and the establishment of 15 new departments all of which have been placed directly under the CMC. Under these 15 departments will be 84 restructured corps-level ‘units’.

These units include the provincial military commands, military academies and universities that come directly under the Ministry of Defence. They also include the headquarters of the PLA Army, Navy, Air Force, Rocket Force (erstwhile Second Artillery) and the newly constituted Strategic Support Force. The seven existing Military Regions have been dismantled and five ‘outward looking’ joint theatre commands have been established. Five group armies (corps-level formations) have also been disbanded, leaving 13 still standing.

The PLA Navy is getting the maximum attention in the military modernisation drive energised by Xi Jinping. launched its first aircraft carrier in April 2017; in June it introduced Asia’s most advanced guided missile destroyer; it is developing cutting-edge propulsion technology; and, is building large amphibious assault vessels.

Demanding the PLA’s Loyalty

Officially, the PLA is the armed wing of the Communist Party and Xi Jinping has often reminded the PLA leadership of this fact. In April 2017, Xi Jinping demanded that all military units should be absolutely loyal to the Communist Party. In August 2017, Xi asserted, “You shall be unswervingly loyal to the absolute leadership that the party has over the army, heed the call of the party, follow the party.”

At the 19th National Congress, Xi again asked the PLA to be absolutely loyal to the ruling Communist Party. He set two goals for the PLA: to become a modern fighting force by 2035 and to then graduate to the world’s best military force by 2050; and, intensify its combat readiness by focusing on how to win wars. The message to India is clear: expect more transgressions of the Doklam variety.

With the support of the Party and the PLA, President Xi Jinping plans to continue his pursuit of the “Chinese Dream” – an inspirational slogan coined by him to reflect the people’s aspiration for a rejuvenation of the Chinese nation. However, the unfettered realisation of the Chinese Dream will be possible only in a peaceful and stable environment. In order to promote a regional security environment conducive to socio-economic development, China will have to tone down its military assertiveness and confrontational attitude and graduate to cooperation and respect for a rules-based international order.

(The writer is Distinguished Fellow, Institute for Defence Studies and Analyses (IDSA), New Delhi)

(Views expressed are of the author and do not necessarily reflect the views of the VIF.)

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Thoughts on India’s Central Asia Strategy

Amb Rajiv Sikri, 

Distinguished Fellow, VIF

It is indeed encouraging that in a few days Prime Minister Modi will be visiting all the Central Asian countries simultaneously, something that no Indian Prime Minister has done so far. However, India seems to be grappling with the same issues and dilemmas in relation to Central Asia that were present in the nineties, notwithstanding periodic efforts to kick-start the relationship. Why is this so? There are both objective constraints, as well as some missed opportunities.

If it is to have an enduring impact, Prime Minister Modi’s visit will have to go beyond promoting goodwill and the usual bilateral agreements and discussions. He must go with a clear strategic perspective of India’s relations with the Central Asian countries; without that, it won’t be possible to develop a viable Central Asia policy. India’s relations with the Central Asian Republics (CARs) must take into account developments in the wider Eurasian space that includes the five CARs, Afghanistan, Pakistan west of the Indus, Iran, Tibet, Xinjiang and Mongolia, and the Indian state of Jammu and Kashmir, including those regions currently occupied by Pakistan and China.

Throughout history, Eurasia has been a strategic not a mere geographic space. As a geographical area on to which the back doors, so to speak, of major Asian powers open, Eurasia has always attracted, and will continue to attract, the attention of outside powers. It is a ‘negative security space’, an area where major powers cannot afford to let competing major powers or forces exercise a dominating influence because that would pose a threat to their own security. The Cold War and the impermeable political borders of Eurasia during this period dulled strategic perceptions about this region, but that was a geo-strategic aberration.

For the last quarter century, Eurasia has been once again at the centre of global geopolitics. In the second half of the 19^th century and the early 20^th century, it was the setting for the ‘Great Game’ between imperial Britain and Tsarist Russia. A century later, the geostrategic imperatives remain unchanged, only the ‘game’ has become more complicated, with energy emerging as an additional factor in strategic calculations. Connectivity across Eurasia has dramatically improved. Roads, railway tracks as well as oil and gas pipelines and power transmission lines are criss-crossing the region. Of course, so are drug smugglers, terrorists and fundamentalists.

The CARs, both collectively and individually, are today much weaker than their geographically contiguous large neighbours like Russia and China. Between the two, Russia’s influence has declined while China’s has steadily increased in the CARs over the last quarter century. Since 9/11, the United States has also become an active player in the region. These three powers are the principal outside players. Other powers such as Europe, Japan, Turkey, Iran, Pakistan and India still play only marginal roles.

Russia is taking purposeful steps to regain its preponderant influence in the CARs. It has enmeshed most of them in regional security and military arrangements like the Collective Security Treaty Organization (CSTO) as well as through bilateral military agreements. A Russia-dominated Eurasian Economic Union including Kazakhstan and Kyrgyzstan has been set up; Tajikistan too may join it. Russia has many additional levers in Central Asia viz. a significant and influential Russian origin population; good networking; dependence of many CARs on remittances of migrants working in Russia; transit facilities for landlocked CARs; and considerable economic interdependence of CARs with Russia. While wanting to reduce the strong grip of Russia that held them for seven decades, the CARs realize that they can neither ignore nor do without Russia.

A rising China is systematically and relentlessly sucking the CARs into its economic whirlpool. Energy supplies for its fast-growing economy, a proximate market for its products, and a security buffer for Xinjiang – these are China’s main concerns vis-à-vis the CARs. Having taken over Xinjiang, it now seeks to dominate the CARs. This won’t be easy, since China faces many serious long-term challenges. Xinjiang, which has extensive ethnic, economic, social and other ties with the CARs could turn out to be China’s Achilles heel. Uighur nationalism remains strong. The fate of the Muslim Uighurs carries resonance among the Islamic ummah. Some Uighur elements appear to have developed linkages with the al-Qaeda, the Taliban and, more recently, the Islamic State too. Xinjiang’s security and stability could be compromised by turmoil or turbulence in the CARs. China realizes this – its latest Defence White Paper mentions the dangers from separatist forces fighting for “East Turkestan independence.” Moreover, despite benefiting from China’s economic growth the CARs remain wary of becoming economically too dependent on China, and worry about creeping Chinese demographic expansionism. Historically, China has been viewed by Central Asians as an expansionist and dominating power, and recent Chinese muscle flexing in Southeast Asia would have reinforced traditional suspicions about China’s attitude towards weak neighbours.

Capitalizing on the favourable climate after 9/11, the United States rushed to establish a number of bases in the region, which it has since had to vacate under the combined pressure of Russia and the CARs. While its other global preoccupations have reduced US interest in Central Asia under President Obama, US policy has always been to somehow detach the CARs from Russia’s sphere of influence and integrate them economically with Afghanistan and South Asia. The ongoing Russia-US standoff over Ukraine would have only reinforced US determination in this respect. Central Asians welcome the United States as a check on both China and Russia, but they realize the fickleness of US policies and level of interest, and remain wary of US proclivity to work for regime change and exert pressure on human rights issues.

Where does India fit into this picture? Over the centuries the most extensive connections of Central Asians with the outside world have been with India. Nor has India ever posed any ideological, demographic or territorial threat to Central Asia. Thus Central Asians have always had a romantic attraction towards India, reinforced by close and friendly relations during Soviet times. That is a good starting point, but nothing more. Today, at a general level, the CARs want a more active Indian presence to balance the other major players who carry considerable baggage. So far, however, the CARs and India haven’t been able to reconnect meaningfully principally because of the absence of easy and reliable connectivity. Since there does not appear to be any immediate solution to this problem, economic and people-to-people linkages between the CARs and India remain weak. Trade routes are long, cumbersome and uneconomical. The legal systems, regulatory and taxation provisions in the CARs leave much to be desired. There are other factors too why Indian private entrepreneurs find the CARs comparatively less attractive than many other places viz. poor air connectivity; difficulties in getting visas; unfamiliarity with local languages; and some bad experiences of Indian companies in the CARs in the early years after their independence. Perhaps economic relations will get a boost if India were to conclude a Free Trade Agreement with the Eurasian Economic Union. A study group has been recently set up to examine this proposal.

More than trade in goods, the two sides should focus on trade in services and use of the CARs as a transit point. Leveraging their location, the CARs could, however, become a passenger and cargo hub for air traffic from India to Siberia and the Russian Far East region in one direction, and to Europe in the other, in the way Dubai, Abu Dhabi, Doha and Singapore have positioned themselves. The CARs could also develop their potential as a tourism destination for Indians with competitive pricing, a more liberal visa regime and better air connectivity. There could even be joint marketing of Central Asia and north India to the rest of the world as a “Mughal Trail.

A blueprint for India-Central Asia cooperation was outlined in India’s ‘Connect Central Asia Policy’ three years ago. This needs to be fleshed out and implemented earnestly. One of the first things that India should do is to change its image in the CARs. Instead of the traditional stereotype of Soviet times, India should be projected as a modern, scientifically and technologically advanced country with capabilities that are relevant for the development of the CARs. Some of the concrete initiatives that could be pushed are: encouragement to private Indian airlines and charter flights to operate between India and Central Asia; significant expansion of existing programmes of technical cooperation so that more young people visit India to develop skills that are needed in their home countries; larger loans on soft terms for infrastructure projects. In return, India would very much like to gain access to the rich natural resources of the CARs and some specialized defence technologies and production facilities.

It must be emphasized, however, that India’s interests in Eurasia are fundamentally strategic. The CARs are superficially stable but inherently fragile states, with incomplete nation building, underdeveloped political institutions and traditions, no accepted mechanism for periodic transfer of political power, and economically still considerably tied to a beleaguered Russia. Weak and unstable states with centrifugal tendencies could become a haven for terrorists, separatists, drug dealers and fundamentalists, linked up with similar elements in Afghanistan, Pakistan and West Asia. India has a strong interest in seeing stable and secular CARs. This is a formidable challenge that will not be easily met without large-scale investments that promote economic development and reduce unemployment among the youth, thereby giving people long-term hope about a brighter future.

A stable Eurasia is in the interest of all countries of the region. However, the prospects of long-term stability and peace are bleak if the great powers indulge in a new zero-sum ‘Great Game’ in Eurasia. Wisdom lies in all countries adopting a cooperative rather than a competitive approach. The Shanghai Cooperation Organization (SCO) is potentially a promising vehicle for such cooperation. India hopes to join it as a full member, but this is not a given since the attitude of China remains ambivalent. Unfortunately, the SCO is China-dominated and China-driven. While full membership will certainly raise India’s profile in Central Asia, it is unlikely to help India achieve its core interests in Central Asia. China and Pakistan, both individually and jointly, seem determined to unilaterally pursue their perceived strategic interests in the region.

Apart from the CARs, developments in Xinjiang, geographically contiguous to both the CARs and India, have direct and far-reaching implications for India’s security. India needs to carefully study and anticipate various scenarios in Xinjiang. China’s strong strategic partnership with Pakistan, and physical connectivity via Xinjiang, has been reinforced by the ambitious China-Pakistan Economic Corridor project. The success of China’s Silk Route Economic Belt initiative will enable China to dominate the Central Asian Republics and Afghanistan (where it is making significant investments and is also trying to play a political role). If China were to emerge as the preponderant power in Eurasia, this would constitute a tectonic geopolitical shift that India, can countenance with equanimity, as this would significantly undermine India’s strategic interests and security.

Thus India’s approach to this region cannot be passive. India must strive to get a firm foothold in the Eurasian space, including Afghanistan, so that forces inimical or hostile to India’s interests like China and Pakistan do not dominate it, particularly if economic and other influence is backed by a military presence. In order to ensure its security, India has to exercise at least some degree of influence, if not control, over the trans-Himalayan strategic space in Eurasia. It must become relevant to the growth, development and prosperity of the CARs. For this to happen, it has to be involved in Eurasian energy politics. Small individual investments of the kind India has made in Kazakhstan are inadequate. What is needed is a big project that creates long-term mutually beneficial linkages of India and the CARs and, equally important, is in conformity with the strategic interest of the concerned parties.

In this context, Iran’s strategic relevance to India has gone up. Apart from other factors like Iran’s intrinsic importance as a major player in the Persian Gulf, and Iran’s rich oil and gas reserves, Iran is currently India’s only route to Afghanistan and the Central Asian Republics. India and Iran will also need to cooperate to try to stabilize Afghanistan. Already a formidable regional power, Iran’s role will only increase after a nuclear deal is clinched with the P-5+1. After submitting to US pressure over Iran for a decade, India is now repairing its disrupted ties with Iran. The recently signed Memorandum of Understanding on the development of Chabahar port, not merely as an economic but more so as a strategic project, and the reactivation of the North-South Corridor are long overdue and important concrete steps in this direction. These need to be followed up urgently with high-level exchanges, including at the Prime Minister’s level.

Since Russia, Turkmenistan, Iran and Qatar have about two-thirds of the world’s exportable surplus of natural gas, Eurasia should be at the centre of India’s gas import strategy. For all these countries too, India is a proximate and attractive long-term market. Russia can no longer count on the long-term loyalty and dependence of its traditional European customers, the more so after the Ukraine crisis. India is an important alternative market. Turkmenistan is already pushing the TAPI pipeline project to export its gas to India and Pakistan. As for Iran, it will definitely want to tap large gas markets like India once sanctions are removed, hopefully quite soon. Qatar’s future as a major gas exporter is linked with Iran, with which it shares the same principal gas field (South Pars/ North Dome). India already has energy investments in Russia and Kazakhstan and there is an agreement in principle with both countries to explore the possibility of energy pipeline projects to India. If the Central Asian countries work with Russia and Iran, Eurasia can be hard-wired with India in a web of interdependence. This has to be conceived and executed as a strategic project, not merely as an economic or energy deal.

India must try to persuade Russia, Kazakhstan, Turkmenistan and Iran to let India develop, or at least allocate to India, some large gas fields that can be a source of long-term gas supply to India. The greater challenge will lie in transporting Eurasian gas to India. The LNG route is too long and expensive, at least for now. Purely land routes from Eurasia to India pose many problems. Given the continuing lack of trust between India and Pakistan, and the uncertainties surrounding Afghanistan, it is doubtful if either the Turkmenistan-Afghanistan-Pakistan-India (TAPI) or the Iran-Pakistan-India (IPI) pipeline projects will actually fructify. Under these circumstances, the only feasible alternative is a land-cum-sea pipeline from Eurasia to India via the Iranian port of Chabahar.

One possible route is from western Siberia in Russia to Chabahar via west Kazakhstan and Turkmenistan. The advantage of this route is that it involves fewer countries and can also incorporate existing swap arrangements between Iran and Turkmenistan. Another route is from eastern Siberia in Russia to southeast Kazakhstan via the Altai region, on to Kyrgyzstan and Uzbekistan’s Ferghana Valley, thence west to Khojent in Tajikistan at the mouth of the Ferghana Valley, and thereafter into Afghanistan, along the Mazar-e-sharif – Herat – Delaram - Zaranj route (which is outside the Taliban’s area of influence) before entering eastern Iran and down south to Chabahar. The advantage of this route is that it would also serve Uzbekistan, Kyrgyzstan, Tajikistan and western Afghanistan, and thereby help to stabilize these countries. On the flip side, it would definitely be a more complicated project. Perhaps it might be better to start with the first option and then consider the eastern route later.

From Chabahar, there would be an undersea pipeline via Oman to ports in Gujarat. Two gas hubs would come up. One would be in Chabahar, fed by Russian, Turkmen and possibly also Kazakh gas from the north, together with Iran’s own gas from South Pars. Another hub would be in Oman where the gas piped from Chabahar under the sea would meet up with Qatar gas piped across the UAE. An Indian company, South Asia Gas Enterprise (SAGE), has done a study on the commercial and technical viability of such undersea pipelines between Iran/Oman and India, and is actively working with the concerned governments to take it forward.

One hopes that as Prime Minister Modi prepares to visit Central Asia, his Government and his advisers are looking at conceptualizing a major strategic project of the kind suggested above. If such a project were to be endorsed by the CARs during his visit, that would be a significant breakthrough in India’s floundering Central Asia policy.

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Published Date: 2^nd July 2015, Image Source: http://www.presstv.ir

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)