HAS CHINA GONE OBOR-BOARD?

Last month Beijing hosted its much touted Belt and Road Forum (BARF) and managed to earn the bragging rights of being a beacon for free trade around the world.China announced a bonanza of billions of dollars for the participating countries and it was such an enticing economic buffet, that many economically emaciated countries couldn’t resist the monetary temptation of the lavish spread that was on offer. However, in their noble desire of changing the financial fortunes of their flagging economies, some of these countries ended up biting more than they could possibly chew. What looked irresistible with all its embellishments would slowly turn out to be an unpalatable proposition, economically speaking ‘unsustainable’.

China never gives free lunches and if an unsuspecting and vulnerable country thinks that it does, then in that case they will eventually learn their lessons the hard way. Just ask Sri Lanka, Myanmar, Laos, Cambodia, Namibia, Peru, Chile and Argentina to name a few countries, which are facing economic indigestion as a result of unfavourable trade practices being thrust upon these host countries, the environmental degradation that has followed the development activities, the ballooning debt bubble and last but not the least a genuine feeling of anger among the local population against the aforementioned issues that plague these lands.

The above red flags were definitely not lost on the wealthy and industrialised nations, hence only Italy was represented by its head of state, among the G7 countries at the forum. The major voices in the European Union, most notably led by Germany, had their reservations known at the Belt and Road Forum with respect to availing of more guarantees from Beijing on free trade, environmental protection and working conditions. Making tall claims of being champions of free trade and then conveniently forgetting the fundamentals that make free trade truly free and fair, is a case of not practicing what one preaches. It is quite evident that attendance at the forum didn’t lead to absolute endorsement. India, which was being greatly wooed by China to attend the forum so as to provide a semblance of sanctity to the event, rightly rebuffed those overtures. No self respecting and powerful nation can compromise its territorial integrity for any amount of money or to any kind of threat. Unfortunately, there are some countries which believe in mortgaging their future and imperilling the prosperity of their people for nothing more than a few billion dollars which will eventually end up becoming an inescapable debt trap. BARF also has a deeper geo-strategic design that could create tensions on the geo-political chessboard if allowed to materialise in its present form. Under the garb of protecting investments, we are witnessing creeping militarisation of economically important sea lanes and land routes much to the dismay of the regional and international powers.

Some geo-political commentators were of the opinion, that what China is attempting has no precedent. However, there’s nothing unprecedented about BARF, other than the sheer scale on which this economic endeavour is being pursued and is similar to what Japan had attempted in the 1990s. At that time, Japan was the undisputed economic powerhouse of Asia and the second largest economy of the world. The then Japanese PM,Keizo Obuchi,had embarked on a similarly ambitious infrastructure oriented plan across Asia to give its recession hit economy, especially the construction industry, a shot at economic redemption. But the scheme could not materialise in its totality, due to disagreements between Japan and the host countries and due to corruption allegations. While a few infrastructure projects did get built,Japan couldnot fulfil its ambitious dream in its entirety, as the plan did not bring the spectacular economic gains that were envisaged and furthermore. On the downside, Japan’s already delicate relation with most of its Asian neighbours werefurther strained.

History has an incorrigible habit of repeating itself and those who wish to ignore its lessons end up like a humbled student who was not only overconfident but also overestimated himself to be superior to others. Let me succinctly put in context why China is so keen on selling this economic ecstasy to the world i.e. the objective. China today is faced with

many dilemmas that an aspiring super power is confronted with, especially if such an aspirant is an autocratic state, then these problems have an incandescent tendency to explode out of control. Over the last three decades China heavily subsidised its export manufacturing sectors at a time when there was a prosperous cycle of high global demand of not so high value goods that China abundantly provided. This led to an expansion of industrial capacity, which wascushioned by very low wages and a huge labour force.

In the last one and a half decade or so, China, flush with huge forex reserves, went on a global buying spree of the biggest and the best Western companies in the world, absorbing the best practices and innovative technology that was on offer. Not to discount the fact that China, even before it indulged in its global buying binge had made considerable and praiseworthy progress in the domain of technological innovation. Japan also had a crucial role in laying the foundation of such a huge economic and technological leap that China had undertaken. Presently, a lot has changed.The high growth cycle of global demand has subsided considerably, China is faced with excess industrial capacity, rising labor costs, ageing population, property bubble created by unsustainable and idle infrastructure projects, rampant shadow bank lending and transition from an export driven economy to a more domestic consumption based one backed by the technological prowess to manufacture high value goods primarily aimed at Europe, the richest continent in the world. If even one of these dilemmas were to breach its great wall/façade then the one party system could come under some degree of discomfort. For example, if millions who form the labour force are to be laid off for lack of work, the situation could become very volatile.If that were to lead to a domino effect on other issues that plague China, what would be the end result?All the projects of the BARF initiative are funded by Chinese State Banks, financed and facilitated by State Owned Enterprises on their terms and ultimately built by the Chinese labour force. The people of the host countries are thus not too happy about the evolving situation as this expansion encroaches on their lands, their way of life and fritters away their chance for fair employment, decent compensation and basic human rights.

All the routes, be it road, rail or sea start from the industrial centres of China and ultimately lead to the heart of Europe. The countries on these different routes act as trans-continental check points/trade facilitation centres, which also importantly provide energy security to satiate the huge Chinese appetite for energy consumption.But despite all its dilemmas as mentioned above, China should be sitting pretty as with the world’s largest forex reserves of just over 3 trillion dollars, it can weather any kind of untoward economic storm. China has depleted about USD 1 trillion in its foreign exchange reserves since June 2014 to prevent a quick depreciation of the Chinese currency. China’s debt to GDP ratio rose to 277 percent at the end of 2016 from 254 in 2015, thanks to Beijing’s unabated use of cheap credit to stimulate slowing growth, unleashing a massive, debt-fuelled spending binge. Also, the capital outflows have been putting strong downward pressure on the yuan, which lost nearly 7 percent last year, which gave it the unpleasant tag of being the worst performing major Asian currency.

Skeptics say the headline total of reserves, exaggerates the resources available to support the renminbi since they suspect it includes illiquid assets such as foreign real estate and privateequity investments that cannot be readily deployed in currency markets to cushion any downward economic spiral. So it presents a supposedly rosy picture that has many hidden layers which may conceal the thorns which could come to prick later and prick very painfully too. Once there was an American dream that the world so admired, now a new Chinese dream is being sold to the world. But most often many sweet dreams have a bizarre tendency of ultimately turning out to be a nightmare. Will this dream economic run of China bring dividends to the participating countries of BARF or will it bring in its wake an unavoidable debt trap?If we consider the recent trends, it certainly points to the latter. Saurabh Dubey is an avid observer of geo-politics and has previously written for the Fauji Magazine and Indian Defence Review.

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