G-7 leaders finally came around with the proposed Build Back Better World (B3W) to counter China’s rising influence across 100-plus countries through Belt Road Initiative (BRI) projects. The proposal, though at a nascent stage, aims to address the infrastructure investment deficit in developing and lower income countries — the space which has been increasingly captured by China through 2,600 BRI projects with trillions of dollars of investment.
BRI projects are perceived as corrosive tactics or debt traps laid by China for its strategic dominance in trade, foreign policy and geopolitics in the world. So B3W is a welcome step but late.
The counter-strategy is necessary to bring down Chinese leverage. A macro view of BRI projects across geography — quantum and pattern of investment — clearly reflects the motive of China-centric international economic integration, production networks, hegemony in the Asia-Pacific region and, eventually, the global economy.
Since the inception of the BRI in 2013, outward investment by Beijing has been aggressive as China’s FDI outflow to inflow ratio increased to 1 from around 0.34 during 2001-10.
In volume terms, the FDI outflow increased to an average of $140 billion in 2016-19 from an annual average $25 billion during 2001-10. China’s share of FDI outflows increased from 2.3 per cent during 2001-10 to 10.7 per cent during 2016-2019.
China had an overall exposure of around $750 billion — $293 billion investment and $461 billion construction contracts —between 2013 to mid-2020. After BRI, there is a sudden increase in investment — around $40 billion annually during 2013-19 — in BRI countries, though investment has slowed down due to the pandemic.
Since the onset of BRI, China has signed diverse projects worth $548.4 billion, including four-fifths in the BRI participating countries ($461 billion). Post 2013, there was a sudden rise in infrastructure investment in BRI projects compared to investment in non-BRI projects.
Since 2013 to mid-2020, China has an exposure of vast contracts worth around $123 billion in SSA, mainly with Nigeria, Zambia, Ethiopia, Angola, Tanzania and Kenya, mostly focusing on hydro and oil energy, shipping and rail transport. China has strategically made Kenya the African hub and plans to connect it with other land-locked countries in the region, including Uganda, South Sudan, Rwanda, etc.
Central, South and West Asia is China’s second preferred region under the BRI as construction contracts worth $110 billion are under way, and 80 per cent contracts are concentrated in Pakistan, Bangladesh, Russia, Iran and Kazakhstan.
The China-Pakistan Economic Corridor (CPEC), the Bangladesh-China, India, the Myanmar Economic Corridor (BCIM) and the Colombo Port City Project in Sri Lanka, amongst others, are important BRI projects. China has a plan to complete 4,000 km of railways and 10,000 km of highways within the Central Asian region as part of BRI, with an estimated cost of $16 billion. Some of the major projects include freight trains between China, Turkey and Kazakhstan, and gas pipelines (Siberia and Altai) for production and transportation of oil and natural gas.
China has signed construction contracts worth around $96 billion under BRI, largely focusing on Saudi Arabia, UAE and Egypt, with 70 per cent allocation of total regional contract agreements. China is investing in Africa to lay a comprehensive transportation network.
Since the launch of BRI, China has signed various contacts worth $90 billion with the East Asian region. The biggest contracts have been with Indonesia, Malaysia and Laos worth $18.5 billion, $17.1 billion and $11.2 billion respectively, mostly focusing on transportation, railways, roadways and waterways, for better integration between China and ASEAN countries.
Since the onset of the BRI, the total exposure of China with Europe stood at around $23 billion by mid-2020. Major projects include a freight train project from Ukraine to Kazakhstan through Georgia, Azerbaijan, Kazakhstan and, eventually, China, covering a distance of 5,475 km. The Greek port Pireaus, the China-Belarus Industrial Park, and the Green Ecological Silk Road Investment Fund are other major projects. These initiatives would help trade facilitation for China and better delivery of goods and services.
The BRI projects broadly aim to facilitate cross-border transportation of goods, access to energy, creating demand for existing excess capacity in Chinese industries. Though the objectives of the projects undertaken in different countries vary, the overall focus is on developing transportation, logistics and communications, which would reduce trade and transaction cost for China’s trade, give more market access to Chinese markets and ensure stable supply of energy and other resources. Many countries, including India, would see an adverse trade impact on their products’ competitiveness, market access, resource extraction etc. due to Chinese competition.
China is focused on its agenda and far ahead. It has also tried to rope in more countries and raised the acceptance level of BRI over time through the BRI summit, Boao Forum for Asia, China-Central and Eastern Europe (CEE), Belt and Road Forum, etc.
The counter proposal of B3W is certainly a welcome step to contain the adverse implications of a Chinese mega plan. However, B3W lacks coherent thoughts and proper planning at this stage. Nevertheless, it is better late than never. Moreover, it remains to be seen what role India will play in B3W since it has been a strong opponent of China’s BRI.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.