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Seminar on "China’s Belt and Road Initiative: Economic Rationales"

REGIONAL STRATEGIC AND POLITICAL STUDIES PROGRAMME

Tuesday, 28 May 2019 ­— To an audience of over 50 researchers, diplomats, and members of the public, Dr Sriparna Pathak provided an overview of the various Belt and Road Initiative (BRI) projects that China has embarked on in Bangladesh and Southeast Asia, as well as the responses of the host countries.

According to Dr Pathak, China’s “miracle-export-driven growth model” suffered as a result of the Global Financial Crisis of 2008. The crisis caused the “drying up of absorbing capacity for Chinese exports” in destinations such as the United States and Europe, leading to the problem of “oversupply” in key industrial sectors. The BRI—initially named One Belt One Road (OBOR) and inspired by the historical Silk Road—was China’s solution. The BRI was intended to help China deploy its large reserve of savings towards investment in large-scale infrastructural projects that will improve connectivity and access to a wider export market. Furthermore, these projects would allow Chinese SOEs in the steel, iron ore, and cement sectors to export their surplus capacity. The BRI also had the advantage of promoting of yuan, reducing tariffs on Chinese exports, and boost growth in China’s western provinces of Tibet and Xinjiang.

Dr Sriparna Pathak, Visiting Faculty at the Centre for Southeast Asian Studies, Gauhati University, giving an overview of the various Belt and Road Initiative (BRI) projects. (Credit: ISEAS - Yusof Ishak Institute)

In Bangladesh, China saw a country that could serve as an export market, a good outsourcing destination, and a source of cheap labour. In particular, the ports of Bangladesh allow China to reduce its dependence on the Straits of Malacca. In 2016, Bangladesh joined the BRI and allowed a Chinese company to build the Karnaphuli Multi-Channel Tunnel, which will improve connectivity between Chittagong and Cox’s Bazaar in Bangladesh and China. The tunnel is also expected to facilitate the relocation of the Chinese garment industry to Bangladesh, which has both a strong existing garment sector and cheap labour.

For Southeast Asia, it features centrally in China’s BRI due to the region’s “geographical proximity, infrastructure needs and emerging markets”. However, while China seeks to build new railways, roads and ports in the region in an effort to improve connectivity, there remains lingering concerns about the potential debt burden and economic dependence to China.

In evaluating the receptiveness of Southeast Asian states to the BRI, Dr Pathak divided the region into four categories. She described Brunei and the Philippines as pursuing a policy of “economics in command”, in which they sideline and minimize their territorial disputes in the South China Sea for the sake of Chinese economic investment. Malaysia and Myanmar were deemed as the “renegotiators”: countries interested in the BRI, but are concerned about the costs associated with the proposed infrastructural projects. Both Malaysia and Myanmar have suspended BRI-associated projects over cost concerns, with Malaysia recently having successfully negotiated for a one-third reduction in the cost of the mooted East Coast Railway Line. Laos, Cambodia, and Indonesia were the countries “most eager” for BRI investment, while Singapore, Vietnam, and Thailand were considered as being “interested yet aggressive” about protecting their sovereign interests and avoiding being in debt or dependence on China.

Dr Pathak concludes that while skepticism towards the BRI still looms large, the infrastructural investment needs of the region are undeniable. As such, most countries are adopting a “wait-and-watch” approach, especially since the benefits of the BRI would only materialize in the long term, and the opportunity costs of having large amount of capital tied up in often-delayed BRI projects are high. She also suggested that the BRI is best understood as a “blueprint” rather than a full-fledged plan, as there are gaps between the amount of funds that China promises and what they actually commit.

Over 50 people attended the session. (Credit: ISEAS - Yusof Ishak Institute)

Dr Pathak also fielded questions from the audience, including issues related to India’s and Bangladesh’s participation in the BRI. She shared that India’s reluctance to officially engage in the BRI is borne out of its concerns about Sino-Pakistan’s projects that run through the disputed territory of Kashmir, while mentioning that China’s plans for Bangladesh involves port development but not a connecting pipeline. There was also discussion about the competitiveness of Chinese loans, in which Dr Pathak explained that although the Chinese offers interest rates that are lower than those offered by Western financial institutions, there are other Asian countries such as India and South Korea which are able to provide better rates. She also shared that, as the Chinese financial sector come under greater strain, it is likely that China will begin to issue commercial credits in place of soft loans in future, as it already does with Bangladesh.