I wonder how many Indian politicians in Lutyens Zone go to bed each night worrying about China. If they don’t, they should! It’s becoming increasingly clear that China’s Belt and Road Initiative (BRI) is not just an economic venture, but a serious geopolitical push which could endanger India’s security.
A look at the map of China’s Maritime Silk Road (CMSR), part of BRI, perfectly illustrates the dangers. The CMSR sweeps through the Red Sea from the Mediterranean, past Djibouti down to Kenya, up to the Pakistani port of Gwadar, down to Mali, before encircling Sri Lanka on its way through the Bay of Bengal to Dhaka, Chittagong and Kyaukpyu. Passing Kuala Lumpur, it moves north to Hong Kong, brushing Kuantan and Sihanoukville. The CMSR puts a noose around the maritime borders of India.
It’s the Chinese activities in Pakistan which should worry India the most, although those in Sri Lanka come a very close second. China has put $62 billion into the China-Pakistan Economic Corridor, but how much is debt, how much is equity and how much is in kind? “I simply don’t know”, the State Bank of Pakistan’s governor admitted to Reuters in December 2015. There is little doubt that the portion of this investment put into the port at Gwadar and the surrounding “free zone” is particularly good for China. The Chinese Overseas Port Holding Company (COPHC) will receive under the agreement 91% of the port’s gross revenue, together with some 85% of the revenue from the free zone. Not a bad potential return on investment.
It gets even better! According to a report in the Asia Times last November, Pakistan granted COPHC a 23-year exemption from not only income and sales taxes, but also federal excise duties.
So what does Pakistan get for this largesse? In the first place, debt; lots of it. The Asia Times reported that Pakistan’s federal minister for ports and shipping, Mir Hasil Bizenjo, admitted that Pakistan had agreed to pay back to Chinese banks $16 billion in loans at a staggering interest rate exceeding 13%, inclusive of 7% insurance charges. This is a substantial amount of Pakistan’s GDP, nearly 7.5% in the medium term, according to the IMF. Pakistan will get the port back in 2059, but after an operational period of 40 years it will need a substantial re-fit, probably funded by yet more loans from, you’ve guessed it, Chinese banks.
The real danger to India will be if Gwadar is used by the Chinese for military purposes. “There are no plans for a permanent Chinese naval base”, said a senior foreign ministry spokesman in a report by the Financial Times in January 2017, using the familiar “no plans” as a future get-out clause should it actually happen. Rather like a credit junkie maxing out his credit cards, Pakistan’s increasing debt servicing costs to China could result in future restructuring or pleas for forgiveness. Pakistan could ultimately find itself in the position of having to surrender Gwadar to China for whatever use it desires. If you have any doubts on this possible outcome, take a look at the port of Hambantota in Sri Lanka.
It’s now about 10 years since China offered Sri Lanka substantial loans, amounting to some $15 billion, in order to improve its infrastructure. The President at the time was Mahinda Rajapaska, whose hometown is in Hambantota on the southern shores of Sri Lanka, precisely on the CMSR. It came as no surprise when the Chinese provided $1 billion to develop a major port at Hambantota, which quickly became wholly unprofitable. Saddled with such huge debts to China, the Sri Lankan government decided to solve its problems in the short term by ceding control to China in a debt-for-equity swap.
Was this a case of mission accomplished by China? You decide, but first note the words of the Financial Times last December: “Beijing typically finds a local partner, makes that local partner accept investment plans that are detrimental to their country in the long term, and then uses the debts to either acquire the project altogether or to acquire political leverage in that country.” The Sri Lankan ports and shipping minister tried to justify the deal by telling the Nikkei Asian Review last month “we had to make a decision to get out of this debt trap”. Like any debt junkie, however, despite saying that they want to distance Sri Lanka from China, the Sri Lankan government has recently agreed to accept a new $1 billion loan from China’s EXIM bank to build a new highway!
Gwadar and Hambantota are just two of many examples of China’s increasing clout on the western and southern maritime fringes of India, stoking up potential security problems. Further to the west, China now has its first overseas naval port in Djibouti. Could Gwadar and Hambantota become China’s second and third naval ports?
Problems are no less challenging on India’s eastern border. The ASAN Forum reported last November that the Chinese are putting some $10 billion for a majority stake in the development of Kyaukpyu port in Myanmar, which could potentially be used for naval purposes if debt repayment becomes a problem for this impoverished country.
The noose is tightening. If I were a Lutyens Zone politician, I would be suffering from insomnia.