China’s dreams of becoming a global power may be hit by economic and political repercussions of Covid-19
Lt Gen. Rameshwar Yadav (retd)
After the Communists took control of China, they manipulated its past history for territorial claims. This strategy was also used to create leverages as a political bargaining chip to resolve disputes on quid pro quo basis. There have also been attempts of political encroachments based on purported unequal treaties of 19th and 20th centuries during Qing dynasty. The purpose of such a pattern of political conduct is to encroach upon areas of economic and tactical importance. China is known to execute its claims with signature unilateralism and use of military force to seek political objectives. China has been practicing such strategies without hesitation even in defying international norms wherein it is one of the signatories. Political hubris alongside calculated unpredictability and opaque conduct is the USP of Chinese DNA.
After acquiring a dominant political stature backed by a strong economy and military, China now aspires to be a global leader. To achieve this, it has chosen the economic path—through economic expansion of a kind wherein rest of the world finds economies of scale to trade with the Asian country. In that, its strength lies in creating market synergies in the price sensitive Third World, and cheap manufacturing for multinationals of the developed nations. This has resulted in exponential economic growth of China in a short time, but the momentum needs to be taken to the next level if China has to achieve its global aspirations.
A land-locked country, except for the eastern seafront, China is heavily dependent on sea routes for energy imports, and export of goods and services. The sea route comes with its own set of problems: bottlenecks, long distances that involve logistical cost, and security issues.
Not to be defeated by these issues, China has found solutions to them. It has created a vast land infrastructure as well as augmented security along its sea routes. Moreover, it has plans to develop industrial corridors astride land routes closer to the markets it intends to enter. The alignment of such land routes would be through mountainous terrain beyond the Chinese western flank linking West Asia, Eurasia and Africa. At the same time, in order to dominate and provide adequate security to the sea routes, China has chosen to befriend the littoral nations with the objective of establishing naval facilities in the Indo-Pacific region.
It is for this reason that China has launched Belt and Road Initiative (BRI) as its biggest political investment in the recent times under the camouflage of reviving old Chinese silk routes. Historically, there is sufficient evidence of the silk routes across continents which was used for trade. These trade routes, like any other communication network, were a joint heritage serving different nationalities and regions. Therefore, by using the nomenclature ‘Silk Route’, China, apparently, has projected it as its own heritage. This, obviously, is a deliberate plan to touch an emotional chord to reconnect the old Chinese trade relations with civilisations of distant lands.
In order to make the proposals attractive, China has chosen to focus primarily on the poorer nations which fall on this route. Its strategy is to provide easy loans for these nation’s infrastructure, employment and economic development. It is a win-win model wherein the capital stagnating in Chinese banks would earn more money and at the same time facilitate generation of employment for China. This would also ensure shorter and secure access to their markets with reduced logistics costs. Additionally, the infrastructure so developed would facilitate Chinese interest more than benefit the host countries. Fully aware of the incapability to repay loans by few recipients, China, obviously, has a hidden sinister design to exploit them in order to draw more long-term political concessions.
The China Pakistan Economic Corridor (CPEC), a USD62 billion project connecting Xingjian with Gwadar port of Pakistan, facilitates China to transit through the Indo-Pacific region easily. If Pakistan is not able to repay its loans, China will be able to intrude into Pakistan’s territory. In Sri Lanka, China has acquired Hambantota port and the land adjoining it on a lease of 99 years through ‘debt diplomacy’. Similarly, other nations such as Maldives, Nepal and Malaysia are also on China’s radars for future exploits.
Now, with the spread of Covid-19 across the world, hugely impacting the world economy, China is expected to suffer huge losses. The fact that the coronavirus emerged in China’s Wuhan in late 2019 has already made many countries fearful of trading with China. And this fear may persist even after the world emerges out of the pandemic.
There is a likelihood of an adverse impact on Chinese manufacturing sector because many western countries may be reluctant to invest further in China. The fact remains that the western world had become completely reliant on China which was not a rational business decision. Covid-19 will, ironically, become a catalyst to correct this conceptual imbalance. And it’s most likely to be done through diversifying manufacturing, logistics chains and markets to make it more contingency driven and create redundancies. If this happens, then China would certainly be at a loss to large extent.
In such a situation, there will be a fall in production, prompting a reduced need for logistics space. It would force China to review her grandiose plans of revival of the silk routes and develop industries in the BRI sponsored nations. This in turn would lead to large-scale unemployment and social disharmony. As such, there is a cause of concern for China and a need to review its economic strategy.
Under such circumstances, China may have to modify her political conduct—from being confrontationist to becoming co-operative. Political aggression, which was clearly visible in Chinese worldview, may also mellow down if the economic backlash happens.
While the world is going through a tough time, China is reported to purchase large stocks in foreign companies. This only gives rise to speculations of different conspiracy theories about the origin of coronavirus in certain circles, though accepting them without any verification may not be entirely correct. The countries which have suffered financially are going to pay back sooner or later. Already, many European countries have started to restrict purchase of stocks of their companies by China so as to stop their takeover.
China, on its part, is trying to neutralise the negative sentiments through soft power—it is supplying medical equipment to countries in need. Also, to instill confidence and check likely exodus of foreign companies, China has given priority to many countries to commence their production lines. Developed countries have economic buoyancy to scale down their trade linkages with China which will certainly be a big blow to their economy. But majority of poor nations are likely to continue to depend on cheap Chinese products as switching to higher cost supply chains may not be a pragmatic idea for them. China has a history of surviving in the worst of situations, and this time also, it may bounce back after the initial hiccups.
We have to wait and watch as the world economic panorama unfolds once the current crisis is over. There are tell-tale signs of countries planning to shift their manufacturing units from China. Japan, in order to tide over the current situation and shift out their companies from China, has announced a stimulus of USD990 billion recently. Japan appears to be open to the idea of shifting companies to other destinations as is evident from the allocation of USD250 million for this purpose. The US has already moved out 50-odd companies last year, and now as per media reports, more companies may be moved out of China. Other countries may follow the US’ example soon.
India, Vietnam, Malaysia and Thailand are known to be the favoured future destinations in business circles for industries that are moved out of China. Big opportunities lie ahead for India and it makes sense for it to shape and recalibrate the business environment to make it attractive for the foreign investments. The strength of India lies in her stable political environment, abundant technical manpower, cheap labour, large industrial base and language convenience. However, industrial and logistics infrastructure needs to be upgraded, besides according high priority to skill development.
World Bank chairperson Kristalina Georgieva has predicted a global recession, something akin to the recession of Thirties. In her opinion, the initial revival is not expected before 2021, that is only if the pandemic crisis is contained. The dimensions of the economic slowdown can be ascertained from the fact that the World Bank has earmarked one trillion dollars as aid to around 90 nations which are likely to be badly impacted. The World Bank is reported to have suggested to China to not insist on debt servicing by countries which have taken Chinese loans.
This in turn would have a cascading effect on the ongoing BRI projects across the world. The fact that these projects are located beyond sovereign control of China, the cooperation of the host countries can never be taken for guaranteed given their varying internal opinions. Moreover, there are bound to be shifts in the geo-political equations impacting all the nations and their priorities. In the given situation, few countries in the BRI network may have political compulsions to discontinue cooperating with China. Even China, despite having surplus funds, may be forced to review its stance on these projects till there is a reasonable politico-economic stability and secure environment.
This would compel China to either employ local people or slow down the projects till the time there is adequate confidence of local authorities in Chinese presence. Such delays would push up the costs of the projects, requiring infusion of additional capital. Would China continue financing these silk route projects in the backdrop of slowdown of its own economy is a matter of debate. China with its dispassionate shrewd business psyche is unlikely to convert bank loans extended to the poor countries into aid or grants to provide some relief to them. China has to make a hard choice to invest additional funds or abandon the schemes where ‘return on investment’ is not encouraging. The schemes of strategic value like CPEC may be retained in Chinese national interests even if there are financial losses in the interim.
The shadows of the Wuhan virus would surely have an impact on the realisation of Chinese dreams of their economic expansion. The strategic fault-lines are clearly visible in the Chinese masterplan of winning the world through the emotive concept of the Silk Route. The Wuhan virus has simply exposed the futility of unilateralism and political hubris of the strong and invincible before the might of nature.
(The writer is former director general Infantry)