China’s cheque-book diplomacy

With a $12 trillion economy still growing at about 6.5 per cent annually and $3 trillion in foreign exchange reserves, China is moving very rapidly to become a true global power with a two-ocean Navy. Its defence budget of $152 billion is four times that of India’s paltry $40 billion, while the Chinese Navy’s share of the defence budget is about $50 billion, as compared to approximately $5 billion allocated to the Indian Navy.

All this at a time when disturbing media reports indicate that a bankrupt American Westinghouse (owned by Toshiba) is still trying to sell six civilian nuclear reactors to India, and the US is trying to get Pakistani help in extricating its forces from Afghanistan, is now expected to “rehyphenate” Pakistan with India by offering it a similar “nuclear deal”, and India’s open wooing of the US since 2006 has alienated our age-old strategic partner Russia, who is now selling arms to Pakistan, supported China’s “one belt, one road (OBOR)”, at a time when tensions are rising further with Pakistan sentencing Kulbhushan Jadhav to death for “spying”.

China is using “cheque book diplomacy” to make friends and also acquire real estate in strategically-located foreign lands as part of its global OBOR, which using China-Pakistan Economic Corridor (CPEC) will connect it to Europe by sea and land for trade.

On July 12, 2016 when the Permanent Court of Arbitration (PCA) at The Hague ruled against China stating that it had “no historic rights based on the Nine-Dash Line” and creation of artificial islands in the South China Sea, the Chinese waived-off all outstanding loans of Cambodia, which prevented the Asean nations from issuing a joint statement supporting the PCA ruling about the South China Sea. Similarly, it offered aid and assistance to the Philippines, whose new President, Rodrigo Duterte, made overtures to Beijing.

The first nation to learn a bitter lesson from China’s “cheque book diplomacy” was Sri Lanka, which under the previous pro-China President Mahinda Rajapaksa, allowed the Chinese to build a new railway, a new container terminal at Colombo port, super highways connecting Colombo to the tourist centre of Galle and then onwards to the new Chinese-built port of Hambantota, with a new Chinese-built Mattala Rajapaksa International Airport near Hambantota. Today both the new Hambantota port and its nearby airport lie unused and have become a financial burden on cash-strapped Sri Lanka. The Chinese invested about $9 billion, and when the Lankans expressed inability to start repayment of the loan (about $1.1 billion for the Hambantota port), a controversial agreement is being worked out shortly as “debt relief”, which would permit a Chinese company to hold 60 per cent to 80 per cent of the management control for a 99- or a 50-year lease. If this agreement between Sri Lanka and China is finalised, a Chinese naval base in Hambantota port and airbase in the nearby airport may become a reality.

To resolve its “Malacca Dilemma” in 2016, China agreed to invest $14 billion in building a new Malaysian port named Melaka Gateway to be initially ready by 2019, with other facilities to replace Singapore as a “tourist-cum-commercial hub” by 2025, with the ability to handle 100,000 ships annually.

While the new Djibouti Chinese base (expected to be ready by September 2017) will give it a presence in the Red Sea choke point, China has also moved to invest in the land near the brand new Duqm port, Oman. In 2016, Oman announced that China had been permitted to invest $10 billion to build an industrial park by 2022 in an area adjacent to the Duqm port and that the Chinese companies building this industrial park would be “allowed to lease the land to Chinese investors”. Duqm port is strategically located as its near Oman oil fields and faraway from the Strait of Hormuz, where global oil exports by merchant ships are vulnerable to blockade.

India has shown some interest in Duqm port for industrial investment and connectivity, and as an “energy corridor”. China has also invested $800 million in Maldives to construct a second 2.5 km runway on Hulhulé Island, is building a 1.39 km sea bridge to connect Hulhulé Island to Male and a 15 km road on Laamu Atoll. Maldives relies on tourism and majority of the tourists are Chinese, so its economy is now dependent on China, which will invariably demand a military base in India’s backyard.

China is investing $56 billion in CPEC and Pakistan’s loan repayment starts in 2020 at an annual rate varying between $2.5 to $3.5 billion, with a total debt burden of $90 billion to be repaid in 30 years. Pakistan will be in no condition to repay this enormous debt. Hence, we are likely to see another “lease agreement” handing over some strategic parts of Pakistani territory to the Chinese.

Experts predict that the next 10 years will be critical for India as the “economic gap” with China will continue to widen, but after 2027 this gap will start to reduce. To expedite Indian growth, Prime Minister Narendra Modi needs to urgently amend our laws to encourage FDI from Japan, South Korea, Taiwan and the UAE. Other Indian counter measures will involve deterring war by doubling its naval budget, modifying its no first use nuclear doctrine, finding an asymmetric non-nuclear response to China’s growing seapower and using some of our 1,197 islands as military bases, and also as attractive foreign tourist destinations like the Maldives.

And finally, media reports indicate that Singapore, Malaysia, Indonesia and Thailand are expected to include Indian Navy warships in their joint/coordinated patrols of the strategic Strait of Malacca. This move, if true, will go a long way in regional maritime cooperation to counter the “sea dragon”.