Breaking Pearls with Diamonds

When somebody pays your dues and supports your lavish lifestyle; they certainly need something from you, and they will get that from you.

When we witness a similar arrangement in diplomacy and business, we get the takeover of Hambantota and Mombasa Port to China. The development of the Ports, Roads and Railway network sounds very promising to countries like Djibouti, Maldives, Malaysia and Sri Lanka and half a dozen African countries. But these gifts come with a heavy price, a lot more than they can afford. However, Beijing from time to time clarified the nature of these loans (not aid) and the non-military use of these commercial vantage points, and many political analysts believe in this.

Chinese Pearls around India

The string of Pearls

‘String of Pearls’ refers to a geopolitical theory about the network of Chinese intentions in the Indian Ocean Region (IOR). To be precise, it refers to the Chinese network of commercial facilities developed by China in countries falling in the Indian Ocean between the Chinese mainland and Port Sudan. The issue is the military use of these pearls, as the Indian administration sees these arrangements as military expansion. But first, let’s see where these military bases would be: some pearls could be in Bangladesh, some in Sri Lanka or in Pakistan. The problem with the Indian narrative is that these pearls don’t look poisonous to anybody, because we’re talking about ports, airports and highways; and those are good for the economy, so why the hostilities from countries like India and the US?

Hambantota and Mombasa

From the top, it all looks like just an excellent investment for Chinese companies, but let’s make Sri Lanka as an example, a developing economy primarily based on agriculture, services and light industry. Agriculture accounts for 21 percent of GDP and uses 38 percent of the workforce. As per the statistics drawn by “ceicdata.com”, the debt to GDP ratio of Sri Lanka drastically rose from 79.9 percent to 86.6 percent, in the past 3 years

The country was already suffering from post-civil war repercussions and their struggle to deliver grand visions before the corona crisis struck; when we peaked at the outstanding central government, debt increased by 8.3 percent to Rs. 13.031 trillion. No wonder they lost Hambantota to China for 99 years. Another interesting thing to note here is that loans sanctioned by Chinese commercial banks here are just 10 percent of the total government debt, but the bailout packages offered by the Chinese banks are 39 percent.

If we rationally analyse these patterns, it's almost identical with Kenya, which is one of China’s largest trade partners in Africa, who owes $6.5 billion (21.9 percent of its total external debt) to China. China’s interest payments represent 87 percent of the cash used to service debt expenditure in 2019. Although Kenya is not facing a post-civil war scenario, the projects developed by China in Kenya under the infamous Belt-Road-Initiative (BRI) are not as sweet as they were in the paper. China has built rail lines by providing huge loans for the development of the standard gauge railway project, which Kenya has to pay even at the time of the pandemic. The terms of the loan from the Kenya Railways Corporation (KRC) specify that the port’s assets are collateral and are not protected by Kenya’s sovereign immunity because of a waiver in the contract.

The Appellate court of Kenya stated that “The $3.2 Billion contracts for the construction of Standard Gauge Railway (SGR) is illegal” and halted the project from any further development, even then all this hue and cry is too little too late for Kenya and in the absence of repayment, Kenya would lose not only the Mombasa Port the largest and most valuable seaport in entire East Africa, which is also treated as a gateway for landlocked neighbour countries like Burundi, Congo, Rwanda, South Sudan and Uganda. Therefore, losing control over the port would mean the erosion of Kenya’s sovereignty. Besides the Mombasa Port, Kenya could be coerced into giving China control of the Inland Container Depot in Nairobi. Kenyan media reported that "implications of a takeover would be grave, including the thousands of port workers who would be forced to work under Chinese lenders."

Suffering Sugar Babies

Even if we try to believe that Sri Lanka and Kenya are just exceptions and other 62 signatory countries are not facing any financial implication, and all these are just good old “Economic Investments” and not the Indian and American media houses portray it as a debt trap diplomacy (or like we call it Sugar Daddy diplomacy) how come we still see so many cases of hostile takeovers of strategic vantage points.

Sugar Daddy diplomacy is a deceptive method adopted by China under the BRI scheme, where the Chinese corporate banks first lend huge amounts under opaque loan terms to struggling developing nations in the veil of development, only to strategically leverage the debtor country for its own economic, military, or political ends or to seize its assets as a means of repayment.

For instance, China had given a loan to develop a strategic port in Djibouti. In 2017, Djibouti's external debt was projected at a staggering 88 percent of its GDP, guess who was responsible for the bulk of debt - “China”. Sugar Daddy diplomacy allowed the Asian country to build its first overseas military base in Djibouti. Do you think it’s a Coincidence? Think Again!

In September 2018, Zambia lost the Kenneth Kaunda International Airport to China over debt repayment in similar circumstances. Identical scenarios emerged in other African nations such as Burundi, Chad, Mozambique and Zambia are all either in debt distress one way or another.

Last year, China agreed to restructure more than $12 Billion in repayments for Ethiopia, whose Chinese-funded railway is also struggling. Another question is if all loans and repayments are “Economic Investments” as Beijing put it, then why militarize the Port of Doraleh in Djibouti? One thing is for sure: Chinese investments are not what they seem, especially not to the recipients at least.

Crisis in Asia

The situation in Asia is not sunshine and rainbow as well; every neighbour of India is facing Chinese financial aggression. As per ‘The Guardian’: ‘Chinese ‘Debt book diplomacy’, China uses strategic debts to gain political leverage with economically vulnerable countries across the Asia-Pacific region. The US state department has been warned in an independent report.”

Another reason for this seriousness from the Yankees is because somewhere these strategic pearl placements by China would create a challenge to the US’s influence in the Eastern world; Southeast Asia pacific to be exact.

Securing the American interest in Asia, protecting the waters of Japan, eliminating interference of DPRK (Democratic Peoples’ Republic of Korea) in the Korean peninsula and Trade War; already led the US and its allies on the gate of the South China Sea crisis. The question is ‘Who’s going to blink first?’

The vulnerability of Asian countries is not new to Beijing, Sri Lanka was not a fluke, and it was a well calculated political, economic and military move. An academic report from graduate students at the Harvard Kennedy School of Policy Analysis identified the most concerning countries, naming Pakistan and Sri Lanka as states where the process was advanced, with deepening debt and where the government had already ceded key ports and/or military bases. The report also included countries like Papua New Guinea and Thailand, where China had not yet used its amassed debt leverage. For them, it may not be as dangerous as it is for India. Chinese presence in IOR (Indian Oceanic Region) not only creates a territorial mess, but it also affects India’s external interest. Countries like Myanmar, Malaysia, Indonesia and Singapore may be the last but most lethal. Losing strategic key points in these countries is a definite blunder.

Papua New Guinea, which has historically been in Australia’s orbit, is also accepting unaffordable Chinese loans; and that’s where Australia comes into the picture.

BRI and Its Roadblocks

Everybody loves drama, and to any political analyst, BRI is just that: The Belt and Road Initiative reminisces off the Silk Road.

The Silk Road was an ancient network of trade routes, formally established during Han Dynasty of China, which linked the regions of the ancient world in commerce; legendary empires like Byzantine Empire to Persian, every single one of them witnessed the lifeline of the ancient economy. The modern Chinese copy of it is worth $900 Billion or sovereignty of few countries for now.

Some analysts see the project as a disturbing expansion of Chinese power. At a broader strategic level, influential Chinese policymakers and analysts have also argued that OBOR (One Belt One Road) could be just a tool to counter Obama Administration’s pivot to Asia.

In 2015 Justin Yifu Lin, an influential policy adviser and a former chief economist at the world bank argued President Xi had launched OBOR to counterbalance US policy of pivot to Asia and Trans-Pacific Partnership (TPP).

Some western diplomats have been wary in their response to the proposed trade corridor, seeing it as a land grab designed to promote China’s influence and economic interest globally.

As Charles Parton, a former EU diplomat to China, explained, ‘The scheme is essentially a domestic policy with geostrategic consequences, rather than a foreign policy’.

The problem with narrow geostrategic interpretations of OBOR is not that they are wrong, but that they are incomplete. If we sideline the hidden military purpose of China in ‘OBOR/BRI’, we see that their economic interest is not just limited to trade. Conditions of the Chinese economy are not tight; and the ‘OBOR’ can be seen as a desperate attempt to undermine the shortcomings of the economy.

China has developed an impressive reputation as the ‘world’s factory’ over the last three decades. China is not just trying to export higher-end goods through OBOR, but is also trying to encourage the acceptance of Chinese standards. The Chinese Government’s focus on exporting its technological standards must be understood in terms of its broader ambition to become an innovation-based economy.

So even if we think of OBOR as an economic arrangement and not as a grand scheme of Satan himself, why is there an outrage?

OBOR does not even try to fix the economic problem of the Sugar Baby nation. In detailing the OBOR, China stated clearly that it is buying time for domestic consumption to increase at a natural pace. Consumer-led growth will be a long time coming; progress on that front remains “too little and too slow” and the OBOR could make the problem worse. It buys time, but at the cost of further subsidizing inefficiency.

Even if we believe the fairy tale narration of the Chinese President, the OBOR uses China’s otherwise unproductive and restless capital. An overseas demand does exist. The Asian Development Bank estimates that there is an $800 Billion annual shortfall for infrastructure needs in Asia-Pacific countries, a need that China is well-paced to provide through the AIIB and other means. However, there are risks to be taken into account in meeting that demand.

As for OBOR money, it is seen as a poisoned chalice. The ‘OBOR/BRI’ projects are built on low-interest loans, and not on aid grants. Some BRI investments have involved opaque bidding processes and required use by Chinese firms, and as a result the contracts have been cancelled.

India registered grave and serious objections against OBOR and the Chinese money lending system. India is also part of a united opposition against the BRI. For instance, former Finance Minister, the Late Mr. Arun Jaitley said: “I have no hesitation in saying that we have some serious reservations about it, because of sovereignty issues, I think connectivity in principle is a good idea but in this particular proposal there are several other collateral issues and this is not the forum to go into it.”

The legendary CPEC (China Pakistan Economic Corridor) where the Chinese promised to invest a massive $50 Billion in Pakistan to shore up infrastructure is an important part of the BRI, is where India’s reservations also stem from.

Counter

Now there’s been a significant amount of opposition to this Chinese scheme, like when former Prime Minister of Malaysia Mahathir Mohamad halted work on the ECRL (East Coast Rail Line), which was slated to stretch 430 miles connecting the South China Sea to shipping routes of Straits of Malacca, providing an essential trade link for China. And China needs Malacca strait more than anything in South East Asia because Malacca Strait is a strategic waterway between Indonesia and Malaysia through which the majority Chinese import pass, The narrow waterway is perfect chokepoint from the perspective of New Delhi in the case any escalation of tension, and god is my witness when I say New Delhi and Beijing are not friends.

India’s natural position in the Indian Ocean, with basin capabilities in the Andaman and Nicobar Islands at the mouth of the strait, would allow India to cut off the route in the event of a crisis. And then there’s an Indian Military Base in Sabang, Indonesia, causing Beijing to have more and more sleepless nights.

That may be the reason China used backdoor diplomacy or corruption (Just Saying) to convince Malaysia. But we all know that those oppositions were just political gimmicks, nothing more than that.

We can witness the united front against BRI first with the joint effort of US’s ‘International Development Finance Corporation’ (DFC), Japan’s ‘Japanese Bank of International Corporation’ and Australia’s ‘Department of Foreign Affairs on Trade’.

Many people believe Blue Dot a counter to President Xi’s most ambitious BRI, it is also the part of US-Indo Pacific which is aimed at countering Chinese influence in East Asia.

But many analysts acknowledge that this is not enough to counter why Probal Dasgupta, a strategic expert and author of the said Blue Dot, may be seen as a counter to BRI, but it will need a lot of work for two reasons. First, there is a fundamental difference between BRI and Blue dot - while the former involves direct financing, giving countries in need of immediate short-term relief, the latter is not a direct financing initiative and therefore may not be what some developing countries need. The question is if Blue Dot is offering first-world solutions to third world countries"?

We can sense the US’s desperation and irritation with these joint efforts; and there’s a strong reason for that, from the US point of view the Indo-Pacific region, which stretches from India’s west coast to the west coast of the US, is the most economically dynamic and populous part of the world, Chinese influence in that part of the world is not good for western power; while the Chinese urge to build the militaries outposts in South China sea also undermines the regional stability for the US.

And of course, how can we forget India’s very own Necklace of Diamonds to crush the Pearls. As Rihanna sang: ‘Shine bright like a diamond’, India is trying to over shine the Chinese pearls with this strategy. The Necklace of Diamonds strategy is India's counter to Chinese encirclement. Here’s one thing to note: where the Blue Dot focuses on the entire Asia and Pacific, India focuses on to break the Beijing’s growing presence in its neighbourhood.

The heat created by China and its ultra-ambitious project BRI raised way more eyebrows than what Beijing was prepared to handle. The Necklace of Diamond is a result of China’s aggressive land grab schemes.

India’s expansion of its naval base cleared one thing: Diamonds are not even disguised as an economic investment as China did. It’s quite clear from now on that there’s a military point of view that exists in this strategy. But New Delhi is also improving relations with strategically placed countries to counter Chinese influence.

India placed strategic bases all-around China encircling the country and restricting free movement in the time of Crisis. Changi Naval Base, Singapore confirms New Delhi’s effort to undermine Chinese military might. As we already know Malacca Strait is far more strategically important for India and China than to Indonesia and Malaysia. To keep a firm hand on this point, India gained its military access to Sabang Port in Indonesia. Oman and India share a long-standing defence treaty, which is significantly older than thought of BRI and pearls. By using this influence, the Indian administration gained the port of Duqm, which is situated on the south-eastern seaboard of Oman. This port also facilitates India’s crude imports from the Persian Gulf.

In 2015, India grew a foothold on Assumption Island in the Seychelles in 2015, when India and Seychelles agreed on the development of a naval base in the region. This gives the military access to India. This base is of strategic importance to India as China desperately wants to increase its presence in the African continent through the maritime Silk route. And of course, the most famous and Pakistan’s nightmare Chabahar Port, Iran. In 2016, the Modi administration signed an agreement to build this port. The port provides access to Afghanistan and an important trade route to Central Asia.

Apart from increasing military presence overseas, India also arranged much strategic cooperation by enhancing or improving relations with other nations to garland China.

When Indian Prime Minister Modi visited Mongolia, it seemed like a masterstroke in the eyes of many analysts, because this was the first time an Indian Prime Minister visited Mongolia. The visit paid well to India, when Mongolia agreed to develop a bilateral air corridor using India’s credit line. Another Asian giant, Japan, agreed to build the Asia-Africa Growth Corridor (AAGC) with India compared to Chinese schemes. This corridor is much more promising.

India and Vietnam maintained good bilateral relations to counter Chinese influence and to protect Vietnam’s territory from Chinese aggression, India sold Vietnam BrahMos Missile and Patrol boats. Prime Minister Modi visited all the 5 countries of Central Asia in one go and became the first Indian Prime Minister to do so. Within 4 years, trade with Central Asian countries had doubled since his visit.

Although the pandemic halted major portions of the BRI, and many countries diverted their energy, resources, and focus towards COVID-19 eradications, the imminent threat to stability in the region exists. The countermeasure seems promising, but what India and the US must keep in mind is that they not only have to match the spending of BRI (we’re talking in Trillions), but they have to deliver feasible results to host countries. It is not wrong to say that the Chinese attitude towards host nations makes BRI look like a sovereignty gulping machine and driving its partners away from the project; especially after the spread of the Chinese Corona Virus. Anti-Chinese sentiments are running in Nepal and Sri Lanka, and let’s not forget the domestic outrage the Chinese administration is facing in Hong Kong. But that doesn’t make the dragon sneeze. India’s reply is robust to OBOR and its schemes, India needs to overcome its own shortcomings or else all this fuss will be too little too late.

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About Author:

Author Name: Vaibhav Shukla

Bio: Vaibhav Shukla is currently perusing his degree in law from RTMNU; he's a reader by day and writer by night; his passion for international affairs and obsession with politics made him write about topics like this. He's inspired by the writings of Jay Soloman and Meisha Glenny.