Chinese inroads

The new silk road is being built faster than the world’s ability to grasp its consequences.

China has worked out a railway route to Afghanistan and, from August this year, begun operating two trains a month from Nantong (China) to Hairatan (Afghanistan) passing through Kazakhstan and Uzbekistan along the way. This remarkable achievement suffers from a temporary hitch — the trains have to go back empty to China because Uzbek authorities are yet to give permission for Afghan goods to transit their territory.

Last week, Chinese trucks drove south-west across the Himalayas, passing through the Karakorum pass into Pakistani territory. They transited through Gilgit-Baltistan and Balochistan before unloading their cargo onto a Chinese ship at the Chinese-built, Chinese-operated Pakistani port of Gwadar. [Gwadar is finally in Chinese hands, after Washington released its pressure on the Pakistani government due to an inability to persist or out of a lack of interest.]

On the eastern side of the Indian Ocean, analysts in Singapore are concerned over what appears to be a commercially dubious proposal to build a new port in the Malaysian town of Melaka (Malacca) that sits at the northern side of the important Straits of Malacca. The Malaysians have pulled out the stops to enable the project to take shape quickly. In typical fashion a little-known local firm is partnering a Chinese company to build the port.

Since there’s enough capacity in existing Malaysian ports, and it is relatively easy to expand them, the Melaka Gateway project is of questionable business value. But a foothold that commands the Straits, the Bay of Bengal and the Indian Ocean makes a lot of geostrategic sense if someone is willing to foot the $10 billion bill. And China is.

It appears that Xi Jinping’s One Belt, One Road (OBOR) is proceeding at a pace faster than the region’s policymakers can handle.

Connectionistan
Building transport connectivity in Central Asia is likely to unleash economic potential in the landlocked region, and depending on where the roads and railways lead, to other regions too. This will come with the usual political economy of Chinese overseas economic expansion: newly enriched local entrepreneurs, strengthened local political strongmen and grumblings due to Chinese labourers imported en mass. This will also be accompanied by fears of a demographic invasion from China into the sparsely populated Central Asian states.

The Chinese railway through the Central Asian states to Afghanistan presents India with a tantalising opportunity, if it were possible for Indian cargo and passengers to use the route. Pakistan would be deeply concerned, of course. Indeed, Pakistani strategists would already be worried that for the first time, China can trade with Afghanistan without having to transit through Pakistan.

New Delhi should explore arrangements with China, Kazakhstan, Uzbekistan and Afghanistan to connect to this railway. At the very least, Beijing’s intentions can be put to test.

Another port in the straits
The Chinese interest in Melaka comes at a time when the United States is likely to rebuff the painfully negotiated Trans-Pacific Partnership. Singapore, among other East Asian states will be unhappy with the turn of events. Another port along Malaysia’s west coast abutting the Malacca straits implies further competition to the island’s own ports. With the projected overcapacity, it gets worse.

While there is little New Delhi can do to ameliorate this, there is an emerging convergence of interests between India and Singapore. So too, we are likely to see, with other East Asian countries as they grapple with the undesirable prospect of having to jump onto the Chinese bandwagon given the increasing unreliability of the United States. This has been true for much of the past decade. Now, however, it has gotten all the more intense. The Modi government is clear that it seeks to engage East Asian states with greater boldness and purpose. Whether this will prove adequate or fast enough remains to be seen.

Manila on the Chinese bandwagon

The Philippines becomes the first Indo-Pacific country to declare itself for Beijing

On the geopolitics of the Indo-Pacific, I have long argued that “the small- and medium-sized countries of the region will prefer a balance where no single power dominates over them. If they do not see this forthcoming, they are likely to join the stronger side.”

Rodrigo Duterte, the president of the Philippines, appears to have decided that that stronger side is China.

“America has lost now. I’ve realigned myself in your ideological flow,” he said at a business forum in Beijing on Thursday. “And maybe I will also go to Russia to talk to Putin and tell him that there are three of us against the world: China, Philippines and Russia. It’s the only way.” [CNN]

There were indications of this for the last few months, but the manner in which he announced a “separation” from the United States, the Philippines’ treaty ally since 1951, could not have been more designed to ingratiate Beijing, his newfound benefactor. Mr Duterte calculates — correctly, in all likelihood — that China will now shower the Philippines with exemplary largesse. It is in Beijing’s interests to demonstrate that those who decide to join the Chinese side will be rewarded, as long as they are willing to ignore some trifling territorial disputes and international arbitration verdicts.

I have also argued that there is a Chinese wedge between ASEAN states that have a dispute with Beijing and those that don’t. That wedge has just gotten deeper and wider. The ASEAN agenda on maritime cooperation is now in question, as Philippines joins other pro-China ASEAN members in being uninterested in confronting China. Vietnam, in particular, will be under a lot more pressure.

The Philippines remains a pro-American country. It is also likely that parts of the country’s security establishment have deep links with the US armed forces. How Mr Duterte’s policy will go down with the people and the security establishment remains to be seen.

Ruddying relations

A closer strategic India-Australia relationship—the “how”

The Lowy Institute has released an excellent policy brief, authored by Rory Medcalf, coinciding with Australian prime minister Kevin Rudd’s first visit to India. You should read it in full—but the cogent executive summary is worth reproducing on this blog.

What is the problem
Strategic ties between Australia and India keep falling short of expectations, despite strong growth in trade. Controversy over the welfare of Indian students has added to differences over uranium exports to cloud what should be promising links between two countries with many common concerns. The relationship will weather recent turbulence. But without major diplomatic initiatives soon, the prospects for a truly strategic partnership between these Indian Ocean democracies will be set back for years.

What should be done?
The relationship needs to be invigorated through a leaders’ commitment to a strategic partnership, informed by a fresh awareness of how each country can help the other increase its security. This needs to be more than rhetoric.

A bilateral security declaration would add Australia-India relations to a regional web of defence ties involving Japan and South Korea. India should reciprocate Australia’s overtures to engage as a priority maritime partner, including in exercises. The two armies should help each other too, for example in special forces training.

Australia and India should work to expand common ground on nuclear non- proliferation and disarmament, which might help open the way on uranium sales. Both governments need fully to grasp Australia’s vast potential in ensuring India’s energy security.

Regular strategic dialogue should focus on common interests, including relating to China, Pakistan, Afghanistan, terrorism and maritime security. Options should also be explored for new regional arrangements including a three-party forum with Indonesia. [Lowy]

Related Link: Mr Medcalf also has an op-ed in today’s Indian Express. In the February 2008 issue of Pragati he argued that closer India-Australia ties requires political will on both sides.

Among white swans

On estimating political risk in India

India is the only Asian country outside the East Asian region to be included in the Political & Economic Risk Consultancy’s (PERC) Asian Risk Prospects for 2009 report. According to PERC, India is the riskiest country among those analysed, and it’s risk rating is to increase for the coming financial year. The executive summary says:

India faces some of the biggest risks in 2009 because of uncertainties surrounding the coming general election, rising communal violence and terrorism incidents. The global financial crisis is not an entirely bad thing. The economy needs to take a breather and certain sectors like real estate need to experience sharp price corrections in order to restore India’s competitiveness. India’s underlying attractions to foreign investors should remain no matter who wins the next election. The biggest risk is that a deterioration in political and economic conditions in neighboring Pakistan could aggravate social unrest in India further and hurt national security.[PERC]

General elections, communal violence, terrorism—these are neither new nor too much of a bother for foreign investors. It is perhaps the possibility of the Singur type of public agitations that should be more of a concern. Even so, the geographical variation of political risk among Indian states makes a national level risk assessment neither too accurate nor too meaningful. The analytic framework must focus on estimating political risk in India, than that of India.

So is the case with the Pakistan factor: in addition to the geographic factor, unless the channels by which the turmoil in Pakistan is transferred to India are understood and analysed, the conclusion that it will aggravate social unrest in India is too general to be of much use.

Moreover, the risk factors PERC cites in India’s case are well-known and well-understood. The real issues are of the Black Swans that might turn up among the ostensibly less risky, but considerably more opaque East Asian economies.