Belt and Road Initiative and South Asia [1 ed.] 1032508299, 9781032508290

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Belt and Road Initiative

and South Asia

Belt and Road Initiative (BRI) has been an obscure concept, and it remains difficult to distinguish what BRI is and isn’t, making it difficult for many governments and global corporations to properly participate in it. I am delighted to present the opinions and perspectives of many eminent researchers, professors and experts from various countries on the Belt Road Initiative (BRI). The book contains 11 chapters which are written by distinguished researchers and practitioners from various parts of Asia. While these 11 chapters discuss the many characteristics of the BRI, including advantages and costs, they also convey the lessons that many other Southeast Asian countries have learned. Each chapter offers valueable lessons to the countries that have yet to participate in the initiatives. Dr. Kalyan Raj Sharma graduated from Fudan University with a doctoral degree in economics in 2011. He is now the Chair of Nepal China Friendship Forum(NCFF), visiting scholar at Kathmandu University and the Managing Director of Adventure Outdoor Group of Companies. During his doctoral studies at Fudan, Sharma published a number of academic papers in both Chinese and English on the economy and tourism of China and Nepal.

Belt and Road Initiative

and South Asia

Edited by

Kalyan Raj ShaRma

KNOWLEDGE WORLD

KW Publishers Pvt Ltd New Delhi

First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 KW Publishers and Kalyan Raj Sharma The right of Kalyan Raj Sharma to be identified as author of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Print edition not for sale in South Asia (India, Sri Lanka, Nepal, Bangladesh, Pakistan or Bhutan) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN: 9781032508290 (hbk) ISBN: 9781032508306 (hbk) ISBN: 9781003399834 (ebk) DOI: 10.4324/9781003399834 Typeset in A Caslon Pro by KW Publishers, Delhi

Contents Foreword

xi

Preface

xiii

About the Contributors

xvii

Acknowledgements

xv

List of Tables, Figures and Maps

xxiii

List of Abbreviations

xxvii

1.

xxxiii

Introduction Kalyan Raj Sharma PaRt I: BIg PIctuRe

2.

China’s Trade Imbalance with South Asian Nations:

How Can the BRI Help? Yin Xiangshuo

3.

The BRI and SDGs Nexus: Cooperation or Confrontation? Bhoj Raj Poudel PaRt II: South aSIa

3

23

4.

BRI for Trade and Connectivity in South Asia: A CPEC Model Hina Aslam

39

5.

BRI, Trade and Connectivity: Bangladesh’s Perspective Mahfuz Kabir and Nahian Reza Sabriet

55

6.

Strengthening International Cooperation and Building a

Community of Shared Future between Nepal and China Yang Yabo and Zhang Jianghong

76

7.

On Countermeasures and Suggestions to Further Economic

Cooperation between China and Nepal Di Fangyao, Cui Hongye and Yang Fan

95

vi | Belt and Road Initiative and South Asia

8.

Evidence and Lessons from BRI: The Case of China-Pakistan Economic Corridor Vaqar Ahmed

9.

The COVID-19 Pandemic and BRI 2.0 Partha S Banerjee

114 130

PaRt III: LeSSonS fRom SoutheaSt aSIa 10. Chinese Belt and Road Initiative (BRI) and the Sustainable Development in Lao PDR Vanxay Sayavong

147

11. Malaysia’s Response towards China’s Belt and Road Initiative under Mahathir 2.0 Nur Shahadah Jamil

181

12. Win-Win Cooperation through the BRI: What Constitutes a “Win” for the Philippines? Darlene V. Estrada

200

Annexures • Conference Agenda I (2018) • Conference Agenda II (2019)

224

Index

235

Foreword

It gives me immense pleasure to write a few words about this book compiled by Dr. Kalyan. As the different experts have written the various aspects about the development experiences, certainly The Belt and Road Initiative (BRI) supports a large-scale project that aims to enhance regional cooperation and boost trans-continental connections which can be a milestone for the countries like ours too. The facts have revealed that China-proposed BRI which is an economic pie for the infrastructural development of countries across the world. As all South Asian countries including Nepal are in need of huge economic assistance and investments for their infrastructural development, BRI, of course, can supplement for the developmental endeavors. In Belt and Road Initiative and South Asia, the authors have clearly underscored the reality that BRI is instrumental for South Asian nations’ sustainable development, and their increased economic engagements thanks . However, the political and business leadership of the countries should be sincere to the five principles of BRI; policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds which are the core gist of BRI that aims at implementing and so that uplifting countries’ needs and level of development. Since the inception of BRI in 2013, China has invested nearly US$ 755 billion in the BRI participating countries. The overall budget of the Chinaled initiative would cost approximately US$ 1.3 trillion to US$ 5 trillion depending upon its success. Many organizations and financial institutions have also been hired to financially contribute to BRI objectives. Silk Road Fund, China Development Bank, China Exim Bank, Asian Infrastructure and Investment Bank (AIIB)  and the  New Development Bank (NDB),

xii | Belt and Road Initiative and South Asia

Commercial Bank of China (ICBC), China Construction Bank and the People’s Bank of China (PBoC) are the institutions that are contributing to the objectives of BRI. Such institutions are the strong evidences that ensure sustainability of BRI while guaranteeing financial assistance to execute the projects. Nepal is expecting to uplift itself from the least developed country to a middle-income country with a per capita income of US$ 2,900 in 2031. However, the target is not achievable until Nepal obtains 8 per cent of annual growth rate. To achieve this target, Nepal should anticipate foreign direct investment and increase expenditure in infrastructure to reduce the business cost. China’s support in the infrastructure development including hydropower in Nepal could be supportive in achieving the target. The outbreak of COVID-19 has had severe impacts on the global economy due to restricted human mobility, disrupted trade and stalled progress on development projects. Against this backdrop, engagements and negotiations on BRI projects too got affected during the time of the COVID-19 pandemic. So, in the aftermath of the COVID-19 pandemic, BRI projects should advance for the greater good of humankind globally. In this respect, Belt and Road Initiative and South Asia succeeds marvelously and offers meaningful insights for deepening BRI cooperation among the participating countries. Hence, successful implementation of BRI in Nepal and other South Asian countries is need of the hour to lure more Chinese investment to fulfil our own financing gap, learn from Chinese development experiences, technologies and miraculous infrastructural development there. I wish all the best for the successful implementation of BRI and wishing all the best to the authors and compilers of the book for the resourceful information and their untiring efforts to bring the book in this form. Thank you

Prof. Prem Narayan Aryal, Ph.D. Vice-Chancellor Pokhara University

Preface

The Belt and Road Initiative (BRI), which was first announced by Chinese President Xi Jinping in 2013, has grown into an international revolution that is reverberating around the world. For many countries including Nepal, China has emerged as a glimmer of hope as a reliable development partner who can supplement their developmental needs on time. Similarly, Nepal has also been part of BRI since 2017. A total of nine projects related to connectivity and energy were listed under the initiative. For a landlocked country like Nepal, projects under BRI will make it easy for the country to do easy business with other nations which will flourish its international trade relation. The much talked about Nepal-China railway under BRI aims to promote the tourism sector and lead to economic growth in the country. As a result of BRI, economic ties between Nepal and China have steadily improved, allowing the country to develop and flourish. For many BRI has been a vague topic and still find it complex to differentiate what the BRI is what it is not which makes it hard for many nations and global firms to fully participate in it. Therefore, I am very pleased to publish the ideas and viewpoints of many distinguished researchers, scholars and experts from different countries on Belt Road Initiative (BRI). This book provides a perception of the Malaysian government on China’s BRI for their country. It explains how BRI concept will be a winwin framework for the Philippines and China, and what does a win for the Philippines entail? The connection between BRI and sustainable development goals (SDGs) of Lao PDR has too been discussed in this book. The book also provides an overview of the possible impacts China-Pakistan Economic Corridor under the BRI. Similarly, it examines whether the SDGs and BRI

xiv | Belt and Road Initiative and South Asia

should work together to close the gap on the way to overall growth. The trade deficit between China and South Asia is increasing every year, the book likewise discusses on how BRI can help south Asian countries to balance the trade between the two regions. It also discusses about the BRI during this pandemic period. It was not an easy task to compile this volume. I have received wholehearted support from the contributors and the conference participants. I would like to extend my sincere gratitude to all of the researchers and experts who contributed to this publication. I owe a colossal debt of gratitude to Dr. Nur Shahdah Jamil, Ms Darlene V. Estrada, Mr Vanxay Sayavong, Prof Zhang Jiadong, Mr. Yang Yabo, Dr. Hina Aslam, Mr. Di Fangyao, Dr. Yin Xiangshuo, Dr. Vaqar Ahmed, Mr. Bhoj Raj Poudel, Dr. Mafuz Kabir and Dr. Partha S Banerjee for their precious time and valuable visions to clarify the concept. I thank Kalpana Shukla and Sushanta Gayen of KW Publishers for their support in publishing this book. Before I come to the close, I share with you all, the joy and pleasure of publishing the first volume of “Belt and Road Initiative and South Asia” and extend my immense gratefulness to each and everyone involved, for their continuous support and cooperation in making this book a success. Kathmandu

Kalyan Raj Sharma

Acknowledgements

The completion of this project would not have been possible without the involvement and cooperation of a significant number of people, the names of whom cannot all be listed. Their contributions are greatly appreciated and thanked. I cannot express enough thanks to everyone for their continued support and encouragement. However, I want to convey my heartfelt gratitude and thanks to Dr. Prabir De, in particular, for his encouragement, direction, and suggestions, as well as for devoting so much time to this book. I would like to acknowledge and give my warmest thanks to him who made this book possible. I thank everyone who helped in any manner, including friends, family, and acquaintances. Without their incredible understanding and inspiration, it would be impossible for me to complete this book. It is their kind help and support that have made this project a success.

About the Contributors

Bhoj Raj Poudel is a political economist with a decade long experience in the field of development as a practitioner. He was formerly with the Ministry of Finance (MoF), Government of Nepal (GoN), and Central Bank of Zambia (BoZ), Republic of Zambia, to facilitate implementing projects funded by multilateral development partners. He has co-authored a book, “Generation Dialogues: Youth in Politics in Nepal”. He serves as a member of the International Advisory Committee of Journal of Liberty and International Affairs. Darlene V. Estrada is Foreign Affairs Research Specialist at the Center for International Relations and Strategic Studies of the Philippine Foreign Service Institute. She undertakes research on key issues concerning Philippines-China relations and has written several articles on the Belt and Road Initiative and its implications for the Philippines as part of the Institute’s publications. Her research interests include ChinaSoutheast Asia relations, China’s foreign policy, and East Asian regional integration. She earned her master’s degree in Asian Studies, Major in Northeast Asia−China, from the University of the Philippines Diliman and her bachelor’s degree in Political Science from the University of the Philippines Manila. Yin Xiangshuo is a Professor in the School of Economics, Fudan University. Professor Yin received his doctoral degree in 1993, and became an associate professor in 1995 and full professor in 2000. Professor Yin’s main research area is international trade. He has published numerous papers

xviii | Belt and Road Initiative and South Asia

and six monographs mainly concerning China’s foreign trade reforms, trade strategies and policies. Professor Yin used to be the vice president and president of Fudan-Pacific Institute of Finance, and associate dean of School of Economics. He also visited MIT (USA), Sussex University (UK), City University of Hong Kong, University of Strasbourg (France), etc. as Visiting Scholar or Guest Professor. Hina Aslam is a Research Fellow, Head of China Study Center, at Sustainable Development Policy Institute (SDPI), Pakistan. She did her PhD in Ecology from the University of Chinese Academy of Sciences, Beijing and her Master’s in Environmental Engineering and Sciences from Beijing Institute of technology, China.  At SDPI, She is responsible for developing research and policy outreach programs in connection with BRI and China-Pakistan Economic Corridor (CPEC) as well as related aspects including PakChina diplomatic relations, trade & business, tourism, environmental, financing, regional connectivity, and urban development. She manages requests for policy advice from public and private sector in the areas of expertise. She also works as a Consultant for The World Bank Group China’s environment and climate change team on several projects including: Soil pollution prevention and control in China, MTR for China’s National 13th and 14th FYP, Groundwater quality and control, Marine plastic pollution in China, Policy advisory for Coal mine land reclamation in Shanxiprovince. Vanxay Sayavong is currently a PhD student at the Graduate School of Economics (GSE), Waseda University, Tokyo, Japan; and a researcher at the Lao Academy of Social and Economic Sciences (LASES), Vientiane, Laos. He holds a master’s degree in International and Development Economics from Crawford School of Public Policy at the Australian National University (ANU), Canberra, Australia. He is also the national consultant for the United Nations Department of Economic and Social Affairs (UN DESA) under the project of Jointly Building Belt and Road

About the Contributors | xix

towards SDGs. In 2017, he was a research fellow at the Japan Center for Economic Research ( JCER), Tokyo, Japan. His primary research fields include economic integration of late-developing countries, macro modelling, asset poverty, productivity and technical efficiency, Belt and Road Initiative (BRI) and Sustainable Development Goals (SDGs), and illicit financial flows (IFFs) in the context of Laos. Nur Shahadah Jamil is a PhD in Strategic and Security Studies, National University of Malaysia (UKM). Her PhD dissertation entitled “Evolution in China’s South China Sea Policy Process: A Neoclassical Realism Explanation” focuses primarily on explaining how structural factors and elites’ perception (after being filtered by relevant domestic considerations) contribute to the evolution of China’s South China Sea Policy, as well as the evolution in the patterns of pluralisation in the policy process from 1949-2017. Dr. Shahadah is also a research fellow at the East Asian International Relations (EAIR) Caucus, which is a research platform for exchange, engagement and empowerment among foreign affairs professionals and international relations scholars in Malaysia. Her research concentrates mainly on China’s foreign policy, South China Sea, Southeast Asian responses to Belt and Road Initiative and East Asian Security. Dr Shahadah in also one of the recipients for Taiwan Fellowship Award in 2017 and has conducted her four-month research in National Chengchi University, Taipei, Taiwan. She is currently serving as a Senior Lecturer at the Institute of China Studies (ICS), University of Malaya (UM) and can be contacted via email at [email protected]. Partha S Banerjee has 30 years of professional experience in working with the national and provincial governments in Asia and Africa. Besides governments, his clientele includes the Asian Development Bank, UN Agencies (UNDP, UNESCO, ILO, and UNIDO), the World Bank, the European Union, German Development Cooperation (GIZ), British Council, reputed State-Owned Enterprises, apex industry associations, and the private sector. He has worked in more than 20 countries across the world.

xx | Belt and Road Initiative and South Asia

Partha is building his policy research firm; earlier he was a Partner in PwC, and then in KPMG. He has an extensive experience in (i) conducting primary and secondary research for policy development, (ii) design and implementation of multidisciplinary public projects; (iii) post disaster needs assessment, and (iv) evaluation of public programmes. Partha holds a Bachelor of Technology (Hons.) and Master of Business Management, both degrees from IIT Kharagpur and a PhD from IIT Delhi. He is a certified Project Management Professional (PMP) from the Project Management Institute, USA. Vaqar Ahmed is a former civil servant and currently Joint Executive Director, Sustainable Development Policy Institute (SDPI). Earlier, he has served UNDP, and has undertaken assignments with Asian Development Bank, World Bank Group, and Ministries of Finance, Planning and Commerce in Pakistan. He has held advisory roles in provincial governments of Sindh and Khyber Pakhtunkhwa. He is also the honorary Research Fellow at Partnership for Economic Policy, Canada and Steering Committee Member for Southern Voice. He served as a visiting faculty member and researcher in different international institutes, including the University of Laval in Canada, University of Le Havre in France, National University of Ireland, Pakistan’s Quaid-e-Azam University and National School of Public Policy. He was recipient of 2015 Young Leaders Fellowship award by the French Ministry of Foreign Affairs. He continues to publish on various aspects of international trade,public finance, and private sector competitiveness. His book ‘Pakistan’s Agenda for Economic Reforms’ was published by the Oxford University Press in 2018. He is convenor of Pakistan’s National Network for Economic Think Tanks. His political economy commentary can be seen at Arab News and PTV-World. He has also served on various boards and committees including at Fauji Foundation, Pakistan’s Planning Commission, Punjab Urban Unit, Khyber Pakhtunkhwa Board of Investment & Trade, National Skills

About the Contributors | xxi

University, Pakistan Institute of Development Economics, and Federation of Pakistan Chambers of Commerce and Industries. Mahfuz Kabir is Research Director at Bangladesh Institute of International And Strategic Studies (BIISS). He has PhD in Economics, School of Economics and Finance, Curtin University, Australia. His area of interest include international trade, macroeconomics, regional trading blocs, SAARC, BIMSTEC, time series and panel data econometrics, partial and general equilibrium models, energy, agriculture, climate change, etc. Di Fangyao from Jiaxiang County, Shandong Province, China, graduated from Shaanxi Normal University in 1983, and now a Professor and Consultant of South Asia Studies Center at Xizang Minzu University (Tibet Nationalities University). He is also a doctoral tutor of Tibet University, and Executive Director of China South Asia Association. He has been engaged in higher education for nearly 40 years, and has been engaged in research and teaching on issues such as China’s contemporary economy, regional economics, China’s Tibet autonomous region economy, economic and trade relations between China and South Asian countries, and the Belt and Road Initiative. He has published 9 books, published more than 70 professional research papers, and won six provincial-level academic research awards. Since the Chinese government issued the Belt and Road Initiative to the world, he has visited Nepal, Bhutan and other South Asian countries for academic research and academic exchanges, and actively called on Nepal, India and other South Asian countries to conduct friendly consultations and equal cooperation with China to jointly promote South Asian countries. Yang Yabo is an Associate Professor at the Institute of South Asian Studies of the XiZang Academy of Social Sciences, mainly engaged in the research of the BRI, international development cooperation and regional development in TAR.

xxii | Belt and Road Initiative and South Asia

Zhang Jianghong is an Assistant Research Fellow at the Institute of South Asian Studies of the TASS, mainly engaged in politics, history and culture of the Himalayan region.

List of Tables, Figures and Maps

Tables 2.1 Growth of Merchandise Exports from Major South Asian

Nations 2.2 Import Tariff Rates on Manufactured Goods, Ores and

Metals*, 1990 – 2016 2.3 Trade Openness of Major South Asian Nations 2.4 China’s Trade with India: Services 2.5 Manufacturing value-added of Major South Asian

Nations 2.6 Trade Deficits of Major South Asian Nations with

China and their Shares in Total Trade Deficits in 2017 2.7 Ease of Doing Business Ranking, 2018 2.8 Electric Power Consumption of Major South Asian

Nations, 2014 vs. 1990 2.9 Electric Power Consumption of Major South Asian

Nations as a Percentage of World Level, 2014 vs. 1990 2.10 Rail Lines in Major South Asian Nations 2.11 Goods Transported by Railways in Major South Asian

Nations 2.12 Container Port Traffic of Major South Asian Nations 4.1 CPEC Progress and Status 4.2 Special Economic Zones under CPEC 5.1 Time Taken from Origin (India) to Destination

(Bangladesh) in T&C Inputs

5

7

8

12

16

17

18

18

19

19

19

20

40

42

67

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7.1 7.2 7.3 7.4 7.5 8.1 8.2 8.3 8.4 8.5 8.6 10.1 10.2 10.3 10.4 10.5 10.6 10.7 12.1 12.2 12.3 12.4

Joint Statements, Agreements, MoUs between

China and Nepal Nepal-China Academic Forums Held from 2018 to May 2019 Nepal-China Frontier Trade Volume Bilateral Programmes—from 2015 to the end of May 2019 Nepal’s Rankings of Population and Trade Volume

in the World Macroeconomic Indicators Major Imports from China 2017-18 Major Imports from China 2009-10 Major Exports to China 2017-18 Major Exports to China 2009-10 FDI Inflows from China Selected Key Development Indicators in ASEAN Region 2030 Vision and 10-Year Socio-Economic Development

Strategy (2016-2025) Sustainable Development Goals Index by

Global Ranking Comparative Performance of SDGs for Lao PDR in

the Asia Pacific Region Current BRI Activities in Lao PDR Top Destination for Lao Students The Link between BRI and SDGs, and Potential

Impact in Lao PDR Game Classifications according to Prisner The Duterte Administration’s 0-10 Point

Socioeconomic Agenda Plan Targets under PDP 2017-2022 Opportunities for international companies in BRI

97

100 102

103 108

115

123

123

124

124

126

148

151

153

154

158

165

166

206

211

212

216

List of Tables, Figures and Maps | xxv

figures 2.1 Exports of Major South Asian Nations: 1995-2017 2.2 Trade Balance of Major South Asian Nations in Goods 2.3 Trade Balance of Major South Asian Nations in Services 2.4 Merchandise Trade of Major South Asian Nations with

China: 1995-2017 2.5 Merchandise Exports of Major South Asian Nations to

China: 1995-2017 2.6 Merchandise Imports of Major South Asian Nations to

China: 1995-2017 2.7 China’s Merchandise Trade with India 2.8 China’s Trade with India: Manufactured Goods 2.9 China’s Trade with India: Primary Goods 2.10 Share of Manufacturing value-added in GDP of Major

Developed countries with Trade Surplus: 1990-2009 2.11 Share of Manufacturing value-added in GDP of Major

Developed Countries with Trade Deficit: 1990-2009 2.12 Share of Manufacturing value-added in GDP of Major

Developing Countries with Trade Surplus: 1990-2009 2.13 Share of Manufacturing value-added in GDP of Major

Developing Countries with Trade Deficit: 1990-2009 2.14 Net Trade in Goods versus Manufacturing value-added

in Major Developed Countries: 1990-2009 2.15 Net Trade in Goods versus Manufacturing value-added

in Major Developing Countries: 1990-2009 3.1 Countries Below 65 in Global Index Score 2019 3.2 GDP Per Capita of Countries Below 65 in

Global Index Score 2019 5.1 China’s Exports to (left) and Imports from (right)

Afghanistan 5.2 China’s Exports to (left) and Imports from (right)

Bangladesh

5

6

6

9

9

10

10

11

11

13

13

14

14

15

15

27

28

58

59

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5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 7.1 7.2 7.3 8.1 8.2 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9

China’s Exports to (left) and Imports from (right) Bhutan 59

China’s Exports to (left) and Imports from (right) India 60

China’s Exports to (left) and Imports from (right) Maldives 61

China’s Exports to (left) and Imports from (right) Nepal 62

China’s Exports to (left) and Imports from (right) Pakistan 63

China’s Exports to (left) and Imports from (right) Sri Lanka 64

FDI Inflows (Net) by Major Countries during the

65

calendar years 2019 (left) and 2020 (right) Net Chinese FDI in Bangladesh by Sector (2019-20) 66

Nepal-China High-level Talks from 2015 to the End of May 2019 96 China-Nepal Trade Volume in Contrast to

India-Nepal Trade Volume from 2008 to 2017 108

China-Nepal Trade Volume in China’s Overall Trade

Volume from 2008 to 2017 109

Pakistan’s Trade with China 122

Pakistan’s Services Trade with China 125

Map of Lao-China Railway and Selected Special Economic

157

Zones along the Lao-China Economic Corridor Chinese Investment in Lao PDR from 2008-2019 161

Chinese Foreign Direct Investment (FDI) by

162

Industries from 2008-2019 Trade between Lao PDR and China during 2012-2018 163

Proposed Projects under Chinese Grant for Lao PDR

by Areas 164

Chinese Tourists in Lao PDR 165

169

Contribution of Sectors to Lao GDP Growth Environmental Impact during the Construction 170

Map of Unexplored Ordnance (UXO) Contamination

in Lao PDR and Railway Project 174

List of Tables, Figures and Maps | xxvii

maps 3.1 Belt and Road Initiative on the Map 5.1 China’s Proposed New Silk Roads

30

70

List of Abbreviations

AIDS AIIB ASEAN B&R B3W BBB BBIN BCIM-EC BFA BIMSTEC BN BOI BOT BRF BRI BRICS CACF CAEXPO CASCF CBBC CCCC CCF CEIZ

Acquired immunodeficiency syndrome Asian Infrastructure and Investment Bank Association of Southeast Asian Nations Belt and Road Build Back Better World Build, Build, Build Bangladesh-Bhutan-India and Nepal Bangladesh-China-India-Myanmar Economic Corridor Boao Forum for Asia Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation Barisan Nasional Board of Investment Build-Operate-Transfer Belt and Road Forum Belt and Road Initiative Brazil, Russia, India, China, and South Africa China-Africa Co-operation Forum China-ASEAN Expo China-Arab States Cooperation Forum China-Britain Business Council China Communications Construction Company China-CELAC Forum Chinese Economic and Industrial Zone

List of Abbreviations | xxix

CELA CFPD CIETAC CIPS CMPA CPC CPEC CREC CSR DBM DSSI DTI DTMB EAPD ECRL EU EVI FATA FDI FOCAC FOIP FTA FTZs FY G2G GDP GDP GNI HA HAI HDI HIV

Chinese European Legal Association China Fund for Peace and Development China International Economic and Trade Arbitration Commission Cross-Border Inter-Bank Payment System China-Malaysia Port Alliance Communist Party of China  China-Pakistan Economic Corridor China Railway Engineering Corp Corporate Social Responsibility Department of Budget and Management Debt Service Suspension Initiative Department of Trade and Industry Digital Terrestrial Multimedia Broadcasting The Economic Analysis and Policy Division East Coast Rail Link European Union Economic Vulnerability Index Federally Administered Tribal Areas Foreign Direct Investment Forum on China Africa Cooperation Free and Open Indo-Pacific Free Trade Agreement Free Trade Zones Fiscal Year Government to Government Gross Domestic Product Gross Development Product Gross National Income Himalayan Airlines Human Asset Index Human Development Index Human Immunodeficiency Virus

xxx | Belt and Road Initiative and South Asia

HKIAC HVDC ICBC ICC ICT IMF IPP IRR ITS JCC K2K KM Lao PDR LCEC LDC LLDC LSB LTP MDB MDGs MOFA MOFCOM MoIC MoP MoU MPI MSMEs MSR MW NDB NDRC NEDA

Hong Kong International Arbitration Center High-Voltage, Direct Current  Industrial and Commercial Bank of China Investment Coordination Committee Information and Communication Technologies International Monetary Fund Independent Power Producers Implementing Rules and Regulations Intelligent Transportation System Joint Cooperation Committee  Kunming to Kolkata Kilometre Lao People’s Democratic Republic Laos-China Economic Corridor Cooperation Framework Least Developed Country land-locked developing economy Lao Statistics Bureau Long Term Plan Malaysia Development Berhad Millennium Development Goals The Ministry of Foreign Affairs The Ministry of Commerce of China Ministry of Industry and Commerce Ministry of Planning Memorandum of Understanding Ministry of Planning and Investment Micro, Small and Medium Enterprises Maritime Silk Road Mega Watt New Development Bank National Development and Reform Commission National Economic and Development Authority

List of Abbreviations | xxxi

NGOs NSEDP NTBs OBOR ODA OECD PACRA PBoC PDP PhD PIA PPP PTBs RMB RMGs SAARC SDGs SEZ SMEs SOEs SREB STIs T&C TAR UAE UMNO UN UNCTAD UNDESA UNDP

Non-Governmental Organisation National Socio-Economic Development Plan Non-Tariff Barriers One Belt One Road Official Development Aid The Organisation for Economic Co-operation and Development Pakistan Credit Rating Agency The People’s Bank of China Philippine Development Plan Doctor of Philosophy Project Investment Agreement Public-Private Partnership Para-Tariff Barriers Ren Min Bi Readymade Garments South Asian Association for Regional Cooperation Sustainable Development Goals Special Economic Zones Small Medium Enterprise State-Owned Enterprises Silk Road Economic Belt Sexually Transmitted Infections  Textile and Clothing Tibet Autonomous Region United Arab Emirates The United Malays National Organisation United Nations The United Nations Conference on Trade and Development  United Nations Department of Economics and Social Affairs United Nations Development Program

xxxii | Belt and Road Initiative and South Asia

UNWTO US WBG

United Nations World Tourism Organisation  United States World Bank Group

1.

Introduction

Kalyan Raj Sharma

The Belt and Road Initiative (BRI) was announced in 2013 as a project to build trade routes linking China with multiple countries in Asia, Europe and Africa. The aim was to finance infrastructure projects in over 65 countries. As of 2021, China has signed over 150 cooperation documents with more than 150 countries in Asia, Africa, Europe, Latin America and the South-Pacific region, and several such documents with many international organisations. The United Nations Security Council had unanimously adopted Resolution 2,344 calling on the international community to strengthen regional economic cooperation through the BRI on 17 March 2017. China has also signed cooperation documents with the United Nations Development Programme, United Nations Economic and Social Commission for Asia and the Pacific, and the World Health Organisation. China has issued a detailed explanatory document on the Belt and Road Initiative in 2017, which mentions that China will “dovetail the BRI Initiative with the national strategies, development visions and general plans of countries along the routes to give the initiative the best possible start.” BRI calls for policy coordination, connectivity of infrastructure and facilities, unimpeded trade, financial integration, and closer people-to-people ties. China shares its borders with five South Asian countries ranging from the major powers in South Asia—India and Pakistan—to others: Afghanistan, Nepal and Bhutan. Since the late 1990s, Chinese economic ties in terms of trade, investment, and financial assistance has been growing in the South Asian Association for Regional Cooperation (SAARC) region. From 2000 to 2021 China has become the largest trading partner of Bangladesh, India

xxxiv | Belt and Road Initiative and South Asia

and Pakistan and the second-largest trading partner of Nepal and Sri Lanka. China is also one of the nine observer states of SAARC. A report published by the Asian Development Bank (ADB) in 2017 estimates that the infrastructure needs in developing Asia and the Pacific will exceed US$ 22.6 trillion through 2030, or US$ 1.5 trillion per year, if the region is to maintain growth momentum. Chinese President Xi Jinping during the BRI’s five-year anniversary in September 2021 said that China’s trade with countries involved in the initiative now exceeds US$ 5 trillion with some US$ 60 billion in investment. China is both a destination country for foreign investment and a major investor abroad. The “six means of communication”—rail, highways, seagoing transport, aviation, pipelines and aerospace integrated information network—identified under the BRI comprise the main targets of infrastructure connectivity. BRI also mentions cooperation in areas such as energy, tourism, climate change and disaster risk management, among others. China has set-up the Asian Infrastructure Investment Bank (AIIB), with a legal capital of US$ 100 billion and focusing on regional connectivity and industrial development, has provided over US$ 2 billion in loans to several projects in fields such as energy, transport and urban development in India, Indonesia, Tajikistan, Pakistan and Bangladesh by the end of 2021. The BRI has determined five routes for the Belt and Road to promote international cooperation. A framework including six corridors along these routes has been developed. Among the “six corridors,” one engages the South Asia region: the China-Pakistan Economic Corridor (CPEC). The Maldives and China signed a Free Trade Agreement (FTA) in 2017. In September of 2018, Nepal signed a Transit and Transport Agreement (TTA) with China that would allow Nepal to use four of China’s seaports and three land ports for trade. The BRI, however, is not free of criticisms from participating countries and others. One of them is the possibility of Chinese debt. This was reflected when the Malaysian Prime Minister cancelled Chinese-funded multi-billion projects in August 2018 in view of such debt. Sri Lankan port of Hambantota was dragged into controversy as the US$ 1.1 billion debt  that Sri Lanka

Introduction | xxxv

incurred in constructing this project was written off by China in exchange for a 99-year lease on the deep-water port of Hambantota. Meanwhile, a recent study led by Aid Data at the College of William & Mary in Virginia found positive impacts of BRI on host countries. The study examined 3,485 BRI projects across 138 nations to conclude that BRI projects help narrow economic inequalities within the host countries even if they risk tempting them into possible debt traps. Following the COVID-19 pandemic, the BRI investments abroad have declined considerably. While the BRI offers many important avenues of development for landlocked countries like Nepal, the BRI must adopt new realities in post-COVID-19. Health, climate, disaster relief, pandemic management, skilling, technology, etc. have gained high importance over the physical connectivity, which was the original path of the BRI. In such a changing scenario, South Asian countries must embrace to this new phase of regional cooperation and integration. The main objective of the edited book is to bring together policymakers, experts, researchers, the private sector and other relevant stakeholders to discuss dynamics of the BRI to identify the opportunities it may bring to Nepal and South Asian countries for their economic development. In particular, this book aims to: (i) share country-specific BRI experiences from select South Asian countries; (ii) discuss ways for leveraging the BRI for regional development in South Asia; and (iii) identify workable modalities for implementation of the BRI projects in SAARC countries. The content of the book is divided into three parts: Big Picture, South Asia and Southeast Asia. It presents a total of 11 chapters, written by senior scholars and practitioners of different parts of Asia. While these 11 chapters talk about various features of the BRI including benefits and costs, chapters also present the lessons that Southeast Asian countries draw. The chapters have not only critically evaluated the BRI projects but also carried out a balanced discussion. Each chapter is rich in contents and offers lessons to those countries which still stay away from the BRI projects. A quick overview of these 11 chapters is presented next. China has become the largest trade partner of most of the South Asian countries. However, the rising trade imbalance with China has also become

xxxvi | Belt and Road Initiative and South Asia

a political and economic issue in South Asian countries. Since most tradable goods are manufactured goods, countries with consistent trade surplus are usually those countries that have a larger manufactured sector. But the manufacturing sector in most South Asian nations has not expanded quick enough, except perhaps that in Bangladesh. Bangladesh has a relatively large manufacturing sector, but still much smaller than China. That is why almost all its trade deficit is with China. If the goods manufacturing sector is one of the most important factors in determining trade balance, developing manufacturing capacity should be an important task for South Asian countries. However, manufacturing depends on hard infrastructures, such as electricity, roads, railways, ports, etc., besides labour and capital. Chapter 2 entitled “China’s Trade Imbalance with South Asian Nations: How Can the BRI Help?”, written by Yin Xiangshuo, argues that China’s BRI can help in this aspect as two of its five goals that are “facilities connectivity” and “unimpeded trade”, are dependent on the development of infrastructure. If South Asian nations become more active in participating in the BRI projects, especially infrastructure projects, they can benefit largely as they will help in the development of the manufacturing sector. Of course, promoting the development of the manufacturing sector will not necessarily reduce the trade deficit of South Asian countries immediately, but, in the long run, this will help them in not only balancing their trade but also sustaining their economic growth. Achievement of SDGs by 2030 determines the fate of inclusive global development and most importantly of people living under the line of poverty. Almost all the countries have made SDGs a part of their national strategies and development goals. But a common problem that they are facing is the availability of financial resources to meet these ambitious goals. Most of the economies are trying to adopt new ways of financing mechanisms in order to fulfil the financing gaps. In this context, the BRI has been perceived as a major source of financing which might be a complementary financial source to meet the SDGs. Although the objectives of the two global efforts align, there are no clear plans and strategies at the global scale for them to work together. The only option is that the countries work out their individual plans to sync SDGs and BRI so that the financial resources can be mobilised to meet the

Introduction | xxxvii

most pressing issues related to SDGs. Chapter 3 entitled “The BRI and SDGs Nexus: Cooperation or Confrontation?”, written by Bhoj Raj Poudel, presents the synergy between BRI and SDGs and also challenges. The author argues that there are certain concerns about whether the finance that comes from China could be utilised in achieving SDGs, which are completely engineered by China. Moreover, the financing that comes under the BRI is mostly for connectivity infrastructures than other areas of inclusive development. In this case, there is no clear pathway to how these two ambitious plans would be playing complementary roles to each other. At the same time, there are some initiatives undertaken at the regional level to develop cooperation so that the BRI could be supportive to achieve SDGs by 2030. Chapter 4, entitled “BRI for Trade and Connectivity in South Asia: A CPEC Model”, written by Hina Aslam, analyses the CPEC model in promoting trade and connectivity in South Asia. South Asia is a “priority zone” in China’s Belt and Road Initiative (BRI), particularly, with the highest density of early harvest projects, that include four subprojects: the China-Pakistan Economic Corridor (CPEC), the Bangladesh-China-IndiaMyanmar Economic Corridor (BCIM), the Trans-Himalaya Corridor, and China’s cooperation with Bangladesh, Sri Lanka, and the Maldives under the 21st century Maritime Silk Road. For Pakistan, there is a great opportunity of developing Special Economic Zones (SEZs) to improve the country’s exports and overall economic situation. However, there are some challenges that must be addressed through substantial policy reforms to benefit from trade and investments, to improve debt sustainability and realise the importance of mitigating environmental risks. The government and the responsible authorities must anticipate the challenges and realities that come along with the Chinese loans and should focus on long-term and sustainable returns, where both countries can reap the benefits and make the most out of this billion-dollar project. Bangladesh is one of the largest recipients of the BRI projects in South Asia. Chapter 5 entitled “BRI, Trade and Connectivity: Bangladesh’s Perspective”, written by Mahfuz Kabir and Nahian Reza Sabriet, presents the prospects of trade and connectivity in relation to the BRI of China from the perspective of Bangladesh. Although the narrative is presented from

xxxviii | Belt and Road Initiative and South Asia

the viewpoint of Bangladesh, it goes beyond the state-centric outlook and tries to capture regionalism as well as regional prosperity through trade and connectivity. However, there are concerns of curtailed connectivity because of security and strategic concerns of the national governments, socio-economic and environmental impacts. Peripheral or border regions could be exposed to merely risks and not benefits. Myriads of other concerns may arise from theoretical and policy viewpoints so far as the future of the BRI is taken into account. However, small bewilderments must not stop the progress towards development. The overarching national “Vision 2041” and goal and the fourth industrial revolution indirectly compels Bangladesh to the “Development First!” axiom. Yet, these projects must be evaluated and monitored carefully. The BRI can bring a lot of opportunities. Nevertheless, these opportunities have to cover the utilisation of human resources, promotion of human capital, connectivity, investment and regional concern which can create a string of affinity among the nation-states like the string of pearls. The Belt and Road Initiative was introduced with the goal of reshaping and restricting the global economy and its global strategic balance. The BRI provides numerous possibilities and opportunities to developing countries like Nepal. China’s BRI has already started to invest in smaller South Asian countries like Sri Lanka and the Maldives. It is prudent for a country like Nepal to accept grants and Foreign Direct Investment in key areas in order to promote productivity, the environment, social coordination, employment, and long-term development. The BRI is advantageous to Nepal. It may help in bringing massive Chinese investment, which will accelerate economic and social development. Nepal may undoubtedly benefit from the BRI, but it also needs to work out the necessary strategies to avoid or escape the debt burden, in case of debt-financing of projects. Macroeconomic and cost-benefit analysis of large projects especially if they are financed by loan assistance needs to be carried out before deciding about them. Despite many hurdles and complications, it is overly critical to understand that the BRI is a long-term strategy. It offers a variety of projects and benefits to the participating countries. Some of its projects are still in the planning stages and will not be finished for several years. Nepal and China should come

Introduction | xxxix

to an agreement point where both parties can have a win-win situation. The Belt and Road initiative, if implemented properly will reduce the gap between Nepal and other countries while also uplifting the economy of the entire globe, and if all goes well, the outcome of the growth and advancement will be productive and profitable to the world. With Chinese President Xi Jinping’s visit to Nepal in October 2019, China-Nepal international cooperation has entered a new era. China will stick to the neighbourhood diplomacy concept of building a community with a shared future, the correct views of righteousness and profitableness, the principle of Qin (Friendship), Cheng (Sincerity), Hui (Reciprocity) and Rong (inclusiveness), sum up historical experience, innovate assistance routes, further strengthen international cooperation with Nepal, increase international assistance to Nepal in the high-quality construction of the BRI, and promote the joint construction of a community with a shared future between China and Nepal. In view of the above, Chapter 6 entitled “Strengthening International Cooperation and Building a Community of Shared Future between Nepal and China”, written by Yang Yabo and Zhang Jianghong, discusses the scope and opportunities in China-Nepal cooperation in the BRI. Nepal and China share a long history of social, economic, cultural and geographical elements. Nepal’s economic engagement with China has deepened in recent years. Both China and Nepal are working out on ways to further the economic cooperation between the two nations. Chapter 7 entitled “On Countermeasures and Suggestions to Further Economic Cooperation between China and Nepal”, written by Di Fangyao, Cui Hongye and Yang Fan, presents the countermeasures and suggestions to strengthen the bilateral relations between China and Nepal. The chapter recommends, among others, that the political and social environment should remain stable to benefit bilateral economic cooperation. Both sides should enhance cooperation under the BRI based on friendly communications. The chapter also concludes that it is beneficial for both sides to creatively advance economic cooperation and make bigger efforts to contribute to public welfare in accordance with everchanging world situations. Chapter 8 entitled “Evidence and Lessons from BRI: The Case of China-Pakistan Economic Corridor, written by Vaqar Ahmed, explains how

xl | Belt and Road Initiative and South Asia

CPEC related investments in Pakistan resulted in improvements in electricity generation, transport and logistics which in turn allowed Pakistan to see higher levels of growth, at least in the short-term, and creation of additional capacities in some industrial sectors. However, to sustain such growth spurts and utilise the additional capacities it is now imperative that the federal and provincial governments in Pakistan take steps to expedite (a) the next phase of CPEC which will involve establishment of SEZs, and (b) undertake structural reforms which lead to bringing down the cost of energy, introduce a tax regime that attracts local and foreign investors and help creation of joint ventures between China and Pakistan, and reduce the overall regulatory burden faced by export-oriented industries. The relevant institutions will also need to put in place measures, which promote trade with neighbours. The rate of return of any infrastructure project is influenced by how much it benefits business communities inside and across the region. Such benefits could take the form of higher levels of regional trade in goods and services, and cross-border investment supply chains. This, however, will only be possible if Pakistan aims to share the dividends of CPEC with neighbouring countries and ultimately help promote trade between Central and South Asia. The BRI projects are expected to be impacted in the post-pandemic world order. Chapter 9 entitled “The COVID-19 Pandemic and BRI 2.0, written by Partha S. Banerjee discusses the new opportunities for the BRI in the post COVID-19 phase. The overall difficult macro-economic situation and stressed public finances of indebted countries may make debt sustainability become an even bigger issue than what it was in the pre-pandemic times. At the same time, it may become difficult for China to continue funding foreign projects where a competing need for capital arises to meet domestic needs. Hence, China may exercise even greater due diligence to select projects that it would finance or co-finance and develop them under the BRI 2.0. Further, in some cases, the BRI-participating countries may choose to invoke pandemic related force majeure clauses to terminate contracts as a commercial solution to get out of projects that may have become economically unviable. In the post-pandemic world, the BRI 2.0 funding is likely to increase for new sectors such as the digital and smart economy, green energy, agriculture and healthcare (infrastructure creation and equipment supply may be under

Introduction | xli

a revamped Health Silk Road initiative). China is well-positioned to become a leading country in digital technologies including 5G services, big data, Artificial Intelligence, e-commerce and smart cities. Strengths in these areas will be increasingly leveraged to develop the BRI 2.0 projects. Going forward, Chapter 9 suggests that this could be competitively positioned against the BRI requiring China to adopt more collaborative approach and enhance transparency of the initiative. Lao PDR, among more than 100 countries, endorses the BRI and has signed several BRI cooperation documents including the Memorandum of Understanding (MoU) of the BRI with China in 2016. The relationship between Lao PDR and China has consequently boosted especially the investment for the infrastructure development. In particular, mega projects such as the Laos-China railway and expressway are considered as the prominent cooperation projects to accelerate the economic development in Lao PDR especially poverty reduction and job creation. Nonetheless, it also presents a great challenge to countries like Lao PDR that will require to adopt a coherent and integrated approach of the BRI to its own policy design and implementation especially to support the achievement of the SDGs. While the proposed BRI initiative may have the potential to promote inclusive growth and sustainable development for Lao PDR, it may entail trade-offs between short-term and long-term costs and gains within various economic sectors and social groups. This requires careful analyses of the potential socio­ economic impacts. In particular, rigorous analyses are required to identify the transmission channels of various potential socio-economic impacts and assess various policy options to ensure that the BRI can help Lao PDR accelerate its advancement towards the implementation of the 2030 Agenda which is the objective of this study. In view of the above, Chapter 10 entitled “Chinese Belt and Road Initiative (BRI) and the Sustainable Development in Lao PDR”, written by Vanxay Sayavong, presents the government policies or strategies related to SDGs and the progress of SDGs implementation in Lao PDR. Besides, it also focuses on the updated information on activities of the BRI in Lao PDR and its potential linkage to SDGs. In terms of the potential impacts of the BRI on the achievement of SDGs including SDG 18-reduce impact

xlii | Belt and Road Initiative and South Asia

of UXO (the national SDG goal), there are risks and opportunities. The potential opportunities could primarily be in the areas of poverty, economic, employment, education, and capacity building whereas the risks are mainly embedded with the social, health, environmental and debt sustainability at the national and local levels. To lessen the risks, private firms should be made to take social and environmental responsibilities, particularly in the local communities. At the same time, local communities should participate strongly in the BRI activities in their communities to identify the risk and solutions with help from public agencies and NGOs. Special attention should be paid on the impacts of the BRI mega projects such as the railway project and their spillovers on SDGs at the national level and local communities. Chapter 11 entitled “Malaysia’s Response towards China’s Belt and Road Initiative under Mahathir 2.0, written by Nur Shahadah Jamil, presents Malaysia’s response to China’s BRI. Recognising the need for the country to adopt and implement a balanced external policy in order to ensure a stable and peaceful external environment crucial for its own domestic growth and political stability, Malaysia under Mahathir 2.0 vows to remain neutral, not take side with any power, continue to engage all players, place emphasis on consultation and consolidate ASEAN centrality. Malaysia’s stance entails the nation’s sensitivity towards the risks that come together with the return of great power competition in the region and the same principle could also be applied in its bilateral relations with China and other powers. Malaysia continues to support the BRI as long as the initiative continues to develop on a “win-win” basis. This is because China’s increasing economic might and smaller states’ growing development needs is a fact that we could not defy. Although many are suspicious and sceptical about China’s true political intent behind the initiative, deepening economic ties between China and Malaysia have gradually turned the country to be more and more dependent on Chinese investments and financial funding to support its domestic development needs in the field of infrastructure construction, connectivity, communications and many more. This chapter is optimistic that the long-term economic outlook between Malaysia and China will remain positive because trade relations between the two are too big and too important to fail.

Introduction | xliii

Chapter 12 entitled “Win-Win Cooperation through the BRI: What Constitutes a “Win” for the Philippines?”, written by Darlene V. Estrada, has examined the state of discourse concerning the BRI while arguing that there is a need to go beyond the perception debate and move toward the enrichment of discussions on ways forward. In discussing the ways forward, the author has argued that a closer look into the win-win framework could provide insightful thoughts with regard to how host states could go about the BRI. This chapter also aims to shed light on the Philippines participation in the BRI given that the observers tend to show more interest in the initiative’s form and motivation. The chapter ends with a specific examination of how the Philippines could best implement the BRI by answering what a “win” constitutes for the Philippines.

Part I

Big Picture

2. China’s trade Imbalance with

South asian Nations

How Can the BrI Help?

Yin Xiangshuo

Introduction In order to promote closer and better relations with other countries, the Chinese government introduced the Belt and Road Initiative (BRI), formerly known as One Belt One Road, in 2013 with five goals, namely “policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds.” While all these goals are related and connected in practice, facilities connectivity and unimpeded trade are relatively easier to carry out especially for promoting trade. Looking around the world, trade develops faster and better where there are more and better facilities, especially infrastructure such as roads, railways, ports, etc. The rapid development of China’s foreign trade is also facilitated by the rapid development of roads, railways, ports, etc., and the reduction of trade barriers since China started to carry out reform and opening policies in 1979. This is also true in South Asia, where foreign trade started to increase in the 1990s when these nations carried out more open policies and reduced trade barriers. Bilateral trade between China and South Asian nations has also grown more rapidly since the 1990s. However, with the increase of bilateral trade, there has emerged a problem of trade imbalance, with China having large trade surplus. Many studies have been carried out on the economic development of South Asia, and the relationship between the twenty-first century maritime

4 | Belt and Road Initiative and South Asia

silk road and South Asia. For example, Roy (2017) provides a good description of economic development of five South Asian nations since the 1950. In their Annual Report on the Development of the India Ocean Region (2015), Wang and Zhu (2016) and their colleagues provide a comprehensive discussion on the twenty-first century maritime silk road, including policies of some South Asian countries toward the twenty-first century maritime silk road initiative. Blanchard (2018) focuses on the goals and challenges of China’s twenty-first century maritime silk road. But there are not many studies on bilateral trade between China and South Asian nations. This paper tries to provide a simple summary of bilateral trade between China and major South Asian nations, namely Bangladesh, India, Nepal, Pakistan, and Sri Lanka. This paper does not intend to evaluate the effects of BRI on bilateral trade but focuses on the problem of trade imbalance between China and South Asian nations. Since the trade imbalance in the past five years has not narrowed down, a simple judgment is that BRI has not helped in reducing the trade imbalance. It is perhaps not because BRI cannot play a positive role in promoting bilateral trade and reducing imbalances, but because better and closer cooperation is needed to bring the benefits out of BRI. Since BRI has been proposed only five years ago, and statistics in some South Asian nations are not sufficient, this paper does not carry out econometric evaluation on bilateral trade between China and South Asian nations, but only provides a general analysis of it. The next section briefly describes the trade performance of major South Asian nations. The third section discusses bilateral trade between China and South Asian nations. The fourth section focuses on the relationship between trade balance and the development of the manufacturing sector, which is an important factor for the trade balance, and the fifth section tries to probe into the role of BRI in helping to correct the trade imbalance between China and South Asian nations. The last section concludes.

trade Performance of major South asian nations Trade in major South Asian nations has increased quite quickly since 1990s but slowed down in the past years largely because of the slowdown of the world trade growth.

China’s Trade Imbalance with South Asian Nations | 5

From Table 2.1 and Figure 2.1 we can see that among the five major South Asian nations, Bangladesh is perhaps the best performer, followed by India, while Nepal is the worst with negative growth between 2005 and 2015. India is the largest exporter in South Asia, with a much higher export volume than all the other South Asian nations. Export growth of Bangladesh and India outperformed the world average, but not as fast as China in most years since the early 1990s. table 2.1: growth of merchandise exports from major South asian nations (annual average growth rate) (per cent)

economy

Bangladesh India

Nepal

1992-95 18.43 15.99

1995-2000

2000-05

2005-10

5.28

19.25

16.26

11.59

8.76

-2.55

17.77

Sri Lanka

15.30

6.39

0.80

12.66

China

21.63

10.04

Pakistan

Memo: World

3.68

11.3

3.65

1.87

13.95

2010-15 10.26 3.14

-0.06

-2.80

4.09

5.28

4.08

26.73

13.55

7.47

11.42

4.90

6.27

0.29

1.47

Source: UNCTADstat, http://unctadstat.unctad.org/wds/Repor tFolders/repor tFolders.aspx?sCS_ ChosenLang=en figure 2.1: exports of major South asian nations: 1995-2017 (thousand uS$)

Source: UNCTADstat

6 | Belt and Road Initiative and South Asia

However, since their imports have grown faster than exports, almost all the five countries have trade deficits in commodity trade (Figure 2.2). Since India has a much larger trade volume than other countries, it also has a much larger trade deficit. However, from Figure 2.3 we can see that India has an increasingly larger trade surplus in services, while Bangladesh and Pakistan have deficit, and Nepal and Sri Lanka almost balanced in services trade. figure 2.2: trade Balance of major South asian nations in goods (million uS$)

Source: UNCTADstat figure 2.3: trade Balance of major South asian nations in Services (million uS$)

Source: UNCTADstat

China’s Trade Imbalance with South Asian Nations | 7

The quick trade growth of South Asian nations since the 1990s is due to their policy changes toward more open economies. Measures encouraging exports were adopted, and trade barriers have been significantly reduced.Table 2.2 shows that import tariffs of these countries have substantially decreased since the 1990s. Average import tariff rates for manufactures in Bangladesh, India, Nepal, and Pakistan decreased to around 10 per cent by 2016, while in Sri Lanka, which had a much lower average rate even in the 1990s, it decreased to less than 7 per cent by 2015. table 2.2: Import tariff Rates on manufactured goods, ores and metals*, 1990 – 2016 (average of simple averages) (per cent) 1990 Bangladesh India

1995

114.94

84.17

81.81

58.71

a

b

Nepal

18.88

Pakistan

51.64

Sri Lanka

c

2000

2005

2010

2015

2016

22.06

15.31

14.11

13.30

13.24

32.69

15.29

8.35

8.78

9.09

14.14

13.96

12.26

12.10

11.86

24.42

14.60

14.36

12.87

12.47

26.34

22.65

d

8.11

9.88

8.19

6.74

–

42.93b

35.70d

15.93

9.30

8.99

8.84

9.23

Memo: China

Notes: *manufactured goods, ores and metals, SITC (Rev.3):5+6+7+8+27+28-667. a: 1989, b: 1992, c: 1993, d: 1994.

Source: UNCTADstat.

With the reduction of trade barriers and quick development of foreign trade, these South Asian countries have become more open to the world economy. Table 2.3 shows that trade openness in terms of the percentage of exports of goods and services to GDP increased quite quickly since the 1990s. However, since trade has grown slower than GDP, this ratio started to decline in recent years after it reached its peak in the first decade of this century. However, in general, South Asian nations have become much more open than before.

8 | Belt and Road Initiative and South Asia

table 2.3: trade openness of major South asian nations (export of goods and services (BPm5), percentage of gDP) 1990

1995

2000

(per cent)

2005

2010

2015*

2016*

2017*

Bangladesh

6.50

10.38

14.07

16.24

19.26

17.98

17.02

15.94

India

7.01

10.29

12.81

18.47

20.42

20.09

19.05

19.10

Nepal

11.17

22.69

22.37

15.54

9.65

10.79

10.12

9.75

Pakistan

13.23

13.22

13.16

16.24

16.08

10.69

9.49

9.33

Sri Lanka

27.94

34.55

38.15

32.31

22.39

21.02

21.46

21.41

China

14.18

19.45

23.44

36.59

29.28

21.03

19.60

20.34

World

18.85

20.81

24.16

27.79

29.45

28.33

27.34

28.29

Memo:

Notes: * Goods and services (BPM6), figures are not totally comparable with (BPM5). Source: UNCTADstat, http://unctadstat.unctad.org/wds/ReportFolders/reportFolders. aspx

china’s trade with major South asian nations China’s Trade with Five South Asian Nations China’s trade with South Asian nations has increased steadily since the 1990s. Figure 2.4 shows that total trade with five South Asian nations increased from US$ 2.9 billion in 1995 to US$ 123.8 billion in 2017, more than 42 times over 22 years. However, China’s trade with five South Asian nations is not balanced. Exports from these five countries to China reached peak in 2011 at US$ 23.9 billion from half a billion US dollars in 1995. Then it declined to US$ 16.9 billion in 2017, while imports from China have increased steadily from US$ 2.4 billion in 1995 to US$ 106.9 billion in 2017. Since imports from China have grown much faster than exports, these five South Asian nations have increasingly large trade deficits with China, which reached US$ 90 billion in 2017, accounting for 43 per cent of their total trade deficits that year.

China’s Trade Imbalance with South Asian Nations | 9

figure 2.4: merchandise trade of major South asian nations with china: 1995-2017 (million uS$)

Source: UNCTADstat

Figures 2.5 and 2.6 show the change of exports and imports of the five South Asian nations since 1995. We can see that India is by far the largest trade partner with China. However, exports from all the five countries to China reached their peak around 2011 and then started to decline, while imports from China increased steadily. figure 2.5: merchandise exports of major South asian nations to china: 1995-2017 (million uS$)

Source: UNCTADstat

10 | Belt and Road Initiative and South Asia

figure 2.6: merchandise Imports of major South asian nations to china: 1995-2017 (million uS$)

Source: UNCTADstat

China’s Trade with India India is the largest economy among South Asian nations. However, there is no sufficient data for other South Asian nations, this section focuses on China’s trade with India. China’s trade with India has developed quite rapidly since the 1990s. Merchandise trade increased from US$ 1.7 billion in 1995 to US$ 87 billion in 2017, more than 50 times in 22 years. However, trade is not balanced. Figure 2.7 shows that China has an increasingly large trade surplus with India. By 2017, this gap rose to almost US$ 59 billion. figure 2.7: china’s merchandise trade with India (million uS$)

Source: UNCTADstat

China’s Trade Imbalance with South Asian Nations | 11

From Figures 2.8 and 2.9, we can see that China has large trade surplus in manufactured goods with India, but some trade deficit in primary goods. China’s trade deficit in primary goods reached its peak of US$ 12.6 billion in 2010, and then declined to only US$ 3.5 billion in 2017, while China’s trade surplus in manufactured goods continued to increase to US$ 62.97 billion. figure 2.8: china’s trade with India: manufactured goods (million uS$)

Source: UNCTADstat figure 2.9: china’s trade with India: Primary goods (million uSD)

Source: UNCTADstat

12 | Belt and Road Initiative and South Asia

China also has trade deficit with India in services. As Table 2.4 shows, China has more than US$ 600 million trade deficit in services in recent years, but the deficit in services is so small that it can cover only a little in total trade imbalance. table 2.4: china’s trade with India: Services (million uS$) 2015 2016

export 924.58 940.29

Import

Balance

1 573.06

-632.77

1 533.49

-608.91

Source: UNCTADstat

trade Balance and the manufacturing Sector Perhaps the biggest problem in bilateral trade between China and South Asian nations is trade imbalance with China having large surplus. Since services are still largely not tradable, trade balance is mainly determined by commodities, especially manufactured goods. A country’s trade performance and balance depend very much on the development of its manufacturing sector.

Trade Balance and the Manufacturing Sector: Comparisons around the World Looking around the world, after World War II, there are mainly two kinds of countries with trade surplus, one is oil exporting countries, and the others are exporters of manufactured goods. Trade surplus of oil exporting countries is very much affected by the fluctuation of oil prices, but surplus of manufactured exporters is relatively steady. Figures 2.10 through 2.13 show the share of manufacturing value-added in GDP in major trading countries. Figures 2.10 and 2.11 show major developed countries with trade surplus and deficit, respectively. We can see that most countries with trade surplus have a higher share of manufacturing value-added than the world average and developed countries’ average, while most countries with trade deficit have a lower share of manufacturing value-added. This trend is also true in major developing countries as shown in Figures 2.12 and 2.13.

China’s Trade Imbalance with South Asian Nations | 13

figure 2.10: Share of manufacturing Value-added in gDP of major Developed countries with trade Surplus: 1990-2009

Notes: WAVG: World average share of manufacturing value-added in GDP DAVG: Developed countries’ average share of manufacturing value-added in GDP Source: World Bank, World Development Indicators figure 2.11: Share of manufacturing Value-added in gDP of major Developed countries with trade Deficit: 1990-2009

Source: World Bank, World Development Indicators

14 | Belt and Road Initiative and South Asia

figure 2.12: Share of manufacturing Value-added in gDP of major Developing countries with trade Surplus: 1990-2009

Notes: WAVG: World average share of manufacturing value-added in GDP LDAVG: Developing countries’ average share of manufacturing value-added in GDP Source: World Bank, World Development Indicators figure 2.13: Share of manufacturing Value-added in gDP of major Developing countries with trade Deficit: 1990-2009

Source: World Bank, World Development Indicators

If oil exporting countries are excluded, the positive relationship between the share of manufacturing value-added in GDP and trade balance can be

China’s Trade Imbalance with South Asian Nations | 15

clearly seen. Figures 2.14 and 2.15 show this relationship in above developed and developing countries, respectively, between 1990 and 2009. figure 2.14: net trade in goods versus manufacturing Value-added in major

Developed countries: 1990-2009

Source: World Bank, World Development Indicators figure 2.15: net trade in goods versus manufacturing Value-added in major

Developing countries: 1990-2009

Source: World Bank, World Development Indicators

16 | Belt and Road Initiative and South Asia

trade Balance and the manufacturing Sector in South asian nations If we look at major South Asian nations, we can see that manufacturing sector in Bangladesh and Sri Lanka has developed relatively quicker, so that the ratio of manufacturing value added to GDP increased since 1990, while in India and Pakistan, the ratio decreased over time (Table 2.5). In Nepal, this ratio did not change much, maintaining a very low level. If we compare the ratios in South Asian nations with China, Germany, and Japan, the three major trade surplus countries, we can see that ratios in South Asian nations are much lower, even though the ratios in Bangladesh and Sri Lanka have exceeded the world average, while that in India is close to the world average. Of course, the scale of the manufacturing sector is not the only factor affecting a country’s trade balance, but it is important since most tradable goods are manufactured goods. table 2.5: manufacturing Value-added of major South asian nations (% of gDP) 1990 1995 2000 2005 2010 2011 2012 2013 2014 2015 2016

Bangladesh 13.24 15.90 14.04 14.74 16.12 16.00 15.91 16.44 16.61 16.79 17.03 India Nepal Pakistan Sri Lanka Memo:

China

Germany Japan World

17.56 18.56 16.55 16.61 16.21 16.14 15.82 15.25 15.07 15.37 15.27 5.76

8.92

8.84

7.62

5.95

5.89

5.97

5.92

5.75

5.59

5.28

15.46 14.62 13.66 17.49 13.07 13.83 14.02 13.57 13.54 12.79 12.08 13.40 14.09 15.05 19.51 20.00 20.55 21.89 20.52 19.43 18.54 18.39 32.09 31.54 31.98 31.42 30.55 30.38 29.38 28.82

20.63 20.73 20.31 19.97 20.57 20.42 20.18 20.59 20.76 20.64 23.47 22.56 21.64 20.83 19.67 19.73 19.44 19.73 20.72 21.05

16.84 17.11 15.85 15.75 15.60 15.39 15.42 15.72 15.58

Source: World Bank, World Development Indicators

Actually in South Asian nations, the increase in trade deficit is largely because of trade with China. Table 2.6 shows that trade deficits of five South Asian nations with China in 2017 accounted for 43 per cent of their total trade deficits. Even though Bangladesh and Sri Lanka had higher manufacturing ratios than the world average, they were still much lower than China, so their trade deficits with China should not be strange. Except for Nepal, all other

China’s Trade Imbalance with South Asian Nations | 17

four nations’ trade deficits with China accounted for more than 40% per cent of their total deficits. For Bangladesh, it was 94 per cent, which means that Bangladesh’s trade with other countries was almost balanced. Since exports of labour-intensive manufactured goods increase quite rapidly in recent years, Bangladesh can be expected to have less trade deficit with China, and perhaps trade surplus with most other countries, if its manufacturing sector expands quick enough. table 2.6: trade Deficits of major South asian nations with china and Their Shares in total trade Deficits in 2017 (million uS$, %) India Balance with China Total balance China’s share

Pakistan

-59613.17 -13875.32 -148348.50 -29763.00 0.40

0.47

Bangladesh Sri Lanka

nepal

-11554.18 -3758.98 -1245.10

total -90046.75

-12257.90 -8002.94 -9160.66 -207533.00 0.94

0.47

0.14

0.43

Source: UNCTADstat

BRI and Bilateral trade Production structure, especially the ratio of manufacturing sector in total economy, is of course not the only factor affecting a country’s trade balance, but it cannot be denied that a larger manufacturing sector is very important for exporting goods and thereby balancing trade balance. However, the development of the manufacturing sector, in particular, and the whole economy, in general, depends very much on a country’s business environment. Business environment can be considered from two aspects, which are closely related. One is government policies regarding business, and the other is infrastructure such as electricity, roads, railways, ports, etc. As for government policies, the World Bank releases report every year on doing business around the world. In 2019 report, the ranking of South Asian nations generally improved but still at a low level. Table 2.7 shows the general ranking on ease of doing business. India is better, but still ranks at 77, and all other four countries rank above 100. Compared with China, which ranks at 46, these South Asian nations have much to improve.

18 | Belt and Road Initiative and South Asia

table 2.7: ease of Doing Business Ranking, 2018 economy

Rank

eoDB score

eoDB score change

Sri Lanka

100

61.22

+1.80

Pakistan

136

55.31

+2.53

46

73.64

+8.64

India

77

Nepal

67.23

110

Bangladesh

59.63

176

Memo: China

+6.63 -0.32

41.97

+0.91

Source: World Bank, Doing Business 2019

Looking at the infrastructure, South Asian nations have also improved, but still at a relatively low level in general. Electricity is perhaps the most important for production and daily life. Table 2.8 shows that electric power consumption in South Asian nations increased quite quickly between 1990 and 2014, much faster than the world average, but still lower than China. Their absolute electric power consumption in 2014 was still much lower than the world level, while China exceeded the world level. India’s electric power consumption per capita is the highest in South Asian nations, but it was only about 22 per cent of China’s in 2014. Comparing with the world level, India’s electric power consumption was only one-fourth of that level, and those of other South Asian nations were even lower, while China was higher than the world level (See Table 2.9). table 2.8: electric Power consumption of major South asian nations, 2014 vs. 1990 (kWh per capita) Bangladesh India 1990

2014 2014/1990

48.37

273.05

6.42

310.39

nepal

Pakistan

805.60

35.47

139.14

277.35

2.95

3.92

1.70

471.04

Source: World Bank, World Development Indicators

Sri Lanka

151.42

531.27 3.51

china

World

510.62 2124.77

3927.04 3127.36 7.69

1.47

China’s Trade Imbalance with South Asian Nations | 19

Table 2.9: Electric Power Consumption of Major South Asian Nations as a

Percentage of World Level, 2014 vs. 1990 (kWh per capita)

Bangladesh India nepal Pakistan Sri Lanka china World 1990 2.28

12.85

1.67

13.05

7.13

24.03

100.00

2014 9.93

25.76

4.45

15.06

16.99

125.57

100.00

Source: World Bank, World Development Indicators

Another basic factor for production and daily life is roads. Since there is no comparable data for land roads, rail lines are used here instead. From Table 2.10, we can see that statistics for rail lines in South Asian nations are not complete, but one thing that is clear is that in 2015 total route length in India is almost the same as that in China. But goods transported by railways in India was only 34 per cent of that in China (Table 2.11). It is perhaps in India, rail lines are mostly used for passengers rather than for goods, and some of the rail lines are too old with much lower speed. But low efficiency in rail transportation is perhaps also an important factor. table 2.10: Rail Lines in major South asian nations (total route in km)

economy

1990

2000

2010

2015

Bangladesh

2745.65 62367

62759

63974

66030

Pakistan

8774.87

7791

7791

9255

53187

58656

66239

67212

India Nepal

Sri Lanka

Memo China

1453

2768

2835

Source: World Bank, World Development Indicators table 2.11: goods transported by Railways in major South asian nations (million ton-km)

economy

Bangladesh

India Pakistan

Sri Lanka Memo: China

1990

2000

2010

2015

305201 3754

600548 6187

681696 3301

1333606

2451185

1980061

650.993

777.161

163.8

110.9

235785 5708.6

1060100

Note: a: for 2014 Source: World Bank, World Development Indicators

710

-­

710a

-­

20 | Belt and Road Initiative and South Asia

Foreign trade depends very much on maritime transport, so port traffic is very important. Table 2.12 shows container port traffic of five South Asian countries. India by far has the highest container port traffic, but in 2017, India’s container port traffic was only 13259000 TEU, 6.2 per cent of China’s level.

economy

table 2.12: container Port traffic of major South asian nations (in teu: 20-foot equivalent unit)

Bangladesh

2000

456007

2005

808924

2010

1349627

2015

2044651

2016

2376651

2017

2587000

India

2450656

4982092

8922576

11882003

12086010

13259000

Sri Lanka

1732855

2455297

4100000

5185000

5550000

6000000

Pakistan Memo: China

878892a

1686355

2149000

2755600

2755600

2985600

41000000 67245263 142970010 195276751 199551751 213719925

Note: a: 2001.

Source: World Bank, World Development Indicators

Infrastructure is very important for manufacturing production and trade. Poor infrastructure causes higher costs for production and transportation, making it difficult to connect different regions within a country and with other countries. One of the important factors for China’s rapid development of the manufacturing sector and foreign trade is that China has better infrastructure. Development of infrastructure needs heavy investment, which many low-income developing countries are not able to afford in a short time. Here BRI can play a major role by helping build infrastructure in these lowincome countries. Of course, the BRI is not only aimed at cooperation in hard infrastructure, but also soft infrastructure such as policy cooperation, people-to-people exchange, and financial flows, etc. However, projects of hard infrastructure can be relatively easier to start with. Much discussion on the goals of China’s BRI only pointed to China’s benefits, such as to promote China’s economic growth by increasing its exports and to help China dispose of its excess capacity (Blanchard, 2018). However, BRI is also aimed at mutual benefits, and South Asian nations can choose and evaluate projects; discuss and negotiate with all the participants, including Chinese participants, out of their own interests, and for their own benefits. Infrastructure is very important for business production and even people’s

China’s Trade Imbalance with South Asian Nations | 21

daily life, so BRI is a very useful source for helping construct infrastructure. If they can use BRI projects carefully and adequately, the development of the infrastructure and manufacturing sector will enter into a virtuous cycle. Of course, construction of infrastructure to promote manufacturing and trade by making more connectable links between different regions within South Asia and between South Asia and China does not necessarily narrow down their trade deficits with China. However, China’s manufacturing has reached its peak. Because of the change of demographic structure and the increase of labour costs in China, labour-intensive industries are gradually moving out of China. Moreover, in order to balance its foreign trade, China is endeavoured to promote imports by various means such as Import Expo in Shanghai. If South Asian nations can develop their manufacturing sectors more rapidly by promoting the construction of infrastructure, their export of manufactured goods, especially labour-intensive manufactured goods, can increase more quickly, and the trade deficit with China is very possible to decrease in the coming years.

concluding Remarks Major South Asian nations’ foreign trade started to accelerate since the 1990s when they started to be more open to the outside world. Bilateral trade between China and South Asian nations has also increased since the 1990s. However, a big problem in this bilateral trade is trade imbalance with China having a large trade surplus. Since most tradable goods are manufactured goods, countries with consistent trade surplus are usually those countries that have a larger manufactured sector. But the manufacturing sector in most South Asian nations has not expanded quick enough, except perhaps that in Bangladesh. Bangladesh has a relatively large manufacturing sector, but still much smaller than China. That is why almost all its trade deficit is with China. If the good manufacturing sector is one of the most important factors in determining trade balance, developing manufacturing capacity should be an important task for South Asian nations. However, manufacturing depends very much on hard infrastructure, such as electricity, roads, railways, ports, etc., besides labour and capital.

22 | Belt and Road Initiative and South Asia

China’s BRI can help in this aspect as two of its five goals that is “facilities connectivity” and “unimpeded trade”, are very much dependent on the development of infrastructure. If South Asian nations become more active in participating in the BRI projects, especially infrastructure projects, they can benefit from these projects as they will help in the development of the manufacturing sector. Of course, promoting the development of the manufacturing sector will not necessarily reduce the trade deficit of South Asian Nations immediately, but in the long run, this will help them in not only balancing their trade but also sustain their economic growth.

References

Blanchard, J. M. F., (2018). “China’s Twenty-first Century Maritime Silk Road Initiative and South Asia: Political and Economic Contours, Challenges, and Conundrums,” in J M F Blanchard (ed) China’s Maritime Silk Road Initiative and South Asia, Palgrave Studies in Asia-Pacific Political Economy, Springer Nature, eBook, http://www. library.fudan.edu.cn. Roy, T., (2017). The Economy of South Asia: From 1950 to the Present. Palgrave Studies in Economic History, Springer Nature, eBook, http://www.library.fudan.edu.cn. Wang, R. & Zhu, C. (eds) (2016). Annual Report on the Development of Indian Ocean Region (2015): 21 Century Maritime Silk Road. Social Sciences Academic Press and Springer Science+Business Media Singapore, eBook, http://www.library.fudan.edu.cn. World Bank (2018). Doing Business 2019, World Bank Group, http://www.worldbank.org.

3. the BrI and SDGs Nexus Cooperation or Confrontation? Bhoj Raj Poudel

Introduction The Belt and Road Initiative (BRI) launched by the Government of the People’s Republic of China has multi-faceted implications in international development (Browder, 2019). The Chinese government launched an ambitious BRI with grand objectives and one of them is to help the world to achieve required infrastructures that help countries to achieve Sustainable Development Goals (SDGs) (UNDP, 2017). BRI offers opportunities for sustainable development across and within countries. Moreover, BRI can be an accelerator for achieving SDGs. Implementation of BRI can be linked to the achievement of SDGs that can deliver lasting impacts on the lives of people living in dire conditions due to poverty and hunger across the globe (United Nations Department of Economic and Social Affairs, 2019). The objectives of BRI are linked to SDGs both in direct and indirect ways. However, the link between the two can be more evident once the implementation of BRI takes place in stated areas (Fishman, 2019). In the case of low-income countries, implementation of BRI should be linked to identified areas of intervention to achieve SDGs on time. Most of the countries have been lagging behind in terms of achieving SDGs on stipulated time largely because of lack of finance (Lagarde and Gaspar, 2018). China’s Belt and Road Initiative (BRI) is an ambitious programme to connect Asia with Africa and Europe via land and maritime networks along six corridors with the aim of improving regional integration, increasing

24 | Belt and Road Initiative and South Asia

trade and stimulating economic growth. The name was coined in 2013 by China’s President Xi Jinping driving inspiration from the concept of Silk Road established during Han Dynasty around 2,000 years ago – an ancient network of trade routes that connected China to the Mediterranean via Eurasia for centuries. The BRI comprises Silk Road Economic Belt – a trans-continental passage that links China with South East Asia, South Asia, Central Asia, Russia, Europe by land and a 21st century Maritime Silk Road, a sea route connecting China’s coastal regions with South East and South Asia, the South Pacific, the Middle East and Eastern Africa, all the way to Europe. The initiative defines five major priorities: (i) policy coordination, (ii) infrastructure connectivity, (iii) unimpeded trade, (iv) financial integration, and (v) connecting people (Chin & He, 2016). (i) Policy coordination: Countries along the belt and road will, via consultation on an equal footing, jointly formulate development plans and measures for advancing cross-national or regional cooperation and resolving problems arising from cooperation through consultation. (ii) Infrastructure connectivity: Efforts will be made to advance the construction of port infrastructure facilities and clearing land-water intermodal transport passages, aiming to establish an infrastructure network connecting various Asian sub-regions with other parts of Asia, Europe and Africa. (iii) Unimpeded trade: Steps will be taken to resolve investment and trade facilitation issues, reduce investment and trade barriers and promote regional economic integration. (iv) Financial integration: Actions will be taken to expand the scope of local currency settlement and currency exchange in trade and investment between countries along the route, deepen multilateral and bilateral financial cooperation and enhance the ability of managing financial risks through regional arrangements. (v) Connecting people: Efforts will be made to promote exchanges and dialogues between different cultures to form the basis for the advancement of regional cooperation.

The BRI and SDGs Nexus | 25

The initiative is expected to involve over US$ 1 trillion in investments, largely in infrastructures development for ports, roads, railways and airports as well as power plants and telecommunications networks. The BRI’s geographical scope is constantly expanding (European Bank for Reconstruction and Development, n.d.). So far it covers over 70 countries, accounting for about 65 per cent of the world’s population and around one-third of the world’s Gross Domestic Product (GDP). Based on a recent estimate done by the International Monetary Fund (IMF), achieving the SDGs in a subset of 49 countries – focusing on health, education, water and sanitation, roads and electricity – would require additional spending of about US$ 520 billion a year, or an increase of 14 percentage points of GDP on average (United Nations, (a) 2018). The need of finance to achieve SDGs is so huge that most of the developing countries can’t afford it on their own. Hence, the role of BRI and funding it brings in the country is crucial to achieve SDGs. However, the question of governance becomes critical in this process (Bouckaert, et al., 2018). Developing countries have to strengthen their public expenditure mechanism and improve absorption capacity so that the need of financing to achieve SDGs can be sought (United Nations, (b) 2018). In this sense, there is need of coordination and cooperation between the implementation of BRI and SDGs achievement.

BRI and global economy The world economy is mostly affected by geopolitics at a time when there is a need of collective effort to end hunger and poverty. A UN inter­ agency task force on financing for development prepared a report in 2018, which outlined the complexities of financing for development. One of the major challenges that the world has been facing as the report highlights is geopolitics for collective effort (United Nations, 2018). In some cases, countries’ institutional capacities have also been seen as challenges because they can’t develop bankable projects that are critical for achieving SDGs (United Nations, 2018). The Belt and Road Initiative is estimated to help in the global development with the major support in the development of countries along its route (Huiyao, 2019a). Most of the countries

26 | Belt and Road Initiative and South Asia

that are along the route of BRI are in the need of financing for SDGs. Since BRI is expected to contribute to global growth, it should have an inclusive definition and accommodate most of the development indicators. Countries that are part of the initiative should link their framework of sustainable development goals with the implementation of projects related to BRI. China proposed BRI in 2013 with an ambitious plan to connect continents which also incorporates other areas of development (World Bank Group, 2019). This will also have larger implications on other areas along with connectivity infrastructure development. BRI is also expected to boost trade, investment and subsequently economic growth globally (AI, 2019). Under BRI huge investments will flow in developing counties and trade is expected to flourish by leaps and bounds, which will be inducing growth that will enable poor people to have increased income, which will eventually help them to enjoy food, shelter and other necessities such as health and education. BRI is also critical for many cities in different countries to flourish with better connectivity and enhanced urban infrastructures. However, there will be more benefits in the Asian economies than in the rest of the world (Huiyao, 2019b). Most of the Asian economies are part BRI, which will help to boost different sectors given the projects under BRI are rightly implemented.

global cooperation to Link SDgs and BRI The core of the SDGs is to help countries to achieve development goals that may put people at the centre of development. Countries have been trying to focus on achieving SDGs but the major challenge for them is to secure finance for that purpose. National governments have been putting effort on SDGs as the priorities fit with the national goals (Tilakaratna, et al., 2017). As much of the focus is on achieving SDGs, national governments are trying to sync the sources of investment for all priority areas.

The BRI and SDGs Nexus | 27

Figure 3.1 shows the countries that have scored below 65 in the 2019 Global Index Score. A total of 66 countries, which are mostly members of BRI have been performing poorly in achieving SDGs. Most of these countries have higher poverty rates and a large number of their populations live below the poverty line. figure 3.1: countries Below 65 in global Index Score 2019

Source: Sustainable Development Report 2019.

Figure 3.2 demonstrates that the countries that have scored below 65 in 2019 also have lower GDP per capita. Except for two outliers, other countries remain poor in their GDP per capita as well. This suggests that the national governments that need higher amounts of financing to meet SDGs can’t rely on domestic resources mobilisation. Hence, they need external sources of finance, which is where BRI can play a crucial role. These countries are home to more than 3.5 billion people, which is almost half of the world population as of 2018. Some of the countries have been unable to accelerate the pace of achieving SDGs due to inadequate budgetary resources (Mashindano & Baregu, 2016). However, there is less of a discourse going on how to advance the cooperation among institutions to link financing that come under the BRI to meet the SDGs. Most of the developing countries are members of the BRI initiative although there is less of global cooperation in terms of blending financing mechanisms to meet the priority SDGs for these countries. Most of these countries also have huge infrastructure gaps. Energy, flood protection, irrigation, transport and water supply and sanitation are the key sectors where

28 | Belt and Road Initiative and South Asia

financing need is enormous.1 Funding needs depend on the service goals and policy choices of low- and middle-income countries and could range from two to eight per cent of GDP per year by 2030 (Rozenberg & Marianne, 2019). The need of financing for low-income countries alone is quite higher compared to their GDP growth and domestic sources.2 figure 3.2: gDP Per capita of countries Below 65 in global Index Score 2019

Source: Sustainable Development Report 2019.

Hence, it is important to look at the policy recommendations that help to increase coordination and cooperation to link SDGs and BRI objectives. There must be a significantly high level of complementarity between the two initiatives globally. The SDGs and rising concern about climate change should be linked to BRI and work towards linking the goals so that the need of financing can be supplemented by the amount of money that China has put on the BRI initiative (Xin, 2019). But such cooperation must be guided by the overarching goals of both SDGs and the BRI initiative. The BRI has its own logic which mainly emerges from China’s development and cooperation experiences and SDGs emerge from many lessons drawn from the implementation of Millennium Development Goals (MDGs). But for these two initiatives to be successful, there needs to happen strategic dialogue and policy planning between China and development partners. Such dialogue is also critical to make synergies and developing approaches to work in a different context ( Jin, 2018).

The BRI and SDGs Nexus | 29

The six main economic corridors of the BRI: 1. New Eurasia Land Bridge: involving rail to Europe via Kazakhstan, Russia, Belarus, and Poland 2. China, Mongolia, Russia Economic Corridor: including rail links and the road – this will link with the land bridge 3. China, Central Asia, West Asia Economic Corridor: linking Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Iran, and Turkey 4. China Indochina Peninsula Economic Corridor: Vietnam, Thailand, Lao People’s Democratic Republic, Cambodia, Myanmar, and Malaysia 5. China, Pakistan Economic Corridor: Xinjiang Province will be most affected. This project links Kashgar city (free economic zone) in landlocked Xinjiang with Pakistan port of Gwadar 6. China, Bangladesh, India, Myanmar Economic Corridor: This is likely to move more slowly due to mistrust over security issues between India and China. The proposed economic corridors will have multidimensional effects in the livelihoods of people living along these areas (OECD, 2018). All the countries that will be participating in these proposed economic corridors have been facing challenges in terms of securing adequate finance to meet SDGs. If the development of these corridors and realisation of SDGs could be interlinked, then there would be possibility of complementing each other. Establishing a mechanism for coordination and cooperation between the two initiatives can generate multiple effects in global development. As China starts pouring finance to build infrastructures under BRI, many countries will spend it on connectivity. Map 3.1 demonstrates that most of the projects that are supported by BRI are related to land and sea connectivity. The vast landmass that the BRI covers has a significant population that lives below the poverty line. Most of the countries that have become signatories of BRI have been facing challenges in terms of fighting extreme poverty and hunger.

30 | Belt and Road Initiative and South Asia

map 3.1: Belt and Road Initiative on the map

Source: OECD, 2018

The Economic Analysis and Policy Division (EAPD) of the United Nations Department of Economics and Social Affairs (UNDESA) is implementing a multi-country multi-year project to strengthen national capacities for jointly building the Belt and Road towards SDGs. The project aims to enhance the national level capacity to harmonise the coordination and cooperation between the realisation of goals of both the initiatives.3 The project is designed to strengthen the capacity of policymakers to integrate macroeconomic, environmental and social policies, in national development strategies for achieving the goal of poverty eradication and other SDGs under the broad context of implementing the 2030 Agendas (United Nations Department of Economic and Social Affairs, n.d.). China’s foreign direct investment in BRI member countries grew by 5.2 per cent annually on average to surpass US$ 90 billion between 2013 and 2018 (Ren & Zhong, 2019). The countries that have a lower capacity to absorb the inflow of FDI need even more support from both BRI and SDGs initiatives. These countries suffer from a weak performance in good governance and institutional capacity. Countries should focus on establishing institutional coordination and

The BRI and SDGs Nexus | 31

communication mechanism to ensure the cross-sector fund flow so that BRI can be complementary to achieving SDGs even in poor countries. The lack of coordination and communication at the institutional level within the country creates bottlenecks that do not let the two become complementary. Evidently, there is a huge amount of funding that comes along with BRI and needs to be channelled to achieve more pressing SDGs in poorer countries. The major concern is whether the countries can design and implement policies that supplement the environment where BRI and SDGs can go in tandem. Some countries have integrated SDGs in their national strategies and goals, which need to be further expanded and all countries should start doing that and also bringing the BRI into the picture.Without clear coordination and communication mechanism in place, there might not be much contribution by BRI to achieve SDGs. Countries’ focus on governance and expenditure absorption capacity also matters in this case. Some of the African economies have been successful with receiving Chinese investment (China Daily, 2017a) but there is no clarity on areas of investment (African Development Bank, 2018). Most of the African economies are much behind in terms of achieving SDGs. But the initial projects show that the connectivity improvement will lead to higher growth and jobs creation which might be helpful to achieve SDGs to some extent (Forum on China-Africa Cooperation, 2018). Beyond the borders and level of economies, there is a common trend emerging suggesting that the BRI might be able to help countries to tackle poverty and link the scenario with the achievement of SDGs (Baker McKenzie, 2017). Hence, there is a possibility that the countries might be able to achieve SDGs by having some level of financial contribution from BRI. The evolution of BRI so far has been only for infrastructural development (Belt and Road Initiative, 2018).

challenges with BRI finance in SDgs achievement The issues of China’s transparency and ability to manage the fund in the right way in the right sector improving governance are challenging. China does provide finance that meets the definition of Official Development Aid (ODA). Export credits, non-concessional state loans or aid used to foster Chinese investment do not call into the category of ODA. China’s

32 | Belt and Road Initiative and South Asia

cooperation may be developmental, but it is not primarily based on ODA (Bräutigam, 2011). This is where there is a need to redefine the whole efforts of BRI and any support that comes under it. The BRI is not a route, but a smart power strategy (Chance, 2017), which aims to wrap the entire world, not only Eurasia and Africa, and which has become the leitmotif of China’s foreign policy. The BRI combines hard power elements, like economic investments, with a soft power strategy, like promoting Chinese culture or improving China’s image, to create an international label for Chinese foreign policy (Brînză, 2018). The core of the debate is whether such a powerful strategy can complement the development efforts set up in the most traditional style of global development. China’s financial support in developing infrastructures also come without sound planning and implementation plan (Daily, 2018). The success of BRI and its contribution to international development is a global concern (China-Britain Business Council (CBBC), 2017). The discussion is looked at from the perspective of whether BRI would complement to the achievement of SDGs by 2030. Although the Chinese firms have become the top players in the African market, the development is far from being inclusive and governance being improved (China Daily, 2017b). The cooperation between African countries and China may not be an ideal modality for BRI and SDGs cooperation (China Daily, 2017c). Against this backdrop, the discussion around BRI and its impact globally is not only limited in economic terms. Experts are also looking at it from the legal perspective (Chinese European Legal Association (CELA), 2018). However, most of the discussion in developing countries is about how much they can receive from China to meet their financing needs. This particularly can be an issue of concern because the downside might get obscured while looking for easy financing under the BRI.

conclusion Achievement of SDGs by 2030 determines the fate of inclusive global development and most importantly of people living under the line of poverty. Almost all the countries have made SDGs a part of their national strategies and development goals. But a common problem that they are

The BRI and SDGs Nexus | 33

facing is the availability of financial resources to meet these ambitious goals. Most of the economies are trying to adopt new ways of financing mechanisms in order to fulfil the financing gaps. In this context, the Belt and Road Initiative of the Chinese government has been perceived as a major source of financing which might be a complementary financial source to meet the SDGs. Although the objectives of the two global efforts align, there are no clear plans and strategies at the global scale for them to work together. The only option is that the countries work out their individual plans to sync SDGs and BRI so that the financial resources can be mobilised to meet the most pressing issues related to SDGs. There are certain concerns whether the finance that comes from China could be utilised in achieving SDGs, which are completely engineered by China. Moreover, the financing that comes under BRI is mostly for connectivity infrastructures than other areas of inclusive development. In this case, there is no clear pathway how these two ambitious plans would be playing supportive roles to each other. Having said that, there are some initiatives undertaken at the regional level to develop cooperation so that the BRI could be supportive to achieve SDGs by 2030.

notes

1. A World bank estimation shows the need of a total of around fifteen thousand billion US dollar to meet the infrastructures gaps in most of the developing countries in different regions. 2. A World Bank report indicates that with the right policies, investments of 4.5 per cent of GDP will enable low- and middle-income countries to achieve only infrastructure-related SDGs. 3. The implementing partner countries are: (1) Azerbaijan (2) Bangladesh (3) Cambodia (4) Czech Republic (5) Georgia (6) Kazakhstan (7) Kyrgyzstan (8) Lao PDR (9) Mongolia (10) Myanmar (11) Romania (12) Serbia (13) Sri Lanka (14) Thailand.

References

African Development Bank (2018). African Economic Outlook . Tunis : African Development Bank . AI, T., (2019). A new world economy on the horizon with BRI serving as an opening alternative. The Global Times. Retrieved September2019, from http://www.globaltimes.cn/ content/1161079.shtml

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Baker McKenzie (2017). Belt & Road: Opportunity & risk: The prospects and perils of building China’s New Silk Road. Baker McKenzie. Belt and Road Initiative (2018). About Belt and Road Initiative. Retrieved October 21, 2019, from https://www.beltroad-initiative.com/info/ Bouckaert, G., Chawdhry, U., Fraser-Moleketi, G., Meuleman, L., and Pizani, M., (2018). “Effective Governance for Sustainable Development: 11 Principles to Put in Practice,” International Institute for Sustainable Development. Retrieved September 2019, from https://sdg.iisd.org/commentary/guest-articles/effective-governance-for-sustainable­ development-11-principles-to-put-in-practice/ Bräutigam, D. (2011). “Aid ‘With Chinese Characteristics’: Chinese Foreign Aid and Development Finance Meet the OECD‐DAC Aid Regime,” Journal of International Development , 23(5), 752-764. Brînză, A., (2018). “Redefining the Belt and Road Initiative,” The Diplomat. Retrieved October 21, 2019, from https://thediplomat.com/2018/03/redefining-the-belt-and­ road-initiative/ Browder, G., (2019). Integrating Green & Gray: Creating Next Generation Infrastructures. New York: World Bank Group . Business Daily. (2018). “Questions on viability of SGR refuse to go away after China cuts funding.” Retrieved October 21, 2019, from https://www.businessdailyafrica. com/news/Questions-on-viability-of-SGR-refuse-to-go-away/539546-4761886­ 5fq1awz/index.html Chance, A., (2017). “The Belt and Road Initiative and the Future of Globalization,” The Diplomat. Retrieved October 21, 2019, from https://thediplomat.com/2017/10/the­ belt-and-road-initiative-and-the-future-of-globalization/ Chin, H., & He, W., (2016). Belt and Road Initiative: 65 Countries and Beyond. Fung Business Intelligence Centre. China Daily (2017a). “Chinese companies top player in Ethiopia’s investment landscape: Official.” Retrieved October 21, 2019, from http://usa.chinadaily.com.cn/ business/2017-07/19/content_30168474.htm China Daily (2017b). “China’s vision best model for Africa’s desired progress.” Retrieved October 21, 2019, from http://www.chinadaily.com.cn/ beltandroadinitiative/2017-05/16/content_29367964.htm China Daily (2017c). “Xi proposes advancing China-Ethiopia ties.” Retrieved October 21, 2019, from http://www.chinadaily.com.cn/china/2017-05/14/content_29381988.htm China-Britain Business Council (CBBC) (2017). “CBBC Successfully hosted another BRI Workshop in Shanghai.” Retrieved October 21, 2019, from http://www.cbbc. org/news/cbbcsuccessfully-hosted-antoher-bri-workshop-in-s/ Chinese European Legal Association (CELA) (2018). China’s Belt and Road Initiative: Opportunities and Challenges for International Dispute Resolution and Contracting. Chinese European Legal Association (CELA). European Bank for Reconstruction and Development (n.d.). Belt & Road Initiative. Retrieved October 14, 2019, from https://www.ebrd.com/what-we-do/belt-and­ road/overview.html

The BRI and SDGs Nexus | 35

Fishman, A., (2019). SDG Knowledge Weekly: Update and Perspectives on Belt and Road Initiative. Retrieved September 2019 from https://sdg.iisd.org/commentary/policy­ briefs/sdg-knowledge-weekly-update-and-perspectives-on-belt-and-road-initiative/ Forum on China-Africa Cooperation (2018). “Africa: Belt and Road Initiative Drives Africa’s Integration, Economic Growth.” Retrieved October 21, 2019, from https:// allafrica.com/stories/201807020377.html Huiyao, W., (2019a). “Enhance BRI to boost world economic growth,” China Daily. Retrieved September 2019, from http://www.chinadaily.com.cn/a/201904/26/ WS5cc24e87a3104842260b86ed.html Huiyao, W., (2019b). “In 2020, Asian economies will become larger than the rest of the world combined - here’s how,” World Economic Forum. Retrieved September 2019, from https://www.weforum.org/agenda/2019/07/the-dawn-of-the-asian-century/ Jin, L., (2018). “Synergies between the Belt and Road Initiative and the 2030 SDGs: From the Perspective of Development,” Economic and Political Studies, 6(3), 278-292. Lagarde and Gaspar, C., (2018). “Give Today’s Children a Chance,” IMF. Retrieved September 2019 from https://blogs.imf.org/2018/09/24/give-todays-children-a­ chance/ Mashindano, O., & Baregu, S., (2016). “National Level Implications of Implementing the SDGs in Tanzania,” Southern Voice (31). OECD (2018). China’s Belt and Road Initiative in the Global Trade, Investment and Finance Landscape. Organisation for Economic Co-operation and Development (OECD). Ren, X., & Zhong , N. ,(2019). “Investment spurs BRI countries’ growth,” China Daily. Rozenberg, J., & Marianne, F., (2019). Beyond the Gap: How Countries Can Afford the Infrastructure They Need while Protecting the Planet. Washington: World Bank. Tilakaratna , G., Nanayakkara , W., Madurawala , S., Jayaratne , S., & Wickramasinghe, K., (2017). “National Level Implications of SDG Implementation: The Case of Sri Lanka,” Southern Voice (41). UNDP (2017). The Belt and Road Initiative: A New Means to Transformative Global Governance Towards Sustainable Development. Beijing: UNDP. United Nations Department of Economic and Social Affairs (2019). “About BRI-SDGs.” Retrieved September Thursday, 2019, from https://www.brisdgs.org/about-bri-sdgs United Nations Department of Economic and Social Affairs (n.d.). Jointly Building Belt & Road Towards SDGs. Retrieved October 14, 2019, from https://www.brisdgs.org/ about-bri-sdgs United Nations (2018a). Financing for Development: Progress and Prospects 2018. New York: United Nations. United Nations (2018b). “Financing the SDGs: What will it take?” Retrieved September 2019, from https://www.un.org/ecosoc/sites/www.un.org.ecosoc/files/files/ en/2018doc/Eyes-on-the-issues.pdf United Nations (2018c, September ). “The Secretary-General’s Strategy For Financing: The 2030 Agenda For Sustainable Development (2018-2021).” Retrieved September 2019, from https://www.un.org/sustainabledevelopment/wp-content/uploads/2018/09/ SG-Financing-Strategy_Sep2018.pdf

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World Bank Group. (2019). Belt and Road Economics: Opportunities and Risks of Transport Corridors. New York: World Bank Group. Xin, L., (2019). “How can China help fulfill UN’s sustainable development goals?” CGTN. Retrieved October 8, 2019, from https://news.cgtn.com/ news/3d3d774e3245544e33457a6333566d54/index.html

Part II

South asia

4. BrI for trade and Connectivity

in South asia

a CPEC Model

Hina Aslam

Introduction South Asia is a “priority zone” in China’s Belt and Road Initiative (BRI), particularly, with the highest density of early harvest projects, that includes four subprojects: the China-Pakistan Economic Corridor (CPEC), the Bangladesh-China-India-Myanmar Economic Corridor (BCIM), the Trans-Himalaya Corridor, and China’s cooperation with Bangladesh, Sri Lanka, and the Maldives under the 21st century Maritime Silk Road (Ramasamy, et al., 2017). The China-Pakistan Economic Corridor (CPEC) is US$ 62 billion worth of investment in Pakistan (Ahmed, 2019), linking Pakistan and China from Kashgar to Gwadar, consisting of a combination of investments in energy and infrastructure projects to overcome Pakistan’s energy shortage. This energy shortage will be overcome with over 10, 400 MW of energy generating capacity set to be installed under CPEC. Twenty-one energy projects (as part of early harvest projects), 8 infrastructure projects (road and rail), the port of Gwadar (an essential component of CPEC), 9 Special Economic Zones (SEZs) (all are at the feasibility stage), as well as a string of other small projects, are set to be developed under CPEC.1 Table 4.1 provides the details of the current status and progress in each sector.

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Table 4.1: CPEC Progress and Status

Sectors

Status and progress

Agriculture

Includes management of water resources, livestock, and other fields. According to this plan, forming data task, stockpiling, distribution of agricultural equipment, agricultural mechanisation, demonstration and machinery leasing project and fertilizer production project for producing over 800,000 tonnes of fertilizer and 100,000 tonnes of bio­ organic fertilizer will be implemented. (Visit of Wang Shuo Lei)

Energy

Out of 15 planned projects as priority, 7 are completed and 6 are under construction with a total generation capacity of 6910 MW. These projects have added 3240 MW to the Pakistani national grid, amounting to more than 11 per cent of the total installed capacity of 29,000 MW in Pakistan.

Infrastructure

Karakorum Highway Phase-II (Havelian to Thakot) project which is about 118 km long will reduce the travelling time from Havelian to Thakot to 1.5 hours. Peshawar-Karachi Motorway is a 6-lane, access controlled Intelligent Transportation System (ITS) funded by EXIM Bank of China. It is one of the largest projects of the CPEC.

Trade

During the 8th JCC meeting, the NDRC (National Development and reform commission) and BOI (Board of Investment) signed the MOU on industry cooperation, which will facilitate the collaboration of both sides. In Gwadar, 5 new quay cranes, a 100,000 M2 storage yard, a seawater desalination plant with a capacity of 220000-gallon pure water per day, 2 sets of sewage disposal systems and cargo handling equipment have been installed and 80,000 M2 green space has been added to the port area. The development phase is planned from 2015 to 2030, and is further divided in 4 phases. 923-hectare Free Zone include an initial area of 25 hectares, which is located in the west of the existing port, and the northern area of 898 hectares. It has a lead role in establishing industries and in increasing the cargo capacity of the port. (PAK­ CHINA FTA)

Science and Technology

Pakistan and China signed an “Economic and Technical Cooperation Agreement”. Along with that, they pledged to “China-Pakistan Joint Cotton Bio-Tech Laboratory”. These two countries also promised to establish the “China-Pakistan Joint Marine Research Center” with the “State Oceanic Administration” and “Pakistan’s Ministry of Science and Technology”. Pakistan and China have pledged to collaborate in the field of space research and technology, as a part of tge CPEC agreement. In February 2016, Pakistan and China pledged to establish the “Pak-China Science, Technology, Commerce and Logistic Park” near Islamabad. The estimated cost of this project is around US$ 1.5 billion, covering an area of 500 hectares. The land will be provided by the Government of Pakistan to China’s “Xinjiang Production and Construction Corps”. In May 2016, the construction of the

BRI for Trade and Connectivity in South Asia | 41

“Pakistan-China Fiber Optic Project” began with the cost of US$ 44 million. It is 820-kilometre-long and will enhance telecommunication in the region of Gilgit-Baltistan, offering Pakistan another route by which Pakistan can transmit telecommunication traffic. Railway

Construction of the entire railway track from Karachi to Shahdara was completed and operational since January 2016. The remaining track between Shahdara and Peshawar is upgraded to a dual railway track as it was the first phase of the CPEC railway project. In addition to upgrading the ML-1, the CPEC project also calls for a similar major upgrade on the 1,254-kilometre-long Main Line 2 (ML-2) railway between Kotri in Sindh province, and Attock in northern Punjab province via the cities of Larkana and Dera Ghazi Khan. Medium-term plan for the Main Line 3 railway track will also include construction of a 560-km-long railway track between Kotla Jam in Bakhar near Dera Gazi Khan to Bostan near Quetta.

Job Creation and Social Responsibility

According to the preliminary statistics, CPEC projects so far, have created more than 75,000 job opportunities for the people of Pakistan. A report by Deloitte in 2017 stated that CPEC is going to create 700,000 job opportunities for Pakistan during 2015-2030. A study by CPEC Centre of Excellence, Ministry of Planning (MoP), Development and Reform of Pakistan showed that CPEC can create 1.2 million jobs in future under its currently agreed projects. China Fund for Peace and Development (CFPD) has built a primary school in Gwadar which is named as “Chinese Pakistan Friendship School”. The construction of the school was finished and it was opened for the students in September 2016. At that time, in this school around 500 students were studying which is more than double of its capacity. In August 2019, CPEC has opened a door of opportunities for young people under the “Pak-China Youth Conclave in Gwadar”, which aims to overcome challenges and draws opportunities and investment potentials for education, training, skill development and employment of youth, forming a joint youth policy.

Source: CPEC Official website

The early harvest projects of CPEC are almost complete and are entering in the next phase of developing Special Economic Zones (SEZs). These SEZs under CPEC, which is the major driver of Foreign Direct Investment (FDI), aid industrialisation and increased exports, include: (i) Rashakai Economic Zone, M-1, Nowshera, (ii) China Special Economic Zone, Dhabeji, (iii) Bostan Industrial Zone, (iv) Allama Iqbal Industrial City (M3), Faisalabad, (v) ICT Model Industrial Zone, Islamabad, (vi) Development of Industrial Park, Karachi, (vii) Special Economic Zone at Mirpur, AJK,

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(viii) Mohmand Marble City, FATA, and (ix) Moqpondass SEZ GilgitBaltistan (Rehman, et al. 2018). Further details about the proposed SEZs under CPEC are given in Table 4.2. After the establishment of these SEZs, an unchallenged growth in economies is expected which will impact the society with better living standards, financial strength and better connectivity.The jobs creation will help in poverty alleviation in the society and better economies of both countries will strengthen the country itself. It is pertinent to mention here that due to these SEZs, the interconnectivity of regions of Pakistan will be enhanced and a better relationship among provinces will be developed. Table 4.2: Special Economic Zones under CPEC SeZs

Location/area

Located on 1000 acres of land, of which 702 acres are to be used for industrial development, at the junction of Karakoram Corridor and ML-1 development corridor, about an hour drive from either Islamabad or Peshawar.

Status

Feasibility studies of SEZs are shared with the Chinese side. The MoU and Engagement Agreement for the RSEZ project were signed in January 2018. Presently, the two parties are in the end stages of finalising and signing the Concession Agreement, following which the Ground Breaking of the project will take place.

focused Sectors

2) China Special Economic Zone, Dhabeji Sind

Located in Dhabeji in Sindh province at a distance of around 55 km from Karachi covering 1000 acres of land.

Feasibility studies of SEZs are shared with the Chinese side.

Ideal for providing a link with Karachi’s airport and seaport to increase local connectivity.

3) Bostan Industrial Zone, Baluchistan

Located in Bostan in Baluchistan Province on 1000 acres of land.

Feasibility studies of SEZs are shared with the Chinese side.

Fruit processing, agricultural manufacturing, pharmaceutical, etc.

1) Rashakai Economic Zone, M-1, Nowshera KPK

Garments and textiles manufacturing, electronic appliances manufacturing, etc.

BRI for Trade and Connectivity in South Asia | 43

4) Allama Iqbal Industrial City (M3), Faisalabad Punjab

Covers 3000 acres of land in Faisalabad Punjab.

Feasibility studies of SEZs are shared with the Chinese side.

Textiles, pharmaceuticals, steel and chemicals industries, etc.

5) ICT Model Industrial Zone, Islamabad

Covering Feasibility studies of approximately 200-500 SEZs are shared with acres of land. the Chinese side.

Steel, food processing and textiles industries.

6) Development of Industrial Park, Karachi

Situated at Port Qasim Feasibility studies of (Karachi) on 1500 SEZs are shared with acres of land. the Chinese side.

Steel, garments and automobile manufacturing industries.

7) Special Economic Zone at Mirpur, AJK

Covering 1078 acres of land connectivity with Sialkot being approximately 140 km from Sialkot and Jhelum.

Feasibility studies of SEZs are shared with the Chinese side.

Will feature mixed industries.

8) Mohmand Marble City, FATA

It is situated in FATA (Federally Administered Tribal Areas). The land is yet to be allocated for its development.

Feasibility studies of SEZs are shared with the Chinese side.

The types of industries it will feature are yet to be decided.

9) Moqpondass SEZ, Gilgit­ Baltistan

Covers 250 acres of land and will link Gilgit with Skardu.

Feasibility studies of SEZs are shared with the Chinese side.

It will house marble/granite, leather, and iron ore industries.

Source: CPEC Official website

The short-term completed projects show that CPEC is fulfilling the requirements; an example is the 30 per cent electricity issue that has been resolved in Bahawalpur. Further, Pakistan’s economic growth has increased from 5.4 per cent in 2017 to 5.8 per cent in 2018. FDI has also increased by 5 per cent. It further has increased the rate of export to 12.0 per cent while imports have decreased by 16.6 per cent. CPEC will also enhance China’s influence in the region because CPEC is the shortest and secure route to save time and capital and to easily access Eurasian and Central Asian states. Currently, the duration of the arrival of ships from different states to China is 27 and 32 days which will decrease to 7 and 8 days, respectively. China

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can save US$ 1350 and US$ 1450 on imports from the EU and the Middle East, respectively. Pakistan Credit Rating Agency (PACRA) suggested that the establishment of energy projects under CPEC would help overcome the shortage and play a positive role in achieving the required economic growth of 7 per cent in the next two to three years (Syed, 2018) PricewaterhouseCoopers predicts that Pakistan’s GDP may reach US$ 4.2 trillion by 2050 (PwC, 2017a). CPEC’s significance for China is reflected by its inclusion in China’s 13th five-year development plan (PwC, 2017b): (a) a shorter and cheaper route by which China can conduct trade with South and West Asia, Middle East, Africa and Europe, (b) development of Western China to bring it at par with developed regions in Eastern and Southern parts of China, (c) utilisation of surplus capacity including human resources and technology from Chinese public and private sector companies (d) development of stronger economic, cultural and political linkages with countries across the world.

Benefits and opportunities in cPec The CPEC, a game-changer in the region and a multimillion-dollar project, is beneficial for both countries, China and Pakistan. Pakistan has the opportunities to develop its infrastructure and achieve industrial growth along with development in almost every sector of life. The longterm plan of CPEC includes:

Improved Connectivity CPEC long-term plan mentions the cross-border optical cable which will start from China’s Tashkurgan Tajik Autonomous County and travel 135-km to connect to Pakistan, travelling 650 km further to Islamabad ( Jahanzaib & Siddiqui, 2019). The plan also includes the communication network of a total area of 8,000 square meters for large scale data centres for “centralised management of e-government data and safe operations”. This communication framework also includes sub-marine stations and digital TV (ibid.).

BRI for Trade and Connectivity in South Asia | 45

Trade: Pak-China Free Trade Agreement A free trade agreement was signed between China and Pakistan in 2009 and the salient features of this agreement are: to integrate economies of both countries for mutual benefits, to provide a predictable investment regime in the services sector especially in Infrastructure, Computer & related Services, Educational Services, Research & Development,Tourism, Sporting Services and Environmental Services like sewage and cleaning services. It also includes promoting joint ventures in capacity building of domestic service suppliers, transfer of technology and creation of new jobs in Pakistan.

Energy Over 140 million Pakistanis don’t have access to the power grid or they face more than 12 hours of load shedding on daily basis with an average shortfall of around 4000 MW. The shortfall is expected to rise from 4000 MW to 7000 MW. Because of CPEC, Pakistan could turn towards cleaner energy production, as China is a leader in installing renewable energy production plants. For multiple power generation and transmission projects, US$ 35 billion worth of investment has been promised by China under the CPEC agreement (Malik, 2018). The investment is divided into 17 projects and one HVDC transmission project. Under CPEC, Chinese companies are working on four wind power projects of 300 MW capacity, one solar power project of 900 MW, three hydropower projects of 2,714 MW, five coal projects in Thar Sindh of 3,960 MW and four imported coal projects of 4,260 MW in total, along with a ±660 kV HVDC transmission line between Sindh and Punjab. Recently, the first of two 330 MW units of the 660 MW project located in Thar Block II was tested and energised in which China actively extended financial, technical, and manpower support to complete the project (Hassan & Imran, 2017).

Industrial Parks Industrial parks are the backbone of the Pakistan industry under the CPEC agreement. There are dozens of dedicated industrial zones to

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be established along the routes of CPEC, which is an ideal platform to meet the requirement of Pakistan’s needs and an opportunity to enable Pakistan to accelerate the process of high-level industrialisation. Nine of the industrial zones have been earmarked so far as mentioned in Table 4.2. The quality products from these industries will be having an impact on the international market and thus contributing towards the economy growth of Pakistan. The bilateral cooperation between China and Pakistan in this sector will play an important role even in the alleviation of poverty and creation of job opportunities.

Agricultural Development and Poverty Alleviation China has invested US$ 3.4 billion in the agriculture sector to increase food supply and domestic market (Pakistan Defence, 2018). Likewise, amidst other developments, the CPEC Long Term Plan (LTP) focuses on the development of the agriculture sector of Pakistan in an effort to nurture the rural economies of Pakistan by providing modern machinery and fertilizers to not only enhance crop yield, but also produce exportable commodities for China. By increasing the use of modern machinery and synthetic fertilizers to enhance crop yields, the construction of food storage and processing zones, will reduce post-harvest losses.2 The Ministry of National Food Security Policy of 2018 has identified nine agriculture development zones including constructing food storage and processing zones to harness the production of major crops such as cereals, dairy, meat, tobacco, fruits, honey and others.3

Tourism The Karakoram Highway and the security along the highway, which was actually done for the trade interests of Pakistan, has proved to be a blessing for Pakistan’s tourism industry which is becoming a trending culture. UNWTO reports that improvement in Pakistan’s security culture in recent years has resulted in 300 per cent growth in the tourism sector. World Travel and Tourism Council reveals that the direct contribution of tourism to Pakistan is around US$ 7.6 billion (2.5 per cent of GDP), which is likely to increase to around US$ 10 billion in 2025.

BRI for Trade and Connectivity in South Asia | 47

Financial Cooperation As per the CPEC document, the two countries have to explore the establishment of multi-level cooperation mechanisms and strengthen policy coordination, including financial reforms and innovative financial products. Following are the areas of focus: • Strengthen Cooperation in Financial Regulation: The two countries promote monetary cooperation between the central banks, implement existing bilateral currency swap arrangements, research to expand the amount of currency swap and explore to enrich the use scope of bilateral currency swap; assign the foreign currency to domestic banks through credit-based bids to support the financing for projects along the CPEC; promote the settlement in domestic currencies (RMB and Rupees) to reduce the demand for third-party currency; strengthen the cooperation between the central banks and financial regulatory agencies of the two countries. The two sides will actively use bilateral currencies for the settlement of bilateral trade and investment under the relevant arrangements. It will also encourage clearing and settlement of the financial institutions from both sides through Cross-Border Inter-Bank Payment System (CIPS), promote the free flow of capital in an orderly manner, and enhance the facilitation in cross-border transfer of legitimate funds. • Cooperation between Financial Institutions: China supports Pakistan to cooperate with the Asian Infrastructure Investment Bank (AIIB). Both countries shall promote the mutual opening of their financial sectors and the establishment of financial institutions in each other’s territories; encourage financial institutions of the two countries to support the financing, including loans from an international consortium of banks, for the projects along the CPEC; establish and improve a cross-border credit system, and promote financial services such as export credit, project financing, syndicated loan, trade finance, investment bank, cross-border RMB business, financial market, assets management, e-bank, and financial lease; support the financing of projects by RMB loans, and establish the evaluation model of power bill in RMB. • Financial Cooperation between Free Trade Zones (FTZs): Pakistan shall promote the construction of Gwadar Port Free Zone by drawing

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on the experience of China (Shanghai) Pilot Free Trade Zone and other Pilot Free Trade Zones in China, and explore RMB offshore financial business in Gwadar Free Zone. Both countries shall strengthen financial cooperation between their Free Trade Zones and explore the formation of an RMB backflow mechanism.

Risks and challenges in cPec The potential gains of CPEC development are accompanied with several risks which may include: • Debt risk: A report analyses that Pakistan’s total foreign debt is about US$ 106 billion and Chinese loan accounts for 10-11 per cent of the total foreign debt, whereas the remaining 89-90 per cent is from other sources such as IMF, Paris Club, and other western organisations. Although, CPEC may not be accountable for imposing immediate burden for loans repayments, it is risked that the repayments will be parallel as the repayments for IMF will start in 2023-2024 (IMF, 2019).4 Some of the cautions that Pakistan must realise that the repayment of loans for CPEC infrastructural projects starts in 2020 and the deferred and loan payment for Saudi oil and loans taken from the UAE will also start in 2024, which may cause troubles for Pakistani government. Analysts estimate that CPEC debt would add up around US$ 14 billion to Pakistan’s total debt raising it to US$ 90 billion by the fiscal year ending June 2019 (Tom, 2017). These risks are common to other partner countries in BRI due to weak economic and institutional structures of governing bodies. • Strategic and geopolitics risks: The security dynamics of Pakistan are well to be considered since it borders Afghanistan, India, Iran, and China. India is wanting to enhance own political and economic influences in the region by encountering the influence of China and the economic growth of Pakistan.

critical analysis: opinion and Suggestions CPEC has the potential to boost economic development by improving trade, FDI, and other economic benefits.

BRI for Trade and Connectivity in South Asia | 49

Pakistan-China Free Trade Agreement (FTA): Presently, China is the second largest destination of Pakistani exports, totalling up to US$ 1.48 billion in the first 10 months of the fiscal year 2018-2019. However, Pakistani exports to the USA, its largest export destination, reached up to US$ 3.367 billion in the first 10 months of the fiscal year 2018-2019. By the end of phase 2 of FTA with China, Pakistan expects China to replace the USA as the largest market for Pakistani exports. A household name Chinese firm Li & Fung, after the closing of FTA2, has also expressed interest to enhance trade with Pakistan by buying up to US$ 1 billion worth of goods. The company has over 8000 business houses across the world, and it mainly deals with manufacturers and buyers. Moreover, the Adviser to Prime Minister on Commerce, Textile, Industries, Production and Investment Abdul Razak Dawood stated the governments of both the countries are focused on intensifying business to business contacts and exploring the opportunities for joint ventures.. The Chinese companies have appreciated the business-friendly infrastructure provided in Pakistan, especially in the textile sector. As an increasing wage ratio trend in the Chinese markets, Pakistan provides a low cost, high profit ground for Chinese investors, as well as employment opportunities, tech transfer, opportunities for joint ventures resulting in higher exports and increased foreign exchange reserves for Pakistan. It must be noted that under the framework for FTA2, around 25 per cent of the tariff lines (1760 approximately) have been protected to safeguard the interests of the local business community. Additionally, separate provisions have been introduced to forestall any serious threat to monetary reserves and to abate the complications of under-invoicing and misdeclaration, a system of Electronic Data Exchange has been introduced. Incorporating these provisions under the FTA ensures that there is a presence of proper defence mechanism in case the FTA does not turn out to be fruitful for Pakistan or turns out to be disadvantageous for Pakistan’s industry. It must also be taken into account that Pakistan has gained incentives to what are available to ASEAN countries without giving China import facilities as given by ASEAN nations. This provides a great competitive advantage to Pakistani product importers as compared to ASEAN nations. And now it is liable upon Pakistani product exporters if they take advantage of this opportunity or not. Recently, the Chinese Ambassador to Pakistan said 90 per cent of the

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Chinese markets are open for Pakistani exports and products such as sugar, fruits, mangoes, fish and fishers’ products are given duty free access to these markets. Furthermore, the Chinese businesses are in the process of relocating, even if Pakistan manages to attract 1 per cent of the businesses to relocate to Pakistan it could attract US$ 60 billion. In a nutshell, with the revised FTA lots of Pakistani products will have an opportunity to be exported to China, as 313 items are included in the FTA. However, reducing the trade deficit with China is a long-term policy goal. It is incumbent upon the government, relevant ministries and local industries to make it a success for Pakistan’s economy in general, and Pakistan’s exports in particular. Debts and Loans under CPEC: The western media is spreading ample of hearsay about the implications for Pakistan in the flagship China-Pakistan Economic Corridor (CPEC) project. There is a perception among some sections of the society that Chinese loans to Pakistan are a way to plunge Pakistan into a vicious debt trap, and Pakistan could follow the suit as Sri Lanka. The lack of transparency and Chinese obsession with the secrecy of the projects have just added to the speculation. Although there could be some truth to these rumours, the recent statements from the top clique of both countries suggest otherwise. The Chinese foreign ministry, in April 2019, went to the fora to denounce any such claims. The Chinese foreign ministry spokesperson Lu Kang clearly expressed in a media briefing that only 20 per cent of the total projects started under CPEC comprise loans, and the rest of 80 per cent projects consist of investments and grants. The sentiment is mostly positive across both sides of the border, and the mammoth investment, estimated at around US$ 62 billion, that CPEC is going to bring in Pakistan is expected to put Pakistan on a job inclusive high economic growth path. The Pakistani officials and top political leaders alike also denounce the rumours that are making headlines in the western media. The Senate committee in a recent session observed that the Chinese loans are mostly long-term and it is only charging 2-2.5 per cent on government-to-government loans. The Pakistan government is also of the view that Chinese loans and investments are the reason that helped Pakistan overcome the energy crisis and intensify infrastructural development. Both governments have strongly criticised the

BRI for Trade and Connectivity in South Asia | 51

propaganda that the western media is spreading, and are of the view that it is only providing fodder for the naysayers. The latest IMF data, as is suggested in today’s Dawn Newspaper, reports that China has become Pakistan’s largest creditor. Of the total US$ 86 billion of Pakistan government debt and liabilities, China’s debt share is over one-third standing at around US$ 21.891 billion. Moreover, it must be noted that some sources suggest that some of the Chinese loans are taken at interest rates of 5 per cent, and it will cause a significant amount of money from the government’s budget on debt servicing, resulting in fiscal pressures on the economy. It must also be noted that debt repayments on infrastructural development will start in 2021, while Pakistan will still be on the IMF programme, it will put a lot of pressure on the economy that is already choking. In addition to this, debt repayments for the IMF programme will also start in the fiscal year 2022­ 2023, putting further pressure on the economy and pushing big numbers on debt servicing. Therefore, it is suggested that there should be policy and institutional reforms that must include transparency in infrastructure and transport projects, as well as easing trade, transparency in procurement while adhering to environmental and social safeguards would be necessary to maximise gains from the CPEC development in Pakistan. Social, Environmental and Governance Safeguards: Countries that lie along the Belt and Road Corridors are ill-served by existing infrastructure and by a variety of policy gaps which mainly include environmental and social safeguards. “By considering the full range of benefits and costs associated with the impacts on natural resources and affected people in CPEC, it creates an opportunity to incorporate environmental issues into development planning (short-term plan to be completed by 2020, midterm plan to be completed by 2025 and long-term plan to be completed by 2030). Policies to incentivise resource-efficient production in a holistic way to decouple economic growth and environmental protection could be a useful solution to promote sustainable development in the region. Examples are providing subsidies to support green energy technologies, and conserve critical resources such as water and land. Additional policies to conduct extended assessments of the projects to measure

52 | Belt and Road Initiative and South Asia

the values of national resources impacts and the importance of those resources for the people’s livelihoods to make better management decisions for public welfare and alleviating poverty. Gwadar can serve as a pilot demonstration site by assessing the environmental damage costs from business and development activities in the region that may help to influence regional economic policies to integrate environmental protection and benefits generated through conservation and better management. It is recommended that Pakistan must learn from China’s ecological policies and follow best practices in moving forward with CPEC, both in decision making as well as meeting the pillars of Vision 2025 aligned with sustainable development goals (Aslam, 2019).

conclusion CPEC provides an opportunity for stepped-up research to examine, design and execute optimal trade and investment policies, socio-economic linkages, and management practices to bolster development in China, Pakistan and other countries along the Belt and Road Initiative. For China, CPEC is important because it can be showcased as a success story for all other routes and components of the BRI. Indeed, the utilisation of Chinese surplus capacity in engineering, construction, chemicals and other industries and the development of the Western part of China is high on Beijing’s agenda. For Pakistan, there is a great opportunity of developing SEZs to improve the country’s exports and overall economic situation. However, there are some challenges that must be addressed through substantial policy reforms to benefit from trade and investments, to improve debt sustainability and realise the importance of mitigating environmental risks. The government needs to take full advantage of CPEC in every sector of life including education, health, interconnectivity through mass communication and road links. This will generate job opportunities for the youth of Pakistan and Chinese experts. The net impact will improve their social, economic and development choices and reduce poverty and deprivation. The government must also ensure that the CPEC is implemented in its true spirit to improve the security of the region along with socio-economic development. The government and the responsible authorities must anticipate the challenges

BRI for Trade and Connectivity in South Asia | 53

and realities that come along with the Chinese loans and should focus on long-term and sustainable returns, where both countries can reap the benefits and make the most out of this billion-dollar project.

notes

1. From official CPEC website, http://cpec.gov.pk/special-economic-zones-projects 2. CPEC Long term plan, available at https://www.pc.gov.pk/uploads/cpec/LTP.pdf 3. “Special Section 1: CPEC LTP: Opportunities for Agricultural Advancement in Pakistan,” http://www.sbp.org.pk/reports/annual/arFY18/Special-Section-1.pdf 4. https://www.imf.org/en/Countries/PAK

References

Ahmed, Z. S., (2019). Impact of the China–Pakistan Economic Corridor on nationbuilding in Pakistan. Journal of Contemporary China, 28(117), 400-414. Aslam, H., (2019). “Integrating environmental protection into policy design of CPEC Phase II,” Daily Times, 22 July. Available at: https://dailytimes.com.pk/434487/ integrating-environmental-protection-into-policy-design-of-cpec-phase-ii/. Hassan,Z.and Imran,S.,(2017).“Chinese Dominance in Emerging T&D Markets: Pakistan’s Example,” Power Technology Research. Available at https://powertechresearch.com/ chinese-dominance-in-emerging-td-markets-cpec-example/. Jahanzaib, H. & Siddiqui, Q.U.A., (2019). “Exclusive: The CPEC plan for Pakistan’s digital future,” The Dawn, 22 March. Available at: https://www.dawn.com/news/1361176 Malik, A. R., (2018). The China–Pakistan Economic Corridor (CPEC): a game changer for Pakistan’s economy. In China’s Global Rebalancing and the New Silk Road (pp. 69­ 83). Springer, Singapore. Pakistan Defence (2018). “Inclusion of the agriculture sector in the long-term plan of CPEC.” Available at: https://defence.pk/pdf/threads/inclusion-of-the-agriculture­ sector-in-the-long-term-plan-of-cpec.584854/ PwC (2017a). The World in 2050 – Summary report. PricewaterhouseCoopers, February. Retrieved from http://www.pwc.com/gx/en/world-2050/assets/pwc-world-in-2050summary-report-feb-2017.pdf PwC (2017b). Repaving the ancient Silk Routes. PricewaterhouseCoopers, June. Retrieved from https://www.pwc.com/sg/en/publications/assets/gmc-repaving-the-ancient­ silk-routes2017.pdf Ramasamy, B., Yeung, M., Utoktham, C. and Duval, Y., (2017). “Trade and Trade Facilitation along the Belt and Road Initiative Corridors,” ARTNeT Working Paper Series, No. 172. Rehman, A. U., Hakim, A., Khan, K., & Khan, I. U. (2018). “Role of CPEC in development of trade, transport and economy of Pakistan,”  Romanian Journal of Transport Infrastructure, 7(1), 77-92.

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Siddiqui, K., (2019). “One Belt and One Road, China’s Massive Infrastructure Project to Boost Trade and Economy: An Overview,” International Critical Thought, pp.1-22. Syed, J. (2018).  China’s Belt and Road Initiative: A Perspective from Pakistan  (pp. 1-21). Working Paper: LUMS/CPMI/, 5 (2). Tom, H., (2017). “Pakistan bets on a Chinese development project, but debt looms,” Nikkei Asia, 6 April. Available at: https://asia.nikkei.com/Politics/Pakistan-bets-on-a­ Chinese-development-project-but-debt-looms Usman, S., (2016). “Balochistan: The Troubled Heart of the CPEC.” Available at: https:// thediplomat.com/2016/08/balochistan-the-troubled-heart-of-the-cpec/. Javid, Z., (2019). “How CPEC can help Pakistan’s chronic power shortage,” China Daily, 31 August. Available at: http://www.chinadaily.com.cn/a/201808/31/ WS5b88e0d5a310add14f388e63.html (Retrieved on 10 September 2019).

5. BrI, trade and Connectivity Bangladesh’s Perspective Mahfuz Kabir and Nahian Reza Sabriet

Introduction Even though formally announced by Chinese President Xi Jinping in 2013 with a two-prong attempt “Silk Road Economic Belt” and the “21st Century Maritime Silk Road”, the Belt and Road Initiative (BRI) is still at its formative stage. It subsequently became a vital foreign policy for China in many aspects, mainly with the intention of promoting economic cooperation amongst countries along the “Belt” and “Road” routes. South Asian countries have substantial trade volume with China. BRI involves countries which were once situated on the original Silk Road, and it focuses on connecting China to Europe through Central Asia and Russia, the Persian Gulf through Central Asia and Southeast Asia, South Asia and the Indian Ocean. It focuses on utilising sea routes and Chinese coastal ports to link China with Europe via the South China Sea and the Indian Ocean, and the South Pacific Ocean through the South China Sea. Bangladesh values regional and sub­ regional cooperation that entails the dreams of economic growth, shared development and mutual prosperity. Despite tensions over the massive influx of Rohingyas from 2017 onwards with Myanmar, Bangladesh nurtures a positive outlook towards China’s Belt and Road Initiative (BRI) and its sub-regional cooperation, i.e., Bangladesh­ China-India-Myanmar Economic Corridor (BCIM-EC). The country’s commitments towards BRI have been reflected in the ongoing discussions

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on the ways to further strengthen cooperation in the areas of trade, energy and connectivity under BRI at its top policy level. Indeed, China’s ‘grand connectivity strategy’ overlaps with South Asian countries through regional, sub-regional and trans-regional groupings, viz. Bangladesh-Bhutan-India and Nepal (BBIN) growth quadrangle, South Asian Association for Regional Cooperation (SAARC), and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Direction and volume of trade are mostly unpredictable with substantial fluctuations in share of bilateral trade. Improving trade, connectivity and interlinkage are the foundations of BRI along with other pillars, such as policy coordination, financial integration and people-to-people bond. South Asian countries are deeply dependent on trade with China, especially sourcing inputs in the production process, electronics, machinery and consumer goods among others, while export items include Readymade Garments (RMGs), food products, minerals, chemicals and gems. China is currently Bangladesh’s largest trading partner and the biggest source of imports of raw materials of the manufacturing sector, electronics and machinery. Chinese companies are involved in establishing a number of mega infrastructures in the country, which include the Padma Bridge and widening of national highways. Currently, a Chinese Economic and Industrial Zone (CEIZ) is being established at Anwara, Chattogram while the country has proposed establishing another Special Economic Zone (SEZ) for its industries on the southern bank of the Karnaphuli in Chattogram. Deep trade and economic linkages with China are important in the context of achieving high economic growth in Bangladesh. Given the dynamics of economic growth and development in Bangladesh and other countries in South Asia, it is imperative to remove investment and trade barriers with China. Against this backdrop, this paper aims at unfolding the prospects of trade and connectivity in relation to the BRI of China from the perspective of Bangladesh. Although the narrative is presented from the viewpoint of Bangladesh, it goes beyond the state-centric outlook and tries to capture regionalism as well as regional prosperity through trade and connectivity. After this brief introduction, the second section gives an overview of the

BRI, Trade and Connectivity | 57

trends in trade scenario between China and each of the South Asian countries. The third section tries to dissect the options designed by BRI as instruments to boost up investment and connectivity. The fourth section looks into the critical aspects and alternatives. Finally, the concluding remarks illustrate the summary of the paper and future prospects lying within.

overview of the trade Scenario between china and the South asian countries A substantial volume of trade currently takes place between China and the South Asian countries. These countries in general are largely dependent on trade with China, especially sourcing inputs in the production process, electronics, machinery and consumer goods. However, the direction and volume of trade are mostly unpredictable as there are notable fluctuations in the share of bilateral trade. A brief look at the export-import dynamics can illustrate this issue. In between 2009 and 2019, China’s export to Afghanistan rose from US$ 213.36 million to US$ 600.99 million. Among the dominant export products, the highest proportion goes to rubber and articles thereof (21 per cent). Next to those are electrical machinery and equipment and parts thereof, sound recorders/reproducers and television (18 per cent); manmade filaments, strip and the like of man-made textile materials (11 per cent); vehicles other than railway or tramway rolling stock, and parts and accessories thereof (5 per cent). Afghanistan’s imports from China vis-à-vis world imports also increased over time. Although the trend showed a steady rate between 3.40 per cent and 6.94 per cent of world export until 2017, there was a dramatic shift in 2018 as the ratio went to 9.02 per cent and remained around 8.87 per cent in 2019. On the other hand, Chinese imports from Afghanistan grew from US$ 1.37 million to US$ 24.1 million. Afghanistan’s exports to China peaked in 2019 with 3.39 per cent rate with an export worth US$ 29 million. However, from China’s end, neither the exports nor the imports were even close to 1 per cent of its total world exports or imports.

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figure 5.1: china’s exports to (left) and Imports from (right) afghanistan

Source: International Trade Center (2021), Trade Map Database.

In the case of Bangladesh, there is an upward trend in the volume of Chinese exports being received. Within ten years, between 2009 and 2019, the volume first went up from US$ 4 billion to US$ 13 billion in 2015 and to US$ 17 billion in 2019. The value of Bangladesh’s imports from China also increased from 19.11 per cent to 30.03 per cent of world imports. At the same time, the value of China’s imports from Bangladesh went up from US$ 140.7 million to US$ 1.04 billion which accounted for 2.18 per cent of Bangladesh’s world exports. China’s exports to Bangladesh were between 0.37 per cent to 0.71 per cent of its total exports and the imports from Bangladesh stood roughly between 0.01 to 0.05 per cent of its world imports. China’s primary exports in Bangladesh were cotton (13 per cent); machinery, mechanical appliances, nuclear reactors, boilers, parts thereof (13 per cent); electrical machinery & equipment and parts (9 per cent), man-made staple fibres (7 per cent); knitted or crocheted fabrics (5.8 per cent). From Bangladesh’s side, the exports were dominated by woven articles of apparel & clothing accessories (32 per cent); knitted articles of apparel & clothing accessories (25 per cent). Among other materials, there were Fish and crustaceans (10 per cent) as well as other vegetable, textile fibres and paper yarn (10 per cent) as well as raw hides and skins (other than fur skins) and leather (5 per cent). China’s export-import situation in Bhutan is quite different from that of Afghanistan or Bangladesh. The ratios are visibly low in terms of the percentage of world exports and imports. Bhutan’s imports from China barely reached 2 per cent of its world imports (except for the year 2013, when it went up to 6.49 per cent); and, the exports remained between

BRI, Trade and Connectivity | 59

figure 5.2: china’s exports to (left) and Imports from (right) Bangladesh

Source: International Trade Center (2021), Trade Map Database.

0.01 to 0.13 per cent of total world exports. From China’s end, the ratio is almost negligible. In 2013, China’s export to Bhutan peaked and crossed the US$ 16 million line, it was still almost 0.00 per cent of China’s world export.The same case can be seen in the peak point of China’s imports from Bhutan which reached US$ 350,000 in 2015. China’s exports to Bhutan are dominated by electrical machinery and equipment and parts thereof (36 per cent); mineral fuels, mineral oils and products of their distillation and bituminous substances (17 per cent); and, machinery, mechanical appliances, boilers (13 per cent). On the other hand, the larger share of natural or cultured pearls, precious or semi­ precious stones, precious metals (67 per cent); articles of apparel and clothing accessories, knitted or crocheted (17 per cent); works of art, collectors’ pieces and antiques (4 per cent); and, footwear, gaiters and the like; parts of such articles (4 per cent) dominate China’s imports from Bhutan. figure 5.3: china’s exports to (left) and Imports from (right) Bhutan

Source: International Trade Center (2021), Trade Map Database.

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Trade between India and China had its high and low points. Despite the political tensions between the two neighbouring countries, the volume of Chinese exports to India manifests an upward slope starting from US$ 29 billion to US$ 74 billion between 2009 and 2019. China’s imports from India also remained steady around US$ 13 billion to US$ 18 billion during the same period. While China’s exports to India stood around only 2 to 3 per cent of its world export on average, for India, the imports from China comprise approximately 11 to 15 per cent of its world imports. Similarly, India’s exports to China stood around 5 to 9 per cent of its world export, peaking at 9.46 per cent in 2010; while, China’s imports from India cover only around 1 per cent or less of its world imports. China’s exports to India are dominated by electrical machinery and equipment and parts (27 per cent); machinery, mechanical appliances, boilers (19 per cent); organic chemicals (11 per cent); plastics and articles thereof (4 per cent); Articles of iron or steel (3 per cent). China’s imports from India are dominated by organic chemicals (16 per cent); natural cultured pearls, precious or semi-precious stones, precious metals (9 per cent); fish and crustaceans, molluscs and other aquatic invertebrates (7 per cent); and, cotton (7 per cent). figure 5.4: china’s exports to (left) and Imports from (right) India

Source: International Trade Center (2021), Trade Map Database.

Maldives’ trade relations with China are quite similar to the case of Bhutan. Although China’s exports to the Maldives increased from US$ 40 million to US$ 342 million between 2009 and 2019, they were barely around 0.01 to 0.02 per cent of China’s total export. However, for the Maldives, China occupied a good import ratio. Starting from 4.21 per cent of Maldives’s

BRI, Trade and Connectivity | 61

total world imports in 2009, the ratio went up to 13.40 per cent in 2018 and remained 11.85 per cent in 2019. However, China’s imports from Maldives had been very low during the same time. Showing a minimal volume until 2017, the value went up to US$ 6 million in 2018 and had a dramatic shift to US$ 33 million in 2019, covering 21.34 per cent of Maldives’ world exports. However, it never peaked at a higher percentage than 0.00 per cent of China’s world imports. China’s exports to the Maldives were dominated by furniture, bedding, mattresses (13.6 per cent); machinery, mechanical appliances, boilers (13.3 per cent); electrical machinery and equipment and parts (12.6 per cent); articles of iron or steel (11.7 per cent); and, plastics and articles thereof (6.1 per cent). On the other hand, Maldives’ exports were disproportionately dominated by mineral fuels, mineral oils and products of their distillation, bituminous substances (99.8 per cent). Among other products, there are electrical machinery, equipment and parts (0.07 per cent); and, fish and crustaceans, molluscs and other aquatic invertebrates (0.03 per cent). figure 5.5: china’s exports to (left) and Imports from (right) maldives

Source: International Trade Center (2021), Trade Map Database.

China’s exports to Nepal went more than US$ 2 billion in 2013, marking 34.27 per cent of Nepal’s world imports and 0.10 per cent of China’s world imports. The trend went downwards after 2013 and in 2019, the total volume of Chinese exports to Bhutan was worth US$ 1.48 billion. China’s imports from Nepal also went down after 2013, peaking at 5.04 per cent of Nepal’s world imports. China’s exports to Nepal are dominated by electrical machinery, equipment and parts (25 per cent); machinery, mechanical appliances, boilers (11 per cent); articles of apparel and clothing accessories, not knitted or crocheted (8.6 per cent); articles of apparel and clothing accessories, knitted

62 | Belt and Road Initiative and South Asia

or crocheted (7.6 per cent); footwear, gaiters and the like and parts of such articles (5.8 per cent). Conversely, China’s imports from Nepal comprise articles of apparel and clothing accessories, not knitted or crocheted (3.64 per cent); optical, photographic, cinematographic, measuring, checking, precision, medical or surgical elements (7.2 per cent); carpets and other textile floor coverings (15.6 per cent); miscellaneous articles of base metal (19.3 per cent); commodities not elsewhere specified (37.5 per cent). Nepal’s exports to China never crossed 0.00 per cent of China’s world imports between 2009 and 2019. figure 5.6: china’s exports to (left) and Imports from (right) nepal

Source: International Trade Center (2021), Trade Map Database.

Pakistan’s lineage of a strong relationship with China is present in the trade scenario. Between 2009 and 2018, China’s exports to Pakistan went up to US$ 18 billion in 2015 and remained more or less steady. China’s imports hold a strong portion of Pakistan’s world imports. In 2015, at the peak level, imports reached around 37.38 per cent. Pakistan’s exports to China also comprised around 9 per cent to 11 percent of its world export during the same period. For China, the exports were approximately 0.44 per cent to 0.83 per cent of its world export and the imports were around 0.09 to 0.17 percent of its world imports. China’s exports to Pakistan are dominated by electrical machinery, equipment and parts thereof (18.9 per cent); machinery, mechanical appliances, boilers (15.4 per cent); man-made filaments; strip and the like (8 per cent); organic chemicals (5 per cent); and iron and steel (4.2 per cent). Copper and articles thereof (30.5 per cent) dominated the list of China’s imports from Pakistan. Among other products, there are cotton

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(19.5 per cent); cereals (12.9 per cent); ores, slag and ash (8.9 per cent); and, fish and crustaceans, molluscs and other aquatic invertebrates (7.2 per cent). figure 5.7: china’s exports to (left) and Imports from (right) Pakistan

Source: International Trade Center (2021), Trade Map Database.

Finally, in the case of Sri Lanka, both imports and exports show upward trend in terms of volume. Chinese exports held around 16 to 22 per cent of world imports of Sri Lanka between 2009 and 2019. The peak stage was the years 2015 and 2016 when the respective volumes of Chinese exports accounted for US$ 4.3 billion and US$ 4.2 billion. After a slight drop in 2017, the value again went up in 2018 and reached US$ 4.1 billion in 2019. Sri Lanka’s exports to China, at the same time, also rose from US$ 70.14 million to US$ 396.76 million. Sri Lanka’s imports from China comprised around 1 per cent to 3 per cent of its world imports. China’s exports to Sri Lanka were between 0.13 per cent to 0.20 per cent of its world exports, and China’s imports from Sri Lanka during this time were between 0.01 per cent to 0.02 per cent of its total world imports. China’s exports to Sri Lanka were dominated by electrical machinery, equipment and parts (13 per cent); machinery, mechanical appliances, boilers (12 per cent); knitted or crocheted fabrics (7.1 per cent); cotton (5.2 per cent); and, articles of iron or steel (5 per cent). Among China’s imports from Sri Lanka, the major products were natural or cultured pearls, precious or semi-precious stones and precious metals (18.5 per cent); knitwear (16.3 per cent); coffee, tea, maté and spices (16.1 per cent); electrical machinery, equipment and parts (10.9 per cent) and woven garments (9.3 per cent).

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From the aforementioned discussion, it is evident that China is a vital trading partner for all South Asian countries. The BRI, therefore, will help the states encompass prosperity from their own ends. On the one hand, the regional trade and investment opportunities will increase; and on the other hand, they can avail the opportunity to increase both the import and export volumes with China. figure 5.8: china’s exports to (left) and Imports from (right) Sri Lanka

Source: International Trade Center (2021), Trade Map Database.

BRI as a headway to Boost-up Investment and connectivity Improving trade connectivity and inter-linkage are the foundations of BRI. Although South Asia as a region, in general, is resourceful on its own, the lack of affinity among the states has kept a wide range of opportunities untapped. BRI can definitely open up vast opportunities to explore.

Investment in the T&C Sector and GVC Engagement As mentioned before, one of the positive sides of the BRI is that it may help the countries of South Asia develop mutually yet exclusively. Bangladesh and India are two of the leading industries in the Textile and Clothing (T&C) sector. In 2020, due to the adverse impact of COVID-19 on the worldwide supply chain, around US$ 3.18 billion worth of apparel orders were cancelled; however, Bangladeshi exporters still held optimism to add to their US$ 750 contribution to the global value chain (Mirdha, 2020). Such a promising sector has to be catered sensitively and rationally. China is a big market for both of the countries as a source of input and

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destination of finished goods. BRI will not only help Bangladesh and India to improve with their erstwhile exports and imports of the T&C products, but it can also indirectly boost up the bilateral T&C value chain between Bangladesh and India. The existence of Non-tariff Barriers (NTBs) and Para-tariff Barriers (PTBs) obstruct the bilateral T&C trade between the two countries (Kabir, Singh, & Ferrantino, 2019). Connectivity through BRI can develop a sense of closeness among the nations and boost up communication with the globally connected business communities and private sectors. Thus, the existing barriers can also be resolved through robust diplomatic initiatives. Notably, China has been the primal source of FDI inflows for Bangladesh. The 2019 data (Figure 5.9) shows how China stood out beyond all the other FDI providers in that fiscal year. Although in 2020, China’s contribution went down significantly, it was still one of the top ten countries. BRI can revisit these chances and increase China’s contributions in multiple sectors. figure 5.9: fDI Inflows (net) by major countries during the calendar Years 2019 (left) and 2020 (right)

Source: Bangladesh Bank (2020).

Among the major sectors where the Chinese FDI contributed to include power (50.8 per cent); textile and wearing (13.4 per cent); trading (5.1 per cent); construction (4.2 per cent), leather and leather Products (3.5 per cent); chemical and pharmaceuticals (1.4 per cent); food (1.4 per cent); others (20.3 per cent). BRI can engage more investments in these sectors and help them get market in the outside world.

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figure 5.10: net chinese fDI in Bangladesh by Sector (2019-20)

Source: Bangladesh Bank (2020).

Bangladesh imports raw materials and intermediate goods for its exportoriented RMG sector (cotton, fabric and accessories) from both China and India along with substantial machinery, mechanical, electrical & electronic products, which are used in Bangladesh’s final products to export to the world market. Bangladesh and India are interdependent through bilateral value chains engagement in T&C, where India is located upstream and Bangladesh downstream. Port infrastructure works as a notable barrier in the value chains engagement where even few hours’ delay creates substantial pressure in the downstream. Table 5.1 shows the time taken from origin (India) to destination (Bangladesh) in T&C Inputs. It can be seen from the table that a significant amount of time is wasted (almost twice) while reaching the port from suppliers and unloading at the seaport. Land-based connectivity can substantially decrease lead time in importing T&C inputs from China to Bangladesh.

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table 5.1: time taken from origin (India) to Destination (Bangladesh) in t&c Inputs  Stages

Land Port

Sea Port

Providing import order

2.1

2.1

Opening L/C

2.9

2.9

Products reaching the Port from suppliers

6.5

14.6

Unloading at the Port

1.7

2.5

Customs clearance at the Port

2.5

2.7

Transportation from the Port to container terminal

1.5

1.5

Transportation from container terminal to the firm

1.5

1.5

Total days required to import

18.5

27.7

Source: Kabir and Singh (2018).

Bangladesh as a connectivity hub Bangladesh can also work as a gateway to the global market.The country’s advantageous position being located at the east of South Asia makes it a possible connectivity hub for states like India, Nepal, Bhutan as well as East Asian and Southeast Asian countries (Chowdhury, 2018). However, the inter-city roads of Bangladesh are not infrastructurally developed for multi-axle vehicles to be connected with those countries including India, Nepal and Bhutan (Rahman, 2016). This requires development of large-scale highways. These highways may indeed connect the roads of Chattogram all the way up to Kunming through Myanmar, and later to the conduits of Korea and turn into a multi-regional economic hub. Offering the Mongla and Chattogram ports for the use of China can open up ways of big investments. Although the construction of a deepseaport at Sonadia had been dropped due to environmental concerns, the Mongla port currently needs huge investment. Point to be noted, China was very eager to invest in the construction and financing of the deep-seaport ever since the idea was conceived in 2006. A framework agreement between the two countries in 2014 was at its incipient stage but it was later cancelled

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(Ramachandran, 2020). Since Japan is currently assisting Bangladesh with the Matarbari deep-sea port, Bangladesh can and shall utilise and divert Chinese interest to the Mongla port. With the recent agreement signed with a Chinese dredging company in December 2020 sheds positive light (Dhaka Tribune, 2021). The Chinese Economic and Industrial Zone (CEIZ) at Anwara, Chattogram and the Special Economic Zone (SEZ) on the southern bank of the Karnaphuli in Chattogram are two of the new ventures to be explored. Not only China was the largest source of FDI in 2019, it also grabbed one-third of the proposals laid out for the economic zones, becoming the top investor (Mala, 2021). CEIZ is going to be the first specialised G2G economic zone and is expected to be a source of employment for around 2,00,000 persons (Bangladesh Economic Zones Authority, n.d.). It has been reported that more than 60 organisations have already invested an amount of US$ 280 million (Chakma, 2020). BRI is currently at its formative and nascent stage. There are overlapping interests of different regional cohorts including the BCIM-EC, the BBIN initiative, the SAARC and the BIMSTEC. These interests can be explored and utilised through the BRI—not only in terms of money, or physical capital but also in terms of social capital. This part of South Asia has an abundance of social capital (Blomkvist & Uba, 2010). Citizen mobilisation had been a strong point of South Asia, that encompasses a good number and wide range of diverse population. The civil society, middle class and working population and, more importantly, women play a vital role in the flourishing social capital in this region. BRI, bringing in jobs and opportunities, will help to advance that beyond borders. A further illustration can be made by taking the BCIM economic corridor into consideration. BCIM-EC provides the members with a way to connect between the North-Eastern region of India, Southeast Asia and East Asia. It also looks forward to connecting China-ASEAN Free Trade Area, ASEAN Free Trade Area and ASEAN-India Free Trade Area (Sharma & Rathore, 2015). India and China both will be benefited from Bangladesh’s human resources and Bangladesh can think of investing them as social capital

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(ibid., p.  7). Bangladesh could also get facilitated by the options for export diversification and increase in FDIs from Chinese and Indian investors (Rahman, Rahman and Shada, 2007). The Kaladan Project for Multi Modal Transport under the BCIM could bring in Bangladesh and Myanmar, two neighbours currently having tension over the Rohingya crisis. The bewildering situation with the BCIM-EC is the underlying uncertainty. Initially, the BCIM initiative received its high-level endorsement. In February 2013, the Kunming to Kolkata (K2K) car rally started with flying colours, boosting up interests of the stakeholders and policymakers (Yhome, 2017). The establishment of a Joint Study Group for the development of the Corridor and strengthening connectivity, trade as well as people-to-people contacts was also under consideration. What made it problematic was the unenthusiastic engagement of the parties involved, mostly, from the end of India. On the other hand, there was no significant progress in finalising the connectivity routes and initiating the pilot project to develop them. Participation of the actors and stakeholders were also incoherent – while it started as a Track-I activity for Myanmar and China, Bangladesh and India started the project following Track-II manoeuvres. Later, Bangladesh moved to the Track-I route and India depended largely on the Track II initiatives. A push from the BRI investments in this regard could be a game-changer in this case. Take for example the case of K2K route. Trade between Bangladesh and China is conducted mainly through the Chittagong Port. A land connectivity mechanism is essential to reduce time to source raw materials, intermediate goods and capital machinery. Uncertainty, in BCIM-EC has led to the loss of many opportunities for the South Asian countries. The China-Myanmar high-speed railway is an example of grabbed opportunity due to the non-response of South Asia. In fine, the opportunities here cannot be taken for granted. Bangladesh has already been left out of maritime connectivity in the 21st Century Maritime Silk Road in the newly proposed Silk Route plan by China. If these opportunities are not properly availed, it along with other neighbouring countries may lose some key initiatives to reshape and redesign the investment and connectivity latitude of the region.

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map 5.1: china’s Proposed new Silk Roads

challenges and Way forward Addressing the Emerging Concerns The anti-BRI argument had widely been driven by the habit of suspicion and emotionalism rather than professionalism. However, for Bangladesh, there is hardly any chance to risk future prospects due to this kind of sentiment. As a country that has been following the motto of “friendship to all and malice to none” since its independence, it is important to be cautious about the nuances and underlying constraints. It is important to nurture logical extrapolation and follow the rule of logical consequence based on empirical evidence and scientific probability mapping before accepting or negating any perceptive offer. The China-India big game in the South Asian region is one of the issues to be reckoned with. Despite having good trends in economic exchanges over the years, India and China’s confrontation has led to a polarising condition across the South Asian diplomatic grounds. Take for example the case of Sri Lanka. Colombo, got stuck into and became an archetype of the buzzword—

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‘Chinese debt trap’ after the failure of the much-anticipated income from the Hambantota port, constructed with the help of China. Not only Sri Lanka had to hand over the port along with 15,000 acres of land to China but it also deteriorated its long-standing relationship with India. Bangladesh has been known to be a “careful borrower” with a “cautious strategy” (Ramachandran, 2020) and those strategies have to be well-equipped with logical consequences. Both India and China are important for Bangladesh; and, instead of making swift decisions over conflicting dynamics, BRI can be seen as an opportunity to merge between those interests and entwine the interest of the neighbouring countries, sub-regional groups and multinational stakeholders. Another growing concern is the Free and Open Indo-Pacific (FOIP) in this region, as coined by Japan and the United States for the umbrella initiative. Japan’s involvement in the US-led plan over the Indo-Pacific region made it crucial. Apart from Japan, the US is looking forward to countries like India, Australia, and Mongolia and has committed to massive investments including US$ 113.5 million for energy security, infrastructure development and digital connectivity (Patil & Sano, 2018). With the subtle anti-China branding, FOIP brings in the options for multilateralism and multipolarity in the South Asian region and strategic hedging as a bargaining strategy for the member states. Fostering a stronger security relationship among the institutionalisation Quad, of the like-minded states the US, Australia, Japan and India is also required to back this project, The United States is one of the long-standing development partners and investors of Bangladesh. Being a part of the FOIP protocol or the US’s grand development strategy brings Bangladesh to a more favourable position in receiving the US incentives. Nevertheless, one of the key aspects of FOIP is security and economic concerns are very much intertwined and they can never be “delinked” (Khan, 2020). During the first Quad Foreign Ministers’ meeting in 2019, the matter was clearly spelt, as it stressed on shared commitment to close cooperation on maritime security, quality infrastructure, and connectivity based on “preserving and promoting a rules-based order in the region,” ... “cooperative initiatives including counter-terrorism, cyber security, and regional disaster response as

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significant areas for ongoing engagement,” ... “strong support for ASEAN centrality and the ASEAN-led regional architecture”. (Kawashima, 2020)

Or, in other words, the security and strategic aspects of the FOIP dominates its development dimension. For Bangladesh, therefore, BRI and FOIP can be considered complementary, rather than substitutive, to achieve its vision of economic development. The final concern is whether BRI is promoting linear ideations or just favouring one particular actor through it. A critical examination of the issue can suggest three different dimensions that signify BRI as an idea-monopolist in the Asian Century (i) First degree—sold at the maximum price that the consumer is willing to pay (Bangladesh, i.e., open-minded economic diplomacy) (ii) Second degree—non-linear pricing, involves setting prices subject to the amount bought (i.e., Nepal) (iii) Third degree—market segmentation (contradicting countries, i.e., Iran and Israel)

Way Forward The future of BRI needs to be cohesive and holistic. Therefore, on the one hand, all the states in the region have to embrace it willingly and include their own policy outlook for a common purpose. It is undoubted that BRI can help the countries develop their incipient industries and potential sectors with the help of Chinese FDI. Bangladesh, therefore, must chalk out the primary strategy that can combine social and human capital as well as physical infrastructure relevant to the BRI member states. T&C sector, for example, can be a good option to look forward to as it is not only one of the largest export-oriented sectors for Bangladesh but also requires innovative and dedicated investors. However, since Bangladesh suffers from a constantly high trade deficit with China, there should be a bilateral mechanism to increase exports of Bangladeshi products into the Chinese markets via more Chinese investment in Bangladesh, especially in the SEZs, which will be cost-effective for China. In addition, China has

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recently granted duty-free access to 97 per cent of Bangladeshi goods in its market. The country now needs to utilise this facility in order to reduce its mounting trade deficit with China. The special economic zones can be the centre of those reconstructed markets and a globalised tourism industry. Connectivity comes along with the scheme of infrastructure development. Notwithstanding the scepticism around the BCIM-EC initiative, BRI should be taken into consideration seriously for positive changes in bilateral and multilateral trade among the three different regions of Asia. Connectivity also requires additional development options like transportation projects, investment in the energy sector and standardisation of ports and other facilities. This can also lead to the future development of digital networks and smart cities across borders covering the Asian pivot. On another note, BRI can facilitate connectivity through land and waterways at the same time. For Bangladesh, it is significantly important as the water-ports in the countries will not remain under-utilised and the highways can save the time for trade and exchange. Ease in connectivity and fast-track transport can facilitate cultural and academic exchange and reinvigorate Track III diplomacy. Along with the countries themselves, institutional efforts from BIMSTEC, ASEAN and SAARC are also important. As Bangladesh has qualified itself for graduation from the Least Developed Country (LDC) status, the economy of tomorrow needs to be globalised and more diversified than ever. Due to the debate over environmental concerns, BRI can be the springboard opportunity for mainstreaming the green economy as part of a transboundary large scale economic process. Finally, an informal transregional economic group prompted by the economic needs thus can turn into an Asian craft of neo-functionalism for future diplomatic and political ends in the long run.

concluding Remarks At this modern stage of globalisation, trade and connectivity lead a country through the pathway of national and regional development. Through BRI, South Asia can explore new growth areas of trade and improve trade structure with China given the unfolding opportunities from the recent developments in trade frontiers between the United States and China.

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These include strengthening connectivity through railways and highways, seaports, aviation, soft infrastructure, and people-to-people contacts. Even though BCIM has lost hope due to recent pessimism among policymakers in India, BRI gives South Asian countries an opportunity to ease barriers of trade connectivity through establishing a transnational zone of commercial engagements enabled by hard and soft connectivity infrastructures for substantially increasing economic welfare of the region. The success and virtue of BRI depend on the instruments of utilisation and how they are carried out by the respective nations. There is no place for sentiments and blatant emotionalism or unpragmatic and extempore logics. Development cannot be possible if smaller interests are not being sacrificed for long-term and sustainable goals for a region full of natural and human resources. However, there are concerns of curtailed connectivity because of security and strategic concerns of the national governments, socio-economic and environmental impacts. Peripheral or border regions could be exposed to merely risks and not benefits. Myriads of other concerns may arise from theoretical and policy viewpoints so far as the future of BRI is taken into account. However, small bewilderments must not stop the progress towards development. The overarching national “Vision 2041” and goal and the fourth industrial revolution indirectly compels Bangladesh to the “Development First!” axiom. Yet, these projects must be evaluated and monitored carefully. BRI can bring a lot of opportunities. Nevertheless, these opportunities have to cover the utilisation of manpower, promotion of human capital, connectivity, investment and regional concern which can create a string of affinity among the nation-states like the string of pearls.

References

Bangladesh Bank (2020). Foreign Direct Investment and External Debt, January-June 2020, Dhaka: Bangladesh Bank. Bangladesh Economic Zones Authority (n.d.). Chinese Economic and Industrial Zone (CEIZ), http://www.beza.gov.bd/chinese-economic-industrial-zone/ Blomkvist, H. & Uba, K., (2010). “Civil Society and Social Capital in South Asia,” in: International Encyclopedia of Civil Society, 291-296. Chakma., J. (2020). “China to fast-track construction of its economic zone in Ctg,” The Daily Star, 28 July, available at https://www.thedailystar.net/business/news/china­ fast-track-construction-its-economic-zone-ctg-1937345 (accessed on 22 April 2021).

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Chowdhury, D.R., (2018). “Bangladesh: A regional connectivity hub linking South Asia with Southeast Asia”, The Economic Times, 9 November, available at https://economictimes.indiatimes.com/news/politics-and-nation/ bangladesh-a-regional-connectivity-hub-linking-south-asia-with-southeast­ asia/ar tic leshow/66554793.cms?utm_source=contentofinterest&utm_ medium=text&utm_campaign=cppst (accessed on 22 April 2021). Dhaka Tribune (2021).“Mongla port: Harbouring the future of Bangladesh,”Dhaka Tribune, 6 January, available at https://www.dhakatribune.com/bangladesh/2021/01/06/ mongla-port-harbouring-the-future-of-bangladesh (accessed on 22 April 2021). Kabir, M., & Singh, S., (2018). Of Streams and Tides: Understanding India-Bangladesh Values Chains in Textiles and Clothing, Research Report (Mimeo), Washington, DC: World Bank. Kabir, M., Singh, S., & Ferrantino, M.J., (2019). “The Textile-Clothing Value Chain in India and Bangladesh: How Appropriate Policies Can Promote (or Inhibit) Trade and Investment,” World Bank Policy Research Working Paper 8731, World Bank. Kawashima, S., (2020). “A New Phase for the Free and Open Indo-Pacific,” The Diplomat, 16 November, available at https://thediplomat.com/2020/11/a-new-phase-for-the­ free-and-open-indo-pacific/ (accessed on 22 April 2021). Khan, S.A., (2020). “BECA, the Indo-Pacific bandwagon and Bangladesh,” The Daily Star, 1 November, available at https://www.thedailystar.net/opinion/strategically-speaking/ news/beca-the-indo-pacific-bandwagon-and-bangladesh-1987157 (accessed on 22 April 2021). Mala, D.A., (2021). “China top investor in Bangladesh’s economic zones,” The Financial Express, 13 January, available at https://www.thefinancialexpress.com.bd/economy/ china-top-investor-in-bangladeshs-economic-zones-1610506680 (accessed on 22 April 2021). Mirdha, R.U., (2020). “2020: a turbulent year for apparel,” The Daily Star, 29 December, https://www.thedailystar.net/business/news/big-blow-the-big-industry-2018829 Palit, A., & Sano, S., (2018). “The free and open Indo-Pacific strategy and uncertainties for India & Japan,” East West Centre, 10 October. Rahman, A., (2016). “Bangladesh: Gateway to three civilisations,” The Daily Star, 1 February, available at https://www.thedailystar.net/25th-anniversary-special-part-1/ bangladesh-gateway-three-civilisations-210385 (accessed on 22 April 2021). Rahman, M., Rahman, H., and Shada, W.B. (2007). “BCIM economic cooperation: Prospects and challenges,” Dhaka: Centre for Policy Dialogue. Ramachandran, S., (2020). “Bangladesh Buries the Sonadia Deep-Sea Port Project,” The Diplomat, 12 October, available at https://thediplomat.com/2020/10/bangladesh­ buries-the-sonadia-deep-sea-port-project/ (accessed on 22 April 2021) Sharma, A. & Rathore, C.K., (2015). “BIMSTEC and BCIM Initiatives and their Importance for India,” CUTS International, 1-20. Yhome, K., (2017). “The BCIM economic corridor: Prospects and challenges,” Observer Research Foundation, 10 February, https://www.orfonline.org/research/the-bcim­ economic-corridor-prospects-and-challenges/

6. Strengthening International Cooperation and Building a Community of Shared Future between Nepal and China Yang Yabo and Zhang Jianghong Introduction With the continuous increase of China’s comprehensive national strength, it is taking up more and more international responsibilities. International cooperation is an important element of China’s aim of building a community of shared future for mankind. Nepal is China’s old friend and neighbour in South Asia. China has provided international aid to Nepal and strengthened international cooperation in three dimensions which are discussed in detail in this paper. Since the establishment of diplomatic relations on August 1, 1955, China’s international aid has adhered to the principle of “No Strings Attached” and provided longterm and selfless aid to Nepal for its development. Under the background of China’s the Belt and Road Initiative (BRI), especially after Nepal’s “April 25” earthquake in 2015, China has provided a lot of aid to Nepal, hoping to help Nepal get rid of the difficulties caused by the earthquake disaster and realise the developmental goal of “Prosperous Nepal and Happy Nepali”. In this process, China is actively exploring new models of international cooperation. China has established the China National Agency for International Development Cooperation in 2018. China has introduced the new concept of international cooperation. Regular exchange of visits at various levels between the two countries contributed

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to further strengthening of Nepal-China relations. However, there are new opportunities and new situations.

Three Dimensions of china’s International aid to nepal Dimension of a Community of Shared Future between Nepal and China Building a community of shared future for mankind is the ultimate goal of China’s foreign aid. Building a community of shared future for mankind was first proposed by Chinese President Xi Jinping in his speech at the Moscow Institute of International Relations on March 23, 2013. Since then, President Xi Jinping has made a series of in-depth explanations on what constitutes a community of shared future for mankind and how to build it at the 2013 Annual Conference of the Boao Forum for Asia (BFA), the 2015 Annual Conference of the BFA, the 70th United Nations General Assembly, the Paris Climate Conference in 2015 and the United Nations Headquarters in Geneva in 2017. At the opening ceremony of the BFA Annual Conference in 2015, President Xi Jinping pointed out in his keynote speech that: toward a community of shared future, countries must respect each other and treat each other equally, must pursue win-win cooperation and common development, must pursue common, comprehensive, cooperative and sustainable security, must uphold inclusiveness and mutual learning among different civilisations. In his speech at the general debate of the 70th session of the UN General Assembly in 2015, President Xi Jinping made it clear that to build a community of shared future for mankind, we need to make the following efforts: We should establish partnerships of equal treatment, mutual commerce and mutual understanding; create a just and equitable security pattern; seek open, innovative, inclusive and mutually beneficial development prospects; promote inclusiveness and mutual learning among different civilisations; and build an ecological system that respects nature and green development. In January 2017, President Xi Jinping delivered a keynote speech entitled “Work Together to Build a Community of Shared Future for Mankind” at the UN headquarters in Geneva. He once again

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elaborated on how to build a community of shared future for mankind, especially in the field of ecological construction. He stated that we should adhere to green and low-carbon, and build a clean and beautiful world. In the report of the 19th National Congress, President Xi Jinping pointed out that: We call on people of all countries to work together to build a community of shared future for mankind and build an open, inclusive, clean and beautiful world featuring lasting peace, universal security and common prosperity. In his keynote speech at the opening ceremony of the Conference on Dialogue of Asian Civilisation in May 2019, President Xi Jinping pointed out that: The people of Asia hope to stay away from isolation and achieve connectivity. We hope that in an open spirit, we will promote policy, infrastructure, trade, financial and people-to-people connectivity, and work together to build a community of shared future for Asia and mankind. To sum up, on the basis of deep thinking of Chinese traditional wisdom and harmony thinking, as well as serious consideration of current international relations and international political issues, President Xi Jinping put forward the general path and layout of “five in one” formula of politics, security, development, civilisation and ecology for building a community of shared future for mankind. Politically, countries must respect each other and treat each other as equals. On development, we must pursue win-win cooperation and common development. On security, we must ensure common, comprehensive, cooperative and sustainable security. In terms of civilisations, we must promote inclusiveness and mutual learning among different civilisations. Ecologically, we should work with all parties to adhere to the path of green development, build a foundation of ecological civilisation, work together to promote global environmental governance and protection, and make positive contributions to building a beautiful and clean world. How to pursue win-win cooperation and common development and help other developing countries, especially the least developed countries, in China’s own sustainable development is an important element in China’s foreign aid. Building a China-Nepal community of shared future is an important part of building a community of shared future for Asia and

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mankind. China’s international aid to Nepal will provide a solid support for building a community of shared future.

Dimension of Correct Views of Righteousness and Profitableness The value orientation that China follows in carrying out foreign aid is to stick to the correct views of righteousness and profitableness. President Xi Jinping comprehensively expounded the profound connotation of the correct views of righteousness and profitableness. That is to say, we should uphold fairness and justice politically and treat each other equally; we should adhere to mutual benefit, win-win and common development economically; give consideration to both righteousness and profitableness, and stress trustworthiness, affection, justice and morality. President Xi Jinping said, “Righteousness reflects one of our ideals, that of a communist party and a socialist country. It is not a good phenomenon that some people live a good life and some people live a bad life. True happiness is shared happiness and common happiness. We hope that the whole world will develop together, especially the developing countries will speed up their development.” Profitableness means abiding by the principle of mutual benefit and a win-win situation. As President Xi Jinping stated that: We have an obligation to help the poor countries within our power. Sometimes we even have to pay more attention to righteousness than to profitableness. President Xi Jinping pointed out in particular that we must adhere to the correct views of righteousness and profitableness in working with neighbouring and developing countries, and that we should give more consideration to the interests of those neighbouring and developing countries that have long been friendly to China and whose development task is arduous. In promoting mutual benefit and common development, China has provided zero-tariff treatment to 97 per cent of the imports from the least developed countries (including Nepal1), in order to increase their export capacity to China. According to the data released by China’s Ministry of Commerce, by the end of 2018, China had invested more than US$ 30 billion in 82 cooperation zones under construction in countries along the “BRI” route, with 4,098 enterprises in the zones,

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and paid US$ 2.2 billion in taxes and fees to host countries, contributing to the employment of nearly 300,000 people in host countries. China has gradually increased the amount of foreign aid, focusing on helping recipient countries solve problems of people’s livelihood, poverty reduction and development. China has also worked with other developing countries to set up multilateral institutions such as the BRICS, China-Africa Co­ operation Forum (CACF), China-Arab States Cooperation Forum and China-CELAC Forum (CCF), and set up multilateral investment and financing institutions such as the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) to boost the economic development of developing countries. At the 1st BRF held in May 2017, General Secretary Xi Jinping announced that China will provide Yuan 60 billion of aid to developing countries and international organisations along the One Belt and One Road in the next three years to build more livelihood projects and support countries’ sustainable development (Yiting, 2017). In terms of playing a responsible role as a major country in global governance, at the Summit marking the 70th anniversary of the founding of the United Nations in 2015, President Xi Jinping elaborated on China’s positions on major international issues and announced a number of major Chinese initiatives. These include the following: the establishment of a China-UN peace and development fund and a fund assistance for SouthSouth cooperation. China’s joining of the UN Peacekeeping Capability Readiness System and the building of a peacekeeping standby force of 8,000 troops, and China’s cancellation of debts owed by the least developed countries. China has also increased its humanitarian aid to other countries, focusing on helping recipient countries solve humanitarian crises caused by diseases, wars and natural disasters. At the 2nd BRF in April 2019, President Xi Jinping in his keynote speech at the opening ceremony pointed out that: “Efforts should be made to strengthen international development cooperation, create more development opportunities and space for developing countries, and help them escape poverty and achieve sustainable development.” In the process of promoting BRI, China will stick to the correct views of righteousness and profitableness, strengthen

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international cooperation with Nepal and provide aid within its capacity for Nepal’s development.

Dimension of China’s Diplomacy with Neighbouring Countries Neighbouring countries provide a foothold to China for its peaceful development and act as a demonstration area for practising its diplomatic concept of big power. China has long taken its neighbouring countries as a diplomatic priority, and China’s long-term position as a big power in history is also supported by its influence on neighbouring countries. Since 2013, China has pursued its diplomacy with neighbouring countries characterised by Qin (Friendship), Cheng (Sincerity), Hui (Reciprocity) and Rong (inclusiveness), deepened mutually beneficial cooperation with neighbouring countries, and worked to build a community of shared interests and shared future. According to the report of the 19th CPC National Congress, China needs to “deepen relations with neighbouring countries in accordance with the principle of Qin (Friendship), Cheng (Sincerity), Hui (Reciprocity) and Rong (inclusiveness) and the diplomatic principle of building friendship and partnership with neighbouring countries.” “Qin” means friendship. In adherence to this principle, China needs to help its neighbours in times of crisis, treat them as equals, visit each other frequently and take actions that will win China support and approval; “Cheng” means treating neighbouring countries with sincerity and cultivate them as friends and partners. “Hui” means reciprocity. China should create a closer network of common interests, and better integrate China’s interests with theirs so that they can benefit from China’s development and China can benefit and gain support from theirs. “Rong” means openness and inclusiveness. There is enough potential in the AsiaPacific region for all countries to develop. We should promote regional cooperation with a more open mind and a more active attitude, respond more actively to the expectations of our neighbours, and share opportunities, overcome challenges and create prosperity together ( Jinping, 2014). Some of China’s neighbouring countries are in a developing or least developed state. By carrying out foreign aid, on the one hand, more neighbouring

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countries can benefit from China’s rapid development, and on the other hand, China’s development can receive more support and help from neighbouring countries. Since the 18th CPC National Congress, China’s South Asia strategy has been embodied in a series of important speeches and addresses delivered by General Secretary Xi Jinping during his visits to South Asian countries. In September 2014, General Secretary Xi Jinping in his speech to the Indian World Affairs Committee said: “A peaceful, stable and prosperous South Asia is in the interests of the countries and people of the region, as well as China. China is willing to live in harmony with other countries in South Asia and contribute to the development of South Asia. China has put forward BRI to enhance connectivity among countries along the traditional land and maritime silk roads, so as to achieve common economic prosperity, trade complementarity and people-to-people connectivity. China hopes to take off together with South Asian countries with BRI as its wings.” In his speech to Pakistan’s parliament in April 2015, General Secretary Xi Jinping said: “China is South Asia’s largest neighbour. A peaceful, stable, developing and prosperous South Asia is in China’s interest. China is willing to effectively synergise its development strategies with those of South Asian countries to achieve mutually beneficial development and common prosperity. China respects the unique culture and historical traditions of South Asia and is willing to be a sincere partner of South Asian countries. We will treat each other with respect and equality, accommodate each other’s comfort level and ensure the long-term and sound development of bilateral relations.” “We are willing to take South Asia as a key region opening to the west, and work with south Asian countries to learn from each other’s development experience and draw on each other’s strengths in development. China is willing to provide aid and support to south Asian countries under the framework of South-South Cooperation within its capacity.” “China is willing to strengthen cooperation with south Asian countries and work together to advance the process of regional cooperation in South Asia and Asia. China is willing to raise the level of cooperation with SAARC, strengthen international coordination with South Asian countries within the multilateral framework and jointly safeguard the interests of developing countries.” It can be seen that China’s

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South Asia strategy is formed under the guidance of General Secretary Xi Jinping’s call for countries to jointly build a new type of international relations featuring mutual respect, fairness, justice and win-win cooperation, and the construction of “One Belt and One Road” has become an important platform and bond to promote this strategy. Combining China’s neighbourhood diplomacy with its south Asian neighbours, President Xi Jinping has also mentioned it in a series of speeches. “… to pursue Qin (Friendship), Cheng (Sincerity), Hui (Reciprocity) and Rong (Inclusiveness), deepen mutually beneficial cooperation with our neighbours, strive to bring more benefits to them from our own development, and remain reliable friends and sincere partners of developing countries” (Xi Jinping’s speech to the Pakistani parliament in April 2015). South Asia is an important part of China’s neighbourhood diplomacy. Thus, international aid to Nepal is not only a concrete manifestation of China’s neighbourhood diplomacy but also an effective way to properly handle relations with its South Asian neighbours.

historical Practice of china’s aid to nepal For a long time, especially since the Reform and Opening Up, China has been both a donor and a recipient country. From the bilateral perspective of China and Nepal, since the establishment of diplomatic relations between China and Nepal in 1955, China has provided long-term and selfless international aid to Nepal. After President Xi Jinping put forward the BRI in 2013, China, from the perspective of building a community of shared future between Nepal and China, adhered to the principle of “No Strings Attached” in its foreign aid, and significantly increased its aid to Nepal.

China as a Recipient of International Aid In the international development aid system, China is both a recipient and a donor. Since 1979, China has been one of the largest recipients of multilateral and bilateral foreign aid among developing countries. OECD in Development Aid at a Glance: Statistics by Region in Asia 2017 edition counted the aid received by China since 1970: the average annual amount

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from 1970 to 1979 was US$ 4 million; the average annual amount from 1980 to1989 was US$ 1.921 billion; from 1990 to 1999 it was US$ 3.321 billion; from 2000 to 2009 it was US$ 1.728 billion; from 2010 to 2015 it was US$ 258 million, out of this amount, US$ 606 million was in 2013, US$ 947 million in 2014 and US$ 338 million in 2015. It shows that aids to China has decreased over the years and China has taken the role of a donor country. By the end of 2007, aid projects to China had covered all the provinces, autonomous regions and municipalities directly under the central government except Hong Kong, Macao and Taiwan, covering all the 592 counties that are the focus of China’s poverty alleviation efforts. But with China’s rapid development, aid to China is shrinking. Japan terminated Japanese yen loans to China and free aid to China in 2008. China is no longer listed as a key aid country by developed countries such as Britain and Canada. In 2005, the World Food Programme also stopped its food aid to China. The relationship between China, as a recipient country, and the international development aid system is changing. On the contrary, China, as an important donor country, is participating in the reform and construction of the international development aid system in a new way.

China’s Aid to Nepal China and Nepal signed the first China-Nepal economic aid agreement2 in October 1956 and the second China-Nepal economic aid agreement3 on March 21, 1960, respectively, and then signed the Agreement on the Construction of Highways in Kathmandu, capital of Nepal on September 5, 1961. Since the signing of the above-mentioned agreements and protocols, China has been providing economic and technical aid to Nepal, all of which has been in the form of free aid. According to statistics, by the beginning of this century, China has assisted Nepal to build more than 20 projects, which are distributed in the fields of transportation, hydropower and irrigation, industry, and public facilities. For example, in the 1960s and 1970s, China helped Nepal build the 114-km-long Araniko Highway from Kodari to Kathmandu and the 174-km-long Prithvi Highway from Kathmandu to Pokhara in spite of its domestic economic difficulties,

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creating conditions for China-Nepal economic and trade and personnel exchanges as well as local economic development. The Kodari Highway (the highway from Kodari port to Kathmandu) damaged by the April 25 earthquake in 2015 has been restored to traffic with China’s aid.4 The border residents of both countries were delighted. China’s aid projects to Nepal in the field of transportation also include Prithvi (KathmanduPokhara) Highway (176 km), Kathmandu-Bhaktapur Highway (12.78 km), Kathmandu-Bhaktapur Trolleybus (11.73 km), Kathmandu Ring Road (27.24 km), and Gorkha-Narayanghat Highway (60.93 km), Pokhara-Bāglung Highway (70.2 km), etc. China also adheres to the “Eight Principles of Foreign Economic and Technological Aid” put forward by Premier Zhou Enlai in 1964 and provides gratis aid to Nepal. Experts are sent to help Nepal build small factories with immediate effect, such as tanneries, textile mills, sugar mills and brick and tile factories. In the service sector, China’s assistance is also crucial. Examples include Civil Service Hospital of Nepal, BP Koirala Cancer Hospital, Chitwan, Birendra Research and Training Centre, etc.5 In addition, China has provided Nepal with rice, salt, jeeps, TV vans, trolley buses, JE vaccines, live sheep and other materials, sent medical teams and technical cooperation teams to Nepal, and helped Nepal train technicians in arch bridge technology, crop planting and processing.6 In terms of foreign medical and health aid, the Chinese government has sent 10 batches of more than 170 medical teams to Nepal by 2017 since it sent the first batch of medical teams to Nepal in 1999. Over the past 28 years, the medical team has treated tens of thousands of patients, and enjoyed a high reputation among the local people and medical community for its international humanitarian spirit and superb medical technology, which has attracted received the attention of successive Nepalese governments.7

China’s Aid to Nepal under BRI After President Xi Jinping put forward the BRI in 2013, China significantly increased its aid to Nepal, involving more and more fields, focusing on people’s livelihood recovery, reconstruction and construction of infrastructure, such as hospitals, schools, new airport, repair damaged

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roads, cultural relics in the quake, building earthquake monitoring network, etc. At the same time, China’s aid to Nepal has become increasingly diversified, including the construction of large-scale projects, material support, bilateral technical cooperation and human resources development. According to the agreement signed by the Chinese government and the Nepalese government at the end of 2013, China has delivered four aircraft to Nepal, making an important contribution to the development of local people’s travel and tourism in Nepal. In particular, during the massive earthquake in 2015, the two aircraft flew nearly 8 flights every day, making important contributions to the delivery of earthquake relief supplies and personnel. “China is willing to provide all necessary disaster relief aid to Nepal,” Chinese President Xi Jinping said after the April 25 earthquake in 2015. The Chinese government provided medical services to the affected people in Nepal by helicopter and deployed eight transport planes to deliver 460 tonnes of tents, blankets, generators and other relief materials (worth Yuan 20 million) on a humanitarian basis. In addition to the rescue teams8 sent by the Chinese government, at least five Chinese civilian rescue teams, as well as companies and NGOs arrived in Nepal with relief equipment and supplies. China also sent seven medical teams to help diagnose and treat local people and to help Nepal formulate a post-disaster health and epidemic prevention plan. China has been very proactive in providing such logistics and medical equipment and supplies. During its 12-day stay in Nepal, the Chinese rescue and rescue team also provided Nepal with some necessary equipment and rescue training.9 According to the exchange of notes signed by the Chinese and Nepali governments in April 2015, China undertook to assist Nepal’s agricultural technical cooperation projects. Among them, the experiment and demonstration of hybrid rice and maize varieties, hybrid rice breeding and seed production are important contents.10 Since February 2016, the programme has selected several trial plantings sites of rice and maize in Kathmandu, Chitwan and other areas. The results showed that the Chinese hybrid rice and maize performed well. On July 23, 2015, the Ministry of Commerce of the People’s Republic of China and the Ministry of Finance of Nepal signed the Memorandum of Understanding regarding the Planning of Post-earthquake

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Reconstruction Aid Projects. In 2015, Chinese companies built solar power stations in the Lo-manthang region of Nepal, bringing light to 221 local households. In 2015, Indian media reported that in the fiscal year 2014-2015, China’s official development aid (ODA) amounted to US$ 37.95 million, ranking the third among Nepal’s ODA countries, the top two were the United States (US$ 1323.37 million) and Japan (US$ 39.87 million). In the fiscal year 2015-2016, China ranked seventh (US$ 35.36 million) among the ODA countries of Nepal, the top six were the United States (US$ 11.93 million), the UK (US$ 89.48 million), Japan (US$ 45.91 million), Sweden (US$ 36.98 million), India (US$ 35.77 million) and Norway (US$ 35.54 million). In the fiscal year 2016-2017, China ranked 5th among the top five ODA countries of Nepal (US$ 41.24 million), the top four were the United States (US$ 134.06 million), the UK (US$ 128.31 million), Japan (US$ 77.65 million) and India (US$ 59.26 million).11 According to the Joint Statement of the People’s Republic of China and Nepal issued on March 23, 2016, China will continue to provide aid to Nepal’s economic and social development within its capacity. China implemented its free aid to Nepal from 2016 to 2018, and pledged to implement25 postdisaster reconstruction projects agreed by the two sides in five areas, namely infrastructure construction, rehabilitation of people’s livelihood in disasterhit areas in northern Nepal, restoration of cultural relics and historic sites, capacity building for disaster prevention and control, and medical and health cooperation. So far, China has completed six of the 25 projects, and the rest, including Durbar High School, are moving forward quickly. The chief executive officer of Nepal’s post-disaster reconstruction, Jawali, highly appreciated China’s help in Nepal’s post-disaster reconstruction. In 2017, the 1,000 streetlamps project supported by the Chinese government in Pokhara was completed. In November 2017, the Chinese Government, under the South-South Cooperation Fund, provided US$ 4 million in earmarked funds to the United Nations Development Programme (UNDP). Through the Nepal Office of the UNDP, it provided humanitarian aid to 31,800 families in 7 areas of two provinces in southern Nepal, including blankets, energy-saving stoves, mosquito nets, water filters and sanitary kits, etc., all goods. In 2017, the Nepalese government announced that Nepal had signed

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a US$ 3.07 billion post-earthquake reconstruction agreement with other countries. Among them, China provided the largest amount of free aid for post-earthquake reconstruction in Nepal. China donated US$ 766.93 million (about Yuan 5.038 billion) to Nepal. In early 2018, China presented over 32,000 solar household photovoltaic power generation systems to Nepal to complete the project handover. In March 2018, the Chinese Ambassador to Nepal and the Permanent Secretary of the Ministry of Finance of Nepal signed an exchange of notes for the post-disaster recovery project of China’s aid to the Tatopani Border Inspection Station in Nepal, the rehabilitation and renovation project of the Sindhupalchok Hospital and the project of Geely Middle School.12 Prime Minister Oli during a speech thanked the Chinese government for its long-term support and aid to Nepal’s economic and social development. He said that China’s solar energy project in Nepal is a new starting point for Nepal’s energy development and provides a new way for Nepal to realise energy diversification. He added that the project is very suitable for the northern region of Nepal and hopes to be promoted as soon as possible. It is worth mentioning that, with the strong support of the relevant central ministries and commissions, the Tibet Autonomous Region (TAR) of China has given full play to its geographical advantages and started to organise and implement the project of helping the people of Nepal since 2009 to assist the construction of small community livelihood projects urgently needed by the northern border counties of Nepal, involving education, agricultural technical aid, production and supply of living materials, etc. After the BRI was put forward, the efforts of the TAR to organise the implementation of the aid project were further intensified. In March 2019, I had the privilege of visiting the city of Pokhara in Nepal. I personally felt the real benefits of TAR’s streetlamp aid project to the local residents, businessmen and municipal construction. I also learned that at present, the agricultural technical cooperation project of the academy of agriculture and animal husbandry of TAR is also being implemented steadily. It can be seen that under the BRI, TAR has actively organised and implemented aid projects in Nepal, and made due efforts to promote the friendship between the people of China and Nepal and build a community of shared future between China and Nepal.

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Representative Cooperation Projects of “Aid and Investment” under BRI In the context of the continuous deepening of the “One Belt and One Road Initiative”, China has been continuously innovating the mode of international cooperation, and has adopted the mode of “Aid and Investment” to promote international cooperation. The representative cooperation projects between China and Nepal are as follows: The first one is the Upper Marsyangdi A Hydropower Station. The hydropower station is the first project to be developed, built and operated by a Chinese enterprise in Nepal, with an investment scale of US$ 165 million. It is also the first hydropower station in the history of Nepalese hydropower construction to realise power generation ahead of schedule, which has set a new construction record in Nepal and won a very good reputation. At present, the hydropower station is having a smooth transition to the operation period. The green electricity produced by the company is continuously fed into Nepal’s national grid, making positive contributions to easing Nepal’s power shortage and economic development. The second one is Himalayan Airlines (HA). The Himalayan Airlines is jointly invested and established by the Tibet Airlines and Nepal Snowman Global Investment Company, which is the largest foreign investment project in the field of Nepali civil aviation. Currently, the airline operates two routes between Kathmandu and Doha and Kuala Lumpur. In addition, the airline will open routes from Nepal to China, including Chengdu and Beijing. The third one is the Pokhara International Airport project. Located in Pokhara, a popular tourist destination in Nepal, the project is being built with a mixed loan from the Chinese government to the Nepalese government. When completed, the airport will be Nepal’s second international airport. The construction of the airport is of great significance for promoting ChinaNepal cooperation under the framework of the “One Belt and One Road” initiative. The fourth one is Nepal Hongshi-Shivam Cement Co. Ltd. Established in March 2015, the company has built and operated a production line with a daily output of 6000 tonnes of cement and a 12 MW pure low-temperature waste heat recovery power generation project. The first phase of the project

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can produce 2.3 million tonnes of cement annually. The completion and operation of this project will not only greatly improve Nepal’s independent cement production capacity but also meet Nepal’s demand for high-quality cement for large-scale infrastructure construction. Nepal Hongshi-Shivam Cement Co. Ltd., a joint venture of China Hongshi Holding Group13 and Shivam Holding Private Limited of Nepal, plans to invest US$ 360 million to build and operate a cement production line and auxiliary low-temperature waste heat power generation project in the Lumbini district14, making it the largest foreign direct investment (FDI) industrial project in Nepal’s manufacturing sector. Project Investment Agreement (PIA) is a guarantee given by the Nepalese government for the legitimate rights and interests of large foreign-funded enterprises in Nepal. It is signed by the Investment Committee on behalf of the Nepalese government.The agreement specifies the investment content and construction scope of the project, the responsibilities and obligations of the government and the enterprise, the legitimate rights and interests enjoyed by the enterprise and the financial incentive policies15. Currently, the company employs more than 400 local workers. In addition, employment and indirect employment during the construction peak have driven more than 10,000 local jobs. Yuba Raj Khatiwada, Minister of Finance of Nepal, visited Hongshi-Shivam Cement Plant at the end of 2018 and expressed his appreciation to Hongshi Group’s transnational development concept, environmental protection, and construction efficiency. The project boosts the overall level of Nepal’s cement industry, provides high-quality cement for the country’s infrastructure construction, and becomes the “New Engine” of Nepal’s economic development, promotes Nepal’s economic development ( Jirong, 2019).

Prospects for Strengthening International cooperation between china and nepal “China and Nepal should strengthen cooperation in infrastructure construction and continue to push forward the construction of ChinaNepal cross-border economic cooperation zone, China will continue to support Nepal’s economic and social development,” Chinese President Xi Jinping said during talks with Nepalese President Bidhya Devi

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Bhandari in Beijing in April 2019. This fully demonstrates that China will further strengthen international cooperation with Nepal and accept a rare historical opportunity to build a community of shared future between China and Nepal. First, unlike the traditional model of international aid under the guidance of neo-liberalism, China has established the China National Agency for International Development Cooperation, which will explore a specific way of international development cooperation with Chinese characteristics organised and implemented by relevant ministries and commissions under the unified leadership of the CPC Central Committee. Second, Nepal is China’s old friend and neighbour in South Asia. After the formation of the Communist Party of Nepal (UML) and the Communist Party of Nepal (Maoist Center), Nepal has put forward the development goal of “Prosperous Nepal, Happy Nepali”, and hopes to get rid of the current underdeveloped state status by developing the economy and enter the ranks of middle-income countries by 2030. From the standpoint of building a community of shared future between China and Nepal, a community of shared future for Asia and mankind, China will continue to increase its aid to the development of Nepal. Third, for a long time, Nepal’s development has been assisted by international multilateral institutions such as the United Nations Development Programme, the Asian Development Bank and the World Bank. China has strengthened and will continue to cooperate with these multilateral organisations to jointly carry out international aid to Nepal. Fourth, China’s aid to Nepal will be based on infrastructure construction, involving education, health care, agricultural technology, cultural heritage protection and other fields. Geographical factors and the mountainous topography of the “land-locked country” have limited Nepal’s development. To break through such restrictions, infrastructure improvement is essential. The economic corridor and other projects driven and supported by interconnection as presented in the Annex to the Joint Round Table Summit Communique of the second BRF clearly states about the “China-Nepal trans-Himalayan three-dimensional connectivity network and China-Nepal cross-border railway”. The implementation of this project will

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support the development of Nepal from a “land-locked country” to a “land­ linked country”. Fifth, China’s aid to Nepal will also involve a number of capacity-building projects, such as agricultural technical cooperation aid and human resources development cooperation. China’s TAR is actively exploring agricultural and technical cooperation with Nepal, this approach deserves our attention. Sixth, traditional aid is neither effective nor sufficient to help developing countries solve their growth bottlenecks because mainstream economics ignores structural transformation (Wangyan, 2016). Experience has proved that the South-South development cooperation model, which combines trade, aid and investment, is more effective. Under the background of the rise of global trade protectionism, this kind of combined aid model is a better choice. China’s support for Nepal’s construction of a cross-border economic cooperation zone is a bold attempt at this aid model. Seventh, the ecological status of the Himalayan region is very important in Asia and the world. With the acceleration of urbanisation and industrialisation in this region, ecological and environmental protection, especially urban environmental governance, poses severe challenges to sustainable development. Relevant countries in this region should launch international cooperation on this issue to meet common challenges.

conclusion With Chinese President Xi Jinping’s visit to Nepal in October 2019, China-Nepal international cooperation has entered a new era. China will stick to the neighbourhood diplomacy concept of building a community with a shared future, the correct views of righteousness and profitableness, the principle of Qin (Friendship), Cheng (Sincerity), Hui (Reciprocity) and Rong (inclusiveness),sum up historical experience, innovate assistance routes, further strengthen international cooperation with Nepal, increase international assistance to Nepal in the high-quality construction of BRI, and promote the joint construction of a community with a shared future between China and Nepal.

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notes

1. On July 1, 2013, China officially implemented a preferential 95 per cent tariff policy with Nepal, covering 7,831 tariff items. On December 5, 2014, the two countries signed an exchange note on China’s zero-tariff treatment for 97 per cent of Nepalese products exported to China, covering 8,030 tariff items. 2. During Nepalese Prime Minister Acharya’s visit to China in October 1956, the two countries signed the Economic Aid Agreement and China promised to provide foreign exchange and mechanical equipment valued at Rs. 60 million unconditionally. 3. In March 1960, Prime Minister Koirala of Nepal visited China. The two countries signed the Economic Aid Agreement. Article 1 of the Agreement states: “in order to help His Majesty’s Government of Nepal to develop the economy, the government of the People’s Republic of China is willing to provide a free grant of a total value of 100 million Indian Rupees, with no political conditions within a period of three years. Article 2 specifies the types of aid: “economic aid provided by the government of the People’s Republic of China to His Majesty’s Government of Nepal including equipment, material, technology and other commodities.” 4. On May 29, 2019, the General Administration of Customs and the People’s Government of Tibet Autonomous Region jointly held a ceremony to resume the function of cargo transportation at the China-Nepal friendship bridge of Zhangmu port. On the day of the opening ceremony, four trucks loaded with Chinese export goods crossed the friendship bridge, marking the successful resumption of the longawaited freight function of the Zhangmu port between China and Nepal 5. Prof. Dr. Bhima Raj Adhikari, ’A Six-Decade Journey of Nepal-China Relations’, Special issue commemorating the 60th anniversary of China-Nepal diplomatic ties. 6. Chinese aid to Nepal, Commercial Counselor’s Office, Chinese Embassy in Nepal, viewed 31 March 2003, 200 g/m2

69,647

2301-Flour, Meal etc. of Meat etc, Not For Human

52,135

2710-Oil from Petrol and Bituminous Mineral etc.

53,050

0303-Fish Frozen (Not Fish Fillets & other Fish Meat)

45,864

5204-Cotton Sewing Thread, Retail Packed or Not

24,304

5208-Woven Cotton Fabrics, Cotton more than 85% Wt < 200 g/m2

Source: State Bank of Pakistan

1

uS$ ‘000

hS code

table 8.5: major exports to china 2009-10

38,993

uS$ ‘000

5205 Cotton Yarn not for Sewing Cotton more than 85%

461,682

5207 Cotton Yarn not for Sewing Retail Packed

71,845

2610 Chromium Ores and Concentrates

113,841

5209 Woven Cotton Fabrics, Cotton more than 85%

39,741

303 Fish Frozen (Not Fish Fillets & other Fish Meat)

28,853

7229 Wire of other Alloy Steel

4113 Leather further prepared after tanning (other animal)

34,063 25,477

4113 Leather further prepared after tanning (other animal)

25,477

5212 Woven Cotton Fabrics NES

19,175

5201 Cotton, Not Carded Or Combed

Source: State Bank of Pakistan

24,386

Evidence and Lessons from BRI | 125

Given the ambition of both countries to integrate through information and digital platforms, Pakistan’s government is keen to explore how trade in services could see an expansion with China. While Pakistan’s export of services to China remains low, Chinese service sector exports have seen a steady increase over time (Figure 8.2). To a large extent, this is attributed to the increase in demand for engineering and business services after CPEC. Our interviews with the business community and past literature reveal that Pakistan’s higher education sector providing services in English language, health sector practitioners, IT and software services have high demand in China.7 Some IT sector firms have managed to secure export orders. The same could be scaled up if greater orientation could be provided to Pakistan’s SME sector. The Chinese government could also help Pakistan’s services sector exports by allowing opportunities in public sector’s procurement. figure 8.2: Pakistan’s Services trade with china (uS$ ‘000)

Note: FY18 imports are for the months July-May Source: State Bank of Pakistan

Pakistan’s Ministry of Commerce and Board of Investment will also need to study how trade-led investment can be enhanced. FDI inflows from China received a boost after the initiation of the CPEC early harvest programme (Table 9.6).This data is not reflective of Chinese investment in CPEC’s energy, rail, road and port sector projects which are being managed on the BoT basis.

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The investment has come in sectors which include communications, electrical machinery, transport equipment, electronic appliances, retail services, and financial businesses. Year

table 8.6: fDI Inflows from china

FY 14

fDI Inflow (uS$ million) 745.8

FY 15

1121.6

FY 17

1265.7

FY 16 FY 18

1108.8 1695.3

Source: State Bank of Pakistan.

To promote China-Pakistan financial integration, Pakistan’s central bank may like to conduct an evaluation of past cooperation activities with the People’s Bank of China, Bank of China, and Industrial and Commercial Bank of China Limited. This is important if the recently signed currency swap arrangement between the two countries has to be encouraged. To harmonise the capital markets regulatory regime, the MoU signed between the Securities & Exchange Commission of Pakistan and the China Securities Regulatory Commission needs urgent operationalisation to promote investor protection. A similar MoU and collaborative framework are also required between the Competition Commission of Pakistan and their counterparts in China to ensure consumer protection in both countries.This will also strengthen dispute resolution arrangements. As Alipay has initiated operations in Pakistan more deeper cooperation in digital finance and e-commerce is expected between the two countries. In this regard, the Ministry of Information Technology of Pakistan and its counterpart in China could undertake a joint study to assess potential cooperation areas.

Social economic Development under cPec In 2018, on the request of the Pakistani government, China considered expanding cooperation in social sectors including education and health sectors in Pakistan. Subsequently, the action plan for agriculture cooperation was prioritised. It was decided to establish a joint laboratory

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of agricultural technology, strengthen the cooperation in the cotton sector and introduction of new varieties, and carry out joint research which could promote output in oil crops, rice and wheat sectors. To promote integrated pest control and disease control technologies both governments decided to establish a demonstration project. To promote research on high-yielding, high-quality crops in Pakistan, China has also offered to set up five pilot projects. In the case of the education sector, China agreed to provide 20000 scholarships to Pakistani students; upgrade the education cooperative project and activities under Punjab-Tianjin Science and Technology Initiative. China will also build 200 smart classrooms for Pakistan to help distance learning and knowledge sharing in various fields. Furthermore, Mandarin teaching services for Pakistan will be expanded. For the tribal areas of Pakistan, 50 new schools will be established with the aim to provide the students market-oriented skills. After an in-depth study on missing infrastructure in rural schools of Pakistan, China will donate various forms of equipment including teaching accessories to schools in Pakistan’s rural areas. The education assistance portfolio will also have a focus on vocational training. The plan focuses on the construction of vocational training facilities in Gwadar. In the case of the health sector, a hospital is planned in Gwadar. The hospital will be equipped with cold chain facilities so that immunisation services for children can be expanded.8 Telemedicine support will be provided to hospitals in Pakistan through remote diagnosis and treatment. Given the large instances of water-borne diseases in rural areas of Pakistan, safe drinking water will be ensured in several regions through drilling of 500 wells. Water filtration facilities that are low cost and require solar energy will be installed. This will also be accompanied by state-of-the-art purification equipment for these regions.

conclusion This paper has attempted to explain how CPEC related investments in Pakistan resulted in improvements in electricity generation, transport and logistics which in turn allowed Pakistan to see higher levels of growth, at least in the short-term, and creation of additional capacities in some

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industrial sectors. However, to sustain such growth spurts and utilise the additional capacities it is now imperative that the federal and provincial governments in Pakistan take steps to expedite: (a) next phase of CPEC which will involve establishment of SEZs, and (b) undertake structural reforms which lead to bringing down cost of energy, introduce a tax regime that attracts local and foreign investors and help creation of joint ventures between China and Pakistan, and reduce the overall regulatory burden faced by export-oriented industries. The relevant institutions will also need to put in place measures which promote trade with neighbours. The rate of return of any infrastructure project is influenced by how much it benefits business communities inside and across the region. Such benefits could take the form of higher levels of regional trade in goods and services, and cross-border investment supply chains. This, however, will only be possible if Pakistan aims to share the dividends of CPEC with neighbouring countries and ultimately help promote trade between Central and South Asia. Pakistan’s private sector competitiveness can be supported by China if the latter exhibits greater willingness to revise the China-Pakistan FTA in favour of Pakistan’s export-oriented industries. Also, China will need to rationalise non-tariff measures that prevent Pakistan to scale-up agricultural exports to China. Both countries also need to study why despite ‘trade in services’ allowed under the China-Pakistan FTA, Pakistan’s services sector exports to China could not see a significant increase. Pakistan will also need to reimagine the way it wishes to engage with economies in the SAARC region. The freeze in India-Pakistan political relations should not prevent engagement of Pakistan with other South Asian countries most notably Afghanistan, Nepal and Sri Lanka.9 China’s investments in both Sri Lanka and Pakistan will ultimately help boost the dividends of Pakistan-Sri Lanka FTA.10 Pakistan also needs to persuade other South Asian economies to reimagine China’s future role in the economic development of South Asia. China only has an observer status in SAARC which could be reconsidered and a more active role may be carved which will ultimately promote region’s economic integration.

Evidence and Lessons from BRI | 129

notes

1. Long Term Plan for China-Pakistan Economic Corridor (2017-2030). The document may be accessed at www.cpec.gov.pk. 2. See also discussion in Ahmed (2017). 3. See also, Ahmed and Javed (2016). 4. See also, Ahmed and Qadir (2018). 5. Additional proposals may be seen in Manzoor and Ahmed (2018) 6. The team at Sustainable Development Policy Institute benefited from interviews with 320 Pakistani exporters during October-November 2017. 7. For example, on the potential of health services trade between India and Pakistan see Manzoor, Toru, and Ahmed (2017). 8. On challenges to immunisation programmes see Ahmed Ahmed (2014). 9. For prospects of regional value chains see Ahmed, et al. (2016). On transit and commercial trade potential with Afghanistan, see Ahmed and Shabbir (2017). 10. For details on Pakistan—Sri Lanka FTA see, Ahmed, Ahmed and Sohail (2010).

References

Ahmed, V., (2017). Pakistan’s Agenda for Economic Reforms. Oxford University Press. Ahmed, S. and Ahmed, V., (2014). “Poverty & Social Impact Analysis of Expanded Programme on Immunization in Pakistan,” Working Paper 143, Sustainable Development Policy Institute. Ahmed, V. and Javed, A., (2016). National Study on Agriculture Investment in Pakistan. Sustainable Development Policy Institute. http://hdl.handle.net/11540/6685. Ahmed, V. and Qadir, A., (2018). Building the Economy of Tomorrow: A project synthesis report. Friedrich Ebert Stiftung. Ahmed, V., Suleri, A.Q. and Javed, A., (2016). “Strengthening South Asia Value Chain: Prospects and Challenges,” South Asia Economic Journal, Volume: 16, Issue: 2_suppl, page(s): 55S-74S. Ahmed, V. and Shabbir, S., (2017). “Trade & Transit Cooperation with Afghanistan: Results from a Firm-level survey from Pakistan,” Working Papers id:12279, eSocialSciences. Ahmed, S., Ahmed, V. and Sohail, S., (2010). “Trade agreements between developing countries: a case study of Pakistan - Sri Lanka free trade agreement,” MPRA Paper 29209, University Library of Munich, Germany. Manzoor, R., and Ahmed, V., (2018). “Pakistan-China Financial Market Integration,” Working Paper 165. Sustainable Development Policy Institute. Manzoor, R., Toru, S. K. and Ahmed, V., (2017). “Health Services Trade between India and Pakistan,” The Pakistan Journal of Social Issues, Volume VIII.

9. the COVID-19 Pandemic and BrI 2.0 Partha S Banerjee

Introduction The Belt and Road Initiative (BRI) is a transcontinental long-term policy and investment programme of the People’s Republic of China (hereinafter “China”). The BRI was conceptualised to develop multi-modal transport infrastructure, enhance connectivity and accelerate the economic integration of countries that lay along the route of the historic Silk Road. BRI is an overarching initiative combining three initiatives: (i) the landbased Silk Road Economic Belt (SREB) comprising six development corridors, (ii) the maritime 21st Century Maritime Silk Road, and (iii) the Polar Silk Road also known as the Northern Sea Route. BRI is the largest infrastructure initiative in history undertaken by any one country. Valued at US$ 1 trillion, BRI far exceeds in scale and reach than the post-World War II US-led Marshall Plan of 1950 which, in 2015, would have been valued at US$ 176 billion. The initiative was first proposed by President Xi Jinping in his speech at the Nazarbayev University in Astana on 7 September 2013. He said that China and Central Asian countries could build an “economic belt along the Silk Road” as a trans-Eurasian project spanning from the Pacific Ocean to the Baltic Sea. He further suggested that China and Central Asian countries could take this proposal forward by accelerating policy communication, improving road connectivity, promoting unimpeded trade, enhancing monetary circulation, and enhancing understanding,1 thus envisioning this belt of “close to 3 billion

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people” could represent “the biggest market in the world with unparalleled potential”. This was followed by President Xi Jinping’s address to the Indonesian parliament on 2 October 2013, wherein he unveiled the blueprint of the 21st Century Maritime Silk Road (MSR). He proposed to jointly build the MSR by strengthening maritime cooperation between China and the ASEAN countries using funds from the China-ASEAN Maritime Cooperation Fund, set up by the Chinese government.2 These two economic corridor development programmes (land-based SREB and maritime MSR) then came to be commonly referred to as the One Belt One Road (OBOR) initiative which, at times, has also been abbreviated as Belt and Road (B&R). On 28 March 2015, the official outline for the BRI was issued by the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs (MOFA) and the Ministry of Commerce (MOFCOM) of China, with authorisation of the State Council.3 Since inception, BRI has been strongly associated with President Xi Jinping’s leadership. The international aim of BRI has been to connect China with countries and continents in the West for economic and strategic reasons, and position China uniquely in the global order. The domestic motivators could have been sustained domestic growth engines by exporting outputs of excess production capacities, ensuring progress of relatively under-developed western and southern regions of the country, and utilising the country’s large forex reserves to achieve geo-political influence.

evolution of the BRI The 2013-2017 Period The OBOR started in 2013 with seven corridors, and soon expanded into BRI comprising eleven corridors focusing on five thematic areas: policy coordination, facilities connectivity, trade and investment, financial integration, and cultural exchange. Between 2014 and 2017, Chinese investment in OBOR/BRI projects reached US$ 340 billion and 92 countries (which is home to 65 per cent of the global population) had

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formally endorsed the initiative. The investment projects in more than 60 countries under OBOR/BRI ranged from building seaports and airports, roads and highways, railroads, Special Economic Zones (SEZ), high-speed rail links, townships, energy pipelines, border posts and customs cooperation, digital connectivity, and to a lesser extent on cultural exchange programmes. These projects were not in the form of a grant-in­ aid from China to other developing countries but were developed using concessionary finance as commercial debt to the borrower countries that was extended by China Development Bank, China EXIM Bank, and the Silk Road Fund. In 2017, President Xi Jinping had summarised BRI succinctly: “China will actively promote international co-operation through the Belt and Road Initiative. In doing so, we hope to achieve policy, infrastructure, trade, financial, and people-to-people connectivity and thus build a new platform for international co-operation to create new drivers of shared development”4 all of which, till now, have remained the stated cornerstones of BRI.

The 2017-2019 Period The First Belt and Road Forum (BRF) for International Cooperation was held in Beijing on 14 and 15 May 2017. It was a milestone in the evolution of BRI and gave a major diplomatic impetus to truly globalise the initiative. The forum was attended by 29 foreign heads of state and government and representatives from the world’s major economies including all G7 countries, Secretary-General of the United Nations, the World Bank President, and Managing Director of the International Monetary Fund, and other officials, entrepreneurs, financiers and reporters from over 130 countries.5 In his keynote speech at the opening ceremony of the BRF on 14 May 2017 President Xi Jinping highlighted achievements of the first four years since his announcements at Astana and Jakarta in September and October 2013, respectively, and set out the guiding principles that would take the BRI forward terming it as the “project of the century” that “will benefit people across the world.” He backed his vision to expand the reach of the BRI by increasing China’s financing commitments to this initiative.6 A joint communique of the forum championed globalisation

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and free trade. BRI investment projects were estimated to add over US$ 1 trillion of outward funding by China to build foreign infrastructure over the 10-year period from 2017.7 China’s “policy banks” viz. China Eximbank, China Development Bank, and Agricultural Development Bank of China led the country’s overseas lending during the pre-BRI era. However, the country’s state-owned commercial banks, including Bank of China, the Industrial and Commercial Bank of China, and China Construction Bank, have played an increasingly important role in financing BRI projects.The latter’s overseas lending activities increased five-fold during the first five years of BRI implementation. As BRI gained momentum during this period, the criticism on how it was being implemented increased. While some of the criticism was geo-political, and for strategic or security reasons, others centred on the economic viability of projects undertaken,concerns on the ability of participating countries to service their BRI debt obligations (“debt-trap”),8 and issues around transparency and governance of this initiative. In Asia, the two cases of Malaysia (East Coast Rail Link project) and Sri Lanka (Hambantota Port project) highlighted the predicament being faced by the BRI participating countries, and brought forward examples of the challenges that are faced by the BRI projects. China’s approach on these cases was to resolve the differences bilaterally and avoid them turning into disputes. However, each of the resolutions was project specific and is likely to have taken into account the geo-political strength of the borrower country, and other strategic interests of China in the region. While, in 2017, Sri Lanka had to agree to a debt-for-equity swap to convert its debt to China in exchange for giving a 99-year lease of Hambantota Port, Malaysia in its protracted re-negotiations with China (during 2018-2019) was able to reduce the cost of construction of the East Coast Rail Link project by a third and increase the level of Malaysian local involvement in the project. Similarly, in Africa, where BRI projects span across the continent, there has been a debate on the economic viability and debt sustainability of these as well as other projects under the Forum on China Africa Cooperation (FOCAC). At the same time, the positive economic outcomes of China’s projects in some of the African developing countries have also been acknowledged in contemporary literature. One such study considered data

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on Chinese government financed development projects from 138 countries between 2000 and 2014 and reported reduction of economic inequality within and between subnational localities as an outcome of these projects (particularly transportation projects).9 On the other hand, geo-political and security concerns have also been raised for African BRI projects such as the US$ 590 million Doraleh Multipurpose Port in Djibouti which was funded, designed, and built by China as a part of the BRI. It is strategically located on the Bab el-Mandeb strait, one of the busiest sea traffic routes in the world. The adjacent Djibouti International Free Trade Zone was envisaged to have the potential to transform Djibouti into a global hub like Dubai and Singapore, though the circumstances are different in East Africa. Security concerns were raised by many countries when China built its first overseas naval base adjacent to the port and, in 2017, made it operational. These security concerns have now aggravated as China has continued to further invest into the naval base to build piers that are long enough to accommodate aircraft carriers, assault carriers or other large warships.10 As a policy response to some of these concerns emanating from Africa on debt-trap diplomacy and infrastructure-for-commodities deals, President Xi Jinping promulgated a “five-nos” approach on China’s relations with Africa at the 2018 Beijing FOCAC Summit: “no interference in African countries’ pursuit of development paths that fit their national conditions; no interference in African countries’ internal affairs; no imposition of our will on African countries; no attachment of political strings to assistance to Africa; and no seeking of selfish political gains in investment and financing cooperation with Africa.”11 In addition to these “five-nos”, President Xi Jinping proposed eight initiatives to be implemented under FOCAC in industrial promotion, infrastructure connectivity, trade facilitation, green development, capacity building, healthcare, people-to-people exchanges, and peace and security matters, over the next three years (2018-2021).

From 2019 Onward, Will it Effectively be BRI 2.0? The Second BRF for International Cooperation, held in Beijing on 25-27 April 2019, was another milestone event in the evolution of

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BRI. In all, 131 countries sent delegations to this second BRF up from 110 countries for the first BRF in 2017. The proceedings of the forum indicated that China was open to adjusting its BRI policies and approach towards implementation. In his opening keynote speech and thereafter at the leaders’ roundtable President Xi acknowledged the need to achieve high-quality development: “The BRI must be open, green and clean, and follow a high-standard, people-centered and sustainable approach.” He envisaged the need to collaborate more: “Through bilateral, tripartite and multilateral cooperation, we need to encourage the full participation of more countries and companies, thus expanding the pie of common interests”.12 At the meeting of finance professionals, China’s Finance Minister unveiled the “debt sustainability analysis framework” stating it used the World Bank and IMF methodology. The Central Bank Governor also acknowledged the need that BRI projects must “fully consider a country’s overall debt capacity … to ensure debt is sustainable”. The ‘third-party cooperation model’ also received a nudge at the Forum. It had its origin between China and Japan wherein the two countries, in 2018, agreed to collaborate in jointly executing 50 infrastructural projects across Asia. China’s financial support and production capacity could combine with Japan’s overseas experience, advanced technologies and risk management mechanisms to deliver those projects. The UK also expressed interest to get involved in such ‘third-party’ cooperation projects.13 Taking cognizance of the Second BRF deliberations, the International Monetary Fund Managing Director, Ms. Christine Lagarde, in her address envisaged a new phase of the initiative may begin from this Forum and termed it as BRI 2.0. She summarised two critical expectations from BRI projects by saying: “Debt sustainability and green sustainability will strengthen BRI sustainability”.14

BRI in South asia In South Asia, there are six BRI participating countries: Afghanistan, Bangladesh, Maldives, Nepal, Pakistan, and Sri Lanka. Each country has its own imperative to join the BRI and has, so far, had varying degrees

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of unique experience. Only some of the key projects and experiences, as reported, have been discussed below. Pakistan: Of all the BRI projects in South Asia, the China-Pakistan Economic Corridor (CPEC) is the largest in terms of outlay and visibility. This was first announced in 2013 as a basket of infrastructure development and industrial projects valued at US$ 46 billion which, in 2017, was revised to US$ 62 billion. Though a transport corridor from Kashgar in Xinjiang province of China to Gwadar Port on the Arabian Sea coast of Pakistan’s Balochistan province has been the central idea of this BRI project, most of the completed CPEC works (till the outbreak of the COVID-19 pandemic) were power generation projects.15 However, Pakistan is now facing a situation of unsustainable debt on its CPEC power generation projects but China has declined to restructure US$ 3 billion in liabilities and re-negotiate the power purchase agreements with the Independent Power Producers (IPP) under the CPEC.16 nepal: Nepal became a BRI-participating country in May 2017, and thereafter prepared an initial list of 35 projects which could be taken up under BRI. According to subsequent reports, the number of projects which were shortlisted for further consideration was nine: upgrading the RasuwagadhiKathmandu Road; Kimathanka-Hile road construction; road construction from Dipayal to the Chinese border; Tokha-Bidur road; Galchhi-RasuwagadhiKerung 400kv transmission line; Kerung-Kathmandu rail; 762MW Tamor hydroelectricity project; 426MW Phuket Karnali hydroelectric project; and Madan Bhandari Technical Institute.17 The collective progress on these projects have been a mixed bag of success; some have progressed and nearing completion, some are delayed due to COVID-19, while others are yet to take off in a meaningful way.18 Moreover, construction work on 1,200 MW Budhi Gandaki hydroproject for which China announced support in 2011 (pre-dates BRI), assuring completion by 2022, is yet to start and questions about the project’s economic viability in a regime of falling renewable energy prices has begun to emerge.19 The Nepal-China Trans-Himalayan Multi-Dimensional Connectivity Network was one of the three South Asian projects to be included in the list of 35 BRI economic corridor projects that was announced to be supported at the end of the second BRF held in Beijing (25-27 April 2019).

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The detailed studies, however, could not be completed due to the COVID-19 pandemic.20 Sri Lanka: The BRI Hambantota deep-sea project in Sri Lanka is a wellcited case study on the difficult choices that BRI-participating countries may face when they accrue unsustainable levels of debt as a result of implementing economically unviable projects. The recipient countries, staring at default, may need to hand over strategic assets to China; in this case, Sri Lanka had to hand over the port to China (December 2017) as debt-for-equity swap. Reports say this left Sri Lanka disillusioned and the country did not attend the Second BRF held in April 2019. Since this incident (and Malaysia’s re-negotiation of the BRI project contract in 2019) other South Asian countries such as Bangladesh, Maldives and Pakistan have also sought to re-negotiate their BRI project contracts with China.21

India’s Position India has refused to join the BRI and has consistently opposed the initiative. Though China has tried to involve India in the BRI since inception, the first and second BRF in 2017 and 2019, respectively, India has boycotted the initiative. The Government of India’s position is best summarised as: “Government’s concerns arise in part from the fact that the inclusion of the so-called illegal ‘China-Pakistan Economic Corridor’ (CPEC) as a flagship project of ‘OBOR/BRI’, directly impinges on the issue of sovereignty and territorial integrity of India. This so-called illegal ‘China-Pakistan Economic Corridor’ (CPEC) passes through parts of the Union Territories of Jammu & Kashmir and Ladakh which are under illegal occupation of Pakistan. Government has conveyed its concerns to the Chinese side about their activities in areas illegally occupied by Pakistan in the Union Territories of Jammu & Kashmir and Ladakh have asked them to cease such activities”.22 The primary reason for India not joining the BRI can be attributed to “sovereignty and territorial integrity” issues. A crucial component of the BRI is CPEC, and this corridor passes through Pakistan Occupied Kashmir which is an integral part of India. In view of this, it is significant that the joint communique issued at the end of the second BRF (Beijing, 27 April

138 | Belt and Road Initiative and South Asia

2019) stated: “We respect sovereignty and territorial integrity of each other and affirm that each country has the right and primary responsibility to define its development strategies in accordance with its national priorities and legislation”. In addition to the sovereignty and territorial integrity issues, the trade and economic concerns of India arise from the fact that BRI does not offer a level playing ground to the country’s businesses. This has been one of the grounds for India to oppose the Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC), or the Kunming-Kolkata corridor project as it is also called. The other ground has been that the idea of BCIM-EC has been floated since the 1990s which pre-dates the BRI but was included in the original list of BRI projects and India is not a BRI-participant country. Significantly, the list of 35 “Economic corridors and other projects catalysed and supported by connectivity” annexed to the second BRF statement did not carry the BCIM­ EC project. Subsequent to this, there have been efforts to revive the BCIM­ EC plan between the four participating countries.23

The coVID-19 Pandemic and BRI 2.0 The COVID-19 pandemic has had an unprecedented devastating impact on the global economy. From trade perspective, world merchandise exports were down by 11 per cent year-on-year from January to September (2020­ vs-2019). The manufacturing, the fuels and mining sectors contracted markedly by 10 per cent and 26 per cent, respectively. The travel and transport sectors suffered the most from lockdown measures, with drops of 61 per cent and 21 per cent in world exports.24 The impact has not only been severe but with emergence of new variants (such as Omicron in November 2021) recovery is expected to be prolonged and uneven across regions. Since early 2020, all BRI-participating countries have been severely impacted. Even before COVID-19 many BRI-participating countries were indebted and were struggling to honour their repayment obligations. A Debt Service Suspension Initiative (DSSI) announced by the World Bank and IMF (now extended up to December 2021) made 73 countries eligible for a temporary suspension of debt-service payments owed to their official bilateral

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creditors.25 However, more steps may be needed such as expanding the DSSI and developing a more permanent solution to help the countries navigate through the next few years.26 China is currently part of the G20 DSSI and has become a party to the new Common Framework. The DSSI enabled these countries to use scarce resources to fight the COVID-19 pandemic in their countries. As of November 2020, 23 countries benefitted from China’s total debt service suspensions worth US$ 1.353 billion. China Development Bank (not officially a bilateral creditor in the DSSI as it is considered a commercial creditor), signed agreements with DSSI countries worth US$ 748 million. It is reported that China is bilaterally engaging with Angola, Kenya, Kyrgyzstan, Lao PDR, the Maldives, Papua New Guinea, Tonga, Zambia and Zimbabwe on debt negotiations.27 Though the full scale and extent of the economic impact is yet to be ascertained, initial estimates (in 2020) show between 88-115 million people worldwide will be pushed into poverty setting back progress toward ending extreme poverty by at least three years. These estimates suggest that South Asia will be the region hardest hit, with 49-57 million additional people pushed into extreme poverty followed by Sub-Saharan Africa between 26 – 40 million additional people predicted to be pushed into extreme poverty.28 Overall, more than four-fifths of the total new poor will be in middle-income countries many of which are BRI-participating countries. BRI projects are also expected to be impacted in the post-pandemic world order. A negative perception across the world is likely to persist for some time that the COVID-19 virus originated in China. This may require additional diplomatic efforts and grant-in-aid from China to position new BRI 2.0 projects (even though they may be more transparent and more inclusive) in affected countries and create positive perception among the citizenry of the recipient countries especially if there are any contentious social or environmental issues to be circumvented in the proposed project. The overall difficult macro-economic situation and stressed public finances of indebted countries may make debt sustainability become an even bigger issue than what it was in pre-pandemic times. At the same time, it may become difficult for China to continue funding foreign projects where a competing need for capital arises to meet domestic needs. Hence, China may

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exercise even greater due diligence to select projects that it would finance or co-finance and develop them under BRI 2.0. Further, in some cases, BRIparticipating countries may choose to invoke pandemic related force majeure clauses to terminate contracts as a commercial solution to get out of projects that may have become economically unviable. In the post-pandemic world, BRI 2.0 funding is likely to increase for new sectors such as the digital and smart economy, green energy, agriculture and healthcare (infrastructure creation and equipment supply may be under a revamped Health Silk Road initiative). It may also be noted that China recently pledged that it would stop building new coal-fire projects abroad29 which was being done in countries like Indonesia and Vietnam under BRI. China is well-positioned to become a leading country in digital technologies including 5G services, big data, Artificial Intelligence, e-commerce and smart cities. Strengths in these areas will be increasingly leveraged to develop BRI 2.0 projects. The US unveiled its Build Back Better World (B3W) plan in the G-7 summit ( June 2021) aimed at financing projects in developing countries with the goal of creating “a values-driven, high-standard and transparent infrastructure partnership”. Going forward, this could be competitively positioned against the BRI requiring China to adopt more collaborative approach and enhance transparency of the initiative. The existing model of deploying Chinese workforce to execute BRI projects end-to-end in foreign countries may not always remain viable for China or even desirable by the recipient countries. Increasingly China could assume the role of investor-manufacturer and the onsite works can be executed by national firms of recipient countries or foreign firms coming from a third country. The contours of such possibilities have already been discussed in the second BRF as the ‘third-party cooperation’ model which, in a post pandemic order, is likely to get further impetus. Such shifts shift in production-execution model will bring forward questions of (a) adoption of technical standards which are widely accepted, (b) increased knowledge transfer, training and capacity building in recipient countries by China requiring it to become even more accommodative in its approach to the BRI projects.

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Disclaimer: (1) The author has exercised due care in preparing this chapter. However, the information contained is based on secondary sources and has been compiled or arrived at from the reliable sources. No representation or warranty is made to their accuracy, completeness or correctness and the author cannot be responsible for any omissions or errors. (2) The views put forward by the author in this chapter are his personal. It does not represent views of any Indian institution, my publisher or that of the author’s employer organisation.

notes

1. Refer, https://www.chinadaily.com.cn/china/2013xivisitcenterasia/2013-09/08/ content_16952228.htm. Accessed on December 2, 2021. 2. Refer, http://www.asean-china-center.org/english/2013-10/03/c_133062675.htm. Accessed on December 2, 2021. 3. Refer, https://www.beltroad-initiative.com/belt-and-road/ [accessed on 02-Dec-21] 4. Xi Jinping (18 October 2017). Page 54 of the speech titled “Secure a Decisive Victory in Building a Moderately Prosperous Society in all Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a New Era” delivered at the 19th National Congress of the Communist Party of China. Available at, http://www.xinhuanet. com/english/download/Xi_Jinping’s_report_at_19th_CPC_National_Congress. pdf. Accessed on December 2, 2021. 5. Refer, http://www.xinhuanet.com//english/2017-05/15/c_136286271.htm. Accessed on December 2, 2021. 6. Refer, full text of President Xi Jinping’s speech at http://www.xinhuanet.com/ english/2017-05/14/c_136282982.htm. Accessed on December 3, 2021. 7. Refer, OECD (2018). 8. Refer, Hurley, et al. (2018). 9. Refer, Bluhm, et al. (2018). 10. See, https://www.futuredirections.org.au/publication/china-boosts-djibouti­ presence-more-investments-and-naval-base-capable-of-docking-aircraft-carriers/ 11. See, the full text of Chinese President Xi Jinping’s speech at the opening ceremony of 2018 FOCAC Beijing Summit, http://www.xinhuanet.com/english/2018­ 09/03/c_137441987.htm. 12. See, President Xi Jinping’s full remarks at the leaders’ roundtable meeting of the Second BRF https://www.mfa.gov.cn/ce/ceom//eng/zgyw/t1659454.htm. Accessed on December 3, 2021. 13. Refer, Joshi (2019). 14. See, Lagarde (2019). 15. Refer, Mardell (2020). 16. See, https://timesofindia.indiatimes.com/world/pakistan/pakistan-economic-crisis­ intensifies-as-china-refuses-to-provide-debt-relief/articleshow/83094150.cms.

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17. See, http://aidiaasia.org/research-article/bri-a-momentum-towards-development­ or-a-debt-trap-for-nepal. 18. Refer, Shengping (2021). 19. See, https://www.thethirdpole.net/en/livelihoods/budhi-gandaki-nepals-mega-dam­ remains-a-mirage/. 20. See, https://kathmandupost.com/national/2021/08/27/with-new-dispensation-in­ kathmandu-talks-resume-on-projects-under-bri. 21. Refer, Rana and Ji (2019). 22. Answer by the Government of India Minister of State in the Ministry of External Affairs to Parliament Question: Lok Sabha Unstarred Question No.606 See, https://www. mea.gov.in/lok-sabha.htm?dtl/32353/QUESTION+NO606+BRI+AND+CPEC. 23. Economic Times (24 June 2019). Kunming meet revives BCIM link plan, at https:// economictimes.indiatimes.com/news/politics-and-nation/kunming-meet-revives­ bcim-link-plan/articleshow/69921135.cms. 24. Committee for the Coordination of Statistical Activities (2021). See, page 34, at https://www.wto.org/english/tratop_e/covid19_e/ccsa_publication_vol3_e.pdf. Accessed on December 3, 2021. 25. World Bank, https://www.worldbank.org/en/topic/debt/brief/covid-19-debt­ service-suspension-initiative. 26. World Bank. See, https://blogs.worldbank.org/voices/2020-year-review-impact­ covid-19-12-charts. 27. ODI Economic Pulse series (2021). 28. World Bank (2020). 29. Xi Jinping’s speech at the UN General Assembly 21 September 2021, at https:// www.bbc.com/news/world-asia-china-58647481. Accessed on December 3, 2021.

References

Bluhm, R., Dreher, A., Fuchs, A., Parks, B., Strange, A., and Tierney, M. (2018), Connective Financing: Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries, AidData Working Paper 64, at http://docs.aiddata.org/ad4/ pdfs/WPS64_Connective_Financing_Chinese_Infrastructure_Projects_and_the_ Diffusion_of_Economic_Activity_in_Developing_Countries.pdf John Hurley, Morris, S., and Portelance, G., (2018), “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective,” CGD Policy Paper 121, Center for Global Development, at https://www.cgdev.org/publication/examining­ debt-implications-belt-and-roadinitiative-policy-perspective Lagarde, Christine (2019), BRI 2.0: Stronger Frameworks in the New Phase of Belt and Road, at https://www.imf.org/en/News/Articles/2019/04/25/sp042619-stronger­ frameworks-in-the-new-phase-of-belt-and-road Mardell, J. (2020), “The BRI in Pakistan: China’s flagship economic corridor,” MERICS, at https://merics.org/en/analysis/bri-pakistan-chinas-flagship-economic-corridor

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Joshi, M. (2019), “China’s course correction,” Observer Research Foundation, at https:// www.orfonline.org/research/chinas-course-correction-50376/ ODI Economic Pulse Series (2021), “Pulse 2: China navigates its Covid-19 recovery – outward investment appetite and implications for developing countries,” at https://cdn. odi.org/media/documents/odi_economic_pulse_2_final12feb.pdf OECD (2018), China’s Belt and Road Initiative in the Global Trade, Investment and Finance Landscape, at https://www.oecd.org/finance/Chinas-Belt-and-Road-Initiative-in­ the-global-trade-investment-and-finance-landscape.pdf. Accessed on December 3, 2021. Rana, Pradumna Bickram and Ji, Xianbai (2019), “Belt and Road Forum 2019: BRI 2.0 In The Making?” RSiS NTU Singapore. https://www.rsis.edu.sg/rsis-publication/cms/ belt-and-road-forum-2019-bri-2-0-in-the-making/#.Yay7i9BBxPY Shengping, Zhou (2021), “The way ahead for BRI in Nepal,” The Annapurna Express, at https://theannapurnaexpress.com/news/the-way-ahead-for-bri-in-nepal-3496. Accessed on December 3, 2021. World Bank (2020). Poverty and Shared Prosperity 2020 Reversals of Fortune, at https:// www.worldbank.org/en/publication/poverty-and-shared-prosperity.

Part III

Lessons from Southeast asia

10. Chinese Belt and road Initiative (BrI) and the Sustainable Development in Lao PDr Vanxay Sayavong Introduction The Lao PDR is the only land-locked developing economy (LLDC) and one of the least developed countries (LDCs) in the Association of Southeast Asian Nations (ASEAN). In 2018, its population was around 6.9 million people, much smaller than its neighbouring countries, such as Cambodia (16.3 million), Myanmar (53.9 million), Thailand (69.2 million), and Vietnam (96.7 million).Though Lao PDR suffers constraints in terms of a small size domestic market and geographical difficulty, it has still enjoyed high and stable economic growth of around 7 per cent since the 2000s due to its rich natural resources principally mining and hydropower electricity. As a result, its income per capita jumped from US$ 290 in 2000 to US$ 2,460 in 2018 surpassing its neighbours such as Cambodia, Myanmar and Vietnam (Table 10.1). More importantly, this allowed the Lao PDR to transit from the status of low-income to a lower-middle country since 2011, along with other new members of ASEAN, namely Cambodia (2015), Myanmar (2014) and Vietnam (2009), according to the World Bank’s analytical classifications. However, since the record high economic growth has been strongly influenced by the resource sector, the unsustainable income distribution could be observed. For instance, the employment in the resource sector was less than 1 per cent of total employment in 2015 while the labour productivity (equivalent to real wage) in this sector was 12 times higher than the non­

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resource sector (Sayavong, 2017). Therefore, without the utilisation of such resources, the economy is clearly seen as less competitive at the regional and global perspective. This is because the existing productive capacity in Lao PDR, for instance, is poorer than other ASEAN countries in the areas of airport, railway, logistics, human capital and technological readiness (Sayavong, 2018b). table 10.1: Selected Key Development Indicators in aSean Region

country

Population (persons) 2018

Brunei

gnI per capita (uS$) 2018

national Poverty Rate (%) 2017

gInI

hDI Ranking

2016

2017

435,466

31,020

NA

NA

39

Cambodia

16,3 06,522

1,380

14.0 (2014)

0.308 (2012)

146

Indonesia

267,508,543

3,840

9.8 (2018)

0.395 (2013)

116

Lao PDR

6,986,695

2,460

23.2 (2012)

0.364 (2012)

139

Malaysia

32,151,347

10,460

0.4 (2016)

0.463 (2009)

57

Myanmar

53,977,691

1,310

32.1 (2015)

0.381 (2015)

148

106,917,416

3,830

21.6 (2015)

0.401 (2015)

113

Singapore

5,812,104

58,770

-

-

9

Thailand

69,221,446

6,610

7.9

0.378 (2013)

83

Viet Nam

96,734,130

2,400

5.8 (2016)

0.348 (2014)

116

Philippines

Source: Data of population and HDI Ranking is from the United Nations, and GNI per Capita and GINI coefficient are based on the World Bank Database. The national poverty rate is sourced from Statistics and Data Innovation Unit 2019.

After all, several development indicators such as poverty and human development for Lao PDR are still lagging behind other countries in ASEAN. Table 10.1 also showcases some selected development indicators of Lao PDR in the ASEAN region. It found that, for instance, the national poverty rate in the Lao PDR was 23.2 per cent, while poverty in Cambodia, Thailand and Vietnam were better off except Myanmar. Also, in terms of the Human Development Index (HDI), the Lao PDR was ranked at the bottom for global (139 out of 189 countries in 2017). Though the Lao PDR is likely to be meet the LDCs graduation eligibility for 2021 because two of three graduation criteria, namely Gross National Income (GNI) per capita and Human Asset

Chinese Belt and Road Initiative (BRI) and the Sustainable Development in Lao PDR | 149

Index (HAI), are already met but the Economic Vulnerability Index (EVI) is above the threshold, according to the 2018 LDC Review1. The Sustainable Development Goals (SDGs), which continued and expanded the Millennium Development Goals (MDGs), are targeted for completion by 2030 posing another challenge for the Lao PDR to achieve in the year ahead. Fortunately, the Belt and Road Initiative (BRI) announced by Chinese President Xi Jinping in 2013 is considered as one of the policy instruments to drive the development of the Lao PDR sustainably since it provides enormous funds and human resources for the development under five key areas defined in the BRI cooperation framework, namely (1) policy coordination, (2) infrastructure, (3) trade and investment, (4) financing and (5) people-to-people connectivity. For instance, a US$ 40 billion Silk Road Fund was created in 2014. In addition, there are funds allocated from domestic development banks and the newly established Asian Infrastructure Investment Bank (AIIB). Lao PDR, among more than 100 countries, endorses the BRI and has signed several BRI cooperation documents including the Memorandum of Understanding (MoU) of BRI with China in 2016.The relationship between Lao PDR and China has consequently boosted especially the investment for the infrastructure development. In particular, mega projects such as the Laos-China railway and expressway are considered as the prominent cooperation projects to accelerate the economic development in Lao PDR especially poverty reduction and job creation. Nonetheless, it also presents a great challenge to countries like Lao PDR that will require to adopt a coherent and integrated approach of BRI to its own policy design and implementation especially to support the achievement of SDGs. While the proposed BRI initiative may have the potential to promote inclusive growth and sustainable development for Lao PDR, it may entail trade-offs between short-term and long-term costs and gains within various economic sectors and social groups. This will require careful analyses of the potential socio­ economic impacts. In particular, rigorous analyses are required to identify the transmission channels of various potential socio-economic impacts and assess various policy options to ensure that the BRI can help Lao PDR accelerate its advancement towards the implementation of the 2030 Agenda which is the objective of this study. To this end, this paper is structured as

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follows. Section 2 describes the top government policies or strategies related to SDGs and the progress of SDGs implementation in Lao PDR. Section 3 focuses on the updated information on activities of BRI in Lao PDR and its potential linkage to SDGs. Then, the conclusion, as well as recommendation, is highlighted in the last section.

Long term government Policy and Sustainable Development goals (SDgs) Long Term Government Policy The structures of national policy and strategy in Lao PDR are designed to reflect the updated situation of Lao economic development respected with the change of international environment. So far, the 2030 Vision and 10-Year Socio-Economic Development Strategy during 2016-2025 published in early 2016 is considered as the top policy framework for the Lao government to guide other national and sectoral policies or short-term policies such as 1 Year and 5 Year National Socio-Economic Development Plan (NSEDP) until the year of 2030.2 Table 10.2 summarises the main contents of 2030 Vision and 10-Year Socio-Economic Development Strategy 2016-2025. It clearly shows that the vision of Laos is reflected to the condition of international development by aiming to upgrade its level of income from a lower-middle-income country (current status) to an upper-middle-income country by 2030. Its neighbouring countries have a similar long-term vision and strategy. Thailand, for instance, has a long term vision (20 years National Strategy 2017-2037) to become a developed country by 2037 (National Strategy Secretariat Office, n.d.). Likewise, the Cambodian government has set up a target or vision to become an uppermiddle-income country by 2030 and a high-income country by 2050 (Royal Government of Cambodia 2018). For Lao PDR, to reach the vision 2030, seven strategies were identified where the top three strategies are (1) sustainable and green economy, (2) meeting the criteria for graduation from least developed countries by 2020 and implementing SDGs, and (3) human resource development. Later on, to reflect the realisation of the strategies, the report of the National Green Growth Strategy came out in

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2019 as a crucial platform to guide the policies and action plans toward the green economy. Also, the draft of the National Human Resource Development Strategy has been completed in the mid of 2016. table 10.2: 2030 Vision and 10-Year Socio-economic Development Strategy

(2016-2025)

Vision for 2030:

• Lao PDR becomes an upper-middle-income developing country following a

knowledge-based, green and sustainable socio-economic direction

Seven Priorities of the 10-Year Strategy (2016-2025): 1. Strategy for continued economic development in a high quality, balanced,

sustainable and green direction

2. Strategy for meeting the criteria for graduation from the Least Developed

Countries by 2020 and implementation of the SDGs.

3. Strategy for human resource development 4. Strategy for sustainable, efficient and green-directed protection and use of natural resources 5. Strategy for improving the enforcement of the rule of law 6. Strategy for regional and international integration and connectivity 7. Strategy for industrialisation and modernisation Source: Author’s summary based on the Ministry of Planning and Investment (2016a and 2016b).

For SDGs, the Lao government has freshly integrated its indicators into the Eighth 5-Year National Socio-Economic Development Plan (NSEDP) 2016-2020 and Sectoral Development Plans of line ministries up to 2030 after the introduction of SDGs in the beginning of 2016. This also means that SDGs will be aligned with the 5-Year NSEDP (2021-2025) and NSEDP (2026-2030). Indeed, Lao PDR was among the first countries to localise the SDGs and integrate them into its national planning framework. In addition to the global Goals of 17, Lao PDR makes the Goal 18: lives safe from the unexploded ordnance (UXO) or Reduced Impact of UXO as its own national goal because Lao PDR is one of the most heavily bombed nations in the world during the Second Indo-China War and 25 per cent of all villages in the country still suffers from the UXO contamination. This goal was launched during the visit of UN Secretary-General Ban Ki-moon in Lao PDR in September 2016. Not all indicators of SDGs are included as around 92 indicators of 160 NSEDP indicators only links to only 71 SDGs indicators or about 30 per cent of SDGs indicators by June of 2019, according to the

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National SDGs Secretariat 2019. In terms of the institutional arrangement given to SDGs, the National Steering Committee for SDG implementation chaired by the Prime Minister was established by the President of Laos in September 2017. This obviously demonstrates strong political support from the Lao government. The members of the committee consist of line ministries and ministry-equivalent agencies. Their role is to monitor and evaluate the implementation of SDGs from time to time. In which, the Ministry of Foreign Affairs (MOF) and the Ministry of Planning and Investment (MPI) are assigned to be the National SDG Secretariat having a task to coordinate and work with other line ministries and development partners to monitor and evaluate the implementation of SDGs.

The Progress of SDgs Implementation Though the implementation of SDGs is still in the early stage, we can observe some progress that has been made so far especially the localisation of SDGs into the national policy framework as mentioned earlier. More importantly, Lao PDR has added 19 new indicators. As a result, the total SDGs indicators are 257 for Lao PDR, higher than the global indicators (238 indicators in total). Furthermore, 140 indicators are already identified with the available data indicating progressively the implementation of SDGs in Lao PDR. Yet, more work is needed because the SDGs’ localisation is under the process and data for many indicators are still unavailable or yet identified explicitly posing a challenge for Lao PDR. Despite Lao PDR had made progress in implementing SDGs but many goals perform poorer than other countries in the Asia Pacific region.3 Overall performance of SDGs, according to the Sustainable Development Goals Index (Table 10.3), Lao PDR was ranked at 111th for global level and 8th among ASEAN countries in 2019, advancing only Cambodia. Still, the gaps in ranking between Cambodia, Laos and Myanmar are much closed. By looking across the board, it shows that the ASEAN region performs well for SDG 1: no poverty or on-track for the achievement by 2030. The good performance of goal 1 reflects the progression of poverty reduction measured by the international poverty line ($1.90/day-2011 PPP) in previous years. However, the poverty rates presented in Table 1 measured by national poverty

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in many ASEAN developing countries are still high. This should be regarded as one of the implicit challenges for the achievement of Goal 1. Also, several countries in ASEAN could maintain SDG 13: climate change and impact on track as well except Brunei, Singapore, Malaysia and Thailand. Whereas, the performance of Goal 15: ecosystem and forest, is likely to be worse than other goals for most ASEAN countries especially the protection of biodiversity and species. For Lao PDR, the progress of SDGs is likely on the trend of the region. For instance, Lao PDR has on-track performances of Goal 1: no poverty, Goal 6: management of water and sanitation and Goal 13: climate change and impact. However, Goal 15 performed deteriorated while the progress of several goals including Goal 9: infrastructure, industrialisation and innovation and Goal 17: global partnership for SDGs is stagnated. country

Rank

table 10.3: Sustainable Development goals Index by global Ranking

Thailand

40

↑ → ➚

66

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102 ↑

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111 ↑

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Cambodia Brunei

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Note: ↑ On track or maintaining SDG achievement, → stagnating, ➚ Moderately improving, ↓ decreasing, . = information unavailable Source: Sachs, et al. (2019).

.

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→ .

Recently, the Government of Laos & National and International Partners launched the voluntary national review on the implementation of the 2030 agenda for sustainable development demonstrating that every goal of SDGs has its own progress and challenges. Asian Development Bank also provides the report with more details on the trend of selected targets and indicators for countries in the Asia Pacific region including Lao PDR (ADB, 2018). In

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this report, the number of SDGs with poor performance was weighted out of the number of SDGs with good performance for Lao PDR (summarised in Table 10.4). The poverty rate under Goal 1: no poverty, for instance, was still high in Lao PDR especially the employed population who lives below the international poverty line. Accordingly, Lao PDR is among three economies in the Asia Pacific region with the poverty rate of the employed population that was greater than 40 per cent.The other two countries include Afghanistan (83.4 per cent) and Bangladesh (41.5 per cent). This poverty rate was also much higher than other ASEAN economies. The performance of Goal 2: zero hunger, is similar because the prevalence of stunting in children below the age of 5 years was high, placing Lao PDR among the poorly performing countries in the region. In 2016, Lao PDR had a stunting rate of 43.8 per cent for children under five years or almost half of all children had stagnated in nutrition growth. This rate is comparable to Timor- Leste (50.2 per cent), Papua New Guinea (49.5 per cent), Pakistan (45.0 per cent), and Afghanistan (40.9 per cent). table 10.4: comparative Performance of SDgs for Lao PDR in the asia Pacific Region Poor Performance

goal 1: No poverty goal 2: Zero hunger goal 5: Achieving gender equality goal 7: Ensuring access to the affordable and clean energy goal 9: Industry, innovation and infrastructure goal 10: Reduced inequalities good Performance

goal 3: Ensuring good health and well-being goal 11: Sustainable cities and communities goal 12: Responsible consumption and production

Source: The initial assessment by the author is based on information from the report by ADB (2018).

Although Lao PDR is among the top countries that have a high share of women in the parliament seats boosting the profile of Goal 5: achieving gender equality, the indicator of empowering women in the age of 20 to 24 years old is still challenging. This is because Lao PDR has more women getting married when they are still under the age of 18. The share was 35.4 per cent

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in 2012 which is higher than several countries in the region. The position of Lao PDR under Goal 7: ensuring access to affordable and clean energy (clean fuel and technology for cooking, heating, and lighting) is ranked at the bottom as well. Only 5.6 per cent of the population in Lao PDR used clean fuel and technology in 2016, much lower than its neighbours Cambodia (17.7 per cent) and Myanmar (18.4 per cent). It indicates that the majority of households who resides mainly in rural areas still rely on firewood and charcoal for cooking.The electricity generation in Lao PDR has rapidly increased in recent years but has limited impact on Goal 7, since the electricity is mainly used for industry and export. In the future, the contribution of electricity generation is expected to be larger because the Lao government has a target of developing renewable energy to the tune of 30 per cent of total energy demand by 2025 (Ministry of Energy and Mines, 2011). The achievement of Goal 9: industry, innovation and infrastructure, is also challenging. When compared with countries in the region in terms of manufacturing value added per capita in 2017, Lao PDR has a very low level of the value added per capita with US$ 176 being the lowest in ASEAN, and third from the bottom following Timor-Leste and Nepal who have the value below US$ 50 per capita. This implies that the competitiveness and the engagement of the Lao manufacturing sector especially local SMEs in the global value chain are still weak. Reducing inequality under Goal 10: reduced inequalities in Lao PDR should need more attention as the situation of income distribution has been widened in the previous year. By looking at the GINI indicator, it highlights that the trend of income distribution gap increased from 0.32 in 2002 to 0.36 in 2012. The SDGs in which Lao PDR has made progressive and outstanding achievements than other countries in the region include Goal 3, Goal 11, Goal 12 and Goal 15. The achievement in Goal 3: ensuring good health and well-being is seen to be on track since Lao PDR is among the countries that have a significant reduction of under-five mortality rate. In 2016, the underfive mortality rate in Lao PDR was reduced by half (64 deaths per 1,000 live births) from 117 deaths per 1,000 live births in 2000. It is interesting to know that Lao PDR was able to reduce the share of the urban population residing in slums significantly by at least 20 percentage points making it to be considered as top performers in the region for achieving Goal 11: sustainable cities and

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communities. For Goal 12: responsible consumption and production, there are 12 economies in the region including Lao PDR that could increase the level of consumption per capita by more than double during 2000 to 2015 indicating an additional achievement for this goal. For the progress of national Goal 18: lives safe from UXOs, it reveals that UXO causalities had been substantially reduced by 85 per cent over the last decade. However, more efforts are needed since only about 6.6 per cent of the contaminated land is actually cultivable and UXO contamination from the Indo-China war still remains. Addressing the needs of UXO survivors and victims is also important.

BRI’s activities and their Potential Linkages to SDgs Past, Ongoing and Planned BRI Activities The Lao PDR is one of the countries who endorses the Belt and Road Initiative (BRI). The cooperation between Lao PDR and China has been evident since the end of 2016 when the government of Lao PDR signed the Memorandum of Understanding (MoU) and 20 other documents with China on cooperation in various areas aiming to support the One Belt One Road Initiative. Later on, the Master Plan of the cooperation on developing the “One Belt One Road” between Laos and China was signed during the first Belt and Road Forum for International Cooperation in May 2017 in China. The master plan has identified seven prioritised areas of cooperation, namely infrastructure, agriculture, capacity building, industrial park, culture and tourism, finance and banking, and production promotion. In November of the same year, the Chinese President Xi Jinping had a formal visit in Lao PDR where two governments reaffirmed their cooperation on the China-proposed BRI. For the Lao government, BRI is considered as a strategy to overcome its disadvantage of geographic location by turning itself from a “land-locked” country to a “land-linked” one. In particular, the Laos-China railway project is the top priority for the BRI cooperation between the two countries. This is because the Laos-China railway route is the main part of the central route for BRI cooperation in the Southeast Asian region or the Singapore-Kunming High Speed Rail Link known as Pan-Asia Railway Network. That is why

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the construction of the railway in Lao PDR has started despite the fact that construction of other parts in Thailand and Malaysia is still under negotiation. In April 2019, fortunately, China, Thailand and Lao PDR signed the MoU on railway-bridge to connect the railway from Thailand’s Nong Khai and Vientiane in Lao PDR4 which shows a further step towards the Singapore-Kunming High Speed Rail Link. After all, a series of cooperation documents in various fields such as economic corridor, digital Silk Road, electricity, science and technology, came out. In the most recent second Belt and Road Forum for International Cooperation held in Beijing during 25-27 April 2019 where the president of Lao PDR participated, the policy cooperation between two countries has been pushed further by signing more documents for bilateral cooperation especially the LaosChina Economic Corridor Cooperation Framework (LCEC). figure 10.1: map of Lao-china Railway and Selected Special economic Zones along the Lao-china economic corridor

Source: Adopted from Boten Economic Zone Office and google search.

The construction of the Laos-China medium speed railway project, which began at the end of 2016, is one of the big push cooperation projects while others

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such as investments in the special economic zones are under implementing, proposing and negotiation stages (Figure 10.1).Table 10.5 describes the broad picture of BRI activities in Lao PDR. It can be seen that several activities have already been proposed and under implementation especially in the areas of policy coordination, facilities connectivity or infrastructure connectivity, and people-to-people bond. For the priority of embedded trade (trade and investment), there are some investors from China and Thailand interested to invest along the route of the railway in areas such as tourism and urban development or smart city.Those big construction projects are mainly financed by Chinese banks especially the Export-Import bank of China. Each priority has details discussed as follows: table 10.5: current BRI activities in Lao PDR

no BRI Priority activity area 1

2

Policy Master Plan of the cooperation on developing the coordination “One Belt One Road” between Laos and China

Facilities connectivity

Complete

Cooperation Framework for Tourism Development

In progress

7 Hydropower projects on Nam Ou River

Four projects in progress

Cooperation Framework for Electricity Development

In progress

Laos-China Railway

In progress

Expressway from Vientiane to Chinese border. There are three phases in total.

Development of ports along the river

4

Trade and investment

Financial integration

Complete

Cooperation Framework for Laos-China Economic Corridor

Electrical grid network construction

3

Status

Animal and crop trans-boundary disease control and prevention at the border

Development of Special Economic Zones (SEZs) Mohan-Boten Economic Cooperation Zone Vientiane Saysettha Development Zone

Borrowing loans from the Export-Import Bank of China and other banks*

In progress Phase 1 in progress

Under the proposal

In progress In progress In progress

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5

People-to­ people bond

Laos-China Tourism Year 2019 More exchange of education (scholarships), training, workshops, etc.

In progress

Note: * In general, the Chinese banks that provide fund under BRI cooperation including include (1) policy banks: Agricultural Development of China (ADBC), China Development Bank (CDB), and Export-Import Bank of China (CHEXIM). (2) State Owned Banks: Agricultural Bank of China (BOC), Bank of China (BOC), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC. (3) State Owned Fund (selection): China Investment Corporation (CIC) and Silk Road Fund (SRF). (4) International Financial Institutions (selection): Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB). Source: Author extracted from various sources.

For the first priority of policy coordination, the definition of BRI is likely clouded among policymakers in the Lao PDR (Sayavong, 2018a). This is because the concept and the coverage of BRI have kept changing from bilateral cooperation between Lao PDR and China to BRI to multilateral one. Moreover, the coverage of BRI activities has expanded from the Northern and central parts of Lao PDR to the South region connecting to Vietnam and Cambodia. The questions raised on the definition of BRI activities in Lao PDR contain the coverage of BRI activities in terms of infrastructure, investment ownership and evolution of BRI in previous years. Though the national master plan of BRI was already created in 2017 as a general guide for other sub-national or sectoral master plans and policies to follow; the contents of priorities in this master plan are similar to the list of priorities identified in the master plan of BRI between China and Cambodia. There are 7 priorities for BRI in Cambodia in total as the same as Lao including (1) infrastructure, (2) agriculture, (3) capacity building, (4) industrial park, (5) culture and tourism, (6) finance and banking, and (7) eco-environmental protection (Vireak and Vutha 2018, p. 1). The difference between Lao PDR and Cambodia is the seventh priority where that of Lao is related to the production promotion. Therefore, based on this observation, the draft preparation of such a master plan should be greatly influenced by China. Likewise, the MoU of the LaosChina Economic Corridor (LCEC) Cooperation Framework which was initially prepared by Chinese scholars and was signed during the second international forum defines the short-term development (2019-2025) and long-term development (2026-2030). Short-term cooperation, which lasts the duration of the construction and completion of the Lao-China railway,

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aims to ensure the early harvest in key areas of economic cooperation such as logistics and trade, and agriculture and industrial parks, especially special economic zones. Meanwhile, long-term cooperation under LCEC stretching to the Southern part of Lao PDR aims to deepen the economic integration with Southwestern China and countries in the region in the areas of modern agriculture, tourism, energy, logistics, processing and manufacturing industries. Hence, the LCEC is expected to provide opportunities and potential benefits to different stakeholders, both domestic and foreign, public and private, and at the local, national and regional levels by attracting investment and trade. For the second priority of facilities connectivity, this priority is the lead among other priorities for BRI in Lao PDR. Some of the activities were initiated even before the announcement of BRI by the Chinese government. For instance, the Laos-China railway project as a part of Singapore-Kunming Rail Link has MoU signed by two countries back then on April 7th, 2010. Five years later, the construction of the Laos-China railway with a total investment of US$ 5.8 billion was started at the end of 2016 and is expected to be completed by December 2021. Up to July 2019, the progress of construction is reported to be completed by 72.8% (Management Committee for Lao-China Railway Project, 2019). In which, the main construction involved 961 areas that include 74 tunnels, 157 bridges, road construction, electricity network and construction of drainage system. Also, one of the two longest bridges (1,458.9 meters) on the Mekong River in Luang Prabang province in the Northern region was completed. In terms of benefits from the railway project, there are some implications on Lao economy, especially during the construction and after construction. Besides the railway, the investment of expressway (railroad) from Lao capital city of Vientiane in the central region to the Chinese border that is under implementation should be taken into account. There are four sections or phases in total for the express way. The construction of phase 1 (113.5 km) with an investment of US$ 1.2 billion began at the end of 2018, completed and opened the service at the end of 2020 while the other three have finished the field survey. The investment of these three sections is totally expected to be more than US$ 7 billion. More importantly, the highway would be extended to the Southern part of Laos (or Champasack province) as the MoU was already signed in October 2018 and is currently under the feasibility study.5 The distance of this extended expressway is approximately 491 km.

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Chinese transportation, construction and consulting firms are dominantly responsible for the completion of these projects including the railway. The third priority (impeded trade) is to promote trade and investment. The on-going current cooperation in this priority includes cooperation on the animal and crop trans-boundary disease control and prevention at the border and the development of special economic zones (SEZs). For investment, China was the biggest investor during 2008-2019 ( June) with the total approved investment of US$ 17.4 billion or equivalent to Lao GDP in 2017. On top of that, its trend is likely to be on the upward trend where the type of concessional investment had played a greater role in the resource rich areas of mining and electricity generation or hydropower (Figures 10.2 & 10.3). Numerous hydropower plants that are along the river of Nam Ou in the Northern part of Lao PDR are examples of projects in which Chinese investors have invested. For non-concessional investment, the investment value by China also increased steadily jumped to more than US$ 3 billion in 2018. Every year, around 260 new Chinese enterprises are registered in Lao PDR. However, the surge of new enterprises can be observed since 2017 after the signing MoU of BRI between Lao PDR and China. The most interested areas from Chinese investors are (1) wholesale & retail trade, (2) agriculture, forestry and fishery, (3) manufacturing, and (4) construction. Therefore, the increase in numbers of construction, shopping mall, hotel & restaurant, insurance and real estate by China in Lao PDR is outstanding in recent years. figure 10.2: chinese Investment in Lao PDR from 2008-2019

Note: The approval investment is during January-June 2019 Source: Ministry of Industry and Commerce (MoIC) and Ministry of Planning and Investment (MPI), Lao PDR

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figure 10.3: chinese foreign Direct Investment (fDI) by Industries from 2008-2019

Note: The approval investment is during January-June 2019 Source: Ministry of Industry and Commerce (MoIC) and Ministry of Planning and Investment (MPI), Lao PDR

In terms of trade, China is also the second biggest trading partner for Lao PDR both in terms of export and import. Both export and import have been increasing steadily over the last seven years (Figure 10.4). Since 2015, Lao PDR gained a trade surplus with China indicating the strong growth of Lao export as well as strong demand in the Chinese market especially for agricultural and forestry products where the Chinese investors have invested in the North region of Lao PDR. However, the gap of trade balance was small in 2018 because of high import from China to facilitate the mega construction projects in Lao PDR particularly the Laos-China railway project. In 2018, the total value of trade between Lao PDR and China reached US$ 2.7 billion which amounts to 25.5 per cent of total trade. The major of Lao exports to China are predominantly in mining and primary or less processing agricultural products such as copper ore, woods, chemical fertilizer, banana, rubber, maize, fruits and forestry products, live animals and furniture. Meanwhile, the main imports from China are heavy and high value-added products like machines, steel and related products, bike and other vehicles, telecom related products, electrical and electronic products, cables and wires, components of vehicles (wheels, mirror, chains and among others), paper and related products, chemical fertilizer, plastic products, and cement.

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figure 10.4: trade between Lao PDR and china during 2012-2018

Source: Ministry of Industry and Commerce (MoIC), Lao PDR

Fourthly, this is already well known that the fund to finance BRI’s activities is mainly from Chinese commercial banks. Infrastructure development such as the Laos-China railway project with a total investment of US$ 5.95 billion, for instance, is financed through a loan from the Export-Import Bank of China with an interest rate of 2.3 per cent for 35-year maturity. During the initial period of construction, the Lao government who holds 30 per cent of the total investment would borrow US$ 310 million from the Chinese bank whereas the remaining of US$ 250 million is expected to be financed through its national budget. In July 2019, China Development Bank (CBD) in Yunnan province also provided a loan of US$ 300 million to the Bank of Lao PDR (Lao central bank) for the purpose of SMEs promotion policy of the government of Lao6 which should highlight another financial cooperation under BRI. Similarly, other related activities under BRI would be mainly financed by China. In terms of the Chinese grant provided to Lao PDR, the Chinese government made an announcement to provide a grant worth 6.57 billion Yuan or US$ 950 million7 (equivalent to 6.2 per cent of GDP in 2017) over 4 years or US$ 237 million per year. In this regard, the Lao government has already considered more than 1,100 projects proposed by central and local authorities to be financed by such a grant. Accordingly, the infrastructure, education and health projects are the proposed areas that would be the most funded whereas the capacity building

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is the least (Figure 10.5). The construction project of modernised Mahosot Hospital, checkpoint facilities, upgrade of Road 14A, National Convention Centre canteen, and the construction of new 10 school buildings are some projects that are being carried out with Chinese grant. The size of this grant makes China the biggest grant provider during 2018-2020 since Lao PDR received over US$ 200 million grant annually only during 2015-2017. In 2017, the World Bank and Asian Development Bank (ADB) were the largest grant providers with US$ 36 and 42 million grants, respectively. figure 10.5: Proposed Projects under chinese grant for Lao PDR by areas

Source: Author has adopted from Lao Prime Minister’s Office (2018).

For the last priority, people to people connectivity, China has immensely increased the number of related activities in recent years. In particular, the number of Chinese tourists visiting Lao PDR reached 0.8 million people in 2018 up from 0.16 million in 2010 making them the third largest tourists in Lao PDR. Vietnamese tourists make the second largest group (Figure 10.6). In 2018, according to the Tourism Development Department (2018), the inflow of Chinese tourists into Lao PDR was mainly through the channel of cross-border at Boten and Golden Triangles checkpoints in the North of Lao PDR that generated an income of around US$ 151 million per year or 17.16 per cent of the total. The arrival of Chinese tourists by air transport is still limited with a share of 10.9 per cent of total. It is only through the Wattay international airport in Vientiane Capital. On the other hand, China increased the scholarships to Lao students in recent years which allowed more than 9,000 Lao students to study in China in 2016. This is a significant increase from 723 students in 2013. In 2018, more than 2,000 Lao students went to

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China for pursuing their education at different levels as the top education destinations besides Vietnam. A large distribution of Chinese scholarships is mainly given to the students in border provinces with China. Luang Namtha province bordered with Yunnan province of China, for instance, receives more than 1,000 scholarships alone for every year.8 The number of training and workshops conducted mainly in China given to Lao authorities also increased. According to the Laos-China Cooperation Committee, the number of Lao authorities being trained in China increased from 532 in 2015 to 2,391 persons in 2018. The topics covered during the training and workshops vary from economic development, finance, poverty, market access, tax, and innovation to other topics related to Chinese experiences. More exchanges of culture and exhibitions between two countries could be observed too. figure 10.6: chinese tourists in Lao PDR

Source: Tourism Development Department (2018) Year

Vietnam

2012

2,062

2011

2013

2014

2015

2016

2017

2018

1,413

2,648

5,134

4,843

3,968

5,442

5,569

table 10.6: top Destination for Lao Students china 420

283

670

1,239

1,866

2,326

2,455

4,179

Thailand

Japan

261

60

228

219

293

159

300

196

220

54

59

78

85

71

84

94

Source: Ministry of Education and Sports, Lao PDR

australia 77

73

72

64

86

46

73

39

others

total

154

2,893

168

246

272

255

323

315

379

2,360

3,914

7,080

7,294

7,034

8,565

10,480

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The Potential Linkages of BRI to SDGs Previous sections provide the summary of BRI activities under five priorities in recent years and the progress of SDGs implementation in Lao PDR which might give hint on the potential connection of BRI to SDGs especially Goal 8: decent work and economic growth and Goal 9: industry, innovation and infrastructure. This section basically follows the concept of the link between BRI’s priorities and SDGs which is taken from the study by Hong (2017). Table 10.7 highlights the link of BRI activities under five priorities on the course of implementing SDGs. Each priority of BRI is discussed in order. Here, the most linked or relevant selected goals with available data are only discussed. table 10.7: The Link between BRI and SDgs, and Potential Impact in Lao PDR

no

BRI Priority

SDgs

2

Facilities connectivity

Goal 1: End poverty Goal 2: End hunger and food security Goal 3: Healthy life Goal 4: Education and lifelong learning Goal 5: Gender equality Goal 6: Management of water and sanitation Goal 7: Sustainable energy Goal 8: Sustainable growth and employment

1

Policy coordination

3

Trade and Investment

4

Financial integration

Goal 17: Global partnership for SDGs

Goal 9: Infrastructure, industrialization and innovation Goal 10: Reduce inequality (indirect link) Goal 11: Safe and resilient cities Goal 13: Climate change and impact Goal 17: Global partnership for SDGs

Goal 1: End poverty Goal 2: End hunger and food security Goal 8: Sustainable growth and employment Goal 9: Infrastructure, industrialization and innovation Goal 12: Sustainable consumption and production (indirect link) Goal 14: Marine resource (indirect link) Goal 15: Ecosystem and forest (indirect link) Goal 17: Global partnership for SDGs Goal 17: Global partnership for SDGs

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5

People to people connectivity bond

Goal 3: Healthy life Goal 11: Safe and resilient cities Goal 16: Peaceful and inclusive societies (indirect link) Goal 17: Global partnership for SDGs

Source: Hong (2017).

For the first priority of policy coordination, it shows that there is only a channel of link to SDGs that is Goal 17. The information in the previous section already shows that Lao PDR has no progress in Goal 17. If so, BRI cooperation by policy design could contribute strongly to the progress of this goal. For instance, the grant of US$ 950 million provided by the Chinese government as mentioned in the previous section should contribute to the indicator 17.9.1: financial and technical assistance to developing countries by adding up to about US$ 95 million per year during 2017-2020.9 In fact, the Chinese grant of 2.57 billion Yuan (US$ 372.5 million) was already used for the approved projects. Another Chinese grant of 4 billion Yuan (US$ 579.7 million) over 3 years (2018-2020) is currently under the implementation for 8 mega projects proposed by China and for other prioritised development projects in rural areas proposed by the Lao authorities. In fact, this indicator performed progressively in previous years as the value of financial and technical assistance in Lao PDR was enlarged from US$ 46 million on average during 2000-2008 to US$ 74.5 million annually during 2009-2016 (ADB 2018, p. 64). In the same way, the indicator 17.19.1: value of all resources made available to strengthen statistical capacity in developing countries (current USD) under Goal 17 could be enriched if a part of the Chinese official development assistance (ODA) including grant and concessional loan under BRI was used to finance the statistical capacity building. On top of that, it would be desirable if all policy coordination such as master plans, strategies, and action plans under BRI in Lao PDR were designed to support the implementation of SDGs. To this end, it should make clear how the ODA under BRI cooperation contributes quantitatively to the achievement of each SDGs. However, the discussion in the previous section indicates that the policy formulation for BRI in Lao PDR such as the master plan is mainly influenced by the Chinese counterpart. This suggests that the direction of policy under BRI in Lao PDR is largely driven by Chinese scholars whereas the inspiration of Lao counterpart on

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BRI policy formulation is limited because of its capacity building in terms of policy analysis and the knowledge of BRI that is lower than Chinese partner. The existing BRI policy coordination documents between Laos and China might not include the SDGs explicitly but they should have a linkage of their contents implicitly with the SDGs as their contents cover different areas related to SDGs such as infrastructure, agriculture, capacity building, industrial park, culture and tourism, finance and banking, and production promotion. However, it would be more desirable if the SDGs are encouraged to be embedded with the BRI cooperation framework explicitly for the purpose of maximising the impact of BRI for the achievement of SDGs by 2030. This requires stronger participation from the Lao counterpart in the policy formulation. Meanwhile, the second priority of BRI (facilities connectivity) has a number of links to SDGs greater than any other priority. It has about 13 links. Not only do they have direct ties with Goal 8: sustainable growth and employment and Goal 9: infrastructure, industrialization and innovation but also have some influences on the areas of poverty, health, education, environment and global partnership for SDGs as well. The infrastructure development such as railway, expressway and hydropower projects is expected to contribute enormously and directly to Goal 8 and Goal 9 during and after the construction. During the Laos-China railway construction project, for instance, it is expected to contribute to goal 8 in terms of economic growth and employment as it is estimated to create the value added to the domestic economy for around US$ 174-290 million annually or contribute to the overall growth rate by 0.4-1.0 per cent during 2017-2019 (Figure 10.7). The benefits to the domestic economy include job creation and promotion of the domestic supply chains of cement, electricity, foods and other related domestic supplies. Given an example of job creation, as of July 2019, the railway construction project already employed 28,234 workers in total. However, if compared with the total value of railway construction which shares relatively a large proportion (35 per cent) of Lao GDP in 2017, the contribution is likely small. This is because most of the materials and equipment for construction are all imported from abroad mainly from China. After the construction, besides the job creation of around 6,180 employees for the railway service

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figure 10.7: contribution of Sectors to Lao gDP growth (%)

Source: Lao Statistics Bureau (LSB); the projection for 2019 and 2020 is by the author

operation10, the service provision by the railway is anticipated to contribute directly to goal 9 in terms of infrastructure development due to the expansion of rail and road transport networks, passengers and freights. The reduction in cost and time consumption compared to conventional transport is expected to be and should encourage the growth of tourism, trade and investment between countries in the region. The feasibility study by China Railway Eryuan Engineering Group Co., Ltd. (2016) shows that the service of the Laos-China railway will benefit trade and tourism of Lao PDR. It is expected that Lao exports to China will increase by 60 per cent and between 380,000 to 1,150,000 Chinese tourists will visit Lao PDR annually. Another recent study by Keola (2019) shows the gains from the railway project among countries such as China, Lao PDR and Thailand. The study asserts that Lao PDR would gain a larger benefit in terms of passengers compared with China and Thailand but not trade. If so, Lao PDR should consider more on how to utilise the railway to promote trade as well as maximise the tourism sector. The infrastructure development is also anticipated to spillover effects on the SDG goals related to income, local business, and manufacturing industry. However, the development of infrastructure is without concerns especially the risk associated with resettlement, compensation, health and environmental

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issues that could prevent the achievement of SDGs such as Goal 11: safe and resilient cities and Goal 13: climate change and impact, in particular, Target 11.1: ensure access for all with adequate, safe, and affordable housing and basic services, and upgrade. This is because the infrastructure development projects require a large area of several hectares for construction covering the housing of local residents. Therefore, there is a need to deal with the resettlement and compensation for local residents as well as the new social issues such as drug smuggling and trafficking due to a huge influx of foreign workers because of the shortage of local skilled labours. In the case of the railway construction project, about 4,000 local households in 167 villages in 13 districts within 4 provinces are expected to be affected. The total value for the compensation is estimated to be 851.53 billion Kip or US$ 99 million. By July 2019, the first five out of seven batches were already paid out for the compensation (Management Committee for Lao-China Railway Project, 2019). Still, two more batches are on the waiting list. Other risks are also considered such as the concern on the suitability of infrastructure development projects for the market, the expansion of diseases such as HIV, environmental impact and road accidents during the construction (Figure 10.8). According to an interview conducted by the International Organisation for Migration (2018), some accidents including occupational injuries, road accidents, and accounted cases of assaults were reported during the railway construction. More importantly, the interview reveals that no or limited attention is paid to concerned parties to reduce or minimise the risks of road accidents. If so, the achievement of Goal 13 should be under the risk as well. figure 10.8: environmental Impact during the construction

Source: DiCarlo (2019).

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The third priority (trade and investment) not only has the potential links to Goals 8, 9, 1 and 2 in direct way but also to Goals 12, 14 and 15 indirectly. After all, the direction of influence is similar to the second priority since several infrastructure development projects mainly receive investment from Chinese investors. However, the impact of this priority on SDGs should be wider as the investment under this priority is more diversified or covers wider areas such as tourism, banking, manufacturing and agriculture. In particular to Goal 8, an increase in trade and investment driven by the BRI cooperation should boost the growth of the economy and employment. Even though the assessment is hardly made but the BRI cooperation has already attracted some investments mainly from China in the areas of tourism, agriculture and urbanization development or smart cities along the railway’s route. Beautiful Boten Special Economic Zone (SEZ) in Luang Namtha province under the Mohan-Boten Economic Cooperation Zones is an example where the developer is Haicheng Group Yunnan (100 per cent Chinese investment) with a total investment of US$ 500 million USD covering 1,640 hectares consisting of 4 zones: commercial and financial zone, tourism, manufacturing, and logistics zones. Currently, Boten SEZ is under the construction but is expected to attract around 300,000 inhabitants in the zone after its completion. Other types of service investments such as wholesale and retail, hotel, restaurant, banking, insurance and real estate are envisaged to come along. Some manufacturing investments approved in the last ten years were observed in cement, steel, plastic, wood processing and flour made from cassava. They are all expected to contribute the economic growth in general and the targets such as indicator 8.1.1: annual growth rate of real GDP per capita and indicator 8.2.1: annual growth rate of real GDP per employed person, in particular, but still questionable as to how much the contribution would be. From January to May 2019, there were 3 concessional investment projects mainly in mining with a value of more than US$ 1 billion approved by the Lao government. For non-concessional investment, there were already 1,713 new registered enterprises owned by China in Lao PDR in 2017-2019 ( June). Chinese investment in the banking sector such as the Industrial and Commercial Bank of China (ICBC) should also contribute to the progress of other indicators under this Goal such as indicator 8.10.1:

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number of commercial bank branches and ATMs per 100,000 adults. In 2018, according to the Bank of Lao PDR, at least 2 Chinese banks operate in Lao PDR. Similarly, encouraging trade and investment under BRI should also impact the indicators 9.2.1 and 9.2.2 related to the increase of manufacturing value added and employment under Goal 9. In terms of trade, the large import of construction materials for the railway project could be observed whereas the export of Lao products is yet not materialised because the railway is not in service. However, the export especially agricultural products is projected to increase via the facilitation of the railway. Again, the practice of this priority is without risks on SDGs. The concern is on the social and environmental issues. Accordingly, Goal 12: responsible consumption and production and 15 protection of ecosystems and biodiversity are vulnerable to the risk as the operation of several private investments and consumption would have social and environmental impacts due to the pollution such as chemical, ash and waste released by factories and agricultural farms of banana, livestock, bread and others into the river and soil deteriorating the livelihood of lives below and above the water and land. During 2000-2018, the pollution of CO2 emissions (metric tons per capita) had increased by 17.8 percent annually (The World Bank, 2021). The majority of CO2 pollution was from iron and steel basic industries, and basic industrial chemicals such as pulp, paper, and paperboard (GMS Environment Operations Center, n.a, p.14). Therefore, more private trade and investment mean the risk on social and environment is likely to be more. This strongly requires that the private firms take the responsibility to lessen social and environmental impacts. The fourth priority related to financial integration has a direct link to Goal 17. In particular, indicator 17.4.1: debt service as a proportion of exports of goods and services (%) should be paid more attention to since Lao PDR already has a high debt ratio. In 2016, the debt service as a share of export was 8.6 per cent increased from 7.9 per cent in 2000. As the investment such as infrastructure development under BRI is mainly financed by external funds through concessional and commercial loans, this suggests that the impact on indicator 17.4.1 is unavoidable. Likewise, the loans that the Lao government borrowed to finance the infrastructure such as the railway project will escalate the level of public debt to be even higher. As per the World Economic Outlook

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in April 2019, the level of public debt was already high at 63 per cent of GDP in 2018. The fifth priority (people to people connectivity) has the potential to influence Goal 3: health, Goal 11: safe and resilient cities and Goal 16: peaceful and inclusive societies. The targets that are most impacted are Target 3.3: by 2030, end the epidemics of AIDS, tuberculosis, malaria, and neglected tropical diseases …, Target 11.1: by 2030, ensure access for all to adequate, safe, and affordable housing and basic services …, and Target 16.1: reduce all forms of violence and related death rates everywhere respectively. In particular, the number of foreign labourers mainly Chinese moving for work under the China-backed infrastructure development projects increased rapidly in the last few years.They are vulnerable to diseases such as AIDS, other communicable diseases, and security. The study by the International Organisation for Migration (2018) indicates that the incidences of HIV/AIDS and other sexually transmitted infections (STIs) were increasing among female sex workers mostly in their ages of 20s, local communities and migrant workers. In July 2018, there were 17,115 foreign workers in total which mainly had Chinese labourers working for the railway project. On the other hand, the increase of education exchange programme by increasing the number of scholarships provided by the Chinese government especially for PhD programme to Lao students should stimulate the profile of indicator 9.5.2: researchers (full-time equivalent) measured by per million inhabitants under Goal 9. Lao PDR has an extremely low level of researchers with only 49 researchers per million population in 2002.Therefore, the number of students studying for the master and doctoral degrees in China during 2011-2018 which is more than 3000 should have positive implications for this indicator. In addition, more cooperation on education and research exchange between Laos and China should have further benefits to this indicator. Lastly, Goal 18 as the national goal is one of SDGs that could be supported by BRI activities. Therefore, the link between this goal and BRI priorities should be clearly identified. Despite the fact that this goal is potentially to linked to the second (Infrastructure) and the third priority (trade and investment), special attention should be given because many people lives outside of the investment areas under BRI. As a result, they are easily exposed to the risk of their lives from UXO (Figure 10.9). Under the Laos-China

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railway project, for instance, the clearance of UXOs was carried out only in construction areas where the project is located.Therefore, people living outside still suffer from UXOs. According to Management Committee for Lao-China Railway Project 2019, about 459 UXO bombs and related 463.536 pieces in 2,931 hectare had been cultivated during January 2017-July 2019 before the construction. However, about 80 million bombs remain unexplored. Thus, more resources are needed to improve this goal and the BRI cooperation could make a substantial impact. There are 9 most heavily impacted provinces from UXO in total comprising Northern provinces of Huaphanh, Luang Prabang and Xieng Khuang; Central provinces of Khammuane and Savannakhet; and Southern provinces of Attapeu, Champasack, Saravan, and Sekong (UNDP, 2019). figure 10.9: map of unexplored ordnance (uXo) contamination in Lao PDR and Railway Project

Source: Adopted from Google map.

Chinese Belt and Road Initiative (BRI) and the Sustainable Development in Lao PDR | 175

conclusion and Policy Recommendation Currently, the Lao PDR is under development as achievements in many Sustainable Development Goals (SDGs) such as poverty are still poor compared to other countries in the ASEAN region. To accelerate the achievement of SDGs, the BRI cooperation could be one of the strong instruments since it covers several areas under five priorities, namely (1) policy coordination, (2) infrastructure connectivity, (3) impeded trade, (4) financial integration, and (5) people to people connectivity. Therefore, this study tried to find the potential linkage and evidence between BRI and SDGs in Lao PDR. The study shows that the BRI cooperation framework is new to the Lao PDR and its activities under BRI as well as its concept have increased or changed rapidly after the signing of MoU at the end of 2016. Therefore, the definition of BRI is still clouded among policymakers at the national and local levels in the Lao PDR. This could affect the direction of understanding and decision making by policymakers in the years to come. The questions on the definition of BRI include the coverage of BRI activities in terms of infrastructure, investment ownership and evolution of BRI. This is because the concept and the coverage of BRI have kept changing from bilateral cooperation between Lao PDR and China to multilateral cooperation and the coverage of BRI activities has expanded from the Northern and central parts of Lao PDR to the South region likely connecting to Vietnam and Cambodia. More importantly, the policy formulation related to BRI and its activities in previous years is mainly driven by the Chinese counterpart due to the weak capacity of the Lao side. Therefore, the purpose of such policies and activities might not optimally serve the goals of national policies such as the achievement of green economy, LDCs and SDGs. Nevertheless, since the introduction of BRI in the Lao PDR is still in the early stage, there are opportunities to have further discussion on how to integrate and design BRI into the national as well as sectoral policy frameworks; particularly, the ones that are not yet prepared or still in progress of consultation in order to bring out the maximisation of the benefits of BRI in the context of the Lao PDR. Specifically, the next NSEDP (2021-2026) should pay more attention to all while mitigate these discussed issues.

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In terms of the potential impacts of BRI on the achievement of SDGs including SDG 18-reduce impact of UXO (the national SDG goal), there are risks and opportunities. The potential opportunities could primarily be in the areas of poverty, economic, employment, education, and capacity building whereas the risks are mainly embedded with the social, health, environmental and debt sustainability at the national and local levels. To lessen the risk, private firms should be made to take social and environmental responsibilities, particularly in the local communities. At the same time, local communities should participate strongly in the BRI activities in their communities to identify the risk and solutions with help from public agencies and NGOs. Besides, collecting information, monitoring and evaluating the impact of BRI activities on SDGs from now on it is crucial to inform and suggest the policy options to policymakers and practitioners to exploit the benefits while mitigating the risks to ensure the achievement of SDGs by 2030. For instance, the discussion should be made on how BRI could improve the performance of the SDGs with poor performance such as Goal 1, 2, 5, 7, 9, and 10. Special attention should be laid on the impact of BRI megaprojects such as the railway project and their spillovers on the SDGs at the national level and local communities. Based on the conclusion mentioned above, the recommendations are made accordingly as follows: • The BRI is new to the Lao PDR, the concept of BRI and its activities in the Lao context should be clearly elaborated and updated for policymakers as well as the public on a regular basis through various channels such as workshops, reports and newsletters (both in English and local language) by relevant agencies such as Economic Research Institutes, Ministry of Planning and Investment (MPI), and NGOs. Currently, Lao authorities who are concerned with BRI wonder if there were any studies or research in the context of Lao PDR as they are gathering information related to BRI activities and preparing the reports for high level policymakers before every bilateral and multilateral meetings on BRI cooperation. • Since the localisation and integration of SDGs into NSEDP and sectoral plan are under progress, more discussion about BRI and its links to National Plan and SDGs should be encouraged through the consultation workshops or training to brainstorm the ideas from relevant

Chinese Belt and Road Initiative (BRI) and the Sustainable Development in Lao PDR | 177

•

•

policymakers, academia, experts and NGOs on policy options to push forward the BRI activities in the direction of supporting the achievement of SDGs and national goals. These channels are expected to prepare policymakers to optimise the potential benefits of BRI and avoid risks in the policy frameworks especially the ones that are just drafted as well as the discussion with Chinese partners in the future. The evidence from the quantitative analysis are highly encouraged. This is because the numbers of quantitative studies on the impact of BRI on Lao economic development are limited. To ensure the contributions of BRI activities toward the achievement of SDGs, it is required that all stakeholders collaborate with each other. For instance, the government agencies both at the national and local levels should make sure that the cooperation under the BRI framework is aligned with the implementation of SDGs explicitly. The private sector should endure its social and environmental responsibilities, particularly in the local communities to minimise the potential risk. The local community should also participate in the activities under BRI cooperation to identify the risks and opportunities and should then make suggestions for solutions in their communities. An example, regarding the health issue, is to provide and increase the healthcare services for local people, migrant workers and sex workers. Based on the recommendation by International Organisation for Migration (2018), the health service programme could be related to the working programmes of HIV/AIDS and STIs intervention, health service and communication, environment and safety, and there is a need to enhance the collaboration among government authorities and development partners. Monitoring and evaluating the impact of BRI activities on SDGs in the form of report or newsletters should be carried out on a regular basis such as biannually or annually. The research of a case study on a specific target or SDGs should focus on answering a particular question that is unclear which would provide stronger evidence and suggestion to the policymakers. To this end, the database of BRI and SDGs for Lao PDR should be created and updated by local existing institutional bodies such as Lao Statistics Bureau (LSB), Planning Department (MPI) or the

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Lao PDR-China cooperation Office (MPI) regularly as a reference for policymaking and research.

notes

1. “Lao PDR’s eligibility for graduation from LDC status confirmed”, http://www. la.undp.org/content/lao_pdr/en/home/presscenter/pressreleases/2018/3/19/lao­ pdr_s-eligibility-for-graduation-from-least-developed-countr.html. 2. The sectoral policy refers to the strategic plan of the line ministries such as the Ministry of Agriculture, Ministry of Finance, etc. 3. 48 regional ADB member countries. 4. “China-Thailand railway project: The route and key events,” https://news. cgtn.com/ne ws/2019-08-01/China-Thailand-R ail way-I NqEbn7S uc/ i n d e x . h t m l ? f b c l i d = I w A R 2 F K v q P z V x r V KQ T F J R Q 5 r R e Tr L S D 5 _ i5jrshnB2y9uxwIaUNsOiAYaRE0k. 5. “MOU Signing Expressway construction project Vientiane – Pakse Section 3 Savannakhet – Salavanh,” https://pcdlao.com/feasibility-study-of-expressway­ construction-section-iii-from-vientiane-capital-to-pakse-champasack-province/. 6. “The Lao government has received a $ 300 million loan from the People’s Republic of China,” https://www.targetlaos.com/article/40985?fbclid=IwAR01y70fGT1r­ Bobzr2fayu4ZdLMZX1psfQmRhE_aIOsL5KufZfqQdPl-wM. 7. Based on the exchange rate on December 20, 2018 which is US$ 1/CNY 6.89929. 8. According to the field survey conducted in Luang Namtha and Oudomxay province during 9-15 June 2019. 9. Assuming that the grant of US$ 950 million is spread out for over ten years equally. So, the provision of the grant would be US$ 95 million per year. 10. According to the Deputy Minister of Ministry of Education and Sports, for every distance of 1 km, it requires 15 personnel including engineers and technical staff members for maintenance and supervision. This information is from https:// laoedaily.com.la/54719/?fbclid=IwAR1Dxj-AkMOGMQgYeqccZevUcvgsbro3H Pw8aQqP-nnlcrL1TdnqtXe6ETk.

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ADB (2018). “Part I: Sustainable Development Goals Trends and Tables,” in Key Indicator for Asia and the Pacific 2018, 49th edn, Asian Development Bank (ADB), Philippines. China Railway Eryuan Engineering Group Co., Ltd. (2016). Feasibility Study: New BotenVientiane Railway, General report, July, Chengdu. DiCarlo, J., (2019). “Train tracks, trade & tourism: Negotiating the Lao-China Corridor.” GMS Environment Operations Center (n.a). “Estimating Industrial Pollution in Lao PDR”, Final Report, Greater Mekong Subregion (GMS), Bangkok, http://www. gms-eoc.org/uploads/resources/453/attachment/Estimating%20Industrial%20 Pollution%20in%20Lao%20PDR_1.PDF.

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Government of Laos & National and International Partners (2018). Voluntary National Review: on the implementation of the 2030 agenda for sustainable development, https:// sustainabledevelopment.un.org/content/documents/19385Lao_Final_VNR_19_ June_2018_web.pdf. Hong, P. (2017). “Strengthening national policy capacity for jointly building the Belt and Road towards the Sustainable Development Goals,” paper presented at Belt and Road Forum for International Cooperation, Beijing, China, https://www.un.org/ development/desa/dpad/wp-content/uploads/sites/45/publication/2017_cdas_ beltandroadb.pdf. International Organisation for Migration (2018). Migration health impact assessment along railway construction, December, UN Migration, https://www.iom.int/sites/default/ files/country/docs/lao-pdr/final_infosheet_railwayproject_07312019.pdf. Keola, S., (2019). “Chapter 3 Geographical Simulation Analysis of the Lao Chinese High Speed Railway”, in EEC Development and Transport Facilitation Measures in Thailand, and the Development Strategies by the Neighboring Countries, BRC Research Report, Bangkok Research Center, JETRO Bangkok/IDE-JETRO, Bangkok, Thailand, pp. 47–63. Lao Prime Minister’s Office (2018). Announcement No.776/PMO. Management Committee for Lao-China Railway Project (2019). Summary report in July 2019 and work plan in August 2019, July, Ministry of Public Works and Transport, Vientiane, Laos. Ministry of Energy and Mines (2011). Renewable Energy Strategy Development (2011­ 2025), October, Ministry of Energy and Mines, Vientiane, Laos. Ministry of Planning and Investment (2016a). 8th FIVE-YEAR NATIONAL SOCIOECONOMIC DEVELOPMENT PLAN (2016–2020), June, Ministry of Planning and Investment, Vientiane, Laos, www.la.one.un.org/images/ publications/8th_NSEDP_2016-2020.pdf. _________ (2016b). 2030 Vision and 10-Year Socio-Economic Development Strategy (2016­ 2025), June, Ministry of Planning and Investment, Vientiane, Laos. National SDGs Secretariat (2019). “SDG Indicators Snapshot”. National Strategy Secretariat Office (n.d.). National Strategy Summary (2018-2037), Office of the National Economic and Social Development Board, Bangkok, Thailand. Royal Government of Cambodia (2018). Rectangular Strategy for growth, employment, equity and efficiency: building the foundation toward realizaing the Cambodia Vision 2050, September, Rayal Government of Cambodia, Phnom Penh, Cambodia, file:///C:/ Lenovo%20vanxay%20work/Training%20and%20scholarship/textbook%20and%20 training/General%20workshop/Workshop%20in%202019/Nepal/Report%20paper/ Rectangular-Strategy-Phase-IV-of-the-Royal-Government-of-Cambodia-of-the­ Sixth-Legislature-of-the-National-Assembly-2018-2023.pdf. Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G. & Fuller, G. (2019). Sustainable Development Report 2019, Bertelsmann Stiftung and Sustainable Development Solutions Network (SDSN), New York.

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Sayavong, V., (2017). Productivity Analysis of Manufacturing Industry in Laos and Lessons Learnt from Japan, September, Japan Center for Economic Research ( JCER), Tokyo, Japan, https://www.jcer.or.jp/eng/pdf/Sayavong2017eng.pdf. _________ (2018a). National Workshop Report on Strengthening national policy capacities for jointly building the Belt and Road towards the Sustainable Development Goals (SDGs) Project, 6 November, National Economic Research Institute (NERI), Vientiane, Laos, https://www.brisdgs.org/first-national-workshop-held-lao-pdr. _________ (2018b). “Risk and Opportunities: The Productive Capacities in Lao PDR’,” paper presented at Strengthening of Regional GVC and Economic Cooperation among Korea-Myanmar-Laos & Comparing to KHM and VNM, Phnom Penh, Cambodia, https://www.researchgate.net/publication/329443395_Risk_and_ Opportunities_the_Productive_Capacities_in_Lao_PDR. Statistics and Data Innovation Unit (2019). Basic Statistics 2019, April, Economic Research and Regional Cooperation Department, Asian Development Bank (ADB), https:// www.adb.org/sites/default/files/publication/499221/basic-statistics-2019.pdf. Tourism Development Department (2018). Statistical report on tourism in Laos, Tourism Development Department (TDD), Ministry of Information, Culture and Tourism. Vireak, S. and Vutha, H., (2018). “Cambodia’s undertaking of Belt and Road Initiative and Industrial Development Policy,” Policy Brief of Cambodia Development Center, No. 3, http://cd-center.org/wp-content/uploads/2018/09/P123_20180928_IS3.pdf. UNDP (2019). “Moving towards achieving SDG18 – Removing the UXO obstacle to development in Lao PDR,” Policy Brief, United Nations Development Programme (UNDP), Vientiane Capital, Lao PDR, World Bank (2021). World Development Indicators, Last Updated Date 30 July 2021, Washington, DC.

11. Malaysia’s response towards China’s Belt and road Initiative under Mahathir 2.0 Nur Shahadah Jamil Introduction During the first Belt and Road Forum held in Beijing in May 2017, President Xi Jinping pledged at least US$ 113 billion in extra funding for the BRI and urged all countries to join hands with China in pursuit of globalisation. While China consistently portrayed the BRI as a genuine effort to share the bounty of its economic development and reduce the infrastructure gap between China and other nations, many countries including Southeast Asian states are concerned about the lack of details and transparency in the project ( Junchi, 2017). Such concern is also a product of lack of political trust where many are suspicious about China’s broader political intents and whether or not the initiative is truly mutually beneficial to all. Despite the “heating-up” debate about the initiative, Malaysia under the previous Najib Administration has been very receptive in embracing the BRI. However, a clear shift in Malaysia’s response towards the initiative can be observed after Pakatan Harapan (current ruling party) took over the administration from Barisan National (former ruling party) and formed a new government under the leadership of Tun Dr. Mahathir Mohamad who expressed the need to review investment deals made with the Chinese Government and firms, including those initiated under the framework of BRI.

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malaysia and BRI: najib administration The receptiveness of the Najib Administration towards the BRI can be illustrated via three major indicators. The first indicator is Malaysia’s swift response in embracing the initiative itself. For instance, Sino-Malaysia cooperation in the establishment of the 21st Century Maritime Silk Road was incorporated into the Joint Communiqué between Malaysia and China in conjunction with the 40th Anniversary of diplomatic relations in May 2014. In addition, other than signing agreements and understandings amounting to RM144 billion in 2016, Malaysia has also agreed to buy two littoral mission ships from China where the government claimed that it would create job opportunities in both countries since each ship will be built in each country. Then during Najib’s meeting with Xi in May 2017, three more MoUs involving Ministry of International Trade and Industry, Ministry of Transport and Ministry of Agriculture and AgroBased Industry were signed. The logic of all these is that Chinese funds are essential to drive growth, upgrade existing ageing public infrastructures and create more job opportunities for the locals. The second indicator of such receptiveness can be seen through the scale of projects initiated under the umbrella of BRI in Malaysia. These projects are not limited to only railway construction projects, but also the construction of industrial parks, technology parks and international ports. Several major projects under the initiatives include: the Malaysia-China Kuantan Industrial Park; Melaka Gateway; East Coast Rail Link (ECRL); Alibaba-led Free Trade Zone; as well as the establishment of Xiamen University Malaysia. According to the Nomura Report on the Belt and Road Initiativereleased in April 2018, Malaysia is one of the largest beneficiaries of the Chinese investment in Asia, securing US$ 34.2 billion of BRI-related infrastructure projects. Meanwhile, the third indicator can be observed through leaders’ rhetoric about the initiative. Despite criticism by many, Malaysian leaders such as Najib and former Transport Minister Datuk Seri Liow Tiong Lai have on many occasions expressed their views on how BRI could help Malaysia in its journey to become a high-income nation. According to Najib, the initiative will be able to help Malaysia in boosting its domestic development by creating job opportunities and subsequently enhance the overall living standard of

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all Malaysians (Razak, 2017). In fact, Najib also sees how the country could benefit from the game-changing mega infrastructure projects such as the ECRL which will drive connectivity and economic growth for Malaysia’s lessdeveloped east coast by acting as a land bridge enabling cost and time-efficient transport of goods (The Sun Daily, 2017). The same goes for Liow Tiong Lai who opined that the act of the opposition making anti-China assertions and criticising the government for compromising national sovereignty for embracing the BRI is due to a lack of understanding of the initiative itself. For Liow, in Malaysia’s transformation journey to become a high-income nation, BRI will be able to provide significant advantages to Malaysia in the growing global competitive market from an economic and trade stand point. For instance, putting mega infrastructure projects aside, there are also efforts to build resilience and capacity among local businesses in order to ensure they can compete better. A good example is the “China-Malaysia Port Alliance” (CMPA) Programme covering six Malaysian and 10 Chinese ports aimed at promoting technology and knowledge transfer from bigger ports to local port industry. Five new ports from both China and Malaysia joined the programme later in September 2017 bringing the total number of ports in the alliance to 21. Another good example showcasing knowledge transfer between China and Malaysia is the establishment of Xiamen University Malaysia. In collaboration with Huawei, the university and the Chinese telecommunication giant are currently in the process of developing an information and communication technology-enabled campus to promote the transfer of the latest technology to local students.

malaysia and BRI: mahathir administration One day after being elected as the new Prime Minister, Mahathir in a press conference made a statement that the main focus of the new government will be on the economy and finance state of the country. Questions were then immediately raised about Chinese investments in Malaysia, including projects under BRI when Mahathir added that the government will review these projects to ensure that they are really beneficial for Malaysia. Among these projects including the ECRL and two gas pipelines project worth

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US$ 2.3 billion which have been identified by Mahathir as some of the Chinese-backed projects that should be re-thought. According to Mahathir, “We need to study all the things done by the previous government. It is not only about China, it is about a lot of things within the country” (Liu, 2018). He then continues, “As far as Belt and Road problem is concerned, we have no problem with that, except of course, we would not like to see too many warships in this area, because warships attract warships, and this place may become tense because of the presence of the warships” (Reuters, 2018). Many were alarmed by his statement on warships as it indicates that Malaysia might adopt a tougher approach in its South China Sea Policy especially towards China. However, it is important to stress here that my discussion with several prominent figures in Pakatan Harapan revealed that the statement is not directed solely to China, but also to the United States and other relevant big powers in the region. Since then, the Mahathir administration has given us series of confusing signals on their stance regarding the ECRL. In late January 2019, Minister of Economic Affairs, Azmin Ali has told the press that the project would be cancelled due to increasing interests amounting to at least RM 500 million (US$ 122.8 million) that the government will need to bear. The minister then added that Malaysia still welcomes “all forms of investment from China on a case-by­ case basis depending on the country’s financial capabilities” (Sukumara, 2019). However, just hours after his announcement on the cancellation of the ECRL project, Finance Minister of Malaysia, Lim Guan Eng came forward and told the press that he was shocked by Azmin’s statement saying that Azmin was not in the last cabinet meeting (Zolkepli, 2019). He then further clarified that “I wouldn’t say that Azmin wasn’t at the cabinet meeting. What I meant is that he wasn’t privy to the decision made by Tun (Mahathir). Anyway, a statement will be issued subject to the instruction by Tun” (New Straits Times, 2019a). Anyhow, despite his concerns about Chinese investments and the impact of BRI in Malaysia, Mahathir did not dismiss the idea but in fact seems to be paying more attention on the possibility of major overland rail link cooperation with China. According to the new Prime Minister, “As you know, when the demand for oil grew, ships were built bigger and bigger until they were almost half a million tonne, but trains have remained small and not long enough.”

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He then added, “So I suggested to Xi Jinping in a personal letter to him, that we should have big trains, and China has the technology to build big trains, which can carry goods from China to Europe, and will also make Central Asia-Kazakhstan and Uzbekistan, and all that, more accessible” (Hand, 2018). Mahathir’s suggestion to Xi is not surprising because long before BRI during his term as the Prime Minister of Malaysia for the first time, ASEAN based on his proposal has proposed a plan to build railway from SingaporeKunming way back in 1995 (Severino, 2006). Unfortunately, the project was never implemented until China took actions several years ago. Mahathir’s concerns and reservations about Chinese investments are not totally baseless. As the BRI could offer multiple opportunities for Malaysia in accelerating growth rate in infrastructure, construction, property and tourismrelated sectors, the initiative also poses risks and challenges to the nation. Two major challenges identified by this paper are: potential risks in the Malaysian labour market due to high dependence on foreign workers, and Malaysian ability to meet loan payments. It is true that the issue of high dependence on foreign workers has been an on-going debate way before the introduction of BRI. However, when Chinese companies and firms chose to import skilled and specialist workers for their operations in Malaysia, this situation has sparked some debate among Malaysians. For the locals, Chinese investments must fulfil three basic criteria as the following. First, it must utilise local materials because it makes no sense for full importation of foreign materials for these mega projects which does not benefit local enterprises and developers. Secondly, Chinese investment must stimulate domestic employment. Importing the Chinese workforce for projects in Malaysia by giving the excuse that Malaysia has no skilled workers is quite an unfair statement. Chinese firms need to assess the capacity and ability of local workforce because, unlike some underdeveloped countries, Malaysia will certainly have much more to offer. Lastly, what Malaysia really needs from Chinese investment is technology and knowledge transfer that local industries could benefit from. While the desire for Chinese aid is real, concerns about Malaysia’s ability to meet loan payments is also a matter that should not be taken lightly. Various reports have indicated that the ECRL project which costs approximately RM

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55 million will have 85 per cent of its value funded through a 3.25 per cent 13­ year soft loan from EXIM Bank of China. Payment will start in the 7th year and the total interest of the loan is RM 19.75 million. This would mean that the payment of RM 9.5 million per annum will be needed once the payment begins in the 7th year. This when combined with other loans involving other mega projects invested by the Chinese and Malaysia’s current RM 1 trillion national debt undeniably will warrant valid concerns from Malaysians towards BRI investment in long-run. Despite all these reservations and the decision to suspend some of the BRI projects in Malaysia, the Malaysian Government in April 2019 has announced the revival of the ECRL project after series of negotiations with the Chinese Government. According to Mahathir, the Malaysian Government was faced with the choice to either renegotiate or pay the termination cost of approximately RM 21.78 billion. As a result, Malaysia has renegotiated with China for a more equitable deal prioritising the needs of Malaysians. Few adjustments were also made to the project plan other than the reduction of the price. These adjustments include: restructuring of roles played by both Chinese and Malaysian entities; length and direction of the project; as well as the completion deadline. At the same time, the Prime Minister also announced that the main Chinese company in the scheme, namely China Communications Construction Company (CCCC) had also agreed to help with the operations and maintenance of the line, which would eventually ease the financial burden on Malaysia (New Straits Times, 2019b). The project was relaunched at US$ 11 billion (RM 44 billion) after slashing the cost by one third.The cost of the project was initially billed at US$ 16 billion and swelled as the construction started, sparking worries that the total cost might top up to US$ 19 billion. Despite the significant cut down of cost, asset owner of ECRL—Malaysia Rail Link Sdn Bhd has also concluded renegotiation with China Export-Import Bank over the issue of funding for the project where China Export-Import Bank has agreed to lend 85 per cent of the total project cost. The 640 km ECRL is designed to link the east and west coasts of Peninsular Malaysia. It is seen as a key project in China’s BRI infrastructure drive. It is believed that the revival of ECRL will strengthen collaboration between Malaysia and China as the project plan also includes

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building industrial parks and transit-oriented development along the track (Yuan, 2019). The railway network is expected to be completed by December 2026. Other than the ECRL project, the Bandar Malaysia Project spanning over 486 acres has also been revived just a week after the Malaysian Government signed a flash deal with Beijing to resume ECRL. The decision was made in the spirit to enhance bilateral ties with China. According to Mahathir, “Like the ECRL, the Bandar Malaysia project should be viewed within the larger context of fostering and cementing long-term bilateral relations between Malaysia and China while ensuring such projects add maximum economic value to the country.” Mahathir Administration, however, has made some alterations to the original plan. Among the changes made are inclusion of 10,000 units of affordable homes, a new “people’s park” and higher involvement of local entities in the construction process ( Jaipragas, 2019). The project will be jointly developed by the Iskandar Waterfront Holdings (IWH 60 per cent) and China Railway Engineering Corp (CREC 40%) consortium with the government (Zainul, 2019). The Malaysian Government has since then on many occasions expressed its support for BRI. For instance, speaking to members of Malaysian media at the press conference after the Second Belt and Road Initiative Summit in Beijing, Mahathir said that he now has a clearer perspective of the plan and supported it as it would benefit the country. According to him, “We feel that the BRI is not a domination plan by China which would end up being controlled by China. Instead, it is a policy developed by all the countries and not only focused on China.” He further added, “Previously, there were other development plans by developed countries to create a world without border and free trade, including the Trans-Pacific Partnership. They (developed countries) made the proposals and asked us to accept them. This is not like that, the forum attendees are from small countries and they are sitting with China which has a 1.4 billion population. They sit together, at the same level and talk about how to develop infrastructure projects” (The Sun Daily, 2019). Meanwhile, through his speech during the Malaysia-China Belt and Road Economic Cooperation Forum 2019 held in Kuala Lumpur on 8th August 2019, Finance Minister of Malaysia, Mr. Lim Guan Eng has

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reaffirmed the country’s support to BRI by becoming one of the signatories of the BRI communiqué signed in May 2017. According to Lim, China’s interest in Malaysia is increasing where in the first quarter of 2019, approved FDI across all Malaysian’s sectors grew by 73.4 per cent to RM 29.30 billion compared to only RM 16.9 billion in 2018. At the same time, China has been Malaysia’s largest trading partner for the past 10 years where in the first half of 2019, total goods traded between China and Malaysia reached RM 148.8 billion which is 16.6 per cent of Malaysia’s total external trade of RM 895.9 billion (Eng, 2019). According to the data compiled by the Department of Statistics of Malaysia, total Malaysian trade with China hit a figure of RM 313.8 billion, which is the highest in history. Other than Lim, Chairman of Malaysian Investment Development Authority, Mr. Abdul Majid Ahmad Khan also said that BRI will benefit Malaysia and thus, the government needs to take advantage and leverage China’s Open Door Policy to gain investment to develop the country. These benefits according to Abdul Majid, are not only in terms of wealth, but also possession of higher skills and better wages for the people.

analysis: Why the Shift of attitude? Najib’s embrace of BRI can be interpreted as his desperate survival strategy to mitigate the negative effects of the 1MDB scandal which has severely damaged not only the charismatic legitimation of Barisan Nasional (BN), but also its performance legitimation in terms of public service delivery. In the 2013 general election, ethnic Chinese in Malaysia have voted heavily for the opposition, handing the UMNO-led coalition its first ever loss of popular vote. This phenomenon is known as the “Chinese Tsunami” among Malaysians. Therefore, it is important for the party to win in the 2018 general election to avoid leadership challenges. However, BN has been rocked by the multi-billion dollar 1MDB scandal since 2015. The issue has been used heavily by the opposition at that time led by Mahathir to attack Najib by saying that Najib’s close link to China had bred corruption, bad decisions and even led to erosion of Malaysia’s sovereignty and subsequently turned all these into election issues. In an interview with Reuters in 2018, Mahathir was quoted saying that “coming in here, buying

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land, developing luxurious towns, is not beneficial for us” (Lee, 2018). He also blamed Najib who developed close ties with China while in office for the huge amount of Malaysia’s national debt. Although Najib has consistently denied all the allegations on billions of dollars that went missing from 1MDB fund, but his administration suffered a serious blow as public perception on his corrupt acts is eminent. Thus, to ensure the legitimacy of the party and the government, his administration has resorted to boosting economic development through Chinese investments in hope to divert public attention from his corruption scandal and at the same time maintain performance legitimation of the government. Meanwhile, the “shift” of Mahathir’s stance on mega projects initiated under BRI is also very much connected to the factor of regime legitimation (performance legitimation to be specific), where leaders attempt to maintain economic growth and carry out their promise to reduce the people’s burden at the same time. This is in line with his tough rhetoric on this issue prior to the May 2018 general election, as well as Pakatan Harapan’s 100-days manifesto where reviewing mega projects awarded to foreign countries is one of the 10 things stated in it. The Mahathir administration after it came into power has pointed out that there are numerous abnormalities that can be observed in the previous administration’s dealings with China. For example, a Chinese state-owned enterprise was paid US$ 2 billion in advance for two pipeline projects in Malaysia even though the construction has barely started. Another example would be the ECRL project which was too expensive according to the Mahathir administration to the extent that it suspected that its cost has been artificially inflated. Thus, before we answer the question of how will Mahathir “walk the talk”, we will first need to understand what are the factors driving such a shift of attitude. However, the importance of Sino-Malaysia trade relations and Chinese investments in Malaysia is also a fact that the new government could not defy. This is because one best way to ensure the legitimacy of the newly formed government is through maintaining the same level of economic growth in the country (if not further boost it) to avoid comparison being made with the previous leadership. Such significance can be reflected through the fact that China has been Malaysia’s largest trading partner since 2009. In addition,

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total Chinese Foreign Direct Investment (FDI) into Malaysia has grown at a remarkable rate from RM4.79 billion in 2013 to nearly RM21 billion by late 2016 (Kana, 2018). Furthermore, bilateral trade between the two nations in 2017 also shows a steady increment. For instance, China’s exports to Malaysia in 2017 have shown an increment of 15.5 per cent to RM 164.50 billion, while Malaysia’s exports to China increased by 28 per cent to RM 126.15 billion in comparison with 2016 (New Straits Times, 2018). This increasing volume of bilateral trade and Chinese FDI into Malaysia can be closely linked to Malaysia’s participation in the BRI. One good example is the East Coast Economic Region that has attracted almost US$ 3 billion Chinese FDI focusing primarily on heavy industry (Lim, 2015). In order to facilitate bilateral relations, this industrial park also has been twinned with Chinese Industrial Park in Qinzhou where both Chinese and Malaysian planners seek to diversify future investment into sectors such as green energy and logistic.Therefore, with such stakes in hand, it is very unlikely for Malaysia as a trading nation to fully withdraw from all these projects without giving serious considerations to the consequences. All these explain why Malaysia decided to perform a project-specific small-scale review on Chinese investments focusing mainly on the contract terms. It also explains the rational behind Malaysia’s decision to resume some of the suspended projects under the BRI umbrella. Such moves suggest that despite some concerns about various aspects of Beijing’s behaviour, for example, Beijing increasing assertiveness in the South China Sea where Malaysia is also one of the claimant states, the Malaysian Government actually continues to adopt a flexible approach by keeping its door open regarding its participation in the BRI as long as the terms can be adjusted to become more favourable to the country. The shift in Malaysia’s attitude during the era of Mahathir 2.0 from suspending and eventually reviving the projects is no surprise given the calculations of both sides. For Malaysia, the fact that China remains its largest trade and investment partner is a major factor that cannot be ignored. At the same time, the Malaysian Government also needs to take into consideration the huge amount of compensation it needs to pay if the projects are cancelled. Thus, it would be fair to think that Malaysia’s decision to revive the ECRL

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and Bandar Malaysia projects just before the Second Belt and Road Summit is not a coincidence. In addition, although Mahathir has been tough in his rhetoric on Chinese-backed projects in Malaysia, he is also among one of the first global leaders who confirmed his attendance to the Second Belt and Road Summit in Beijing. All these are some of the clear indications that the government is doing its best in safeguarding the bilateral ties between Malaysia and China. On the other hand, for the part of China, although there are concerns about Malaysia’s shift of attitude, Beijing overall shows a willingness to renegotiate the terms on some projects to a certain degree.To Beijing, Malaysia is not only an important regional partner but also a crucial piece in ensuring the success of its BRI connectivity in Southeast Asia. This is largely due to Malaysia’s strategic geographical location where a rail network needs to be built across the country in order to connect Kunming and Singapore.

Way forward Several measures can be undertaken by both China and Malaysia in order to further enhance bilateral ties and cooperation between the two governments. First of all, in order to have successful economic cooperation, it is vital for China to build strong trust with its smaller neighbours. This can be done by placing emphasis on one of the least-discussed but the most fundamental aspect of BRI, namely the effort to improve people-to­ people connectivity between nations involved. In general, people-to-people connectivity can be defined as the exchanges and networks across a particular region which promote deeper integration and connection between the people in the area. One way to effectively improve the current people-to-people connectivity identified by this chapter is to promote cultural exchange through tourism, education and city-twinning programmes. Tourism is the core in our efforts to promote such connectivity as residents from one country could travel to another cultural distinctive country in order to better understand and appreciate the history and culture beyond their own borders. This paper opines that tourism should be viewed together with our transport policies, especially air transport policy as the majority of the international tourists will arrive at their chosen destinations by air. Thus, some

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initiatives worth exploring by both the Malaysian and Chinese Governments include more open and flexible transport policies, as well as an increased number of direct and connecting flights via close collaboration with relevant airlines. This is in line with a report by UNDP in 2018 which suggests that by 2035, the majority of the aviation megacities will be located in the Asia Pacific region. Yet, many of these cities still indicate an urgent need for improvement in terms of airport infrastructure. Both countries should also strengthen their tourism promotion and facilitation to make the experience fun, memorable, and easy for travellers in the destinations. In this regard, the Malaysian Government has introduced a new tourism logo and tagline where the Malaysian Prime Minister, Tun Dr. Mahathir Mohamed has tweeted that the launch of the logo “is a significant way to usher the much-awaited Visit Malaysia Year 2020.” He also expressed his hope to see more tourist arrivals be they by air, land or sea. The tagline is “Visit Truly Asia Malaysia 2020”. The logo features a Rhinoceros Hornbill (national bird of Malaysia), a hibiscus (national flower of Malaysia) and the paku pakis which is an edible wild fern used in local cooking. Four aircraft from different airlines are also honoured to wear the logo. These aircraft are Malaysia Airline A330-223 9M-MTX; Air Asia A320-251N9M-RAR; Firefly ATR 72-500 9M-FYG; and Malindo Air B737-9GP(ER) 9M-LNK. For China’s part, Malaysia also has a lot to offer. For instance, Malaysia has a highly competitive economy to offer to investors, especially manufacturers with its sophisticated and reliable manufacturing base backed with skilled and multilingual manpower, as well as a stable socio-political environment. In fact, Malaysia has also been ranked by the World Bank as the 15th easiest place to do business in 2019 out of 190 economies, while the IMF has put Malaysia as the 22nd most competitive economy in the world in its 2019 World Competitive Year Book. Furthermore, as Malaysia is getting more and more tourists from China, Beijing might want to look into the possibility of visa relaxation on Malaysians where the move is the most important and effective part of tourism facilitation. Another area where Beijing can pay more attention is introducing more Muslim-friendly tourist programmes since the majority of Malaysians are Muslims. This can be done by setting up more prayers facilities across the country, halal restaurants or eateries and Muslim­

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friendly services. This is an area worth exploring because it is not a difficult task to develop cultural understanding among Muslim Malaysians towards Chinese culture and traditions since Malaysia is a multi-racial and multireligion society and we have long learned how to love and respect each other despite our differences. Besides the initiatives mentioned above, both Malaysia can China could also utilise the ICT to provide language learning, knowledge sharing on tourism and encourage people to learn about cultural diversities. We can also explore how we can utilise music and entertainment, food, movie, art, fashion and sports to raise awareness among the people, especially the younger generations on historical and cultural heritage. This paper would also like to stress that we should be focusing more on pursuing quality rather than quantity in the industry to prevent destruction to the natural habitat and environment, as well as heritage. One good example is the diving spots at Kota Kinabalu, Sabah, Malaysia. With the influx of both foreign and local tourists over years, we can witness how coral reefs in the area have been destroyed due to various reasons including pollution as a result of tourism. This kind of development will impact negatively the sustainability of tourism in the long-run. Meanwhile, in the field of education, both Malaysia and China need to further expand and utilise collaboration via cross-academia collaborative research projects in various fields via think-tanks, research institutes or universities. These can include organising “study tours” among youth and provide them with the opportunities to interact with local communities so that they can expose themselves to the rich and diversified traditions. Cross-border education will also be able to give students and researchers the opportunity to live with their peers and counterparts from different ethnicity, background, culture and subsequently establish deep bonds and connections across the region. In addition, businesses nowadays also increasingly value traits found in those who have undertaken international education by taking into account these experiences in their hiring and promoting strategies.These traits include: cultural and customs understanding, foreign language, ability to communicate and work in an international setting, as well as the ability to adapt and react to an unfamiliar situation or environment.

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Last but not least, the third way on how Malaysia and China can improve people-to-people connectivity is through the act of further intensifying our existing city-twinning programmes. One good example of this is the twinning programme between Melaka and Guangdong province in China as trade with Guangdong has accounted for approximately 25 per cent of the country’s total trade with China (Latiff and Harun, 2015). The latest proposal for such a programme is the suggestion to getting Kota Kinabalu to be declared as the sister city with Xi’an.The idea was proposed by the Chairman of Xi’an New Silk Road Association for the Promotion of International Communication, Wang Yunzhen during a courtesy visit to Deputy Chief Minister of Sabah, Datuk Christina Liew (Sabah News Today, 2019). Such programmes certainly have the potential for enhancing people-to-people connectivity between the two countries by promoting better cross-regional and intercultural understanding but to what extent they are utilised actually depending on the programmatic substance, intensity and frequency of exchange made. Impacts from all these cultural exchanges are huge. For instance, such exchanges will be able to expand educational linkages, increase mobility of professionals to further the possibilities of the spread of ideas, investment and trade opportunities. In addition, it is also the transfer of knowledge and information across national borders which will overcome isolation back home and give the opportunity to our people to familiarise themselves with different cultures. As understanding between our people deepens, this will eventually enable wider cooperation and mobilisation of intellectuals to offer more effective solutions to both national and cross-border issues, be it economic or social issues. However, challenges to people-to-people connectivity are also real. Among these challenges include tourism competitiveness and how tourism does not automatically facilitate better understanding between people. At present, there is still a wide discrepancy across the region on attractiveness and accessibility as a tourism destination. Furthermore, socio-cultural effects from tourism activities depend largely on the organisation and duration of the trip, alongside with motivation of the tourists themselves, level of their education including their intercultural competencies, as well as the intensity and frequency of their contacts with the locals.

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Recognising the fact that friendship derives from close contact between people in relevant nations is the key to sound relations between China and BRI states, the Chinese government has taken a series of initiatives in portraying the BRI as a positive, intercultural exchange where great civilisations and religions share their wisdom via the Silk Road. For instance, Special Silk Road Scholarships have been set up to encourage international cultural and educational exchanges. At the same time, various projects on people-to-people cooperation such as Silk Road cultural year, tourism year, art festivals and think-tank dialogues have also been introduced for the same purpose. In fact, free trade zones have also been set up like the Hainan Free Trade Zone which encourages Chinese diaspora from the region to trade in Hainan. However, having the policies and initiatives alone is not sufficient. All these initiatives should not be event-driven activities. They should be able to penetrate both the Malaysian and Chinese societies to a greater extent instead of focusing solely on national actors. This would mean that we need to make sure that these policies are well-communicated to the general public from different layers of society. “Engage the people and not the political elites”.That is the essence of cultivating people-to-people ties and the best and fastest way to gain trust. In addition, there must be a change from the existing top-down agenda to bottom-up agenda where these activities are more stakeholdersdriven so that they will be able to entail more popular ownership even without the government’s participation. Secondly, we must ensure that such a partnership is truly mutually beneficial to both parties. We need to recognise the fact that every country is unique in its own way. Therefore, a single standard cooperation model cannot be applied to all BRI states. For example, Malaysia is different from Cambodia or some African states politically, economically and in terms of our social norms. In addition, the enduring interests of every state are also different.Thus, China needs to truly understand what its partner countries really need and are capable of contributing. With that, then we will be able to overcome all the challenges we are presently facing and head towards sustainable cooperation for the long-term.

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conclusion To conclude, the “shift” in Malaysia’s approach is not an indication that Malaysia has abandoned its cooperation nor adjusted its overall foreign policy with China. Malaysia’s new external policy under Mahathir 2.0 is still constrained and driven by both external and domestic considerations. Externally, although the US remains as the world’s strongest power, its role as a patron has been overshadowed by its uncertain commitment as well as eroded credibility. Meanwhile, China has become more powerful and “assertive”, although at the same time it is actively promoting economic inducement via the BRI. Domestically, after the unprecedented change of government after the 14th General Election in May 2018, the “new” Malaysia is left to deal with various old and new challenges ranging from the huge amount of government debt to intra-coalition bargaining within the ruling Pakatan Harapan. Recognising the need for the country to adopt and implement a balanced external policy in order to ensure a stable and peaceful external environment crucial for its own domestic growth and political stability, Malaysia under Mahathir 2.0 vows to remain neutral, not take side with any power, continue to engage all players, place emphasis on consultation and consolidate ASEAN centrality. The new Malaysia’s stance entails the nation’s sensitivity towards the risks that come together with the return of great power competition in the region and the same principle could also be applied in its bilateral relations with China and other powers. This explains why Malaysia, like other smaller states, has chosen to step up its efforts to develop stronger ties with other “like-minded” nations to constrain China, while at the same time improving its bilateral relations with the rising giant. It is also worth noting that while many have labelled Mahathir’s recent shift of attitude towards Chinese funded projects in Malaysia as “antiChina”, that is actually not the case. In fact, such “shift” can be interpreted as one of the new government’s efforts to continue boosting the country’s economic growth, while simultaneously strengthening the legitimacy of the newly formed regime. Malaysia will continue to support the BRI as long as the initiative continues to develop on a “win-win” basis.This is because China’s

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increasing economic might and smaller states’ growing development needs is a fact that we could not defy. Although many are suspicious and skeptical about China’s true political intent behind the initiative, deepening economic ties between China and Malaysia have gradually turned the country to be more and more dependent on Chinese investments and financial funding to support its domestic development needs in the field of infrastructure construction, connectivity, communications and many more. And when regime legitimation back home (particularly performance legitimation) is at risk, political elites will tend to do whatever is necessary in order to maintain (if not to boost) their countries’ economic growth, including signing up for deals with China which are of no or less significant benefits to themselves. Therefore, this paper is optimistic that the long-term economic outlook between Malaysia and China will remain positive because trade relations between the two are too big and too important to fail.

References

Eng, L.G., (2019). “Speech during the Malaysia-China Belt and Road Economic Cooperation Forum 2019,” 8 August. Hand, M., (2018). “Mahathir’s Shock Malaysian Election Victory Puts China Belt & Road Investments in Spotlight,” Seatrade Maritime News, 11 May, http://www.seatrade­ maritime.com/ news/asia/mahathir-s-shock-malaysian-election-victory-puts-china­ belt-road-investments-in-spotlight.html. Accessed on June 10, 2018. Jaipragas, B., (2019). “Mahathir’s Government Agrees to Revive China-Backed Bandar Malaysia Project,” South China Morning Post, 19 April, https://www.scmp.com/week­ asia/politics/article/3006930/mahathirs-government-agrees-revive-china-backed­ bandar-malaysia. Accessed on September 23, 2019. Junchi, Ma (2017). “The Challenge of Different Perceptions on the Belt and Road Initiative,” CIRR, XXII, No. 78, pp. 149-168. Kana, G., (2018). “Chinese Investments in Malaysia Likely to Diversify into More Sectors in 2018,” The Star Online, 1 January, https://www.thestar.com.my/business/business­ news/ 2018/01/01/broader-china-investments/. Accessed on June 11, 2018. Latiff, R. and Harun, H.Z., (2015). “Guangdong Province a Twin City for Malacca,” New Straits Times, 1 August, https://www.nst.com.my/news/2015/09/guangdong­ province-twin-city-malacca. Accessed on September 30, 2019. Lee, L. (2018). “Selling the Country to China? Debate Spills into Malaysia’s Election,” Reuters, 27 April, https://www.reuters.com/article/us-malaysia-election-china/selling­ the-country-to-china-debate-spills-into-malaysias-election-idUSKBN1HY076. Accessed on October 1, 2019.

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Lim, Alvin Cheng-Hin (2015). “China’s Belt and Road and Southeast Asia: Challenges and Prospects,” JATI, Vol. 20 (2015), pp. 3-15. Liu, C., (2018). “134 billion Reasons for Mahathir Not to Rethink Chinese Investment,” South China Morning Post, 14 May, https://www.scmp.com/week-asia/geopolitics/ article/2145797/134-billion-reasons-mahathir-not-rethink-chinese-investment. Accessed on June 8, 2018. New Straits Times (2018). “Malaysia-China Total Trade Grew 20.6pc to RM290.65b in 2017,” New Straits Times, 23 February, https://www.nst.com.my/business/2018/02/ 338321/malaysia-china-total-trade-grew-206pc%C2%A0-rm29065b-2017. Accessed on June 11, 2018. New Straits Times (2019a). “Lim Guan Eng Shocked by Azmin’s Announcement on Status of ECRL,” 26 January, New Straits Times, https://www.nst.com.my/news/ nation/2019/01/454662/lim-guan-eng-shocked-azmins-announcement-status-ecrl. Accessed on October 2, 2019. New Straits Times (2019b). “PM: ECRL Revived to Avoid RM21 billion Penalty,” New Straits Times, 15 April, https://www.nst.com.my/news/nation/2019/04/479687/pm­ ecrl-revived-avoid-rm21-billion-penalty. Accessed on September 23, 2019. Razak, N., (2017). “Why Malaysia Supports China’s Belt and Road,” South China Morning Post, 12 May, https://www.scmp.com/comment/insight-opinion/article/2094094/ why-malaysia-supports-chinas-belt-and-road. Accessed on June 6, 2018. Reuters (2018). “Malaysia May Renegotiate Some Deals with China–Mahathir,” Reuters, 10 May, https://www. reuters.com/article/us-malaysia-election-china/malaysia-may­ renegotiate-some-deals-with-china-mahathir-idUSKBN1IB0JZ. Accessed on June 10, 2018. Sabah News Today (2019).“Proposed Twinning of Kota Kinabalu and Xi’an as Sister Cities,” Sabah News Today, 4 June, https://www.sabahnewstoday.com/proposed-twinning-of­ kota-kinabalu-and-xian-as-sister-cities/?lang=en. Accessed on September 30, 2019. Severino, R. C., (2006). Southeast Asia in Search of An ASEAN Community: Insights from the Former Secretary-General. Singapore: Institute of Southeast Asian Studies, p. 237. Sukumara, T., (2019). “Malaysia ‘Values China’: Mahathir Signs Up to Xi’s Second Belt and Road Summit,” South China Morning Post, 15 February, https://www.scmp.com/ week-asia/geopolitics/article/2186379/malaysia-values-china-mahathir-signs-xis­ second-belt-and-road. Accessed on September 25, 2019. The Sun Daily (2017). “Why Malaysia Supports China’s Belt and Road: Najib,” The Sun Daily, 13 May. The Sun Daily (2019). “Belt and Road Initiative Not China’s Plan to Dominate – Dr. Mahathir (Updated),” The Sun Daily, 28 April, https://www.thesundaily.my/local/ belt-and-road-initiative-not-china-s-plan-to-dominate-dr-mahathir-updated­ CA828400. Accessed on September 30, 2019. Yuan, G.C., (2019). “Malaysia Revives China-Backed Rail Project to Spur Growth,” Nikkei Asian Review, 25 July, https://asia.nikkei.com/Business/Markets/Nikkei-Markets/ Malaysia-revives-China-backed-rail-project-to-spur-growth. Accessed on September 23, 2019.

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12. Win-Win Cooperation through the BrI What Constitutes a “Win” for the Philippines? Darlene V. Estrada1 Introduction In today’s discussions of global developments, the Belt and Road Initiative (BRI) continues to be one of the most talked about initiative that works as an integral part of China’s win-win framework of cooperation. Branded this way, the Chinese government has been able to project a positive image to BRI, signalling that the BRI works by considering both the interests of China and of the host state. However, the BRI continues to receive criticism and speculations. Its form and purpose have given rise to debates on what it is and its purpose that, eventually, have dominated the discourses on BRI. The level of interest on BRI, however, seems to have been staying on the “what is” and “what it is for” questions. This chapter argues that the understanding of the BRI requires going through these first-order questions and then progressing to the next pressing questions such as “what should be done about it?” and “what frame of mind will help host states to go about the initiative effectively and properly?” The chapter holds that one of the most useful concepts to analyse to get through the aforementioned questions is using the “win-win framework”. This chapter aims to shed light on the Philippines participation in the BRI given that the observers tend to show more interest in the initiative’s form and motivation. Now that the Philippines government has shown a

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series of actions and decisions that explicitly demonstrate active participation in the BRI, there is a need for the discourse to go beyond questioning its form and motivations and address “what should be done about it?”. In doing so, this chapter will first draw some observations on the existing state of discussion on the BRI, explain why there is a need to go beyond this state of interest, and secondly, look into the “win-win framework” theoretically and practically as a guide to answer how should host states go about the initiative. The chapter ends with a specific examination of how the Philippines could best implement the BRI by answering what a “win” constitutes for the Philippines.

Discourses on BRI Six years since its launch, the BRI continues to be a highly debated undertaking. The initiative has given rise to not only discussions on the opportunities it offers but also deliberations on the Chinese government’s motivations and strategies associated with it. Host states have more or less been guided by existing knowledge and research done on the BRI. Interestingly, if one looks into the written works done on the topic of BRI, one would find plenty of recommended approaches to understand what it is, what it is not and what it is for. The discourse mainly examines varying perceptions of BRI. A number of works refer to BRI as a strategy for China to actualise geopolitical aspirations. Yu (2018) argues that the BRI is a means for China to achieve its 2050 goal of governing the world with its version of global order. Phillips (2017) posits that the BRI is a move to secure China’s position as the undisputed power of Asia. Other scholars view the initiative as purely an economic undertaking. For Huang (2016), the BRI was created to stimulate economic growth by reconfiguring China’s external sector through infrastructure development. Liu, Lu & Wang (2018) explained that the BRI promotes trade by enhancing cultural exchanges and addressing institutional distances between China and host states. Other experts believe that the BRI is more than a political endeavour. Cai (2017) and Chatzky & McBride (2019) contend that the BRI works on both geopolitical and economic motivations, given China’s pressing domestic

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economic concerns such as overcapacity, and the need for industrial upgrade. For Clarke (2018), BRI’s motivations are a combination of Innenpolitik (internal politics) factors such as party legitimacy and nationalism, and Aussenpolitik (external politics) factors such as the rivalry with the US and the need to find new sources of domestic economic growth. Flint & Zhu (2018) argue that the geopolitics and economics of it are inseparable, meaning, it is both a means to improve trade relations while at the same time increasing political influence over host states.

Dangers of staying here Written works have mainly addressed the question “what is the BRI?” Eventually, somehow, one would expect that the themes of the commentaries or academic works would address the “what is” question and move forward to other concerns regarding the BRI. In reality, however, the works do not reflect such shift in focus. Why the question of “what is the BRI” remains relevant practically implies two things. First, it means that there remains no single, simple answer to the question. Not because of the varied perceptions on BRI, but because the BRI is essentially changing and has constantly been recalibrated since its inception. Calabrese (2019) explains that with BRI, not only the name has changed over the years but also the focus of the initiative from being large investment projects to “high quality development” (para 3). This could explain the gaps in understanding and to some, the confusion on what it really is. Second, in terms of defining what it is, there are levels to the BRI that have usually been overlooked and rolled into one. Asking what the BRI is in the field of international relations demands a different answer compared to if one asks what BRI is in terms of a domestic project. In other words, the BRI has its global scale but it also impinges on very specific local spaces and projects implemented in the host states. In that sense, the confusion may also be stemming from the disparity between the image of BRI as a global connectivity project and the image of it being a domestic infrastructure project. Nonetheless, the value of answering the “what is” question is indispensable. However, in this chapter, I argue that there is a danger in staying on the “what

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is” without focusing on other equally important questions regarding the BRI. The danger lies in obsessing about the form and modality of the BRI when in fact there is a huge possibility that the current form it takes won’t be what it will be in the future.This could create misperceptions and host states acting on misperceptions could result in more troubling situations. That said, there is a foresight element lacking in the discussions of what the BRI is. In this chapter, I argue that the “what is” should always be accompanied with “what about it?” and “what now?” questions. This chapter attempts to take into consideration the efforts that have been put in to answer the “what is” question and shift to the next important question of how then can host states make use of this information in going about BRI. The discourse on the BRI need not stop with the heated debates on what the BRI is, alone.The understanding of BRI should address the ensuing important questions—those that relate to the need for future-oriented, deliberate and structured strategies toward the BRI. As this chapter endeavours to answer the “what about it” and “what now” questions, it will first tackle the important framework under which the BRI is operating which is China’s win-win model of international relations. A discussion tracing the theoretical bases of which will follow.

Win-win model of International Relations One particular discourse on BRI that has a huge implication on the “what is it” question, is the win-win framework of cooperation. Recent years have witnessed the increase in Chinese government leaders’ usage of this term that it has begun becoming a catchphrase expected to be mentioned at official speeches. In a note, China’s Foreign Affairs Minister Wang (2016) explained that the term was first used during President Xi Jinping’s visit to Russia in March 2013, as part of his proposal of building a “new type of international relations featuring win-win cooperation” and since then has become China’s guiding philosophy for diplomacy (para 2). However, Chen (2017) traced the coining of the phrase back to its usage in the Proposal for the 11th Five-Year Plan on National Economy and Social Development which was passed in the 5th Plenary Session of the 16th Communist Party of China Central Committee in 2005. The term

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referred to a concept that would aid in actualising the whitepaper titled “China’s Peaceful Development” (Chen, 2017) which outlines China’s core interests including state sovereignty, national security, territorial integrity and national reunification, China’s political system established by the Constitution and overall social stability, and the basic safeguards for ensuring sustainable economic and social development (Information Office of the State Council, 2011). Win-win has developed from being diplomacy strategy and theory to being the current brand that President Xi has vested upon it which is a framework for a new type of international relations (Chen, 2017). Foreign Affairs Minister Wang (2016) explained that the win-win framework applies in China’s major-country diplomacy. Minister Wang (2016) pointed out that China is building win-win partnerships politically by strengthening state-to-state relations; economically by promoting inclusive development through initiatives such as the BRI; in terms of security by championing Chinese features in seeking solutions thereby upholding its three principles for peacekeeping2; and culturally by enhancing exchanges between and among different civilisations. Minister Wang (2016) summarised the winwin framework as follows: In a nutshell, realising win-win cooperation in international relations requires that we expand common interests instead of pursuing our own interests at the expense of others, strengthen dialogue and cooperation instead of having antagonism and confrontation, pursue win-win benefits and all-win outcomes instead of zero-sum game, and build a community of shared future instead of sowing dissension and discord. (Para 13)

In with the “new” ? The emphasis is placed on the existence of a dichotomy between what China perceives to be the current state of global affairs and what China is pushing for. Minister Wang’s note on how win-win cooperation is achieved denotes that there is a perception that beneath the call for new types of international relations is the existence and dominance of realist

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perspective in the conduct of global affairs. Dissected, one would see elements of realism in the quote including self-interest,confrontation, zerosum game, and discord. One would ask, how has China’s new framework for international relations engaged existing IR theories? As mentioned earlier, the framework demands the need to move away from the perceived realist world of international affairs by promoting the opposite of how a realist explains international relations—that is with the states acting in their rational self-interest and that they engage in conflicts for survival (Reussmit & Snidal, 2008). But what other existing theoretical foundations do the win-win framework touch on? Ross (2015) argues that China’s win-win framework is based on fundamental economic analysis and is grounded on Karl Marx and Adam Smith’s development analyses. He claims that with win-win cooperation, China means finding a space within the lines of the international production, specialising within the global division of labour would bring greater economic efficiency compared to states working on their economic developments alone (Ross, 2015). In this sense, mutual benefit is achieved and will constitute a win for China and partner states. The win-win framework, projected as the opposite of a win-lose or zero-sum game, also touches on the game theory. Game theory is defined as a systematic analysis of strategic interactions among rational individuals (Correa, 2001; Kockesen & Ok, 2007). Strategic interactions refer to actions taken by individuals who are aware that such actions have implications and will base their actions on such thought processing (Kockesen & Ok, 2007). The theory looks into conflict scenarios, the interaction between actors and their decisions (Hotz, n.d.). Game theory originated as a branch of mathematics which has eventually been researched on and applied on various scholarships such as economics, politics, business, and conflict resolution (Prisner, 2014). In terms of economics, game theory could be used in analysing “agreements for economic cooperation, trade, and financial interactions” (Correa, 2001, p. 11). The theory was expanded to engage international relations theories, centred on security and defence problems, most of which were of great interest at the time of the Cold War (Correa, 2001). The topics covered included “defense alliances;

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deterrence and arms races; crises that may lead to war; war and peace; and battles in a war” (Correa, 2001, p. 5). Like any other theory, game theory’s predictive power lies in its assumptions. Its most important assumption is said to be the claim that individuals are rational decision-makers. According to Kockesen & Ok (2007), “an individual is rational if she has well-defined objectives (or preferences) over the set of possible outcomes and she implements the best available strategy to pursue them” (p. 7). Under the theory, games are classified according to various criteria including the rules concerning the number and order or moves, the players’ information of moves and structure of the game, and the possibility of a gain relative to a loss. Prisner (2014) discussed the following as categories of games: criteria

Table 12.1: game classifications according to Prisner Description

Number and order of moves (simultaneous/ sequential)

In a simultaneous game, each player has only one move, and all moves are made simultaneously. In a sequential game, no two players move at the same time, and players may have to move several times. There are games that are neither simultaneous nor sequential.

Level of information among players (perfect/ complete)

A sequential game has perfect information if every player, when about to move, knows all previous moves. On the other hand, having complete information means that all players know the structure of the game—the order in which the players move, all possible moves in each position, and the payoffs for all outcomes. Real-world games usually do not have complete information. In our games, we assume complete information in most cases since games of incomplete information are more difficult to analyse.

Possibility of gain relative to other player’s loss; possibility of both parties gaining (zero-sum/ cooperative)

Zero-sum games have the property that the sum of the payoffs to the players equals zero. A player can have a positive payoff only if another has a negative payoff. Poker and chess are examples of zerosum games. Real-world games are rarely zero-sum. Even if players negotiate, the question is whether the results of the negotiations can be enforced. If not, a player can always move differently from what was promised in the negotiation. Then the communication is called “cheap talk”. A cooperative game is one where the results of the negotiations can be put into a contract and be enforced. There must also be a way of distributing the payoff among the members of the coalition.

Source: Prisner (2014).

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The difference between non-cooperative and cooperative games lie on how interdependence among players is formalised (Brandenburger, 2007). On the one hand, non-cooperative games lay out a detailed set of all possible moves for the players; on the other hand, cooperative games openly discuss outcomes or permutations as a result of different cooperation or negotiation strategies (Bradenburger, 2007). When talking of wars and battles, the assumption is that actors engage in zero-sum or non-cooperative games wherein when one nation-state wins, the other loses, and vice-versa (Correa, 2001). In non-cooperative games, the most widely used and applied solution concept is the Nash equilibrium which is a point wherein the game reaches its optimal outcome as players consider that there is no payoff to vary strategy when all other players desire to pursue stability of equilibrium (Kshetrimayum, 2017). In other words, the Nash equilibrium conceptually explains the idea that each player individually maximises utility and practices rationality (Arrow & Honkapohja, 1985). Cooperative games, on the other hand, relate more to China’s win-win framework. In cooperative games, players enter into alliances to turn the outcomes of the game in his/her favour (Kshetrimayum, 2017). There is the assumption that players can communicate, negotiate, sign binding agreements and share gains (Colman, 2004; Bonanno, 2018; Chandrasekaran, n.d.). Players discuss strategies to achieve an optimal result and share payoffs in accordance with principles of fairness (Kohlberg & Neyman, 2015). Players engaging in cooperation are explained to prefer outcomes that maximise joint rather than individual gain maximisation (Colman, 2004). With cooperative games indicating appeal and relevance to the topic of China’s win-win framework, one would see that the role of negotiations in such games is inevitably mentioned. Roberts (2020) explains that “win­ win negotiation is less about the process, less about the “how” of getting there, and more about the destination” (para 3). To Kohlberg & Neyman (2015), negotiations take the form of “bargaining with variable threats” (p. 4). Interestingly, players are said to gain higher payoffs in cooperative games where they engage in coordination and negotiation than in a situation where they decide to prioritise individual utility maximisation (Colman, 2004).

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Looking at the environmental sustainability of China and Japan’s investment projects in Africa, Wen, et al. (2019) argued that cooperative game dynamics provide useful insights. Using asymmetric dynamic evolution game theory to analyse China and Japan’s strategies, the authors found that theoretically, a win-win setup is reachable in synergising investment strategies to promote environmental sustainability. A win-win scenario is possible by having China and Japan ensure transparency of foreign aid policy and increase coordination to effectively make strategies complementary with each other to avoid duplication of efforts (Wen, et al., 2019). The authors also pointed out that in the game, China is “more likely to promote cooperation with Japan” given that it has championed in the international community the win-win framework and the abandoning of the zero-sum game thinking (Wen, et al., 2019, p. 224). Going back to Minister Wang’s description of a win-win framework and the mentioned studies highlighting China’s advocacy of abandoning zero-sum game thinking, one could see that the discourse highlights one framework’s stark difference over the other. A number of related questions come to mind when looking into this dichotomy especially in terms of what appears to be China’s current worldview. Are the global affairs indeed marred with selfinterested states, competition and conflict as China view them? If so, what then explains existing mechanisms for cooperation between and among states? This question could be addressed by a different study, but proves to be related because it highlights the importance of taking China’s worldview into consideration. In examining China’s negotiation strategies in international businesses, Zhao (2000) discussed the importance of looking at China as a state with a high-context culture. This relates particularly to understanding China’s communication style in negotiations. According to Zhao (2000), in highcontext cultures, “the social context including personal relations and nonverbal behavior that surrounds a formal, written document us far more important than the written, legal documentation” (p. 212). Low-context cultures, on the other hand, such as the Anglo-American and Scandinavian countries, treat what is written in legal documents as the more important aspect of the agreements (Zhao, 2000). Therefore, in cases where low-context culture states

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negotiate with high-context ones, there is a need to be especially conscious of cultural context and values such as harmony, status, and showing respect (Zhao, 2000). This particularly applies in understanding China’s win-win framework of cooperation. Studying China’s foreign policy paradigm without taking into consideration its culture and values would be extremely difficult and counterproductive. But beyond the theoretical debate, the pronouncement of such a dichotomy of China-led win-win international affairs versus the existing system seeks to stage a contest of popular support among states, on whether they will be siding with powers who are projected to be only self-interested and conflict-seekers, or with those like China who promotes peace and cooperation. The implication of such question is another matter but it nonetheless polarises sides and may limit possibilities and opportunities for working with all.

Issues Concerning Win-Win Framework As much as the win-win framework signifies a positive picture, it is not free from issues. Theoretically, Wen, et al. (2019) mentioned that analysing strategies through the cooperative game dynamics may only work better in issues with low political sensitivity as real situations are much more intricate. Martinez, et al. (2019) discussed that the appeal of win-win agreements in negotiations is that it is framed as a positive set-up where no party loses; however, a win-win framework also has its flaws. In the context of business and the environment, Martinez, et al. (2009) explained that first, the winwin argument frames interrelationship between the elements at play as “overlapping” wherein in reality, one is embedded in the other. In other words, the win-win framework assumes a generality in all relationships and how they work. Second, win-win arrangements tend to signal finality and endpoint in a situation wherein different cases could vary depending on processes, adjustments and negotiations (Martinez, et al., 2019). Third, the framework to a certain degree tends to oversimplify the situation when in fact it is a continuing process that requires strategic adjustment and sustained momentum (Martinez, et al., 2019).

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In terms of application, Marysse and Geenen (2009) argued that cooperation agreements with China tend to result in a win-win situation, however, only in short term. They further mentioned that in the case of Sino-Congolese engagements, the implication, in the long run, is that the agreement is in favour of the Chinese counterpart. Zhao (2000) studied the Chinese negotiation strategies and found that the Chinese negotiators use, to varying degrees, win-win and cooperative egoism strategies. Win-win strategies are those that promote mutual trust and long-term relationships while cooperative egoism refers to cooperating but with one party swinging the advantage to itself (Zhao, 2000). It is important to note, however, that discrediting the win-win framework is not the point of this paper. Awareness of the limitations, possible pathways, and knowing the discussions surrounding the win-win framework’s flaws could bring benefits for both China and the other parties. This will bring great contributions as host governments continue to participate in the BRI. Moreover, it is equally vital to note these flaws as contextually contingent depending on who are the parties involved and the situations they are in. Meaning, just because a win-win engagement turned out in a certain manner in one case, it doesn’t mean that it will apply to all cases. Particularly, in BRI, the socio-political context largely influences project-related developments.

What does a “win” constitute for the Philippines? Finding out what a win means for the Philippines in terms of the BRI taking into consideration that various actors are at play and that the Philippines is not monolithic. A win in the Philippines should be defined and overseen by the government but a win could also have varying notions for the business sector, the public or the local community. In that sense, ‘winning’ could entail different meanings.

The Government Sector A win for the Philippine government in terms of engaging in the BRI constitutes help in facilitating and implementing its development plan. In other words, the quickest answer to what serves as a win for the

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Philippine government is what is indicated in the national vision and strategy documents. The Philippine government under President Rodrigo Duterte has launched its national long-term vision called AmBisyon Natin 2040 which serves as a guide for Philippines development planning (National Economic and Development Authority (NEDA), 2017). It is complemented by the medium-term plan called the Philippine Development Plan (PDP) 2017-2022 which indicates the government’s frameworks and goals (NEDA, 2017). The administration also laid down its priority strategies in achieving identified goals as indicated in Table 12.2, with medium-term plan target enumerated in Table 12.3. Table 12.2: The Duterte administration’s 0-10 Point Socioeconomic agenda

0-10 Point Socioeconomic agenda

0. Peace and order

1. Continue and maintain current macroeconomic policies, including fiscal, monetary, and trade policies.

2. Institute progressive tax reform and more effective tax collection, indexing taxes to inflation. 3. Increase competitiveness and the ease of doing business.

4. Accelerate annual infrastructure spending to account for 5 per cent of GDP, with Public-Private Partnerships playing a key role. 5. Promote rural and value chain development toward increasing agricultural and

rural enterprise productivity and rural tourism.

6. Ensure security of land tenure to encourage investments, and address bottlenecks in land management and titling agencies.

7. Invest in human capital development, including health and education systems, and match skills and training to meet the demand of businesses and the private sector. 8. Promote science, technology, and the creative arts to enhance innovation and

creative capacity towards self-sustaining, inclusive development.

9. Improve social protection programs, including the government’s Conditional

Cash Transfer programme, to protect the poor against instability and economic

shocks.

10. Strengthen implementation of the Responsible Parenthood and Reproductive

Health Law to enable especially poor couples to make informed choices on

financial and family planning.

Source: NEDA, 2017.

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Table 12.3: Plan targets under PDP 2017-2022

Plan targets, Philippine Development Plan 2017-2022

• • • • • • •

The Philippines will be an upper middle-income country by 2022. Growth will be more inclusive as manifested by a lower poverty incidence in rural

areas – from 30 per cent in 2015 to 20 per cent in 2022.

The Philippines will have a high level of human development by 2022. The unemployment rate will decline from 5.5 per cent to 3-5 per cent in 2022. There will be greater trust in government and in society. Individuals and communities will be more resilient. Filipinos will have greater drive for innovation.

Source: NEDA, 2017.

A key part of the vision and strategies surround the premise that with good infrastructure, jobs will be created, growth will be facilitated and poverty will be reduced. One important initiative championed by the Duterte Administration is infrastructure acceleration and industry development through the Build, Build, Build (BBB) Programme. With the BBB Programme, the government plans to spend an estimated PHP 8-9 trillion for the rest of the Duterte Administration’s term. Key areas of the infrastructure development will include transportation systems, water resources, energy, information and communication technology, and social infrastructure (NEDA, 2017). The infrastructure projects will be financed by: (a) pursuing an expansionary fiscal strategy with 80 per cent of loans coming from domestic sources and 20 per cent coming from foreign sources; and (b) tax policy and tax administration reforms (Diokno, 2017). Official pronouncement of the government in terms of the BRI is that the country’s participation has mainly been underpinned by the Chinese initiative’s congruence with the Duterte Administration’s national development plan and ASEAN’s Master Plan on Connectivity. More so, the Philippine government considers this as an opportunity to partner with China in funding important national projects. In November 2018, the Philippine government officially joined the BRI upon the signing of the Memorandum of Understanding (MoU) on BRI Cooperation with China (Department of Foreign Affairs, 2018). Alongside the signing of this MoU, a number of agreements on wideranging cooperation areas have also been signed. These include cultural,

Win-Win Cooperation through the BRI | 213

economic and technical cooperation, humanitarian assistance, agricultural, oil and gas development, and infrastructure projects including the completion of the Chico River Pump Irrigation Project, Binondo-Intramuros and EstrellaPantaleon Bridges, facilitation of projects such as the New Centennial Water Source-Kaliwa Dam Project, the Safe Philippines Project Phase I and the Philippine National Railways South Long Haul Project, some of which are included in the NEDA’s list of Infrastructure Flagship Projects. Moreover, on the sidelines of the Second Belt and Road Forum for International Cooperation held in April 2019 which President Duterte attended, 19 business agreements were signed with Chinese companies with deals amounting to US$ 12.16 billion (Ranada, 2019). Should all the signed business agreements materialise, the projected worth of investments is at US$ 12.165 billion and the projected jobs created would be at 21,000 (Ranada, 2019). Given the goals and the current state of the BRI engagements, it would appear that the Philippine government is on the track to achieving its ‘win.’ However, the process to achieving such a win requires more than just signing projects and agreeing on general terms. Winning would also entail the arduous task of balancing risks with benefits. According to PwC (2017), risks associated to the BRI could be in the form of geopolitical, financial, and/or operational risks. For one, geopolitical risks include long gestation periods that may witness political shifts, and political developments in bilateral relations and regional dynamics directly concerning China and the host state (PwC, 2017). Second, the capital-intensive nature of the projects may result in a high debt service ratio, long pay-off periods, and the high volatility of forecast demand (PwC, 2017). Third, operational risks include risks that could arise out of differences in legal frameworks, incompatibility of technical specifications, language barriers, among others. In the Philippines, institutional and policy safeguards and practices exist. These take the form of debt financing mix policies, hybrid public-private partnership (PPP) programmes, and reforms concerning absorptive capacity and concerned agencies. NEDA Undersecretary Rolando Tungpalan (2017) stated that the current administration has required an 80:20 debt mix, with the 80 per cent falling on local financing, to veer away from unsustainable

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foreign debt. The remaining 20 per cent will be financed through aid and private capital. The government also announced its preference for hybrid PPP deals. Hybrid PPP deals refer to the government completing a project then transferring maintenance, operations, and marketing functions to the private sector (Oxales, 2017). The Department of Budget and Management (DBM) has initiated reforms to improve the efficiency of government procurement services. Among the reforms that have been advanced under the revised Implementing Rules and Regulations (IRR) of the Procurement Law, projects are required to undergo twice-a-year agency portfolio reviews; strict deadlines will be implemented in the submission of requirements such as Technical Specifications, Terms of Reference and Scope of Works; and a more selective acceptance of procurement projects to prioritise big-ticket projects of the administration (Department of Budget and Management, 2019). Likewise, DBM is pushing for reforms for agencies’ improved absorptive capacities (Tubayan, 2018). NEDA, on the other hand, has worked to improve the process of evaluating PPP projects as the government pushes for huge infrastructure deals (Uy, 2017). The Investment Coordination Committee (ICC) has produced guidelines for the review of PPP projects which are currently being used to thoroughly review both solicited and unsolicited projects (NEDA, 2019). On the legal front, winning means understanding and maintaining an active role in shaping the content of international agreements signed with China. Prof. Palacios (2019) pointed out that solid knowledge on the type of foreign financing agreements and the project agreement provisions will help host states to make more informed and smart decisions regarding the engagements. Foreign financing agreements could be international agreements governed by international laws which may be in the form of (1) programme agreements which include memoranda of understanding (MOUs), notes verbales on financing procedures and arrangements, infrastructure agreements, MOUs on BRI (nonbinding) and Industrial Parks Agreements (nonbinding); and (2) project agreements (Palacios, 2019). An agreement could also be noninternational in nature governed by national law. This may take the form of (1) loan agreements such as those used in the Chico River and Kaliwa Dam

Win-Win Cooperation through the BRI | 215

projects in the Philippines; and (2) work agreements which include build contracts, design-build contracts, among others (Palacios, 2019). In terms of the project agreement provisions, parties must be fully informed of whose law applies or which agency is in charge of particular aspects. An example of this is that in the case of the Chico River and Kaliwa Dam, the “Laws of China” applies as the governing law; the China International Economic and Trade Arbitration Commission (CIETAC) and Hong Kong International Arbitration Center (HKIAC) assume position as dispute resolution platforms; while the procurement law that will apply will be that of the Philippines (Palacios, 2019). To sum it up, a win for the Philippine government is (1) getting hold of the project implementation processes and (2) using institutional policies and safeguards to ensure the clean and effective implementation of said projects, in line with the government’s development goals. A win for the Duterte Administration would mean having the flagship projects funded under the BRI completed as clean and problem-free as possible.

The Business Sector A win for the Philippines also entails a win for businesses. Parts of the main goals of the BRI are the promotion of connectivity and trade facilitation. BRI is said to work not only for the benefit of Chinese companies, but also for international companies (Backer & McKenzie, 2017). Foreign companies may enter into profitable partnerships with Chinese counterparts such as those deals made during President Duterte’s visit to China in April 2019. Opportunities for international companies include entering joint ventures or collaboration agreements with Chinese contractors; supplying products to state-owned enterprises (SOEs) especially where environmental or safety standards are high; professional services such as project due diligence, business structuring, contract negotiation, among others; acquisition of leading technologies; and financing by foreign asset managers (Backer & McKenzie, 2017). Table 12.4 details the opportunities for international companies according to a report by Baker & Mackenzie (2017):

216 | Belt and Road Initiative and South Asia

area

Table 12.4: opportunities for International companies in BRI

Partnerships

Supply

Professional services

acquisitions

financing

opportunities

Chinese contractors have entered joint ventures or collaboration agreements to create a more compelling proposition, such as China State Construction Engineering’s joint venture with Korea’s SsangYong Engineering in the UAE. Others are looking to tie up with local players, such as China Fortune Land and Vietnam’s Tin Nghia Corporation, to help acquire land, navigate local regulations, or manage relationships with local governments and communities. Foreign companies also have opportunities to supply products to Chinese SOEs, especially where environmental or safety standards are high. Honeywell China not only manufactures products in China for Chinese clients, but also sells the same product to Chinese EPCs working on BRI projects abroad. GE China similarly partners with Sinomach in Africa, supplying technology to the company and jointly bidding on opportunities. Professional service firms will be critical for Chinese firms seeking to mitigate risks. Project due diligence, business structuring, contract negotiation, labour and tax regulations, and insurance requirements are all critical to a firm’s successful offshore activities. Managing CSR obligation is especially critical for BRI given that large infrastructure projects may relocate communities, harm the environment, and draw the attention of social activists Chinese contractors are looking to acquire leading technologies from around the world to compete in the BRI region’s biggest markets. Shanghai-based Envision Energy recently acquired Bazefield, a Norwegian provider of wind-farm management systems. These types of technologies will be especially critical in markets where Chinese SOEs are looking to win competitive tenders or are required to meet strict environmental standards.

So far, Chinese policy banks have funded much of BRI. This will change, however, as BRI grows in scale and policy banks grow weary of taking losses on select early investments. The opportunities for foreign asset managers, traditional and alternative, will grow as Chinese companies seek alternative sources of finance and seek help structuring projects in a manner that will attract Chinese private capital and, importantly, global capital. This will include opportunities for more sustainable and climate finance.

Source: Baker & McKenzie, Belt & Road: Opportunity & Risk, 2017.

An equally important consideration, however, is the small and medium businesses. Jeffery & Zhang (2018) claim that “BRI projects are not necessarily focused on major infrastructure developments, but rather the entire ecosystem,

Win-Win Cooperation through the BRI | 217

including small and medium-sized enterprises (SMEs) and the financially excluded” (para 30). Gonzalez (2017) echoes this and mentioned that SMEs must be able to maximise the new trade opportunities brought about by the BRI. She argues that with the BRI, SMEs will be able to tap into international production networks and gain access to market information (Gonzalez, 2017). However, she also highlighted that inevitably, some businesses and sectors will face losses in the face of heightened international competition. In this regard, quick response and support from the government are crucial so as not to rouse antagonistic sentiments against globalisation in local communities (Gonzalez, 2017). In the Philippines, the Department of Trade and Industry (DTI) has pursued efforts to support the participation of micro, small and medium enterprises (MSMEs) in international trade programmes. An estimated 70 MSMEs have participated in the 15th China-ASEAN Expo (CAEXPO) on 12-15 September 2018 in Guangxi Zhuang Autonomous Region in southwestern China with the support of DTI (Department of Trade and Industry, 2018). The same has been done in 2019 with DTI flying over 70 MSMEs to participate in the expo. DTI believes that CAEXPO could provide these MSMEs access to opportunities for trade and investment in China especially under the auspices of BRI (Rosales, 2019). In other words, a win for the private sector is an inclusive approach when it comes to market access. Also, state policy and safeguards for those businesses that will face losses will be crucial to the attainment of a win.

The Local Community Observers and scholars have had rich discussions on how the BRI impacts the local community and environment. Most works have highlighted the need to improve the implementation of the BRI projects so as to make them green and sustainable. A report by Asia Society mentioned that in a number of cases, there have been problems in the conduct of environmental and social impact assessments of projects, local stakeholder engagement, and incorporating local labour (Russel & Berger, 2019). Some of the recommendations of Asia Society concerning the local community include the usage of international standards in conducting project preparation

218 | Belt and Road Initiative and South Asia

assessments, technical assistance reports, poverty and social analysis, and resettlement and environmental assessments; the conduct of rigorous, transparent, community-engaged, and publicly available environmental and social impact assessments; requirement of a stakeholder engagement by establishing a local grievance mechanism; and the enhancement of including local labour in the projects (Russel & Berger, 2019). Moreover, proactive coordination with independent local non-government and community organisations is seen as a key action in engaging BRI project stakeholders (Rosenzweig, 2019). In the speech delivered at the Second Belt and Road Forum last April 2019, President Xi signalled that he heard the issues concerning the environmental and social impact of projects on the ground. He mentioned the importance of extensive consultation, the need to pursue open, green and clean cooperation, and the need to pursue high standard cooperation to promote sustainable development (Ministry of Foreign Affairs, 2019). Likewise, President Xi declared the establishment of the Belt and Road Sustainable Cities Alliance, the BRI International Green Development Coalition, the Green Investment Principles for the Belt and Road Development, the Declaration on Accelerating the Sustainable Development Goals for Children through Shared Development, and the BRI Environmental Big Data Platform (Ministry of Foreign Affairs, 2019). In the Philippines, the situation of local community engagement in specific BRI projects has yet to unfold. Certainly, a win for this sector entails a well-consulted local community, effective and clean coordination with local government units on local programmes concerning the BRI, and the implementation of sustainable practices to manage social and economic impacts.

conclusion The chapter’s discussions have examined the state of discourse concerning BRI while arguing that there is a need to go beyond the perception debate and move toward the enrichment of discussions on ways forward. In discussing the ways forward, the author argued that a closer look into the

Win-Win Cooperation through the BRI | 219

win-win framework could provide insightful thoughts with regard to how host states could go about the BRI. The win-win framework remains to be a promising paradigm that signals positive engagements between China and the partner countries. The framework not only offers a positive approach toward achieving development goals and solving common problems but also highlights China’s proposition to move away from a zero-sum game frame of mind which China argues to have been used for a long time in contemporary international relations. The chapter attempted to trace the theoretical roots of the win-win framework, surfacing scholarly works on game theory and cooperative games. Using the cooperative game as a model to which a win-win framework is likened, it is clear that such type of model of cooperation allows players to communicate, negotiate and, share gains. Likewise, despite the prospects, the chapter emphasised the need for host states to familiarise themselves with the possible limitations of the win-win framework. As discussed, the win-win framework may only effectively work in issues with low political sensitivity since, in reality, situations are more complicated. In tackling the limitations, the chapter pointed out that the aim is not to discredit the win-win model but to surface ways on how both China and host states could go about it more informed. Moving on to how the Philippines could win under a win-win framework, the chapter used an interest group analysis to recognise that in the country, a plurality of interests is at work. “Winning” has been discussed in accordance as to how the government, business and local community sectors view it. A win for the government sector means achieving the government’s development visions and goals. The Philippine government directed by its national development visions and strategies has seen how the BRI could complement its actions. Moreover, the judicious use of existing institutional and policy safeguards also form part of what a win constitutes for the Philippine government. BRI implementation that is in accordance with the Philippine legal and financial policies will definitely indicate that the government is pursuing a clean and efficient participation in China’s initiative. For the business sector, a win entails opportunities for market access and other types of collaboration with Chinese counterparts. It is important to

220 | Belt and Road Initiative and South Asia

take into consideration that not only large Philippine companies that have international scale are engaged but also the micro, small and medium sized enterprises (MSMEs) that may be at the losing end if not engaged well. A win for the MSMEs requires an inclusive approach by the host government. Also, in the inevitable circumstance that small businesses face losses, it is crucial that the government provide quick response in the form of support. More than the spillover effects of economic growth, a win in the local community entails thorough stakeholder engagement, accurate environmental and social impact assessments and practices that consider the effect on local labour. Increasing one’s awareness of what constitutes a win for the country somehow recalibrates one’s existing views of the BRI. It can help us move on from discussions concerning what the initiative is to more productive debates on how to best implement it in the country. As the country’s discourse of the BRI improves, it would be more possible for the interest groups and stakeholders to formulate more informed and smart ways on how to go about the BRI.

notes

1. The views expressed in this paper are the author’s own and do not reflect the official position of the Institute, the Department of Foreign Affairs, and the government of the Philippines. 2. The three principles of peacekeeping are consent of the parties, impartiality, and nonuse of force except in self-defense and defense of the mandate. Ministry of Foreign Affairs, “China and the United Nations: Position Paper of the People’s Republic of China for the 74th Session of the United Nations General Assembly,” 18 September 2019. Available at: https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649_665393/ t1698812.shtml

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annexures

Conference agenda I (2018)

Annexures | 225

226 | Belt and Road Initiative and South Asia

Annexures | 227

228 | Belt and Road Initiative and South Asia

Annexures | 229

230 | Belt and Road Initiative and South Asia

Conference agenda II (2019)

232 | Belt and Road Initiative and South Asia

Annexures | 233

234 | Belt and Road Initiative and South Asia

Index

challenges with finance in SDGs achievement 31-33

China’s FDI in 30

debates on 201-203

and economy of world 25-26

evolution of 131-134

future of 72-73

and India’s position 137-138

investment in textile and clothing

Bangladesh

sector and GVC engagement China’s FDI in 66-67

64-67

as a connectivity hub 67-70

landmass 29

graduation from LDC status 73

Lao PDR and China, MoU between

Bangladesh-Bhutan-India and Nepal

xxxvii-xxxviii

(BBIN) 56, 68

pledge for extra funding 181

Bangladesh-China-India-Myanmar

role of 25

Economic Corridor (BCIM-EC)

Silk Road Economic Belt 24

xxxiii, 39, 55, 68-69, 73-74, 138

South Asia as priority zone for 39,

Bay of Bengal Initiative for Multi-Sectoral

135-137

Technical and Economic Cooperation

targets of xxx

(BIMSTEC) 56, 73

United Nations Security Council

Belt and Road Forum (BRF) 80, 91, 132,

resolution on xxix

134-138, 140

win-win framework model of

Belt and Road Initiative (BRI) xxxi-xxxvi,

international relations and issues

xxxix, 4, 52, 55-57, 76, 130

203-210

2.0 xxxvi-xxxvii, 134-135

Bhandari, Bidhya Devi 90-91, 96

to address emerging concerns 70-72

aid and investment to/in Nepal under bilateral trade between (China and

South Asian nations) 3-4, 8-10,

85-90

21-22

aims and objectives of xxix, 23-24

with India 10-12

announced in 2013 xxix

scenario of 57-64

and bilateral trade 17-21

Asian Development Bank (ADB) xxx

Asian Infrastructure Investment Bank

(AIIB) xxx, 80

Association of Southeast Asian Nations

(ASEAN) 49, 72, 147-148, 185

Free Trade Area 68

-India Free Trade Area 68

236 | Belt and Road Initiative and South Asia

trade balance and manufacturing,

global comparison 12-15

Brazil, Russia, India, China, and South

Africa (BRICS) 80

Build Back Better World (B3W) plan 140

China-Africa Cooperation Forum

(CACF) 80

China-Arab States Cooperation Forum

80

China-ASEAN Free Trade Area 68

China-CELAC Forum (CCF) 80

China National Agency for International

Development Cooperation 76, 91

China-Pakistan Economic Corridor

(CPEC) xxx, xxxiii, xxxvi, 39, 52-53,

127-128

assistance to export competitiveness

of Pakistan 121-126

benefits and opportunities in 44-48

debts and loans under 50-51

early harvest phase of 114-115

industrial cooperation under 120-121

Long Term Plan 2030 116-119

macroeconomic indicators 114-115

Pakistan-China Free Trade

Agreement (FTA) 49-50

progress and status of 40-42

risks and challenges 48

SEZs under 42-43

social economic development under

126-127

social, environmental and governance

safeguards 51-52

Chinese Economic and Industrial Zone

(CEIZ) 56, 68

COVID-19 pandemic xxxi, xxxvi

and BRI 2.0 138-140

Debt Service Suspension Initiative (DSSI)

138-139

debt traps of China xxxi

Economic Analysis and Policy Division

(EAPD) of United Nations

Department of Economics and

Social Affairs (UNDESA) 30

Free and Open Indo-Pacific (FOIP) 71

Free Trade Agreement (FTA) between

Maldives and China xxx

Hambantota port xxx-xxxi

Health Silk Road initiative xxxvii

international aid by China to Nepal, dimensions of to build community of shared future 77-79

diplomacy with neighbouring

countries 81-83

historical practice of 83-90

righteousness and profitableness

79-81

international cooperation between

(China and Nepal), prospects to

strengthen 90-92

aid and investment to/in Nepal under

BRI 85-90

economic cooperation, bilateral

expansion of 102-104, 106-112

economic exchange mechanism 102

expansion of frontier trades 101-102

interactions between top leaders on

BRI status 95-99

three-dimensional prototype featuring

connectivity 104-106

International Monetary Fund (IMF) 25

Jinping, Xi xxx, xxxv, 24, 55, 77-80,

82-83, 86, 90-92, 96, 130-131, 181,

185, 203

Keqiang, Li 95

Kunming-Kolkata corridor project 138

Index | 237

Lao PDR development indicators in 148

income per capita 147

land-locked developing economy

(LLDC) 147

long term government policy 150-152

population of 147

sustainable development goals

(SDGs)

performance and progress of

152-156

policy recommendation

175-178

Lao PDR and BRI

activities 156-165

potential linkages for SDGs

implementation 166-174

signing of MoUs 149-150

Malaysia and BRI 181, 196-197

China-Malaysia Port Alliance

(CMPA) Programme 183

and Mahathir administration

183-188

measures to enhance bilateral

relations 191-195

and Najib administration 182-183

shift of attitude during administration

188-191

Maritime Silk Road (21st century) xxxiii,

24-25, 39, 55, 69, 131

Ministry of Commerce (MOFCOM) 131

Ministry of Foreign Affairs (MOFA) 131

Mohamad, Tun Dr. Mahathir 181

National Development and Reform

Commission (NDRC) 131

New Development Bank (NDB) 80

New Silk Roads, China’s proposed 70

non-tariff barriers (NTBs) 65

Official Development Aid (ODA) 31-32

One Belt One Road. See Belt and Road

Initiative (BRI)

para-tariff barriers (PTBs) 65

Philippines and BRI, win-win framework

200-201, 218-220

business sector 215-217

government sector 210-215

local community and environment

217-218

Quad (US, Australia, Japan and India) 71

Silk Road Economic Belt (SREB) 55, 130

six means of communication xxx

South Asian Association for Regional

Cooperation (SAARC) xxix-xxx, 56,

68, 73, 82

South Asian nations, trade balance and

manufacturing sector in 16-17

South-South Cooperation Fund 87

sustainable development goals (SDGs) by

2030 xxxii, xxxvii-xxviii, 23, 25-26,

28-31

Tibet Autonomous Region (TAR) of

China 88

trade in major South Asian nations 4-8

Trans-Himalaya Corridor 39

United Nations Development Programme

(UNDP) xxix, 87

United Nations Economic and Social

Commission for Asia and the Pacific

xxix

UN Peacekeeping Capability Readiness

System 80

World Health Organisation xxix