While addressing the Centre for International and Strategic Studies in Washington last Monday in a speech titled ‘Defining Our Relationship with India for the Next Century’, Tillerson dwelt on the OBOR during the Q&A session. When asked to dilate on a pithy expression he’d used in the speech – “predatory economics” in the Asia-Pacific – Tillerson responded as follows:
- It is important that those emerging democracies and economies (in Asa-Pacific) have alternative means of developing both the infrastructure they need but also developing the economies. We have watched the activities and actions of others in the region, in particular China, and the financing mechanisms it brings to many of these countries which result in saddling them with enormous levels of debt. They don’t often create the jobs, which infrastructure projects should be tremendous job creators in these economies, but too often, foreign workers are brought in to execute these infrastructure projects. Financing is structured in a way that makes it very difficult for them to obtain future financing, and oftentimes has very subtle triggers in the financing that results in financing default and the conversion of debt to equity.
- So, this is not a structure that supports the future growth of these countries. We think it’s important that we begin to develop some means of countering that with alternative financing measures, financing structures. And during the East Asia Summit – Ministerial Summit in August, we began a quiet conversation with others about what they were experiencing, what they need, and we’re starting a quiet conversation in a multilateral way with: How can we create alternative financing mechanisms? We will not be able to compete with the kind of terms that China offers, and – but countries have to decide: What are they willing to pay to secure their sovereignty and their future control of their economies? And we’ve had those discussions with them, as well.
Responding to a follow-up question, Tillerson added:
- Well, I think, in many respects, it is the case that has to be made to these countries that need the infrastructure financing that they really have to think about the long-term future of how do they want their country and their economies to develop… here are all the other benefits you receive when you allow investment dollars to flow to you in this way: You retain your sovereign control, you retain complete control over the laws and the execution within your country. And that should have significant value to them as they’re thinking about the future. And so it is – while it is on a direct competitive basis, it’s hard to compete with someone who’s offering something on financial terms that are worth a few points on the lending side, but we have to help them put that in perspective of the longer-term ability to control their country, control the future of their country, control the development of their economy in a rules-based system. And that’s really what we’re promoting is you retain your sovereignty, you retain your commitment to a rules-based order, we will come with other options for you.
Tillerson never once uttered the word ‘OBOR’ while casting aspersions on it. Importantly, he disclosed that the US is holding “quiet conversations” with regional states “about what they were experiencing, what they need” and how “alternate financing mechanisms” could be conceived “in a multilateral way” to counter the OBOR with “alternative financing measures, financing structures.”
To be sure, the OBOR is driving the Americans crazy. China is doing “reverse engineering” on the western blueprint of extending funding to stimulate trade. The Atlantic magazine has featured a thoughtful piece (China Is Quietly Reshaping the World) on how the OBOR undermines the US’ regional influence. What the US did through Marshall Plan to “rebuild” post-World War Europe was to provide the equivalent of $800 billion as funds (calculated as percentage of today’s GDP), which in turn enabled it to emerge as the world’s largest trading nation and the number1 lender. Now, China is following the same path by extending funds to the tune of $300 already and planning to spend another $1 trillion in the coming decade.
And China already figures as the number 1 trading partner (imports and/or exports) of as many as 92 countries (as against the US at 57.) China today is a bigger lender than World Bank. The turnaround has been achieved in a remarkably short period of time. Suffice to say, China is adopting the same route that the US took to expand its political sway and to leverage other countries that felt beholden to it. If the OBOR initiative proves a success, the US will find it harder to impose its will on other countries. The so-called “liberal international order” will be in serious jeopardy. Tillerson admitted, “We will not be able to compete with the kind of terms that China offers.”
These are early days. And China is a quick learner. The strong likelihood is that in a near future, China expose the accusations that Tillerson made. Beijing announced this year stringent guidelines for its outbound investors. Similarly, we may expect better labour, human rights and environmental standards in Chinese projects as time passes. Beijing is already keen to showcase the Asian Infrastructure Investment Bank as conforming to world class standards.
Simply put, the US doesn’t have the $1 trillion to match China’s. The OBOR is driving the US to distraction. If China keeps finessing and improving the tools of its geo-economic push in the light of experience, OBOR will profoundly reshape the world order in the direction of a more equitable international system without unravelling the existing order.
The bottom line is, what is driving the OBOR – geostrategy or geo-economics? Especially in India, foreign-policy analysts tend to view the OBOR largely through a geopolitical lense as an attempt by Beijing to create political leverage over its neighbours. No doubt, China hopes to use its vast economic resources as a key tool to maintain regional stability and project its leadership in the country’s neighbourhood.
The CPEC is a fine example. But, equally, it is easy to overstate the case. A startlingly original study was done on this area by the well-known Australian think tank Lowy Institute. The report estimated that
- The two goals (geostrategic and geo-economic) are not, in fact, contradictory. China is using OBOR to assert its regional leadership through a vast program of economic integration. Its aim is to create a regional production chain, within which China would be a centre of advanced manufacturing and innovation, and the standard setter.
- But it is also true that OBOR will help China to meet some of its most pressing economic challenges. Of these challenges, three in particular are important in understanding the key aims of OBOR: encouraging regional development in China through better integration with neighbouring economies; upgrading Chinese industry while exporting Chinese standards; and addressing the problem of excess capacity.
The Lowy Institute report Understanding China’s Belt and Road Initiative is here.