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Rivalry and illusion shape Asia's connectivity contest

In era of 'Belt and Road' initiative, India and Japan seek to blunt China's expansion

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Indian Prime Minister Narendra Modi, left, and Japan's Prime Minister Shinzo Abe shake hands at a press conference during Modi's visit to Tokyo in November 2016.   © Reuters

Asia is reintegrating after centuries of division caused by politics, Western intervention, shifting power dynamics and evolving technologies. With the U.S. distracted by domestic political squabbles, a key question is whether the forces of integration in Asia are greater than the forces of division, and what that means for the future of the world's most dynamic region.

The three Asian great powers -- China, India and Japan -- are each pursuing their own connectivity initiatives in response to the region's changing economics and evolving geopolitics. Under the leadership of President Xi Jinping, China's Belt and Road Initiative is the most prominent. India under Prime Minister Narendra Modi has emerged as the world's fastest-growing big economy. Driven more by politics than economics, it is pursuing a "Neighborhood First" strategy as well as an "Act East" policy to enhance connectivity in nearby areas to prevent China from encroaching on India's strategic space. Japan under Prime Minister Shinzo Abe is seeking to link with like-minded powers in Southeast and South Asia to check Chinese domination of the Asian littoral.

Should U.S. power and the norms of restraint it imposes continue to erode -- as has already happened in the South China Sea -- a "spheres-of-influence" system is the most likely alternative form of regional order in Asia. China's BRI appears one way to create this new order. It involves not simply bullying or subjugating neighboring powers, as China has done in the South China Sea, but instead buying (literally) their consent for an expanding zone of Chinese influence through connectivity initiatives that tie these nations more directly to the Middle Kingdom.

In discussions over the past few months with officials, diplomats and experts throughout Asia, a picture emerged of a region both anxious and hopeful for the next phase of development -- and the role of big powers in shaping an increasingly uncertain future.

"In the past, China was an empire, and all roads led to China," a Singaporean diplomat told me. "BRI is a modern incarnation of that." BRI also looks like a new tool in China's long-standing goal of curbing U.S. influence in Asia. This includes creating greater strategic space along China's maritime and land peripheries by bringing smaller Asian states into its economic embrace, making them more susceptible to political influence.

China's BRI is a means to reshape Asia around China's interests. As a U.S. diplomat in the region starkly warned: "The Indian Ocean is where China's strategic depth will be -- they are contained in the Pacific by Japan and the U.S. Navy. India is China's existential threat. The Dalai Lama [who is based in India] offers the software to run greater China. Playing the game against India is the priority. The U.S. is distant and manageable. So China is creating conditions to ensure it is never under the boot of the U.S. and India -- which are allied with Japan. Chinese engagement here is coming by imperial decree. BRI is a nice way of shaping the world in China's interest, building concentric circles of security going outward. They find fiddly little countries and turn them to their purpose. They are trying to engineer the world like the U.S. did in the late 19th and 20th centuries."

Both Indian and Japanese connectivity initiatives appear primarily aimed at undercutting Chinese ambitions rather than creating their own spheres of influence. India issued a remarkable statement during China's Belt and Road summit in May, articulating a set of principles for Asian infrastructure investments that read as a direct rebuke to a spheres-of-influence approach: Physical connectivity must be pursued "in an equitable and balanced manner"; it "must be based on universally recognized international norms, good governance, rule of law, openness, transparency, and equality"; it "must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities"; and it "must be pursued in a manner that respects sovereignty and territorial integrity."

Abe declared that Tokyo would support BRI projects under similar conditions. At the Modi-Abe summit in Tokyo last November, a joint declaration expressed Japan's support for India's "Act East" policy and India's support for Japan's "Free and Open Indo-Pacific Strategy."

The two leaders spoke of boosting "synergy" between India's "Act East" Policy and Japan's "Expanded Partnership for Quality Infrastructure" by closely coordinating, bilaterally and with other partners, for "better regional integration and improved connectivity." Their declaration supported a program of "working jointly for strengthening rules-based international order in the Indo-Pacific region and beyond." These principles are the antithesis of a spheres-of-influence approach and highlight the struggle in Asia between the rules-based order advocated by the big Asian democracies and the Sinocentric-sphere approach that is explicit in China's BRI.

Massive infrastructure challenge

Asia's infrastructure needs are vast. The Asian Development Bank estimates that more than $1.7 trillion in new investment will be required every year for the next decade to meet them. But whether smaller states have the absorptive capacity to fully benefit from Chinese investment or whether their political institutions are sufficiently resilient to avoid becoming corrupted by inflows of Chinese capital is another question.

The weakness of democratic institutions "makes interference by countries like China easier; making our institutions more resilient would help," said an official in one BRI target country. A politician from another BRI target country added: "Our problem, with respect to either India or China, is internal. Politics [here] has been fragmented. This creates more scope for external powers to become involved." A U.S. diplomat observed, "China will take what it can get. It does not have an ideological preference for regime type. But China gets better terms in countries that have governance challenges."

In response to mounting regional and U.S. concerns over China's expanding power, the BRI is meant to help brand China as a benign superpower willing to share its developmental success with trade and investment partners in mutually beneficial ways. Xi's warnings at this year's World Economic Forum in Davos against protectionism while promoting Chinese leadership of what he called "Globalization 2.0" were cleverly designed to contrast China's allegedly responsible leadership of the international economy with that of the "America First" brigade in Washington.

The BRI framework diverts international attention from China's armed revisionism in the South China Sea, its sponsorship of Pyongyang's rogue regime, and its internal repression by repositioning a mercantilist China as a responsible steward of the global economic order. Events like the BRI summit, at which world leaders came to pay tribute to China's vision, directly support Xi's aspiration to centralize power at home by mobilizing state resources around his grand vision for "the rejuvenation of the Chinese nation."

One issue that undercuts China's ability to successfully project influence through its Asian connectivity initiatives is the widespread perception of Chinese heavy-handedness, including placing recipients in debt traps that incur resentment and elicit resistance to Beijing. "Debt slavery is one of the most pernicious instruments the Chinese use to wield strategic advantage," said a U.S. official. While ADB interest rates for infrastructure loans are often as low as half a percentage point, Sri Lanka's Hambantota port deal, which a previous Rajapaksa government negotiated with China, carried an interest rate of 9% on construction loans before the current government was able to reduce them slightly.

Pakistan's trade deficit has spiked due to a surge in imports from China. Islamabad is likely to require yet another economic rescue by the International Monetary Fund to manage its current account. But will the IMF's predominantly Western donors agree so that Pakistan can repay high-interest Chinese loans?

China's investment strategy

Also unclear is the economic logic of many Chinese "investments" in unstable countries, since they are unlikely to generate profitable returns. Commenting on China's development of a major port in Baluchistan, an Indian official noted: "The Pakistanis dreamed that Gwadar would become Dubai. Instead it has become a Chinese military base." Given the political baggage that accompanies it, Chinese assistance risks making Pakistan a quisling state rather than a booming emerging market.

Chinese investments are associated with massive corruption of officials in recipient nations. Beijing's agents employ corruption to "find those who will sell their country to the Chinese" in the BRI countries, said a senior Sri Lankan official, highlighting China's lack of soft power even as it wields money power in distasteful ways. "China sold us the weapons to win the [Sri Lankan civil] war. They care nothing for human rights. When the war was over, China called in its dues -- said they would build ports, airports, highways, stadiums, hotels, everything," he continued. "We now have a $3.5 billion port that does no business; an airport in the middle of nowhere, et cetera. The Chinese said to our politicians: Take our loans (at high interest rates) and we'll put an equivalent amount into your private bank accounts."

China has made great gains with its connectivity initiatives, even in India's immediate neighborhood, partly because of New Delhi's reluctance to implement its own integration agenda. Indian trade policy is instinctively protectionist. India's weak state and porous borders impede regional engagement, while its bureaucracy serves as a drag on successfully executing development projects. Although it is slow to deliver infrastructure assistance, India's political system is at least seen by some neighbors as being more reliable than China's.

"In China, the government ascribes no value to its people -- no property rights, no political rights," said a leading politician in a country heavily courted by China and India. "By contrast, India is built on a solid political foundation. But China? China's system is built not on liberty but on concrete." The flexibility of the Indian political system contrasts with the rigidity of the Chinese model, with implications not just for development assistance delivery but for longer-term relations with smaller Asian nations.

A key difference between the engagement of India and China in South and Southeast Asia is their geopolitical ambitions. China's goal increasingly appears to be to carve out, through military power and economic influence, an expanding sphere of influence that consolidates China's position as Asia's dominant state. India, by contrast, seeks to project not just power but values, which in many cases are more consonant with those of smaller regional states based on civilizational and political convergences than China's might-makes-right approach.

As one senior Indian official noted: "India is powerful relative to [its smaller neighbors] -- but not powerful enough to impose our will. We want to project not just power but norms. People around the world want to follow American norms. That is what India wants to project in our region. As we grow richer, we need the rest of neighborhood to rise with us."

Asia's future is being written not simply by changing military balances, but other strategies of influence that make countries such as China and India major players in the domestic politics of smaller states. Americans are accustomed to this role and the associated abuse when they are blamed for all sorts of ailments, real and imagined, by their allies. Although China currently enjoys an advantage in delivering infrastructure, it may become clearer over time that democracies such as Japan and India make better long-term partners for developing nations because cooperation strengthens free and accountable politics rather than subverting them.

Daniel Twining is counselor & Asia director at the German Marshall Fund of the United States. This article is based on discussions during extensive travels across Asia in recent months, as part of a research project assessing reactions to China's Belt and Road Initiative.

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