78 China & World Economy / 78–100, Vol. 25, No. 5, 2017 China’s Belt and Road Initiative: Perspectives from India Jabin T. Jacob* Abstract China’s Belt and Road Initiative (BRI) is often simplistically understood as being opposed by India and supported by Pakistan. The reality on the ground is rather more complex. The emerging consensus in India appears to be that, far from being exclusively an economic and infrastructure development program, the BRI may be understood as a long-term strategic initiative that seeks to convert China’s current economic might into diplomatic influence. While attempts have been made by Beijing, the reflexive Indian suspicion of Chinese international projection, including of China’s BRI, has not yet been met by a coherent discourse designed to speciically address Indian concerns. In contrast, in Pakistan, widespread acceptance of the importance and necessity of the China–Pakistan Economic Corridor is increasingly coupled with concerns within sectors of Pakistani society over the fairness, transparency and eventual economic outcomes of the project. Accordingly, this paper is divided into two parts: the irst looks at how Indian analysts have viewed and responded to the Chinese discourse and arguments on the BRI; the second considers the debate over the China–Pakistan Economic Corridor within Pakistan. Key words: diplomacy, economic integration, infrastructure development, mutual mistrust, strategic competition JEL codes: H77, H81, L94, O19, O53 I. Introduction A fundamental premise to properly frame the debate on China’s Belt and Road Initiative (BRI) currently taking place in India is that such conversations are primarily conducted within the realm of strategic studies, within a community comprising current and former civilian policy-makers and military personnel, researchers in think-tanks, and university academics. Despite a gradual improvement toward a more comprehensive engagement *Jabin T. Jacob, Fellow, Institute of Chinese Studies, India. Email: jabinjacob@gmail.com. This essay has beneited from multiple private conversations and interviews since 2015 with government oicials in India, as well as academics and analysts from Pakistan, China and India. ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India with the concept of the BRI, the attention currently being paid to it by the Indian business community and civil society at large remains modest. In essence, the economic dimension of the BRI does not appear to be the focus of Indian attention, either within or beyond the government apparatus. The present paper is divided in two sections. The first examines how Chinese analysts have been debating India’s role in the context of the BRI, and contrasts this with India’s own understanding of the implications of the BRI for its region. The second discussion focuses on the China–Pakistan Economic Corridor (CPEC) as a case study of the economic and strategic logic underpinning the BRI. In light of India’s official position hitherto of not actively participating in the BRI (except in the case of the Asian Infrastructure Investment Bank), how the CPEC develops, independent of the territorial dispute between India and Pakistan, is likely to deine India’s future attitude towards the BRI in general.1 II. China, India and the Belt and Road Initiative: Missing Interest Encapsulation When Chinese President Xi Jinping officially announced his vision of a Silk Road Economic Belt (sichou zhilu jingjidai) in a speech on 7 September 2013 at the Nazarbayev University in Kazakhstan (MFA PRC, 2013) and the parallel launch of a Maritime Silk Road (haishang sichou zhilu) during his visit to Indonesia the following month (Wu and Zhang, 2013), the boldness of the twin initiatives was met with apparent surprise among China’s neighbors and even within parts of the Chinese community of strategic analysts.2 Beijing’s dynamism in promoting regional connectivity was not without precedent, China already had a track-record across South Asia, having been a leading force behind the Bangladesh–China–India–Myanmar regional economic cooperation forum (BCIM) for well over a decade. This project is especially notable for two reasons: irst, it saw the provincial authorities of Yunnan (and not China’s central government) as the agency spearheading trans-border cooperation; second, it constituted the most articulate attempt by China to engage in deeper regional interaction as a way to boost the development of a key province. Today, the BRI in many ways replicates on a larger scale this same approach, irst pursued in China’s south-western province as early as 1999. 1 For a summary of India’s oicial position, see the Ministry of External Afairs, Government of India (2016) and Kasturi (2015). 2 This was admitted by Chinese scholars in several conversations and discussions in China and India in 2015 and 2016. ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 79 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 80 In the context of Sino–Indian relations, the BCIM project has faced constant opposition from India on several grounds, ranging from security issues to the lack of economic development capacity in its frontier regions (Rana and Uberoi, 2012). Nevertheless, the launch of the BCIM Economic Corridor (BCIM-EC) during the visit of Chinese Premier Li Keqiang to India in May 2013 is evidence of an enduring willingness by New Delhi to seize opportunities to engage with China when specific windows of opportunity are available.3 The launch of the BRI later in 2013, with its implications for India’s neighborhood and the apparent subsuming of the BCIM-EC within the BRI frame without explicit consultations with all relevant parties, appear to have rekindled opposition within sections of the Indian Government to both BCIM-EC and BRI. This diplomatic change might be evidence of the fact that the contents of Beijing’s initiative had not yet been fully deined at the time, mirroring Deng Xiaoping’s “crossing the river by feeling the stones” uncharted path to reform in the late 1970s. In the logic of trust-building through interest encapsulation (Hardin, 2006), such an open-ended approach would normally give countries like India greater confidence in engaging with connectivity projects promoted by other actors. However, Beijing’s seeming unwillingness to substantially address Indian sensitivities, including the launch of the China–Pakistan Economic Corridor (CPEC) passing through Pakistan-occupied Kashmir, has allowed Indian strategic concerns to crystalize into disaffection and suspicion toward the BRI. Epistemic communities in the two countries have not signiicantly helped mitigate the asymmetry of information. Beijing’s adoption of a new neighborhood policy in October 2013 at the first work forum (zuotan) on diplomacy towards China’s neighboring countries suggests that considerable intellectual and policy input was included in the preparation for the launch of the BRI (Xinhua, 2013). Given the salience of India in Beijing’s strategic calculus, any high-level work forum discussing China’s neighborhood would necessarily have to consider Indian anxieties and expectations. The Chinese Government’s decision to, nonetheless, go ahead and turn the BCIM-EC into a component of the BRI (National Development and Reform Commission, Ministry of Foreign Afairs, and Ministry of Commerce of the People’s Republic of China, 2015), coupled with the launch of the CPEC through a territory that India claims is illegally occupied by Pakistan, has been read in New Delhi as a statement of China’s lack of commitment in engaging with India’s interests. 3 One indication came in the rather positive tenor of oicial Indian presentations at the 10th BCIM Forum hosted by India in Kolkata in February 2012, which the author participated in. See Mathai (2012). ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India III. The Role of Semantics in China’s Belt and Road Initiative The Chinese Government and scholarly community have carefully selected the lexicon associated with the BRI to reassure diferent audiences about its objectives. The BRI is, thus, presented domestically as a “strategy” aiming to improve China’s economic structure and solve its industrial overcapacity problems. Externally, Chinese authors and policy documents are careful to describe it as merely an “initiative.” This semantic adjustment may help Chinese authorities explain the diferent pace and kind of results that will be achieved through the BRI inside and outside China, while highlighting the benign nature of this exercise with foreign interlocutors. Well aware of the intrinsic danger faced by any large country during the delicate phase of emergence as a regional or global power, China has traditionally paid attention to the wording used to qualify its evolving role in the international system. Chinese policy-makers quickly changed the expression “peaceful rise” (heping jueqi) to “peaceful development” (heping fazhan) in the early 2000s over worries that the former expression might make China appear overly assertive (Zheng and Tok, 2005). However carefully chosen, words will hardly suffice by themselves to persuade current and potential host nations of China’s BRI: Beijing’s conduct in a variety of realms will have a major impact on the credibility of the Chinese Government’s pronouncements. Indian authorities certainly do not distinguish between “strategy” and “initiative” insofar as the BRI is concerned,4 while even Chinese scholars have recently been willing to admit that although China’s BRI had no strategic considerations in the beginning, later on it did have a few.5 Chinese analysts also emphasize the “open,” “equal” and “inclusive” nature of the BRI, whereby “any country willing to cooperate can be a partner.” The key aspect here seems to be the willingness to cooperate. In other words, as seen from the Indian angle, the onus would be placed on the potential partners’ inclination to join Beijing’s initiative, rather than on China’s predisposition to jointly deine appropriate terms for such cooperation. In this sense, “inclusiveness” means China treats all countries equally in its invitation to join, with little clarity on the substantive outcome of the engagement. The CPEC is a case in point. The CPEC is not just a single road or network for Pakistan, but a vast network of road, energy and other infrastructure projects throughout the country. It is also clearly built upon and around the existing Karakoram Highway, 4 Source: Conversations and interviews with Indian Government oicials in 2016. Another Chinese scholar, Wang Yiwei (2016), appears to be more willing to explicitly state that the BRI does have strategic imperatives. 5 ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 81 82 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 passing through Pakistan-occupied Kashmir and, therefore, impinging on Indian sovereignty and core interests. In this situation, from New Delhi’s perspective, for China to call the BRI “open,” “equal” or “inclusive” would be disingenuous: it clearly makes Indian participation difficult unless the Indian side were to compromise or set aside their concerns. Even though there is increasing acknowledgment within the Chinese community of strategic analysts that China cannot ignore India and must ind ways to work with its southern neighbor on the BRI (in South Asia especially), Chinese scholars tend to evade the issue of Indian sovereignty over Kashmir. Only recently have Chinese scholars (e.g. Long, 2017) and oicials (e.g. Liu, 2017) been willing to go on the record to state that the CPEC does not imply that China is taking sides on the Kashmir issue. If consistent, and possibly accompanied by actions that prove China is not taking sides, such as supporting India’s membership to the Nuclear Suppliers Group or sanctioning Pakistan-based terrorists at the United Nations, this development may have positive consequences for the BRI. IV. China’s Balancing Act as Perceived in India Within China’s scholarly and policy communities much emphasis is placed on the “tough task” Beijing faces as it endeavors not to choose sides between India and Pakistan, and balance the two countries’ interests. In this light, the CPEC is presented as not being aimed at India: it is argued that a weak Pakistan is neither in China’s nor India’s interest, targeted as it is by terrorism. In Beijing’s eyes, there is “no need to focus on old problems”: what is required is “new thinking and new methods.” Indian observers tend to be skeptical of this assessment: while China is naturally entitled to conduct its relations with neighbors in a way that best it its national interests, its conduct is widely considered to be misaligned with the narrative of not taking sides. The most commonly held opinion in India is that China has not tried to strike a balance between India’s and Pakistan’s interests, as balance against India with the support for Parkistan. A long and continuing history of military exchanges between Beijing and Islamabad is taken to point in this direction, as is the multiform support lent by China to a Pakistani security establishment that has engaged in at least four conventional conlicts with India and supported separatism, extremism and terrorism in India for several decades. China’s role in the development of Pakistan’s nuclear arsenal is widely believed to have emboldened the Pakistani security establishment, reducing fears of repercussions in the instance of a conlict with India. These facts are often ignored or explained away by Chinese scholars and oicials as belonging to a previous era or related to diferent logics, quoting, for instance, commercial motivations. While this might well be the case, ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India Chinese analysts and policy-makers do not appear to appreciate how pressing the need is to engage in an efort to win back Indian trust to make the BRI work. The most essential prerequisite for the BRI to meet its full potential is that security and stability are maintained or established across the Eurasian continent. This calls into question China’s complex position on terrorism. Beijing is keen to reiterate that Pakistan is itself a victim of terrorism, while quietly acknowledging that terrorist threats are a homegrown problem created and cultivated by elements of Pakistan’s own security establishment. In contrast, terrorism in India is entirely of external origin: India’s domestic cleavages that nurture violence or extremism, for example, the Naxalism problem in central India and ethnic disafection in north-eastern India, are not oicially classiied as “terrorism” but as “extremism” or “insurgencies,” which Indian authorities confront through domestic political means, including, to be sure, state violence. However, in the case of terrorism that is sponsored by external forces, China’s insistence that the Indian Government should not press Islamabad too forcefully on this issue because it also sufers from the same menace, causes frustration in New Delhi. A more clear distinction between the nature and origins of terrorism afecting India and Pakistan would be a step in the right direction. Most importantly, there seems to be a widespread lack of appreciation in China of the internal logic and dynamics of Indian politics: any leadership in New Delhi is constrained in its approach to Pakistan by specific contingencies. The Indian Government cannot just engage Islamabad regardless of Pakistan’s own conduct, or in the face of continued provocations. When Pakistani army general Pervez Musharraf seized power in Pakistan, the Indian Government did not hesitate to open negotiations over Kashmir and other bilateral issues; similarly, Prime Minister Modi invited Pakistani Prime Minister Nawaz Sharif to his swearing-in ceremony in 2014 (Dawn, 2014) and met him in Pakistan subsequently as well (Al Jazeera, 2015), indicating that Indian Government members across party lines have been open to cooperation. However, there are limits to the political viability of Indian outreach to Pakistan, and the fact that eforts are made to build bridges should not be taken to absolve those elements within the Pakistani security establishment that are responsible for sponsoring terrorism. India’s salience in the Chinese strategic calculus with regards to the BRI has been on the increase in the recent past, as Chinese policy-makers and analysts have featured in opinion pieces and conferences noting that New Delhi is strategically involved in multiple issues of regional and global significance, and that Pakistan is not the only concern in relation to India’s external relations.6 6 This was especially the case through 2016 and 2017. ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 83 84 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 To be sure, there continues to exist a vocal school of thought in China that looks at India–China–Pakistan relations as a zero-sum game, with statements to the effect that China’s cooperation with Pakistan through the CPEC would allow “Pakistan to play a more important role in the economic landscape of South Asia” (Hu, 2016b) or that India “will perhaps end up simply watching China’s inluence among its neighboring countries rise” (Hu, 2016a). A subset of this group ofers indirect criticism of “some countries” or “some big countries” for their attitudes towards the BRI (Liu, 2016). According to these authors, India may be actively bent on sabotaging China–Pakistan cooperation. A Global Times opinion piece referred to “some hostile overseas forces” in this context, and quoted Pakistani officials referring to “enemies of the country” attempting to “sabotage” the CPEC, with reference to an attack in August 2016 in Quetta in Baluchistan (Wang, 2016). However, alongside this hostility, there is also increasingly open reference to the need to proactively engage with India to ensure the success of the BRI. “India’s poor infrastructure is a challenge for Asian nations to become interconnected,” to quote another op-ed (Hu, 2016a). While this is an instrumentalist way of looking at India’s role in the BRI, it is noteworthy that at seminars and conferences India is openly referred to as geopolitically too crucial a link in South Asia for China to ignore. V. The Political Economy of the Belt and Road Initiative in Sino–Indian Relations One of the most efective value propositions of the BRI, including with regards to South Asia, is that it can provide abundant capital to stimulate regional connectivity through “complementary projects” and “joint projects” spearheaded by India and China in neighboring countries. In fact, the impact of China’s push to help ill the infrastructure gap in the region goes beyond specific projects: Beijing’s drive is by itself creating momentum for the conversation on connectivity across the region, stimulating the Indian Government to review its own approach to infrastructure development in South Asia. One example is the Bangladesh–Bhutan–India–Nepal (BBIN) connectivity project recently announced by Indian Prime Minister Narendra Modi. At the broader regional level, Indian authorities have come to realize that the South Asian Association for Regional Cooperation (SAARC) is unlikely to fully deploy its potential, given that its decision-making mechanism functions by consensus, which tends to be elusive given India–Pakistan dynamics. In this context, Indian analysts have cautioned against engaging with processes that may, whether by design or unintended consequence, result in China’s BRI undermining the SAARC and India’s central role ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India in South Asia, and position Beijing as a de facto arbitrator not only between India and Pakistan, but also in the relations between India and other South Asian countries. While this reading is rejected as overly political among Chinese analysts, suspicion remains widespread in India that Pakistan’s opposition to New Delhi’s initiatives in SAARC is determined by political, rather than economic, considerations. Important cause for optimism comes from the political economy of bilateral relations: Chinese scholars have suggested that the BRI complements Indian Prime Minister Modi’s “Make in India” initiative to increase manufacturing in the country, and could, thus, prove an ideal framework for more robust economic engagement between the two countries. Both Indian analysts and policy-makers accept that Chinese investments (both in manufacturing and the development of physical infrastructure) could play a major role in spurring the desired growth of the manufacturing sector in India. While the flow of Chinese investments into India has so far been well below expectations, and a far cry from President Xi Jinping’s announcement in September 2014 of US$20bn over a period of 5 years (Indian Council of World Affairs, 2014), available data suggest that in 2015 and 2016 India received approximately US$2.4bn in Chinese investment, efectively doubling the investment inlow from China during 2015 to 2016 (Zhang, 2017). Chinese private investors are showing interest in India, although this trend is largely conined to the services sector, which does not generate as much employment as India would require. However, financial commitment by Chinese state-owned enterprises (SOEs) remains limited, possibly because of India’s strict regulations and diiculties in land acquisition for planned Chinese industrial clusters. As is widely reported, India’s security agencies can be excessively conservative and cautious in their approach to Chinese companies and investors, while administrative procedures related to foreign investment remain slow, complicated and confusing. Chinese managers also point at the diferent management systems and cultures, uneven workforce eiciency, and poor logistics and infrastructure as root causes for the relatively modest performance of Sino– Indian investment. One source of major concern that Indian authorities and analysts have repeatedly alluded to is the nature and ownership of Chinese enterprises. As even private enterprises have extensive linkages and access to Chinese Government resources, it is argued that many private Chinese companies investing in India have received inancial support by state banks precisely because such investments are seen as being under the framework of the BRI. Because similar claims, as well as the ownership structure of Chinese companies, can rarely be fully veriied, diiculties can arise in the operations of both Chinese SOEs and private companies in India. Considering that political motivations ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 85 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 86 in the host country cannot be ruled out as engendering some of the complications for Chinese companies, in the long run, greater transparency, full adherence to local laws and regulations, and more widely perceived mutual benefit should allow these companies to become seamlessly embedded within the Indian business ecosystem. Another subset of ownership issues that Chinese companies have been facing in India and across international markets is related to foreign governments’ concerns about a disproportionate share of strategic assets coming under Chinese ownership or control. Such assets could include both private companies and SOEs in key sectors. Chinese players tend to emphasize China’s own success in ensuring high employment and technology transfers from foreign companies rather than worrying about the shares foreign companies hold in Chinese companies, and they insist on the effectiveness of promoting joint ventures between Chinese and foreign companies.7 However, this argument overlooks the fact that, because of the nature of its legal system, the Chinese Government has never been in danger of losing control over enterprises, whether Chinese or foreign. Several countries and private foreign investors involved in joint projects in China, such as industrial parks and joint ventures, have seen the terms of their contracts changed or ignored over time by their Chinese partners, often supported by local authorities which control the administration of justice, as well as all levels of administrative power.8 In India, given the separation of powers between the executive and judiciary, the Indian Government and private enterprises could not discriminate or ignore the terms of contracts without attracting punitive actions from Indian courts themselves, indicating diferences in the playing ield for investors across the two countries. VI. Economic Foundations of the China–Pakistan Economic Corridor The CPEC is often described in Pakistani sources as a “flagship project” of the BRI (Xinhua, 2015b) and a potential “game-changer” for the economy and global standing of Pakistan (Xinhua, 2015c,d). There is much goodwill tied to the project and, despite political tensions within Pakistan over issues, such as the number of projects launched under the CPEC, the quantity of investments allotted to each province and the alignment of routes (Siddique, 2015; Zaman, 2015), there is broad political consensus on the desirability of the CPEC for Pakistan. The economic logic of the CPEC, however, is a matter of debate among Pakistani economists as well as in the media. Source: Chinese scholar in discussion at the Institute of Chinese Studies, Delhi in 2016. Many foreign companies routinely complain of being discriminated against. See BBC News (2011) and The Atlantic (2013). 7 8 ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India Pakistan is widely regarded as facing a dire economic situation at present (Tirmizi, 2015). In this context, the role of Chinese investment in supporting those sectors seen as critical to ensuring Pakistan’s political stability cannot be underestimated. A “1+4” Sino–Pak cooperation structure has been envisaged, with the CPEC at the core and the Gwadar Port, transport infrastructure, energy and industrial cooperation being the four key areas (Xinhua, 2015a,e). According to one report, Chinese investment could push Pakistan’s GDP growth rate to above 6 percent between 2016 and 2018, while the CPEC is expected to help solve Pakistan’s severe energy crisis and infrastructure deficit, with over 10 400 MW of energy generating capacity to be created between 2018 and 2020 (Pakistan Observer, 2017). Indeed, China’s promised investment in the CPEC has increased several times since it was irst announced at US$46bn in 2015, rising to US$ 54.5bn in 2016, and to US$62bn today.9 Although an abundance of details about the CPEC, including layout, alignment of routes and figures for investment, are now available in the public domain,10 data are not always consistent, and there is no single repository ofering the aggregate picture (e.g. Ranjan, 2015). Pakistani analysts admit that there are many aspects that remain unclear. 11 Indeed, issues such as the viability and progress of CPEC projects will inevitably depend on a range of exogenous and endogenous factors, including China’s own economic growth dynamics and domestic conditions in Pakistan. While Chinese companies have considerable experience working in Pakistan, both the scale of the CPEC and the specific difficulties posed by Pakistan’s economic underdevelopment, political tensions and social conditions demand a different level of commitment by Beijing to ensure that these investments are fruitful. The following paragraphs will examine three key aspects related to the CPEC: employment, financial sustainability, and India’s resulting concerns. A central aspect of the CPEC is the volume and type of employment it will generate for Pakistanis. There are high expectations in Pakistan but the number of jobs to be generated for civilian Pakistanis by the CPEC projects are still far from clear. One Pakistani minister speaking speciically in the context of the CPEC noted that Pakistan needed to grow at 7–8 percent annually to create one million jobs annually (see The News International, 2015). In June 2016, the Chinese ambassador Sun Weidong, declared that “as of March (2016), ongoing CPEC projects have employed more than 9 The igures involved in the CPEC have varied widely. The original US$46bn igure has been disputed by Chinese analysts who pegged it at closer to US$35bn. Subsequently, the igure increased to US$54.5bn before increasing still further to the latest sum. See Siddiqui (2017a). 10 Much data can be obtained from the oicial website of the CPEC, available from: http://cpec.gov.pk/#. 11 Source: Conversations with Chinese and Pakistani scholars at conferences in China, 2016. ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 87 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 88 6000 Pakistanis” (Xinhua, 2016). In April 2017, Liu Jinsong, Deputy Chief of Mission in the Chinese Embassy in New Delhi, stated in a speech in Mumbai that 13 000 jobs had been created locally in Pakistan.12 The latest projected igure is of 2.32 million jobs to be created over the 2017–2019 period, which would reduce Pakistan’s unemployment rate from the current level of 5.9 to 3.3 percent (Luqman, 2017). If the latter projection is accurate, it will no doubt have a significant impact on the well-being of Pakistani society. It should also be noted that industrial employment has multiplier efects in terms of ancillary or supporting activities and industries, and additional jobs would be created as a result. Meeting the full potential of the CPEC in terms of job creation may be more complicated in certain contexts: in the specific instance of the Gwadar Port, one of the lagship investments under the CPEC, there are doubts about the employability of locals. Answering a direct question about whether employment would be generated locally, Dostain Khan Jamaldini, Chairman of the Gwadar Port Authority, asked in turn whether locals had the requisite skills (PCI, 2017).13 In addition, the ishing community in Gwadar fears the loss of income and livelihood with the creation of the new port. There is some concern that, instead of generating local employment, Chinese security measures, such as building fencing around the Gwadar project area in Baluchistan Province (Shah, 2016), might have adverse effects on local access and employment. Political leaders have tried to mitigate citizens’ anxiety: the leader of the National Party in the Baluchistan Assembly, Zamruk Khan Achakzai, has expressed his belief that the CPEC “will create thousands of jobs for people of the province” (The Express Tribune, 2017). Security requirements might, in fact, boost local employment: figures range from a force of 15 000 personnel (Rana, 2016) to 18 000 personnel (Krishnan, 2016), to protect Chinese investment and citizens. It also needs to be noted that Pakistani reports on the impact of the China– Pakistan Free Trade Area (FTA) signed in 2007 highlight the stress that it has placed on Pakistan’s domestic industries (The Pakistan Business Council, 2015). One news report cites a igure of 20 000 jobs in the shoe-manufacturing sector alone having moved from Pakistan to China (Jamal, 2016). Thus, in the view of some Pakistani analysts, not only will the CPEC have to generate new jobs: it will also have to replace some jobs lost to China since 2007. There are similar concerns about the CPEC, which some fear will produce a more robust influx of low-cost Chinese goods that would drive Pakistani products out of the local market (Mangi, 2017). 12 See: https://twitter.com/pcipakchina and http://www.cpecinfo.com/cpec-facts-vs-iction. Eforts to build a modern technical training institute are under way. See Waheed (2016) and Awan (2017). 13 ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India Besides immediate economic and social benefits, the BRI posits significant longterm inancial sustainability issues. As a combination of equity investments and loans, the BRI is expected to be supported by a combination of government and private investors, as well as by both existing and new international organizations. However, a sustainable balance of equity and loans over the long term is difficult to achieve in the best of scenarios, and Pakistan’s conditions are far from ideal. Many analysts in India question what kind of profit Chinese investors can see in CPEC-sponsored initiatives, many of which are related to energy infrastructure projects. This is where issues of pricing and the terms of the contract, as well as the larger objective of the Sino–Pak relationship as represented by the CPEC, emerge into sharper focus. The terms of the CPEC contracts are not available to the public: this is signiicant because China has not provided grants or aid for CPEC projects, but concessional loans. These concessional loans are believed to cover approximately US$10bn worth of infrastructure projects, according to Houreld (2015), with export credit and non-reimbursable assistance by Chinese policy and commercial banks supporting the rest of the projects (Ranjan, 2015). A member of the infrastructure and regional connectivity department of Pakistan’s Planning Commission revealed in September 2015 that China would extend financial assistance to Pakistan at 1.6 percent interest for CPEC infrastructure projects, which are worth aproximately US$11.8bn. The same oicial also explained how Pakistan asked their Chinese counterparts to reduce the rate further from 1.6 to 1 percent and that negotiations were ongoing. Such bargaining suggests that the Pakistani side was dissatisied with the terms. In constrast, China had also agreed to convert PkRs.23bn worth of loans for Gwadar International Airport into a grant and extended an interest-free loan of PkRs.13.5bn for the construction of the Gwadar East Bay Expressway (Butt, 2015). China’s Export-Import bank has also agreed to support a cross-border optic iber project with a concessional loan at an interest rate of 2 percent per annum (Butt, 2015). The liqueied natural gas pipeline in Gwadar being laid by the China Petroleum Pipeline Bureau is being carried out under a loan from the Chinese Government which covers 85 percent of the project cost, with the Pakistani Government contributing the rest (Butt, 2015). According to a Pakistani report, Islamabad could end up paying China US$90bn for CPEC-related projects over a 30-year period for loans and investments worth US$50bn, meaning average annual payments in the range of US$3bn to US$4bn after 2020 (Siddiqui, 2017b). While exports were expected to grow by 4.5 percent each year till iscal year 2025, higher than the previous decade’s 3 percent average, at present igures available for 2016−2017 show that exports have declined by 1.3 percent while imports increased by 9 percent, leading to a current account deficit 88 percent higher than in 2016 (Siddiqui, 2017b). However, Ishrat Husain, former governor of the State Bank of ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 89 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 90 Pakistan, has pointed out that Pakistan’s exports have to grow at least 15 percent per annum to meet CPEC debt servicing requirements (Husain I., 2017). Another aspect that is generating increasing discussion in Pakistan relates to the perceived “fairness” of various CPEC deals. For example, the aforementioned Pakistani Senate hearing found that only Chinese businessmen, and not Pakistanis, would be allowed to invest in the nine special economic zones (SEZs) around the country (Rai, 2017). To a speciic question on whether the Chinese operator of the Gwadar Port would be subject to regular audits, the Chairman of the Port Authority replied in a negative way, citing the need to encourage investors even as he tried to underline that the authority could request inancial details and documents any time (PCI, 2017). This sort of open-ended arrangement has prompted serious questions about transparency. The China–Pakistan Economic Corridor project also involves various kinds of tax exemptions for Chinese companies. A 2015 report by the Pakistan Business Council on the 2007 China–Pakistan FTA quantiied revenue loss from the agreement at PKRs.22bn per annum, on account of tax exemptions granted to imports from China (The Pakistan Business Council, 2015). A number of Pakistani observers argue that the CPEC appears to continue along the same lines, with one analyst raising speciic questions about the SEZs, out of concern that industries set up in these zones may not have to pay direct taxes. In this context, he asked whether their procurement would rely on local sources, or, if not, whether their imports would be dutiable, while expressing alarm at the possible exemption from local taxation (Husain K., 2017). Early evidence appears to support these concerns: some reports indicate that power stations under the CPEC initiative are being equipped with Chinese cables that have been exempted from Pakistani import duty and sales tax (The New York Times, 2017). Another case comes from Balochistan, which signed a 43-year lease with the China Overseas Port Holding Company in November 2015, handing over a 923-hectare swathe of tax-exempt land to be developed as a SEZ as part of the CPEC (The Express Tribune, 2015a). According to Jamaldini, the chairman of the Gwadar Port Authority (GPA), the land acquisition by the Baluchistan Government had cost it approximately US$62m in 2015 (Muhammad, 2015). The remarkable aspect is not just the length of the lease, nor the land being ofered free of cost, which might be considered standard practice in the world, but the volume of forsaken tax revenue. The GPA’s proposed receipts of 15 percent of the gross revenue of the Gwadar Free Zone Company, including fees from the companies inside its tax-free premises, and covering rent and utilities, does not seem adequate to make up this loss.14 14 One reason provided for the tax exemption is that the Chinese operatior is bringing in all the required investment for operating and expanding the port’s infrastructure. See PCI (2017) and Abbasi (2017). ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India The ambitions of the CPEC have naturally led to a number of other debates. The Chairman of the Pakistan National Assembly’s Standing Committee on Planning and Development, Abdul Majeed Khan Khanan Khail, has gone on record to caution his government over the use of Pakistani roads by Chinese vehicles without payment being provided for such use (Moneycontrol, 2017). Other issues include alleged unfair bidding practices where Chinese companies are involved: for example, it has been reported that only Chinese companies were allowed to participate in the bidding for the Havelian– Thakot section of the Karakoram Highway (the bids submitted were more than double the National Highway Authority’s cost estimate) (Rashid, 2015) . Even more critical are the cases of Chinese investors withdrawing from projects, as was the case with the 6600-MW power project in Gadani, Baluchistan, which was launched as part of the CPEC. By Islamabad’s own admission, the withdrawal was due to concerns on the part of Chinese companies, which questioned the inancial viability of the project, even though Pakistani authorities had ofered to set up an ad hoc revolving fund (Pal, 2015). Chinese players have similarly pulled out of five power projects in Punjab, which would have generated 6600 MW. Altogether, these two projects totaled some US$16bn in value, or nearly half of the original outlay for power projects under CPEC (Pal, 2015). The concerns within Pakistan about the terms of CPEC deals, their expected returns and their timelines have become rather serious, which is evident in the recent statement by Pakistani Senate Planning and Development Committee Chairman Syed Tahir Hussain Mashhadi, who declared that “China is our brother, but business is business” (Rai, 2017). VII. India’s Perceptions on the China–Pakistan Economic Corridor Chinese analysts often assume that India fundamentally wishes for Pakistan to be in a state of permanent weakness or even instability. This view is based on a perception of the nature of the India−Pakistan relationship as being inherently antagonistic because of historical and religious diferences. Indeed, this opinion is widespread both in the media and among the public, as well as sporadically features in the scholarly communities of India and Pakistan. However, realists in the Indian Government and across policy circles take the view that a stable and democratic Pakistan serves India’s interests best. It is thanks to this approach that official and back-channel dialogues between India and Pakistan have taken place at various junctures despite the entrenched difficulties in the relationship. It might even be argued that some members of the Indian strategic community would prefer to see a military regime installed in Islamabad for the sake ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 91 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 92 of greater stability and willingness to take decisions. The talks between the Indian leadership and General Pervez Musharraf, when he was in power in Pakistan, seemed to nearly reach agreement on converting the military line of control between the two countries in Kashmir into a full-ledged international boundary. While such an agreement was eventually not reached, the fact remains that Indian policy-makers and analysts are not opposed to a stable and economically prosperous Pakistan as is sometimes believed in China.15 In fact, although there is official Indian opposition to the CPEC on the grounds that it passes through Pakistan-occupied Kashmir, there has actually been little to no opposition to the idea of China supporting Pakistan in economic terms. In contrast, Indian analysts have highlighted the economic possibilities that the CPEC could ofer India if China and Pakistan were willing to invite India into the project (Jacob, 2017a,b; Bhoothalingam, 2016). On the other hand, Indian observers cannot aford to ignore opposition or concerns within Pakistan over the CPEC, for this indirectly impinges on India−Pakistan relations. Among the oft-quoted positive externalities of China’s investments in Pakistan, one of the key propositions is that the ensuing economic development would reduce the chances of Pakistani youth falling prey to radicalism and terrorism.16 The implication is that in the event of a failure of the CPEC, there would be greater likelihood of Pakistanis resorting to violence for lack of better opportunities. Therefore, the conditions that afect the progress of the CPEC, including the number and quality of jobs generated, are also of concern to Indian policy-makers. Among such conditions is the fractiousness that the CPEC has engendered in Pakistani domestic politics. In light of the huge funds involved in the CPEC, various interest groups in Pakistan have claimed a share of the pie and expressed concerns about being cut out by more powerful parties. Regional political parties are already quarreling about the speciic geographical location of the CPEC’s projects, while certain provinces complain of being left out or discriminated against. A complaint initiated by Khyber Pakhtoonkhwa and Baluchistan against Punjab, for example, was that it was trying to acquire a disproportionate amount of the beneits (The Express Tribune, 2015b). Even though then Pakistan prime minister Nawaz Sharif called for the completion of the western route of the CPEC (The Express Tribune, 2015c), the Chairman of the Pakistani Senate’s Standing Committee on Communications, Muhammad Daud Khan Achakzai, highlighted the lack of funding for this route while the Chief Secretary of Baluchistan acknowledged that a committee formed to acquire land in Baluchistan and Khyber 15 Source: Conversations and discussions with Chinese scholars in China and India during 2014–2017. Several Chinese scholars made this point at various conferences that the author attended in China in 2016. 16 ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences BRI: Perspectives from India Pakhtunkhwa to complete the western route had not met since its formation (Rai, 2017). There have been reports that the Pakistani Army and other players within the country are dissatisied with the pace of progress and that the many political tensions are persuading some of the necessity for the Army to take over its implementation (Rana, 2016). A Pakistani analyst, Tariq Osman Hyder, writing for China’s Global Times commented on his country’s “past indiferent record” on seeing projects through to completion, warning that with “the whole world competing for Chinese investment, there is no room for backsliding”(Hyder, 2015). Therefore, the concerns within Pakistan are that the slow pace of implementation of the CPEC might cause the Chinese Government either to dilute its commitment to the project, or to support the Pakistani army’s taking over the implementation of the project, thereby further weakening the elected civilian government. The weakening of Pakistan’s civilian government is a concern that extends to India, given that there are more avenues for interaction and cooperation between India and Pakistan when a civilian government is in power in Islamabad than otherwise. Were China to support a broader role for Pakistan’s army in the name of the eiciency of the CPEC, not only would it destroy the civilian initiative necessary for the long-term success of the CPEC, it would revive fears in India of a Sino–Pak military nexus in operation against India.17 Meanwhile, Pakistani intellectuals have wider concerns about whether such Chinese largesse actually makes Pakistan beholden to China in ways that are unhelpful for Pakistan in the long run. For instance, some commentators wonder whether Pakistan can pay China back (Rai, 2017), and question what the Chinese might demand in return if debt repayment were to be impossible. Could such dependence on China stymie or create an opportunity to use the current Pakistani economic crisis to engage in a larger, more comprehensive reform process (Tirmizi and Masooma, 2017)? These are questions that are being raised by both liberals and conservatives among the Pakistani elite. From the Indian perspective, if even Pakistan, which sees China as an “allweather friend,” has tangible concerns over the economic viability, transparency and distribution of CPEC projects, it is natural that the BRI should be subject to intense scrutiny. Beijing argues that China is willing to invest at considerable risk to build infrastructure in countries that have not received adequate attention from the developed economies or from international development agencies. This is undisputable and India’s eforts have lagged far behind China’s. Nevertheless, as a country that has itself been engaged in development activities, including connectivity projects (Ahmad, 2016), in other countries and as the one that stands to face, at least in South Asia, the direct 17 Source: Conversations with Indian security oicials and analysts during 2015–2017. ©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences 93 94 Jabin T. Jacob / 78–100, Vol. 25, No. 5, 2017 consequences of potential dissatisfaction with (or failure of) the BRI, India certainly has reasons to both watch closely and raise questions where necessary. VIII. Concluding Remarks Since late 2015, when Beijing realized that Indian opposition to the BRI remained vibrant, Chinese scholars and diplomats have frequently stressed that China sees for India a very important role in the BRI across South Asia, trying to assuage India’s worries (Liu, 2017). There is no doubt about the sincerity of such pronouncements but there remains a general lack of official details provided by Chinese authorities. What is more, Indian analysts have begun to use China’s resistance to Indian aspirations for membership to the Nuclear Suppliers Group and the UN Security Council (UNSC), as well as India’s attempts to sanction Pakistan-based terrorists under the UNSC’s Resolution 1267 as additional reasons for India to oppose the BRI. Although the wisdom of linking such disparate matters is questionable, there is no denying that the BRI is now part of the larger matrix of bilateral concerns between India and China. Meanwhile, the developments within Pakistan in the wake of the launch of the BRI have consequences for India and imply similar consequences for other countries where Chinese investments are being directed under the BRI rubric. As suggested by the case of the CPEC, even leaving aside the political dimensions, BRI projects invite scrutiny on economic grounds alone. The speciic terms of contracts, the inancial sustainability of the debt burden, the increase in jobs and the distribution of longer-term economic beneits all still need to be fully ascertained even in the case of the CPEC. Therefore, the BRI is bound to generate much careful study and consideration in India. 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