The IMEC versus the BRI: What’s the future?

By MAROOF RAZA

It is rare that a project does address both geopolitics and geo- economics, but the ambitious deal that Mr Modi’s vision has led to the establishment of the India Middle East European economic corridor, (IMEC) as a historic breakthrough, which should give a great boost to India’s trade and geopolitical ambitions, particularly with reference to the Gulf region.

What in real terms India has been able to achieve is the long-standing requirement of a trade corridor with the Gulf region and the European Union (EU). Even the US is keen to participate in this initiative, not only to show China that a counter- initiative to the President Xi’s ambitious BRI is finally falling into place, but because of its enormous potential of this trade corridor between India and the Gulf region and the EU, it was something that was waiting to happen particularly to counter China’s vast ambitions of its BRI (Belt and Road Initiative) which the Chinese had initiated a decade ago with the intention of exploiting the global markets, particularly in Central Asia and Africa, for their vast stocks of manufactured of products piling up in Chinese factories.

Also, the talk about the old Silk route has its historical basis in the geographical contacts from the Gulf region across Central Asia up to China, even as several experts and governments have begun to use the term ‘silk route’ as something that helps define largely land trade across Asia. It was a term coined by a German historian in the 19th century and was essentially aimed to project China’s ambitions in the world beyond its borders. Scholars argue that the ‘silk route’ is a set of ancient trade routes that China has reconfigured to create its Belt and Road Initiative. The central point to understand is that India had been waiting to counter China’s ambitions of surrounding India with its BRI from India’s northern land borders; initially through the China Pakistan economic corridor and later by entering India’s neighborhood areas of Nepal and even Myanmar, with such an initiative. Thus, Mr Modi’s policy team must be credited with coming up with the idea of IMEC.

Is the IMEC a counter to China’s BRI?

But we must not rule out the ten-year lead that China has in terms of its various initiatives in countries that are part of the BRI. And even though the India Middle East Economic Corridor (IMEC), though it’ll boost trade, it will also require investments in infrastructure and new ideas to be critical for India’s long-term ambitions, particularly in the Gulf countries. An important port of call for India’s exports would be the UAE as the cost of exporting products from the UAE to EU is much lower in the time and money, than it takes to move products from Gujarat to Germany, once everything is put into place. Officially the project has 8 key stakeholders including India, the UAE, Saudi Arabia, Italy, France, Germany and the EU. And there is also the involvement of Israel’s ports – in keeping with the spirit of the Abraham Accords and the I2U2 initiative- that has led to much excitement in Israel. Turkey on the other hand is visibly upset at being left out of the equation. But as the network expands there is a possibility that more countries that are not hostile to the IMEC’s’8’ partners, would also be brought in. Incidentally about 2000 years ago maritime trade between ancient India and the Roman Empire took the Red Sea cum land route to the Mediterranean and onto the Roman Empire.

A report published in the Financial Times in April, pegged the BRI lending figure over the past decade at approximately US$1 trillion. With the Covid pandemic hitting many of these debt-burdened nations hard, China has had to renegotiate or even write off debts to the tune of US$76.8 billion between 2020 and 2022, data released in March this year by the Rhodium Group, an independent research provider, has shown. Apparently, most of the agreements are shrouded in secrecy and the “size and characteristics of China’s lending boom have remained exceptionally opaque”, says Dr Srikanth Kondapalli, professor of China studies at Delhi’s Jawaharlal Nehru University (JNU), furthermore, “No official numbers have been released by China about the amount of money lent by the government.

Countries signing MoUs with the nation or Chinese banks, such as Industrial and Commercial Bank of China or Export-Import Bank of China, cannot tell anyone of their loans.” Researchers from the University of Munich, Harvard Kennedy School and the Kiel Institute have also highlighted that around 50 percent of Chinese lending is not included in the World Bank database. This is problematic when understanding the total debt of a country, especially in a default.

The Chinese BRI’s ‘debt trap diplomacy’

For instance, Zambia became the first African country to default on its debt obligations post the Covid pandemic in late 2020. In 2016, Angola received a US$6.9 billion loan from China Development Bank while offering “unspecified income from oil exports” from Sonangol, Angola’s state-owned petroleum and natural gas Company, as collateral. A US$10 billion loan to Venezuela in 2015 was backed by Petróleos de Venezuela

income from daily oil sales to China National United Oil Corporation. Petróleos de Venezuela is a state-owned enterprise of the Venezuelan government. “China’s lending strategy in cases like Angola or Sri Lanka was planned with a view of their strategic resources,” explained Kondapalli. “China’s interest in Sri Lanka was the Hambantota International Port, now under Chinese control, and despite India’s over US$3 billion support to Sri Lanka last year at the height of its financial crisis, the government of Sri Lanka had to allow the Chinese spy ship Yuan Wang 5 to dock at Hambantota,” he added.

China’s usage of loans as leverage has not gone unnoticed. After the Hambantota development, smaller nations have become more careful and want to be thorough about the loans promised by China.

Barring India and Bhutan, – which aren’t part of BRI- all other South Asian countries who are part of the BRI are becoming wary of it, except for the (now Chinese vassal state) of Pakistan. In 2013, they announced the China-Pakistan Economic Corridor (CPEC), a multi-billion-dollar project that gained further momentum in 2015 when Xi Jinping visited Pakistan. The CPEC, considered a prominent project of the Belt and Road Initiative (BRI), was intended to transform Pakistan’s economy. It was launched at a critical time when Pakistan faced challenges to its internal security and economic issues with declining foreign investments, macroeconomic instability, and electricity shortages. However, since 2018, progress on the CPEC has slowed down due to these very reasons. Chinese investors in Pakistan became targets of militant attacks, prompting Chinese leaders to call for better security measures for their citizens in Pakistan.

Around US$25.4 billion has been invested in various CPEC projects, by China, for coal and hydro power projects, the orange line metro, and road infrastructure. However, it is believed that China’s lending to Pakistan is driven by its own strategic interests, and the details of the projects, such as investment terms, loans, and the full extent of the initiatives, remain somewhat unclear. According to the latest estimates, Pakistan’s external debt has exceeded US$100 billion, with more than US$30 billion, which is about one-third of the total external debt, owed to China. The economic ties between China and Pakistan through the CPEC are mostly based on debt, with high interest rates ranging from 4.5 to 6 percent. This has added to the financial burden of Pakistan, which is already facing economic distress.

In May, the extension of the Belt and Road Initiative (BRI) to Afghanistan raised suspicions about China’s intentions in tapping the nation’s abundant resources, especially considering Afghanistan’s war-torn but resource-rich status. China agreed to extend the US$62 billion CPEC to Kabul after the Taliban’s agreement to join. Nepal became a signatory of the BRI in 2017, and currently, China is its largest creditor. Initially, Kathmandu agreed to 35 projects under the BRI, but in 2019, they requested a reduction to only nine projects. Nepal made it clear that they preferred grant or soft loans instead of high-interest loans with short repayment timelines. Due to financial difficulties faced by Colombo, officials in Nepal became cautious about Chinese financing. Despite reaching agreements on various projects, no projects under the BRI have been implemented in Nepal since 2017. Kathmandu has repeatedly reiterated that there is no implementation of any BRI projects in Nepal as of now.

It seems that Beijing’s unilateral declarations of projects under the Belt and Road Initiative (BRI) in Nepal are mainly aimed at showcasing China’s increased visibility and influence in the region. While discussions about BRI projects have mainly revolved around infrastructure, Nepal’s preference for soft loans or grants over commercial loans (which Beijing prefers) indicates its suspicion and caution towards China’s intentions. Nepal wants the interest rates and repayment periods to align with funding agencies like the Asian Development Bank and the World Bank. Additionally, Nepal insists that BRI projects should be open for free and fair competitive bidding, raising concerns about China’s motivations and actions in the region under the pretext of the BRI.

More than 150 countries, many of them developing and emerging economies, are part of President Xi Jinping’s BRI — touted as the “project of the century, which envisages new trade routes connecting China with the rest of the world and includes construction of ports, roads, railways, airports and other infrastructure.” Now, the question is: ‘does the number of participants matter as in the case of the BRI or the volume of trade as in the case of IMEC?’ In all likelihood, it’s the latter initiative that would have stumped the Chinese leadership, their plans of global domination through the BRI notwithstanding.

Nepal became a signatory of the BRI in 2017, and currently, China is its largest creditor. Initially, Kathmandu agreed to 35 projects under the BRI, but in 2019, they requested a reduction to only nine projects. Nepal made it clear that they preferred grant or soft loans instead of high-interest loans with short repayment timelines. Due to financial difficulties faced by Colombo, officials in Nepal became cautious about Chinese financing. Despite reaching agreements on various projects, no projects under the BRI have been implemented in Nepal since 2017. Kathmandu has repeatedly reiterated that there is no implementation of any BRI projects in Nepal as of now. It seems that Beijing’s unilateral declarations of projects under the Belt and Road Initiative (BRI) in Nepal are mainly aimed at showcasing China’s increased visibility and influence in the region.

More than 150 countries, many of them developing and emerging economies, are part of President Xi Jinping’s BRI — touted as the “project of the century, which envisages new trade routes connecting China with the In fact, a decade ago Chinese President Xi Jinping, chose to steadily invest $ 1.1 trillion dollars in what was first known as the One-Belt-One- Road (OBOR) project, and later re-named BRI, to China’s stamp across the world that was expected to have long-term benefits for China both in terms of trade and geopolitics. Unfortunately for Chinese diplomacy they are hard hitting approach to engaging with countries in the developing world or what has come to be known as the ‘Global South’ has led to a lot of ill will against China’s investments which are seen as ‘debt trap diplomacy’, where China would initially lure countries into taking Chinese money, and as they caught up in a spiral of debt, which many of them have been unable to service such as Sri Lanka, Pakistan and even African countries, who then had to hand over territories – ports like Hambantota, Gwadar, etc… – that are now Chinese ports in the Indian ocean. India’s more benevolent approach to trade and providing support to African countries had now led to a popular sentiment for India amongst the African countries as we saw in G-20 summit.

The question is: does the number of participants matter as in the case of the BRI or the volume of trade as in the case of IMEC? In all likelihood, it’s the latter initiative that has stumped the Chinese leadership, their plans of global domination through the BRI notwithstanding.

The author is a Strategic Affairs Expert and has his own website: http://www.maroofraza.com

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