China’s imperial folly

Its One Belt, One Road initiative is nothing short of this, as it is a low-yield, resource-intensive project.

China’s imperial folly
China faces formidable problems with its old development model. Its export markets for manufacturing are themselves going through a weak recovery from recession. (AP)

China has just had a meeting of representatives of all countries which it wants to influence with its One Belt, One Road (OBOR) programme. Apart from India which only sent a low-level delegation, leaders like Putin and Nawaz Sharif turned up. Heads of Central Asian Republics—the -stans—were also there.

The range of OBOR is breathtaking. It wants to connect London with Beijing by a rail line. It wants another line to get across to Turkey and then on to Mediterranean countries. One line is going from the Western parts of China where the Uighurs live down Pakistan to Gwadar. This is the repeat of the old Great Game in which the Russians wanted to reach a salt-water port on the Arabian Sea. This is the one which worries India the most. The China Pakistan Economic Cooperation (CPEC) is at the heart of China’s friendship with Pakistan. The fact that the railroad passes through Baltistan which India claims makes it a contentious issue. There are OBOR schemes for South East Asia which were not there on the original Silk Road route. China also wants a string of ports from South China Sea via the Indian Ocean and the Mediterranean up to the Atlantic.

What is the purpose of all this activity? China wants to access the commodity resources of Central Asian countries. These are low-density settlements, but have a lot of natural resources. This is what China has done across Africa and Latin America. Its model of export-led development was highly natural-resources-intensive, with minerals and oil being the principal imports. That model has now outrun its course. China has overcapacity in its old industries producing steel and building materials. The OBOR scheme is one way to keep the old industries running. Due to its socialist principles, China hates to make workers redundant. Hence, a low-value, resource-intensive investment outlet. (In the old days, Marxists called this a ‘vent for surplus’ theory of imperialism.) These resources are not needed at home.

China faces formidable problems with its old development model. Its export markets for manufacturing are themselves going through a weak recovery from recession. The export-led path is closing up. China has to transit to a domestic-demand-oriented model.

Obviously, there are strong vested interests in the old industries which resist any transition, hence OBOR. China has founded two banks the Asian Infrastructure Investment Bank and, with the BRICS countries but with mostly Chinese money, the New Development Bank. These banks will lend to infrastructure projects. A country which has OBOR passing through it can borrow money to finance its railroad. Thus, Central Asian countries, Pakistan, Middle Eastern countries can all be part of the borrowers of Chinese largesse.

You May Also Want To Watch:

The question is why waste enormous sums of money on an infrastructure project with a transport technology which is obsolete (i.e., railroad)? China has the reserves to afford it. It may even be that the countries which have the road passing through them will be grateful and pay back the loans. But surely, there are urgent needs at home which would be better met with these enormous sums of money. Pollution, for one, is a deadly problem for China. Rural housing continues to lack modern facilities. China is about to be hit by the problem of an ageing population. Infrastructure projects connecting low-density settlements with China with railroads must be a ‘very low rate of return’ activity—with zero, if not negative, welfare benefits.

But the idea of re-emerging as Middle Earth which held sway over All Under Heaven is too attractive. This is the most ambitious infrastructure scheme since the Roman Empire. It would be a miracle if China succeeded in completing the full schedule of projects. What is more if it did finish the project, it would have built the greatest number of White Elephants in search of lost imperial glory.

Xi Jinping is obviously getting too grand. Recall how Mao Zedong wrecked the Chinese economy by trying to overtake Britain in one decade. The Great Leap Forward, as it was called, led to the greatest famine the world has known with 40 million deaths. He followed that disaster up with the Great Proletarian Cultural Revolution which displaced the party leadership (except himself) and disrupted the economy. China wasted 30 years, thanks to Mao. Deng Xiaoping took a much more pragmatic line and pursued growth and profitability. Within 30 years, his policy had more than made up for Mao’s folly. China over-saved, over-invested, but also accumulated one of the largest foreign exchange reserve—$4 trillion—we have seen for a while. It now seems Xi wants to spend it on an imperial folly.

India has reason to relax rather than worry about OBOR. The more money China wastes on low yield, resource-intensive projects, the less would it be able to strengthen its own population and cater to its needs. India should pursue human development and poverty eradication schemes rather than build new Taj Mahals.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 22-05-2017 at 05:36 IST