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“Belt and road initiative” and “indo-pacific strategy”: new Dynamics of regional Cooperation

By CGCC Vision

The “Belt and Road Initiative” (B&R), China’s diplomatic strategy that stresses on economic benefits, has generally received support from countries in the area, but in the international arena, the Indo-Pacific Strategy (IPS) linking Japan, the US, Australia and India is regarded as a regional cooperation alliance that rivals the B&R. The subtle relationship between the B&R and IPS is characterised by both competition and coexistence, which will add more uncertainties to the global political and economic situations.

Simon Shen: Balancing diplomacy seeks cooperation amid competition

The IPS stemmed from a joint statement issued by India and Japan in 2016, when the leaders of the two countries proposed to improve the “connectivity between Asia and Africa” through a “free and open IndoPacific”. Simon Shen, co-director of the International affairs Research Institute at the chinese University of Hong Kong, said that the IPS, which was discussed in more detail in Japan’s Diplomatic Bluebook 2017, points to a prosperous society consisting of two continents (Asia and Africa) and the two oceans (Pacific Ocean and Indian Ocean). Japan will expand infrastructure, trade and investment for Asian countries; it will support national construction for African countries, and commit to promoting good governance with the aim of achieving “confluence of the two seas” and connectivity between Asia and Africa through humanity support, peacekeeping, etc.

According to Shen, Australia began to position regional strategic interests in the Indo-Pacific region in its 2013 National Defence White Paper, where it mentioned the need to strengthen economic and security relations with India; and India, with its foreign policy influenced by pragmatism, advocates stepping up new military cooperation with its allies and actively participates in global governance. Since 2011, India has been strengthening relations with the US and Australia through the Indo-Pacific region. The most frequently used new phrase by US President Trump in his foreign policy is precisely “Indo-Pacific”. He has repeatedly stressed the freedom of navigation in the Pacific Ocean, which is in line with the right to freedom of navigation in the Indian and Pacific Oceans espoused by the IPS. The US’s emphasis on the IPS is self-evident.

IPS does not impede cooperation among countries

Shen admitted that the US, Japan, Australia and India indeed have common strategic goals and economic complementarities: “Japan’s advanced production technology and India’s population market can be structurally integrated, while the US and Australia can mutually benefit each other through trade. Moreover, none of the four countries want China to be the only dominant force in the region, so they have a common strategic goal.” Shen added that the current IPS roadmap is relatively clear, i.e. to use the ASEAN countries as a centre and buffer zone in the Indo-Pacific region to offset or at least balance out China’s influence on ASEAN.

However, Shen believes while it is relatively easy for these countries to strengthen economic cooperation through the IPS, it is quite difficult for them to use it to form a substantive military alliance. He pointed out that although China regards the IPS as a new containment effort of the US, it is not possible for all the countries involved in the strategy to become a single entity: “After the IPS is put in place, China can still cooperate with individual countries on different issues. India, Japan and Australia are not willing to undermine relations with China on the economic front, and China also wants to rope in these three countries in response to the trade war with the US.” Shen pointed out that India’s decision not to participate in Indo-Pacific military cooperation also shows that China’s efforts to win over India is beginning to bear fruit.

Balancing diplomacy seeks cooperation amid competition

Shen expected that the IPS and B&R will not turn the global situation into a binary opposition similar to that during the old Cold War era, because countries, especially

India, want to pursue a balancingdiplomacy strategy. (Note: “Balancing diplomacy” means that the country refuses to join any camp, but it is not passively being “non-aligned” or “neutral”. Instead, it adopts a series of policies that contradict and influence each other in objectives and that offset each other, always keeping “a way out” for itself in terms of policy and stance in order to maintain its own vague position.) “The Middle East and East Africa within the Indo-Pacific region will welcome options other than the B&R; Russia with its own geostrategic Eurasian Union should be pleased to see an Indo-Pacific that is more south-focused than Asia Pacific; and the EU is mulling over a ‘connectivity strategy' to link up with Asia, which can be seen as echoing the IPS.”

Who will be the biggest beneficiary in the rivalry between the IPS and B&R? Shen expected the ASEAN countries, which are set to be the centre of India-Pacific and outpost of the “Belt and Road”, will be offered more projects. In addition, they have always been adopting hedge diplomacy between the major powers; thus, they are expected to be the biggest beneficiary.

Looking ahead at the future development of the global situation, Shen believes there is no absolute exclusivity in such grand strategies as the IPS and B&R. “Just like the relationship between the B&R and Russia’s Eurasian Union where cooperation and competition co-exist, the B&R and IPS can also compete and cooperate with each other concurrently, which all the countries in the region will be happy to see.”

George leung: B&R is a chorus involving and benefiting countries across the world

After taking office, US President Trump actively canvassed support from India, Japan and Australia for the Indo-Pacific Strategy (IPS). Recently, US Secretary of State Pompeo unveiled a USD113 million “Indo-Pacific Economic Vision” investment plan, which seems intended to compete with China’s B&R. However, the IPS still lacks a blueprint to take it forward, so inevitably, it sounds more like a slogan.

In contrast, the B&R, an initiative that covers the Asia, Europe and Africa continents, has entered its fifth year. Although there have been some controversial issues during its launch, the initiative has always received wide support from countries along the “Belt and Road”, enabling it to gradually move from vision to fruition. HSBc asia Pacific adviser george leung believes the China-initiated B&R is fundamentally an international economic cooperation platform for multilateral participation, and Southeast Asian countries stand to benefit the most from it.

Funding from china is essential in the early stages

Leung said that infrastructure is the core and priority area of the B&R. A number of infrastructure development demonstration projects were launched over the past five years. The Mombasa–Nairobi Standard Gauge Railway was completed and opened to traffic; the Addis Ababa–Djibouti Railway commenced operation; the second phase of the Hambantota Port development project was completed; Pakistan’s Gwadar Port resumed operations; and the SinoThai railway, the Hungary-Serbia railway and the China-Russia highway bridge in Heihe began construction. The huge capital needed for these cross-border infrastructure projects triggers concern that B&R projects may lead to greater debt burden on many debt-ridden Southeast Asian countries and may even cause a crisis there.

Indeed, the B&R involves mostly developing countries. Leung pointed out that as these countries have weak infrastructure and their financial systems are also not well developed, investment risks are high and there are rarely any financial institutions that can provide sufficient funding support alone. However, the Asia Development Bank projects that the Asian region needs as much as USD26 trillion for infrastructure projects in 2016-2030. Hence, in the early stages of the B&R, the Chinese government has been the main funder for project implementation. In addition, the Chinaled Asian Infrastructure Investment Bank has approved more than USD5.3 billion in project investments and earmarked USD41 billion for the New Development Bank. China will also contribute an additional RMB100 billion to the Silk Road Fund. China's investments are evident.

Attract international capital to grow bigger

As the BRI enters the intensive stage, Leung stressed that it is important to have more international cooperation and private capital participation. In particular, commercial banks can serve as major fund providers to offer loans at an early stage; investment banks can broaden direct financing channels to provide diversified financial intermediation services; pension funds and insurance companies can provide long-term funding through capital markets and asset management; and private capital can participate via publicprivate partnerships. At the same time, some funds can attract international capital participation through the issuance of green bonds, infrastructure securitisation and RMB-denominated products in Hong Kong.

Meanwhile, Southeast Asian countries have gradually become global manufacturing bases. Leung believes by improving their infrastructure and bringing their products closer to the Asian consumer markets, especially China’s large consumer base of 1.4 billion people, they are creating a truly win-win situation. He is convinced that given the current anti-economic globalisation sentiment and rising trade protectionism, the B&R’s importance is more prominent as it not only focuses on construction and interconnection of infrastructure, but also guides investment to the real economy. The B&R is not China’s solo show, but rather a chorus involving and benefiting countries around the world. 

 

This article was first published in the magazine CGCC Vision. Please click to read the full article (P. 7-12).

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