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The economics of influence

In recent years, there has been a consistent increase in Chinese trade with and investment in South Asia. It has been argued that smaller states South Asia have welcome China’s growing interest and engagement as it provides economic benefits and serves as a counterbalance to India.

On account of enhanced trade and people-to-people to contact, particularly in the form of scholarships from the Chinese government and higher education institutions for students, South Asia has witnessed the increasing influence and footprint of China in several sectors of the economy. However, all countries of the region don’t share the same sentiments when it comes to the increasing role of China in South Asia, particularly under the Belt and Road Initiative (BRI).

While most smaller economies view foreign direct investment (FDI) from China toecono be quite beneficial to fill the resource gap, and upgrade and modernise their infrastructure, India has a different perspective on the greater role of China in the region. This is why many believe that though China’s engagement with the region has unquestionably changed many things, it hasn’t put an end to old fears or allayed all sources of distrust.

In contrast to India’s stance, other South Asian countries have an altogether different approach vis-a-vis the BRI. While India is deeply apprehensive about China and its growing role in South Asia, the case of other South Asian countries is quite different. China has shrewdly made use of “a host of political moves, economic largess and military linkages” and has been quite successful in promoting friendly relations with countries in the region that have, due to various reasons, become less friendly towards India. While the case of Pakistan is known to many, let’s explore how Bangladesh and Sri Lanka – two countries that have mostly remained close to India – view the China-led BRI.

Bangladesh officially joined the BRI after a historic visit by Chinese President Xi Jinping in October 2016. It must be remembered that on August 25, 1972, China vetoed Bangladesh’s admission into the UN and rejected Sheikh Mujibur Rahman’s overtures. Recognition by Pakistan, and Bangladesh’s admission into the Organisation of Islamic Conference (OIC) during the 1974 Lahore summit gradually placated China’s position.

As China reversed its earlier stance, Bangladesh joined the UN on September 17, 1974. However, improvements on the bilateral front followed slowly. China’s recognition of Bangladesh didn’t come until October 4, 1975 – weeks after Mujib’s assassination – and diplomatic exchanges took place only the following year.

In recent years, China has made huge strides in expanding its overall bilateral ties with Bangladesh, and bolstering its foreign policy and economic interests. During Xi Jinping’s official visit to Dhaka in 2016, aimed at garnering diplomatic support for his signature “project of the century”, the two countries signed deals amounting to over $38 billion – the most credit ever pledged to Bangladesh by an external power.

Bangladesh Prime Minister Sheikh Hasina offered her country’s support to the initiative. China has already engaged as a major development partner for Bangladesh. Chinese companies and individuals are now offering assistance in developing the information and communication technology industry; river management; industrial zones; land reclamation; and maritime cooperation in Bangladesh. Chinese diplomats are encouraging Chinese companies to further invest in Bangladesh’s infrastructure and labour-intensive sectors for the mutual benefit of both countries.

China has overtaken India to become Bangladesh’s largest partner on energy. About half of Bangladesh’s population doesn’t have access to electricity, according to a report from China’s embassy in the country. The government in Dhaka has, therefore, decided to double its electricity-generating capacity to 24,000 megawatts by 2021. China has invested in two large power plants thus far: one located in the southern district of Patuakhali, and another near the bustling port of Chittagong, Bangladesh’s second largest city.

China has also become Bangladesh’s largest trading partner, accounting for 26.3 percent of its total imports. Thus, in stark contrast to the era when it came into existence, Bangladesh now shares close and comprehensive ties with China. Meanwhile, its relations with India have often been plagued by differences, controversies, misunderstandings, mutual acrimony and suspicion.

For its part, Bangladesh has been keen to have Chinese presence in South Asia and, together with Nepal and Pakistan, worked towards China’s entry into Saarc as an ‘observer’. In contrast to India’s staunch opposition of the plan, Shahidul Haque, Bangladesh’s foreign secretary, explained the need to balance “sovereignty” and “economic integration”.

During the ‘Asia’s New Normal’ discussion at the WEF Conference in 2017, the foreign secretary emphasised on the importance of economic growth. He stated that we cannot remain ‘link-less’ in the current situation. He mentioned that the issue of sovereignty must take a “backseat” to “economic integration”, emphasising that they stood behind Sheikh Hasina’s decision to support the BRI. “We can’t forget what the people want…For us as a country, what we need is [the] quick up gradation of our infrastructure and our generation wants much more interaction and connectivity,” Shahidul asserted. As a result, Bangladesh is attempting to balance ties with India and China, keeping its own geopolitical and economic interests in mind.

In the case of Sri Lanka, the country appears to have forged closer economic, military and diplomatic relations with China over the past few years. The two countries established a diplomatic relationship in 1957 and there was considerable trade, aid and technical cooperation in various areas. The relationship between China and Sri Lanka reached a new peak under the post-2005 administration. China invested around $14 billion in infrastructure projects in Sri Lanka from 2005 to 2015. In a landmark state visit to China in 2007 on the occasion of the golden jubilee celebrations of diplomatic ties, Sri Lankan President Mahinda Rajapaksa signed eight bilateral agreements and MoUs with China.

Besides Hambantota Port, China has also invested in the power sector (Norochcholai Coal Power Plant), transport infrastructure (Colombo-Katunayake Expressway to speed up transportation between the country’s capital and its key international airport), the Palai-Kankasanthurai line, and a Jaffna housing complex for the army and industrial zone (Mirigama Exclusive Economic Zone). As a result, China has become the country’s largest investor. However, China has yet to acquire the same position in India as a large market for exports, the largest source of imports, and a significant source of FDI even though China is far ahead of India in terms of financial and technical assistance.

There is no doubt that China has substantially increased its diverse engagements with South Asia and there are more Chinese companies and nationals working in these countries than ever before. However, it is still believed that – in view of China’s geographical proximity to the region and the enormous potential of its economy – trade and financial linkages between China and South Asia are still limited.

There is massive potential to expand them and attain the gains from trade, knowledge spillovers, risk sharing and diversification. To reap the true potential of the BRI and several mainland corridors, seaway channels and economic zones envisioned by Xi Jinping, it is vital for the countries of the region to resolve their bilateral disputes. They must also join hands to build a more prosperous future for the coming generations of the region and beyond.

The writer is a postdoctoralresearch fellow at the GermanDevelopment Institute at Bonn, Germany.

Email: muradali.uom@gmail.com

Dr Murad Ali, "The economics of influence," The News. 2018-09-13.
Keywords: Economics , Economical issue , Economical growth , Economic zones , Economic interests , Trade , Revenues , Infrastructure , PM Sheikh Hasina , President Xi Jinping , Bangladesh , China , FDI , BRI , OIC