China-South Asia Cooperation Signals Grand Strategy

COLOMBO: The first China-South Asia Cooperation Forum (CSACF) which was held on June 14 and 15 at Fuxian Lake in the Yunnan Province of China was on the theme: “Closer Regional Cooperation for Inclusive Development”.

The holding of the forum by the Chinese Ministry of Foreign Affairs and other state institutions signaled that China is now looking at South Asia not just as a congeries of different countries unrelated to each other except notionally as belonging to a recognizable geographical region, but as a compact unit.

And to deal with this unit, a collective regional policy is called for. The forum was meant to help develop a collective “grand design” which would, at once, serve the interests of China and the South Asian region.

The forum attracted 400 participants from all SAARC countries except Bhutan. Speakers from eight SAARC countries, including India, spoke eloquently, lauding China’s initiative to bring South Asia closer to it.

While trade between SAARC countries is only US$ 50 billion, trade between China and the SAARC countries together, is US$ 126 billion, which is a 31% increase over the figure for 2015.

With the new found friendly “Wuhan Spirit” still pervading India-China relations, the Indian speaker, the Consul General in Guangzhou Sailas Thangal, said that the government of China and the South Asian countries should “facilitate crisscrossing of ideas for development and a trust worthy connection of hearts and minds.”

The First CSACF included parallel events such as: the China-South Asia Poverty Reduction Exhibition; China-South Asia High Level Roundtable Meeting for Business Cooperation; China-South Asia Local Government Leaders’ Dialogue; and the Financial Cooperation and Development Strategy Seminar.

The forum’s declaration said that China and South Asian countries should further deepen interactions to consolidate cooperation; expand cooperation; materialize cooperation projects and improve cooperation quality. The parties supported the establishment of the CSACF Secretariat in Yunnan and decided to meet again in 2019.

The Fifth China-South Asia Expo held in Kunming, capital of Yunnan province, was held on June 18. In that, 266 deals were concluded in sectors like green energy, green food and tourism. Moe than 3,800 companies from 87 countries participated and deals for 104 projects exceeded US$ 156 million each.

China’s Investments in South Asia

China and Pakistan are now considering extension of their US$ 57 billion China-Pakistan Economic Corridor (CPEC) to Afghanistan. The Maldives became the second country in South Asia, after Pakistan, to enter into an FTA with China. China is also doing massive infrastructure projects in the Maldives.

Sri Lanka too has humongous China-funded projects in the field of roads, railways, house building and city construction. It is also working on an FTA with China.

In Nepal, Prime Minister K.P. Sharma Oli declared that the Rasuwagadhi-Kerung border point, the only transit point between Nepal and China, would be upgraded to international standards. China is also interested in connecting Kathmandu to Tibet’s capital Lhasa via railways at an estimated cost of US$ 8 billion, as part of its Belt and Road Initiative (BRI).

Pitfalls

However, there are pitfalls in China’s way in South Asia. Pakistan reportedly rejected China’s offer to build the Diamer-Bhasha Dam. Pakistan felt that the conditions imposed by Beijing in regard to the dam’s ownership, operation and maintenance costs, as well as security, had made the project politically and economically untenable.

There were differences over the use of the Chinese currency Renminbi in Pakistan. Pakistan wanted reciprocity, which the Chinese refused. Many Pakistanis think that China may be a bigger beneficiary from the CPEC than Pakistan, even as Pakistanis re-pay huge loans for years.

The main hurdle China is facing in South Asia is India’s opposition to the BRI on grounds of a perceived violation of its sovereignty over certain areas presently under Pakistani control. India is also propagating the view that the BRI will impose a huge “debt burden” on poor South Asian countries.

But Yu Hongjun, Chief Fellow at The Charhar Institute told Global Times that New Delhi is cooperative when it comes to the New Development Bank and the Asian Infrastructure Investment Bank floated by China.

“We may need to drop stereotypes about India, recognize its economic size and special influence in the region and expand cooperation with it,” Yu said.

Long Xingchun, research fellow at The Charhar Institute and director of the Center for Indian Studies at China West Normal University said: “ Indian Prime Minister Narendra Modi has realized that only by boosting manufacturing can India eliminate poverty . India also needs industrial knowhow from other countries like China. As Modi prioritizes economic development, China has become the most important partner in building power stations, airports and railways,” Long said.

“China can push forward the China-Myanmar Economic Corridor first and India may change its attitude when it witnesses achievements in the process,” Long added.

He hoped that if all goes well, it won't take long to make the integrated rail network a reality. And the line is likely to be a game-changer in terms of trade, connectivity and economic integration in South Asia, he added.

“The rail line is just the first step to fulfill the wish to establish an integrated rail network among China, Nepal and India. If the three countries can be connected via cargo trains, which are faster than ships and cheaper than planes, India is likely to witness a surge in its exports of goods such as agricultural products to China. If India wants to extend its rail network to Nepalese cities, China will not be stingy in offering help,” Long said.

Surge in Chinese Exports

In the past decade, China has emerged as a top exporter of goods to the South Asian region, including India.

In 2005, China displaced many Indian goods in Bangladesh, offering cheaper Chinese products, especially cotton and other fabrics central to the garment industry, without the visa, transport, and customs challenges that had limited trade between India and Bangladesh. But a 2015 Indo-Bangla Land Boundary Agreement on trade and transit will mitigate this for India.

China’s trade with Nepal and Sri Lanka is still small compared to the Indian position. But the gaps are narrowing. Sri Lanka is among India’s top trading partners in South Asia, and India is Sri Lanka’s largest trading partner. However, since 2005, Chinese exports to Sri Lanka have quadrupled to US$ 4 billion, coming closer to Indian levels. China and Sri Lanka are also negotiating an FTA.

Remittances Make A Difference

In terms of labor migration and the remittances that it generates, India is linked much more deeply with South Asia than China is.

According to the World Bank, five million South Asian migrant workers in India sent more than US$ 7.5 billion in remittances back to their home countries in 2014. In contrast, 20,000 South Asian workers in China sent US$ 107 million to South Asia, including India.

“Remittances from India inject the Bangladeshi economy with more than US $4 billion, nearly eight times the value of the US$ 557 million in Bangladeshi goods imported by India in 2014, making remittances a vital economic component of the bilateral relationship,” a report said.