OBOR can lead to colonisation | IAS Coaching Chandigarh

Since the start of this century, the world has seen a shift in power balance, courtesy China’s emerging economic might, which challenged a US-dominant unipolar world that had been in existence since 1991 when the Soviet Union was dissolved, officially ending the Cold War. Click Below to enlarge to OBOR Map

Expanding China | OBOR

  • The Chinese foreign policy touts OBOR is purely an economic mission, facilitating cooperation in trade, investment, energy, developmental projects such as railway and road. Actually, OBOR is a geopolitical architecture aimed at expanding Chinese influence in and around the region.
  • It has the potential to lead much of the world into a debt trap. China’s intent is to create an infrastructure which would allow physical movement of goods, more specifically Chinese goods, to large parts of Asia and Europe including Russia.

Why OBOR got popular?

  • According to the World Bank, the growth of overseas development assistance (ODA) is slowing down globally, leading to ODA’s diminishing share in gross national income (GNI) in the developing world, while multilateral development banks merely support 10 per cent of the developing world’s infra spending. In leastdeveloped countries, ODA was only 5.89 per cent of GNI in 2013, against 11.28 per cent in 1990.
  • Cash-rich China is, perhaps, trying to make use of this opportunity to fulfil its expansionist tactics and lure countries to fund their infrastructure needs through Chinese funds. These funds may not be in the form of a grant, and would seek a return on the long term investments made, which in some cases could accrue much higher interest rates than offered under ODA.

OBOR | Debt trap

An analysis of the Asian economies, mostly emerging, under OBOR’s influence (where data from IMF was available), shows the average reserves to external debt as on 2015 stands at 53.3 per cent. These debts levels are bound to increase as they get more intertwined with OBOR plans.

  • Myanmar – It shows a negative 61.2 per cent external debt to reserves. According to a Parliamentarian in Myanmar, out of the $9 billion of the total foreign debts, Chinese loans amount to almost $4 billion, accounting for 44 per cent of the total external debt.
  • Mongolia – It witnessed its economy growing by just 1 per cent in 2016, down from 17.5 per cent growth in 2011. It now has US$ 22 billion in debt, more than double the size of its economy.
  • Sri Lanka – Sri Lanka’s estimated national debt as per the data available from IMF stands at $44 billion in 2015, of which around 15 per cent is owed to China. Recently, for the Hambantota port project, Sri Lanka was coerced to borrow around $300 million from China with an interest rate of 6.3 per cent, while the World Bank and the ADB could have provided soft loans with the interest levels within 3 per cent.
  • Nepal and Afghanistan – They are outliers given the fact that they are huge recipients of grants in the form of official development assistance. A brief analysis of the import pattern of the Asian participants, who have agreed to be a part of this OBOR initiative, reveals that most of the ASEAN countries, especially Myanmar, Cambodia, and Vietnam, run a Chinese-led trade deficit which is more than 30 per cent.

Impact of OBOR

  • Given the debt situation in most of these OBOR economies in Asia, and their inability to repay the debt, could lead the Chinese acquiring equity possession of these large tracts of infrastructure projects and thereby making inroads into the geographic space.
  • Another possible implication of OBOR could also be the spreading the use of Yuan as an alternate currency to the dollar. Given such multiple corollaries, the OBOR can even lead towards economic colonisation by China.

Conclusion | OBOR

The OBOR initiative may act like a slow poison killing the domestic production capabilities of not only the emerging economies in Asia, but also those crisscrossing continents in Central Asia and Europe, making them heavily depended upon Chinese imports. Trade deficits are also about the jobs that we lose to overseas competitors. All these would have major political a

Raj Malhotra IAS Study Group.