XI reasons not to lose sleep over CPEC/OBOR

Thanks to our famous DD newsreader, by now the whole world knows how to pronounce Chinese President Xi Jinping’s name! So here’s our top 11 reasons not to lose sleep over CPEC, OBOR, BARF, BRF, SRI or whatever its most recent name is.

  1. There’s a lot of marketing hype that would put a dotcom bubble company to shame! Words like “game changer”, “new dawn” are used with such regularity, they have almost become pedestrian. Riding on the bandwagon, projects that have nothing to do with belts or roads or China are getting tagged with the label hoping there will be some lucrative contracts or deals (mostly for Chinese companies, of course) or lemons would magically transform into hot potatoes. One example is the Singapore-KL High speed rail project. This not only predates the OBOR initiative, it is mostly bilateral and nothing to with China.
  2. US/Europe sending delegations doesn’t mean a thing. Greece, Germany and other European nations, apart from Australia, reportedly refused to sign the official declarations because there were no assurances of “transparency” in deals – code word for “let me have my share of the meat”. EU that has nothing to lose in territory & is strategically in deep trouble anyway, simply wants its companies allowed to grab some of the contracts. It is not an endorsement of the OBOR or any specific projects. Obviously China’s ideas are something else.
  3. A lot of the connection is already there and hasn’t change any game for anyone. They get a fresh coat of “OBOR” paint for propaganda purposes. For example the much ballyhooed London-China direct train service. This too predates the OBOR by years. Here is a nice article in SCMP that debunks much of the hype about its “game changing” potential. A container ship can carry nearly 300 train loads! To replace that (that is, just one ship) trains have to run every 90m in both directions, something the infrastructure can hardly handle! On top of that it is twice as expensive if not more! Interestingly, this also means China doesn’t really need Gwadar to import or export from EU as it makes zero sense sending goods partly by train or truck & then ship them again when the train goes all the way!
  4. Just look at the rogues gallery of leaders that signed up! Clearly no globally respected, truly democratic & sensible leader has bet his reputation on CPEC/OBOR/BRF. Duterte of Philippines whose foul mouth and anti-US sentiments are well known, Najib Razak of Malaysia reeling from corruption allegations following the IMDB scandal, Hun Sen the long ruling dictator of Cambodia, Jihadi terrorist Pakistani generals and their puppets in the civilian government, Mahinda Rajapakse regime facing human rights questions in Lanka & ignored by the West, Thug-ocracy of Chavez/Maduro in Venezuela…the list goes on. Most of them, if not all, have practically no options worth considering and this pushes them into the laps of Xi Jinping who can pretty much dictate any terms he wants to! Sadly the people in these countries will pay, not the leaders or their cronies.
  5. Projects not bankable! Many of the projects have not taken off all this while because they were not bankable in the first place! That is, no one wants to invest or lend to them. This is precisely what motivates smaller nations and those with dubious records to rush to China. After all, Tata or Birla don’t go to the pawn broker for money. This also means, once they are constructed the chances are they will become white elephants that someone finally has to pay for. That is more likely than not the hapless tax payers of these countries who had zero say on them to start with. Sri Lanka’s Hambantota is a good example. There are more, including a refinery in Kyrgyzstan. Here a refinery was built without tying up oil supplies!
  6. China is simply looking for insurance policies not live alternatives. After all, if Malacca straits are not blockaded by war it makes zero sense shipping from Gwadar via Xinjiang across thousands of miles to China’s industrial heartland which lies in the East! By the way Xinjiang already has good connectivity to Central Asia through numerous initiatives of the past and doesn’t need Gwadar for transit. Nor have they changed any “game” for the nations involved. Myanmar’s new pipeline to Yunnan at least makes some geographical sense, even that has viability concerns!
  7. The doors will not close just because we don’t sign up on Day 1. These veiled threats have been issued both by China’s official media and by its friends in India. Sign NOW or you’ll be a loser forever! But then that is not how world of commerce and diplomacy works. China will be (and is most certainly not) a complete idiot to punish India or burn bridges with a nation against which it is running a huge trade surplus (About $4b a month, that is a lot more than CPEC which is a 10+ year project). India can wait, haggle, raise the price and finally settle for something that makes sense to its own interests as it is not a banana republic run by a tinpot dictator or loose mouthed loonie without any other sensible options on the table.
  8. China is already supplying to India, giving loans, investing! And in billions! CPEC or BRF notwithstanding! This is apart from the trade figures we cited above. But then these projects are going through proper bidding, on commercially sensible terms, and in mutual interest, not grabbed by diktats at crazy predatory prices. Alibaba, Dalian Wanda, Didi Taxi, Haier, Huawei and so many others are investing where it makes sense to them. And they will continue to do so. We don’t need government to government deals certainly not for power, roads etc. May be railways – yes given their long gestation, but here again our needs are vastly different from, say, Philippines or Indonesia who have very little internal expertise, technology, project management skills or funds.
  9. China is not the only game in town. We can and should team up with the Europeans, Japan and many others for select projects where there’s commercial and strategic synergy, bidding is transparent and transactions commercially viable and most importantly, beneficial to the host nation. China has already lost a lot of credibility in a wide range of markets thanks to the greed, corruption, insensitivity and bad quality of its businesses. We don’t have to rush to import more of the same.
  10. China’s credit squeeze is hurting many of the promised investments. This will eventually hurt many so-called OBOR/BRF projects that have nothing to do with the core strategic aims of China and are renamed simply to ride on the marketing hype. The Bandar Malaysia project (see our separate article on that topic) is one. So it is not a smooth pathway to investment nirvana for the receiving nation.
  11. We are big enough to do it ourselves. Need we say more on this? Ironically many of our champion non-aligned, anti-colonial, anti-imperialist, anti-globalisation anti-big business left “progressive intellectuals” have become de-facto marketing agents of China pushing OBOR/BRF with all the naive enthusiasm as a housewife that signed up for latest pyramid marketing miracle drug or slimming plan to hit the town!. Shame on them. https://twitter.com/mkvenu1/status/863330735377141760

So let us stop whining, worrying, biting our nails off and wallowing in defeatist rhetoric.

Comments are welcome!

 

 

 

Turkish delight from Erdogan on Kashmir

Just prior to his recent India visit, Turkish strongman Erdogan, fresh from his referendum “victory” threw a curve ball at India – he offered himself (and Turkey) as mediator to help address the Kashmir issue.

Reactions have been varied. Wire columnist  thought Erdogan was reiterating his Islamist credentials in doing so. Hindu too was somewhat circumspect and didn’t seem to really like Erdogan’s meddling.

Prime Minister meets Recep Tayyip Erdogan, President of Turkey at Hyderabad House during his State Visit to India (May 01, 2017)

Thankfully India’s reaction was mature and subdued. Instead of the usual theatrics whenever someone mentions the K word. That is a great start.

But what about the offer itself? Does it deserve rejection outright? Or worth analysing?

May not be a bad idea

Firstly, let us completely stay clear of Erdogan’s controversial and authoritarian track record and Islamist credentials. They are matters entirely irrelevant to this discussion.  Fact is he represents Turkey and will do so for another 10 years in all probability. Nothing else matters.

If anything that makes it easier for him to play a role.

Let us take a step back and see what options do we have to bring the Kashmir situation to a satisfactory conclusion?

  1. Wait it out. Let time be the medicine, increasing the gap between Pakistan and India in economic and strategic terms and wait for better sense to prevail so settlement can be on our terms or near about.
  2. Physical force. That is clearly out of question unless the provocation is strong enough to make it inevitable.
  3. Settle through talks in the short/medium term with the contours of the settlement along known lines – i.e., keep our part of Kashmir, give up on POK with some arrangement that saves everyone’s face.

Clearly the fourth option of simply giving up on Kashmir and settle on terms agreeable to present Pakistani dispensation is clearly not on the table. Unless again, it is forced by circumstances beyond our control.

Coming to the third option, it should be clear to us, given the nuclear situation, we simply don’t have the means to enforce anything on Pakistan.

Any agreement signed with the Pakistani civilian dispensation is not worth the paper it is printed on. Even if it were to be openly endorsed by the Pakistani military it is in all probability a “taqiya” which will be torn up at the earliest chance. Then we are back to square 1. Furthermore, Pakistani Army will simply take that as confirmation of its “success” and simply expand its shopping list. For all is military might and economic clout, $30b and three decades later Uncle Sam is still happily writing cheques and getting cuckolded. Do we stand better chance?

This is where a third party comes in provided it fulfills main criteria

  1. It has power to enforce any agreement. That power need not be economic or military, it can be religious.
  2. It is not totally biased against us, the best we can hope for, given that there is no such thing as “neutral” in global power politics.

Why Turkey?

Pakistan WILL NOT listen to USA because it has perfected the art of fooling them over multiple administrations and in any case that is a hard sell to the Abdul in the street. After all it is a kuffar power not exactly popular in the streets of Lahore.

Pakistan MAY listen to KSA for religious and monetary reasons but then KSA sheiks are beholden to the Pakistani generals to protect their own crumbling edifice. They make poor mediators.

Pakistan WILL listen to China but then China is just about the most biased and untrustworthy mediator one can find. Not even Modi can go the public and sell a plan brokered by China, except perhaps in Alimuddin Street and JNU.

Any other global power is completely worthless in this context. UK? France? You must be joking. Russia? May be 40 years back, not now.

That brings us to Turkey.

Turkey is a Sunni power and under Erdogan it has shifted away from its European identity to its Islamic roots. Just as Pakistan tried to wash away its South Asian roots and claim Arab, Turkish or Persian heritage, depending on season.

Which means if Turkey underwrites any agreement, it is easier for the Pakistani regime to “sell” it to its Abduls.

Moreover, we simply don’t believe Erdogan is anti-India. He may be pro Pakistan for religious reasons but that is to be expected. After all the so-called secular, anti-Islamist Army led regimes of Turkey were pro Pakistani too. His flexible and somewhat reasonable stance on Israel is a pointer.

That goes for much of the so-called “Ummah” too. Contrary to arms selling super powers like USA and Europe who probably want the conflict prolonged as it comes with bonus of keeping India in check, the Sunni Muslim world has nothing to gain by this conflict and even less to gain if Pakistan were to somehow by some miracle succeed in snatching Kashmir away. After all, at best this can only be done to the valley, not Jammu or Ladakh. Which only makes them even smaller minority in India in addition to permanently antagonising India forever. It also weakens India’s huge Muslim community.

Which is also why other than routine boilerplate template noises at OIC which no one takes seriously, there has not been that much pressure on India to settle at Pakistan’s terms. This is only going to get better from India’s perspective as oil’s importance weakens along with that Middle East’s.

Interestingly, China which shares US/European vested interest in keeping India in check through such conflicts is slowly coming around to the idea that it is a strategy that will harm them more than it does India. The CPEC investments will go down the drain not to speak of export trade that hugely favors China. Again this will get better over time as India buys & integrates even more into the Chinese economy, political tensions notwithstanding.

Badly bruised in the Syrian affair, his reputation in tatters globally, with too many contenders for the mythical Caliph role within the Sunni Muslim Ummah, Erdogan may use Kashmir role to buttress his own credentials and to do so he knows he has to be reasonable with India’s position. A failure will only make him an even bigger laughing stock.

Pre-conditions

But then as we noted earlier, Pakistan has successfully fooled generations of US Presidents. It has nothing to fear from China. Russia too is embracing every loony or reckless state it can find, simply to cock a snook at Uncle Sam.

So we still cannot rule out the fact that Pakistan will use Turkey to draw up some settlement and then renege on its commitment. After all, Turkey hardly has any trade, economic or military levers on Pakistan to pull.

So that means there is a narrow set of circumstances and conditions that has to be met before India can publicly embrace this option:

  1. The broad contours of agreement are drawn up bilaterally using Track 2 or Track 3 channels.
  2. Our own Kashmiri “separatists” are on board.
  3. We know at least on paper the jihadi generals are on board.
  4. China is behind the idea.
  5. KSA has been sounded out.
  6. The Pakistani civilian regime simply wants Islamic rubber stamp on the deal to sell it to its beards. As ex-Ottoman state that once had moral authority over global Sunni Muslims, Turkey still has that goodwill. This is where Erdogan’s strong Islamist credentials help. Any deal will involve compromises and the beards may go ballistic with “Islam in danger” noise and that can be mitigated.
  7. We have clear well defined Plan B in place to deal with any betrayals, expansion of agendas and the like.

Clearly the first 5 items on the agenda will have to be done behind the scenes and bilaterally and only if successfully done can we openly get Turkey /Erdogan involved publicly. That is a big IF.

Because once we cross the rubicon of involving third parties formally, there is no going back.

For now it is best to counsel Erdogan to counsel Pakistan to start behaving and start talking behind the scenes.

 

 

 

 

 

 

 

 

 

 

Malaysia cancels Chinese project – Bandar Malaysia

Indian media covers CPEC a lot but happenings in other parts of the world that are equally important receive scant coverage. How many of us know that unlike CPEC which is mostly talk (and some coal fired power plants on one sided terms that no sensible nation would accept) China has already invested US$35b between 2010 and 2016 in Malaysia.

Malaysian Government decision to scrap the sale of Bandar Malaysia site to a consortium that included a Chinese government entity is one such event has has passed unnoticed by Indian media.

About Bandar Malaysia

The Sungai Besi airport, about 7km from KL city center is an old one – this is where Tunku Abdul Rahman landed from London, bringing news of Malaysia’s independence in 1956. It was used by Malaysia’s Air Force and for some VIP flights and is largely unused.  The site was sold in 2011 to the infamous 1MDB to become “Bandar Malaysia”, a city within city incorporating various developments and drive Kuala Lumpur area’s future growth. When 1MDB collapsed (a hugely entertaining story in of itself) the land was taken over by Ministry of Finance as part of “restructuring”, rather rescue.

The area of land involved is about 190Ha.

In late 2015, 60% ownership of the land parcel was sold again by MoF to IWH / CREC consortium for RM7.4b. IWH owned by ethnic Chinese tycoon Lim Kang Hoo who also runs the Danga Bay Waterfront city (4300acre) in Johor in the south, close to Singapore. CREC is PRC goverment owned China Railway Engg Corpn. CREC also threw in a sweetener, promising to build a RM8b Regional HQ in the site.

As with CPEC various grandiose plans were bandied about (one was a “digital” FTZ), along with talks of changing face of Malaysian growth, enormous local employment opportunities etc.

Subsequent developments have made the site worth a lot more – the Singapore – KL High Speed Rail (HSR) project terminates in Bandar Malaysia. This plus the new MRT line under construction that will link Putrajaya (in the south) to Sungai Buloh via KL city is also likely to boost land values. In fact the original RM12b valuation, it is reported, will be well above RM20b now.

Malaysia wakes up?

As with most other deals of this sort in Malaysia, it is not clear how this particular consortium was chosen for the award. Supposedly at government levels without any bidding. But at that time it was justified since 1MDB collapse was hurting Malaysia badly and no one else was willing to come to its rescue other than the Chinese.

This is where the unknown unknowns come in. Because it was a rescue operation, it is not clear what was promised to the Chinese in return. Reports indicate the Singapore-KL High Speed Rail project is one such quid pro quo. That’s worth a lot – US$23 billions by some estimates. Now Japan is rumoured to be the front runner.

JV with Chinese characteristics

PRC has its own way of doing things in such “joint ventures”. It controls the entire supply chain and brings its own labour even for unskilled jobs. Supply of materials too is from Chinese entities. As Singapore’s Straits Times reported, even the canteen staff in Xiamen Uni campus in Malaysia are from China! While this may be perfectly acceptable to the mard-e-momeens of Pakistan thanks to its irrational anti-India hatred and army de-facto rule, Malaysia is a different case.

Although it was desperation (caused by the 1MDB collapse) that threw Najib into the arms of the Chinese, (a theme that should be familiar to Pakistanis re CPEC) he is smart enough and Malaysian politics unstable enough for things to change when circumstances change. Under the table promises are also harder to enforce.

There have been murmurs of dissent and complaints from local industrialists over lack of goodies from the gravy train to local tycoons, who, ironically are almost all ethnic Chinese. In fact there have even been reports that Chinese citizens will be allowed to settle in Malaysia in real estate projects such as Danga Bay, because there are not enough locals to fill those apartments! Such reports have been denied but allegations are not just by the fringe, and have been made by Mahatir Mohammad, Malaysia’s ex-PM.  Since ethnic issues are never too far below the surface in Malaysia, this can be troublesome for the ruling elite to explain.

What next?

Going by reports, it seems Najib cleverly grabbed the chance to get away from a bad deal using non payment as a convenient excuse. The Chinese quid pro quo demands (termed in one report as a “shopping list”) was just too much for Malaysia to pay. Now he can re-sell the same land to another consortium for even bigger amount (should one be willing) and start all over again!

However, it is not clear how PRC will react to this since it seems its capital control restrictions on overseas investments have a role to play. If it is so, it may bite the bullet, even if the bullet train project is not for it to take a bite on. In fact, China has been rolling back or pulling out of numerous Malaysian (and other international) projects because of its internal issues, capital flight, dubious viability and other concerns. The fact that it is still “investing” in CPEC goes to show the juiciness of those contracts, thanks to Pakistani surrender. After all who else can give 15-30% assured returns on equity, 7%+ interest rates on loans and ability to sell third rate products (anyway in surplus) at super premium prices without any competitive bidding?!

Or it may react with under the table pressure and squeeze Malaysia to give up something else in return for the 1MDB rescue act. The fact that such murky deals always involve murky pay offs may give it additional leverage given the political situation in Malaysia.

All this gives us enough indications on how CPEC itself will proceed. Given Pakistan’s utter helplessness and abject surrender thanks to its own visceral hatred for India, the scale of loot is likely to be worse. If the aam Abdul in Pakistan wakes up one day just like Najib did, there could be interesting repercussions!