China’s Debt-Trap Diplomacy

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A column internationally syndicated by Project Syndicate

If there is one thing at which China’s leaders truly excel, it is the use of economic tools to advance their country’s geostrategic interests. Through its $1 trillion “one belt, one road” initiative, China is supporting infrastructure projects in strategically located developing countries, often by extending huge loans to their governments. As a result, countries are becoming ensnared in a debt trap that leaves them vulnerable to China’s influence.

Of course, extending loans for infrastructure projects is not inherently bad. But the projects that China is supporting are often intended not to support the local economy, but to facilitate Chinese access to natural resources, or to open the market for low-cost and shoddy Chinese goods. In many cases, China even sends its own construction workers, minimizing the number of local jobs that are created.

Several of the projects that have been completed are now bleeding money. For example, Sri Lanka’s Mattala Rajapaksa International Airport, which opened in 2013 near Hambantota, has been dubbed the world’s emptiest. Likewise, Hambantota’s Magampura Mahinda Rajapaksa Port remains largely idle, as does the multibillion-dollar Gwadar port in Pakistan. For China, however, these projects are operating exactly as needed: Chinese attack submarines have twice docked at Sri Lankan ports, and two Chinese warships were recently pressed into service for Gwadar port security.

In a sense, it is even better for China that the projects don’t do well. After all, the heavier the debt burden on smaller countries, the greater China’s own leverage becomes. Already, China has used its clout to push Cambodia, Laos, Myanmar, and Thailand to block a united ASEAN stand against China’s aggressive pursuit of its territorial claims in the South China Sea.

Moreover, some countries, overwhelmed by their debts to China, are being forced to sell to it stakes in Chinese-financed projects or hand over their management to Chinese state-owned firms. In financially risky countries, China now demands majority ownership up front. For example, China clinched a deal with Nepal this month to build another largely Chinese-owned dam there, with its state-run China Three Gorges Corporation taking a 75% stake.

As if that were not enough, China is taking steps to ensure that countries will not be able to escape their debts. In exchange for rescheduling repayment, China is requiring countries to award it contracts for additional projects, thereby making their debt crises interminable. Last October, China canceled $90 million of Cambodia’s debt, only to secure major new contracts.

Some developing economies are regretting their decision to accept Chinese loans. Protests have erupted over widespread joblessness, purportedly caused by Chinese dumping of goods, which is killing off local manufacturing, and exacerbated by China’s import of workers for its own projects.

New governments in several countries, from Nigeria to Sri Lanka, have ordered investigations into alleged Chinese bribery of the previous leadership. Last month, China’s acting ambassador to Pakistan, Zhao Lijian, was involved in a Twitter spat with Pakistani journalists over accusations of project-related corruption and the use of Chinese convicts as laborers in Pakistan (not a new practice for China). Zhao described the accusations as “nonsense.”

In retrospect, China’s designs might seem obvious. But the decision by many developing countries to accept Chinese loans was, in many ways, understandable. Neglected by institutional investors, they had major unmet infrastructure needs. So when China showed up, promising benevolent investment and easy credit, they were all in. It became clear only later that China’s real objectives were commercial penetration and strategic leverage; by then, it was too late, and countries were trapped in a vicious cycle.

clipboard01Sri Lanka is Exhibit A. Though small, the country is strategically located between China’s eastern ports and the Mediterranean. Chinese President Xi Jinping has called it vital to the completion of the maritime Silk Road.

China began investing heavily in Sri Lanka during the quasi-autocratic nine-year rule of President Mahinda Rajapaksa, and China shielded Rajapaksa at the United Nations from allegations of war crimes. China quickly became Sri Lanka’s leading investor and lender, and its second-largest trading partner, giving it substantial diplomatic leverage.

It was smooth sailing for China, until Rajapaksa was unexpectedly defeated in the early 2015 election by Maithripala Sirisena, who had campaigned on the promise to extricate Sri Lanka from the Chinese debt trap. True to his word, he suspended work on major Chinese projects.

But it was too late: Sri Lanka’s government was already on the brink of default. So, as a Chinese state mouthpiece crowed, Sri Lanka had no choice but “to turn around and embrace China again.” Sirisena, in need of more time to repay old loans, as well as fresh credit, acquiesced to a series of Chinese demands, restarting suspended initiatives, like the $1.4 billion Colombo Port City, and awarding China new projects.

Sirisena also recently agreed to sell an 80% stake in the Hambantota port to China for about $1.1 billion. According to China’s ambassador to Sri Lanka, Yi Xianliang, the sale of stakes in other projects is also under discussion, in order to help Sri Lanka “solve its finance problems.” Now, Rajapaksa is accusing Sirisena of granting China undue concessions.

By integrating its foreign, economic, and security policies, China is advancing its goal of fashioning a hegemonic sphere of trade, communication, transportation, and security links. If states are saddled with onerous levels of debt as a result, their financial woes only aid China’s neocolonial designs. Countries that are not yet ensnared in China’s debt trap should take note – and take whatever steps they can to avoid it.

Nepal’s water curse

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Nepal needs bridge over troubled waters

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People ride on a boat to reach the bank of the Rapti River at Sauraha in Chitwan, south of Kathmandu. © Reuters

By Brahma Chellaney, Nikkei Asian Review

Nepal sits on vast water resources. The United Nations describes the landlocked Himalayan state as “one of the Asian countries with the highest level of water resources per inhabitant.” Water can potentially be to Nepal what oil is to Arab sheikhdoms.

Nepal’s renewable water resources are estimated at 7,372 cubic meters per capita annually, or several times higher than those for the two demographic titans between which it is sandwiched — China and India. Yet Nepal, oddly, seems afflicted by a water curse. A failure to adequately harness water resources has left the nation acutely energy-starved, and water shortages are endemic in major Nepalese cities, including the capital, Kathmandu.

Meanwhile, as it increasingly becomes a theater of geopolitical competition between China and India, Nepal is tilting more toward Beijing and away from India, its main partner through the centuries. China, blending economic and security policies, is steadily making strategic inroads. Beijing’s latest deal with Nepal to build another largely Chinese-owned dam there highlights its growing success in clinching major infrastructure contracts in India’s backyard to advance its foreign policy and commercial interests.

Had India tried to secure a contract to set up a largely Indian-owned dam in Nepal, it would likely have faced a nationalistic backlash. Maoists, communists and nationalists in Nepal portray India as a regional hegemon and have seriously impeded its hydropower development plans. China, however, does not face such opposition in communist-dominated Nepal. This helps to explain why the new deal over the planned 750-megawatt West Seti Dam is not the first Chinese hydropower project in the country.

China, through construction projects by Chinese state-run companies and large loans to finance them, is quietly enlarging its presence in and leverage over the increasingly indebted Nepal, which risks becoming its client state. Already, Beijing has used its clout to push Nepal to crack down on Tibetans traveling through Nepal to India, where the Dalai Lama is based.

While dressing its investments in the cloak of economic aid, China is imposing stiff commercial terms on Nepal, plus taking majority project ownership upfront. For example, its state-run China Three Gorges Corporation has picked up a 75% stake in the West Seti Dam project.

Nepal holds up to 83,000 megawatts of hydropower reserves, which, if tapped partially, can make it a major exporter of electricity. By harnessing the natural bounty of the Himalayas to produce renewable electricity, Nepal could emulate the success of Bhutan in generating the hydro dollars to fuel its rapid economic development. Small Bhutan has effectively turned its rich water resources into “blue gold,” achieving the highest per capita income in South Asia.

Power shortages

Nepal, however, produces barely 800 megawatts of electricity for its 30 million citizens from all sources of energy, with the result that long power outages are common even in Kathmandu. Nepal controls the headwaters of, or serves as the corridor for, several rivers that flow into India, yet it imports electricity from that country.

As opposed to China’s water megaprojects at home, smaller and ecologically friendly projects in the Himalayas — if properly planned and designed and conforming to thorough and impartial environmental impact assessments — can yield major benefits without carrying significant environmental and social costs. Environmentally sound hydropower is particularly attractive because, despite the high upfront capital costs, a hydropower plant has a life span almost double that of a nuclear power reactor and generates electricity with no fuel cost.

India, as the subcontinent’s largest energy consumer, has sought to incentivize a subregional energy grid. Yet the vast majority of its own Himalayan hydropower projects have been delayed, suspended or shelved, largely due to grass roots opposition.

India has employed water collaboration as a tool of its diplomacy with Nepal and Bhutan. In Bhutan, India has subsidized the development of environmentally friendly hydropower by providing 60% of the investment for each project as a grant and the remaining amount as a low-interest loan. The projects have helped power Bhutan’s success story.

By contrast, the political dividends from Indo-Nepalese water cooperation have declined over the years, partly because of political constraints in Nepal and partly because India has not been sensitive to Nepalese concerns. Several joint projects have either not been completed or failed to live up to their promise, leaving a troubled legacy that has increasingly weighed down bilateral cooperation.

Bangladesh has actively sought the start of water projects in Nepal to augment the lean-season flows of the Ganges River at Farakka, the critical downriver point where the waters are equally shared between India and Bangladesh under a 1996 treaty. The treaty — which coincided with the 25th anniversary of Bangladesh’s Indian-assisted independence — has set a new principle in international water law by guaranteeing delivery of specific water quantities to downstream Bangladesh in the critical dry season.

Hundreds of rivers, some them originating in Tibet, crisscross Nepal. The country has five major river basins, from the Mahakali in the west to the eastern Kosi. All its river systems empty into the Ganges basin in India. Nepal is also rich in groundwater resources in the southern plains along its long border with India.

Resource curse

Whereas countries afflicted by what development economists call the “resource curse” find it difficult to break out of slow rates of economic growth and high levels of income inequality, despite relying on major exports of natural resources, Nepal’s water curse has come without exploiting its resource reserves for its own needs, let alone exporting hydropower.

No less significant is the fact that Nepal has several water treaties with India but none with China, which has dammed the Karnali River just before it enters Nepal. China is also planning to build a cascade of five dams on the upper reaches of the Arun River. The construction of that cascade, by diminishing flows into the Ganges, could potentially affect India’s Ganges water-sharing arrangement with Bangladesh.

Nepal’s water curse has been compounded by severe political turmoil for the past quarter century. It remains today in a politically shaky position — wracked by underdevelopment, poverty, poor governance and lawlessness and increasingly divided by its murky politics.

The sorry state of affairs in Nepal has seriously hampered its hydropower and irrigation expansion, even though progress in these areas is essential to obtain much-needed revenue and development and to help tame the transboundary rivers that often overrun their banks in Nepalese and Indian areas during the monsoons.

Indeed, the integrated development of the Ganges basin demands trilateral institutional collaboration between the three basin states — Nepal, India and Bangladesh — with cooperation extending to energy, transit and port rights. However, the entry of a non-basin state, China, is muddying the waters. Both through its unilateral dam-building activities in Tibet on the rivers that flow to Nepal, India and Bangladesh, and its entry in the Nepalese hydropower sector, China is compounding the challenges of regional integration.

Breaking the water curse is critical to Nepal’s future. While the mighty Himalayas separate it from Chinese-ruled Tibet, Nepal is tied to India by geography, including multiple shared river basins. Water cooperation with India and Bangladesh can help harness the waters of the common rivers for shared benefit.

But if Nepal remains battered by political turmoil, it risks becoming a failed state — a development that will carry major security implications for India, given the open Indo-Nepalese border that permits passage without documentation or registration.

Brahma Chellaney, a geostrategist, is the author of nine books, including “Water: Asia’s New Battleground.”

© Nikkei Asian Review, 2017.

The World According to the Donald

COVER STORY/Open Magazine/20 January 2017

c2m-2a9viaak-teBy Brahma Chellaney

New US President Donald Trump’s geopolitical focus on China and Islamic radicalism meshes well with Indian strategic priorities. But will his administration add real strategic content to a vaunted ‘strategic partnership’ with New Delhi whose most-prominent feature is the emergence of India as a leading client of the American armament industry?

Trump’s predecessor, Barack Obama, undoubtedly advanced the relationship with India. But it is also true that Obama compounded India’s regional security challenges, both by emboldening China through his meekness toward Beijing and by bolstering China’s ‘contain India through Pakistan’ strategy. While refusing to take sides in the China-India territorial disputes, the Obama administration actually strengthened China’s strategy to box in India by extending munificent US aid to Pakistan, thus encouraging that country to continue to sponsor cross-border terrorism with impunity.

Whether the Trump administration will contribute positively or negatively to India’s regional interests hinges fundamentally on the geopolitical framework that will guide its foreign policy.

Trump ran an election campaign that challenged American diplomacy’s longstanding principles and shibboleths, turning his party’s own establishment against him. This might suggest that his foreign-policy approach would represent a break from the past.

The fact, however, is that the institutional policymaking structure in the US is much stronger than, say, in India. Therefore, it is not easy for a president to break with well-established policies that have been pursued by presidents belonging to both parties. Moreover, the approach and direction of an American president’s foreign policy becomes apparent only after his first year in office.

For example, Obama’s coming to power created high anticipation globally of significant changes in the American foreign-policy approach, with the expectations being strengthened when he surprisingly was awarded the Nobel peace prize less than nine months after assuming office. Yet Obama proved to be as interventionist as any president before him. The chaos in Libya that he sowed through regime change will be remembered—like President George W. Bush’s unravelling of Iraq—as one of his imprints on history.

India needs to play a more active role in influencing policy in Washington. New Delhi has not tried to persuade the US to end its policy of mollycoddling Pakistan by leveraging India’s defence imports from America or by utilising the services of the large and increasingly influential American Indian community.

Obama came to office vowing to end the Bush-era wars in Afghanistan and Iraq. The war in Afghanistan (the longest war in American history) still rages. Obama ended the war in Iraq, only to start a new one there and in Syria. He presided over the birth of a terrorist organisation more potent that Al Qaeda—the Islamic State of Iraq and the Levant, known as ISIS, ISIL or Islamic State. In 2016, Obama’s last year in office, the US dropped more than 26,000 bombs in seven countries, according to one assessment.

By getting the US embroiled in more conflicts, Obama has bequeathed to Trump a Middle East more violent and less stable than the one Obama inherited from Bush in 2009.

Faced with major international challenges, Trump has signalled his intent to revamp American foreign policy so that he can concentrate on his main priority—comprehensive domestic renewal, the central pillar of his promised strategy to “make America great again”. He has also indicated his desire to reverse the interventionist, regime-change policy that successive American presidents have followed since the early 1950s, when the CIA successfully plotted the overthrow of Iranian Prime Minister Mohammad Mossadegh.

Trump’s determination to boost US job growth by eliminating critical roadblocks, including unfair competition from Chinese manufacturers, has set the stage for a tougher American policy on trade. This is also apparent from those he has named to key positions, especially Robert Lighthizer, his nominee for trade representative, Wilbur Ross, his choice to become commerce secretary, and Peter Navarro, the head of the new White House office overseeing trade and industrial policy.

Trump’s trade-related nationalism is linked to the perception that trade liberalisation has contributed to America’s relative decline. For Trump, trade is one area where he must deliver on his campaign promises or risk losing his credibility with the blue-collar constituency that helped him defeat Hillary Clinton.

No country faces a bigger challenge from Trump’s ascension to power than China, which has been flexing its military and economic muscles more strongly than ever. After the Obama administration’s obsequious stance, Beijing must brace up and face an assertive new national security and economic team in Washington that is unlikely to put up with its covert territorial expansion and trade manipulation.

China will likely bear the brunt of Trump’s trade-related nationalism at a time when its economy is slowing despite the state heavily providing fiscal and monetary stimulus. By contrast, the impact on India will be marginal because the fallout will largely be limited to the H-1B visa issue. Trump’s tougher stance on trade with China is unlikely to be deterred by the spectre of a trade war for the simple reason that Beijing is already waging an economic war against major economies.

While subsidising its exporters, China has quietly but systematically been blocking imports. The Obama administration’s announcement last April that China had agreed to scrap export subsidies on some products, mainly agricultural items and textiles, drew scepticism in the international markets because the deal did not cover major exports, including steel. It also left intact other forms of state support to the Chinese industry.

Trump seems willing to call a spade a spade and adopt a tougher and less predictable line toward Beijing, with his choice to become secretary of state, Rex Tillerson, going to the extent of saying that China should be denied access to the artificial islands that it has created in the South China Sea.

China exports $4 worth of goods to the US for each $1 of imports. Its trade with India is even more skewed: It exports nearly $6 worth of goods for each $1 of imports. This mismatch, largely due to the systematic dumping of goods, has allowed China to rapidly double its trade surplus with India to $60 billion just on Prime Minister Narendra Modi’s watch. China’s bilateral trade surplus with the US, of course, is bigger and is equal to about 3 per cent of its entire economy.

The Trump team has clarified that the president is not against free trade but against unfair trade. If China can slap Mongolia with punitive tariffs for merely allowing the Dalai Lama to undertake a purely religious tour, will it be unreasonable for the Trump administration to penalise China likewise for unashamedly distorting free trade?

Of course, the implications for China extend beyond trade. After all, Trump has signalled an imperative to recalibrate America’s foreign policy by shifting its geopolitical focus from Russia—a declining power with a sharply contracting economy—to the increasingly muscular and openly revisionist China. Unlike Russia’s 2014 annexation of Crimea, China’s territorial revisionism, as illustrated in the South China Sea and the Himalayas, is creeping and incremental yet relentless. Also unlike Russia, China sees itself as superior to the rest of the world and seeks to regain its fabled ‘Middle Kingdom’ status.

Abandoning the longstanding US fixation on Moscow and concentrating instead on the more potent, long-term challenge from China makes eminent sense for the Trump administration. In the global geopolitical competition between the US and China, Washington should seek to ensure that Russia stays neutral, if not on America’s side. However, the Obama administration did the opposite—forcing Moscow to pivot to China.

In the Obama era, China’s defiant unilateralism remained cost-free. Indeed, in the dying days of the Obama administration, China rushed more missiles to its man-made islands in the South China Sea, where, on Obama’s watch, it built seven islands and militarised them in an attempt to annex a strategically crucial corridor through which half of the world’s annual merchant fleet tonnage passes.

But now Trump seems willing to call a spade a spade and adopt a tougher and less predictable line toward Beijing, with his choice to become secretary of state, Rex Tillerson, going to the extent of saying that China should be denied access to the artificial islands that it has created in the South China Sea. While Obama remained virtually mum on China’s creeping aggression in the South China Sea, Tillerson has called it “akin to Russia’s taking Crimea” and favoured a strategic payback.

Will Trump try ‘madman diplomacy’ to tame a renegade Pakistan? The plain fact is that only coercive US diplomacy can help break the Pakistan military establishment’s cosy ties with terrorist groups, some of which are among the most dangerous.

China prefers quiet diplomacy, a setting that allows it to play its cards shrewdly. But Trump’s approach is completely different, as is apparent from his statement that, “Everything is under negotiation including One China.” That America’s ‘one-China’ policy since the 1970s is no holy cow for Trump was also apparent earlier from his conversation with Taiwan’s president by telephone. Trump has also turned his Twitter feed into a twenty-first-century version of the bully pulpit, repeatedly castigating Beijing for refusing to play by the rules. President Xi Jinping and his coterie in Beijing are at a loss on how to handle Trump.

Those analysts concerned about Trump’s deal-making approach tend to forget that US foreign policy, essentially, has always been transactional in character. Trump wants to clinch good deals for the US, just as the leader of any nation ought to do.

Another Trump priority is waging war against radical Islamic militancy before it turns into a global jihadist movement. Trump, however, cannot deliver credible or enduring counterterrorism results without disciplining Saudi Arabia, Qatar and the other oil sheikhdoms that continue to export Islamic radicalism. US foreign policy has had a longstanding alliance with Arab monarchs that has continued even as these cloistered royals bankroll Islamic militant groups and in other countries. Trump will also need to abandon the failed US policy on Pakistan that his immediate two predecessors pursued since the September 11, 2001 terrorist attacks in the US.

Had Hilary Clinton won the presidency, we would likely have seen the continuation of America’s failed Pakistan policy, which has involved doling out billions of dollars in US military and civilian assistance to that quasi-failed country without seeking substantive results on the terrorism front. However, the only language Pakistan’s powerful generals understand is of the kind the US delivered right after 9/11 to bend Pakistan to its will. As former Pakistani military dictator Pervez Musharraf has acknowledged in his memoir, he and his fellow generals genuinely believed that unless they met the Bush administration’s demands, they would be ‘bombed back to the stone ages’.

Against this background, as one American analyst has asked, will Trump try ‘madman diplomacy’ to tame a renegade Pakistan? The plain fact is that only coercive US diplomacy can help break the Pakistan military establishment’s cosy ties with terrorist groups, some of which are among the most dangerous in the world.

Yet in his written submissions to the Senate Armed Services Committee during his confirmation hearing process, Defence Secretary-designate James (‘Mad Dog’) Mattis pledged to build ‘trust’ with Pakistan ‘for an effective partnership’. This might suggest that America’s failed Pakistan policy would persist, even though this policy is the main reason why the US military is still stuck in the war in Afghanistan. Trump’s national security adviser, Gen. Michael Flynn, while serving as the US intelligence chief in Afghanistan, and Gen. Mattis, as CentCom chief, established close relations with the Pakistani military establishment. However, the direction of the Pakistan policy will likely be set by Trump himself, with the policy details left to the Cabinet members.

India needs to play a more active role in influencing policy in Washington. For example, it did little in response to Obama’s move nearly a year ago to reward Pakistan with eight more subsidised F-16s and hundreds of millions of dollars in additional aid under the Overseas Contingency Operations fund, which has been dubbed the ‘slush fund’. It was congressional opposition that stymied the planned transfer of additional F-16s. The blunt truth is that New Delhi has not tried to persuade the U.S. to end its policy of mollycoddling Pakistan by leveraging India’s defence imports from America or by utilising the services of the large and increasingly influential American Indian community.

As for Trump, he is already facing resistance to recalibrating US foreign policy from the deep state, which extends to a nexus between the intelligence agencies and major media organisations. To prevent any détente with Russia, powerful interests in Washington have gone to extraordinary lengths to undercut Trump, including by seeking to irreparably dent his image. This underscores the formidable challenge Trump faces to revamp foreign policy.

No president in living memory has taken office with America so politically polarised and divided and the deep state so unwelcoming as Trump, with the outgoing CIA chief actually blasting him on the eve of his inauguration. If Trump succeeds in recalibrating US foreign policy, including relating to China and Pakistan, he will set the stage for a true, robust and enduring partnership with India.

Brahma Chellaney is professor of strategic studies at the Centre for Policy Research in New Delhi and Richard von Weizsäcker Fellow of the Robert Bosch Academy in Berlin. © Open Magazine, 2016.

Halting China’s free ride

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Trump won’t abide Obama’s fawning approach to trade.

By Brahma Chellaney, Washington Times

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President-elect Donald Trump ran an election campaign that challenged American diplomacy’s long-standing principles and shibboleths. Since his election triumph, Mr. Trump is already rewriting the rules of the presidency and signaling that his foreign policy approach will be unconventional.

Even before assuming office, Mr. Trump has moved away from President Obama’s foreign policy approach by staking out starkly different positions on several sensitive subjects, including China, Taiwan, Israel, terrorism and nuclear weapons. A Trump presidency may not bring seismic shifts in American policy but it is likely to lead to significant change in U.S. priorities, geopolitical focus and goals as well as in the tools Washington would be willing to employ to help achieve its desired objectives.

No country faces a bigger challenge from Mr. Trump’s ascension to power than China, which has been flexing its military and economic muscles more strongly than ever. After the Obama administration’s obsequious stance, Beijing must brace up and face an assertive new national security and economic team in Washington that is unlikely to put up with its covert territorial expansion and trade manipulation.

Mr. Trump has signaled a need to recalibrate foreign policy by shifting its geopolitical focus from Russia, a declining power with a contracting economy, to the increasingly muscular and openly revisionist China. Unlike Russia’s 2014 annexation of Crimea, China’s territorial revisionism, as illustrated in the South China Sea and the Himalayas, is creeping and incremental yet relentless.

Mr. Trump’s focus on China and Islamic radicalism indicates that, far from retreating from Asia and the Middle East, America is likely to play a sharper, more concentrated role. For example, the U.S. military could carry out more significant reconnaissance and freedom-of-navigation operations in the South China Sea to help deter Chinese aggression.

To countries bearing the brunt of China’s recidivist policies, the Obama administration’s reluctance to challenge Beijing forced several of them to tread with excessive caution around Chinese concerns and interests. A wake-up call came with Mr. Obama’s silence about the 2012 Chinese capture of the Scarborough Shoal, located within the Philippines’ exclusive economic zone. Washington did nothing in response to the capture, despite its mutual-defense treaty with the Philippines.

That inaction helped spur China’s frenzied creation of artificial islands in the South China Sea. In late 2013, when China unilaterally declared an air defense identification zone covering territories it claims but does not control in the East China Sea, Mr. Obama again hesitated, effectively condoning the action. And recently, his meek response to what Mr. Trump called “an unprecedented act” — China’s daring seizure of a U.S. underwater drone — advertised American weakness.

In the dying days of the Obama administration, an emboldened China is rushing more missiles to its man-made islands in the South China Sea, where, on Mr. Obama’s watch, it has built seven islands and militarized them in an attempt to annex a strategically crucial corridor through which half of the world’s annual merchant fleet tonnage passes.

China has demonstrated that defiant unilateralism is cost-free — but it knows that its free ride is about to end, with Mr. Trump willing to adopt a tougher and less predictable line toward it. This is apparent from Mr. Trump’s suggestion, after taking a phone call from Taiwan’s president, Tsai Ing-wen, that a “one-China” policy is no sacred cow for him. Mr. Trump’s economic nationalism also holds greater implications for China than probably for any other country.

By subsidizing exports and impeding imports, China has long waged an economic war against other major economies. The Obama administration’s announcement last April of a deal under which China would scrap export subsidies on some products, largely agricultural items and textiles, drew skepticism in the markets because it did not cover major exports, including steel. It also left intact other forms of state support to the Chinese industry.

Mr. Trump is unlikely to give China a free pass on its trade manipulation. Trade is one area where Mr. Trump must deliver on his campaign promises or risk losing his credibility with the blue-collar constituency that helped propel him to victory. He is threatening to slap punitive tariffs on China for what he described during the campaign as “the greatest theft in the history of the world”.

Mr. Trump is unlikely to be deterred by the specter of a trade war with China for the simple reason that Beijing is already waging an economic war. In fact, Mr. Trump’s likely argument for a tough China stance will be that Beijing’s one-sided economic war must be halted. Such a policy approach is also apparent from some of his appointments, including economist Peter Navarro, the author of “Death By China,” “The Coming China Wars,” and “Crouching Tiger: What China’s Militarism Means for the Rest of the World.”

U.S.-China ties could be in for a rough patch for another reason: Mr. Trump could pivot to Asia in a way Mr. Obama did not. Mr. Obama’s failure to provide strategic heft left his Asia pivot unhinged.

To be sure, Mr. Trump is likely to face resistance to recalibrating U.S. foreign policy from two powerful lobbies in Washington — a large tribe of “panda huggers” and the old establishment figures who spent their formative years during the Cold War obsessing with the Soviet threat and now see Russian President Vladimir Putin as the epitome of evil.

Mr. Trump’s task is made more onerous by a mainstream media that remains hostile to him despite its epic failure to anticipate or predict the election outcome.

Still, a determined Donald Trump is likely to reorient U.S. foreign policy in potentially momentous ways.

Brahma Chellaney is a geostrategist and author.

Copyright © 2017 The Washington Times, LLC.

From Russia With Unrequited Love

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A column internationally syndicated by Project Syndicate

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Japanese Prime Minister Shinzo Abe has assiduously courted Russian President Vladimir Putin, meeting with him more than a dozen times in four years. This month he hosted Putin in Tokyo and in his hometown of Nagato (famed for its onsen, or natural hot springs). But Abe’s courtship has so far yielded little for Japan, and much for Russia.

Abe’s diplomatic overtures to Putin are integral to his broader strategy to position Japan as a counterweight to China, and to rebalance power in Asia, where Japan, Russia, China, and India form a strategic quadrangle. Abe has already built a close relationship with India, and he sees improved relations with Russia – with which Japan never formally made peace after World War II – as the missing ingredient for a regional power equilibrium.

But Abe’s trust-building efforts with Russia are not aimed only at checking Chinese aggression. He also wants Russia to return its southernmost Kuril Islands – a resource-rich area known as the Northern Territories in Japan – which the Soviet Union seized just after the United States dropped nuclear bombs on Hiroshima and Nagasaki in August 1945. In exchange, Abe has offered economic aid, investments in Russia’s neglected Far East, and major energy deals.

Abe has, however, encountered several obstacles. For starters, Japan is a participant in the US-led sanctions that were imposed on Russia after it annexed Crimea in March 2014. These sanctions have pushed Russia closer to its traditional rival, China; and Putin has publicly identified the sanctions as a hindrance to concluding a peace treaty with Japan.

In response to Abe’s overtures, Putin has doggedly tried to drive a hard bargain. Russia has bolstered its defenses on the four disputed islands, and, just prior to this month’s summit, he told the Japanese media that the current territorial arrangement suits Russian interests. “We think that we have no territorial problems,” he said. “It’s Japan that thinks that it has a territorial problem with Russia.”

The US-led sanctions regime and low oil prices have battered the Russian economy, which is expected to contract by 0.8% in 2016. Thus, Putin is more reluctant than ever to offer territorial concessions, lest it tarnish his domestic image as a staunch defender of Russian national interests.

Against this backdrop, it is not surprising that Abe left the recent “onsen summit” with dashed hopes of resolving the territorial dispute, while Putin returned home with 68 new commercial accords. Many of the new agreements are symbolic, but some are substantive, including deals worth $2.5 billion and an agreement to set up a $1 billion bilateral-investment fund.

Under the latter agreement, Japan and Russia are supposed create a “special framework” for joint economic activities on the disputed islands. But the plan has already run into trouble. Peter Shelakhaev, a senior Russian official who leads the government’s Far East Investment and Export Agency, has indicated that there are legal hurdles to establishing such a framework, and that Japanese firms doing business on the Kurils would have to pay taxes to Russia. If Japan did that, however, it would effectively be recognizing Russia’s jurisdiction over the islands.

Abe has thus been denied the legacy that he sought, while Putin has succeeded in easing Russia’s international isolation. Abe was the first G7 leader to hold a summit with Putin after Russia annexed Crimea, and now Russia has won Japan’s economic cooperation, too.

Japan is the only G7 country that has a territorial dispute with Russia, and it is clearly more eager to reach a deal than the Kremlin is. But this has only strengthened Russia’s hand. While Japan has softened its position, and signaled that it may accept only a partial return of the islands, Russia has grown only more intransigent. After the recent summit, Abe revealed that Putin now seems to be reneging on a 1956 agreement between Japan and the Soviet Union, which stipulates that the smaller two of the four islands will be returned to Japan after a peace treaty is signed.

As it happens, this year marks the 60th anniversary of that joint declaration, which was widely viewed as a breakthrough at the time. The Kremlin is now suggesting that its commitment to fulfilling the declaration was conditional on Japan not joining any security alliance against Russia. And Putin has expressed concerns that the 1960 Japan-US Security Treaty would extend to the disputed islands if they were returned, thus allowing the US to establish a military presence there.

Japan is in no position to address Russia’s concerns. It cannot opt out of the US-led sanctions regime; and it cannot exempt the disputed Kurils from its security treaty with the US, especially now that it has been urging the US to provide an explicit commitment to defend the Japanese-controlled Senkaku Islands, over which China claims sovereignty.

Putin, for his part, appears smugly content with his negotiating position. Not only did he arrive almost three hours late to the onsen summit, in keeping with his habit of leaving foreign leaders waiting; he also declined a Japanese government gift – a male companion for his native Japanese Akita dog, which Japan gave him in 2012.

There is little hope now that Abe will see tangible returns on the political capital he has invested in cultivating Putin. And Japan’s dilemma will only deepen. US President-elect Donald Trump’s desire to improve relations with Russia may give Abe leeway to continue wooing Putin; but if Russia gets the US in its corner, it won’t need Japan anymore.

The Great Water Folly

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Brahma Chellaney, The Hindustan Times

imagesThe linkages between water stress, sharing disputes and environmental degradation threaten to trap Asia in a vicious cycle. In a continent where China’s unilateralism stands out as a destabilizing factor, only four of the 57 transnational river basins have a treaty on water sharing or institutionalized cooperation. Indeed, the only Asian treaties incorporating specific sharing formulas are between India and its downriver neighbours, Pakistan and Bangladesh.

When Pakistan was carved out of India as the first Islamic republic of the post-colonial era, the partition left the Indus headwaters in India, arming it with formidable water leverage over the newly-created country. Yet India ultimately agreed under World Bank and US pressure in 1960 to what still ranks as the world’s most generous (and lopsided) water-sharing pact.

The Indus Waters Treaty (IWT) reserved for Pakistan the largest three rivers that make up more than four-fifths of the Indus-system waters, leaving for India just 19.48% of the total waters. After gifting the lion’s share of the waters to the congenitally hostile Pakistan, India also contributed $173.63 million for dam and other projects there. The Great Water Folly — one of the major strategic problems bequeathed to future Indian generations by the Nehruvian era — began exacting serious costs within a few years.

Far from mollifying an implacable foe, the IWT whetted Pakistan’s territorial revisionism, prompting its 1965 military attack on India’s Jammu and Kashmir. The attack was aimed at gaining political control of the land through which the three largest rivers reserved for Pakistani use flowed, although only one of them originates in J&K. The 1965 attack was essentially a water war.

India’s naïve assumption that it traded water munificence for peace in 1960 has backfired, saddling it with an iniquitous treaty of indefinite duration and keeping water as a core issue in its relations with Pakistan. As for Pakistan, after failing to achieve its water designs militarily in 1965, it has continued to wage a water war against India by other means, including diplomacy and terrorism. Put simply, 56 years after the IWT was signed, Pakistan’s covetous, water-driven claim to India’s J&K remains intact.

Pakistan has cleverly employed the IWT to have its cake and eat it too. While receiving the largest quantum of waters reserved by any treaty for a downstream state, it uses the IWT to sustain its conflict and tensions with India. Worse still, this scofflaw nation repays the upper riparian’s unparalleled water largesse with blood by waging an undeclared, terrorism-centred war, with the Nagrota attack the latest example.

Pakistan has recently succeeded — for the second time in this decade — in persuading a partisan World Bank to initiate international arbitral proceedings against India. Seeking international intercession is part of Pakistan’s ‘water war’ strategy against India, yet it is the World Bank’s ugly role in the latest instance that sticks out. This should surprise few.

After all, it was the World Bank’s murky role that spawned the inherently unequal IWT. Whereas the British colonial government was the instrument in India’s 1947 land partition, the Bank served as the agent to partition the Indus-system rivers, floating the river-partitioning proposal and ramming it down India’s throat. India’s full sovereignty rights were limited to the smallest three of the six rivers, with the Bank uniquely signing a binational treaty as its guarantor.

Since then, World Bank support enabled Pakistan not only to complete mega-dams but also to sustain its ‘water war’ strategy against India by seeking to invoke international intercession repeatedly. Now, in response to Pakistan’s complaint over the design features of two midsized Indian hydropower projects, the World Bank has sought to initiate two concurrent processes that mock the IWT’s provisions for resolving any ‘questions’, ‘differences’ or ‘disputes’ between the parties: It is appointing both a court of arbitration (as sought by Pakistan) and a neutral expert (as suggested by India), while admitting that “pursuing two concurrent processes under the treaty could make it unworkable over time”.

India says it “cannot be party to actions” by the World Bank that breach the IWT’s terms, implying that it might not accept the arbitral tribunal. India’s bark, however, has always been worse than its bite. While protesting the Bank’s “legally untenable” move in the latest case, India has shown little inclination to respond through punitive counter-measures.

Had China been in India’s place, it would have sought to discipline the Bank and Pakistan. Indeed, it is unthinkable that China would have countenanced such an egregiously inequitable treaty. While mouthing empty rhetoric, India still allows Pakistan to draw the IWT’s full benefits even as Pakistan bleeds it by exporting terrorists.

The truth is this: The IWT symbolizes India’s enduring strategic naiveté and negligence. Despite water shortages triggering bitter feuds between Punjab and some other states, India has failed to tap even the allocated 19.48% share of the Indus Basin resources.

For example, the waters of the three India-earmarked rivers not utilized by India aggregate to 10.37 billion cubic metres (BCM) yearly according to Pakistan, and 11.1 BCM according to the UN. These bonus outflows to Pakistan alone amount to six times Mexico’s total water share under its treaty with the US, and are many times greater than the total volumes spelled out in the Israel-Jordan water arrangements. Although the IWT permits India to store 4.4 BCM of waters from the Pakistan-reserved rivers, a careless India has built no storage. And despite the treaty allowing India to build hydropower plants with no dam reservoir, its total installed generating capacity in J&K currently does not equal the size of a single new dam in Pakistan like the 4,500-megawatt Diamer-Bhasha, whose financing for construction was approved last week.

Brahma Chellaney is a geostrategist and author.

© The Hindustan Times, 2016.

BRICS falls under China’s sway

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There’s a real risk that BRICS could unravel under the weight of the BRICS wall of China that Beijing is busy erecting
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BY The Japan Times

Adding concrete content to a catchy acronym has become a pressing challenge for BRICS, which brings Brazil, Russia, India, China and South Africa together. BRICS presents itself meretriciously as a powerful grouping. After all, its member-states together represent more than a quarter of the Earth’s landmass, 42 percent of the global population, almost 25 percent of the world’s gross domestic product, and nearly half of the global foreign exchange and gold reserves.

However, as the October BRICS summit in Goa highlighted, there is little in common among its member-states. Although these five emerging economies pride themselves on forming the first important non-Western global initiative, the grouping is still searching to define a common identity and build institutionalized cooperation.

Six years after it expanded from a four-member BRIC to the five-nation BRICS by adding South Africa, it has yet to unveil a common action plan to help bring about fundamental changes in the architecture of global finance and governance or to accelerate the decline of the era of Atlantic dominance.

BRICS lacks the shared political and economic values that bind together the Group of Seven members, who are also tied by security arrangements with the United States. In BRICS, differences outweigh commonalities. As the Goa summit highlighted, China, which is milking BRICS for tangible benefits, represents the biggest challenge to the grouping’s future. Just as China dominates the other new institutions of which it is a founding member — from the Shanghai Cooperation Organization to the Asian Infrastructure Investment Bank (AIIB) — it is using BRICS to assertively push its own interests.

China also dominates the first tangible challenge to the Bretton Woods system, as symbolized by the BRICS-created New Development Bank (NDB) and China’s own initiative, the AIIB.

BRICS has fashioned two instruments — the New Development Bank, which has been given $50 billion in initial capital, and the $100-billion Contingent Reserve Arrangement, or CRA, meant to provide additional liquidity protection to member countries during balance-of-payments problems. Both these instruments have come under China’s sway.

For example, China outmaneuvered India to host the NDB at Shanghai, offering New Delhi a consolation prize — an Indian as the bank’s first president. The CRA — unlike the pool of initial capital to the BRICS bank, with each of the five signatories contributing $10 billion — is being funded 41 percent by China, 18 percent from Brazil, India, and Russia, and 5 percent from South Africa.

Today, China is in the happy situation of overseeing the NDB and the AIIB, not to mention the CRA. Leading two new multilateral banks fits well with Beijing’s strategy to create an “economic hub-and-spoke system” via energy pipelines, strategic highways and ports, and railroad networks. In this scheme, China, as the hub, seeks to draw in raw materials and other natural resources from the spokes, while exporting industrial and consumer goods to them.

China’s “economic hub-and-spoke system” is to parallel America’s military hub-and-spoke system. But it is an “economic hub-and-spoke system” with a strategic mission. China’s infrastructure development in other states is driven, as during the European colonial era, by a specific interest — to advance its own interests while saddling local communities and governments with heavy debt and human and environmental costs.

Against this background, it is not a surprise that China is a revisionist power with respect to the global financial architecture, but a status quo power in regard to the United Nations system. In other words, China supports international institutional reforms that give it a greater say but blocks measures that will dilute its existing status.

So it is an obstacle to restructuring and democratizing the Security Council. It wants to remain Asia’s sole permanent member of the Security Council. And as underscored by its 2016 presidency of the Group of 20, China values the G-20 as a vehicle to enlarge its role in global economic governance while seeking to retain those elements of the present trade and financial architecture that have facilitated its dramatic economic rise.

Meanwhile, it is using BRICS to expand the international role of its currency as part of its quest to build the yuan as a global currency that could one day rival the dollar or euro. So it is lending and trading in yuan with the other BRICS members.

China’s hidden export subsidies, for their part, are steadily undermining manufacturing in the other BRICS states, even as its adept use of tariff and non-tariff barriers shuts out, from its own market, goods and services in which they have a comparative advantage. For example, China’s trade surplus with India has doubled since 2014 alone to nearly $60 billion, threatening India’s domestic manufacturing base. An article last month in China’s state-run Global Times mockingly said: “Let the Indian authorities bark about the growing trade deficit with China. The fact of the matter is they cannot do anything about it.”

At the Goa summit, Chinese President Xi Jinping flexed his muscles to keep the South China Sea issue out of the Goa Declaration and to shield Pakistan from its sponsorship of terrorism, with the declaration citing U.N.-designated terrorist groups in the Middle East but not the ones based in Pakistan.

China’s “core leader” in Goa called for “political solutions” to “regional hotspots” even as his government adds fuel to regional fires through a relentless territorial creep in the South China Sea and by embarking on a $46 billion corridor to the Indian Ocean through Pakistan-held Jammu and Kashmir, a U.N.-recognized disputed region. How can BRICS create rules-based cooperation among its members if international norms of conduct are flouted in such a manner?

The Goa summit indeed was a reminder of China’s lengthening shadow over BRICS. As China uses the grouping to push its own agenda, BRICS has been left carrying the can. The risk is real that the grouping could collapse under the weight of the BRICS wall of China that is being erected.

Brahma Chellaney is a geostrategist and author and a long-standing contributor to The Japan Times.

© The Japan Times, 2016.