From the Bab al-Mandab to the strait of Malacca, from the strait of Hormuz to the strait of Lombok, all the way to the key logistical hub of Diego Garcia 2,500 miles southeast of Hormuz, the question pops up: How will the unpredictable new normal in Washington – which is not exactly China-friendly – affect the wider Indian Ocean?
At play are way more than key chokepoints in an area that straddles naval supply chains and through which also flows almost 40% of the oil that powers Asian-Pacific economies. This is about the future of the Maritime Silk Road, a key component of the Chinese One Belt, One Road (OBOR), and thus about how Big Power politics will unfold in a key realm of the Rimland.
India imports almost 80% of its energy from the Middle East via the Indian Ocean. Thus, for Delhi, protection of supply chains must be the norm, as in the current drive to develop three carrier battle groups and at least 160 naval vessels, including submarines, before 2022. That also implies boosting a cooperation agreement with the nations bordering the strait of Malacca – Malaysia, Singapore and Indonesia – and developing military infrastructure in the Andaman and Nicobar islands.
China for its part advances a relentless economic / infrastructural drive from Myanmar to Pakistan, from Bangladesh to the Maldives, from Sri Lanka to Djibouti – a counterbalance to the impossibility of fully implementing “escape from Malacca”, the complex, multi-pronged Beijing strategy for diversifying energy supplies.
The privileged infrastructure connectivity hub remains the megaport of Gwadar in the Arabian Sea – which will be controlled for the next 40 years by a Chinese company. Gwadar is the naval destination of the US$46 billion (and counting) China-Pakistan Economic Corridor (CPEC) originating in Xinjiang, which will be the economic New Silk Roads game-changer in South Asia.
This implies everyone jumping aboard the new Karakoram highway, currently under construction in Pakistan’s sublimely mountainous northern Gilgit-Baltistan, with the military watching over a frantic maze of Chinese engineers.
Islamabad/Rawalpindi took no prisoners in offering a sprawling support system to prevent possible interference by Uighur separatist groups. For all practical purposes, Pakistan’s Inter-Services Intelligence (ISI) is now focused on resident Uighurs in Pakistan like a laser, while not forgetting Balochistan’s separatist groups, who, with the right “incentive”, might also derail CPEC further on down the road.
Beijing treads a very fine – soft power – line. Islamabad offered the Chinese Navy a base in Gwadar, but was politely declined: the graphic message would totally freak out both Delhi and Washington. Gwadar will be inevitably developed over time as a trade hub for a vast swathe of South Asia, but Delhi’s anxieties relate to its virtually ready-to-roll capability for monitoring the Indian Navy in the Indian Ocean and the US Navy in the Persian Gulf.
Go North-South, young Eurasian
Gwadar happens to be not far away from Chabahar, in Iran – which is being designed as an Indian trade hub towards the markets of Central Asia, connecting India with Afghanistan via Iran and thus bypassing Pakistan. That’s the Southern – or Indian – Silk Road in action. Gwadar and Chabahar are the top two new hubs bound to link the Indian Ocean to central Eurasia, with Iran, India and Russia featuring as key members of the slowly-developing but potentially spectacular International North-South Transport Corridor (INSTC).
Moreover, Iran, China and India may all eventually converge towards a free trade zone with the Russia-led Eurasia Economic Union (EEU), as the CPEC for its part will allow Russia and Central Asia to boost trade with the Indian Ocean Rimland.
Then there’s the fascinating case of Sri Lanka. According to the
Institute of Policy Studies in Sri Lanka, from 2006 to 2015 China invested over US$5 billion, with Sri Lanka’s minister of development strategies and international trade adding that China has pledged over US$10 billion more up to 2019.
The key project is the deep-sea port at Hambantota – plus an international airport in nearby Mattala. Sri Lanka struck a deal with China Merchants Port Holdings at the end of 2016 to sell 80% of Hambantota for US$1.1 billion and to lease 15,000 acres of nearby land for 99 years.
The notion of having a Chinese carrier battle group in the Indian Ocean ready to confront the Indian Navy is idle geostrategic speculation
Needless to add, the proverbial “concern” with this Chinese win-win was registered in both Delhi and Washington. The possibility that China will eventually acquire a permanent naval military base in the Indian Ocean is a full-time obsession of US Think Tankland. Colombo, though, has always been adamant: Chinese-financed infrastructure does not imply basing rights for the Chinese Navy.
In fact, any Chinese move – from leasing a Maldives island for 50 years for US$4 million to building a military base in Djibouti (officially a base for “technical and logistical support” to the Chinese Navy) by the end of 2017, close to the Americans and the French, is a source of “concern”.
Where China in South Asia is concerned, the Pentagon / Naval War College always fall back to the “string of pearls” threat. Especially now with the Maritime Silk Road, a “string of pearls” is a categorical imperative for Beijing. But that does not imply Chinese military hegemony.
For Beijing, conscious of cost-efficiency, the logistical nightmare of maintaining naval bases in foreign lands far, far away from the Middle Kingdom is definitely not a win-win. So the notion of having a Chinese carrier battle group in the Indian Ocean ready to confront the Indian Navy is idle geostrategic speculation. The very long game is all about establishing key trade nodes for the Maritime Silk Road.
I got a naval offer you can’t refuse
It will be fascinating to watch how mechanisms such as the South Asian Association for Regional Cooperation (SAARC) develop.
Let’s see what Delhi – deeply committed to an official Make in India campaign – may offer in the way of “free” markets to Nepal (which is leaning towards China), Bangladesh (always in a complex relationship with Pakistan) and Sri Lanka.
Since 2008, China has been India’s largest trading partner. China and India will be involved in deeper cooperation inside the BRICS, and in managing the New Development Bank (NDB). Moreover, India is about to become a full member of the Shanghai Cooperation Organization.
The notion of Delhi reigning supreme in the Indian Ocean is misguided. From now on, with the emphasis on the Maritime Silk Road, it will be more a case of serious India-China economic competition and/or cooperation, as both countries invest in the protection/expansion of their extensive, complex supply chains.
The Pentagon, under James “Mad Dog” Mattis, will, of course, be watching closely. India’s NDTV recently reported that the US Pacific Command had tacitly admitted the obvious: that the US and India are sharing intel on Chinese warships and submarines in the Indo-Pacific. Moreover, there was a hint that Beijing could deploy a carrier battle group in the Indian Ocean today if it saw fit.
It’s unlikely Beijing will accept the challenge – just to be slapped with more charges of “Chinese aggression” and “threatening freedom of navigation”. Better invest in non-stop, cumulative Maritime Silk Road deals.
A well written article with some glossing over of ground realities, sidestepping Indian anxieties, and understating the overarching possibilities of the CPEC, OBOR and Maritime Silk Road projects.
Lets me try to dissect it as an Indian. I might miss some points or even misjudge a few, but hopefully i will be corrected:
1. CPEC goes thru dispusted territory of Pak Occupied Kashmir. What ever political situation might be, legally the state of Jammu & Kashmir was acceded to India by then king. Gilgit-Baltistan (northern areas) is a part of J&K and hence part of India under Pakistan Occuation. If CPEC route over G&B is correct, then India establishing trade and security and diplomatic relationship with Taiwan, working with Tibet Free Movement (peacefully offcourse) and renegading from One China Policy should also be correct. I mean two can play the game and I reckon this is in strategic interest of India, we should.
2. Gwadar port might for just be a trade hub (logistics support base to be precise). But eventually Ormara (near Gwadar) will turn into a naval base housing Chinese build S26 Submarines with SLBMs (possible supplied by China or North Korea, however green painted and named after some medieval invader) targetting India. And this a very real danger for India, given how unpredictable and unstable the Pakistani establishment’s thinking is towards us. Already Pakistan has placed P20 missiles (also called Hatf IX TNWs) towards India. The latest M-18 / DF-15 MIRV variant (Ababeel, aka Shaheen 3 latest block) and CJ-10 / DH10 (Babur missile) have been tested and may be deploy ready against India.
3. Just a titbit, KKH2 being build by China as part of CPEC as an all weather road as KKH1 is closed for 5 months a year during winter season.
4. CPEC project is based on loans given by Chinese companies. Classic chinese business procedure. GIve loans at high rate of intertests. Show Infra development for say 5 t 10 years. Build Coal based highly polluting electricity stations (these thermal power plants are getting closed in China as part of Clean Energy drive there), Create circular debts, get land and ports for 35 year / 45 year / 50 year or 99 year lease. Build up chinese posts. It looks like Chinese East India Company, establishing colonies. Bangladesh Nepal, Maldives, Srilanka, Combodia, African Nations, Central Asian Republics, where ever you go, the pattern is the same. Chinese have abundant supply of goods. They want markets. OBOR / CPEC / MSR / BIMSTEC are all Supply Chain route build up and identification and consolidation of Chinese footprint in these Markets. Look at Lagos today. Even ethnic African Garments are made in China and imported and sold there. Whole market place is taken over silently.
5. Author says India should be mindful that Indian Ocean is not Indian. Chinese should also be mindful the South China Sea is not Chinese just because they say so. If history is what they show, then by that measure, Yuan Dynasty went all the way to Bulgaria, so does it mean who of the landmass up to Bulgaria is Chinese citadel. We are living in modern times and UNCLOS is something Chinese agreed too. But with assertive, agressive, coercive, hegamonic pressure tactics China is taking down smaller states one by one. But in sometime they will have to face larger powers that will oppose the move. Lets see how that plays out.
6. Hambantota in Srilanka and deep-sea port at Sonadia in Bangladesh could have served Indian markets, catering chinese goods giving market access to India had the bilateral situation between India and China were good. But reality is that CPEC and NSG Opposition and chinese double standards on terrorism had made things really very difficult. This Diwali, chinese business felt at least to an extent the Boycott Chinese pressure. And if this continous for long chinese items will be replaced by Japanese, South Korean, Taiwanese business ventures in India. The fact that 55 billion dollar business relationship is at stake and China will have to make nice of its relation with India is a fact. When will this happen again only time will tell.
China might have money to outmanoeuvre India / USA for the time being. But when someone is playing in anothers courtyard, then one should be aware of the pushback.
This is going to be a long game, neither India nor USA or China are going anywhere. Its going to be long bumpy and painful ride for all 3. Rest assured, India is not the India of 1962 anymore. We will cause pain if one is caused to us. China is trying and will try to pin India down to South asia as a may be , could have been nation, and we have not option but to pushback and pushback we will.
The other commenteter naduri missed some points. He just saying india is good because US think it is good. But as a nepali, if i have to choose a country that i hate most is India. If you see closely how India ruined our country from more than 6 decades then you will not find a single word to hate bloody india and indians.
A well written article by Pepe, as usual, but a lot of misinformation in the comment above.
1. At the time of partition of India and Pakistan from the British in 1947, the Raja (king) of Kashmir acceded to India after Indian armed forces landed in Kashmir and the Raja was arrested. He was forced to sign the accention document looking at the barrel of an Indian gun. His memoirs later revealed that he did not want to be part of India or Pakistan and wanted to be independent. In such a case the decision would have to be based on a plebicite in the province. Kashmir has a predominantly Muslim majority and the outcome of a plebicite is a foregone conclusion. The brutal occupation of Kashmir by over 800,000 Indian forces armed with medevial repressive state laws give a carte blanche to the enforcers. Over the years more than 60,000 stone-throwing civilians have lost their lives fighting for their right for self-determination. There are blanket news blackouts, Human Rights organizations have documented numerous mass graves, rapes and dissappearances. There are several UN Security Council resolutions calling for a plebecite in Kashmir which India has consistently ignored. If the Raja’s signature to the accention document was the only criteria then Hyderabad province should be part of Pakistan as the Nizam (king) of Hyderabad had opted to be part of Pakistan. If India claims Kashmir to be a disputed territory then it should be resolved by implementing the Security Council resolutions.
2. Pakistan has consistently said that CPEC is purely an economic project that is not directed against any third country. With neighbors like India who have hegemonic designs in the region Pakistan would do whatever it takes to protect its right to an economic uplift of its people. That includes deployment of tactical nuclear weapons to forward bases to counter India’s new ‘Cold Start Doctrine’.
3. India has been emboldened recently due to its closeness to the US. Seems like it has not learned anything from the past, namely the famous ‘Forward Policy’ of Nehru of 1962. It is made to believe that it can act as a counter weight to the rise of China. Conservative estimates are that it is at least 50 years behind China in every sphere. Over 60,000 western NGO’s have mushroomed in India over the past decade who are doing exactly what they are designed to do. The policies of India are locked on to a trajectory that suits the west. Only a handful of Indians realize this, but they are muzzled up quickly as being traitors by a hyper active media riding on a wave of nationalism.
Saeed Khan ever heard of pathun tribes attacking j& k? Looting rapes etc., done by them? Go google sir. Raja signed accession first and then Indian troops flew in. Tanks brought in to highest hills, getting the marauders out of Kashmir. Then Nehru went to UN. Read resolution before jumping the gun. Pakistan has to vacate occupied land first. India need to reclaim and then a plebiscite. Pls pls read, google about all this.
Modi’s blockade was a bad decision. It hurt Indian-Nepali relationship badly. I don’t blame a Nepali calling us Indians bloody. But alternative is as bad and you and your country will get to knowbit firsthand in less then a decade.
All the trade in the world isn’t going to matter when the planet’s ecosystems crash. Pepe never seems to comment much on that apsect. The expansion of Asian trade will simply speed up the process.
Pepe Escobar’s focus has always been economic and geopolitical issues.
There are investigative journalists who specialize in ecology and threats to the eco-system by human activities.
I agree with you that the earth is being ruined by human pollution and overpopulation.
Good analysis. As a fellow Indian but being fair and balanced I disagree only with your point 1. You should remember the Nizam of Hyderabad and Nawab of Junagadh had also declared that they would like to join Pakistan. India responded by sending its army and forcibly annexed it. So we dont have a moral stand to state the PoK and Gilgit Baltistan are Indian territories.
Srinivasa Nanduri If you are referring to China as an alternative to India for Nepal then I think that it will be good for Nepal. China has a non-intervention policy in the political affairs of other countries unlike us & USA. They just focus on economic interests. Look at Africa wherin China has ploughed in billions and no regime changes. If I was a Nepali government decision maker I would balance my stakes by playing India against China for the greater good of Nepal.
You have a long, in fact, very long post by internet comment standard. Looks like you come prepared. It took me sometime just to read it.
Let me just comment on one point you raised in your post:
"4. CPEC project is based on loans given by Chinese companies. Classic chinese business procedure. GIve loans at high rate of intertests. "
May I ask what is the "classic Indian business procedure"?
And do you consider loans at 1-2% "high rate of intertests"?
(FYI. loans for previous Pakistani infrastructure projects financed by the World Bank carried an interest rate between 5% and 8.5%).
In addition to low interested loan,here are a few projects from CPEC that are financed by interest-free loans or grant from China:
–The government of China in August 2015 announced that concessionary loans for several projects in Gwadar totalling $757 million would be converted 0% interest loans.
–In September 2015, the government of China also announced that the $230 million Gwadar International Airport project would no longer be financed by loans, but would instead be constructed by grants which the government of Pakistan will not be required to repay.
Are these "classic Indian business procedure"??
Aam Aadmi China likes to keep tight control over any of its vassal states. In perpetual dependence. To address the logistics roads are now being build but Chinese. And there most concern is with the the buddhists of Tibet. So Nepal will be mostly viewed with security prism. Its politicians will be bought and sold and the nations credibility will be disturbed. Politically, Socially and even to a large extent economically future of Nepal and India are intertwined. India should learn to be more humble and Nepal should understand that Pahadi – Madhesi division will only hurt them.
Its never good to be under the umberage of security state like CCP. And make no mistake today’s china is not a civilisational state but a one party ruled state, no matter how rich it might be. Chinese might have white washed Mao’s Cultural Revolution but outside world should at least remember it, so as to understand how CCP started with Communisim then to Personality Cult and state managed Capitalism and now to Nationalism. Its dangerous and xenophobic to say the least.
Aam Aadmi I am from Hyderabad and being a local do know something about its history. Nizam and his Razakars were facing rebellion and police action folded his troops within days. IA did do rape or arson or looting of the claimed state of Hyderbad. Remember it was a hindu majority state. Junagadh was a political move that fooled Jinnah and co and got the hindu majority state to join India.
On the other hand, history of J&K is different. The king made standstill agreement with Pakistan. He gave same request to India but India rejected to sign the agreement. Standstill agreement gave credence to J&K as a independent state atleast from Pakistani govt. But when Jinnah grew restless with the continous discussions on accession, he sent in tribal laskars. They could have got Srinagar had they not been busy raping, killing and looting civilians. Raja panicked and reached Jammu and signd treaty of accession with India. Once the accession documents reached Delhi thats when IA was airlifted to Srinagar, and thus followed liberation of J&K. Had Nehru not jumped the gun, we could have got NA and Western Kashmir too. But now they are under occupation of pakistan. Also, pls note that due to Article 370, no Indian can settle in J&K and hence the indigenous population is still indigenous. But in G&B and Western Kashmir, pakistani punjabi and pasthun population have resettled and thus changing the demographics.
And if some one is questioning the Raja’s accession to India then by that logic accession of Kingdom of Kalat to Pakistan can be questioned too.
Basically Partition was a haphazard thing done to pls the Muslim league elites of UP & CP. What they intially envisioned was a pakistan from KPK to Bangladesh, thus covering whole of North India and what they got instead is current day pakistan.
Just to add in, Lahore was a cosmopolitan city of Sikhs, muslims and Hindus. KPK was a congress ruled province and sindh was as hindu as it was muslim. So a part of partition, we sent the UP / CP Urdu speaking elite and bulk of Military to Punjan, Sindh and KPK that really did not want partition. East Bengal on the other hand had a strong movement for independent pakistan. The irony is these were people were subjected to genocide by the western pakistani military in 1971.
Shuami Bev Out of the pledged $45.69 billion, $33.79 billion has been earmarked for energy projects, $5.9 billion for road construction, $3.69 billion for railway network construction, $1.6 billion for the Lahore Mass Transit, $66 million for Gwadar Port, and a fibre-optic network project worth $4 million.
Apart from the 720mW Karot hydropower project between the China Development Bank Corp, EXIM Bank of China and Karot Power Company (Private) Ltd, they include the upgrading of the 1,681km Peshawar-Lahore-Karachi railway line ($3.7 billion); 1,980mW Thar coal-fired powerplants ($2.8 billion); development of two Thar coal mining blocks ($2.2 billion); the Gwadar-Nawabshah natural gas pipeline ($2 billion); imported coal-based 1,320mW power plants at Port Qasim worth ($2 billion); a 900mW solar park in Bahawalpur ($1.3 billion); the Havelian-Islamabad road-link of the KKH ($930 million); a 260mW wind farm at Jhimpir ($260 million); 870mW hydro-electric Suki Kinari project between EXIM Bank of China, Industrial and Commercial Bank of China Ltd and SK Hydro (Private) Ltd; Sahiwal coal-fired powerplant project between industrial and Commercial Bank of China Ltd, Huaneng Shandong Electricity Ltd and Shandong Ruyi Group; and the Gwadar International Airport ($230 million).
The Sindh Engro Coal Mining Company, a joint venture of Engro Powergen Ltd and the Sindh government, holds the lease of Thar Block-II coalfields, while its Thar Power Company will construct a series of mine-mouth power plants. In May 2015, Pakistan concluded the implementation and the power purchase agreements for two 330mW projects, which are scheduled to begin commercial operations by December 2017.
And the China Development Bank has finalised the terms and conditions for financing a 3.8 million tonnes per annum coal-mining project as well as a power project. On June 25, 2015, Pakistan approved another Thar coal-based mine-mouth power project of 1,320mW capacity, which is being developed by the Shanghai Electric (Group) Corp in partnership with Sino-Sindh Resources, a subsidiary of Global Mining (China) Ltd.
Sino-Sindh Resources will receive $1 billion from the Industrial and Commercial Bank of China. This mine-mouth power project, originally planned to start power generation in 2016, has now been rescheduled for commissioning by 2018.
All the Chinese loans will be insured by the China Export and Credit Insurance Corp (Sinosure) against non-payment risks, and the security of the loans is guaranteed by the Pakistani state. A framework agreement for energy projects under CPEC was recently signed between Sinosure and Pakistan’s Water & Power Ministry to provide sovereign guarantees.
Sinosure is charging a fee of 7% for debt servicing, which will be added to the capital cost of a project.
For instance, the capital cost of a 660mW project at Port Qasim is $767.9 million. But it goes up to $956.1 million by adding Sinosure’s fee of $63.9 million, its financing fee and charges of $21 million, and interest during construction of $72.8 million; a 27.2% return on equity is guaranteed.
Ironically, interest during construction is allowed at the rate of 33.33% for the first year; 33.33% for the second; 13.33% for the third; and 20% for the fourth year.
There is another developing aspect, global warming is freeing the northern arctic route, PRCs energy supplies need no longer come from the ME, Russia can supply all the oil and gas fPRC needs for the next 50 years. In fact the Russian strategists have already built enough ice-breaking capacity to keep the northern route open even today to assure PRC of its energy supplies. The US choke-point strategy is now simply obsolete, the great satan as usual is now one step behind.
Srinivasa Nanduri:
Again, a VERY LONG post in reply, although the first 6 paragraphs (80% of your post) seem to be a promo for these Chinese banks. I have no problem with that.
In your reply, you made no mention of the interest rates reached between Pakistan and the Chinese banks for loans extended to most of the CPEC projects, which is below 2%, with some of them 0%, or even grants.
As for your quote of "Sinosure is charging a fee of 7% for debt servicing", I can find only 1 reference of that by googling, attributing to a SHANTANU BASU as published on The Citizen of India (that would raise an alarm already). I have no way of verifying of the validity of that claim, along with the claim that "interest during construction is allowed at the rate of 33.33% for the first year…" which is EXTREMINGLY HIGH for a commercial loan. I don’t think any sovereign state would accept such high interest loan for infrastructure projects in the hundreds of the millions! That’s why such claim would put this guy’s credibility to a "yuge" question mark.
Srinivasa Nanduri:
A load of unsubstantiated accusations and tons of rants.
I say let the Napalese decide which one (China vs India) is an honest broker and an equal partner.
The Chinese fear – being totally dependant on RUSSIA!
Devindra Sethi Where do you get the idea of "totally dependent"? Spin and self-deceit are of the devil.
Yes, that’s why Russian icebreakers are stuck in the ice as we speak: http://www.climatedepot.com/2017/01/27/russian-icebreakers-stuck-in-very-heavy-severe-ice-conditions-in-arctic/
A review of Google search results for "Russia icebreaker stuck" reveals stories in 2013, 2009, and more.
Really, a more thorough review of recent history would reveal a lot. For example, that the "Arctic route" has been open before; it isn’t that you could not navigate through the Arctic route before, it is that it is really dangerous and unreliable.
In World War II – it was worthwhile to ship to Russia via the Arctic due to adverse conditions known as bombers.
Very hard to see why any shipper would want to risk the Arctic route today or for the foreseeable future.
I hope this website about CPEC also improve your knowledge
http://cpecvela.com/
Another website about China pakistan economic corridor writting informative articles that you may like http://cpecvela.com/
Kashmir is unfinished business of the partition of British India. And India is brutally occupying the Kashmiris illegally and in violation of several UN resolutions