SOCIAL AND ECONOMIC RISKS OF ONE-BELT-ONE-ROUTE
Acad Group 5
Aninda Basu | Deepayan Majilya | Purvi Moojlee | Sai Tarun Dande | Shailey Khanna
After touring in various countries of South-east Asia President Xi JinPing decided to launch a new initiative called the “One belt, One Road” Policy(OBOR). It is a combination of “Silk Road Economic Belt” and “Maritime Silk Road of the 21st century”. OBOR is an initiative towards building a trade network amongst Asian, European and African countries with China. OBOR has two sides to it, one being building a trade route between China and Europe by developing Central Asia and is known as the Silk Road Economic Belt. The second part is to form a bridge between southeast Asian countries and southern parts of China by sea and by railway. Another objective was also to transfer the excess capacity available in China to neighbouring nations along with the technological prowess. OBOR planning in China starts at the very grassroot level and goes up till the National Economic Planning Agency.
Policymakers, economists and market analysists are also of the belief that OBOR was a counteractive measure against United States of America foreign policy of strengthening its presence under the Trans-Pacific Partnership with Asian countries. OBOR initiative is also assumed to help mend the other pressing concerns of China such as the helping expand and upgrade the industry by expanding and enhancing the acceptance of exported goods in Asian countries and also increase interactions with neighbouring countries for equitable development of its varied provinces.
v Review of Existing Actions
Chinas excess capacity and the amount of investment of about $1 trillion infused in by major banks in China will help provide infrastructural help to developing nations with dearth of such infrastructures or ability to build them. China will do so by entering into Public Private Partnerships with the government of these countries and by clearly indicating lack of any political motive. China benefits from this because developing these countries will further increase its export demand base.
6 Major Economic corridors have been recognised as the key initiatives under OBOR. These corridors cover more than 60 countries.
v Social Risks
South-Asians countries like Sri Lank are facing huge amounts of debt by opening its doors to investment made by China for their infrastructural development. Sri Lanka owes China more than 10% of its total debt. This is a very strategic move by the China, whereby they provide debt to countries that have a low credit rating and ability to pay back loan, and these countries thus have to convert their debt to equity thereby making China partial if not absolute owners of infrastructural projects. This increases the pressure in the Sri Lankan Economy, as imports from China will increase competition for domestic producers, eventually leading to unemployment and lower GDP.
Even other countries like Turkey, Kazakasthan and Uzbekistan have faced the problem of employment in because of taking funds from China. China is also known to prefer employ its own nationals in its companies or its projects. This thus puts a pressure on local communities to find employment, because China does offer work to these people in its own country.
On the other hand, there is a social risk attached for the labourers in China. Because of the aforementioned initiatives the labour-intensive industry is shifting oversees, this poses a deficit in the availability for farmer to move from the agricultural to the industrial sector
India recently boycotted the latest OBOR meet held on May 14th-15th. It considered all initiatives by the Chinese Govt have not considered the principle of territorial integrity and considers all steps taken by China with countries around India as a way to undermine the presence and economic power.
v Economic risks of OBOR
· Domestic Risks
Indian economy is doing better than that of China currently as we know the economy of China is declining. Therefore, China is trying hard to improve its economy in the coming days by expanding its reach to different countries by improving its connectivity and infrastructure. China tries to increase its economic dominance through OBOR by creating an infrastructure to transport Chinese goods to different parts of Asia and Russia. India keeping an eye on the border tensions and economic impact caused by cheaper Chinese goods was not part of this initiative. OBOR initiative might hamper the domestic production of goods in India because of the reduction in exports. There is a chance of countries becoming excessively dependent on Chinese goods reducing the imports from our country. This decrease in production will affect the overall GDP of our country and might further increase the trade deficit, which was USD 13.83 billion in November of 2017. In the long-run, India might lose out on certain business opportunities with the foreign countries as they would have already established very strong partnership with China through the OBOR initiative. Finally, there could be a chance of economic colonisation due to this initiative.
· Global Risks
OBOR has the potential to affect the global economies and lead them to a trap. The overseas development assistance (ODA) has been decreasing globally over the years. China is, may be, trying to use this opportunity to attract the countries for their development in infrastructure through Chinese funds. OBOR is the perfect platform for China to achieve its goal. The investment that has been making by China in various Asian countries is not in the form of grants. China might charge very high interest rates in the future and this act as a long-term investment in the Asian countries. Srilanka is a good example for this where it borrowed $ 300 million dollars for the construction of Hambantota port project. The interest rate for this loan was 6.3 % which was higher the interest rate charged by either of World Bank or Asian Development Bank.
The investment value that China is planning to make in several countries in Asia is higher than the overall economy of the countries. China and Uzbakistan deal, signed in 2013, was worth $15 billion and it was almost 25% of Uzbekistan’s GDP. On similar lines, China has planned to invest in countries like Pakistan, Myanmar, Mongolia etc. where the investment is over 15% of the countries’ GDP. There a large risk of countries not able to pay-back the amount that was lent for developing the infrastructure by China.
v Managerial Implications
The One Belt One Road initiative has deep managerial implications seeped in efficient functioning and growth of businesses across industries. Some of the specific implications of the initiative on businesses across the countries which lie in the belt (namely Kazakhstan, China, Mongolia, Russia, Indochina Peninsula, Turkey, Singapore, Myanmar, Bangladesh, India and Pakistan) are as follows:
§ The countries which lie in the belt have better connectivity due to the initiative. It helps them develop strategies which can leverage the strengths of individual countries and produce results in a cost effective and efficient way.
§ The co-operative strategy helps the participating countries tap a huge internal market in the belt and thus lead to large consumptions of products and services in these regions.
§ The flourishing businesses in the belt region helps in the creation of a large number of job opportunities. It also helps people develop new competencies by learning from other countries and thus help in the overall development of the skill level of the countries in the belt.
§ The flourishing businesses in the belt region will also attract large amount of investment from investors and will thus help in developing dividends for prosperity of the developing nations.
§ People from different countries come in to work together carrying their rich cultures. The initiative helps in making people understand and respect the differences in cultures during work and create a global environment of prosperity, harmony and peace.
§ The parts of the route passing through Pakistan occupied Kashmir has the potential to affect businesses in the Indian subcontinent due to political instabilities and the possibility of such fluctuations have to be kept in mind while operating businesses from India which depend on the route.
§ The debt burdens created by one country over another by implementation of development projects may become unsustainable and may lead to economic imbalance of the later.
v Recommendations & Conclusion
In view of the risks discussed, India can form various strategies to be protected against the same. Some of the possible measures are as follows:
· In the face of cheap Chinese goods capturing mass markets, manufacturing can be promoted in India through higher focus on “Make in India”, by making working on various parameters to make “Ease of Business” rankings better and by working out tax structures which make manufacturing in India more economically viable as compared to China.
· Against the threat of loss of business opportunity because of China’s dominance in OBOR, India could focus on the service sector where it is already dominating and build competitive advantage here instead of focusing on manufacturing domain where China leads due to economies of scale, lower cost of capital investment, high productivity of labour, low costs of power and transportation.
· To counter the possibility of high interest rate being charged by China against loans, India can attract more investment through FDI by forming attractive policies in programs like “Make in India”. It can focus on getting credit, protecting the interest of minority investors and working out attractive tax structures to achieve the same.
· India can take advantage of the fact that the Chinese people tend to push for employment of Chinese even on foreign soil. They can leverage this gap to promote Indian businesses on foreign soil by given attractive stands of recruiting from the locals. This will ensure a steady advantage for capital flow into the country from foreign soil.