BEIJING, July 21 (Xinhua) -- Behind the ongoing border standoff caused by Indian troops' trespass into Chinese territory, is an ill-conceived notion of dragon-elephant rivalry that has grown into a major global topic.
Where does the confrontational idea come from?
The China-India comparison emerged as early as in the 2000s, and was elaborated by scholars and media from the United States and Britain.
The book "The Dragon and the Elephant: China, India and the New World Order", written by Sunday Times journalist David Smith, formally presented the idea to the world. The Financial Times even has a special page for "dragon-elephant rivalry."
It is fair to say that the concept of China and India being nemeses to each other was cooked by the West, a smart move, pitting the two biggest future competitors of the West against each other.
So who stands to win from a possible India-China war?
At least no one in Asia. Obviously the two would pay a heavy price first of all. Even Japan, the U.S. ally who relies heavily on the Chinese market, would suffer an economic blow, which could turn into a domestic crisis.
Most economies, including those in the West, will find themselves negatively affected by an India-China war in a globalized and intertwined world today.
The only beneficiaries, sadly, will be opportunists, short-sighted nationalist politicians who don't really have the people's interests in heart. And the dream of an Asian century would become a puff of wind.
What is the true nature of the China-India relations?
Being the world's oldest civilizations with a time-honored history and brilliant culture, China and India have long engaged in exchanges and mutual learning.
As the two countries are the world's biggest potential markets, each with over a billion people, they could develop complementary industries and cooperate in protecting common security.
Working together, China and India could build something unprecedentedly wonderful for not just themselves, but the whole region and the world.
The recent border issue between the two countries shows a lack of strategic trust on the Indian side. What is holding India back is not China, but common problems facing developing countries like corruption, a lack of quality education, healthcare and reforms.
Both China and India need to enhance communication and nurture trust between them, first by recognizing that the two are not born rivals and that harboring ill will against each other is dangerous.
India must understand that China wishes what's good for the Indian people and would love to see a strong India standing shoulder by shoulder with China.
Meanwhile, just like China, India must remain sober and guard against wrong judgement and irrational perceptions.
Instead of being rivals, India and China have much more common ground, common interests and common aspirations. Both as developing countries, the two need to work together on important issues like fighting climate change, protectionism and the financial privileges of Washington.
Hopefully, wisdom will guide the two countries to common prosperity. There is more than enough room for them to co-exist and thrive in Asia and in the world.
The ancient “Silk Road” was not well-defined, but rather involved several routes through central Asia and Persia and modern Turkey by which silk fabrics traveled from the Han Dynasty (206 B.C. to A.D. 220) as far back as the Roman Republic, over 2,000 years ago. Depending on political developments over such a long distance, the silk trade periodically languished and revived, especially during the early Tang Dynasty (618-907) and again during the Yuan Dynasty (1271-1368), when Mongols controlled most of the route from China to eastern Europe. The Tang Dynasty and again the early Ming Dynasty (1368-1644) developed sea routes through the Indian Ocean, at least to eastern Africa and the Red Sea, some say even farther. A later Ming emperor not only declined to finance these expensive official voyages but, bizarrely, prohibited even private distant sea-born voyages.
The risks and dangers of the land route induced the Europeans — led by the Portuguese, followed by the Dutch, British, French and much later, the Germans — to seek a sea route to the Spice Islands of Southeast Asia and to East Asia. From China, they imported not only silk, but also fine porcelain (called “china” in English) and especially tea, which had become a favorite beverage. Lacking the high value of silk, the other commodities were much more economical as well as less risky to ship by sea.
In 2013 President Xi Jinping announced — in Astana, Kazakhstan — an initiative to create a new Silk Road, by land and by sea, linking China with Europe (and Africa). This has been labeled the “Belt and Road” initiative. The initiative was declared four years ago, initially as a slogan, the details of which are still being worked out although much has taken shape in the meantime. It includes some things that were started or planned well before 2013, such as enlarging the port of Gwadar in Pakistan and building an oil pipeline to Yunnan province through Myanmar.
The general concept seems to be to improve Chinese communication — viewed broadly — with Europe and Africa, including intermediate nations, especially the “-stans” of central Asia, by building or improving networks of transportation and optical fibers, including local infrastructure, such as ports, airports, rail lines and highways, but also the generation and transmission of electricity.
The sea route has been well-established since the Suez Canal opened in 1869, permitting ships to avoid the long trip around Africa, but local ports and channels can be improved, such as in Burma, Pakistan and Djibouti.
Modernizing land routes will be much more difficult, both in engineering terms and especially in economic terms. The distances are vast, through relatively poor and lightly populated places such as Mongolia, Kazakhstan, and even Russia’s western Siberia. Also, Russia is notorious for charging high fees for the use of its territory, whether the increasingly ice-free northern sea route or its air space. (The Panama Canal provides a sharp contrast here: Opened by the U.S. in 1914, two years before the trans-Siberian railroad, the canal stipulated that toll charges for all users should cover only operating costs, not profits, and not even interest on the debt incurred to build the canal; the U.S. similarly made the Global Positioning System available to all users free of charge.) And for rail, there is the complication that Russia uses a wider gauge of track than the standard gauge used in China and Europe (installed in the late 19th century for strategic reasons), thus weakening the economics of trans-continental rail travel.
China has indicated a willingness to provide financing for the Belt and Road initiative on a large scale, partly through existing institutions such as the China Development Bank and the Export-Import Bank of China, which together have been committed to provide 380 billion yuan ($56.1 billion) to the endeavor, and partly though new institutions such as the multilateral Asian Infrastructure Investment Bank and the Silk Road Fund, which is to be augmented by 100 billion yuan, or $14.8 billion. This compares with recent annual commitments of roughly $30 billion each by the World Bank and the Asian Development Bank. Of course, the Chinese pledges are totals, not an annual figure. And it is mainly declaratory so far; they might be increased in future, but reality may also be less generous. Already there are worries in Pakistan about the large debt burden it will incur to China as a result of ongoing Belt and Road activities in that country (many started before 2013), and whether accessible economic gains will be sufficient to service it.
China also explicitly aspires to use the Belt and Road to increase international use of China’s currency, the yuan. This will be natural insofar as loans from China are made to purchases exports and services from China, but other suppliers may be reluctant to accept payment in yuan without adequate channels for even short-term investment in yuan, and debtors may be reluctant to accept long-term debts in yuan without being confident that China’s market will be open to their exports in the long term.
In mid-May, the Chinese government hosted a major conference on the Belt and Road initiative, involving 130 countries and political leaders from 29 of them. Xi opened the meeting with an inspiring speech outlining the mutual gain participating countries could expect from the initiative, not only in economic terms but in terms of peace (necessary for prosperity) and in terms of cross-cultural mutual understanding and mutual respect, and not incidentally casting China as a cooperative and supportive partner in globally constructive endeavors, including preservation and extension of the open world economic order China inherited and from which China itself greatly prospered.
Richard N. Cooper is the Maurits C. Boas professor of international economics at Harvard University.
By Richard N. Cooper
The Bayterek tower monument, center, stands flanked by skyscrapers in Astana, Kazakhstan. Every global bond investor believes KZ is the best of the ‘Stans and has a lot to gain from China’s new One Belt One Road development project cutting through Eurasia.
The jury is still out about China’s One Belt One Road development project. But Kazakhstan isn’t too worried. If there is one country in Eurasia, if not the world, that is more gung-ho about the new Silk Road to Europe, it’s these guys.
Should the government play its hand right, and with very little opposition to President Nursultan Nazarbayev’s reform agenda, there is no indication that it won’t – eventually — Kazakhstan (KZ) will graduate from a “frontier market” designation on the MSCI global fund indexes to become the first emerging market in the ex-Soviet ‘Stans.
“I think that they are the next one to join the MSCI Emerging Markets Index,” says Babek Hafezi, CEO of Hafezi Capital, a McLean, Va based consultancy with about 35% of its clients coming from emerging and frontier zones like KZ. “If they keep improving their education system and their students that are going overseas come back home, and Kazakhstan captures that brain power, and if you can be at global standards of corporate governance, then there is no reason why this won’t become a more tradable market.” Pakistan got the greenlight to join the MSCI Emerging Markets Index in May.
Kazakhstan is the most developed ex-Soviet ‘Stan. Its leadership has always been interested in going their own way. This time, their way is pointing to China – and beyond. It is perhaps the single biggest game changer for them. Kazakhstan is using China’s One Belt One Road as a means to light a firecracker under its own business and political class.
As it is, Kazakhstan’s investment grade economy is bigger than every single ex-U.S.S.R. state outside of Russia, only without the headline glamor. They’re bigger than the three Baltic states combined in terms of GDP, and KZ’s economy is twice the size of Ukraine’s. Its GDP is bigger than all other ‘Stans that were part of the U.S.S.R.Either the next three years will see the passing of significant, more market friendly reforms (including a new stock exchange and, privatizations), or it will prove to be another disappointment.
“There are a million voices trying to get this government’s attention and at the top, people are saying the right things. Measuring progress has been difficult,” says Zach Witlin, an analyst with the Eurasia Group in Washington.
On one hand, the general consensus is that KZ has not yet successfully moved away from being a one trick pony insofar as it is dependent on natural resources. The President and the Government have declared this as the top priority, and do so every chance they are in the same room with Western leaders and investors. On the other, there is the view that KZ will move faster on reforms than other countries in the region.
“On doing business, I’d compare them to Russia,” says Witlin. “On pushing the reform agenda, regardless of implementation, I would rate KZ higher. If we are talking about trajectory, then even in two years I think you would have seen more economic reforms in Kazakhstan than in Russia.”
Russia is much more developed than Kazakhstan, so they are starting from a lower base. Both countries share a stubborn over-reliance on commodity exports to fund their government. Russia is ahead of this game. Kazakhstan is just getting in on it, prioritizing other sectors like biopharma and digital technology.
Chinese President Xi Jinping (R) and his Kazakh counterpart Nursultan Nazarbayev (L) turn on a symbolic lever during an opening ceremony of the new container service between Western China and Western Europe in Astana on June 8, 2017.
A New Market Begins To Form In Central Asia
For the next two months, millions of mostly Kazakh locals and some tourists will be visiting the Expo in Astana, the country’s second largest city. The Expo 2017 is part of the World Expo system, the same one that brought us the Eiffel Tower and Chicago World Fair. The government built an Epcot-like, futuristic facility to house different country pavilions. But Expo 2017 has its own modus operandi beyond its future energy thematics. This is about showing Kazakhs that they are part of the big world, and vice versa. When the Expo is over in September, part of the facility will be converted into the Astana International Financial Center (AIFC) and the International Center for Development of Green Technologies and Investment Projects “Future Energy”. AIFC will house the Astana International Exchange, KZ’s modern stock market. Multiple IPOs are scheduled for next year. Kazakhstan will be privatizing major companies, including Air Astana and Kazakhtelecom, at some point in 2018 – with the government retaining the controlling stake.
“At first glance, the Astana International Financial Center looks staggeringly ambitious,” says S. Frederick Starr, chairman of the Central Asia-Caucasus Institute at the Johns Hopkins University’s School of Advanced and International Studies and the author of “Lost Enlightenment” — a book about Central Asian history. “They want to become the trusted financial center between Shanghai, Dubai, and London. You can list 10 reasons why it will fail, but there are at least 10 reasons why it won’t,” he says.
One reason is there is currently no trusted platform for international financial dealings in the region, let alone one that is based on British law as AIFC will be. Moscow isn’t based on British securities law, but Dubai is. Both Hong Kong and Singapore are, as well.
“They may have come up with an ingenious proposal,” says Starr. He says the financial center’s chief executive, Kairat Kelimvetov, is a “highly competent” chief executive who has the brain trust behind him to build an honest-to-God financial capital in the middle of absolutely nowhere. “If Kairat can engage regional players, and not shut them out, then Astana can become a Central Asian finance hub,” he says.
It’s a step in the right direction for a country whose leadership is juggling many balls and even a few chainsaws. It has to make sure that this country of 18 million isn’t totally reliant on the economic growth of Almaty and Astana. Only about three million people live in those two cities. It wants to move away from being a raw material play, even though that is what mainly attracts the Chinese.
When three years ago the government announced that foreign investors in non-energy sectors would receive a 10-year tax break on corporate and land taxes in Special Economic Zones, transportation and logistics were listed as a priority. They forecast a need for some $26 billion over a 10 year period. China loves this sort of thing because one of the reasons why they have such a hard time exporting to their neighbors is because their neighbors don’t have the infrastructure to transport goods beyond a port.
So within a short period, the latest China mega project was born: the Khorgos Gateway. It’s a container port that connects Kazakhstan to China by rail right at the border. A Google Earth view of Khorgos shows it all: factories and warehouses on the China side, vast land and natural resources and open spaces as far as the eye can see on the Kazakh side. Khorgos will enter the record books as the biggest dry port in the world.
Just two months ago, Kazakhstan sold a 49% stake of its Khorgos Dry Port to two Chinese companies, China COSCO Shipping Corporation and Jiangsu Lianyungang Port Co,which each owning 24.5%.
On the China side, Khorgos is positioned as the western Shenzhen, a huge transportation hub, which is expected to develop quickly because of trade with Europe. China thinks it will grow into a city with around 200,000 residents. Ansher Global Investment manager Wang Shudong said in a recent report for investor clients that financing for new trade and logistics projects along the new Silk Road will not be a problem, given the high interest in this region among more than 2,000 private equity and venture capital investment funds in China.
A 2014 World Bank report titled “The Eurasian Cconnection” by Cordula Rastogi and Jean-Francois Arvis, said that in terms of speed, and cost per mile, the China train through KZ offers an “unbeatable value.” All of this infrastructure depends on trade with China or trade between China and Europe with KZ as a gateway. In the future, as KZ develops its own market, then many of the products will be consumed at home.
“Financing is really the carrot that China can offer,” says Rayan Rafay, an ex-HSBC equity trader from Hong Kong turned private investor and co-founder of frontier markets consultancy, Investment Frontier in Toronto. “China gets secure access to KZ resources and promises that if KZ develops a port, which helps ship Chinese goods, they will get the financing to KZ banks. China did this in Laos for example, and that really helped the Laotian banks. Financing is a huge part of all of this agenda,” Rafay says. “Everyone tends to focus on the pretty infrastructure, but the big thing is financing. KZ banks will have access to Chinese capital and KZ companies can sell raw materials into China. And whether the Chinese turn that into a product that’s sold in China or shipped back through Khorgos to Europe, either way, Kazakhstan benefits.”
Kazakhstan’s new Caspian Sea ferry port, known as Kuryk, was funded in part by Chinese capital. It launched this year with a million tons of cargo expected in 2017. The goal was simple: Kuryk makes it possible to triple KZ’s existing ferry capacities, available through a nearby port of Aktau, and strengthens the Kazakh section of the China-Europe transport corridor.
Kazakhstan is seen as an economic pioneer in an otherwise undeveloped part of the world that was once part of the old Silk Road. During that early period, that East-to-West route was as sophisticated as any in its time and got wiped out for a variety of reasons, not to mention infighting between religious sects in the Muslim majority region.
But now, the Silk Road is back. KZ is taking advantage. Since 2014, some $20 billion in Chinese investment has poured into KZ, with around $8 billion this year.
On June 20, Kazakhstan signed an agreement with the Organization for Economic Cooperation and Development (OECD) as an oath to government transparency and improving the investment climate for foreigners.
“Working with the OECD has helped us to prioritize our strategy for improving the investment policy framework with the objective of making Kazakhstan a better place to invest and to live,” says Yerlan Khairov, Vice-Minister for Investments and Development.
Adamas Illkevicius, a Lithuanian-born advisor to KZ’s national wealth fund called Samruk-Kazyna, says Kazakhstan is basically still building a nation for itself. “Most of my life was in different projects that involved one or another type of change: taking something and making it different from what it was,” he told Wade Shepard, a Forbes freelancer and resident Silk Road expert. “Delivering change is my specialty. I’ve done it in the West, I’ve done it in the East, and Kazakhstan is one of the countries that want to have both.”
Lithuania, by comparison, largely shunned the East. They embraced the West, joining NATO and the EU in 2004, and the euro in 2015.
Kazakhstan is taking a different tack. It takes a multi-vector approach to foreign policy, designed to shield it from too much China, too much Russia, and maybe even too much America. But for such a young country – Astana and Almaty 20 years ago were nothing like they are today – the only way for them to grow is to open up to the major countries that have already grown. Other than China and Russia, the rest of the world is far, far away. To entice investors to go to Kazakhstan, they need to continue to reform their economy in the ways they have promised they would under Nazarbayev’s now famous 100 concrete steps policy.
It’s going to be… A Hard Row To Plow
In the slow world of multilateral agencies, OECD’s June 15 investment policy report says much needs to be done in order to fulfill Kazakhstan’s ambition of joining the top 30 most advanced economies by 2050. OECD lists clearer strategies for attracting investments; reinforcing linkages between foreign and domestic businesses; ensuring a fair level playing field among firms; and effective promotion and enabling of responsible business conduct should be part of KZ’s goal of economic diversification, sustainable development and broader social progress. They also said judicial independence and corruption are the main concerns for businesses operating in Kazakhstan.
In the faster-paced world of markets, investors are interested. All of the big emerging market firms have their eyes on Kazakhstan and have bought their bonds. BlackRock owns them. JP Morgan owns them. A few weeks ago, Kazakhstan floated another bond in Russia, this one priced in rubles. It was oversubscribed.
Within the market place, the country’s biggest problem is oil and gas’ “new normal” price slump. Lower prices for hydrocarbons have hurt Kazakhstan more than most frontier markets mainly because their companies went on a spending spree in euros and dollars. “A lot of my clients were in real estate and they got killed from leverage in Kazakhstan when the Great Recession hit in 2008,” says Hafezi. “I think that was really the problem with Kazakhstan’s slow growth. They took on too much debt compared to their neighbors and the currency tanked.”
The government’s new focus is on renewable sources of energy, both as a hedge against weak oil prices, and as a nod towards China which not only has an oversupply of solar panels and solar technology it can build in Kazakhstan but is also interested in greening up its own power system.
As the Chinese capital flows along the Silk Road, more migrant labor is expected to arrive. More Chinese are going to move to Kazakhstan. How will the smaller cities and towns across Kazakhstan cope with that?
Investors have been hearing for the past three years now that Nazarbayev was moving on economic reforms and are watching to see if those reforms affect their business and portfolio interests.
“If you really want to know what’s happening in Kazakhstan, look at what the Chinese companies are doing, not at what the five-year plans of the government are saying,” says Rafay. “They are always falling short of their goals. That’s not to say that the political will isn’t a good gauge of the direction Kazakhstan is heading, it’s just that as an investor, I cannot bank on those plans. I have to go back and see what’s really happening, not what the government wants and wishes to happen.”
Most consultants and DC lobbyists say that Kazakhstan has the brains and enough youthful energy to ride One Belt One Road out of the frontier market and onto the much bigger world of emerging markets.
Nazarbayev, the 77-year-old leader, has been in charge of his country post-Soviet Union more than any other leader in Central Asia. A lot of people want to know what comes next.
The new generation coming up now did not grow up in Soviet times, but are they capable of linking arms between key players and coming to a consensus agreement on a successor? Silk Road or no Silk Road, these are the issues Kazakhstan will have to tend with eventually.
Starr is optimistic. He’s a trustee at Nazarbayev University and knows the country better than most. His friend and former Defense Secretary Donald Rumsfeld once told him that he liked the region and the people so much that he set up a fellowship to help educate some of the new leaders in KZ and Central Asia. The Rumsfeld Foundation went on to create the CAMCA Forum, a meeting of the minds of Central Asian business and political leaders, to get leaders talking about democracy and open markets.
“There’s a very talented group of people in Kazakhstan,” says Starr. “There will be other people to choose from that get with the program.”
By : Kenneth Rapoza