China’s drive to dominate Asia not to go unchallenged

NS Venkataraman

NS Venkataraman

By NS Venkataraman

CHENNAI, India, 11 September 2017

By several of its recent acts and approaches in its relationship with other regions in the world, China has given a clear signal that it wants to dominate Asia and emerge as the superpower in the world. Its grand vision is focused on overtaking USA in economic and military might and squeezing India out of the race.

China wants to capitalize on its increasing economic power to achieve its political ambitions. Of course, China’s economic strength is now impressive and is universally recognized.

China’s foreign exchange reserves posted a seventh straight gain in August 2017, as the Chinese currency yuan rose in its best monthly performance in at least a decade. Stockpile of reserves climbed by USD 11 billion to USD 33.09 trillion. Steady economic fundamentals in China have certainly created a new confidence in the Chinese currency yuan. It is expected that reserves of China could gradually rise to USD 3.15 trillion by end 2017.

While such economic strength reflected by the huge reserves is impressive, one also need to take note of the fact that China’s debt now surpasses 304% of GDP, which should cause concern.

China’s economic growth has come about due to massive investment in industrial and infrastructure projects in recent years. As such a level of industrial growth and capacity build-up could not be matched by increasing consumption in the domestic market and growth in the export trade, most industries in China now suffer due to under-utilization of capacity. If such under-utilization of capacity would continue, it would lead to a situation where the production of goods and services would not be commensurate with the investment made. That would lead to greater debt burden as the industries would not be able to serve the debt due to low-capacity utilization that would bring down the level of profit.

For example, China now produces almost 700 million tonnes of steel annually, which is much more than what China needs. As China desperately seeks export market for steel, Chinese steel surpluses have cut the commodity prices worldwide. In such circumstance, China has to create new demand for its products in the export market to sustain its economy.

Given the fact that there is economic compulsion faced by China in having to create demand for its hugely surplus production in a variety of products, China has cleverly drafted a scheme to reap political benefits for itself, while taking steps to expand the demand base for its products in other countries. This explains the massive investment of China in several Asian countries in recent years and its extending massive loans to build projects in Asian countries.

China has built a 10,000-MW power project in Pakistan, and another 15000-MW project is under construction. China invested heavily in Hambintota Port in Sri Lanka. It has built the main airport on Hulhule island in Maldives. China also built a Male to Hulhule bridge. China has made similar investments in other Asian countries like Bangladesh and Nepal. China’s economic corridor project in Pakistan is obviously part of this scheme.

With breath-taking audacity, China has launched the Belt and Road Initiative (BRI), hoping that this would create huge demand for products made in China. China would ensure that most BRI contracts would be awarded to China-government-owned companies such as the China Huaneng Shandong Power Generation Company.

China very well knows that Asian countries like Pakistan, Sri Lanka, Bangladesh, and Nepal would not be able to pay back the debt to China for the loan it has extended to these countries. As these Asian countries would certainly not be able to pay back the debt, China will face a difficult situation of several trillion US dollar bad debt from these Asian countries. China would seek to compensate by making profit out of its investments in its aided projects in Asian countries.

China’s calculation appears to be that by undertaking projects in these Asian countries by extending its own money as loan to these countries, Chinese products like steel, cement etc. would be sold for these projects that would give huge market outlets and also will bring hefty profits to Chinese companies. China calculates that when these countries would not be able to return the debt to China, they would virtually become colonies of China. The immediate example is that partially state-owned China Merchants Ports Holdings recently grabbed a controlling stake in Sri Lanka’s Hambintota port, pushing out Sri Lanka port’s authority. The Sri Lankan government helplessly submitted to China’s arm twisting, as Sri Lanka could not meet on payment commitments of 8 billion USD borrowed for the port from China.

However, China’s such ambitious plans to economically dominate the weak Asian neighbours and then politically control them will not go unchallenged.

China has now 14 land-based neighbours including Russia, India, and Vietnam, and several sea-based neighbours such as Japan, Korea, and the Philippines. With several of its neighbours, China has disputes. Recent incidents such as Japan’s challenge of China’s claim over Senkaku Island, and the determined efforts of Indonesia, Singapore, and Vietnam to ensure free maritime passage in the South China Sea, should send a clear message to China that it will not have a cake walk in its efforts to dominate Asia.

While China would try to virtually force the Asian neighbours like Pakistan, Bangladesh, Sri Lanka, and Nepal, by fair or foul means, who have neither the money, power, nor technological capabilities to concede a big role for China in the affairs of these nations, such attempts to dominate would certainly lead to political unrest and mass movement against China in these countries, which China would find difficult to tackle. Evidence is already available of such a trend in Pakistan due to public protest against Chinese domination, with the Pakistan army having to give protection to Chinese in Pakistan.

China’s efforts to use economic muscle power to dominate other weak Asian countries by extending loans, constructing projects with Chinese men and material, and gaining political dominance over them will certainly be a path of thorns.


About the author

NS Venkataraman is a chemical engineer as well as a social activist in Chennai, India. He is the founder trustee of Nandini Voice for the Deprived, a Chennai-based not-for-profit organisation serving the cause of the deprived and down-trodden, and working for probity in public life.

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