Emerging New Triangulation: South Asia, China and the US 

Rajan Philips-August 11, 2018, 12:00 pm

Recent developments in South Asian countries, and foreign policy changes in China and the US towards South Asia, are causing alignment shifts and subtle tensions among South Asian countries, as well as between them and China and the US. The election of Imran Khan as Prime Minister in Pakistan has set the stage at least to start a new conversation between India and Pakistan, as well as between Pakistan and the US, and between Pakistan and China. Indian elections are due next year, and while Prime Minister Modi and the BJP are still the favourites to win, they are not as invincible as they were one year ago, and in any event a second victory is likely to be cut in size significantly compared to the landslide they won four years ago. Other South Asian countries, including Sri Lanka, are not as crucial in geo-political calculations as India and Pakistan are, but they are all implicated bi-laterally and multi-laterally in whatever geo-political shifts that occur in the region. Sri Lanka will have its presidential and parliamentary elections within the next 18 months and foreign policy options and alignments are already a major campaign issue.

The US and China are directly and indirectly trying to increase and assert their competing influences in South Asia. The Trump Administration has renamed America’s Asia focus from "Asia-Pacific" to "Indo-Pacific" to emphasize the importance it attributes to India and the Indian Ocean to counter the rising Chinese dominance in Asia. Even before Trump, in fact during the Bush Administration, the US started the ‘Quad’, comprising the US, Japan, Australia and India, for Quadrilateral Security Dialogue in response to Chinese influences in Asia. Australia pulled out of the Quad at some point, but the Quad has been revived with the launching of Trump Administration’s Indo-Pacific Strategy.

However, the Quad revival is not going anywhere, because China has managed to separately tease out India and Japan, leaving only Australia and the US in what might now be a fruitless dyad. China’s "smile diplomacy", as it is being called, is proving to be more rewarding than Trump’s petulant approach and his ‘fire and fury’ warnings. There is something about the Chinese when it comes to tact and diplomacy, not only in comparison to the Americans but also South Asians. Old timers will recall accounts from the 1950s, of Chou En-lai’s (now Zhou Enlai) diplomatic charm in winning over leaders of countries emerging from colonial rule, in contrast to Jawaharlal Nehru who would put off even genuine admirers among them with his intellectual impatience.

Smile Diplomacy

More than 60 years later China’s President Xi Jinping is charming away India’s Prime Minister Narendra Modi, who is of a distinctly different political persuasion from Nehru. Xi and Modi had a very positive meeting in April this year, which Modi later described as a "milestone" in China-India relations. The talks were wide ranging and even though no specific problem was resolved, both sides were satisfied with the initiative and the approach to dealing with issues in the future. More to the point, observers have noted that India has since been "noticeably quiet about China." In Japan, China has used its charm offensive to break the hitherto icy relationship between the two countries with visits to Japan by China’s Foreign Minister, Wang Yi, and Premier Li Kepiang. The stage is now set for an exchange of summit visits next year by President Xi and Prime Minister Shinzo Abe to each other’s countries. China is pursuing a tri-lateral relationship with Japan and South Korea, and Japan is also showing interest in China’s Belt and Road Initiative as Japanese companies can reap huge benefits from Japan’s involvement in China’s tri-continental (Asia, Europe and Africa) infrastructure venture.

As the Hong Kong based journalist Frank Ching has observed, while improvements in China’s relations with India and Japan are positive developments, neither India nor Japan "will remain quiet if China should overstep its bounds … in the South China Sea, the East China Sea or the Indian Ocean. The American response to China in Asia seems to be taking shape along three fronts, and is predicated more on the likelihood of China overstepping than being successful in its smile diplomacy. First, the US is investing in technology and security programs in Asia as part of Indo-Pacific strategy to promote a "free and open Asia that will not be dominated by any one country." A few days after announcing in Washington, $113 million in new technology, energy and infrastructure initiatives in "emerging Asia", the US Secretary of State Mike Pompeo made a second announcement at the ASEAN Regional Forum on Friday August 3, the launch of a further US$300 million security assistance program (US$290.5 million in Foreign Military Financing to strengthen maritime security, humanitarian assistance/disaster relief, and peacekeeping capabilities, and $8.5 million in International Narcotics and Law Enforcement funds) "to counter transnational crime".

The program will cover Sri Lanka, Bangladesh, Indonesia, Mongolia, Nepal, the Pacific Islands, the Philippines, Vietnam and others. Last week’s (August 5) Sunday Observer reported this announcement, and we can brace ourselves for a plethora of opinions and commentaries in the local media, excited by Sri Lanka’s inclusion as a small beneficiary in the US program. But the US initiatives "are tiny in comparison to China’s" $ 1 trillion Belt and Road Initiative, according to Eswar Prasad, now at Cornell University, and formerly head of the China Division at the IMF. They indeed are and the US explanation is that the American strategy is not to compete directly with China, but to provide "down payments" for a "more sustainable alternative by encouraging private investment." Small countries could also be smart by benefitting from the calculated largesse of the two economic giants, rather than picking sides when there is no larger principle or ideology involved on either side.

The IMF checkmate

The second front of American response may turn out to be more direct and even an affront to China’s BRI initiative. This arises from mounting pressure in the US, especially the Congress, for the Trump Administration to ensure that IMF is not providing funding assistance to countries that might be used by them to pay off their infrastructure debt to China. About 70 countries are participating in China’s BRI initiative and a number of them have got into deep debts to China owing to project borrowing. Almost all these countries go to IMF for bailout, and the pressure in America is to make sure that IMF funding is not used to repay Chinese debt. According to Siobhan Hughes and Josh Zumbrun in The Wall Street Journal, "Sri Lanka has already asked for an IMF bailout," which is known, but what is not known is if the IMF funds are to be used for repaying China.

More than Sri Lanka, it is Pakistan that is causing the ire among "China hawks" in the US Senate, many of them (Trump’s) Republicans. These Senators, who fear that China is using its BRI projects to achieve "global dominance", want the US government, as the largest contributor to the IMF, to "use its influence to ensure that bailout terms prevent the continuation of ongoing BRI projects, or the start of new BRI projects? "Pakistan is one of eight countries, along with Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, and Tajikistan, which have been identified as becoming financially vulnerable from project borrowing under the BRI initiative. For Pakistan, the US pressure is being mounted at a time when it has just elected a new Prime Minister with little experience in these matters, and is desperate for yet another IMF bailout to tide over its fiscal and balance of payment crisis.

For its part, the IMF has acknowledged both the global significance and the debt dangers of China’s Belt and Road Initiative. On the one hand, BRI is potentially a huge investment boost for upgrading physical infrastructure on an unprecedented scale. On the hand, as a one country initiative by China it is lacking in transparency, is unamenable to international standards for project implementation, and has so far proven to be debt trap for small countries. Formally, China has called such concerns as overreaction, while promising to adhere to applicable international standards and rules. What is more remarkable are reports of internal criticisms in Chinese economic circles, targeting what is seen as the government’s, especially President’s Xi’s, hubris and international posture. There are serious concerns within China over a likely trade war with the US and signs of skepticism over the manner in which the Belt and Road Initiative has been rolled out so far. Fueling this skepticism is the growing alertness in other countries to Chinese investments and initiatives. A number of OECD countries are sharpening their regulations targeting Chinese investments, while at the other end, voices within Pakistan are accusing China of "reckless lending", and Myanmar has scaled back a port project funded by China to avoid the debt trap.

India’s favoured trade status

The third American initiative as part of its Indo-Pacific strategy is the designation of India to receive the Strategic Trade Authorization-1 (STA-1) status. As reported under S. Venkat Narayan’s byline in last week’s Sunday Island, India is the third Asian country after Japan and South Korea to receive the STA-1 status. In what has been described as a "strong political message to China and the world," the American government both fast-tracked the STA process and made an exception by deeming India’s non-membership in the Nuclear Suppliers Group (NSG) a non-consideration. It is known that China has been stalling India’s admission to the NSG where decisions require unanimous consent. That could be the subject for the next "milestone" discussion between Prime Minister Modi and President Xi.

While reviewing the competing American and Chinese approaches to the Indo-Pacific region, or South Asia in particular, the elephant in the room is the bi-lateral relationship between China and the US. Much water has flowed everywhere 46 year after President Nixon toasted his historic visit to China: "This was the week that changed the word." The world is quite a different place now than it was in 1972. For much of the Cold War era, China was the outlier. In South Asia, Pakistan was dependently aligned to the US, while India asserted its non-alignment by signing the Indo-Soviet Treaty of Peace, Friendship and Co-operation with the then Soviet Union. Even after Nixon’s visit to China, the relationship between the US and China has ebbed and flowed.

After the fall of the Soviet Union and the end of the Cold War, the Clinton Administration made a special pivot towards China. The financial crisis during the Bush Administration diminished America’s standing in the world more than its defeat in Vietnam. China became increasingly assertive during the Obama years, and set up the stage for the current Trump backlash. China is now taking a different tack by trying to take advantage of Trump’s global retractions and outbursts. In their 2011 monograph, "China, The United States and Global Order", Rosemary Foot (Oxford) and Andrew Walter (LSE) identify four dimensions to define the global norms appropriate to positively new global order: Use of Force, Macroeconomic Policy Surveillance, the Non-Proliferation of Nuclear Weapons, Climate Change, and Financial Regulation. The two important conditions for the fusion of global norms around these poles are: "widespread perceptions of procedural legitimacy and of fairness in the distribution of costs and benefits."

Neither the US nor China can claim "behavioural consistency", the test set by Foot and Walter for global stewardship, in regard to either procedural legitimacy or the sharing of burden. Other countries, in South Asia and elsewhere, can do little to stop or change misbehavior of the world’s two economic giants. But that does not mean that the governments of China and the US have unlimited power to misbehave. There are both internal and external consequences to their misbehavior. Many in the US and outside are simply resigned to sit out the term of Trump’s tumultuous presidency. There are voices within China questioning President Xi’s interminable hold on power. The leaders in other countries would do well to learn what not to do in their own countries, based on the misbehaviours of the American and Chinese leaders.