MESSENGER - COMMUNITY

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CONTENTS P6

The Community of Common Development Is it real?

P14 Neighbors and Borders China and India

P8

A New Creation in Asia

P10

Regional Integration, Eye on the Prize

P16

Immediate Neighbors: India and Pakistan

P19

Sri Lanka - the True Pearl of China’s Maritime Silk Route

P22

China: a stabilizing force in South Asia?

P24

The Deficit

P28

A New Model Amid New Relationships

P29

Interview - Steven Hadley

P30 2

Another Free Trade Agreement

Editor’s Message As the international balance of power slowly moves away from a unipolar system, new courses of rhetoric are appearing with regards to the relationships being forged amongst countries in the developing world. China is leading the way in this regard, as President Xi Jinping constantly highlights a community of common development. This issue of MESSENGER takes a closer look at the concept of this community and pays special attention to China’s links to the South Asian countries of India, Pakistan and Sri Lanka. The issue also reassesses the importance of China’s relationship with the US in the context of growing friendships elsewhere.

Editor-in-chief: Stuart Wiggin

Community of

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Shared Destiny

The Community of Common Development, Is it Real?

A New Creation in Asia Regional Integration, Eye on the Prize 5

The Community of Common Development, IS IT REAL? China and Africa as a Litmus Test The People’s Republic of China has long been proud of its natural bond with developing nations ever since being founded in 1949. Prior to reform and opening up, China’s foreign diplomacy hinged on its ties with developing nations; the best example of China’s bond with developing nations being when the country restored its position at the UN, courtesy of full-throated support from African nations.

After reform and opening up, developing nations have remained at the center of China’s foreign policy even as China fosters robust economic ties with the West. The past two years, in particular, have witnessed China’s top leaders going to Africa, Southeast Asia and Latin America, in a bid to enhance and renew both political and economic commitments in order to strengthen existing ties.

President Xi Jinping visited the continent of Africa in 2013, vowing to turn China-Africa ties into a community of common destiny. The Chinese President also traveled to Latin America this year in an effort to link China’s future with that of Latin American countries. As the economic prospects of Western economies still remain uncertain, China, along with other developing nations, are increasingly looking at each other for new growth opportunities. But some observers have been left wondering whether the so-called “Community of Common Development” is real, or whether this is politico speak in an effort to present an image of something that isn’t really there.

Despite the rapid growth of China’s first-tier cities and the extravagant lifestyles that rich individuals in these cities possess, the country is still part of the developing world. The vast majority of China is far from being 6

considered “developed” and cities like Beijing, Shanghai, Shenzhen, Nanjing and countless others represent the zenith of Chinese development rather than the norm. Even in cities such as Beijing, people drive expensive sports cars past individuals who have to survive on wages which amount to a fraction of the cost of such cars. Widening inequality is a huge problem facing the Chinese government; one which they are acutely aware of and are attempting to tackle. Nonetheless, if such a community of common development does exist, China is certainly eligible to be considered as a country with continuing development aspirations.

Much rhetoric has emerged under Xi Jinping’s presidency, with the most notable sound bite being that of a Chinese Dream; something that the nation is attempting to implement and achieve despite not having a concrete definition for. Jia Xiudong believes that this concept of a Chinese Dream is linked to the community of common development, in the sense that other developing nations are all pursuing their own national dream.

Xi Jinping’s first overseas trip as President, to several African nations, was highly symbolic of a belief within China that Africa has a shared destiny of sorts, bolstered by the fact that twoway trade amounted to some 200 billion USD last year, with further plans to double that by 2020.

On this burgeoning relationship, Jia Xiudong states, “When we look at what the Chinese leaders and African leaders have been talking about recently, about their vision for their countries and their plans for the development of their countries, we can see a common dream for both. China has… the Chinese dream, that is we will develop China into a strong nation; a civilized nation. And also we have a plan to fulfill that dream.” Jia Xiudong also points out that the African Union

has put forward its own continental agenda, known as AGENDA 2063, “so that’s like a dream for the development of Africa for the next 50 years. For the two sides, we have the same dream for peace, stability and development.”

President Xi has also talked about a community of common destiny within the Asia Pacific region, citing a China/ ASEAN community of common destiny during a recent APEC summit meeting. Though China and many ASEAN countries are no doubt keen to bolster economic ties with one another, proliferating maritime disputes make it harder to promote the idea of such a community of common development when the core interests of many countries within the region directly oppose the core interests of China. In the case of Africa and China though, it is much easier to buy into the idea of such a community concept.

However, academics are wary of such a concept, and don’t necessarily see China and the continent of Africa sharing the same upward trajectory.

Ian Taylor, Professor of International Relations and African Politics at the University of St. Andrews believes that there are certainly compatibilities between China and Africa in terms of Africa being a good and open market for Chinese products. Furthermore, Africa also has a lot of natural resources which China can make use of for future development.

But as Taylor points out, “with regards to a shared future, China is on an upward trajectory, likely to be the largest economy very, very soon if it’s going to be a great power. Whereas Africa, at the moment, though we’ve seen very high growth rates, Africa’s structural position in the global economy is basically a provider of natural resources.

That’s how it was inserted into the global economy during colonialism, and it hasn’t really changed since then.

China and Africa have mutual interests, common ambitions and common aspirations, which is obviously to move forward with development and move up the value chain. China has obviously done that and is doing that now, but Africa still has a long way to go.”

Nonetheless, Taylor does acknowledge that, “there is certainly a degree of friendship and solidarity among China and Africa which you don’t see with regards to Africa’s relations with the EU or even the US; there are fairly obvious reasons for that, primarily colonialism with regards to the EU. So, there’s definitely a difference of quality with Africa’s relations with China.”

Such solidarity has become evident in the promotion of the Forum on China-Africa Cooperation (FOCAC), a platform established by China with the intention of promoting regional integration between China and African countries. There have been five forums held since 2000, taking place in both Africa and China with the most recent being held in Beijing in 2012.

With regards to FOCAC and China’s approach to Africa in general, Professor He Wenping, director of African Studies at the Institute of West Asian and African Studies of the Chinese Academy of Social Sciences notes that China “focuses very much on equal footing, win-win, and the joint declaration. Whenever we have a FOCAC meeting, we issue a joint declaration to express those common stances on (shared issues of concern) or other international issues. And also we will issue an action plan,” which according to Professor He features a detailed and accurate breakdown of pledges made during the forum.

But Taylor also points towards a possible concern related to FOCAC and the expectations of African leaders, which could jeopardize the goodwill that exists within any kind of so-called community of common development.

“Up until about the 2006 FOCAC, maybe a bit later, a lot of African leaders were going to FOCAC with the expectation that China was going to deliver a lot of aid, a lot of capital transfer, a lot of help. And these expectations seem to be getting higher and higher and higher. I think this is going to cause a problem for Beijing because obviously Beijing can’t just hand over all the money to Africa. China really needs to lower the expectations of the African leaders; there has to be a limit to that although Africa is important to China.”

Though the concept of a community of shared development is rather broad, there is certainly a case to be made for such a community existing; even if it isn’t really on the terms that China suggests it is. It is more appropriate to see such a community as one of loosely linked ideas with regards to foreign policy and self-determination. As Jia Xiudong of the China Institute of International Studies explains, “China

adopts an independent foreign policy and believes that is in the best interests of China. We believe that all developing countries should also follow this independent foreign policy. Actually, most developing countries are members of the non-aligned movement.

They believe that they are capable of having this independent foreign policy without being subject to foreign intervention or interference.”

Jia adds, “(China) believes that the developing world should be very confident that we can find our own path of development; we may not copy any model of any countries especially the developed countries. Thirdly, we believe that we should reform the international system and international institutions, such as the World Bank and the IMF, so that they can better suit the needs of the developing world.”

While the approaches within such a shared community may differ, China and other developing countries are already having an impact on the makeup of the world’s international institutions (See page 8), and are likely to exert greater influence on the international community at large as they continue to adopt pragmatic approaches to their own development.

In contrast, Professor He points out that the recently initiated US-Africa leaders summit features no joint declaration or action plans and no bilateral meetings between the US president and African heads of state.

According to Professor Taylor of St. Andrew’s University, FOCAC is the institutionalization of Sino-African relations, the formation of which marked a very significant event in the course of Chinese foreign policy with regards to Africa. Taylor further notes, “It was also quite interesting that China’s formation of FOCAC has then subsequently influenced a lot of other countries to basically copy what the Chinese has done.”

Chinese construction workers build the new African Union Buildings in Addis Ababa, Ethiopia. The building is built for free. Chinese companies are investing and working all over Africa and in Ethiopia they are mainly occupied with infrastructure projects around the country. [Photography: CFP]

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The Asian Infrastructure Investment Bank, an initiative first put forward early in 2014, is set to become a reality after 21 participating countries signed off on its creation. The bank is going to begin with a seed of 100 billion US dollars, half of which China is putting forward. The Asian Infrastructure Investment Bank will operate in a similar fashion to that of the World Bank. The United Nations, the Asian Development Bank, the World Bank and other international finance institutions support the creation of the bank.

Asian Infrastructure Development Bank) won’t follow international standards. It will be under the same international scrutiny if not more than the World Bank and the Asian Development Bank, and again it will be focused on infrastructure which is a very, very necessary step in industrializing and developing these economies in the Asian region. It has to be a good thing where China is already a major contributor, so launching this bank very much dominated by Chinese capital is a sensible next step.

A New Creation in Asia

However, there are countries in the region which have yet to endorse its creation, including Indonesia, South Korea and Australia. Mike Bastin, Director of the China Business Centre at Southampton Solent University shared his views on the creation of the new facility with China Radio International and MESSENGER. What’s in it for the countries which agree to participate in the creation and operation of the Asian Infrastructure Investment Bank?

I think countries neighboring China in this region do see China’s rapid industrialization and also the contribution that China is making and can make to infrastructure development, obviously with large foreign reserves, as a very positive thing. So, I think that’s really the attraction or the rationale behind it. I think from China’s point of view, it’s good to focus on infrastructure and have a bank that’s dedicated to that and to that region, rather than perhaps the World Bank and the Asian development bank which are spread across many other areas; maybe too many.

Why is their trepidation or a certain amount of unwillingness from several Asian countries when it comes to getting involved with the bank’s creation?

With Australia, it’s heavily suggested that the US are perhaps a little bit reluctant, a little bit fearful of this organization. They dominate the World Bank and to a certain extent the Asian development bank and China has limited voting rights there. So, I think there are political concerns there, and these are US allies that perhaps are a little bit concerned of this new organization but without foundation.

How different would an Asian Infrastructure Investment Bank be from the Bretton-Woods model? Is it likely to follow the same lines in terms of execution?

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South Korea has publicly suggested concerns of the environmental impact on the infrastructural projects and compliance with international rules and regulations. (But) there’s no suggestion that (the

Is the creation of an Asian Infrastructure Investment Bank connected to the concept proposed by President Xi Jinping of a Silk Road Economic Belt throughout the Asian region?

I think so. I think China is taking a responsible step in kick-starting Asian development in neighboring economies and those economies can see how they can benefit from China’s rapid industrialization, which is nothing short of miraculous if you go back ten or fifteen years in Chinese cities. Certainly, I think it’s a way of giving back to the area something it has a lot to give. This local focus has to be the way forward. Many have argued that the World Bank is about poverty alleviation; that’s very general, that’s spread right across the world. This is focused, it’s infrastructure dominated and that’s necessary in Asia.

Has there been any indication as to where the funding may go towards?

I think that’s what we’ll see very, very soon. (The bank) is due to start operation in 2015 and I suspect we’ll see a lot of activity very early next year. A lot of activity is necessary and I think the Asian Development Bank forecast the need for 8 trillion US dollars of infrastructure investment by 2020 and I think this bank will play a huge part. So, I think we’ll see that disclosed very soon and we’ll see activity very, very soon as well, which will hopefully alleviate some of the fears the US and its allies have.

China is responsible for contributing half of 100 million US dollars of the initial seed money for the Asian Infrastructure Investment Bank. Is it likely that we will witness the size of this investment bank continuing to grow?

I think it will grow substantially and I think what the bank will do very soon is show hard impact and hard evidence, tangible benefits of this initial capital in order to justify further investments. So I think it’s a step-wise process with a results-driven approach and I think China and other neighboring countries will fund it considerably more in the future; it’s a very exciting step.

Regional Integration, Eye on the Prize

The railway from Dunhuang to Golmud is being built.

[Photography: CFP]

Part of the aims of the recent Asia Pacific Economic Conference (APEC) was to promote prosperity by removing trade barriers and promoting trade and investment between member countries. However, infrastructure is lacking in and between many nations across Asia. At present, China is putting forward a series of infrastructure measures designed to improve the connections between nations in South East Asia, South Asia and Central Asia, in order to promote mutual development. But many are wondering what China has to gain from this focus on developing infrastructure.

Many developing nations in Asia suffer from what economists call “infrastructure bottlenecks”, that is, their lack of infrastructure puts a drag on businesses operating in these countries and thus inhibits growth in the overall economy. During the recent APEC meeting, Chinese president Xi Jinping pledged 40 billion US dollars towards a Silk Road Fund intended to finance construction of infrastructure that will help bring the nations of Asia - as well as their economies, and markets - closer together.

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Furthermore, the creation of the Asian Infrastructure Investment Bank (AIIB) is also a major part of efforts

to rejuvenate the region (See page 8).

These efforts can be roughly divided into the Silk Road Economic Belt, going through Eurasia by land, and the 21st Century Maritime Silk Road, connecting Asia and Europe by Sea. China’s motives in vigorously promoting increased connectivity between its Asian neighbors, via both direct funding and through the AIIB, are varied.

Cheng Gang, research fellow at the East Asia Institute of the National University of Singapore explains that there are several motivations behind “China’s grand initiative.” Though benevolence may be a minor factor in the choice to pursue greater connectivity, according to Cheng, such a desire comes down to simple economics.

Addressing bottlenecks alone “would be a motivation from the other countries. It’s not China’s motivation for starting this initiative,” claims Cheng; suggesting that there is more nuanced reasoning behind Chinese motivations.

Cheng adds that there is a lot of potential for investment in these countries; but doing so without the necessary infrastructure would be worthless. “If we look at China’s relationship with its neighbors, especially the relationship with South East Asian countries, South Asian countries and Central Asian

countries, you will find that the rise of China’s economic power actually has been benefiting all these regions.

But to some extent, many countries, due to various reasons, couldn’t take full advantage of China’s economic rise. Moreover, past experiences have shown that most of the economic cooperation has been mainly limited to trade (related to) the investment and service realms. I think there’s still huge potential to further economic cooperation with all these countries.”

Cheng also points out that China is now facing serious overcapacity domestically and is keen to address this problem by nurturing the development of possible markets in neighboring countries. “The domestic market cannot fully absorb this industrial overcapacity in the short term,” Cheng posits, adding, “That’s why China needs to expand this capacity to other parts of the world; especially its neighbors.

For example, China now has huge infrastructure construction capacity.

But we all know that, due to the past few years of economic boom, actually there’s very little room for China to continue to use all this infrastructure capacity domestically.”

Seeking greater connectivity not only helps to develop markets for future exports and investment, it also addresses a problem that the country is experiencing right now with regards to industrial capacity.

Alongside the creation of the Silk Road Investment Fund, the 22nd APEC Leaders’ Meeting in Beijing mapped out ambitious blueprints for closer trade integration and connectivity in the Asia Pacific region. As the Doha round of talks are still mired in the perpetual debate between the developed and developing world, bilateral Free Trade Agreements have mushroomed across the world. In the Asia-Pacific region alone, the total number of FTAs now stands at more than 250 and while they may have worked well to eliminate trade barriers between nations, when it comes to the Asia-Pacific as a whole, a regional FTA is still needed to bring all economies under one banner.

With this goal in mind, China pushed for the creation of a Free Trade Area of the Asia-Pacific or FTAAP, during this year’s APEC Summit in Beijing.

The summit ultimately produced agreement on a roadmap for the FTAAP, which China hopes can be implemented by 2025.

1988, points out that after a lack of progress due to the Asian financial crisis, the region was then “overtaken by interest in bilateral and small group preferential trade agreements, which is not free trade; not open multilateral trade. Since early this century that’s been the main focus of attention.”

The agreement could be far-reaching in the sense that it has the potential to bring free trade in the Asia-Pacific region under one overarching framework in the context of ongoing discussions regarding two mega frameworks for multilateral trade.

Those so-called mega frameworks include the ASEAN-led Regional Comprehensive Economic Partnership (RCEP) and the US-led Trans-Pacific Partnership (TPP); both of which include political motivations with China excluded from the TPP and the US not part of RCEP plans.

Garnaut elaborates upon this point, adding, “Once you get away from thinking about open multilateral trade, then you’re thinking more about how you can stop opening up against some countries rather than how you can open up to trade with the whole world.

I think the whole psychology of the discussion of trade has been wrong since early in this century.”

According to Victor Gao Zhikai, director of the China National Association of International Studies, “The FTAAP itself is not politically driven; it aims to include all countries in the Asia-Pacific region, so it’s all-inclusive. Also, it wants to promote free trade in an overarching way, covering the whole region in a very comprehensive manner.”

For Victor Gao Zhikai, even though bilateral trade agreements like the ones China has struck with Iceland, New Zealand, ASEAN, and most recently Australia (See page 30), are positive for those countries involved, nations should avoid the regionalization and fragmentation of such free trade agreements in the Asia-Pacific region and instead back the FTAAP plan. At present, according to Victor Gao Zhikai, “We avoid promoting so-called Free Trade by basing ourselves on political or even ideological considerations.”

The FTAAP represents a chance to move away from this stance.

These views are echoed by Liang Wei, Associate Professor of International Policy Studies at the Monterey Institute of International Studies in the US, who, in reference to a regional or global dimension, believes that too many coexisting bilateral FTAs are causing lots of problems.

“Not only will this increase transaction cost,” Liang notes, “it will add lots of confusion to the different terms of agreements reached by different parties and that will add more difficulties to the private businesses if they want to conduct trade. This is particularly the case in the Asia Pacific. On the one hand, we have seen an increasing level of inter-regional trade, which has reached the level of 60 percent; in other words, for countries in the region, 60 percent of their total trade is trading among the Asia-Pacific coun-

tries. If that is the case, then having so many parallel coexisting bilateral FTAs is actually adding more unnecessary costs to doing business in the region.”

The FTAAP could actually bring true economic integration of all members of the Asia-Pacific region if its implementation can be achieved. And according to Professor Garnaut, the FTAAP in no way represents a compromise to the TTP or the RCEP, pointing out that, “(The FTAAP) is much better than either of them (TTP & RCEP) alone.

Above all it would avoid dividing the Pacific with conflict between the US and China, which would be bad for those two countries and bad for the world. Once you get discriminatory trading arrangements dividing countries, it becomes very hard to get rid of them. Protectionist interests in both countries that benefit from the absence of free trade between China and the US will oppose breaking down those barriers. It would be much better if we went straight to a FTA of the Asia Pacific rather than persist with these subsets of the region as focuses for free trade.”

As for what impact the AIIB will have upon increasing connectivity and improving infrastructure throughout the region, it may be too early to say. “But if we look at China’s financial capacity now,” says Cheng Gang of the National University of Singapore, “I think we should be confident about this bank. It will be, in the future, a rival against the current institutions in place; like the World Bank as well as the Asia Development Bank.”

As for why the Asia-Pacific region hasn’t moved towards such a model in the past, Professor Ross Garnaut, Professional Research Fellow in Economics at the University of Melbourne in Australia and former Australian Ambassador to China from 1985 to The road is under construction in Jilin City. [Photo: CFP]

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Neighbors and Borders, China and India Immediate Neighbors: India and Pakistan Sri Lanka - the True Pearl of China’s Maritime Silk Route China: a stabilizing force in South Asia?

The Deficit

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Neighbors and Borders, China and India Throughout the course of China’s long history there have been many sayings about how to deal with one’s neighbors, but all of them were invariably talking about the importance of being a good neighbor. So it should hardly come as a surprise that officials in Beijing have put developing good-neighborly relations high on the country’s foreign policy agenda.

Such an approach has led to increased levels of interaction between China and another of the world’s growing superpowers, India, with the aim of bringing the two countries closer both politically and economically.

China has been floating practical ideas to better economic, political and cultural links with neighboring developing nations through a number of various mechanisms. For instance, in an effort to strengthen economic and cultural links with central Asia and beyond, President Xi Jinping put forward his concept for a New Silk Road Economic Belt, which this magazine covered extensively in the previous issue. Chinese academics claim that concrete proposals like the Silk Road Economic Belt have linked China with its immediate neighbors together in a so-called community of shared destiny.

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However, the focus on promoting good-neighborly relations should not be interpreted as a wholesale shift in the country’s foreign policy orientation. As Professor Ye Hailin of the Editorial Department for South Asia Studies at the Chinese Academy of Social Sciences points out, “Neighboring areas are getting more important than in past years for China’s foreign (policy) issues. We can’t say that only neighboring areas are the priority. We should say that China still pays huge attention to the relationship with global powers but also tries to create a friendlier and more encouraging environment for China and its neighboring countries.”

And despite the fact that many academics and think-tanks are eagerly awaiting concrete proposals regarding President Xi’s overwhelming concept of a new Silk Road economic belt and maritime route, Professor Ye urges observers to look at the importance of proposing such a concept rather than the concrete aspects of the project at such an early stage.

“This is a new type of doctrine for China to encourage cooperation with neighboring countries. We have seen that with the support of infrastructure building, China not only wants to build communication with the neighboring countries, it also wants to encourage its economic overseas presence by introducing some industrial complexes and trying to promote the Chinese companies’ internationalization level, and also (by) trying to use Chinese FDI to make a balance between Chinese foreign trade and foreign investment. We know that most of the (neighboring) countries suffer a huge trade deficit in the bilateral relations with China. This is really difficult to change because China basically provides more industrialized products to the overseas market.”

And nowhere is this trade deficit more evident than in India. 2014 marked the first visit to India by a Chinese President in 8 years. Furthermore, Chinese President Xi Jinping was received by Prime Minsiter Narendra Modi, a well-known admirer of the Chinese economic model, in the Indian Prime Minister’s home state of Gujurat. The meeting marked the first time that a Prime Minister has received a foreign head of state outside of Delhi, signifying the importance and new direction of Sino-Indian ties. Working under the assumption that greater economic integration can help develop India’s economy and thus develop potential markets for China’s exports, the Chinese government has readied some 100 billion US dollars intended for further

cooperation as part of the country’s economic commitment towards India.

A large portion of this money is earmarked to go towards investment in key infrastructure sectors which are proving a major bottleneck to India’s development. But aside from helping one of its neighbors with the long-term aim of nurturing potential markets, Wang Dehua, director of South and Central Asian Studies at the Shanghai Municipal Center for International Studies believes that both sides want to “warm up” the relationship that exists between the two countries; mindful of nagging border issues.

As for China’s economic commitment towards India in general, Wang believes that “energy cooperation will be an important sector in the future.

I’m cautiously optimistic about the future cooperation. Of course, there are still barriers in the future cooperation especially in the deficit of trust, and how to speed up the solution of the boundary question left over from British colonialism.”

Meanwhile, Amitabh Mattoo, professor of international relations at both the University of Melbourne and Jawaharlal Nehru University, in the Indian capital of New Delhi, interprets China’s economic assistance as the country “reaching out to South Asia [with President Xi having also visited Sri Lanka and the Maldives] to ensure that there is goodwill for China; India is already China’s fourth biggest trading partner. In terms of strategy, I think China does also want to ensure that India and other countries do not align themselves to the US or to any other formation that sees China as a threat.”

The boundary issue, mentioned above, that exists between the two countries concerns two large areas and several smaller areas that lie between India and China’s Xinjiang Uyghur Au-

tonomous Region in the west. Wang Dehua calls for a continued “sharing” of the issue in order to maintain peace around the border, and firmly believes that economics are trumping the issue. However, Amitabh Mattoo points out that increased economic interdependence is no guarantee for peace in the future, noting that the liberal institutional view within the school of international relations is “that if you increase interdependence, that if the elite of both countries have

The choice of Gujarat as President Xi Jinping's first stop during his India visit marked a departure from protocol, which many saw as a sign of warm relations between the two leaders.

In Ahmedabad, President Xi and Prime Minister Modi witnessed the signing of two agreements, one concerning an industrial park in Gujarat and the other on regional cooperation between Gujarat and south China's Guangdong province.

Indian media paid special attention to the fact that this marked the first time that pacts have been signed by a visiting foreign dignitary outside the capital, and the less formal itinerary in Modi's home state for the Chinese leader showed the importance that Modi attaches to the bilateral ties and the buildup of his personal relationship with Xi Jinping.

greater stakes in stability, the chances of conflict are less. But as you know, historically, there have been occasions when great powers have clashed with each other even when there have been reasons not to and when there are great levels of interdependence.”

And while the Chinese government may be hoping that the boundary issue can be placed on the back burner in favor of economic cooperation, Mattoo believes that the two governments “cannot postpone continuously the border question. I think the time has come when you have to address that.

Until you do that there will always be a trust deficit. As long as that trust deficit exists, this relationship will not really live up to its potential. The border conflict still has the capacity to undermine the larger relationship; so it must and should be addressed as soon as possible.” Resolution to the border issue may prevent Indian observers from claiming that China is attempting to create alliances encircling India, the so-called string of pearls, designed to undermine Indian influence in the region. Pushing through a resolution of the border issue would mean, according to Mattoo, that “India will take a much more positive or benign view of Chinese investment.”

Yet the failure to resolve issues such as this alongside an approach of fostering good-neighborly relations has prompted suggestions within the media and amongst academics that China may be facing a dilemma in terms of pursuing its foreign policy alongside achieving greater economic integration. On this point, Ye Hailin believes that a candid approach to the topic should be taken, noting, “If we are agreeing there is a security dilemma or a dilemma of the Chinese foreign policy then we should admit that; unless you think that peace means no arguments, otherwise there’s no such kind of dilemma.”

Putting the situation in context, Ye explains, “For the past several years, in Chinese foreign

policy, there is a problem (whereby) China pays huge attention on how to stabilize their regional environment in the neighboring areas. But stabilizing doesn’t mean you try to avoid all the obstacles, all the arguments, all the difficulties. If you really want to seek a peaceful environment you have to face the problems and try to solve them; not only avoid them.”

Referring to wider issues throughout the Asia Pacific region, covering not only border issues but also disputes regarding territory at sea, Ye states that governments “can postpone the problems but it doesn’t mean you can solve problems by postponing them.

If China really wants to provide some public goods to the security issue, especially to the regional security issue, China has to make a real contribution; show willingness and strength to maintain regional stability. This means China should want to talk and be ready to solve the problems and make an effort to contain countries that want to make trouble.”

At present though, at least in terms of public perception, it appears that the boundary issue between China and India has been shelved in favor of economics. Despite the apparent shelving, however, Professor Ye Hailin does not believe that this represents a dilemma between China’s foreign and economic policy. “I don’t think there’s a security dilemma between China’s peaceful demands to the region and also protecting its core interests. If you can’t protect your core interests, how can you protect regional peace? It’s highly unlikely.”

What both sides agree upon at this stage is that the boundary issue requires strong leadership in order for a resolution to be reached. As Mattoo points out, President Xi Jinping commands authority and respect within Beijing and Prime Minister Modi is one of the strongest Indian leaders in modern history. Hopefully, both leaders can use their strength and influence to help push beyond prolonged bilateral talks between senior functionaries and instead achieve a concrete and satisfactory outcome for both sides.

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Immediate Neighbors: India and Pakistan For India and Pakistan, the benefits of being close both politically and economically to their neighbor China are becoming increasingly obvious. South Asia has always been of great strategic importance to China as the region is not only home to China’s key neighbors, including India and Pakistan, it is also showing greater economic potential, offering China new markets in which to sell its goods and new international trade routes via the Indian Ocean.

Under China’s policy to forge better ties with its neighbors, Chinese leaders have put ties with South Asian countries high up on their agendas. A visit by Chinese President Xi Jinping to India in September, 2014, and one

by Chinese Premier Li Keqiang to both India and Pakistan in 2013 have strengthened China’s ties with this region. The China-Pakistan economic corridor, which is already in the works, will extend all the way from China’s western regions to the Indian Ocean.

President Xi’s visit to India in September has translated into investment deals worth some 20 billion US dollars. The deals coincide with Indian Prime Minister Narendra Modi’s efforts to boost India’s manufacturing sector in a newly launched campaign called “Make in India.” As part of this issue’s focus on Chinese ties with South Asian countries, MESSENGER presents interviews with the ambassadors of India and Pakistan in order to find out what lies ahead for China-Pakistan cooperation and how Chinese investment can contribute to the “Make in India” campaign.

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Ambassador Ashok K. Kantha, Indian Ambassador to China.

We are moving towards a new level of economic engagement between India and China. In this new phase of economic partnership, two-way investment flows will be very important. While trade is important, we believe that investment flows in both directions is going to be an increasingly critical component of economic partnership between our two countries. Therefore, during (President Xi’s September) visit we welcomed the announcement from the Chinese side that they’ll be making an investment of 20 billion dollars in India over the next 5 years.

At present, total cumulative investment from China into India is just about half a billion dollars. We have already made a good start with the announcement of two industrial park projects in India. A fair amount of preparatory work has already been done to set up these industrial parks. These parks have two of the leading Chinese companies as anchor units, so we’re very confident that these projects will be rolled out very soon.

Moreover, when it comes to the new campaign of “Make in India” that Prime Minister Modi launched, we expect our foreign partners to play a very important role. I believe that very few countries are as well positioned as China is to be a key player in the “Make in India” campaign that will be rolled out in my country, given (China’s) advantage as the acknowledged factory of the world, (China’s) core competencies in infrastructure segments, (and) given

synergies that exist between our two countries, that were remarked upon by President Xi during his visit to India. I believe there is enormous potential for our two countries working together.

Key Areas for Cooperation Two of the industrial parks for instance that are being launched; one will focus on automobile and auto components, the other will focus on power sector. We have a major deficit when it comes to infrastructure segment. That’s another area where Chinese companies can play a very important role. A good start has been made with projects that were identified in the railway sector during President Xi’s visit.

China will be working with us to raise speed using existing tracks on Chennai-Bangalore-Masoor segment; a 500 km segment. China is also going to do a feasibility study on high-speed rail links, which will be only the second of its kind. There are a whole lot of other projects, including smart city projects where you’re doing one demonstration project in each country. So a lot of specific opportunities have already been identified and concrete decisions taken during President Xi’s visit.

What can Chinese companies offer to India’s development, and how does investing in India benefit investors?

Partly it will be funding, because India is a capital deficient country and China is the third largest outward foreign investor. Capital is one, second is (China’s) expertise, technology and capability. Being one of the largest manufacturing nations in the world (and) being the factory of the world, (China) has a certain core competence.

We have set ourselves rather ambitious targets. We propose raising manufacturing as a segment of GDP from 15 percent at present to 25 percent in the next 8 years. This is a rather ambitious target, and I believe in achieving this target China can play an important role.

The most important factor you need to take note of is that India is one of the largest markets in the world; in Asia it is the third largest economy and it is

one economy that has been growing at the average rate of more than 7.5 percent per annum over the last ten years; and we’re very confident that we’ll maintain a high growth trajectory in years to come. This opens up huge business opportunities. In addition to that you have to look at the skill set that we have, you have to look at the demographic dividend as a driver of growth in the economy. So, India will remain one of the most attractive investment decisions worldwide for many, many years to come.

The Sino-Indian trade deficit We are looking at a multi-pronged strategy to address this very serious problem of huge trade deficit that we have vis-à-vis China. This trade deficit is not sustainable. One aspect is getting better market access in China, especially for those products where we have competitive advantage. This issue was discussed in great detail during a recent meeting of the joint economic

group which was chaired by commerce ministers (from both) countries and we have taken some specific decisions.

India’s economic corridors in the wider context of the creation of the Silk Road Economic Belt

We hope these decisions will be implemented soon and we’ll see some concrete progress regarding our getting improved access to the Chinese market. But we’re also looking at investment led trade promotion, because we don’t have, at present, enough production and supply-side linkages between the two economies. Much of the global trade today is being done through such production and supply chain linkages.

The economic corridors that we are talking about in the specific context of the “Make in India” campaign, these are domestic economic corridors.

These economic corridors are going to be major drivers of economic growth in India in years to come. Now coming to our external engagement, China has announced its Silk Road initiatives.

As Chinese companies invest in India, as Indian companies enhance their business footprint in China, I believe that these production and supply chain linkages will increase., This will lead to enhanced export of manufactured items, of intermediate products from India to China, thereby addressing to an extent the problem of trade deficit that we encounter at present in our business linkages with China.

We have our own connectivity agenda (and) there are some initiatives (where countries are) working together, for instance the BCIM economic corridor; India and China along with Bangladesh and Myanmar. We are seeking to develop this economic corridor and we would be happy to explore with China where we have synergies in the connectivity agendas of our two countries; I believe there is much we can do together.

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The security situation in South Asia The focus of the discussion in the context of South Asia has been on the imminent drawdown of the US and ISAF forces.

The participants have discussed the implications of the withdrawal from Afghanistan and its likely impact on the region, especially on neighboring countries like Pakistan. Of course, we have our concerns and we have our apprehensions, but at the same time we are somewhat positive in our evaluation that Afghanistan has recently gone through a presidential election.

This particular transition is important for Afghanistan itself, for the region and for neighboring countries. We hope that whosoever comes into power in Afghanistan will seek good neighborly relations and be a partner with neighbors like Pakistan to promote peace, stability and harmony within the region. That’s very important, not only for the economic development of the region but also for the growth and development of Afghanistan. So, Pakistan wishes to see peace and prosperity in the region, in its neighborhood, so that we can also focus ourselves on our issues of concern, like domestic stability and economic progress.

Is Afghanistan the new Iraq, a destabilizing vacuum that threatens the peace of the entire region?

First of all, I think we have to see the situation in totality. The situation is that Pakistan on its part is right now engaged in a really decisive campaign against terrorists. As you know, our army and air force is taking action against the militants who have sought shelter in the border area of Afghanistan and Pakistan. Because of the prolonged war and conflict in Afghanistan and taking advantage of the topography, they have sought shelter in these mountainous areas and they criss-cross. So we are taking action and so far the results have been good.

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When you talk of peace in Afghanistan, and peace in the region, much would depend on what kind of political dispensation emerges in Afghanistan.

Pakistan will be happy to deal with whosoever comes in power in Afghanistan; we don’t have any favorites. We want to see peace and stability in Afghanistan which is intrinsically linked with our own peace and stability. Secondly, we have all along maintained that there should be a reconciliation process within Afghanistan; that has to be Afghan owned, Afghan led.

We hope the new government in Afghanistan will focus on engaging all political factions, all groups, to come around a political dispensation through a reconciliation process. And we hope that Afghanistan will succeed and we will support that effort, we will facilitate that effort; and hopefully as a result of which, some kind of compromise will be reached, some political dispensation will emerge, which will satisfy all political forces in Afghanistan.

So, that is the crux. When you have that political settlement, when you have that political process, I think these terrorists and extremists who are creating trouble for Pakistan and for the region, they will slowly die down.

But simultaneously, the international community has to focus on economic development of Afghanistan also; this is very important. The Afghan national forces have been trained and I hope they will be able to play the role that is expected of them but I think the international community has to sustain the effort and help the Afghanistan government to stand on its own feet; that is very important.

Cooperation opportunities with China along the Silk Road Economic Belt China and Pakistan, we all have a stake in the peace and stability of Afghanistan. If there is peace there, if there is tranquility there, then we will be able to actualize all these projects, all these

Chinese characters are seen as construction continues on a section of the Chinesebuilt and owned new Colombo South Harbour in Colombo on August 15, 2013. Sri Lanka has signed a deal with a Chinese company to build a new $1.4-billion city complex on reclaimed land near the harbour of the capital Colombo. [Photography: LAKRUWAN WANNIARACHCHI/CFP]

Ambassador Masood Khalid, Pakistani Ambassador to China.

mega plans. Pakistan and China are working on this economic corridor and we are greatly encouraged by China’s response. The vision of President Xi Jinping’s Silk Road Economic Belt gels well with our own priorities and our own projections for the region and for Pakistan.

We want to focus on the economic development of Pakistan; economic progress. And that is only possible when we have peace within and peace without. Peace in the region, peace in Afghanistan is extremely important.

We will work together with China, we have a very trusted relationship with China and we will work together to promote this concept, to promote this vision so that people of the region, people of our two countries and people of neighboring countries benefit.

Sri Lanka the True Pearl of China’s Maritime Silk Route

By Poornima Weerasekara

As Sri Lanka rises from the ashes of a conflict which spanned three decades, China has emerged as its strongest partner. The island nation is poised to become the logistics hub of South Asia and is a crucial link in China’s plans to revive the ancient maritime silk route.

Massive red cranes stand in the sea in front of the Galle-face green, a waterfront promenade in Colombo, where families go to fly kites and sip lemonade with mint. Chinese and Sri Lankan engineers can be seen scuttling around on a vast new breakwater that curves into the Indian Ocean. This is the site of the new Colombo Port City, a man-made islet built with Chinese funding worth

20 billion US dollars. Once completed, it will be slightly bigger than Monaco and will help make Sri Lanka the logistics hub of South Asia.

China has invested in several major port projects across South Asia including the deep-water port in Gwadar, a port in Karachi in Pakistan and a container facility in Chittagong, Bangladesh. But its maritime links with Colombo form the linchpin of China’s plans to revive the ancient Maritime Silk Road.

“Sri Lanka sits on the midway point on one of the world’s busiest international shipping lanes. It is China’s most precious pearl in an economic sense in South Asia,” said Professor Wang Dehua, Director of the Institute for South Asian and Central Asian Studies at the Shanghai Municipal Center for

International Studies.

Colombo is the only Mega-port in South Asia, where ships with an 18-metre draft can be berthed and therefore can serve not only South Asia but also the Middle East and West Africa. Its cranes can also cope with ships 24 containers wide. Nothing in India compares with that according to C. Raja Mohan, a senior associate at the Carnegie Endowment for International Peace and the author of “Samudra Manthan”, a book on SinoIndian rivalry in the Indian and Pacific Oceans.

The island nation is exploiting this competitive edge with support from its biggest ally - China - as it tries to rebuild after three decades of civil conflict that ended in May 2009. Government forces crushed armed rebels

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who wanted to carve out a separate state for ethnic Tamils in the north of the country.

China provided over half of the immediate humanitarian assistance, worth 1.2 billion US dollars, in the immediate aftermath of the conflict in 2009.

China also recently eclipsed India to become the largest foreign direct investor in Sri Lanka, with a stake in all the major infrastructure development projects in the country.

The Isle of Serendipity One of the earliest records of trade between China and Sri Lanka can be found in the works of early 5th century Buddhist pilgrim Faxian, who travelled across South Asia including Sri Lanka in search of authentic Buddhist scriptures. Faxian talks about Chinese ships laden with jade, silk and porcelain arriving on the east coast of Sri Lanka, which thrived on trading in ivory, blue sapphires and the prized spice - cinnamon.

It was the melting pot where Arab traders bartered with Chinese merchants. Chinese mariners in the Tang

dynasty described Sri Lanka as the isle of gems, while the Arabs named it Serendib, from which the word serendipity is coined. China has again forged close maritime links with the island nation following the end of conflict in 2009, after which a period of economic and political stability was ushered in.

President Xi Jinping inaugurated the Colombo Port City project, built by Chinese state-owned developer China Communications Construction Co. during his recent visit to the island in early September, 2014. Artists’ impressions of the finished city put on display during President Xi’s visit showed a palm-lined promenade and a yachtfilled marina surrounding what will be the island’s tallest skyscraper. It also features a Formula One racing track.

Once completed, the China Communications Construction Co. will control almost one fifth of the land area in the Colombo Port City either through direct ownership or through a 99-year lease. Sri Lanka’s main opposition has criticized the arrangement citing the lack of a bidding process when the government handed out the tender.

This man-made islet will come up next to a new 500 million US dollar Chinese-owned container terminal that helped double the capacity of

the Colombo port in less than 30 months, making it one of the top 20 container ports in the world. “We can give some competition to Singapore and Dubai, which are running out of capacity,” Sri Lanka’s ports authority chairman Priyath Wickrama told local media in April, 2014, when the new Chinese Terminal at the Colombo port was opened.

As the world’s largest exporter and second-largest importer, China relies on maritime routes to conduct over 80 percent of its trade. China controls a fifth of the world’s container fleet and by weight, 41 percent of ships built in 2012 were made in China. “Sri Lanka’s strategic importance to China has increased tremendously as China becomes more dependent upon sealine communication,” Professor Wang Dehua claims.

China recently obtained a controlling stake of the newly opened Hambantota international port, off the Southern tip of Sri Lanka, not far from the historic port of Galle, where Chinese maritime explorer General Zheng He landed in 1409. The Chinese Export Import (EXIM) bank funded the first phase of the Hambantota port construction to the tune of 360 million US dollars, despite protests from local environ-

In Chinese history, the treasure voyages were the seven Ming-era maritime voyages of the treasure fleet between 1405 and 1433. The Yongle Emperor initiated the construction of the treasure fleet in 1403. The grand project resulted in seven farreaching ocean voyages to the coastal territories and islands in and around the South China Sea, the Indian Ocean, and beyond.

Admiral Zheng He was commissioned to command the treasure fleet for the expeditions.

For the third voyage, Zheng He Arrived in Ceylon in 1409, the treasure fleet landed at Galle.

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mental groups. President Xi pledged another 600 million US dollars towards its further expansion.

“Hambantota is just a port, not a military base of the Chinese Navy,” explained Professor Wang, denouncing critics who say that China is attempting to encircle India by colluding with its neighbors and developing military bases in and around the region. “On completion, the Hambantota Development Zone will include a liquefied natural gas refinery, aviation fuel storage facilities, three separate docks that will give the port transshipment capacity, (and) dry docks for ship repair,” he added.

The Chinese EXIM bank is also funding the construction of a key expressway connecting the capital Colombo with this new port and China has undertaken to develop areas surrounding the Trincomalee Port, the second largest natural harbor in the world, located on the Eastern coast of Sri Lanka.

Churning the Oceans China faces tough competition for influence in the region from both India and Japan, which rely on the same maritime trade routes. President Xi’s visit comes hot on the heels of another high-profile state visit – that of Japanese Prime Minister Shinzo Abe. Abe was in Colombo in late August to renew Japan’s economic and political links with its long-standing partner.

But China’s effort to create a shipping hub just 200 miles from its southern tip is providing India with something of a headache. As Raja Mohan reveals in his book “Samudra Manthan,” Colombo is a transshipment hub for India: big vessels unload containers there and feeder boats take these to smaller ports in South India. The Economist magazine last year reported that about 13 percent of India’s container traffic traveled via Colombo in 2013. In the hypothetical scenario where the new Chinese-owned terminal ran at

full capacity and dedicated itself to transshipping containers to India, the volumes could rise to 28 percent, leaving India dependent on a foreign-run port for a large portion of its trade, the Economist reported.

“Samudra Manthan” refers to the ancient Hindu myth of Gods and demons churning the celestial Ocean of milk in competition with one another.

As the title of the book suggests, Raja Mohan expects a great deal of churning in the Indian and Pacific oceans as big powers like India, China and even the US, with its recent “Asian pivot”, seek military and commercial influence in the region.

For instance, Chinese naval ships have stopped at Colombo on their way to Pakistan and during anti-piracy operations in the Gulf of Aden. “According to recent reports, the docking of a Chinese submarine in Colombo on a long-range deployment patrol earlier this month is yet another indicator of the ever-increasing forays of the People’s Liberation Army-Navy (PLAN) in the Indian Ocean Region (IOR),” Prof. Wang Dehua pointed out.

The Reuters newswire reported that Submarine Changzheng-2 and warship Chang Xing Dao arrived at the port of Colombo on October 31, 2014. This came seven weeks after another Chinese submarine, which Professor Wang identified as “the diesel-electric Type 039 Song-class” called at the same port ahead of Chinese President Xi Jinping’s visit.

New Delhi expressed grave concerns after the most recent incident on October 31 and called the act “inimical” to India’s interests. “China’s Navy is fast transforming from a green-water force used to operating close to its own shores into a potent “blue-water” force, one with “long legs”. Though the Indian Navy has been tracking the increased activity of Chinese warships in the Indian Ocean Region, including submarines quietly on the prowl in the Bay of Bengal, this is a rare instance of a PLA-N submarine openly berthing in the region that India considers

its own strategic backyard,” Professor Wang explained.

Wang notes that a few Indian policy analysts with a cold-war mindset have accused China of “creeping expansionism” in the region. But is China really seeking hegemony in the Indian Ocean? “All these (claims) are groundless. China will never seek hegemony in the Indian Ocean. China is only interested in the smooth passage of its ships in the Indian Ocean,” Wang countered.

Model of Coexistence China and Sri Lanka signed more than 20 bilateral agreements in areas of energy, education, defense and cultural cooperation during President Xi’s recent visit. The two countries are also putting the final touches on a FreeTrade Agreement that is expected to be signed in December.

“The forthcoming FTA is the biggest development in China-Sri Lanka bilateral cooperation since the historic 1952 Rubber-Rice Pact between the two countries,” Yu Jianhua, China’s Deputy International Trade Representative from the Ministry of Commerce said during his visit to Colombo on October 17, 2014. Assistant Foreign Minsiter Liu Jianchao has described Sino-Sri Lankan relations as “a role model of friendly coexistence and mutual benefit between countries big and small,” in a recent interview with Xinhua.

According to Professor Wang Dehua, China-Sri Lanka cooperation will set a good example for other South Asian countries that want to build the Indian Ocean into a friendly, cooperative and harmonious ocean. Wang notes that the win-win partnership between the two countries is based on the desire to create a harmonious community with a shared destiny. “China wants to help Sri Lanka’s dream of transforming itself into Asia’s miracle,” he said.

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China: a stabilizing force in South Asia?

By Poornima Weerasekara

Pakistan and Afghanistan have the potential to serve as China’s gateway to energy rich Central Asia, but only if the region can first win its fight against terrorism and usher in peace. Can China’s efforts to spur economic growth in these two countries help ensure greater stability in the heart of South and Central Asia?

A flurry of activity took place in Beijing during October and November that showed China’s greater commitment to ushering in economic prosperity and stability in both Pakistan and Afghanistan. When Afghanistan’s new President Ashraf Ghani came to China in late October for his first state visit abroad, Chinese President Xi Jinping welcomed him as “an old friend of the Chinese People.”

It was a strategic choice on Ghani’s part, who hoped to attract Chinese investment and security assistance as USled NATO forces gradually pull out of Afghanistan. That same week, Beijing also hosted a special conference where foreign ministers from Central and South Asian countries came together to discuss the political, economic and security challenges of a post-NATO Afghanistan. Speaking at this “Heart of Asia conference,” Chinese premier Li Keqiang said all Afghan groups should “lay aside former enmity and join the political reconciliation process.”

China is Afghanistan’s biggest investor, pledging 327 million US dollars in aid through 2017 in order to develop the crumbling infrastructure within the country. This is a sharp increase from the 250 million US dollars invested by China in the last 13 years since the fall of the hardline Islamist Taliban regime in 2001.

Pakistani Prime Minister Nawaz Sharif visited China the week after Ghani’s trip and Afghanistan’s stability and Pakistan’s latest counter-terrorism efforts were top of the Agenda when Sharif met President Xi. China is stepping up its efforts to ensure that 22

Afghanistan does not rescind into the clutches of religious extremists, who may threaten the stability of China’s northwestern frontier region of Xinjiang, says Associate Professor Han Hua who is the Director of the Center for Arms Control and Disarmament at the School of International Studies at Peking University.

“There will be a power vacuum after the withdrawal of NATO. This was also the case after the withdrawal of soviet troops in 1988. They (China) have seen what happened after that. From 1988 to 2001, this power vacuum was a reason for Afghanistan to become a place for religious extremism or terrorist groups. That is a concern for China,” Prof. Han Hua explains.

But Beijing has repeatedly said that it does not seek to fill a void left by the U.S. withdrawal of Afghanistan, promising instead to play a big commercial role in the country’s reconstruction.

“The Chinese role is to bring more economic development to the region rather than through a military presence. That is a very different approach,” Dr. Han Hua said.

A GAME CHANGER China has both the political currency and the economic muscle needed to make both Afghanistan and Pakistan more stable, according to Mustafa Hyder Sayed, Executive Director of the Pakistan-China Institute, a private think tank based in Islamabad.

“China has certain goodwill from both the governments and the people of Pakistan and Afghanistan. And they

have the economic muscle to improve people’s lives. They have lending institutions that can finance big projects at very competitive interest rates, which other western institutions cannot offer because they are still going through an economic meltdown,” Mr. Sayed notes.

“The establishment of the Asia Infrastructure Investment Bank for example and the important role that the Chinese Export-Import Bank is playing; they are game changers for these countries which need reconstruction and infrastructure development,” Sayed adds.

In the long run, stability in the region is vital for China’s plans to build a new economic corridor along the lines of the ancient Silk Road and increase its trade with the emerging South and Central Asian markets. In Afghanistan, China wants to help the country tap into its vast natural resources and leverage its strategic location so as to achieve sustainable growth. Wedged between Iran, Pakistan, China and other Central Asian states, Afghanistan can act as a “regional land bridge” between South and Central Asia once its road and rail network is developed.

In 2007, Chinese state-owned mining giant China Metallurgical Group Corporation (MCC) made a whopping 3 billion US dollar investment in the Mes Aynak copper mine south of Kabul. It is the largest copper mine in the world with an estimated 5.5 million tons of high-grade copper ore. A 2013 report from the US Geological Surveys department called Afghanistan “the Saudi Arabia of Lithium.” Lithium is a core component of smart phones and

has certain goodwill “fromChina both the governments

and the people of Pakistan and Afghanistan. And they have the economic muscle to improve people’s lives. They have lending institutions that can finance big projects at very competitive interest rates, which other western institutions cannot offer because they are still going through an economic meltdown.

”

Mustafa Hyder Sayed, Executive Director of the Pakistan-China Institute

other electronic devices. The report says that Afghanistan sits atop more than three trillion dollars’ worth of untapped natural resources including iron ore, gold, oil and gas.

In Pakistan, China has worked closely to resolve the country’s energy crisis, boost infrastructure and strengthen its defense capabilities. “During the Cold War era, China-Pakistan relations were a counter measure to India. But after that the relations have grown far beyond that,” Prof. Han Hua points out. According to Prof. Han, “The importance of Sino-Pakistan relations is three-fold: The first is ensuring China’s regional stability, especially in Xinjiang. The second is energy security - the energy corridor and pipelines going through Pakistan’s territory will link the Middle East to China. Finally, Pakistan is pivotal for the economic integration of Asia as a whole with the revival of the Silk Road.”

China is pouring in 42 billion US dollars in order to develop the ambitious China-Pakistan Economic Corridor.

This is the single largest investment that China has carried out in any one country. The project includes a 200 km long tunnel that will link

Pakistan’s strategic deep-water port in Gwardar on the Arabian Sea with Kashghar, a key city along the ancient Silk Road route, located on the edge of northwest China’s Xinjiang Uyghur Autonomous Region, near the border with Pakistan. A Chinese state-owned company took over the management of the Gwadar deep-water port to the consternation of India.

The port in Gwadar can serve as China’s base for trade with both Central Asia and the Persian Gulf, says Mustafa Hyder Sayed. But more crucially, 60 percent of China’s oil imports can be whisked in from Dubai to Gwadar and then transported via land to China once the infrastructure along the China-Pakistan economic corridor is complete. Currently, crude supplies to China from the Persian Gulf must travel over 16,000 km on rough seas to the port in Shanghai. During the two- month journey, supplies are also vulnerable to pirate attacks in the Gulf of Aden.

Pakistan’s Prime Minister Nawaz Sharif signed 19 bilateral deals when he was in Beijing in early November, most of them focusing on energy cooperation.

China is investing some 20 billion US dollars to develop coal, solar and hydro energy sources in Pakistan and in December last year, China committed 6.5 billion US dollars to building a major nuclear power project in Karachi. “All these power projects together would generate about 25,000 MW. Most of Pakistan will be energy efficient,” remarks Mr. Sayed.

Furthermore, China is also Pakistan’s largest weapons supplier providing 52 percent of the country’s defense supplies in 2013, according to a leading global think tank, the Stockholm International Peace Research Institute.

Stability through Development China’s long-term mantra to ensure that terrorist elements do not spill out over the border from Pakistan or Afghanistan and thus upset the delicate security balance in its northwestern fron-

tier region of Xinjiang has been to spur development in these troubled regions.

Earlier this year Chinese media reported that almost 3,000 new cars were hitting the roads of Urumqi, the regional capital of Xinjiang, narrowing the development gap between east and west China. But unrest continues, with the latest streak of violence unleashed after the killing of an Imam at Kashgar’s ancient mosque, which Xinhua News Agency notes was carried out by separatist elements fighting for a homeland for the minority Uighurs.

“Stability in Afghanistan and Pakistan is directly linked to the stability in the northwest region of China. But we have seen some terrorist activities not only in that region but outside, for instance during the recent attacks in a train station in south China’s Kunming that killed 29 civilians. One faction behind these terrorist activities is the separatists (in Xinjiang), especially when we talk about the East Turkistan Independence Movement. Therefore, it affects the national security and integrity of China,” Prof. Han Hua said.

China is clearly concerned about foreign elements trying to fund and train separatist groups at home. “According to some reports or some local regional government officials in China, they talk about the training of bombers; that they were trained in Pakistan.” Prof Han adds. “But we never have a doubt about the willingness or the determination of the Pakistani government to cooperate with China to deal with this problem and to fight against terrorism.”

Both the Afghan president and the Pakistani premier reiterated their commitment to crushing any militant cells belonging to the East Turkestan Islamic Movement that may operate on their soil. But China is not willing to take any chances with its territorial integrity. It is stepping up efforts to usher in stability in the heart of South and Central Asia, which shares a common destiny with China. As Mustafa Sayed says “a peaceful Afghanistan means a Peaceful Pakistan. A peaceful Afghanistan and Pakistan also means a peaceful Xinjiang.”

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By Bejan Siavoshy

India is running a massive trade deficit with China.

Figures from India’s Ministry of Commerce and Industry show that bilateral trade between the two countries from 2013-2014 was valued at roughly 66 billion US dollars; but while India exported around 15 billion dollars in goods to China, the South Asian giant spent approximately 51 billion dollars on imports from its East Asian neighbor. Indian figures show that the country’s trade deficit with China averaged 35 billion US dollars in the last three years.

The persisting trade deficit has put pressure on the recently-elected administration led by Prime Minister Narendra Modi. The 64-year-old politician won India’s election in May by campaigning on the promise to boost the country’s struggling economy. Those promises are now being called to task, and Modi is being urged to rebalance India’s trade deficit with China.

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The prime minister brought up his concerns about the trade deficit to Chinese president Xi Jinping during the Chinese leader’s three-day visit to India back in mid-September. Following a meeting between the two leaders in Delhi, Modi said, “I raised the issue of [the] trade imbalance between [China and India]. I urged President Xi to give our companies better market access and investment opportunities in China.” The Indian leader added that Xi “assured that he will take concrete steps in this regard.”

Last year, just 3.6 percent of India’s exports went to China, according to figures from India’s Department of Commerce. Likewise, the majority of those exports are raw cotton, copper and iron ore, which account for roughly 51 percent of India’s exports to China. India has struggled to overcome the barriers of entry to China’s IT and service sectors — markets the South Asian nation is looking to enter on, at least, a regional scale, if not a global one.

The opposite can be said about China’s foray into India. An analysis of the China-India trade deficit in the India-based business publication “The Financial Express” shows that about 83 percent of goods China exports to India as of July are capital and intermediate goods; these are goods that require medium-to-high labor skills, such as consumer electronics and machinery — China’s top exports globally.

In June, China sent its foreign minister, Wang Yi, to meet with Sushma Swaraj, India’s external affairs minister, in New Delhi to establish initial contact with the then newlyelected government under Prime Minister Modi. High on the agenda of talks between the two sides was the trade deficit. The Times of India reported that Wang and Swaraj discussed China giving greater access of its IT and pharmaceutical markets to India and ramping up investment in the South Asian nation, which in June sat at around 900 million US dollars.

Precluding Xi Jinping’s September 17 trip to India was the speculation that the Chinese leader would commit around 100 billion US dollars to invest in India to offset the trade deficit. Earlier that month, Japanese Prime Minister Shinzo Abe pledged an investment of 35 billion US dollars over the next five years in India, which included the development of bullet trains, during Modi’s visit to Tokyo.

China’s consul-general in Mumbai, Liu Youfa, was quoted in a September 13 piece in the Times of India as saying: “On a conservative estimate, I can say that [China] will commit investments [in India] of over 100 billion US dollars, or thrice the investments committed by Japan during our president Xi Jinping’s visit next week. These will be made in the setting up of industrial parks, modernization of railways, highways, ports, power generation, distribution and transmission, automobiles, manufacturing, food processing and textile industries.”

Xi’s visit to India in September 2014 resulted in 14 agree-

ments being signed between the two sides, but with China pledging to invest only 20 billion US dollars in India over the next five years. Under the agreements, China also agreed to upgrade India’s ageing railway system, pump more money into its industrial parks in Gujarat and Maharashtra, and give more market access to India’s pharmaceutical and farm products — something India’s present and prior government has pushed for.

But the trade imbalance still persists; and bilateral trade looks like it will fall short of hitting 100 billion US dollars by 2015 — a target proposed by both sides when Chinese premier Li Keqiang visited India during the administration of prime minister Manmohan Singh in May of 2013.

However, India’s trade deficit with China is also indicative of many countries’ trade relationship with the country. The main reason for this is that China is the last stop on the regional production line for East Asian goods being sent to the rest of the world. As of October 2014, China’s trade surplus sat at 46.5 percent of total trade, driven mainly by sales to the US amid slowing Asian demand, according to figures from China’s General Administration of Customs.

India’s own trade maneuvers and economic conditions have also been a big contributor to the country’s trade deficit with China. The South Asian giant runs a trade deficit with 16 of its top 25 trading partners. India imports way more than it sells abroad. The country’s restrictive labor, tax and land laws have led to a shaky economy and manufacturing sector, according to an article in Forbes following President Xi’s visit to India.

During the “Make in India” conference in July 2014, which was organized to showcase the country as a prime location for the world’s factories, Indian Commerce Minister Nirmala Sitharaman said that the country’s government is looking to boost manufacturing from 15 to 25 percent of its 1.9-trillion-dollar economy.

That figure is lower than manufacturing percentages in Asia’s other major economies, including Thailand (33 percent); China (32 percent) and South Korea (31 percent), according to data from the World Bank. At the two-day Indian Economic Summit in early November 2014, Indian Finance Minister Arun Jaitley said the government was working on fresh measures to push through economic reforms that would ease labor regulations and changes to the country’s Land Acquisition Act. World Bank data shows that India ranks 134 during 2014 on the Ease of Doing Business Index — down from 131 the previous year. Another big obstacle in the way of India’s manufacturing progress is energy. According to Forbes, roughly 70 percent of India’s trade deficit is due to the country’s net imports of oil and coal, with its gold imports adding to the elevated figure. While China loosening restrictions will help India boost its exports to the East Asian nation, India taking care of economic issues at home could ultimately spur the narrowing of its trade gap.

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A New Model Amid New Relationships Interview - Steven Hadley

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A New Model Amid New Relationships Following the Second World War, the 20th Century saw the emergence of the US as a world power.

Its influence over the current international system is undeniable and immediately after the fall of the Soviet Union, its power was seemingly uncontested. However, as China’s economy has grown massively, so too has its power and international influence.

Us and China In the 21st century, China’s re-emergence as a world power is changing the face of international relations, so much so that the rest of the 21st Century will depend upon the existing power, the US, and the emerging power, China, cooperating peacefully. Furthermore, relations between the two giants also influence relations with third-party countries.

As a guideline for relations between the two powers, Chinese president Xi Jinping proposed the “New model of major-country relations”, a series of guidelines to ensure that relations between the US and China would be free from conflict in the future. Last year, both countries endorsed the idea of establishing a new model of majorcountry relations, though terminology and definitions between both sides have varied, as is evident from the comments of Steven Hadley, former US National Security Advisor, serving under President George W. Bush (See page 29).

Nonetheless, the new features at its core are the principles of no conflict, no confrontation, mutual respect, cooperation and common prosperity.

More specifically, both China and the US have agreed to press ahead with more cooperation on anti-terrorism, nuclear non-proliferation, climate change, as well as other international 28

and regional issues. The two countries have also set up multi-layered mechanisms to promote economic, political, technological, and militaryto-military exchanges.

According to Jin Canrong, professor of International Studies at Renmin University in Beijing, China is “determined to escape from the transitional tragedy of big powers.” Jin elaborates that “The purpose of President Xi Jinping raising this term (new model of major-country relations) is to show his determination to escape from this historical tragedy. In principle, the United States accepts this concept; they want to do the same thing and also escape from this tragedy.”

However, the US has shown hesitation when it comes to embracing the terminology put forward by China.

Though some may find it trifling that countries differ over the term, in the world of diplomacy, terminology is an important tool when it comes to shaping concepts. Despite use of the term by President Obama at the G20 last year in St. Petersburg and by Susan Rice during a speech at Georgetown University last November, the US has since reverted to referring to a “new type of relationship” rather than a “new model of major-country relations”.

Clifford Kiracofe, a former senior professional staff member of the US senate foreign relations committee, believes that hesitation on the US side is part of a wider learning curve within the US administration as Washington readjusts to the reality of an emerging multipolar world. “Washington needs to think more in multipolar terms than in hegemonic terms or unipolar terms,” opines Kiracofe, noting that a move away from so-called “megaphone diplomacy” would be a good start in order to press forward with working out any type of new relationship between the two powers.

One of the core tenets of the new concept, according to Xi Jinping’s interpretation of the new model, is respect for the core interests of the other party.

Within China, many academics believe that the US is not willing to treat China as an equal partner at present.

According to Jin Canrong, the forthcoming “increase of China’s comprehensive national power” will ultimately lead to it being treated equally by the US. However, despite this interpretation that China is not yet being treated as an equal partner, Jin Canrong does not believe that Beijing is attempting to downgrade China-US relations in favor of relations elsewhere. Instead, the situation is much more nuanced and reflects the rapidly changing reality of international relations.

“Over the past four decades, China-US relations are always at the very top of our agenda; enjoying absolute importance in our foreign policy. But now, at least on the surface, our leaders pay more attention to our neighborhood, to other big powers; Russia, EU, Brazil, etc. China’s strategy has become more sophisticated. But whether that means China will downgrade the importance of China-US relations, I’m not sure. I think it’s too early to say.” By increasing its ties with its neighbors, China is also strengthening its bargaining position with the US. So while it may seem that China has recalibrated its foreign policy to focus on its immediate neighborhood, Jin is convinced that “The final target is to strengthen US-China relations,” via building new relations elsewhere.

Whether the US is attempting to contain China or not, the international framework of institutions is slowly being influenced by China’s economic influence (See page 8); a fact that may speed up the learning curve that Washington is currently trying to come to terms with.

Interview Steven Hadley As both China and the US attempt to forge the concept of a new model of relations, MESSENGER presents an interview with Steven Hadley, former US National Security Advisor, serving under President George W. Bush, touching upon Xi Jinping’s promotion of a new model of major-country relations as well as the wider situation of the Asia Pacific region in general.

Looking back over 35 years of diplomatic ties, how do relations between China and the US compare from then to now?

I think there’s been enormous progress in US-China relations over the last 35 years. I think it’s a tribute to the leadership of both countries. I think a commitment to building a positive relationship between the two countries has been the position of both Chinese leaders over time and it has been the position of American administrations consistently, whether Republican or Democratic; so I think there’s been a lot of continuity on both sides and I think it’s produced a very positive growth and development of the ties between our two countries.

In order to achieve a New Model of Major-Country Relations, what mechanisms need to be put in place?

There are already a lot of structures between China and the US. There are meetings between US and Chinese officials at all levels in our government.

And of course, American businesses are active in China and Chinese businesses are increasingly active in the United States. So I think the structure of the relationship is fine. What we need is more intensive, high-level engagement among our leader to develop this new model of relations. We need to develop the principles on which it should be based, but also practical steps that can be taken to try to operationalize those principles in terms of concrete cooperation between our two countries. I think that’s what is most important; identify some concrete projects that are in the interests of both China and the United

States; that are important to both peoples, and it will be high enough profile to signal to our peoples that in fact there’s a new relationship between the two countries and that it can provide positive benefits for both peoples.

What barriers stand in the way of implementing any kind of new model?

What needs to happen is the two countries need to engage on this subject in a very intensive and focused way. It’s difficult; the world is a very complicated place. There seems to be one crisis after another and I think that the crises sometimes divert attention from the kind of committed, consistent work that needs to be done to develop a concept that is as challenging as the new model of major-country relations will be.

How can China and the US go about seeking more cooperation on regional and international security issues?

They need to talk to each other on a very consistent basis. I think sometimes we fall into the habit of communicating to each other by what we say in public and I’m not sure that’s the best way for countries to communicate with one another about sensitive issues. So I think there need to be more frequent and intensive, candid conversations between representatives of the two governments behind closed doors to try to build understanding. I think too much of the communication burden is perhaps being carried in the media and not enough by the kind of discreet talks that really are more like traditional diplomacy.

With regards to military-to-military exchanges, how important is the new model?

I think there has been progress in the mil-to-mil relations between our two countries. I think the kind of concrete cooperation at sea that our two navies have been able to engage in in the gulf of Aden off the east coast of Africa and anti-piracy activities has both strengthened the anti-piracy capabilities of both countries but it’s also to help build some confidence and understanding and familiarity at the operational and military level. I think that can be an important

element of stability and improved relations over time and I think it can make a contribution to developing the new model of great power relations because one of the things I think could derail the new model is if we had some kind of confrontation between our militaries, particularly our naval forces at sea.

How should both countries go about reducing tension in the Asia Pacific Region?

I think it is not true that the United States has interfered in the East China Sea or the South China Sea. I have indicated that the framework for the United States is that we don’t take a position on the issues; we think they should be resolved among the parties without force or the threat of force, and that the navy forces of the countries that border the South China Sea and East China Sea need to have the kinds of instructions and communications links and crisis management protocols to avoid incidents at sea provoking a confrontation.

That’s been the position of the (US) government and I think it is a good position for the US government to take. The kind of strategic dialogue I’ve talked about would go a long way towards improving relations between the two countries and maybe get us on the road towards defining a new and more positive relationship between the two countries.

As the two largest economic powers, how can China and the US jointly lead the way in solving the world’s common challenges?

One of the things they can do is to lead towards trying to establish in the Asia Pacific a single and a common trade and investment framework for all the countries. I think that would be a dramatic first step and the two countries can do that. It’s also very important that the two countries work together to strengthen the global financial system so we do not have, and are not subject to the kinds of economic downturns that occurred in 2008. I think these are two very useful items for the agenda between our two countries in the economic sphere.

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Another Free Trade Agreement In November of 2014, Chinese President Xi Jinping and Australian Prime Minister Tony Abbott announced that the two countries had completed a landmark free trade agreement, capping nine years of bilateral negotiations. However, the bilateral agreement, which will benefit both countries greatly, represents another example of fragmentation within the region with regards to free trade. Nonetheless, Australian Prime Minister Tony Abbott hailed the agreement as a reflection on both countries’ ability to be reliable partners.

Chinese President Xi Jinping delivered an address to the Australian federal parliament in Canberra, following the completion of the G20 summit in Brisbane, outlining China’s plans for peace, stability and prosperity, based on a comprehensive strategic partnership and the substantial completion of FTA negotiations.

The two sides not only announced the substantial completion of FTA negotiations, they also revealed that they have decided to elevate the bilateral relations into a comprehensive strategic partnership.

Speaking on the FTA agreement, Abbot told reporters in Brisbane, “This has been a ten-year journey but we have finally made it and both our countries will see the benefits flow through in the years ahead. It is, as I said at the beginning, a good day for Australia, a good day for China, a good day for consumers in both our countries and ultimately a good day for workers in both our countries.”

According to the announcement, Australia will eventually reduce tariffs to zero on all goods imported from China, and China will remove tariffs on a vast majority of Australian goods. This will include popular products such as dairy, beef and wool. Li Jian, from the Chinese Academy of International Trade and Economic Cooperation, says the renewed agreement will increase trade in farm products. “From the point of Chinese producers, the resources in Australia have many advantages.

The demand for their resources is increasing annually, which is also good for boosting the market in China.

Animal husbandry and crop farming in China will also expand accordingly.”

Li Jian adds that the deal will also boost China’s agricultural production level. “For animal husbandry, Australia has better land, water and other natural resources including weather conditions (compared to) China. The lowered threshold will bring more Chinese enterprises to invest in Australia. The products can 30

also be sold to China. The singing of the FTA between the two counties will be a mutually beneficial thing.”

In regards to investment, the pair agreed to grant each other the most favored nation (MFN) status once the FTA takes effect. This will bring more opportunities to Chinese investors as they become more and more interested in agricultural investment in Australia.

Jason Hayler, an Australian local land agent, claimed that most investors have no intention of flying out to Australia, building a house and running the property themselves. “What they are after is partnerships with caring Australian producers that have the skill and expertise to run an efficient and profitable fund; so that is where the real opportunity is.”

Following the G20 summit, President Xi noted that bilateral relations between China and Australia had developed very quickly in recent years and have bright prospects for the future, adding that “The two-way trade between China and Australia has grown from 86 million US dollars in the early years of bilateral diplomatic relations to 136 billion in 2013. And China has been Australia’s biggest trading partner for five years. China has become Australia’s largest source of International students and tourism revenue. In 2013, China and Australia established a strategic partnership, which was a significant milestone in the growth of the bilateral relationship.”

Xi Jinping wants the two sides to endeavor to build trust and become stronger partners but is also mindful of international perceptions when it comes to disagreements between nations. “China is like a big guy in the crowd; others will naturally wonder how the big guy will move or act. They may be concerned that the big guy will push them around, stand in their way, or even take their place. So here let me address several key issues that are of interest to you. First is that China remains unshakable in its resolve to pursue peaceful development.”

The Chinese president added that China also remains unshakable in its commitment to pursuing common development and in its resolve to pursue a policy of promoting cooperation and development in the Asia-Pacific. With this in mind, he urged China and Australia to enhance strategic dialogue and be sincere and trustworthy partners going forward so as to jointly safeguard regional peace and stability within the AsiaPacific region. Certainly, the US will be paying close attention to the growing ties.

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