India Opens a New Front in Its Corridor War With China

Closer economic ties to the Middle East and Europe counter its neighbor’s investments in the region

India Opens a New Front in Its Corridor War With China
Indian Prime Minister Narendra Modi at the G20 summit earlier this month with U.S. President Joe Biden and Saudi Arabian Crown Prince Mohammed bin Salman. (Evelyn Hockstein/POOL/AFP via Getty Images)

In 2007, as the world was hurtling along toward a catastrophic financial crisis, China’s top politicians and financial officers were grappling with a unique problem. Their bustling economy was generating such extraordinary amounts of foreign exchange reserves that they weren’t sure what to do about it. So they established a sovereign wealth fund — the China Investment Corporation (CIC) — which they could use to make investments around the world. But just when the top echelons of the Chinese Communist Party were figuring out its precise workings, the financial crisis hit the next year.

As politicians and economic officials across the West struggled to douse a crisis that spread like wildfire, the Chinese government unleashed a spending spree in a bid to anchor global demand in a crashing world economy. It was at that time that the G20 — which then represented the world’s 20 largest economies, along with the European Union — was elevated from a meeting of finance ministers to a top leadership summit. It became a key forum to coordinate responses during the global recession. Given China’s newfound economic size and the equivalent scale of fiscal spending, it ended up taking a central position during the process. Hence, from the ashes of the 2008 economic crisis, Beijing’s endeavor to become a global leader began.

Over the past decade and a half, the G20 has emerged as a global forum to discuss not only economic policies but also core issues of transnational importance. Without a secretariat, it has a rotating presidency among its members. This year, India was in charge. Under the leadership of Prime Minister Narendra Modi, it hosted a leadership summit in New Delhi earlier this month with much fanfare. Unlike usual G20 presidencies, which involve a few meetings spread throughout the year, culminating in the final leadership summit, India organized over 220 meetings in 60 cities with the aim of promoting the country as an investment destination.

While the city of Delhi was brought to a standstill and its poor were hidden under green covers, many significant diplomatic moments came out of the summit. One of them was the launch of the India Middle East Europe Economic Corridor (IMEC), a mixed sea-and-land network connecting India’s western ports with Europe’s Mediterranean ports via railways. In a photo op at the launch, Modi, Saudi Arabia’s Crown Prince Mohammed bin Salman and U.S. President Joe Biden shook hands and sported wide smiles.

Despite Chinese President Xi Jinping’s skipping the G20 meet, the country’s presence was unquestionably evident. It was clear, for example, that IMEC was India’s response to China’s Belt and Road Initiative (BRI) — Beijing’s trillion-dollar initiative to fund infrastructure, energy and connectivity projects across the world — and that it was another step to counter China’s overbearing influence in the neighborhood and the global world order. Over the past decade, India has been making a concerted push to develop connectivity and infrastructure projects in neighboring countries and gather global clout similar to that of China. This competition has only increased since 2020, when relations between the two countries soured following border skirmishes.

Ever since the CIC and its affiliate, the State Administration of Foreign Exchange — cumulatively the largest sovereign wealth funds in the world today — were floated in 2007, China has funded infrastructure projects worth over a trillion dollars across the world. The most notable of them is the BRI. Apart from buying strategic influence, it has helped China upend the existing world order, shifting it from the military battlefield to novel nontraditional security domains like financial markets, cyberspace, critical infrastructure and corporate governance. Among these, infrastructure development in foreign countries has become a ground for big power rivalry, especially across the developing world.

Over the past decade, China has spent a chunk of its foreign reserves to fund projects in developing countries, emerging as a credible and more prolific alternative to the U.S.-led World Bank. In her recent book, “Sovereign Funds,” the Council on Foreign Relations fellow Zongyuan Zoe Liu writes that, on many occasions, these projects made little economic sense but the power and influence they bought were intangible. For India, a large part of this competition has been about developing infrastructure projects in its immediate and extended neighborhood.

India and China have been engaged in a protracted conflict over disputed territory along the Himalayas since 1962, when the two countries went to war. After decades of almost no diplomatic ties, the relationship began to improve in the late 1980s, when ties were reestablished and cross-border trade flourished. Even though certain territorial disputes remained unsolved, disagreements stayed within a certain threshold.

The nature of this competition was also characterized by China’s investments in India’s immediate neighborhood. Chinese state-owned corporations have financed commercial ports in Pakistan (Gwadar), Sri Lanka (Hambantota and Colombo), Bangladesh (Chittagong) and Myanmar (Sittwe and Kyaukpyu) over the past few years, surrounding India from all sides.

“Viewed alongside the large-scale naval modernization program being undertaken by the People’s Liberation Army Navy … many worry that these ostensibly trade-oriented ports will one day be upgraded into permanent naval bases,” wrote Ashley S. Townshend, a senior fellow at the Carnegie Endowment for International Peace, in the Indian magazine Outlook. “In a worst-case scenario, it’s feared such bases might enable Beijing to threaten India’s security, menace global sea lanes and challenge the United States for regional naval primacy.”

Indian anxieties were further exacerbated when Sri Lankan authorities failed to repay Beijing’s debts in 2016 and handed control of the Hambantota port over to Chinese authorities in a 99-year lease agreement. For several Indian government officials and independent analysts, the takeover was a leading example of the “debt-trap diplomacy” that China was engaging in, in the garb of the BRI. Critics argued China was using the BRI to take over key strategic assets across the world, which could eventually be turned into militarized bases. However, actual evidence to back these claims is, at best, mixed.

From the perspective of India and its strategic partners like the U.S., China has been forging deep diplomatic and commercial ties with countries across the Indian Ocean region with the intention of cornering India. Called the “String of Pearls,” it includes the ports in Pakistan, Sri Lanka and Bangladesh but is not limited to them; more ports could be developed in parts of East Africa and island nations in the Indian Ocean region. While China’s role in the region is definitely expanding, how intentional the String of Pearls is remains a matter of debate.

That’s why New Delhi has been making attempts to propose its own infrastructure-connectivity projects. For instance, in competition with the Gwadar port in Pakistan, India announced plans to develop the Chabahar port in Iran, less than 125 miles away. But the project was hit by economic sanctions on Iran in 2006 and was indefinitely delayed. Finally launched in 2016, the sanctions were brought back when then-U.S. President Donald Trump withdrew from the Iran nuclear deal, and the project has continued to lag since then. Constrained by lack of capacity and political will, the gulf between Delhi’s intentions and delivery has continued to widen.

On the other hand, China succeeded in developing the Gwadar port, the centerpiece of the China Pakistan Economic Corridor, a flagship project of the BRI. Yet, a decade on, it has failed to live up to its expectations, largely because of a flailing Pakistani economy. Nonetheless, unlike Chabahar, Gwadar port has been fully functional since 2021.

Relations between India and China, which were already tense, had significantly changed when Xi came to power in 2012. In the past decade, the two countries regularly engaged in border skirmishes, but bilateral relations rapidly deteriorated in 2020, when China was accused of entering Indian territory through the Galwan Valley in Ladakh (close to Kashmir in the north). The skirmishes resulted in the deaths of 20 Indian soldiers and at least four of their Chinese counterparts. Since then, Modi and Xi have had frosty ties. Barring a couple of virtual encounters or short meetings on the sidelines of multilateral summits, the two leaders have barely engaged with each other. The Indian side contends that, until China withdraws, the two countries can’t have normal ties.

The Galwan clash hardened official and public views of China in India, especially among the younger generation, for whom the 1962 Sino-Indian war had been a distant memory. “Coupled with China’s lack of transparency about the COVID-19 pandemic, the fighting on the border has left many Indians convinced that China poses an imminent and acute challenge to their country,” wrote Tanvi Madan, a senior fellow at the Brookings Institution, in Foreign Affairs. In more strategic terms, it has led to India’s getting even closer to the U.S. and the West at large. In 2017, it abandoned its reluctance in restarting the strategic security arrangement with the U.S., Australia and Japan (known as the Quad) and has also been selling arms to Southeast Asian countries like Vietnam.

While New Delhi realizes that China has a clear edge over it, both militarily and economically, it is still coming up with unique ways to be considered as a formidable power and leader of the Global South, a position that China has already achieved over the past decade. Hosting the Voice of Global South Meeting in January ahead of the G20 summit and making the African Union — an organization with deep ties to China — a permanent member of the G20 were all steps in that direction. It is unusual to have an infrastructure-connectivity project, like the IMEC, announced at a multilateral summit. Because India successfully did so, it is being called a remarkable diplomatic victory.

However, less than a week after the summit ended, Crown Prince Bin Salman remarked, in weighing in on Saudi-Chinese relations, “If China fails, we all do.” It was a testament to China’s influence and served as a quick reminder for New Delhi that competition with its next-door neighbor will not be easy.

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