The People’s Republic of China was established in 1949, after the communist revolution and under the leadership of Mao, their economy was based on the Soviet model. Furthermore, China decided to cut all ties from the capitalist world and close its economy completely, a decision that would lead to its emergence as one of the greatest economies in the world.
After closing off its economy, China had to fall back on domestic resources, the main aim of the time was to establish “a state-owned heavy industries sector from the capital accumulated from agriculture.’’ Due to a shortage of foreign exchange, China was unable to import the necessary technology and equipment which was flourishing in the world market and had to turn to domestic goods for substitution. With the assurance of employment and social welfare to all the citizens the pace of China’s development would surpass any developed country’s pace of growth with respect to education and health care.
However, agricultural production did not produce enough surplus to fund the heavy industries sector and China faced a crisis similar to USSR, (just before the disintegration) with low per capita income and minimal industrial growth. Then, in 1972 China ended its economic isolation and established a relationship with the United States of America and under the leadership of Premier Zhou Enlai and Deng Xiaoping the “open door policy’’ was implemented with the privatisation of agriculture followed by privatisation of industry and the establishment of Special Economic Zones.
China, currently is not just the leading destination for FDI but also a leading investor in the global economy. In 2016, Chinese companies were responsible for about $183 billion of FDI, a UNCTAD report states. China has investments by the billions in countries like Myanmar, Russia, Canada, USA and Singapore.
However, China’s inbound Foreign Direct Investment (FDI) is trudging upwards and is likely to depict a downward trend, when corrected for inflation, in the time to follow despite declaration of steady growth. According to a report by World Bank, FDI in 2010 accounted for 4 percent of China’s GDP which fell sharply to 1.5 percent in 2016. One can observe how China is ensuring a significant fall in the impact of FDI on its economy.
Announcement of the “Made in China 2025” plan expressed China’s interest and inclination in dominating high technology fields. Derek Scissors, an Asian economist, argues that China predominantly eyes the acquisition of information and the technical know-how of foreign companies. This practice of technology transfer followed by foreign companies being driven out of business in China owing to a takeover by equally or more capable Chinese firms, is believed to be one of the chief reasons behind falling incentive for FDI.
Where on one hand there is a significant decline in investment flowing into the country, on the other China is seen vigorously undertaking infrastructural projects, leaving its mark on neighbouring countries as it progresses towards what is possibly the most ambitious project undertaken by any state.
The One Belt One Road initiative spanning 3 continents and targeting 65 countries, which contribute to a third of the global GDP, is as controversial an investment as it is costly. It finds itself a place in this article because of an apparent ‘Debt Trap’ which China intends to subject these 65 countries to.
On the surface, the need for OBOR is to bridge the infrastructural gap dampening world trade. The 4 to 8 trillion-dollar project seeks to link myriad cultures, achieve socio-economic development, financial cooperation and in the process, create thousands of jobs.
However, with just how China seems to be approaching OBOR, it suggests the pursuit of something the country has lately aspired - global domination. Sri Lanka, one of the countries through which the Maritime Silk Road passes, became the recent victim to China’s ‘debt trap’ policy. The latter sanctioned a loan of 8 billion dollars for the construction of Hambantota port and on former’s default, ended up earning controlling interest and a 99-year lease on the asset. Montenegro, encouraged to undertake a highway construction project costing 3.2 billion dollars, more than half its GDP, funded by Chinese state-owned companies, could find itself in a similar position. Other nations taking this leap of faith include Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Pakistan and Tajikistan.
Chinese president, Xi Jinping, addressing the World Economic Forum in 2017 said, “pursuing protectionism is like locking oneself in a dark room; while wind and rain may be kept outside, that dark room will also block light and air.” The lopsidedness in FDI- depreciating inflow as opposed to outflow, which in 2017 was four times than in 2012, throws light on Chinese hypocrisy. At a time where USA continues imposing tariffs, China has found the perfect opportunity to dub itself as the ‘Defender of Global trade’. The imperialist intentions of the country vividly showcase its desire to see Yuan flourish as a trade currency and eventually as a reserve currency.
WRITTEN BY
PRACHI SHARMA
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