What does China gain from its South Pacific Engagement?

Wonchibeni Patton, Research Intern, ICS

Image: President Xi Jinping with eight Pacific island countries’ leaders at the 26th APEC Economic Leaders Meeting
Source: Getty Images

The People’s Republic of China (PRC) is the third-largest aid donor to the Pacific Island Countries (PICs), spending around US$1.76 billion in aid towards the region. In its aid programme, the PRC emphasises on equality, mutual benefit and win-win cooperation. On this note, the following paragraphs examine the benefits that the PRC gains from its engagement with the PICs.

Scholars have identified the PRC’s two main interests in the PICs as political and economic. Political or diplomatic interests include decreasing Taiwan’s diplomatic clout and gaining the support of the PICs at multilateral forums, mainly the United Nations (UN). The PRC and Taiwan rigorously engaged in “chequebook diplomacy” in the 1990s, competing for diplomatic recognition from the PICs until 2008 when President Ma Ying-Jeou of the Kuomintang government came to power in Taiwan and led to a diplomatic truce. Before 2019, Taiwan had six diplomatic allies in the region, but this was reduced to four when the Solomon Islands, followed by Kiribati, switched to the PRC in September of 2019. There were several reports that the PRC had baited both countries with promised aid: US$500 million for the Solomon Islands and funds for aeroplanes and commercial ferries for Kiribati

Although the PICs occupy only 15 per cent of the world’s surface, with a cumulative population of around 13 million, they hold about 7 per cent of UN votes. The PRC’s membership in the UN Human Rights Council (UNHRC) has often been questioned, and the PRC is often targeted at the UN for its human rights record. The Xinjiang issue has been raised twice at the UNHRC in the recent past-2019 and 2021. Both were led by countries from the West. However, both times the PRC responded with greater support from its “Like-Minded Group”- a term used to describe a loose coalition of developing states often led by the PRC, Russia and Egypt . In 2020, when the issue of China’s new national security law in Hong Kong was raised at the 44th session of the UNHRC by 27 countries, Papua New Guinea was amongst the 53 countries that backed the PRC. In 2021, when the human rights situation in Xinjiang was raised at the 47th UNHRC session by Canada with the support of 44 countries, a coalition of 69 countries led by Belarus responded in China’s support. The PICs Kiribati, Papua New Guinea and the Solomon Islands were included in the 69. Thus, the PRC has been successful at garnering increasing support from the PICs on issues concerning its interests in international fora.

The PRC’s economic interests in the region include the promotion of China’s Belt and Road Initiative (BRI) and the hunt for raw materials. All the ten diplomatic partners of the PRC in the region have signed up for the BRI. The PICs’ total exclusive economic zones (EEZs) extend across nearly 7.7 million square miles of ocean. This can be beneficial to China’s endeavours in exploring and extracting natural resources. Some of the PICs are blessed with abundant natural resources and raw materials in terms of minerals, metals, fossil fuels, fisheries and wood. A global audit of Pacific resource extraction undertaken by the Guardian’s Pacific Project revealed that China is the largest importer of the region’s natural resources, importing resources worth US$3.3 billion in 2019. In the mining industry, the PRC has invested in seven mining projects across the region, with the largest one being the US$1.4 billion Ramu nickel and cobalt mine in PNG. PNG and Fiji have been the main focus of investments in this field. Other major operations include the Porgera gold mine and the Frieda River Copper project in PNG, the Nawailevu Bauxite mining project and the Vatukoula gold mine in Fiji, and so on. These operations are partly owned and run by Chinese SOEs such as Zijin Mining Group, Xinfa Aurum Exploration and Zhongrun International Mining. In 2019, PNG exported US$2.3 billion worth of oil, metals and minerals to China while Fiji exported US$4.8 million of the same.

The Pacific region is the world’s most fertile fishing ground. China imported US$100 million worth of seafood products from the region in 2019. However, Chinese vessels have also been involved in illegal, unreported and unregulated (IUU) fishing, which has been threatening the region’s revenue sources and food security. Even though the Western and Central Pacific Fisheries Commission (WCPFC) states that China has around 600 licensed vessels fishing in the area, various estimates of the Chinese fleet range between 1,600 and 3,400 vessels. The major exporters of tropical logs in the region are PNG and Solomon Islands, where forestry is a major industry. According to the US Department of Agriculture report, in 2020, Papua New Guinea was the largest hardwood log exporter to China, accounting for 21 per cent of China’s total imports, followed by the Solomon Islands. The Pacific region’s emerging potential as the ‘blue economy’ has also caught Chinese interest. China has started looking into Deep Sea Mining by conducting research projects through the China Ocean Mineral Resources Research and Development Association (COMRA). They have identified polymetallic and cobalt nodules, hydrothermal sulfide deposits and have also produced several deep-sea mining maps in the Pacific. Furthermore, in 2017, China signed a 15-year exploration contract for polymetallic nodules in the Clarion-Clipperton Fracture Zone in the Pacific Ocean with the International Seabed Authority. Although the gains from the Sino-Pacific engagement may not be equal in quantity, Sino-Pacific engagement can be considered a qualitative ‘win-win’. Certainly, China’s primary goals in the region are being met to some degree on both the political and economic fronts.

China’s Journey to Vaccine Hegemony

Swapneel Thakur, Research Intern, ICS

Source: Wall Street Journal, 2021

Since the beginning of the COVID-19 pandemic, China has continued to control the spread of the virus, successfully and effectively. A country of 1.4 billion people, more than the combined the populations of Europe and the United States, has been reporting some clusters of cases and has been able to prevent widespread community transmission. Although much of this success could be attributed to its experience gained from the SARS Epidemic in 2002, China’s disease control strategy featured a balanced combination of both prevention and protection.

Soon after COVID-19 first emerged in December 2019, Chinese scientists were able to identify the virus and share the genome sequencing data internationally. By the end of the January 2020, Chinese doctors had already categorised the clinical symptoms of COVID-19 patients, risks of person to person transmission, genomic characteristics, and the epidemiology. This robust foundation of research was backed by political commitment from the very top to use science to tackle the outbreak decisively. For instance, China’s National Health Commission sent three groups of national infectious disease experts to Wuhan at the beginning of the outbreak to investigate the risks and transmissions of the virus, to which their recommendations for a lockdown immediately implemented. The government was also quick to respond to the advice given by academic scholars such as Cheng Wang, the President of the Chinese Academy of Medical Sciences. His idea of Fangcang shelter hospitals, or temporary hospitals built by converting existing public facilities like stadiums became a key strategy for promptly providing large number of hospital beds and appropriate health care to patients suffering from the disease. However, its prevention control strategy would not have been possible without the broad range of community engagements and solidarity that was seen at an unprecedented level during the COVID-19 outbreak. Control measures that could curb individual freedoms like mandatory wearing of mask in public areas and social distancing were readily accepted by the public, unlike in the Western countries where anti-masking and anti-lockdown protests were quite common. Thus, after achieving the primary objective of limiting the spread of the virus, China’s next strategic goal was to successfully balance these immediate challenges with preventive measures, namely, providing safe and effective vaccines for protecting the population from further infections.

While the US and most Western countries followed a market driven model based on advanced purchase agreements, China adopted a state driven model which leveraged both political mobilisation and the use of economic instruments. Responding to an outbreak of a new infectious disease by solely relying on market mechanism can be expensive, besides being fraught with risks. Furthermore, market-based solutions could increase the probability of slowing down vaccine research due to high levels of uncertainty. For instance, despite having early access to the virus’s genome, several Western pharmaceutical companies continued to dedicate greater share of resources to develop lucrative treatments for existing chronic diseases such as cancer than to counter this infectious disease which could have global ramifications. Janssen and Pfizer’s COVID-19 vaccine research began only when large scale infection was imminent in Western countries during late February.

With vaccine research starting as early as in January 2020, China’s Ministry of Science and Technology (MOST) had already launched emergency research projects by February to accelerate vaccine development. It went on to sponsor five technological roadmaps and 12 vaccine candidates that included private sector giants and nascent start-ups. In order to coordinate policy goals across agencies and to mobilise resources promptly, the government had also established a COVID-19 Task Force comprising senior officials from the National Medical Product Administration (NPMA), the MOST and other concerned departments. The Task Force was affiliated to the Joint Prevention and Control Mechanism of the State Council and reported directly to the Vice Premier of China. Under the Task Force’s direction and guidance, the vaccine research program featured multiple players collaborating to maximise their joint performance. For instance, due to the long-standing relationship that the MOST shared with domestic pharmaceutical companies, the Chinese Government was quickly able to identify enterprises that were capable of developing COVID-19 vaccines during the public health emergency. These enterprises were then supported with efficient allocation of resources required for vaccines development across the Chinese Academy of Sciences, universities, the army and the state-owned enterprises. In addition, the Task Force had also directed the NPMA to modify its procedure in accordance with China’s Vaccine Administration Law to streamline the inspection and review process for vaccines and accelerate market approval.

As of now, four vaccines have been approved in China and in at least one foreign country. Sinopharm’s BBIBP-CorV, Sinovac Biotech’s CoronaVac, CanSino BIO’s Convidecia and ZhifeiLongcom’s ZF2001 make up the most of China and its allies arsenal in the fight to defeat COVID-19. The World Health Organisation (WHO) had also given emergency approval to Sinopharm vaccine in May and the Sinovac Biotech vaccine in June 2021 With the help of government resources and institutions such as Chinese Academy of Sciences and Academy of Military and Medical Sciences, Chinese manufacturers had already started increasing production capacity when the vaccines were in early stage of development. As early as in April 2020,Sinopharm had established production lines in Beijing and Wuhan with an annual capacity of 300 million doses and with plans to eventually export 300 to 500 million doses to over twenty countries. Similarly, Sinovac and CanSinoBIO increased their production capacities to 300 million and 200 million doses respectively. This explains why Chinese companies have been very optimistic about reaching an annual production capacities of more than a billion doses in 2021. For instance, earlier this year both Sinovac and Sinopharm had declared that they were capable of producing more than a billion doses annually. This expanded capacity has allowed China to meet huge domestic demands as well as to fulfil orders from abroad. With Chinese vaccine developers conducting Phase III trials in various countries in Asia, Latin America and Africa, China has emerged as one of the leading suppliers of COVID-19 vaccines in the world.

Such vaccine developers would usually collaborate with local pharmaceutical companies or health departments which helped recruit volunteers, coordinate physical and institutional resources and conduct trials in return for preferential pricing, delivery time and technology transfer. This led to China extending support to more than 80 developing countries. The government has been actively encouraging companies to export independently to other countries in its effort to ensure sufficient supplies of COVID-19 vaccines. Some of the agreements entered into by Chinese companies included an additional clause stating that if a local pharmaceutical company has hosted the clinical trial, the country itself is designated as partner in manufacturing and distributing vaccines for domestic use and export. This explains why China has been supporting overseas production bases of its vaccines in countries like Brazil, UAE, Egypt, Indonesia, Turkey Mexico and Pakistan. While UAE would be producing Sinopharm’s vaccine under the name of Hayat Vax, Brazil, Indonesia, Turkey and Egypt have been manufacturing Sinovac Biotech’s vaccines. Mexico and Pakistan have also started producing CanSinoBIO’s vaccine via an exclusive production line in their respective countries.

As one of the major producers of COVID-19 vaccines in the market, China has reshaped its position as a supplier of affordable vaccines to several developing countries in the world. By investing in research and production capabilities right from the early days of the pandemic, Chinese companies have not only taken major steps to mitigate the severe shortages of vaccines in the developing world but has also provided a viable alternative to expensive vaccines offered by pharmaceutical giants like the Pfizer and Moderna.

The author is thankful to his mentor, Dr. BiswajitDhar, Professor, Centre for Economic Studies and Planning School of Social Sciences, Jawaharlal Nehru University.The views expressed here are those of the author(s), and not necessarily of the mentor or the Institute of Chinese Studies.

How Nepal Turned to China to Fill its COVID-19 Vaccine Shortfall

Shreha Gupta, Research Intern ICS

Image: Vaccine diplomacy and Nepal
Source: Griffith Asia Institute

Nepal’s vaccination drive against COVID-19 began on 27January, 2021 with the Oxford-AstraZeneca vaccine manufactured by the Serum Institute of India (SII) under the brand name Covishield. The campaign was launched with the one million doses of Covishield that India had provided under grant assistance in sync with its ‘Neighbourhood First’ Policy and ‘Vaccine Maitri’ Initiative.

On 17 February, 2021, Nepal signed a contract with SII and made the advance payment to procure two million doses of Covishield, out of which only a million doses were delivered.  According to a report by Reuters, India had put a temporary hold on all major exports of the AstraZeneca Coronavirus shot made by SII to meet rising demands at home amid the raging second wave of Coronavirus. The second phase of the vaccination drive that began on 7March, 2021 was left in limbo, despite the country becoming one of the first in the world to launch the campaign.

However, India denies that restrictions were imposed on vaccine exports and maintained that it was trying to prioritise the demand at home. “India has not enforced any restrictions on exports of Covid-19 vaccines,” said Arindam Bagchi, spokesperson for the Ministry of External Affairs of India during the weekly press briefing on 2April, 2021. “We will export vaccines taking into account the domestic demand”, he added.

Following the inability expressed by SII to provide vaccine until the end of this year, the COVAX facility which is a vaccine pillar of the Access to Covid-19 Tools (ACT) Accelerator in partnership between Coalition for Epidemic Preparedness Innovations (CEPI), the Global Alliance for Vaccines and Immunization (GAVI), UNICEF and WHO, suggested that Nepal should explore appropriate alternatives apart from the Covishield vaccine.

Nepal began looking towards China to fill its vaccine shortfalls amid uncertainty over COVID-19 vaccine supplies from India. China had donated 1.8 million Covid vaccines developed by Sinopharm in two different grants of 800,000 doses and 1 million doses. On 29March 2021, Nepal received China-gifted 800,000 doses of vaccine as per the commitment of providing 500,000 doses made on 5February 2021 during a telephonic conversation between the foreign ministers of China and Nepal. Later, China decided to provide an additional 300,000 doses which increased the grant assistance of the COVID-19 vaccine for Nepal to 800,000 doses.

On 1June 2021, Nepal received another consignment of 800,000 doses of Vero Cell vaccine developed by the Chinese state-affiliated pharmaceutical giant Sinopharm, out of the 1 million doses of vaccine which were earlier announced to be provided on a grant basis as per the commitment made during a telephonic conversation between presidents of the two nations on 26May, 2021. The remaining 200,000 doses of the Vero Cell vaccine has been provided to Nepal by the Government of the Tibet Autonomous Region of China, Nepal’s Ministry of Foreign Affairs stated in a release.

Nepal has also bought four million doses of the Vero Cell vaccine from China under an agreement with a non-disclosure clause, of which 800,000 doses have been received on 9 July 2021. On 16July, Hou Yanqi, Chinese Ambassador to Nepal informed the newly-appointed Nepalese Prime Minister Sher Bahadur Deuba that China will provide additional 1.6 million doses of the COVID-19 vaccine to Nepal in grant assistance. With this announcement, China has become by far the largest vaccine donating and exporting country to Nepal.

Ashok Pandey, Associate Research Fellow in Policy Research Institute mentioned in his Research Report that vaccine donations made by India helped to strengthened Nepal-India relations but the delay in the procurement thereafter and news of corruption in vaccine procurement began to reverse the gains. He also mentioned that the gesture of one million vaccine donations from China was widely appreciated in Nepal at a time when the country was in dire need of the vaccine.

Beijing’s vaccine diplomacy will benefit its competition for influence in South Asia where India has traditionally been the dominant power. According to an article published in Voice of America (VOA), analysts have pointed out, “China moves in to fill the gap left by India, Beijing’s “vaccine diplomacy” could give it leverage in the strategic Indian Ocean region, where it has been pushing its Belt and Road initiative that aims at building infrastructure projects across many countries”.  

Michael Kugelman, the Deputy Director of the Asia Program and Senior Associate for South Asia at the Wilson Center pointed out that China views its vaccine diplomacy as an image-building tactic and India’s suspension of vaccine exports is a strategic opportunity for China.

In his article published in The Himalayan Times, retired Nepali Army lieutenant colonel Ashok Kumar Khand mentioned that the economic giants like India, China and the United States are “trying to regain a foothold in the countries of their interest or influence in the name of humanity through vaccine donations”. According to him, “the vaccine donation gives China a key to deter India’s monopolistic political influence over Nepal, counter the Indo-Pacific Strategy of the United States and the QUAD policy, and push the ambitious BRI project forward”. He added, “Winning the Nepali sentiment for India, aligning the Nepali view with that of India against China’s expanding influence in South Asia, including the Belt and Road Initiative (BRI), and control of Nepali politics from behind the curtain could be the hidden agenda behind India’s vaccine diplomacy”.

Prime Minister Narendra Modi held a telephonic conversation with Prime Minister Deuba on 19 July 2021 and assured early supply of covid vaccine to Nepal but India’s image as a vaccine-giving nation and its soft power gains has been dented and could be further damaged if there is a long delay in exporting vaccines. As the world’s largest producer of vaccines, India is expected to ramp up enough capacity to resume vaccine deliveries to other countries in addition to meeting the requirements at home. Michael Kugelman pointed out that New Delhi has the opportunity to reassert itself further down the road and India has an inherent comparative advantage over China because it is the world’s top manufacturer of vaccines. Another advantage India’s locally produced vaccine has over Chinese vaccines is its affordability. Although the price of the Chinese vaccine has not been disclosed owing to the non-disclosure clause, it is said to be around $10 per dose whereas, Nepal bought the jabs from the SII at $4 per dose.

India had an early movers advantage because it moved in with the commitment of initial large supplies but it lost ground due to the inability to provide vaccines either on a grant basis or fulfil commercial commitments made by SII. Nepal gave priority to vaccines produced in India because of reasons like, logistics, pricing, existing storage and transportation facilities in Nepal and India’s assurance to facilitate procurement but India’s inability to provide vaccines have created a vacuum that was filled in by China. According to Harsh Pant, Director Studies and Head Strategic Studies program at the Observer Research Foundation in New Delhi, “Given that this crisis will be with us for the foreseeable future, certainly there is going to be a sense of China becoming a very important player for many of these countries if India is not able to pick up some slack after a few months once things stabilize”.

Nepal is still far from achieving the required inoculation for its population. According to the latest data (14th September 2021) of the Ministry of Health, 5243236 people or 17.4% of Nepal’s 30 million population have been fully vaccinated. The lost ground could still be retrieved if India can ramp up its vaccine producing capacities and resumes providing vaccines to Nepal. It will be in India’s interest to prioritize inoculating the Nepali population because the two countries share an open border and uninoculated people crossing the India-Nepal border on a daily basis could surge the coronavirus cases in both countries. In addition, India should also take lessons from the 2015 border blockade which pushed Nepal into China’s lap and be cautious about China’s attempt to fill the gap in vaccine shortage.

************************************************************************The author is thankful to her mentor, Ambassador Ashok K. Kantha, Director, Institute of Chinese Studies and former Ambassador of India to China, for his invaluable guidance and support in writing this article. The views expressed here are those of the author(s), and not necessarily of the mentor or the Institute of Chinese Studies.

China’s Rendezvous with the Taliban: An Uneasy Alliance

Rangoli Mitra, Research Assistant, ICS

Image: Chinese State Councilor and Foreign Minister Wang Yi meets with Mullah Abdul Ghani Baradar, political chief of Afghanistan’s Taliban, in Tianjin, China July 28, 2021.
Source: Reuters

As America’s war in Afghanistan comes to a tragic end and the country experiences widespread chaos following the abrupt and complete collapse of the Afghan army and government in the face of the onrush of Taliban forces, China, an increasingly assertive power in the neighbourhood, appears to have chosen to deal with the emergent crisis in an unusually pro-active though precarious manner. Shortly after the fall of the entire country to the Taliban, Chinese Foreign Ministry spokesperson Hua Chunying told the media that the Chinese have noted that the Afghan war has come to an end and the Taliban have said that they will “negotiate the establishment of an open and inclusive Islamic government”. Working in tandem with its “all-weather” friend – Pakistan, China’s endorsement of the totalitarian Taliban government has sounded an alarm around the world, particularly, in the West; however, this is not entirely shocking as China seeks urgent political stability in Afghanistan.

China perceives the Taliban as more than just a religious extremist group and a real political force. Over the years, China was never convinced that the Taliban could be destroyed by military means, and in line with this strategic calculation, China had cautiously engaged with the group keeping future objectives in mind. Even though China has termed Afghanistan as the ‘graveyard of empires’ and never sought to entangle itself in the quagmire of the ‘great game’, it has been worried about the presence of the United States (US) on its Western border. As a ‘new great game’ begins, China has made its intentions clear- it will pursue a relationship with the Taliban for achieving its own ends. Thus, the central purpose of the present analysis is to explore China’s relation with the Taliban along with an attempt to understand the particular type of role China wants to play in Afghanistan.

A Historical Overview of China-Taliban Relations

Historically, Afghanistan was on the periphery of China’s diplomacy and China did not have a strong influence there. In 1993, one year after the Afghan communist regime collapsed, China evacuated its embassy  amidst the violent struggle then taking place. China did not establish an official relationship with the Taliban who had seized power in 1996. However, it is interesting to note that efforts to establish a relationship with the Taliban dates back to 1999. In December 2000, China’s ambassador to Pakistan, Lu Shulin, even met the Taliban’s leader Mullah Omar in Kandahar. It is speculated that Mullah Omar assured the Chinese that the Taliban would not host anti-Chinese militants in Afghanistan. For the Chinese, threats emanating from Uighur militancy and the East Turkistan Islamic Movement (ETIM) have remained a primary security concern.

After it become clear that the US military surge in Afghanistan in 2010 would not defeat the Taliban, the Chinese gradually started developing ties with the group and seeking a greater role in the peace negotiations that were to follow. In 2015, China hosted secret talks between representatives of the Taliban and the Afghan government in Urumqi. The next year, a Taliban delegation headed by Sher Mohammad Abbas Stanekzai (then the group’s representative in Qatar) visited Beijing and sought the support of the Chinese for their position in Afghan domestic politics. As Chinese efforts intensified, the next high-level meeting was held in June 2019, when the group’s deputy leader Abdul Ghani Baradar visited China to discuss issues related to the Afghan peace process and counter-terrorism. In seeking a deeper relationship with the Taliban, China has inherently relied on Pakistan and Pakistani supporters of the Taliban, such as the late Maulana Sami ul Haq, known as the “Father of the Taliban”. In September 2019, when talks between the US and the Taliban faltered, China invited Baradar again to participate in an intra-Afghan conference in Beijing. However, this conference never took place. Apart from these unilateral initiatives, China was also a part of several multilateral initiatives such as the Quadrilateral Coordination Group and the Heart of Asia-Istanbul process.

The heightened significance of the Afghan war in China’s foreign policy is reflected in the fact that for the very first time China assigned a country-specific special envoy– since the creation of the post, there have been four Special Envoys for Afghan Affairs with the present being Yue Xiaoyong whose appointment on 21st July, 2021 comes at an extremely vital time.

Chinese Development Ambitions in Afghanistan

The highly publicized meeting of Taliban leaders (including Mullah Baradar) with the Chinese Foreign Minister Wang Yi in late July led to several crucial promises being made and Baradar even invited China to “play a bigger role in future reconstruction and economic development” of the nation.


Source: Stratfor

The unique geographical location of Afghanistan – as an important crossroad into Central Asia, Middle East and South Asia – makes it a primal factor in the success of China’s Belt and Road Initiative (BRI). The importance of Afghanistan was noted by the former Chinese ambassador to Afghanistan Yao Jing who stated in 2016, “Without Afghan connectivity, there is no way to connect China with the rest of the world”. Up until the 16th century, Afghanistan played a pivotal role as a regional trade and transit hub sitting at the meeting point of ancient trade routes, known as the Silk Road. In 2011, a new initiative known as the New Silk Road was envisioned by the then Secretary of State Hillary Clinton. However, this was later replaced by China’s BRI because the American initiative lacked the “Pacific-to-Atlantic scope”.

Afghanistan formally joined the BRI in 2016. Several projects such as the Five Nations Railway, Sino-Afghan Special Railway Transportation Project, Corridor 3 of the Afghan National Railway Plan and the Digital Silk Road, specifically the fiber optic link with China through Afghanistan’s Wakhan corridor, have been undertaken by China and the Afghan government. Afghanistan also became a member of the Asian Investment and Infrastructure Bank (AIIB) in October 2017 in order to facilitate cooperation on infrastructure development under the BRI and Regional Economic Cooperation Conference on Afghanistan (RECCA). In September 2019, China, Afghanistan and Pakistan decided to officially extend the China Pakistan Economic Corridor (CPEC), China’s flagship project under the BRI, into Afghanistan. In China’s calculation, the planned extension of the$61 billion CPEC into Afghanistan could be an essential solution to create a stable and terrorist-free Afghanistan. However, until now Chinese investments in Afghanistan have remained significantly low if compared with other nations such as Pakistan.

Huge investments by China under the BRI in Pakistan and the Central Asian nations neighbouring Afghanistan will in time create a diplomatic pressure from all the stakeholders on the new Taliban government in Afghanistan to ensure the stability of the country and to not allow it to be a safe haven for terrorism.

Conclusion

The Chinese have three complementary national interests and concerns in Afghanistan- first, they cannot see the country turn into a safe haven for terrorism (particularly in the form of ETIM); second, Afghanistan is geostrategically located within the vortex of the BRI; and third, China would like to benefit from the rich mineral deposits in Afghanistan. Moreover since distance matters a great deal in trade and transit, China would be willing to invest in projects to make condensed access a reality, provided the Taliban can guarantee safety of Chinese personnel and assets.

It is vital to note that Afghanistan has required external assistance in meeting not only its developmental programmes but even its basic national budgetary funding requirements. As aid payments from the West have been severely curtailed, the Taliban is looking towards China. Recently, China has announced a $31 million aid package for Afghanistan, in what appears to be one of the first new foreign aid pledges for the Taliban-ruled country. However, as Afghanistan is on the cusp of a humanitarian catastrophe and will need billions in aid to avert the possibility of universal poverty, it will be interesting to see if China is willing to enmesh itself in the murky development aid politics of the country.

China has made two vital gains by recognizing the legitimacy of the Taliban: first, China can hold the Taliban accountable for any attack on its citizens or assets emanating from Afghanistan and since the Taliban will be dependent on Chinese investments to a considerable extent, they will have to mend their ways; and second, China’s BRI will inevitably profit from stability in Afghanistan. Thus, China has done a good job of walking the tightrope in Afghanistan. A lot now depends on the Taliban’s policies which will decide China’s future engagement in the war-torn nation. For the present, it would seem like the Chinese strategy of courting the Taliban is paying off; but, whether it actually does, only the future will tell.

The author is thankful to her mentor, Ambassador Vijay K. Nambiar, former Ambassador of India to China and UN Secretary General’s Special Advisor on Myanmar, for his invaluable guidance and support in writing this article. The views expressed here are those of the author(s), and not necessarily of the mentor or the Institute of Chinese Studies.

China’s CBDC: Cross-border Prospects and Challenges

Raj Gupta, Research Intern, ICS

Image: Speculation is growing that the digital yuan will be launched soon.
Source: Shutterstock

The Central Bank Digital Currency (CBDC) race has begun to pick up pace and almost all the countries are getting into it. Around 86% of the world’s central banks are actively researching the potential of CBDC, which makes it evident that countries all over the world view it as an important development in the monetary domain which they need to be up to speed with. As of now, the Bahamas is the first as well as the only country to have launched a CBDC for nationwide use. Whereas among the major economies, China is at the forefront. China’s CBDC journey started early in 2016 when the Digital Currency Research Institute, the first official institution in the world engaging in research and development of digital currency was established.Early identification of potential, active research of the prospects of CBDC as well as successive pilot trials in major cities brought China to the forefront.

The official name of China’s CBDC is Digital Currency Electronic payment (DCEP), which is commonly known as e-yuan or digital yuan. During the pilot trials, it has so far received a positive response from the public, mostly because of the red packets containing DCEP which was distributed to the public on a lottery basis. It helped create the much-needed hype among the masses and kickstart China’s mission-CBDC. Platforms such as JD.com, Meituan and Didi Chuxing were roped in to participate in such trials as well in order to test the integration of CBDC into different apps. Since its first pilot trial to the integration into apps, the journey has been gradual and smooth. With the amount of control that the Chinese government yields over its institutions, integrating DCEP won’t be a challenge domestically. Getting people to use it instead of their WeChat or Alipay wallets can be a challenge but incentives similar to the red packets at early stages can help build that user base. Recent clampdown on internet giants in China might also soften the resistance from Tencent and Alibaba and make space for the digital yuan.

China also has its eyes fixed on the Beijing Winter Olympics 2022 to showcase its first major use case on a large scale and this may also serve as a gateway to wider use of CBDC in the country. Although the PBOC officials claim that they are looking more into the domestic use of e-yuan, many initiatives reflect otherwise.

The first is the Multiple CBDC (m-CBDC) Bridge which the PBOC joined recently. It aims to develop a prototype for cross-border payments with the Central Bank of the United Arab Emirates, BIS Innovation Hub, the Hong Kong Monetary Authority, and the Bank of Thailand.The main objective is to study the feasibility of cross-border payments using CBDCs and distributed ledger technology. Being the first-of-its-kind initiative, this has huge potential to solve issues related to cross-border fund transfers. Given the scale and timing, the results of the Proof-of-concept work can perhaps contribute to setting international standards around CBDCs.

The second is, Finance Gateway Information Services Co, a joint venture established by China National Clearing Centre of the PBOC and the SWIFT, which aims to establish and operate local network of financial messaging services to process cross-border Yuan payments through China’s own settlement system. Both, m-CBDC bridge and Finance Gateway Information Services Co. aim to challenge and change the current USD-dominated payments system in the coming future.

There is no doubt that both these initiatives aim to provide solutions and develop the current cross border payment infrastructure but these will also make the currently followed arrangement of Society for Worldwide Interbank Financial Telecommunication (SWIFT) less relevant. Currently, international payments are facilitated by the SWIFT. The dominant role played by the USD in SWIFT’s payment system is arguably one of the major reasons for the USD’s status as a global reserve currency. China is aiming to change that by trying to build a parallel system. And when that parallel system gets up and running, internationalization of the RMB could get easier by incorporating DCEP into various forms of economic activity in which it participates through multilateral and bilateral arrangements.

There are many avenues through which China would want its CBDC to flow and gain a grip over cross-border payments. From providing financial aid to BRI countries to waiving off transaction fees on repayment of loans, there are a plethora of options China has because of its trade links that make it the largest trading nation in the world. China’s growing integration with the developing world can help China rally countries behind it to follow Chinese standards of CBDC.

DCEP’s success internationally can tend to affect the dominance enjoyed by USD in global payments. The brunt inflicted by U.S sanctions is largely because of the USD’s dominance in international payments architecture. Hence, a parallel network system based on m-CBDC holds the potential to soften that brunt of U.S sanction policies which have increasingly been used against Chinese entities and individuals. Even Hong Kong’s chief executive Carie Lam was left with a pile of cash because banks did not want to deposit her money and expose themselves to the risk of U.S sanctions. This is an example of how strong and effective the U.S sanctions are against companies and individuals. If China can circumvent the sanctions through its system, it is likely to reduce the U.S hard power and will allow China to act with much more flexibility without having to worry about the aftermath of U.S sanctions. It can have far-reaching effects on how China deals with the nations facing sanctions by the U.S.

But all of this won’t be easy for China to accomplish. Cross-border usage of DCEP will likely face headwinds because the U.S and its allies may see the increasing acceptability of China’s DCEP as against their interests. On June 5, a communique issued by the G7 iterated the benefits and potential of a CBDC and underlined its commitments towards transparency and rule of law. It further stated that the G7 will work together towards common principles and will publish conclusions later this year. This communique reflects that the U.S and its western allies have perhaps woken up to the potential threat of e-yuan and are now pooling efforts to study its implications and ensure appropriate frameworks are in place.

There are issues such as interoperability among CBDCs of different countries which can prove to impede the goal of easier cross-border transactions. Another major issue is the lack of digital infrastructure in other countries to transact in digital currencies even if interoperability is achieved. But the single biggest impediment could be the privacy issues related to the DCEP. DCEP follows what has been termed as ‘Controllable Anonymity’ which allows the People’s Bank of China (PBOC) to have complete oversight of the data collected from its CBDC. The idea of data collection by a foreign government won’t go down well with democratic nations that have strict privacy laws. Besides, it will likely lead to an increase in scepticism and reluctance in foreign entities. There are rapid developments taking place in the CBDC domain with different countries moving up the ladder. DCEP, clubbed with China’s trade links, growing influence and strategic long-term thinking has the potential to counter Dollar weaponization but that will be a very long and difficult road ahead. China is hoping that someday e-yuan can play a key role in supplanting the U.S Dollar. But for that, there must be a system in place that can be used to gradually increase the tempo when needed. With the consistent pace at which China is developing and testing its CBDC, that system will likely be in place in the near future.

Ecological Civilisation/ Shengtai Wenming: Towards a New Wave of Resilience Thinking?

Annesha Bhattacharjee, Research Intern, ICS

China’s resilience has been typically observed from a civilizational and culturist perspective, so far. Resilience as an organized indigenous systemic concept has yet to be defined by China from an ecological slant. Being an ancient civilisation, the idea of nature was restricted to romantic and spiritual ideation – in literature, philosophy and art, as found in the recorded history of cultural resilience. Often invested in learning the ways of nature, Tao(天) is the dreaded god that cradles human life.  China jumped from being an agricultural civilisation into the Anthropocene, spearheaded by industrial revolution. After learning the ways to ‘exploit nature’, it went on to narrowly focus on accumulating ‘economic resilience’. China, by then had realized that it had reaped economic well-being at the cost of nature’s ‘collateral’ devastation leading to continuous events of natural calamities which became evident with the passage of time. As a result of this, modern China initiates a vision of constructing a civilization that promotes ‘harmony’ between ‘man’ and ‘nature’.

“弹性”(Tánxìng) or elasticity, “韧性”(Rènxìng) or toughness, or “恢复力”(Huīfù lì) or the power to recover. These are the direct translations for the word ’resilience’ in Chinese which however lacks any conceptual rendition or indigenous scientific framing, unlike the West. The president of China, Xi Jinping, earlier this year in the 2021 Earth Summit, reiterated the vision of Shengtai Wenming or Ecological civilisation. China’s ‘economic resilience’ during the pandemic has led to several scholarly appraisals. In 2017, the withdrawal of the US from the Paris Agreement increased China’s willingness to lead global environmental governance. Being one of the biggest polluters in a climate hostile world and an economic power has put China in a tight space for international scrutiny. Thus, achieving ‘ecological resilience’ might be the next big thing for China to prevent any major risk of regime shift that will hurt the developmental state of the nation.

The conceptualisation of resilience in IR discourse began in the West during the cold war period, emerging in various social and natural science fields. As a consequence of rising environmentalism after industrial revolution. Ecological resilience, got popularly defined at the time by ecologists such as C.S. Holling as, “the time required for an ecosystem to return to an equilibrium or steady-state following a perturbation.” Around 1980s, environmentalists in Soviet Union were the first to propose the term ‘ecological civilization’ which was later incorporated by China’s CPC party. Scholars in the West were conceptualising resilience around the same time. The 1972, the Stockholm conference resulted in political effectiveness against environmental issues in China. China’s evolution of political ecology has been marked since then. Repercussions of Deng Xiaoping’s reforms and economic liberalism was already showing signs of enviornmental issues. Leading Hu Jintao’s regime, to push forth the idea of ‘Beautiful China’, specifically stressing on the ecological degradation factor irrespective of significant industrial growth in the sustainable sector. This unfolded the imbalanced socio-ecological systems that was systematically observed after President Zemin’s leadership who maneuvered China into becoming a major global producer and user of clean and renewable energy technology. China, a developing nation has largely been a reform and transformation-based society than just being induced by any strong ideological standards. Especially after the cultural revolution in the post-Mao phase where the focus was to ‘grow’ in the neocolonialist world, curating a strong labor force with little to no tolerance for traditionalism. Hence, the ‘laws of nature’ that were once preserved in traditional Chinese literature were significantly discouraged until then. As a rectification, Xi Jinping initiated the party’s intention to build a ‘community life’ together that allows man and nature to co-exist based on the political foundation of modern socialism with a brush of Chinese characteristics. This had been surfacing reluctantly in the party’s political agenda for the past two decades.

Remembering as David Easton once quoted that ‘scientism’ is good, but the ‘mad craze’ for the same is bad that should be avoided. In the past four decades, China had similar bout of lessons  from impelling an intensive industry built on the foundations of capitalism and growth-based sustainability. Thus, choking the boundaries of the biosphere and opening alternatives for energy-based industries. The Western  resilience system has been ‘empirically’ based on typical rational consciousness and minimal ‘value’ inclusiveness. China recognized it’s failure to balance the ecological sphere along with its economic growth despite taking the best developmental lessons from the West. Coercing them to think about creating a balance between being less ‘yang’ and more ‘yin’ until a state of equilibrium is reached, referring to an anti-waste-based society caused by intense globalisation. The Chinese scholars thus, argues that the situation can be altered by imbibing a socialist modern culture coupled with Chinese characteristics while acknowledging the fall of communism in Soviet Russia. China has been striving to defend its integration of a constantly transforming domestic socio-ecological system against the West-inspired, ‘universalism’. Their value system is predominantly based on Confusion philosophy. It promotes the idea of ‘relational self’ in a way where one does not limit oneself to evolve just as an individual entity but transcend that very evolving-self to the extended  virtues of the community. “What you do not wish for yourself, do not do to others?”, quoted Confucius. Only then one can achieve a harmonious community life together. Thus, trying to align with the traits of socialism by building communal responsibility along with the self.  This ideation of China’s ‘harmony’ towards establishing a political nation based on eco-socialism certainly signals a new wave of resilience thinking that diverges from the existing trends of liberal environmentalism governmentality.

Internationally many critics are however, skeptical of how China is likely to achieve the ambitious dream of stable economic growth as well as an Eco-civilization, simultaneously. As they argue that continuous growth is detrimental to the ecological crisis.  To which, Xi remains hopeful especially after observing its ‘triumphant’ pandemic situation in comparison to the rest of the world, further encouraging growth over 6%, in the post-pandemic phase. Green development (one of Xi’s 6 developmental policies), is likely to induce a possible alternative including green economic reform that shall be introduced along with several other structural changes to suit the 2050 vision of ‘ecological civilization’. Chinese scholars, meanwhile are speculating about the possible challenges the government will have to tackle with the emergence of the upcoming reforms.  Uncertain outcomes might spark social contestations and disruptions – to which, however, the government prefers authority and not democracy.  Successive transformation in the past couple of decades has been slowed down and stalled due to various challenges of such kind. The risks looming around in the post pandemic world will thwart China’s growth in the long term if it does not adapt to the situation and take control while it can. Especially as the industries experience a paradigm shift. Irrespective of Xi’s ability to achieve the ambitious political agenda, it will be refreshing to see how China brings about a new holistic system of green transformation that might stimulate a lot of other developing countries in the future while adhering to the international and domestic standards and stresses.

Shadow Banking and the Real Estate Bubble: Is Financial Crisis a Real Possibility in China?

Anushka Maheshwari, Research Intern ICS

Image: Property-hungry Chinese millennials and shadow banking could fuel a financial crisis
                    Source: South China Morning Post

The Chinese economy, due to the strict measures adopted by the government to curb the spread of the Covid-19 virus,  is back on track, with output back to pre-pandemic levels and a surge in credit activity. China’s financial regulators are having a hard time containing risks at home while limiting disruptions from abroad as the economy is opening to foreign investment. The fear of missing out has stoked the investors’ expectations and many people are now buying property for investment or speculative purposes, which Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, termed as “very dangerous”. The household debt in China had reached 150 percent of its disposable income in December 2020 driven by a rise in property prices and seems to be concentrated among the millennials. The youth of China is clearly banking upon the government to sustain this growth in real estate prices, but a major portion of this debt is financed by shadow banking. People’s Bank of China (PBOC) defines China’s shadow banking as “credit intermediation involving entities and activities outside the regular banking system”.Since this sector is outside the formal banking sector, it lacks a safety net that comes from being financially backed by the government through deposit insurance publicly guaranteed or ‘lender of last resort’ facilities by China’s central bank. This raises an important question: Is China on the verge of a financial crisis like the one faced by the US in 2008-09?

China escaped the 2008 financial crisis primarily because of its booming domestic market and little exposure to the overseas market for wholesale funding. But the contraction in capital inputs through foreign direct investment during the crisis and fall in exports made the government announce a $586 billion stimulus package to provide a boost to the economy. Major infrastructural activity, constituting 72 percent of the package was undertaken, and only 30% percent of this was financed by the central government. The rest had to be funded by the local governments, and since they couldn’t borrow funds themselves, local government financing vehicles had to take on debt on their behalf from banks. But banks had severe restrictions in terms of lending such as caps on lending volumes imposed by the PBOC, mandatory bank loans to deposits ratio, restrictions on lending to certain industries, reserve requirements, among others. Due to this, shadow banking activities grew along with an increase in fixed investment, driving economic growth but at a high cost, so much so that the corporate debt to GDP ratio reached a record 160 percent in 2017 as compared to 101 percent 10 years prior to it. 

The Chinese leadership claimed that it had successfully defused the housing bubble that had formed in China by the end of 2014 due to these shadow banking activities. So, in order to uplift the dampening economy in 2015, it eased restrictions on second-hand home purchases and the property market since then has been booming, with more households buying houses and property developers borrowing more to engage in construction activities. There are many factors causing an increase in shadow banking activities, which in turn contribute to the growing real estate bubble. Firstly, Chinese authorities are trying to sustain high GDP growth rates through credit borrowing which puts strain on financial institutions of the country. Secondly, zombie companies that have little to no productive use, are borrowing more and more simply to meet their current obligations. Thirdly, many state-owned and private companies in China have property subsidiaries, and property loans made to these subsidiaries are sometimes presented in the books as going to the parent company. This results in the share of property-related debt being much higher than what is available in the official data. The overall impact was that the amount invested in Chinese housing hit $1.4 trillion in June 2020, while the total value of houses and developers’ inventory, according to a Goldman Sachs report, had reached $52 trillion in 2019.

Image: Shadow banking in China has ballooned into a $10 trillion ecosystem that connects thousands of financial institutions with companies, local governments and hundreds of millions of households.
Source: Bloomberg Quint

The shadow banking system in China works independently of its monetary policy, amplifying increases in the money supply but working opposite when the restrictive interest-based policy is imposed. Thus, it can be inferred that in spite of the Chinese policy changes to curb the real estate sector, the negative role of shadow banking is why the bubble continues to build. President Xi Jinping’s statement in 2017 that “houses are built to be lived in, not for speculation”  clearly indicates that the PLA government is sensitive to this issue. The government in China has adopted stringent measures to stop the rise in property prices over the past few years, and the latest mandate in August 2020, restricted credit supply to both developers and investors. These new regulations that mandate all lending institutions to decrease the quantity of loans given to this sector are going to stay in place until the real estate cools off. There are two forms of shadow banking in China, one is the channel business of Chinese banks that hide some of their lending activities to keep them outside the purview of the auditors and regulatory bodies. The other is P2P(Peer-to-Peer) lending platforms like trust companies, factoring companies, etc. In order to contract both these forms, the Supreme Court in China has lowered the interest rates on microlending, which will make it unprofitable for lenders while the CBIRC(Chinese Banking and Insurance Regulatory Commission) has forbidden trust companies to finance developers that do not meet the necessary requirements of shareholders and capital or lack necessary licenses.

The PBOC has significant control over lending activity in China as compared to the independent decision-making possible in the U.S. markets, which implies that the situation in China is more stable. There are many structural differences between the shadow banking systems in China and the United States, such as in China, market-based financial instruments do not play as significant a role as they do in the USA. Also, in China, smaller banks went off-balance sheet as they were constrained by liquidity requirements as compared to the larger banks in the US that were constrained by capital requirements. All these factors considerably lessen the chances of a financial crisis like that of 2008-09. Also, the Chinese real estate market has higher-than-normal down payments, sometimes as high as 40-50 percent of the transactions as compared to the 10-20 percent in most western markets. This implies that the debt to transaction price ratio is low, which discourages people from the lower socioeconomic strata of Chinese society to purchase high-priced properties, thereby reducing the risk of defaults. The PBOC and the CBIRC stepped in to take over the Baoshang bank when it collapsed in 2019, whichhas both positive and negative implications.  On one hand, it indicated that the Chinese government may intervene in case of any crisis-related situations caused by defaults in the shadow banking sector, but on the other hand, it may also encourage risk-seeking behaviour from creditors depending on the government to back the financial system. The Chinese government is caught between trying to curb shadow banking activity in order to reduce system risk in the country due to the real estate bubble and ensuring liquidity in the economy. Thus, although the possibility of a financial crisis is low, China does need to reduce risks posed by its shadow banking sector and ensure financial stability.

How Nepal’s Immediate Neighbour Takes Opposite Approaches to its Political Crisis

Shreha Gupta, Research Intern ICS

Source: Myrepublica

On 20 May 2021, the Supreme Court of Nepal intervened and overturned the decision of dissolving the Parliament in another landmark verdict. The verdict ordered the appointment of Sher Bahadur Deuba, Nepali Congress President, as Prime Minister.  Deuba was sworn in as Prime Minister on 13 July, 2021. Earlier, on 21 May, President Bidya Devi Bhandari, on the recommendation of the then Prime Minister K.P. Sharma Oli had dissolved the Parliament and announced mid-term polls on 12 and 19 November, 2021.

Nepal had plunged into political turmoil twice after Oli’s contentious recommendation to dissolve the Parliament on 20 December, 2020 and again on 21 May, 2021. In February, Nepal’s Supreme Court intervened and ordered the reinstatement of the Parliament that was dissolved on 20 December, 2020. This came as a setback to Oli who was already preparing for snap polls. Nepal’s highest court reinstated the Parliament for a second time in just five months.

The political crisis in Nepal has created a measure of uncertainty in the Indian and Chinese policies towards Nepal. The two countries have followed different trajectories in their response to Nepal’s domestic developments in the recent past. China, despite their claim of non-interference in domestic affairs have shown a keen interest in Nepal’s political crisis, whereas India, despite having been accused of interfering in Nepal’s internal matters in the past, has decided to step back and wait for the situation to unfold.

In December last year, Hou Yanqi, Chinese Ambassador to Nepal met with Nepalese President, party chair Pushpa Kamal Dahal and Standing Committee member, Barsha Man Pun after dissolution of the House of Representatives.  Earlier in May and July, she had held a series of meetings with top party leaders including Oli and Dahal in a failed attempt to reunite the Nepal Communist Party (NCP).

On 27 December 2020, China had sent Guo Yezhou, a vice-minister of the International Department of the Chinese Communist Party to Kathmandu to take stock of the political situation. The visit came at a time when China was concerned over the political stability in Nepal and the unity of the NCP. China was also concerned that the political crisis in Nepal could threaten to reverse the gains made after President Xi Jinping’s visit in October 2019 as it was instrumental in taking China-Nepal bilateral relations to a new height.

The Guo-led delegation had met with President Bhandari, Prime Minister Oli, Nepali Congress President Deuba and chair of the other faction of the NCP, Pushpa Kamal Dahal. The Chinese delegation reportedly wanted to explore the possibility of a reunion between the two warring factions of the NCP, the reasons behind its spilt, its impact on Nepal-China relations and the possible road ahead for the future political course in Nepal. The Chinese team had to return empty-handed after the NCP factions failed to bury the hatchet.

While China sent a high-level delegation to Nepal to persuade the rival factions of the NCP to stay together, India stated that Nepal’s political developments are its internal matter and it is for the country to deal with them under its domestic framework and democratic processes.

On 6 February 2021, the Chinese Foreign Ministry issued a press statement in the context of a telephonic conversation between Nepalese Foreign Minister, Pradeep Gyawali and Chinese Foreign Minister, Wang Yi. According to the statement, Wang Yi said that China adheres to the principle of non-interference in the internal affairs of other countries and respects the path towards development chosen by the people of Nepal.  “As a friendly neighbour, China hopes that all parties and factions in Nepal will bear in mind the fundamental and long-term interests of the country and its people, seek common ground while shelving differences, and maintain unity and stability, so as to create favourable conditions and environment for its own development and prosperity,” the statement added.

Although Wang Yi claims China’s adherence to the principle of non-interference in the internal matters of other countries, observers in Nepal don’t agree with it. Political analyst Uddhab Pyakurel criticised China for meddling in Nepal’s internal matter. “No matter what the Chinese side say to justify their visit to Nepal, we all know that they are trying to interfere in Nepal’s internal affairs. For this, NCP leaders and Nepali media, which helped build the narrative that Chinese leaders had played a role in unifying the erstwhile CPN-UML and CPN-Maoist Centre, are responsible,” he said. He was concerned that Chinese activities would turn Nepal into a strategic playground in its tiff with India and other western powers including the United States of America.

Analysing China’s recent actions, Political scientist, Dev Raj Dahal stated that China is using its soft power by sending CPC leaders to influence Nepal. He added that China was alarmed about the security and stability in Nepal as Nepal shares its border with the Tibetan Autonomous region, ‘the geopolitical loophole of China’. He said that China is concerned about stability in Nepal also because it is interested in doing business with India’s vast market through Nepal. This would be possible only if Nepal remains politically stable.

China’s meddling in Nepal’s domestic politics has drawn international attention. Some foreign diplomats in Kathmandu viewed China’s brazen interference as a demonstration of its growing influence in Nepal’s internal matters while India’s decision to steer clear has been appreciated by former diplomats. “India, which is usually the whipping boy of their politics is correctly staying out of the picture, while China attempts to involve itself in their politics,” said Manjeev Singh Puri, former Indian Ambassador to Nepal.

There could be several reasons why India preferred to keep a low profile and refused to take sides in a political tug of war between different parties in Nepal. In the past, India has been seen as trying to meddle in Nepalese politics which hasn’t been received well by people in Nepal.

To reiterate, China had invested in buttressing the Oli government which has now been ousted. In the short term, recent developments in Nepal could result in a limited setback for the Chinese policy towards Nepal. However, these developments have not fundamentally undermined China’s position in Nepal. China’s ambitious Belt and Road Initiative (BRI) and its ongoing and proposed involvement in hard infrastructures, including highways, bridges, airports, hydroelectric projects have significantly helped China entrench its presence in Nepal. China has also built up its soft and sharp power in Nepal in recent years. The latest change in government is unlikely to have a major impact on China’s position in Nepal.

India’s present policy of non-interference with regard to Nepal’s political crisis is serving India well. The change in government will help India to some extent in developing its equities in Nepal as it has been given credit for not interfering in Nepal’s domestic affairs. Durable political stability in Nepal augurs well for India whereas, instability will only pave way for inimical external influences. India must encourage the strengthening of a people-driven polity, invest in reinforcing its considerable linkages and synergies in Nepal and work towards improving its image that has been hampered in recent years. It is important for India to avoid being perceived as partisan and adopt the strategy of detached pragmatism rather than proactive involvement.

China and the Effectiveness of Economic Sanctions on North Korea

Sudarshan Gupta, Research Intern, ICS

Economic sanctions are imposed to coerce the target country to alter its policies or change its behavior. If the cost of sanctions to the target country is not substantial or if the threat is not credible, then there is a high chance that sanctions will fail to alter the behavior of the target country. This is what seems to be happening in the North Korean case. In October 2020, during a military parade, North Korea unveiled what experts believe to be one of the world’s largest road-mobile, liquid-fueled Inter Continental Ballistic Missile (ICBM), possibly with a capability of carrying multiple nuclear warheads. International economic sanctions have failed to produce the desired result of denuclearization of North Korea, and instead, have increased politico-military instabilities in the region.

The United Nations Security Council passed resolution 2397 in December 2017 in response to North Korea’s launch of ICBM Hwasong-15, imposing wide-ranging economic sanctions on the country. In addition to multilateral sanctions by the UN,  the US has imposed unilateral sanctions on North Korea to impede the development of missile and nuclear technology. Given North Korea’s high economic dependence on China, for sanctions to be effective, China’s active and honest participation and cooperation are extremely crucial. China has asserted time and again that the North Korean issue should be resolved through dialogue and has supported a step-by-step process in which sanctions relief and security guarantees are provided in exchange for denuclearization. Most of the Chinese scholars argue that the improvement of geo-economic conditions and closer economic ties between North Korea and China is the only way to gradually induce North Korea to give up its nuclear program and open up to the world.

Following UN sanctions on North Korea after the 2016 nuclear test, China released a comprehensive list of sanctions imposed by it. Many items were allowed to be traded for “public welfare purposes,” while other items whose trade benefitted “livelihood purposes” and did not support the nuclear or missile program were also allowed. Importantly, there has been no clear definition given out by the Chinese as to what exactly constitutes such items, making the enforcement of UN sanctions difficult, if not impossible.

China is the largest trading partner of North Korea, and its continued economic engagement (both overt and covert) with North Korea has ensured the survival of the Kim regime. The relationship between the two countries is symbiotic and beneficial to both of them. For North Korea, illicit coal exports (banned since 2017) to China are a huge source of foreign currency, generating about a third of its exports by value. Apart from coal, in a blatant disregard to UN sanctions, Chinese companies are trading with North Korea in a wide spectrum of goods such as sand, seafood, textiles, iron and steel, industrial machinery, vehicles, and gravel. In December 2020, Deputy Assistant Secretary for North Korea, Alex Wong, accused China of subverting the UN sanctions regime aimed at achieving denuclearization of North Korea, warning sanctions against China-based individuals and entities in response. Wong further added that the US had identified 555 separate occasions in the past year alone of ships transporting coal, sand, and other sanctioned goods from North Korea to China. According to one estimate, in just the first five months of 2020, North Korea imported more than 1.6 million barrels of refined petroleum through numerous ship-to-ship transfers of oil at sea (the 2017 sanctions imposed a limit of 500,000 barrels per year). China has repeatedly turned a blind eye to such illicit activities in its neighbourhood.

Over the years, North Korea has developed a sophisticated web of illicit financial networks to launder money in order to circumvent sanctions. The International Consortium of Investigative Journalists and NBC highlighted in their report of September 2020 that Chinese firms played a prominent role in laundering large sums of money through several American banks to shell companies in other countries like Cambodia between 2008 and 2017. The money then finally reached North Korea.  According to a US Army report, China is possibly supporting North Korean illicit cyber activity through training and academic support, as there are hundreds of North Korean students who study in China and have access to advanced technology.          

A report submitted to the UN Security Council by a Panel of Experts highlights the prohibited transfer by North Korea of its fishing rights to third countries, thus acting as a source of income for the country. The report further claims that hundreds of Chinese boats can be observed in North Korea’s fishing zones, indicating that the country has circumvented sanctions by selling permits to Chinese fishermen. Remittances from North Korean migrant workers in China and Russia also constitute an important source of foreign currency for Pyongyang. The 2017 UN sanctions banned all such migrant workers and set a deadline for December 2019 for their repatriation. China, which employs more than 60,000 migrant workers, mostly in provinces adjacent to North Korea, has conveniently disregarded the deadline set by the UN.       

Kim Jong-un’s rare acknowledgment of the mistakes in the government’s five-year economic strategy from 2016 to 2020 at the eighth congress of the Worker’s Party of Korea indicates the gravity of economic problems that North Korea is facing. The disruptions in economic activities caused by the COVID-19 pandemic and devastation of the country’s infrastructure by typhoons have much more seriously impacted North Korea’s economy in 2020 than the economic sanctions. However, the regime in North Korea remains pretty safe, stable, and unchallenged. Multilateral and unilateral sanctions by the US and its allies have been ineffective and miserably failed to achieve their goal of denuclearization. China has made sure that North Korea remains stable and has continued to undermine the sanctions regime, making the so-called US policy of “maximum pressure” an utter failure. US President-elect Joe Biden’s administration is expected to be tougher on human rights issues and will cooperate more closely with allies, including South Korea, in the context of increasing tensions with China. It is unlikely that North Korea will get sanctions relief anytime soon. However, cooperation with China in enforcing these sanctions will be quite difficult, and Beijing will continue to undermine them.            

For undoing New Delhi’s US-backed ‘world power’ fantasy, Beijing must rethink on India’s SCO, BRICS membership: Chinese Scholars

Hemant Adlakha, Honorary Fellow, ICS and Associate Professor, JNU

“Japan is manageable, Australia will soon fall in line; that leaves India, which is already feeling jittery with Trump certain to never return to the White House,” according to a recent Chinese commentary. Moreover, how can New Delhi ride in two boats at the same time, i. e. be part of anti-China Quad and/or “mini Asian NATO” and also remain in SCO and BRICS, some Chinese analysts are already asking.


Shanghai Cooperation organization  
 

With the United States currently in a state of limbo, thanks to soon to be “removed” President Trump, China’s strategic affairs commentariat, it seems is having a field day throwing pins at their new found object of ridicule – India. To understand what is being suggested, a mere glance is enough at the numerous op-ed pieces in the mainstream Chinese media in the past few weeks – not even suggesting you look at the loose cannon The Global Times. The news and current affairs platform Guancha.cn alone, influential and widely read App among China’s urban, upward mobile nouveau riche, carried almost two commentaries-a-day on average on India since the signing of the much coveted Asian regional trade pact, RCEP. Recall India’s last minute dropping out of the world’s largest 15-nation Free Trade Agreement.

Interestingly, following the sudden Indian decision to stay away from the RCEP deal, announced last year by Prime Minister Modi in Bangkok during his 3-day visit to Thailand, the authorities in Beijing, though surprised, but reacted suspecting India’s intentions. Some Chinese analysts later on did draw a connection between the Bangkok announcement and the India provoked escalation of tensions along the Line of Actual Control (LAC) – de facto international border between India and China – in eastern Ladakh region a few months afterwards, i.e. in April 2020. Unlike in the similar border standoffs on several occasions in recent past, the border skirmishes in the Galwan Valley region soon snowballed into potential heavy military confrontation. As a result, amid accusations of belligerent aggression into each other’s territory by both countries, India started deploying massive military build-up along the LAC in the region.

As tensions with China along the border remained high, some Chinese experts began to describe the deployment of additional 35,000 more troops by India in the region as what is generally referred by scholars of international relations a “security dilemma.” Citing Robert Jervis, the world renowned IR theorist and former president of the American Political Science Association (APSA), who popularized the “security dilemma” theoretical concept whereby “actions meant to increase a state’s security can be perceived as hostile,” the Shanghai Institute of International Studies (SIIS) researcher Li Hongmei wrote in a widely debated article: “For quite some time now, India has been implementing a policy of ‘encroachment’ and ‘nibbling’ toward the Chinese side of the LAC.” Li went on to say: “India’s purpose is to unilaterally alter the status quo of the border by blurring the LAC.”

Source: insightsonindia.com

Most other Chinese commentators have attributed India’s this new-found audacity to militarily challenge China in the increasing defence and political backing India has been “offered” from the US, Japan and Australia. Moreover, the Chinese analysts believe the so-called US-led Western seducing of New Delhi (against China) will remain unabated under the president-elect Joe Biden.

Will India continue to get a “free ride” under President Biden? Will Biden aggressively push Indo Pacific strategy? Will Biden administration lead or promote a comprehensive US-led Western anti-China “united front”? Will US continue to “seduce” India? In geostrategic terms, India needs the United States more in order to thwart off China threat, but will India “retreat” if Sino-US relations show signs of easing up under Biden? These and many more “ifs” and “buts” are currently confronting both China’s US experts and India specialists respectively. Apparently, a “determined” India is becoming a dilemma to most Chinese experts.

Further, even if the President-elect’s top six foreign policy picks are those who served in Obama administration and when Biden was the Vice President, at least some Chinese observers are unwilling to dismiss Joe Biden as mere “old oil fritter.” “Biden was elected as a Senator at the age of 30. He has been in Washington politics for almost 50 years. He has served as the Chairman of the Senate Judiciary Committee and Chairman of Committee on Foreign Relations respectively. He was the US vice president for two consecutive terms in the Obama administration. He is aware of the bipartisan consensus in the US Congress on China policy. Unlike Trump, Biden is too sophisticated and elegant to be unrealistic in completely reversing the previous administrations’ “anti-China policy,” is how Wu Zhifeng characterized Joe Biden in an article on the day the US media declared the vice president as the US president-elect.

Wu, a lead researcher at the China’s National Development Bank, pitched for Biden adopting a concerted policy to “tame” China, in a special column he wrote for China’s financial daily, 21st Century Business Herald (Ershiyi sheji jingji). “The Biden government will gradually return to organizations that the US withdrew from. This, in order to strengthen the US leadership position in the international organizations on one hand, and to repair the damaged relationship with the US allies caused by the Trump administration on the other,” Wu wrote. According to Wu, on the trade front, while the new US administration will quickly return to the erstwhile TPP, or now Japan-led CPTPP, at the same time it will also strive to revive the TTIP with Europe.


Source: affairscloud.com

Echoing similar sentiments, another Chinese analyst’s view led to a new debate among China’s strategic community circles, that is, the Biden administration will strive hard to convince Japan, Australia, South Korea and other staunch US allies to delay the implementation of the recently signed the world’s largest free-trade agreement RCEP. “If successful,” the scholar observed, “this move combined with twin revival of the trans-Pacific TPP and trans Western Pacific TTIP, is sure to achieve the ultimate goal of squeezing from all sides China’s economic and trade relations with the world.”

No wonder, following the success of India-initiated Malabar joint military exercise with participation from the other three QUAD members – the US, Japan and Australia, several IR scholars in China have now realistically acknowledged the existence of the Quadrilateral Security Dialogue, at least militarily if not politically. A recent article in the Chinese language Chongqing Morning Post, entitled “Has anti-China ‘mini Asian NATO’ really arrived? An essential move in US-Japan-Australia-India military cooperation,” seems to suggest likewise.

Moreover, it is quite evident from several commentaries in the Chinese media, especially in past few weeks, that Biden administration is generally expected to continue with Trump’s China policy; that Biden administration aims to put China under mounting political as well as economic pressure; that Biden administration is not going to reverse or dilute the previous US administration’s efforts in seeking the emergence of a “mini Asian NATO” directed against China; that Biden administration will pursue allies in the Pacific Rim region to carry out a concerted “contain” China policy by combining together “TTP-TTIP-Pivot to Asia Policy-Indo Pacific Strategy.”

To sum up, perhaps it is this never-seen-before Indian “resolve” to risk enter “anti-China” US-led political and military alliances which is touching a nerve in the Chinese psyche. Or, it may well be that Beijing is feeling rattled by the near consensus arrived at by the Indian political elite in the wake of last year in mid-June Galwan “massacre” leaving 20 Indian soldiers brutally killed.  Add to this China’s stubborn refusal to return to status quo ante in Ladakh which led India to admit, relations with “expansionist” China have reached an inflection point and that India must teach its northern neighbour “a good lesson.”

    BRICS leaders            
    Source: globalriskinsights.com

This year China will be celebrating the CPC centenary. Beijing would not like to see military conflict with India, or with any other country, escalate amid the Party’s hundredth birthday celebrations. It is no surprise some scholars in China are already advocating “desperate measures” to prevent India from joining QUAD or “mini Asian NATO,” i.e., Beijing should seriously consider expelling India from either SCO or BRICS, or from both.

The article was originally published as Beijing must rethink on India’s SCO, BRICS membershipon January 4, 2021 by NIICE.