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Belt Road runs into roadblocks in Pakistan and Nepal
Nepal ends Chinese involvement in US$2.5 billion Budhi Gandaki hydro project; Pakistan withdraws Diamer-Bhasha dam from CPEC
Michael Marray 1 Dec 2017

The acceleration of the Belt Road initiative is one of the key themes for the second five-year term of President Xi Jinping. But it is clear that there is going to be more pushback than during his first term, when he launched the Belt Road as one of his personal signature projects.

In Europe and the United States there is concern about Chinese merger and acquisition deals involving high-tech firms or critical infrastructure. In developing countries such as India, Pakistan, Myanmar or Sri Lanka, the concerns run deeper, over a loss of sovereignty if they enlist China’s help building and operating critical infrastructure in areas such as energy, roads, rail links and ports. The latest setbacks come from the governments of Pakistan and Nepal.

On November 15, Pakistan withdrew the US$14 billion Diamer-Bhasha Dam from the China-Pakistan Economic Corridor (CPEC) initiative. Local media quoted Water and Power Development Authority (Wapda) chairman, Muzammil Hussain, as saying that the conditions attached by China were too onerous. China wanted to own the 4,500MW project, rather than just being involved in its construction.

The plan is now to finance it from government resources. The topic was up for discussion at the seventh meeting of the Joint Co-operation Committee (JCC), which oversees the CPEC, which has been taking place this week in Islamabad. China is still involved in a number of coal-fired projects within the CPEC.

In Nepal, the government ended Chinese involvement in the US$2.5 billion Budhi Gandaki hydropower project. According to local media reports, government officials said that the 1,200MW project agreement with state-owned Gezhouba Water and Power Group (GGGC) lacked transparency. The project was awarded to China Gezhouba in June.

The cancellation of the deal by the Nepal government has led to speculation that they might turn to India, which is already working on other hydro plants in the country. The United States could also work closely with India to support infrastructure projects. The US is promoting its role in what it has begun referring to as the Indo-Pacific region.

Nepal formally signed up to the Belt Road initiative in May of this year in a ceremony in Kathmandu. This came a few days ahead of the Belt Road summit in Beijing.

The complexities of China's bilateral relationships across the region are illustrated by the vocal criticism of the Belt Road initiative by India. Prime Minister Narendra Modi was notably absent from the Belt Road summit back in May this year. However, a parallel way to co-operate with China is via the Asian Infrastructure Investment Bank (AIIB), which likes to set out its credentials as a multilateral development bank that operates independently of the Belt Road initiative. India has signed a number of financings with the AIIB.

Thus far, Japan has declined to join the AIIB, but in a recent editorial academic Takashi Shiraishi argues that joining the AIIB could help Japan strengthen its co-operation with India.

He points to Indian sensitivity about Belt Road projects which appear to surround it, including CPEC, the Hambantota port development in Sri Lanka, the Kyaukpyu port in Myanmar, and a naval base in Djibouti. India's geopolitical concerns make it anxious to co-operate more closely with other major global players such as the United States and Japan.

“Japan should consider taking part in the AIIB provided that the institution meets certain conditions regarding fairness and transparency in its selection process and lending and funding projects,” Shiraishi writes.

However, Japan should also follow a second approach, which is promoting the Asia-Africa Growth Corridor, already agreed by the Japanese and Indian governments. In his assessment, Indian government officials tend to focus too narrowly on Africa, while instead the purpose of the corridor should be to expand transnational value chains beyond Southeast Asia, to South Asia and Africa. This will require laying foundations such as energy infrastructure and logistics.

The AIIB was proposed by China in 2013 and set up in 2014. There was pressure from then-US President Barack Obama for countries not to join the China-led bank, but he was ignored the UK, France, Germany and Italy.

However, Japan stayed away, possibly viewing the Trans-Pacific Partnership as an alternative approach to regional influence. The election of President Donald Trump saw the US change its policy and refuse to participate in the TPP. This is one reason why membership of the AIIB may now seem to make more sense for Japan.

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