Fighting monopolies: the Chinese Belt and Road Initiative, India, and the competition for the marketplace of international development

ABSTRACT

Employing insights provided by the theory of monopolistic markets in economics and Great Power behaviour in the discipline of international relations, this paper aims to provide an alternative understanding of India’s refusal to join the BRI beyond the immediate bilateral security, domestic politics, and economic considerations in Sino-Indian relations. We argue that BRI is an effort by China to position itself as the leading firm in the market for international development – a space for long dominated by Western development providers. The paper argues that India’s efforts to contest the BRI can be seen as a natural outcome of other rising powers resisting China’s efforts to monopolize the development market. In doing so, it provides a template of why rising powers compete with each other in providing developmental aid even when cooperation may create mutual benefits.

KEYWORDS:

• BRI
• China
• geopolitics
• India
• international development
• monopoly markets

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Interrelated customers of a product are called a network and positive feedback among these customers is called network effect. See, Evans and Schmalensee (2017).

2. According to the UNCTAD statistics, South Asia’s intra-regional share in its total exports was only 9.2%, compared with corresponding shares of 22.7% for Southeast Asia and 34.4% for East Asia. https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx.

3. Colombo’s East Container Terminal Project – a joint venture between India, Japan, and Sri Lanka signed in May 2019 – was shelved over local opposition, see Diwakar (2021); The Kaladan multi-modal connectivity project between India and Myanmar is facing significant delays over security reasons and lack of access, see Bhalla (2020).

4. India and China clashed at Doklam in 2017 when India objected China’s road construction in Bhutan that would’ve provided access to Indian territory in the Eastern state of West Bengal, see, Negi (2020); A more aggressive face-off involving loss of several lives occurred in June 2020 at the Galwan valley, see, Sen (2021).

5. Author’s calculation using the WITS, World Bank Database.

6. Trade Map statistics, International Trade Centre (ITC).

7. Author’s calculation using the WITS, World Bank Database.

8. Author’s calculation using the WITS, World Bank Database. Dhar and Rao (2020) showed India’s trade pattern in terms of the technology content for 2019 and highlighted that India is mainly importing high and medium technology products from China which is in stark contrast to India’s exports to China, which are mainly resource-based products. Also, India imported about 90% colour TV sets and over 83% mobile phones from China in 2019.

9. Owing to stalled shipments of electronic components, caused by temporary border restrictions in June 2020, the local phone manufacturers could not fully utilize their production capacities, resulting in major revenue losses. See, Rathee (2020).

10. Research indicates that in the long-term, FDI helps in reducing trade balances “as new investments results in higher productivity and improved international competitiveness”. See (Orr 1991, 66).

11. According to the China Global Investment Tracker (CIGT), Chinese firms invested about US$ 34.7 billion (including construction contracts) in various sectors in India from 2006 until March 2020. See, American Enterprise Institute (2020).

12. The Annual Budget of India for 2020–21, announced tax exemptions for sovereign wealth funds for interest, dividend, and capital gains income from infrastructure investments in India. India also notified plans to remove the dividend distribution tax payable on the distribution of dividend for foreign investors. A lower corporate tax rate was announced for power generation companies.

13. As per OECD latest statistics on Gross domestic spending on R&D (2018), China spent over 2% of its GDP on R&D, which has increased from 1.4% in 2008. See (OECD Data).

14. There are nearly 138 countries who have joined the Chinese-led massive infrastructure project called the Belt and Road Initiative (BRI) until October 2019. For regional breakdown of BRI member countries, please see https://chinapower.csis.org/china-belt-and-road-initiative/.

15. The exchange rate of 1 USD = 72.8760 INR, sourced from OANDA website for 1 February 2021, is used for conversion.

16. Several grant-in-aid projects have been undertaken in areas of infrastructure, hydroelectricity, power transmission, agriculture, education, health, and industry, by India in its neighbourhood, including few others in Africa and Latin America. See, Ministry of External Affairs (n.d.).

17. Structure of production scale measures both complexity (the mix of uniqueness of products a country can make) and scale (total volume of manufacturing output and significance of manufacturing for the economy as a percentage of GDP). See WEF (2018).

Additional information

Notes on contributors

Amitendu Palit

Amitendu Palit is Senior Research Fellow and Research Lead (Trade and Economics) at the Institute of South Asian Studies, National University of Singapore. He is an economist specializing in international trade and investment policies, FTAs, supply chains, connectivity, cross-border data flows and the Indian economy. His recent books include Seeking Middle Ground: Land, Markets and Public Policy (OUP, 2019; co-edited); Seven Decades of Independent India (Penguin, 2018; co-edited) and Employment Policy in Emerging Economies (Routledge, 2017; co-edited). He can be contacted at [email protected].

Preety Bhogal

Preety Bhogal is a trained economist with expertise in international trade and South Asia. She recently graduated with a Master’s in Economics from Kansas State University. Previously, she has worked with several Indian think-tanks, including the Center for Policy Research and the Observer Research Foundation. She can be contacted at [email protected].