India and China Seek Economic Integration Via Burma, Bangladesh

By Neeta Lal 6 November 2013

The recent endorsement by Chinese Premier Li Keqiang and Indian Prime Minister Manmohan Singh of a multibillion dollar construction corridor encompassing Bangladesh, China, India and Burma—if it materializes—could redraw the economic and geopolitical map of Asia.

Termed “an international gateway to South Asia,” the BMIC corridor, as it is known, was the highlight of Li’s recent visit to India. The Chinese premier’s office commented that the link “will surely release enormous growth energy and provide new vitality for the Asian economic integration and global growth.”

Statements like this are the usual hyperbole of state visits and must be taken with skepticism. But this time China, over recent weeks, has publicly unveiled a huge burst of ambitious plans to further draw East Asia, including both South Asia and Southeast Asia, into its economic and political orbit.

“Connectivity” is China’s new mantra and the focus of Beijing’s long-term planning and strategic thinking, extending a web of rail, highway and air links all over the region and recently, during the visit of President Xi Jinping, offering an infrastructure bank to help build it. Given the region’s considerable natural resources, and China’s need for them to fuel its industrial growth, planners have all roads pointed toward Beijing.

It may well be grandiose thinking, since China has had troubled relations with many of its neighbors, particularly India, with continuing border disputes over the eastern India Assam region. It should also be noted that as the four stakeholders are all developing nations plagued by capital constraints, regional economic cooperation has moved on a slow growth trajectory.

They are also nations that have had considerable antipathy for each other, for instance with Bangladesh long suspicious of India and India with China. Burma is only now emerging from six decades of isolation and its basic infrastructure needs are enormous, let alone for sophisticated transport and communication links.

However, Li’s talks with Manmohan Singh, say policy watchers, have rejuvenated the idea of upgrading cooperation to a new level through the corridor.

But what exactly is a trade corridor and how does it augment trade? “A trade corridor is a specific trading route that utilizes common trade agreements and infrastructure of the involved nations to increase the flow and productivity of trade and also strengthen bilateral ties,” said the scholar and historian B K Joshi, who is currently working on a book on the Silk Road and its impact on the dynamics between countries who traded on it.

The twin pillars of the economic corridor are visualized as industrial zones and infrastructure construction and cooperation. Through building industrial zones along the corridor, Joshi said, industrial transfer will be realized and industries such as processing, manufacturing and commerce logistics will be bolstered. This in turn, would create a thriving ecosystem for the growth of large and medium-sized cities along the corridor.

The establishment of a trade corridor by the Bangladesh-China-India-Myanmar (Burma) Forum for Regional Cooperation (BCIM) was an idea originally developed by Chinese scholars in Kunming at the end of the 1990s, then called the “Kunming Initiative.”

The “Kunming Initiative” evolved into the BCIM Forum for Regional Cooperation during its first meeting in 1999, with multiple objectives. These included, among others, creating a platform where major stakeholders could meet and discuss issues in the context of promoting economic growth and trade and identify specific sectors and projects that would promote greater collaboration among the grouping.

“The BCIM economic corridor has an advantageous geopolitical position allowing it to reach multiple Asian markets,” said the Mumbai-based trade analyst Diwakar Bedekar. “Once up, it will empower the four countries to work with each other’s advantages, accelerate economic growth, and also open up to the outside world.”

The economic advantages of the corridor—covering 1.65 million square kilometers, encompassing an estimated 440 million people in the regions of Yunnan, Bangladesh, Burma and Indian states like West Bengal, Bihar and the northeast region—are gargantuan. Besides access to myriad markets in Southeast Asia, the link is also expected to enhance the transportation infrastructure and creation of industrial zones.

“The construction of industrial zones will have a twofold benefit,” says a ministry of commerce senior official who was a part of Singh’s delegation to China. “Firstly, it will lead to industrial transfer boosting industries such as processing, manufacturing and commerce logistics.”

Secondly, the official adds, with labor costs rising in China, labor-intensive industries such as textile and agro processing will eventually be shifted out of China to newer regions that offer labor at relatively lower costs. “This will lead companies operating in China to give priority to the trade corridor region given its established infrastructure, improved logistics and ease of access,” he added.

India’s isolated eastern and northeastern states also stand to gain by higher trade and connectivity with China and the rest of Asia. India’s northeastern region alone covers 1.65 million square kilometers with a population of nearly 440 million people. Thus the BCIM may be a game changer for the states’ economies by helping them boost investment and enabling them to showcase their commercial prowess to Chinese investors, given the long—and sometimes disputed—border between the two countries.

The corridor will have an inevitable impact on diplomacy. “China will play a decisive role in the creation of the corridor as it faces economic slowdown and experiences difficulty in expanding into new markets. This requires China to eschew bilateral dissonance with India, and stress the tangible advantages of such an endeavor for the lesser-developed nations of Myanmar and Bangladesh,” said foreign policy analyst Ashish Shekhsariya.

The bridge dovetails well with India’s own “Look East” initiative and regional plans to help the BMIC grouping. China and Bangladesh have already been pressing India to improve and upgrade existing road and other traffic network on its territory, with a view to facilitating more border trade and strengthening the local economies involved. Moreover, the link would help to right the adverse trade balance India faces of up to 42 percent with China even as bilateral trade touched US$62 billion last year as against the 2015 target of $100 billion.

The BCIM countries may take up only 2 percent of global trade, but they are poised for exponential growth, trade analysts say. Once trade along the BCIM economic corridor is established, it will combine the China-Asean Free Trade Area, the Asean Free Trade Area and Asean-India Free Trade Area, to give shape to the biggest free trade area in the world. This will also bolster foreign trade of the BCIM countries and empower bilateral trading.

Economic interdependence and investments in each other’s economies, say policy watchers, is a surefire way to whittle down conflict as well.

“It is important for Delhi to push Beijing to change its structure of trade and bring down import barriers to ensure a more favorable trade balance for India,” said a senior external affairs ministry official. “Building roads, highways and infrastructure can bind the two most populous and fast-growing nations in the world to each other with positive results for the entire region.”