Conversations: Anthea Mulakala on China’s Infrastructure Diplomacy in Asia, its Relevance to India and South Asia, and Implications for Recipient Countries like Nepal

[00:00:00] - [Speaker 0]
Namaste and welcome to Pods by PEI, a policy discussion series brought to you by Policy Entrepreneurs Inc. My name is Kushihang and in today's episode we have Onuragacharya, Director of Practice at PEI in conversation with Anthea Mulakala. Anthea is the Senior Director of International Development Cooperation at the Asia Foundation. Over the last decade, she has worked in Asian Development Cooperation, particularly understanding how rising powers such as India and China are transforming the twenty first century aid and development landscape. She has also worked for the World Bank, UK DFID, the City of Melbourne, and South Asian Partnership.

[00:00:43] - [Speaker 0]
The two explore the rise of China as a superpower and its impact on the evolution of aid as a foreign policy tool. They examine China's Belt and Road initiative, its increasing use of infrastructure diplomacy in the Asia Pacific, and how the West is trying to counter with its own set of infrastructure oriented development financing. They also discussed the implications of the great power rivalry in South Asia, how India is maneuvering to maintain its influence over the region, and the opportunities and challenges this holds for aid recipient countries like Nepal. We hope you enjoy the conversation.

[00:01:23] - [Speaker 1]
Namaste. I'm Anurag Acharya, and with me today is Anthia Moolakala. In this episode, we'll be discussing competitive infrastructure diplomacy in Asia Pacific amid the geopolitical shifts in power between the traditional powerhouse United States, the rising power China, and India. Welcome to the conversation, Anthia. Let's begin with how the global aid and investment landscape is changing.

[00:01:48] - [Speaker 1]
We are already into this realm of international relations where both donor and recipient countries see aid as a strategic investment. How did we get to where we are today from the decades of uncertainty and cold war? What are the major drivers of this change?

[00:02:08] - [Speaker 2]
Thanks, Anurag. I'm really delighted to be here and really pleased to be part of the launch of PODS by PEI. You ask a very good question. First, I think it really depends on how long a time frame you wish to take. So if we go back two decades, then definitely we see some important drivers that shaped ensuing trends.

[00:02:30] - [Speaker 2]
So the post World War II development cooperation narrative and its accompanying institutions have started to lose relevance around this time. So three things that I'd like to point to. So first you see a shift from MDGs to SDGs, and a sense that development is more of a shared global responsibility. So it was no longer just about developing countries. Though the SDGs were not a leveler, we still have this paradigm of donor and recipient.

[00:03:06] - [Speaker 2]
We also started to see a shift in understanding about development with emergence of new issues. The governance phenomena, for example, and this was particularly around Western donors. And there was a considerable pivot away from infrastructure types of development cooperation and from hardware towards more governance related issues. And then the shift went back the other way and back towards infrastructure. And then we saw, I think going into this century, much more of an emphasis on issues like conflict, middle income countries, and climate change.

[00:03:44] - [Speaker 2]
A second important trend or driver, I would say, is the rise of Asia, especially China and other countries with resources and capacities to share. And China in particular in the post global financial crisis period had excess capacity to export. And this also engined the infrastructure push in many, many parts of the world. Accompanying this was also an increased emphasis on Asian modalities of development cooperation. You started to see people taking notice of South South cooperation.

[00:04:19] - [Speaker 2]
Even though South South cooperation has been around for decades and decades, suddenly the broader community was taking notice of it, as well as triangular cooperation. And particularly important is a much wider range of development finance options. And there was an attempt, in this century I would say, by Western and Northern donors to try to work more closely with South South cooperation providers, like India, like China, like others. And third and related is geopolitical competition. Again, China's rise and expansion has been significant, and we see this manifesting through initiatives like the Belt and Road Initiative.

[00:05:05] - [Speaker 2]
But also a recognition that China, by participating in development cooperation, was not going to democratize and join the Western led rules based order that many imagined would happen when China's own development started to accelerate. And so when China appeared with alternative modalities and narratives on development, it started to be perceived as a threat in this space.

[00:05:36] - [Speaker 1]
As the aid landscape changes, donor countries are competing not just for strategic influence, but also for economic opportunities in the region. How do you see this, competition evolving in the Asia Pacific region, which is among the largest global market?

[00:05:53] - [Speaker 2]
I think you're absolutely right that the economic opportunities are really the drivers for geopolitical competition in the region. And the aid scenario is definitely secondary. So in order for many countries, the major powers to have influence and leverage, they're using economic tools and economic platforms. It's a huge market and we've seen the evolution and demise of many different economic frameworks and programs in the region. We've also seen a slew of trade wars and economic sanctions in the region.

[00:06:31] - [Speaker 2]
I think what you're seeing is because particularly in Southeast Asia, you have a fairly strong and coordinated economic community, particularly amongst ASEAN, the great powers, and I mean many of them, The US, Australia, China, and India are all competing for market access and influence.

[00:06:56] - [Speaker 1]
Given the potential for expansion in the Asian economies and their need for investing in better infrastructures to spur growth, China has had a head start with its Belt and Road Initiative. How successful has China's infrastructure diplomacy been in the region? There are there has also been plenty of criticism around it, hasn't it?

[00:07:18] - [Speaker 2]
Absolutely. As I said earlier, sort of post GFC, China had excess capacity in its industrial sector, and so companies were encouraged to export this capacity. Importantly, it's also important to recognize that China was willing to invest in high risk countries at a time when others would not. You see this particularly in Africa, where China was the only investor willing to take that kind of risk. They underwrote many of the investments enabling companies to go out and invest in primarily hard infrastructure.

[00:07:55] - [Speaker 2]
And this was a boon for many nations, as I said, particularly in Africa, to develop, to improve their economic infrastructure and improve their economic prospects globally. Chinese infrastructure diplomacy was mostly bilateral, and I would say until post 2010, it was under the radar. It definitely became more visible with the Belt and Road Initiative, and of course Xi Jinping's advocacy of the BRI. The BRI provided a way to connect the dots of Chinese infrastructure investment and also streamline and coordinate these investments better. You're right that there's been a lot of criticism and a lot of problems.

[00:08:39] - [Speaker 2]
At a high level, we see debt, white elephant projects. At a more micro level we see community conflicts, labor disputes. The BRI investments peaked in around 2016 and China since has tried to streamline. There was a drop in investment after that period. So China is focusing more on delivering existing commitments and assessing what's worked, what hasn't worked, and they're trying to learn and improve.

[00:09:08] - [Speaker 1]
China's expansive infrastructure diplomacy, especially in Southeast Asia, has led to United States and its allies mobilizing their own aid and investment mechanism, including through multi donor platform like DAC. The recently launched Build Back Better World initiative specifically aims to compete with China's BRI, with US Secretary of State Anthony Blinken, during his visit, appealing to countries in the region to ensure freedom and openness in the Indo Pacific, indicating towards some of the concerns expressed against BRI. Do you think that narrative has struck the chord with the region, or is the attraction and prospects offered by BRI too lucrative for the recipient countries?

[00:09:51] - [Speaker 2]
I think the first point to highlight is that Asian countries desperately need infrastructure. We're driving through the streets of Kamandu this morning, and you can see there's, you know, there really is a need for hard infrastructure everywhere. So in theory, is nothing wrong with more resources coming into the region for these necessary inputs. And you're right, The US, because China is so focused on infrastructure, particularly with the BRI, it's perceived as a threat because it is an economic program. And what you see is other countries trying to compete with China in the same space, even though that may not be their specialization.

[00:10:38] - [Speaker 2]
So you have a number of programs that The US and partners and allies have come out with. Now interestingly, you mentioned B3W. B3W has actually been reincarnated a few times. It started as the BUILD initiative under the Trump administration, and it transformed into B3W under Biden. But most recently, it became the Partnership for Global Infrastructure Investment under the G7.

[00:11:06] - [Speaker 2]
And I can tell you a little bit about this because it's worth noticing. The G7 announced the initiative at the summit in June 2021. And it is an alternative to BRI, looking at those preceding programs that I mentioned earlier. It will focus on digital connectivity, health, women's equality, and climate and energy security. The idea is to raise $600,000,000,000 by 2027 to fund infrastructure in low and middle income countries.

[00:11:38] - [Speaker 2]
This money is meant to be generated from private sector financing. The question is how to mobilize these investments, because the private sector is very wary of investing in unstable countries. The US doesn't have the kind of insurance underwriting that the Chinese have, for example. But the idea is to promote high quality projects with low environmental, social, and governance risks, and ones that generate sustainable economic returns and be attractive to investors globally and also in the recipient countries. And of course, there is a strict requirement around transparency.

[00:12:21] - [Speaker 2]
Ideally, I think if this initiative, the PGII is to succeed, it should complement the BRI's hard infrastructure focus and concentrate on areas where The US and other G7 countries have value added and can provide options and alternatives for partner countries. So it may be in the FinTech sector, for example, or semiconductors, something that is going to not compete necessarily with the hard infrastructure, but play to the strengths that The US and other countries have. So that's just one initiative and there are a couple of others. Another initiative that's come out recently is the Indo Pacific Economic Framework. Now this isn't a hardware or infrastructure initiative, but it's quite significant.

[00:13:11] - [Speaker 2]
So it was launched this year, in May 2022, and it was unveiled more formally at the Quad Summit in Tokyo. It involves 14 countries and represents 40% of world GDP. It's basically comprised of quad countries, mostly ASEAN and also Fiji, which has most recently joined. And it's an economic framework, is seen to be much needed by The US after they withdrew from the CPTPP and didn't join RCEP. It has four pillars: Supply Chain Resilience Clean Energy Decarbonization and Infrastructure Taxation and Anti Corruption fair and resilient trade.

[00:13:54] - [Speaker 2]
It also has a really interesting component around digital economy and skilling, which is much more development focused. What it does is it adds a missing geo economic component to security and strategic heavy approaches that we see predominantly in that space. But it's still trying to provide alternatives to Chinese money and dependency. Unfortunately, it's new it doesn't have any legs yet or defined outcomes, so there's a bit of a wait and see around the whole initiative. The challenge of initiatives like this, similarly with PGII because it's new, but it doesn't have any hard money behind it yet, it's anticipated it will have money, but it doesn't have money, is that if you don't execute quickly, it will soon become irrelevant, and you will lose the confidence and the buy in by the countries that have signed up.

[00:15:01] - [Speaker 2]
On the positive side, it gives options to countries to partner with like minded states, building resilience, particularly when countries are very dependent on China or at the moment China is quite volatile economically. They're still in a high state of COVID awareness and lockdown. So China has been calling these initiatives loud but empty. So it gives you some indication that they see that these initiatives are out there. They're a little bit weary of them.

[00:15:36] - [Speaker 2]
And so they're putting out their PR in negative way. But as I said, there's no money on the table. So we do have to wait and see.

[00:15:46] - [Speaker 1]
That's quite fascinating insight into the dynamics of that competition. Moving on to South Asia now. The region is witnessing intense competition between traditional power India, with China challenging its hegemonic influence. In my previous conversation with Amish Mulmi, who has drawn this interesting narrative around China's re engagement in Nepal in his book, All Roads Lead North. He made an important point that beyond mercantile relations, China is also looking to reach out to the neighbourhood through ancient roots and shared history.

[00:16:21] - [Speaker 1]
For instance, this rich cultural and spiritual ties with regards to Buddhism has been a mainstay in China's public diplomacy in Nepal, Sri Lanka and Bhutan. Given India's already strong cultural ties with much of its South Asian neighbors, do you see this approach from China expanding its soft power?

[00:16:44] - [Speaker 2]
Absolutely. China has a very aggressive campaign of soft power diplomacy, not only in the region, but I would say across the world. I think many of us are familiar with Confucius Institutes, which are Chinese culture and language centers. They are a key element amongst China's soft power initiatives. The first Confucian center, Confucius Institute, was established in South Korea in 02/2004.

[00:17:18] - [Speaker 2]
And by 2019, there were five forty eight of these. And eleven ninety three Confucius classrooms globally. So there's a real emphasis on that language and culture, though we don't hear that much about it. China has a range of soft power tools that it brings to the region. Education obviously is something that's obvious.

[00:17:43] - [Speaker 2]
Obviously food is obvious and business is obvious. And culturally also we can think of things like TikTok, for example. And in 2011, interestingly, the Chinese government launched a $7,000,000,000 plan to enhance its soft power through, and one of the key elements of it was a campaign around China's panda diplomacy, wherein the panda, which is China's national treasure, is leveraged for soft power initiatives. So if you go on the internet or on TikTok or any social media, it's like watching cat videos, right? Panda videos are everywhere and people love them.

[00:18:29] - [Speaker 2]
And so this is another way to reach a different kind of market, a younger market, through social media with things like Panda diplomacy. And of course, the other thing that is very popular is Chinese gaming culture. Even though they have really cut back and cracked down on the gaming culture in China, it's definitely spreading across the world. And again, these are things that we don't think of as overtly as some aspects of India soft power in the region, but they're definitely there and have a huge impact.

[00:19:03] - [Speaker 0]
You have been listening to Pods by PEI. I am Kushi Hang, and this is a quick reminder to you to do us a favor by sharing us on social media and leaving a review on Spotify, Apple Podcasts, Google Podcasts, or wherever it is that you listen to the show. More from our guests when we return. Welcome back to Pods by PEI. I am Kushi Han.

[00:19:29] - [Speaker 0]
Let's get back to the show.

[00:19:32] - [Speaker 1]
Well, you've done much of your work, in, East Asia as well. Has China invoked a similar approach or any particular approach, in East Asia where it understandably has more mileage to draw from such shared ties and history?

[00:19:50] - [Speaker 2]
There's a very large Chinese diaspora throughout East Asia, Southeast Asia, for example. So there is already those cultural ties that are very deep. And of course, ties and trade ties and all the things I mentioned earlier, I think the uptake is much easier because of the diaspora in in Southeast Asia.

[00:20:11] - [Speaker 1]
How do you then look at The United States general response to all this? In the past decades, we've not seen Washington engaged in aid diplomacy to such an extent, especially in South Asia. But its multifaceted Indo Pacific strategy clearly identifies infrastructure aid investments as one of the key strategy to counter what it sees as China's expanding footprint in South Asia.

[00:20:41] - [Speaker 2]
So The US's Indo Pacific strategy is probably the first one and perhaps the most dominant one, and clearly it had a foundational objective of countering China's influence. But there are many other Indo Pacific strategies that followed suit, including India has an Indo Pacific strategy. Almost every many Western and Eastern countries have an Indo Pacific strategy that explicitly or other attempts to counter China's rise and expansion in the region. The Quad is also another increasingly important partnership, one where India plays a very important role. It started originally as a strategic partnership and a security partnership, but it has certainly evolved into much more of a multidimensional partnership, focusing on aspects of development cooperation in terms of vaccine diplomacy, for example, and other initiatives.

[00:21:47] - [Speaker 2]
And I mentioned earlier the various economic frameworks that are really a corner and a pillarstone of The US' strategy in the region. So the IPEF, the Partnership for Global Infrastructure Investment, and The US also has introduced something called the Blue Dot Network, which is an initiative which attempts to give a seal of approval, or a blue dot, around infrastructure initiatives that meet a certain set of standards and criteria.

[00:22:21] - [Speaker 1]
Would you say that, there is then complementarity to Indian and US aid diplomacy in South Asia? And if yes, does it mean India will no longer resist, US in what it calls its own sphere of influence?

[00:22:36] - [Speaker 2]
There are definitely some similarities, and you definitely see India moving closer to The US in some aspects. The main driver of India's Indo Pacific strategy is counterbalancing China's influence in South Asia and the Indian Ocean region. India envisions an open, stable, secure, and prosperous Indo Pacific region, and its IPR is premised on the adherence of an international rules based order. So there's definitely synergy there with United States. Now India seeks to position itself as a southern leader and provider of development assistance and security in the region, and it uses existing bilateral, regional, and multilateral fora to pursue its interests.

[00:23:24] - [Speaker 2]
So freedom of movement, navigation, trade, and connectivity are critical to India's interests in the Indo Pacific region, as are maritime and defense concerns, linked to its national and regional security. So India's partnerships with ASEAN and the Quad the Quad being India, Australia, Japan, and The US are central to its Indo Pacific regional partnerships. And Australia and India also have complementary interests in the region as well as The US and India. And these range from areas like infrastructure and connectivity, climate resilience, energy security, humanitarian response, and as I mentioned earlier, vaccine initiative that has come out of the quad.

[00:24:12] - [Speaker 1]
India is a very interesting case in that sense, isn't it? It's arguably the largest recipient of aid in subcontinent, bringing in external investments to fund its huge infrastructure gaps. But over the past decades, New Delhi has also been actively providing aid in the neighbourhood. Where does this put India in the realm of big power competition?

[00:24:34] - [Speaker 2]
China and India both consider themselves developing countries, and they categorize their development cooperation as South South cooperation. This is nothing new, and it reflects the spirit of South South Cooperation, which is not about charity, but which is really about reciprocity. India is also the second largest contributor to the Asia Infrastructure Investment Bank, and at the same time, it's its largest borrower. India is the most important partner to many countries in South Asia because of the long history. And as I said, in South Asia, the two main superpowers really are India and China.

[00:25:20] - [Speaker 2]
But India's backyard is increasingly becoming China's backyard. And India faces significant problems in terms of its delivery of its development cooperation. Its lines of credit, which are a significant pillar, have problems with execution and problems with delays. And it's still a challenge that India struggles with. So in some senses, it's hard to compete with China.

[00:25:50] - [Speaker 2]
One, because the resources are so much bigger in magnitude, but also because China has a speed of delivery, is unmatched really by many others.

[00:26:02] - [Speaker 1]
It's been an interesting conversation so far. As we have discussed plenty from the big power perspective in terms of their interests and motivations in the region, And this is usually the case, even in any any other discussion on international relations, where we are mostly, interested in studying interests and motivations of big powers. But how important is the recipient perspective in the changing aid landscape, especially in times when we see recipient countries becoming more assertive? For instance, Sri Lanka's critical response to BRI recently and its refusal of MCC compact as well. We also saw a lot of contentions, over MCC in Nepal.

[00:26:45] - [Speaker 1]
On the other hand, there is Bangladesh, which continues to benefit from Chinese, Indian, as well as, USA. Do you see a conscious attempt by the recipient countries to append this discourse on aid diplomacy, to put their own interests and motivations upfront at the negotiating table?

[00:27:06] - [Speaker 2]
I think it's very, very important for partner countries, recipient countries, to reflect on the situation and not see it as one that is threatening or challenging, but one that also offers opportunity. If development cooperation is deployed primarily as a tool for advancing foreign policy and geo strategic interests, then the starting point is competitive. The platforms will be used to undermine the adversary's country interests and intentions. And partner countries will have little faith in the sincerity and sustainability of either's commitment. So how do we step back from this precipice and reclaim space for development cooperation that is really driven by the urgent priorities, development priorities and challenges of the day, and definitely puts recipient countries in the driving seat.

[00:28:00] - [Speaker 2]
So there are a few strategies or suggestions that I can offer. One is middle power diplomacy. Middle powers can forge a favorable and preferably peaceful balance of power in the region. However, they will need to step up and present their narratives to break through the geopolitical gridlock. Here, when we talk about middle powers, we're talking about India, Japan, South Africa, Brazil, Indonesia, Australia, Korea, and others.

[00:28:28] - [Speaker 2]
Middle powers can work through multilateral institutions and form coalitions with other middle powers to tackle international challenges and demand priority and commitment to a development agenda. And while multilateralism has also become a contested space, some institutions such as the G20 with its upcoming succession of Southern led leadership Indonesia, India, Brazil, South Africa provides an opportunity to create and sustain shared space around a development agenda. And indeed, discussion has already begun to happen at the G20 level about this priority. And also, countries when they come together can push back against this with us or against us rhetoric, demanding attention to their agendas and not playing the zero sum game. Second, partner countries can leverage regional and mini lateral architecture.

[00:29:24] - [Speaker 2]
Strengthening regional architecture can allow smaller states to shape the terms of engagement for external actors, providing development financing to the region including on infrastructure connectivity economic resilience and other regional development initiatives There are many, many groupings of countries that have a development agenda or can elevate a development agenda in their work and in their negotiations. For example, if you look at Southeast Asia ASEAN ASEAN has not traditionally played a role in development assistance. However, increasing geopolitical competition in Southeast Asia and the expansion of large scale regional development initiatives is prompting new thinking about ASEAN's role in development. And this is relevant to other regional bodies as well: African Union, Pacific Island forums, and even associations in South Asia. And then partner country agency this is critical.

[00:30:20] - [Speaker 2]
So amidst geopolitical competition securing partner countries is like scoring points. However, if we see this geopoliticizing of development cooperation as inevitable or unavoidable, then it should be the other way around. Partner countries should hold the scorecards for their development partners and demand both actions and behaviours. Competition and numerous new strategies, resources, and initiatives that come with it can offer opportunity for partner countries to secure resources and commitment towards their own agenda. They provide choice, a seat at the table, and opportunities for decision making.

[00:31:01] - [Speaker 2]
And partner countries can also engage in regional and issue based forums to advocate their position amongst others and also shape new narratives. And importantly, while we know that China, The US, and Australia and others have strategies for how they work in individual countries, individual countries, partner countries can develop strategies for how they want to work with major partners, rather than the opposite. And in these strategies, partners can demand more than rhetoric, and seek evidence that all these new initiatives, many of which we've discussed today, are more than big ideas and soft power maneuvering. So they can study the PGII, the IPEF, or the BRI. And the newest, has come out from China, is China's Global Development Initiative.

[00:31:52] - [Speaker 2]
They can study those and frame their needs and priorities within them. The bottom line is no one will take these promises seriously if they don't deliver something concrete for the partner country. And also partner countries, like in this competitive environment, there is space to negotiate and push back, as I said. So partner countries can seek and request complementary development inputs from partners to resist picking sides, discourage competition in the same space, and force them to play to their comparative strengths.

[00:32:26] - [Speaker 1]
Those are some very valid points and speak to some of the findings that PI has made or observations rather in its ongoing research on South Asia's infrastructure diplomacy. That was a very engaging conversation, Anthea, and I'm sure there are quite a few pointers to draw from there. Thank you for talking to us.

[00:32:50] - [Speaker 2]
Thank you. It was my pleasure.

[00:33:05] - [Speaker 0]
Implications for aid recipient countries like Nepal. Today's episode is a part of PEI's series on Managing India, China, and The US in a New World Order. It was produced by Nizhun Rai with support from Saurabh Lama and Aparna Baudil. The episode was recorded at Mint Studio and was edited by Saurabh Lama. Our theme music is courtesy of Sanjay Srestha from nineteen seventy four-eighty.

[00:33:32] - [Speaker 0]
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[00:34:04] - [Speaker 0]
You can also visit pei.center to find more about us. Thanks once again from me, Kushi Han. We'll see you soon in our next episode.