‘Belt and Road Initiative deals should be transparent’

Prof. Sachin Chaturvedi, director general at the Research and Information System for Developing Countries (RIS), a New Delhi-based think-tank under the Ministry of External Affairs, was in Dhaka to participate at a roundtable on China’s Belt and Road Initiative organized by the Centre for Policy Dialogue.  The Business Standard interviewed him on his take on this multi-billion dollar infrastructure initiative.

TBS: The Belt and Road Initiative (BRI) is a South-South co-operation instead of the experience of the 1980s and 1990’s when the engagement was a North-South affair. So are you upbeat about BRI?

Chaturvedi: I am not at all upbeat about it. Actually I want to say that caution is required in BRI as China still is a developing country and Bangladesh is a developing country as well. So co-operation between them is a co-operation between the Southern actors. South-South co-operation has to be viewed from the point of view of the principles of the South-South co-operation. What are the principles of South-South corporation? Mutual respect, horizontality of co-operation and co-operation respecting each other’s sovereignty - that is what South-South co-operation should be.

So in fact what I was trying to say is that China should observe these principles of South-South co-operation when China is promoting Belt and Road Initiative.

TBS: Do you think the current engagement in BRI breach any of that trust?

Chaturvedi: Definitely. For example, China has promoted investment in Pakistan, especially in the Pakistan occupied Kashmir or POK and this is a breach of sovereignty that is the principle of South-South co-operation. So we say that China should respect principle of national sovereignty.

TBS: You also said countries participating in BRI has to be alert about two very important things -- one is moral hazard and the other is adverse selection. Can you explain what you meant by these two things?

Chaturvedi: These two are part of the theory of contract and in economics we all study theory of contract. So my point was when China is signing BRI agreements, often countries are not aware of the adverse implications of disagreements. So China signed agreement with Hambantota port with Shri Lanka, Gwadar port in Pakistan and Djibouti and Malaysia. But what we see is Mahathir Mohammad had to reverse and change the track. Laos also has some grudges about the agreement. Thailand has grudges too. So the asymmetry of information in any contract should be avoided. The moral hazard arises when you do not inform the partner country of the BRI contract implications and you keep that hiding, you keep it ambiguous. So under the theory of contract you avoid the principle commitment on South-South co-operation.   

TBS: What about adverse selection?

Chaturvedi: Adverse selection is also a part of the theory of contract. When a contract is signed you get into an agreement which the partner country neither before as it happens in the contract theory, you breach the privilege that is given to both the parties that have signed the contract. So theory of contract explains the way you need to address the asymmetry of information between the two parties who are signing it.

TBS: What has happened in the BRI case?

Chaturvedi: In the case of BRI there are several countries which have been complaining about lack of transparency, about lack of clarity. So that opaqueness, that ability to hide contractual obligations should be avoided,

TBS: But do you think this narrative of BRI that comes from the West is something of a backlash from developed countries because suddenly they find that the surplus capital is with China, which China is now investing and that the West finds itself out of steam?

Chaturvedi: Definitely there is the western media that is spreading all kinds of things about BRI. My point is that BRI is a tectonic shift in development game that has happened in the last 20 years. We find more resources with the developing countries -- with China, India and other countries – and you find major resources coming in from these countries.

And these countries have major responsibility and major opportunity not to do the mistakes that the west did in their development strategy through their exploitative tendencies. These countries should bring in the balance that is required and that’s why time and again I refer to the principles South-South co-operation which are for free, open and prosperous engagement.

TBS: About the Asia-Africa Growth Corridor initiative. Now that Indian economy is in trouble and Japan’s economy is actually not going anywhere, do you see any prospect for that initiative?

Chaturvedi: It is going on very well. The Japanese government in the initiative’s last meeting last week announced $3 billion for the projects, India is already going ahead with 12 mega projects and 47 small projects in Africa. Next year we are hosting the India-Africa Forum Summit. So those engagements are going on very well. And I think there are many more scopes for such initiatives because the South’s infrastructure demand is so great

TBS: Thank you for your time.

Chaturvedi: Thank you too.