Column
China extending spheres of influence in South Asia

16 Feb 2017

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China has been steadily extending its reach in the South Asian countries with its growing economic and strategic influence.

The country has trade surpluses with the South Asian countries and it reciprocates these surpluses with massive investment in infrastructural development, socio economic needs and energy production in these countries. It also extends huge loan to win over confidence of these countries. Pakistan, Bangladesh, Sri Lanka, Maldives and Nepal are some of beneficiaries of such economic assistance from China.

 

The Chinese President Xi Jinping on his visit to South Asian countries brought grand infrastructure plan for his hosts – during his visit to Sri Lanka and Maldives in 2014, to Pakistan in 2015 and Bangladesh in 2016. Multi-billion dollar Chinese-financed infrastructure projects are planned in all these countries with an ulterior motive to facilitate Chinese access to natural resources and also to open the market for Chinese goods in these countries.

 

The Chinese President Xi Jinping on his visit to South Asian countries brought grand infrastructure plan for his hosts – during his visit to Sri Lanka and Maldives in 2014, to Pakistan in 2015 and Bangladesh in 2016. Multi-billion dollar Chinese-financed infrastructure projects are planned in all these countries with an ulterior motive to facilitate Chinese access to natural resources and also to open the market for Chinese goods in these countries.
Chinese President Xi Jinping undertook a visit to Dhaka in October 2016 when China signed 27 deals on cooperation with Bangladesh worth $24.45 billion in a number of key developmental projects. Large Chinese investments and loans for infrastructure figured in bilateral agreements. With this loan Bangladesh will build power plants, a sea port and railways and in the process boost China’s involvement in infrastructure projects in the country.

 

Dhaka has to learn from the experience gained by other South Asian countries in this regard before it becomes too late.

 

Chinese investment in Sri Lanka is causing major problems for Sri Lankan President Maithripala Sirisena and has become a source of tension in Sri Lanka-China relations. During the previous regime led by former Sri Lankan President Mahinda Rajapaksha, China extended huge loans to Sri Lanka to develop mega projects. There were many reports of bribery which may have allowed Chinese companies to secure these projects without open bidding process.

 

Critics apprehended that it would not be possible for Sri Lanka to pay back the huge loan and as a result China may take control of these vital infrastructure projects. Colombo Port City Project is one such controversial project undertaken by China Communication Construction Company (CCCC), a subsidiary of China Harbour Engineering Company, in cooperation with Sri Lanka Port Authority. The project that amounts to US $ 1.4 billion was awarded to CCCC which has been blacklisted by the World Bank on charges of corruption until 2017. The project commenced in September 2014.

 

Other infrastructure projects in Sri Lanka for which China extended huge loans include the Hambantota Port, Mahinda Rajapaksha International Air Port and a cricket stadium at Hambantona. All these projects have been found to be unproductive investments and are incurring heavy losses as these are not commercially viable. But failure of these mega projects indirectly serves China’s purpose.

 

Sri Lanka now spends 90% of all government revenue to service its debt. It does not know how to ensure these infrastructure projects make profits that would help pay back the loan. Now it is under tremendous pressure from China particularly on the Colombo Port City Project where CCCC is reportedly claiming to be losing US $ 380,000 a day. There is also pressure to abandon the Colombo Port City Project for lack of environment clearance. But China is not agreeable to it as the project gives it a strategic foothold in the Indian Ocean.

 

Having no other option, the Sri Lankan government has decided to sell 80% of the $ 1.5 billion Hambantona Deep Sea Port to a Chinese company on a Hong Kong-style 99-year lease. China has also been offered an investment zone in the region, in another bid to cut the debt problem. Recently, a group of demonstrators led by the Buddhist monks took to the streets protesting the creation of industrial zone for Chinese investments on the island. The main reason for the protests against the hand-over of a vast area of land for investment zone was the loss of autonomy to a foreign power as well as the potential land-grab that could be necessary to build the 15,000 acre industrial zone.

Reports from Sri Lanka indicate that the investment zone could be used by China for manufacturing a wide range of products which it will be able to export to India from Sri Lanka making use of the free-trade advantages that Sri Lanka enjoys with India. Moreover, the Sri Lankans are worried that the area could very well become a Chinese colony with the passage of time. In another instance, unable to repay the debt incurred to build Norochcholai Power Plant the Sri Lankan government is now transferring its ownership to the Chinese, in a debt-equity swap.

 

Reports from Sri Lanka indicate that the investment zone could be used by China for manufacturing a wide range of products which it will be able to  export to India from Sri Lanka making use of the free-trade advantages that Sri Lanka enjoys with India. Moreover, the Sri Lankans are worried that the area could very well become a Chinese colony with the passage of time. In another instance, unable to repay the debt incurred to build Norochcholai Power Plant the Sri Lankan government is now transferring its ownership to the Chinese, in a debt-equity swap.

 

While Hambantona Port is a crucial part of China’s Maritime Silk Route, Gwadar Port in Pakistan is fast becoming the nerve center of China-Pakistan nexus to exercise control over the sea lanes used for oil and gas supplies from Iran and Gulf states. The Gwadar Port has been leased to China till 2059. This project is being financed by Chinese loan estimated at $ 3.5 billion. The total costs of projects along the China Pakistan Economic Corridor (CPEC) are estimated at $ 51 billion. There are misgivings even within Pakistan about who the beneficiaries of the Chinese-funded economic corridor will be.

 

Similar is the case with Nepal. China is planning to extend the Qinghai –Tibet railway to Nepal by 2020. China increased its interest in Nepal mainly due to the perceived threat to Tibet from Nepalese territory – particularly due to the prolonged state of instability and transition in Nepal. There has been a major shift in China’s policy towards Nepal after the Tibetans launched global anti-China protests on the eve of Beijing Olympic Games.

 

China has been steadily using its economic and military clout to woo countries of the Indian subcontinent and incorporate them in its ambitious ‘One Belt, One Road’ project.

 

As the debt burden of smaller countries becomes heavier, China’s leverage in those countries becomes greater. While Chinese loan for infrastructure development will be welcome by all, borrowers should be aware of potential pitfalls. There is often a lack of transparency surrounding the financial conditions of these loans, it is for the recipient countries to judge whether they have really been given a good deal or not.




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