China’s Influence in South Asia:
In South Asia, the CCP aims to expand its economic activity and influence, enhance its strategic presence, secure overland energy routes to avoid maritime chokepoints, and check India’s rise through strategic encirclement.
- To achieve these goals, the CCP primarily leverages its economic influence and has enhanced diplomatic and defense relations with countries throughout the region, such as Pakistan, Sri Lanka, and the Maldives.
- The CCP even provided $2.5 billion to Pakistan in 2019 to bolster foreign exchange reserves amid its debt crisis.
South Asia is central to the CCP’s Belt and Road Initiative. Its strategic location is an intersection point between the proposed “Silk Road Economic Belt” and the “21st Century Maritime Silk Road.” Since Xi Jinping came to power in 2013, the CCP has signed over $100 billion in investments on contracts in South Asia – nearly half of that in Pakistan.
The CCP also has a fundamental interest in Afghanistan’s stability; Beijing has significant concerns about extremism creeping into the western region of the PRC through the Wakhan Corridor which stretches from Eastern Afghanistan to the PRC border.
- This has led to the CCP “hedging its bets” in Afghanistan, maintaining relations with both the Taliban and Kabul, including reportedly promising to develop a network of roads for the Taliban in the event there is a peaceful transition of power and U.S. forces withdraw.
- The CCP has reportedly invested almost $3.5 billion in Afghanistan since 2005.
China’s Foreign Investment in South Asia:
Pakistan: According to Pakistan’s Finance Ministry, CCP foreign direct investment from 2018 to 2019 remained at nearly one-third (31%) of the country’s overall inflows.
- Pakistan’s near-term debt owed to the CCP reportedly is $6.7 billion by June 2022, versus $2.8 billion to the IMF.
- Pakistan received a $6 billion IMF bailout in 2019, its 13th in 30 years, which effectively functions as a bailout of Pakistan’s debts to the CCP. Pakistan already owed the IMF $5.8 billion in total.
- Pakistan was a major proponent of cancelling debt repayments in 2020 and secured a short-term moratorium on debt repayments from several bilateral donors due to the COVID-19 pandemic; however, this raised questions for many donors about the massive amount of debt owed to the CCP.
Sri Lanka: Strategically located at the midpoint of shipping lanes that connect the PRC and the Middle East, the CCP has made significant and increasing foreign direct investment in Sri Lanka and has repeatedly been the top source of FDI to Sri Lanka.
- In 2002, the Sri Lankan government began building a new port in Hambantota. The CCP offered $1.1 billion in loans and also supplied CCP contractors for the project. Once the project began losing money — so much that Sri Lanka defaulted on their loans — the CCP state-owned operator physically took control of the port in late 2017 — on a 99-year lease. This project has become the poster child for unsustainable CCP development financing – also known as “debt trap diplomacy.”
- As of late 2020, China is now poised to start building a $13 billion city on Sri Lanka’s seafront. The Port City, which will be built on 660 acres of land reclaimed from the sea close to Colombo’s city center, had been delayed and debated under a previous government, as the country tried to decrease its dependence on China. Now the family of Mahinda Rajapaksa, who had earlier overseen a tightening of ties with China, including the Hambantota port deal, has returned to power.
- In 2019, 43% of loans for major projects came from China, according to the Central Bank of Sri Lanka. Most of the country’s overall foreign debt is from international bonds, with around 10% owed to China.
Maldives: Before 2011, the relationship between the Maldives and China was extremely limited – Beijing didn’t even have an embassy in Malé. However, under the BRI, the Maldives rose to prominence as an “important link” in the Maritime Silk Road, which connects China with Europe and Africa. The archipelago serves as an intersection of the Indian Ocean that touches the main shipping route between the PRC and the oil suppliers of the Middle East and Europe.
- The CCP-led investment boom in the Maldives began in 2014, when Xi Jinping made the first visit by a Chinese head of state to the island nation. Investments have include $800 million expansion of its international airport in 2016, a public housing project of 7,000 apartments on the reclaimed island of Hulhumalé near Malé, and the China-Maldives Friendship Bridge which was completed in 2018.
- In 2016 the prior Maldives government, notoriously close to Beijing, changed its own laws to allow PRC entities to acquire an island without competitive bidding at well below market rates. The island has since been dramatically expanded.
- Finance ministry data show that loan guarantees, negotiated under a previous government, amount to $935 million, on top of the $600 million directly owed to Beijing.
- In April 2020, the International Monetary Fund said the Maldives was at “high risk” of debt distress, with China accounting for 53% of its external debt.
- Former President Nasheed, now leader of Solih’s ruling Maldivian Democratic Party, has said 53% of the Maldives’ government revenue in 2021 will be used for debt repayment — of which more than 80% will go to China.
China’s Belt and Road Initiative in South Asia:
The BRI in South Asia is the most visible example of the CCP’s attempt to expand its economic activity and influence in the region and includes projects such as:
China-Pakistan Economic Corridor (CPEC)
- CPEC was formally launched in 2015 and entails up to $62 billion worth of Chinese investment loans in Pakistan, which may ultimately accrue $40 billion in CCP-held debt through CPEC projects.
- Under CPEC, the CCP built a major port at Gwadar on Pakistan’s Arabian Sea coast, coupled with a dual-use military airbase and naval facility at nearby Jiwani.
- Other projects include $4.8 billion in road work (including the $2.9 billion Peshawar-Karachi motorway project) and an $8.2 billion expansion and modernization of the Peshawar-Karachi (ML-1) railway line, which is the highest cost CPEC project.
- The PRC and Pakistan will likely see increased security costs associated with protecting CPEC projects, as Baluch and Sindhi separatist groups recently aligned themselves in order to better attack CCP interests.
- Landlocked Nepal has historically served as a buffer between the PRC and India and has relied on India for a majority of its trade and transit routes. However, Nepal has recently turned to Beijing for investment, and the CCP has pledged connectivity projects that will provide alternative routes and reduce its dependency on India.
- The Corridor would include a rail link of dubious feasibility between Tibet and Kathmandu, estimated to cost over $5 billion, as well as a hydroelectric project costing over $2.5 billion that has already been cancelled once due to a corrupt tender process.
China’s Investment in South Asia’s Energy and Mining Sector:
The PRC’s need for energy fuels CCP investment across the region and accounts for 47.3% of outbound FDI for South Asia.
There are also 17 CPEC energy-related initiatives underway at a total estimated cost of $14.5 billion. More than half of this amount ($7.6 billion) is for the construction of four new coal-fired power plants, and another $2.4 billion to build two major hydropower facilities in Pakistan.
- There are 6 more projects in the pipeline, including the 2020 deals valued at $11 billion to develop two more hydropower projects in Pakistan-administered Kashmir and to upgrade Pakistan’s railways, which became the highest cost CPEC projects to date.
In 2007, the CCP invested $2.7 billion in a copper mine south of Kabul, which has been riddled with controversy and been stalled for years. In late 2011, the CCP also made a $400 million investment in Afghan oil.
China’s Security and Law Enforcement Assistance in South Asia:
Pakistan has been the primary recipient of arms from the CCP for over 30 years, and from 2015 to 2019 approximately 35% of all CCP arms exports went to Pakistan.
- During that same period, almost 75% of all Pakistani defense imports came from the CCP.
- Pakistan is the only country granted military use of the PRC’s “Beidou” satellite navigation – ending reliance on the American GPS network.
- In 2018, joint jet fighter projects with Pakistan became the first explicitly military components of BRI – previously advertised as a purely economic policy.
Reportedly the CCP provided about $70 million in support to the Afghan National Defense and Security Forces (ANDSF) from 2016-2018; the CCP has also agreed to supply Afghanistan with two fixed-wing transport aircraft for medical evacuations and will be training the crew in the PRC.
- Afghanistan has also applied for full membership in the Shanghai Cooperation Organization, a political, economic, and security organization led by the CCP for cooperation among Eurasian countries.
China’s Strategic Encirclement of India:
To check the rise of India and ensure its own ambitions are achieved, the CCP has invested in strategic infrastructure in South Asia and exploited the longstanding rivalry between India and Pakistan.
Gwadar Port, Pakistan: In the CCP’s grand strategy, Gwadar is an important foothold that is part of its String of Pearls strategy for the Indo-Pacific. The $62 billion project is being developed by the China Overseas Port Holding Company (COPHC), to which it was leased by the Pakistan government for 40 years in April 2017. The final expansion of the port and ancillary systems will be undertaken by the CCP.
The CCP’s maturing military presence around Gwadar will allow the PLA navy to maintain a permanent presence in the Arabian Sean and the Gulf of Oman, expanding the naval footprint of its attack submarine and refueling capabilities.
The CCP is reportedly constructing secure compounds in Gwadar and residences for up to 500,000 PRC nationals, leading a prominent Australian think tank to describe the area as the PRC’s “first colony on the Indian Ocean.”
The PRC and Pakistan share a so-called “all-weather strategic cooperative partnership.” Beijing is Pakistan’s primary international benefactor and arms supplier, and CCP investments, companies, and workers are increasingly present in Pakistan.
- The CCP’s total “financial diplomacy” in Pakistan was above $38 billion for the period 2000-2017, including infrastructure, budget support, debt relief, and humanitarian assistance.
India has long opposed Beijing’s assistance to the Pakistani military and the country’s nuclear-weapons program. Some in India view CCP assistance as a means of “tying down” India on the subcontinent by forcing it to devote diplomatic and military resources to deterring Pakistan. In this context, CCP investments in Pakistan via the China-Pakistan Economic Corridor make India anxious about the possibility of an emboldened Pakistan and raise questions about the CCP’s intentions.
China’s Investment’s in South Asia’s Telecommunications:
Following pushback from the West, Huawei has turned to South Asia. Considered a prized market, this region represents one quarter of the global population and its mobile internet density is projected to rise as high as 61 percent by 2025.
- Huawei estimates about the region looking out over the next five years state that, “The number of 5G subscribers will top 80 million, internet traffic will grow by five times in total, more than 20 smart cities are on the way, and wireless, digital and intelligent equipment will improve social productivity by 4% to 8% on average.”
- Revenues worth $105 billion were generated from the South Asian sector in 2018.
In 2019, Huawei installed over 500 miles of fiber optic cables between the PRC city of Kashgar and Islamabad, which is part of a larger network tying Pakistani data flows to the PRC.
Firms like ZTE and Huawei have worked in Afghanistan for over a decade, but in 2017 both companies began work on a 3G rollout.
- In 2017, an agreement for laying a fiber optic network was signed under the BRI framework.
China’s Soft Power in South Asia:
Nepal’s ruling Communist Party has held events with visiting CCP delegations on “Xi Jinping Thought.”
Chinese language newspapers enjoy wide readership in Pakistan
- The CCP’s Xinhua News Agency also launched an Urdu-language paper in January 2020, supposedly to counter negative news about CPEC projects.
Zhao Lijian, the notorious “wolf warrior” diplomat in the CCP’s foreign ministry who accused the United States Army of bringing COVID-19 to the PRC, was promoted to his current spokesman position from the CCP’s Embassy in Islamabad. He gained notoriety in his previous post by constantly spreading propaganda about BRI’s benefits to Pakistan, while also spreading divisive rhetoric about the United States.
The PRC government’s first sister city in the South/Central Asia region was established in Karachi, Pakistan in 1984 – today there are 14.
- Beijing also provided over 1,600 annual college scholarships for Pakistani students from 2000-2017.
*Last Updated: 3/16/2021