In South Asia, Chinese infrastructure brings debt and antagonism

AT THE southern end of Laamu atoll in the Maldives, the palm-covered island of Gaadhoo guards the One and a Half Degree Channel, the passage for a good portion of the shipping from Africa to Asia. In 2015 Abdulla Yameen, the president, ordered Gaadhoo’s several hundred villagers to move to the atoll’s main island, Fonadhoo. Today Gaadhoo’s jetty has crumpled into the sea, and copies of the imam’s last sermons flutter about the floor of the abandoned mosque.

It does not look like a fulcrum of world events. Yet Gaadhoo, Maldivian politicians and foreign diplomats contend, will be the scene of the next stage of the Indian Ocean’s great game. They say Mr Yameen has secretly promised the island to China, which will use it as a future military base. Excitable observers note that both India and America appear to be keeping an eye on the island. How else to explain the Indian air force pilots flying helicopters on behalf of the Maldives from the atoll’s airstrip, or the nearby American-owned farm cultivating sea slugs for the Chinese market that is, surely, a CIA outpost?

China makes no secret of its interest in the Indian Ocean, which contains vital sea lanes along which a large share of its imports and exports pass. It has not been shy about trying to curry favour with littoral and island states through its Belt and Road Initiative, a massive project to invest in infrastructure along ancient and modern trading routes. The initiative is usually presented as a development scheme (see Free exchange) but has obvious geopolitical implications, too.

South Asia could certainly do with better infrastructure, especially of a sort that might boost regional trade. Although the subcontinent has fast-growing economies and a population of 1.7bn, it is the least integrated region in the world. According to the World Bank, intra-regional trade accounts for less than 5% of the total, compared with 35% for East Asia and 60% for Europe. Intra-regional investment is less than 1%. That makes China’s promise to build lots of roads, ports and railways especially alluring.

In the Maldives, a tourist mecca, China Communications Construction Company (CCCC) is building a 1.3km bridge that will link the airport island with Malé, the capital. Passengers currently make the crossing on rickety launches. CCCC, which has also built the Maldives’ longest road, all 18km of it, is overseeing a massive expansion of the airport and the construction of a 25-storey hospital as well. In Hambantota in southern Sri Lanka, China has built both a gleaming (if empty) airport and a huge port. It is also completing an expressway linking the two to the capital, Colombo, where it has expanded the container port as well.

The Chinese commitment is greatest in Pakistan, an old ally, in the form of the China-Pakistan Economic Corridor (CPEC). Over $60bn has been promised, mostly for power stations to improve the country’s infamous electricity supply but also for roads, industrial zones, pipelines and a deepwater port at Gwadar.

Yet doubts are growing as fast as debts—China lends to countries rather than makes grants, and rarely at concessional rates. A condition of many loans is that Chinese companies get the business. A new paper by the Centre for Global Development in Washington, DC, identifies eight belt-and-road countries worldwide at “particular risk of debt distress”. They include the Maldives, whose debt is probably over 100% of GDP, and Pakistan. (Other countries on the critical list include Djibouti, where China has its first overseas military base, Laos and Mongolia.)

The nature of the lending is usually murky. A Pakistani minister promises Gwadar will “benchmark” Singapore, but the port is controlled by a Chinese company, China Overseas Port Holding Company, about which almost nothing is known beyond a Hong Kong nameplate and the claim on its website to be “emerging and fast growing”. Even before Mr Yameen shut down politics in the Maldives with a state of emergency last month, parliament had no oversight of contracts awarded to Chinese companies. “We have no idea how much we really owe,” says one MP.

Sri Lanka offers an idea of what happens next. The Hambantota schemes were vanity projects for the then-president, Mahinda Rajapaksa. His closeness to China was one reason for his surprise defeat in elections in 2015. A rising interest bill forced the government of his successor, Maithripala Sirisena, to agree on a debt-for-equity swap that gives China a 99-year lease on the port.

Hawks in India, the region’s historical power, note that Hambantota, Djibouti and Gwadar, to which China has also won a long lease, are all close to those trade-clogged sea lanes. To them, debt default looks a handy way for China to win influence, and perhaps eventually bases, around the Indian Ocean. The arrival in Colombo of a Chinese submarine in 2014 was a wake-up call.

Only connect

To divine a long-planned Chinese conspiracy, however, is to run ahead of events. It is true that indebted South Asian countries will have no choice but to negotiate with China. But Pakistan insists Gwadar is not open to the Chinese navy. And India still holds cards, even as it fails to offer an economic alternative to Belt and Road. Under Indian pressure, Sri Lanka will not allow Chinese submarines back soon—the Hambantota deal also excludes the Chinese navy. India has also helped raise concerns, notably in America, Japan and Australia, about Chinese intentions. The four are looking for ways to come together over a still vaguely defined “free and open Indo-Pacific”, as a counter to China.

The danger, as Andrew Small of the German Marshall Fund, an American think-tank, argues, is that competition in the Indian Ocean becomes a zero-sum contest. To people in Delhi, China’s investments seem intended to encircle India. Meanwhile, humiliating debt restructurings and rumours of corruption alienate locals. Far from spurring development and stability, Mr Small concludes, in South Asia Belt and Road risks stoking antagonism.