China’s Influence in South Asia:
In South Asia, the PRC 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 PRC 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 PRC even provided $2.5 billion to Pakistan in 2019 to bolster foreign exchange reserves amid its debt crisis.
South Asia is central to the PRC’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 PRC has signed over $100 billion in investments on contracts in South Asia – nearly half of that in Pakistan.
The PRC 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 PRC “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 PRC 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, PRC 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 PRC 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 PRC. 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 PRC.
Sri Lanka: Strategically located at the midpoint of shipping lanes that connect the PRC and the Middle East, the PRC 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 PRC offered $1.1 billion in loans and also supplied PRC contractors for the project. Once the project began losing money — so much that Sri Lanka defaulted on their loans — the PRC 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 PRC development financing – also known as “debt trap diplomacy.”
•In 2022, Sri Lanka entered a severe financial crisis. Triggered by a foreign currency shortage and exacerbated by unsustainable debts, Sri Lanka defaulted on tens of billions in loans and is in talks with the IMF for a bailout. It remains unclear whether the PRC will allow Sri Lanka to restructure its debts and agree to be treated equally to other creditors.
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 PRC-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.
•In 2021, former President Mohamed Nasheed said 53% of the Maldives’ government revenue would be used for debt repayment — of which more than 80% went to China.
China’s Belt and Road Initiative in South Asia:
The BRI in South Asia is the most visible example of the PRC’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 PRC-held debt through CPEC projects.
•Under CPEC, the PRC 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.
•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 PRC interests.
Trans-Himalayan Corridor
•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 PRC 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 PRC investment across the region and accounts for 47.3% of outbound FDI for South Asia.
There are also 17 CPEC energy-related initiatives currently 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 six 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 PRC 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 PRC 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 PRC for over 30 years, and from 2015 to 2019, approximately 35% of all PRC arms exports went to Pakistan.
•During that same period, almost 75% of all Pakistani defense imports came from the PRC.
•Pakistan is the only country granted military use of the PRC’s “Beidou” satellite navigation – ending their 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 PRC provided about $70 million in support to the Afghan National Defense and Security Forces (ANDSF) from 2016-2018.
In 2018, the PLA reportedly began training Afghan military personnel in China, and agreed to supply Afghanistan with fixed-wing aircraft, among other potential military assistance.
China’s Strategic Encirclement of India:
To check the rise of India and ensure its own ambitions are achieved, the PRC has invested in strategic infrastructure in South Asia and exploited the longstanding rivalry between India and Pakistan.
Gwadar Port, Pakistan: In the PRC’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 PRC.
The PRC’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 PRC 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 PRC investments, companies, and workers are increasingly present in Pakistan. Beijing has provided assistance to the Pakistani military and the country’s nuclear-weapons program.
•The PRC’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 is increasingly surrounded by PRC military forces and dual-use Belt and Road facilities. The PRC continues to militarize the Tibet-India border and other parts of the Indian border, periodically increasing expansionist aggression into Indian territory. It has built military facilities in Bhutan, and Nepal. PRC entities control an airport and multiple ports in Sri Lanka, and an island in the Maldives.
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 PRC delegations on “Xi Jinping Thought.”
Chinese language newspapers enjoy wide readership in Pakistan
•The PRC’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 PRC’s foreign ministry who accused the United States Army of bringing COVID-19 to the PRC, was promoted from the PRC’s Embassy in Islamabad. He gained notoriety in that post by spreading propaganda about BRI’s benefits to Pakistan, along with 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.
Pakistan hosts five Confucius Institutes and two Confucius Classrooms and Pakistan has the 3rd highest number of international students studying in China.
•Beijing also provided over 1,600 annual college scholarships for Pakistani students from 2000-2017.
*Last Updated: 11/14/2022
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