China Trends #2 – China’s String of Ports in the Indian Ocean

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Senior Policy Fellow

Chittagong in Bangladesh, Gwadar in Pakistan, Hambantota in Sri Lanka, Kyaupkyu in Myanmar, Malacca in Malaysia, Mombasa in Kenya. The Indian Ocean region is a key recipient of China’s investment in foreign commercial ports.Chinese scholars recognize the far-reaching strategic significance of these projects for the success of the maritime Silk Road. As of 2018, Chinese companies have participated in the construction and operation of a total of 42 ports in 34 countries under the Silk Road scheme, according to the Chinese Ministry of Transportation. According to a 2017 study by Grisons Peak, Chinese firms announced around US$20 billion-worth of investment in nine overseas ports between 2016 and 2017. Do China’s leaders, however, have a strategic view on port construction in the Indian Ocean region? How does port investment relate to China’s relations with India and the United States?

According to Sun Degang, Associate Research Fellow at the Shanghai Institute of International Studies, China's port projects along the Indian Ocean will be a comprehensive test of China's economic capabilities, risk prevention and the ability to set the international agenda. [1] The Chinese perspective on the Indian Ocean, according to Sun, is threefold: from the perspective of maritime security, the Indian Ocean is a fragile region; from the perspective of economic interests, the Indian Ocean is a key region; from a strategic perspective, the Indian Ocean enables China to implement the opening towards the West.

In his view, Chinese enterprises have gained already sufficient port construction capacities and established a strong foothold in the Indian Ocean port system: Chinese companies are increasingly accumulating experience operating Indian Ocean ports; not only shipping companies, since port investment in Gwadar or Colombo include the construction of free trade zones and industrial parks. The China Merchants Group is using Shenzhen’s Shekou Industrial Zone (前港—中区—后城) as a template for such port development BRI locations, Sun Degang writes, linking the construction of basic infrastructure to the development of modern trade hubs. Port City Colombo is such an example. While Gwadar is an example of greenfield investment, Chinese companies have also shares acquired in port operations. For example, COSCO Shipping Ports Abu Dhabi Company (a subsidiary of COSCO) entered into a concession agreement with Abu Dhabi Ports in 2016, to operate 90% of the second phase container terminal of Khalifa port. Thirdly, there is investment that comes with management rights, as is the case with the port of Hambantota, which is handled by CMG.

The Indian Ocean region is a key recipient of China’s investment in foreign commercial ports.

The challenge for China is to address the strong international concern caused by these activities in many countries, and especially in India. Sun Degang perceives India as a disruptive factor China must face. At the same time, China also faces varying degrees of interference created by the U.S. Sun Degang therefore foresees that China will be increasingly competing to invest in and operate port projects in the Indian Ocean region. This is indeed the case. Currently, Sri Lanka is about to sign an agreement with India and Japan to develop a deep-sea container terminal at the port of Colombo, next to a Chinese terminal.

The notion that the deepening U.S.-India relationship poses a major challenge to China’s port construction plans in the Indian Ocean is strongly shared by other Chinese scholars. In their analysis, Xi Dugang and Han Zhijun, both at the Information Engineering University in Zhengzhou, Liu Jianzhong, at the Research Institute for Smart Cities at Zhengzhou University, and Zhou Qiao, scholar at a unit of the People’s Liberation Army, highlight how U.S.-India-China strategic competition and cooperation and in particular the “Indo-Pacific Strategy” (印太战略) have increased geopolitical risk on the construction of the Belt and Road Initiative (BRI). [2] The authors foresee that the U.S. and India will establish closer partnerships and strengthen military cooperation in order to curb China’s influence.

Furthermore, the authors note, the U.S. and India will also compete with China in Pakistan, Myanmar, and Sri Lanka, three countries that are large recipients of BRI projects. These countries are regarded as geographical pivotal countries (地缘支点国家) to the BRI and are courted by the U.S., India and Japan to reject cooperation with China. The authors find that the change of attitude towards receiving Chinese port investment is therefore also an important geopolitical risk to the BRI. They conclude that China should invest more in the relationship with the BRI countries, in particular Pakistan and Sri Lanka, as these are strategic key countries for Chinese investment operations.

In addition, the authors believe that China should explore land entry points into the Indian Ocean. The BRI offers an opportunity to build large-scale transportation and trading routes to enter the Indian Ocean via land. For instance, the China-Pakistan Economic Corridor from Xinjiang to Gwadar should be used to build a strategic channel of railways, highways and pipelines, bypassing the Straits of Malacca. Another route enters the Indian Ocean from Yunnan via Myanmar. At present, the China-Myanmar oil pipeline from Myanmar to Kunming has been opened, and there are further connectivity plans, such as the "Pan-Asia Railway(泛亚铁路)" from Myanmar to Singapore.

The authors also recommend that China should accelerate the construction of multi-level shipping supply bases along the Indian Ocean coast. They argue that shipping supply in the Indian Ocean is becoming an important issue for a shipping power such as China. Because China needs a peaceful environment to advance its commercial interests it is bound to increase its military activities overseas, for instance, to join peacekeeping missions or to combat piracy. In this context, China is faced with the challenge to supply its military missions overseas via naval bases that should include, for instance, oil material supplies, personnel relocation ports, and locations with ship equipment repair capabilities. In their view, it is not enough to rely solely on a Djibouti overseas security base. In addition to Djibouti, China should establish a comprehensive system of supply bases in the Indian Ocean. Potential ports in Pakistan, Sri Lanka and Kenya could be used as offshore supply bases.

At the same time Xi Dugang et al warn that China needs to avoid causing concern, as with the advancement of the BRI, China’s influence in the Indian Ocean region is bound to increase. Therefore, China should actively participate in existing cooperation and dialogue mechanisms in the Indian Ocean region while also strengthening cooperation with the U.S. and India, for instance, in the fields of counter-terrorism, anti-piracy, or disaster relief.

China's port projects along the Indian Ocean will be a comprehensive test of China's economic capabilities, risk prevention and the ability to set the international agenda.

Sun Xianpu, Associate Research Fellow at the Institute of International Strategy at the Central Party School, draws another conclusion from the U.S.-India cooperation. [3] While he finds that the maritime cooperation between India and the U.S. has developed since the Modi government took office, it is also faced with restraining factors. This offers room for China to develop its Indian Ocean policy. Sun Xianpu explains that even though New Delhi has reached a strategic agreement with the U.S. on maritime cooperation, it is possible to delay the progress of the cooperation between the two countries, which gives China abundant time to plan its own Indian Ocean policy. In response to the growing U.S.-India cooperation, China needs to accelerate its strategic deployment, Sun Xianpu recommends. This can be achieved in three ways: power competition, interest integration, and mechanism coordination. However, power competition is not in line with China's international strategy and does not match its own national strength. Therefore, according to Sun Xianpu, China should focus on establishing influence in the Indian Ocean countries, for instance, by helping regional countries to develop macro-oriented growth. No matter how much resistance competing countries-such as India and Japan-may exert, China should increase its efforts to develop economic and trade ties with the countries of the Indian Ocean.

Sun Degang believes the trend of tightening U.S.-India relations indicates the necessity and urgency for China to further participate in port projects in the region. He argues that China should therefore improve its investment strategies and expand investment cooperation models. In addition, China should optimize its bilateral relations with countries that receive Chinese investment for port development, for instance, by improving policy communication, trade and investment facilitation.

All authors highlight another increasing risk to China’s port development in the Indian Ocean: security. They all note that China will face increasingly complex non-traditional security risks, such as piracy, terrorism and, in particular, the emergence of the Islamic State in the region. Sun Degang, for instance, names Gwadar port in Pakistan’s province Balochistan as a prime example of where Chinese investments and citizens are ever more vulnerable as they increasingly face terrorist attacks. Sun recommends that at the regional level, China should strengthen the creation of new regional mechanisms and its participation in some of the existing regional mechanisms, such as the Indian Ocean Rim Association (IORA), to enhance China's participation in the Indian Ocean's security governance. As a dialogue partner in the IORA, Sun believes, China can explore strengthening cooperation with the member countries. In addition, Sun suggests, China should strengthen cooperation with international organizations, such as the International Maritime Organization, and become an active voice on the non-traditional security governance in the Indian Ocean.

Sun Xianpu takes a similar approach, arguing that, in light of increasing security problems in the Indian Ocean region, China should promote the construction of security mechanisms. Non-traditional security issues in the Indian Ocean region and the lack of effectiveness of regional governance mechanisms have become more prominent, providing a huge space for China to fill the void. Sun too believes that China should participate in the security governance mechanism of the Indian Ocean region more proactively, represented by formats such as IORA or the Indian Ocean Naval Symposium. More concretely, China should try to shape with other large countries the basic framework of multilateral governance to tackle non-traditional security issues within these formats. After the formation of a regional security governance structure, the Indian Ocean countries should be encouraged to actively participate in regional security governance. Later, according to the regional situation, new members will be recruited in stages.

These articles suggest that rather than a strategy, Chinese experts have a general idea of incremental engagement in Indian Ocean affairs, following the increase of China’s economic and human presence along the maritime trade routes and around the stakes it owns in overseas ports. The focus of their attention is very much on the U.S.-India response that Chinese activities encounter and that partly constrain their expansion.

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[1] Sun Degang, "The situation of China's participation in Indian Ocean port projects and risk analysis" (中国参与印度洋港口项目的形势与风险分析), Contemporary International Relations (现代国际关系 Xiandai Guoji Guanxi) Vol.7 2017.

[2] Xi Dugang, Liu Jianzhong, Zhou Qiao, Han Zhijun, “Geopolitical risks for the "One Belt One Road” construction in the Indian Ocean"(“一带一路”建设在印度洋地区面临的地缘风险分析郗), World Regional Studies (世界地理研究 Shijie Dili Yanjiu), Vol. 27 No.6 Dec. 2018.

[3] Sun Xianpu, "The process and limits of India-U.S. maritime cooperation - And China's choices to frame an Indian Ocean Policy" (印美海洋合作的进程及限制性因素—兼论中国印度洋政策的路径选择), South Asian Research Quarterly (南亚研究季刊 Nanya Yanji Jikan) No. 1 2018.