A Bumpy Road Ahead for China in South Asia

Although the Belt and Road Initiative (BRI) was successful in drawing new participants in other parts of the world over the past year, the ambitious Chinese-led initiative saw waning commitment in some of its South Asian members in 2019. This was particularly evident in Pakistan, which has been a strong proponent of the BRI from its inception.

Pakistan responded with great enthusiasm in 2013 when Chinese President Xi Jinping unveiled plans for a 21st Century Silk Road to connect Asia, Africa, and Europe. The Pakistani government signed on to the initiative during Xi’s visit to Islamabad in April 2015, when he pledged around $46 billion – subsequently increased to $62 billion – toward the China-Pakistan Economic Corridor (CPEC), the BRI’s Pakistani component.

CPEC envisioned connecting Kashgar in China’s Xinjiang region with Gwadar port in Pakistan’s Balochistan province through a network of roads, railways, oil and gas pipelines, and fiber optic cables. CPEC would not only give landlocked Kashgar an outlet to the sea, but also establish special economic zones and energy projects along the route, which were expected to boost the beleaguered Pakistani economy. Understandably, CPEC was hailed in Pakistan as a “game-changer,” while China viewed it as the BRI’s flagship venture.

China’s plans for CPEC expanded significantly in the years since. But its impatience with Pakistan failing to meet project deadlines and the dire security situation in the country has intensified as well.

The Trouble With CPEC

Differences between China and Pakistan have erupted to the surface from time to time. In 2017, for example, Pakistan rejected Chinese funding for the $14-billion Diamer-Bhasha dam project as it was opposed to Beijing’s conditions. A few days later, China announced suspension of funding for at least three road projects in Pakistan.

Such differences have grown since Imran Khan took charge as prime minister in August 2018. His government has criticized CPEC contracts negotiated by his predecessor, Nawaz Sharif, for being overpriced and overly benefitting China.

But there are other reasons for the Khan government’s weakening commitment to CPEC. A severe economic crisis forced it to turn to the International Monetary Fund (IMF) for yet another bailout – the 13th in 30 years. The $6 billion IMF bailout package requires the Pakistani government to put in place austerity measures. Trimming CPEC projects and loans are among its austerity moves.

Khan has repeatedly asked for the renegotiation of BRI contracts but Beijing has turned him down. China is reportedly willing to review only those projects whose implementation is yet to begin. Understandably, Pakistan’s commitment to CPEC visibly declined in 2019. Budgetary allocations for CPEC projects were slashed from $1.2 billion in 2018 to just $505.42 million for fiscal year 2019-2020.

China’s declining appetite for investing in Pakistan is evident as well. At a meeting of the Joint Cooperation Committee (JCC), the apex body of CPEC, at Islamabad on November 4-6, neither side took steps forward on new projects. Pakistan’s invitations to China to expand CPEC’s scope by investing in the oil and gas sector and to purchase the loss-making Pakistan Steel Mills evoked no interest from Beijing.

Importantly, in 2019, China appeared to be looking away from Pakistan to Iran as its new BRI flagship member. In August, Beijing announced that it was investing $400 billion in projects in Iran, dwarfing the $62 billion it has pledged to projects in Pakistan.

The Belt Buckles in South Asia

The BRI slowdown in Pakistan may be the most noticeable, given CPEC’s prominent status. But the Belt and Road has run into obstacles elsewhere in South Asia as well.

Nepal joined the BRI in May 2017. Although its government has repeatedly expressed great keenness in partnering with China, Kathmandu has dragged its feet with regard to taking specific project plans forward. With the exception of the Kerung-Kathmandu railway project, for which a feasibility study has been done, negotiations on eight other projects that the Nepali government proposed to the Chinese for funding under BRI – it originally suggested 35 projects – are yet to begin. With a little over five months to go before the Sino-Nepal framework agreement on BRI expires – it can be extended if both sides want that – China’s trans-Himalayan connectivity initiative had nothing concrete to show in Nepal over the past year.

On the other end of South Asia, overpriced BRI projects and a mounting debt burden prompted the Maldivian government in 2019 to attempt renegotiating its debts to China.

The strategically-located Indian Ocean archipelago signed on to the BRI during the rule of former President Abdulla Yameen. To fund a string of lavish infrastructure projects – including the Sinamalé Bridge linking the capital of Malé to Hulhulé Island and a massive housing project on Hulhumalé – Yameen ran the country into unsustainable debt. Still, the BRI’s prospects in the Maldives seemed bright during Yameen’s rule given his strong support for the initiative. That changed suddenly in late 2018 when Yameen was ousted from power.

With Yameen’s successor, President Ibrahim Solih, pledging to renegotiate BRI contracts with China to reduce the country’s outstanding debt and former president and current Speaker of the Maldivian Parliament Mohammad Nasheed repeatedly calling for disentangling Maldives from the BRI and the Chinese debt-trap, the fate of the BRI in the archipelago seemed bleak, especially in the context of mounting cooperation between India and the Maldives.

However, neither Malé nor Beijing announced any steps in 2019 to dilute their cooperation over the BRI. Indeed, the Maldivian government seemed to tone down its belligerence on the BRI in the latter half of the year, as evident from Foreign Minister Abdulla Shahid’s description of China as a “generous donor” and his assurances to Beijing following his visit to China of Malé’s continued cooperation on BRI.

India, Bhutan, and Afghanistan remained out of the BRI entirely in 2019. New Delhi did not participate in the second Belt and Road Forum held in Beijing in April 2019. A strong critic of the BRI from the start, India repeatedly warned its neighbors of Chinese debt traps that would leave them vulnerable to pressure. India sees the initiative as a Chinese strategy to advance its strategic interests and is particularly opposed to CPEC as it runs through Pakistan-administered Kashmir, which India also claims. 

Bright Spots

In Sri Lanka, the BRI’s fortunes brightened significantly in 2019 with the Rajapaksa family returning to power in November. It was during Mahinda Rajapaksa’s presidency that Sri Lanka joined the BRI and bilateral economic, defense, and security cooperation strengthened significantly. Several infrastructure projects, including the construction of the $1.1 billion deep-sea port in Hambantota, were undertaken in this period. However, rampant corruption relating to BRI contracts and mounting debts led to Mahinda’s defeat in the 2015 presidential election, raising doubts over the BRI’s future in the island. Would the BRI thrive without a friendly government in Colombo?

As it turned out, the pro-West government that followed Mahinda could do little to dilute ties with China over the BRI. In fact, in lieu of unpaid debts owed to the Chinese, Colombo ended up handing over Hambantota port and some 15,000 acres of land around it under a 99-year lease agreement and went on to finalize more projects under the BRI.

Analysts say that Sri Lanka’s new government under President Gotabhaya Rajapaksa and Prime Minister Mahinda is serious about renegotiating the Hambantota lease deal that the previous government finalized with China, perhaps to appease nationalists at home and neighboring India. However, this may not culminate in diminishing the BRI’s footprint on the island. At best Beijing could agree to amend a clause or two in the agreement, but it will expect to be compensated with an equally attractive deal elsewhere on the island. Thus, the BRI’s future in Sri Lanka can be expected to brighten in the coming years and with it, China’s grip over the island could tighten.

Of all of the BRI’s South Asian members, it was in Bangladesh that the infrastructure and connectivity corridor moved forward most smoothly in 2019. Since 2016, when Dhaka joined the BRI, China has pledged over $38 billion in Bangladesh, making it the second-largest recipient of BRI funds in South Asia after Pakistan. Beijing is engaged in upgrading and constructing ports, industrial parks, roads, bridges, railway lines, and power projects.

BRI in South Asia: The Future

The BRI’s South Asian members are worried about huge debts they have run up on related projects. This clouded their perceptions of the BRI in 2019 and even the initiative’s most ardent cheerleaders in the region scaled down or slowed participation. While several analysts blamed Nepali government lethargy and its fear of antagonizing India for the BRI’s slow progress in the Himalayan kingdom, it was in fact apprehension over accumulating unsustainable debts that is likely to have prompted Kathmandu to proceed cautiously on BRI projects.

Their worries over BRI debts notwithstanding, South Asian countries can be expected to continue to look to China for funding. They are keen to develop infrastructure and China is a willing partner. Compared to Western financial institutions, China has been willing to provide loans for a wider array of projects. This has been evident in Bangladesh, for instance, where the Chinese have financed a coal-fired plant at Rampur in Khulna that BNP Paribas and the Norwegian government had refused to fund earlier over environmental concerns.

Can India emerge as a funding option for South Asian countries? In 2019, New Delhi did step up efforts to counter Chinese inroads in its neighborhood. It extended funding to BRI member-states to lure them away from China. In December 2018, for instance, India extended a loan of $1.4 billion to the Maldives to bail it out of its Chinese debt trap and in Sri Lanka, it joined hands with Japan to construct the East Container Terminal at Colombo Port. However, India may not be able to match China’s deep pockets when it comes to funding projects in the entire neighborhood.

Additionally, the BRI’s South Asian members could find it difficult to get out of or amend existing contracts with China. Malé’s experience with regard to the BRI in 2019 highlights the fact that while governments may question and even strongly criticize BRI contracts and projects, there is little they can do about it. It is not easy for countries, especially small states like the Maldives, to renegotiate debts and unfavorable contract terms already settled with China.

There are lessons that China and BRI members in South Asia and elsewhere can draw from Bangladesh. If the BRI’s ride in Bangladesh has not been as bumpy as in other countries, this is because the Sheikh Hasina government has been a cautious borrower. It has avoided economically unviable projects or borrowing for projects that don’t align with its priorities.

Still, even in Bangladesh, clouds loom over the BRI. A violent clash between Chinese and local workers at the Payra power plant project in June left two dead and scores injured. Similar clashes have occurred in the past as well. In Pakistan, too, the growing influx of Chinese workers along with the Sinification of Pakistani society and culture is beginning to trigger conflict and resentment. Beijing would do well to rethink its practice of bringing large numbers of Chinese nationals to work on BRI project construction sites.

In a bid to push Pakistan to meet project deadlines and deliver on its commitment to BRI projects, China has gotten Pakistan to formally integrate the military into CPEC institutions. In November, Islamabad appointed Lt. Gen. (retired) Asim Saleem Bajwa as the head of CPEC Authority.

CPEC’s progress and how Pakistan balances between China and the United States will be the focus of the world’s attention in 2020.