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EFSAS Commentary

Chinese Foreign Minister’s travels to the Maldives and Sri Lanka has generated fears of deeper debt entrapment


Chinese Foreign Minister Wang Yi’s island hopping in the Indian Ocean this past week has raised eyebrows, as his visits to the Maldives and Sri Lanka came at a time when the raging Omicron variant of the COVID-19 virus has caused much of the rest of the world to grind to a near standstill. The Chinese dignitary and his delegation, nevertheless, chose to march on from the African leg of their escapades to South Asia even as the Chinese government dealt harshly with the very few positive cases that had found a way to escape China’s strict zero tolerance policy and creep into Chinese cities. Entire cities of millions were shut down completely even when the total number of cases detected was less than a handful. This led to much anger and resentment among residents and reports of public protests, a rare and ill-tolerated phenomenon in China, began appearing in the media. However, it was not just the different set of pandemic rules for the minister and his privileged entourage that caused eyebrows to be raised, it was also the more deep rooted concern that nationalist Sri Lankans and Maldivians had for their sovereignty, which they felt was being incrementally eroded by China through coercive use of debt-trap diplomacy. Knowledgeable Sri Lankans, especially, seemed apprehensive that the dire economic situation of the country could present vulnerabilities for China to exploit, just as it had done earlier with the Hambantota Port.

Despite the warm welcome in the Maldives and the cordial tone of the visit, Wang Yi did not seem to make much gain there. Maldivian President Ibrahim Solih, who in 2018 replaced the pro-China leader Abdulla Yameen and has since scrupulously reverted to the island nation’s traditionally close, symbiotic ties with India, has played his cards well. He needed to do so, as Yameen’s earlier transgressions in granting China liberal access to the atoll nation’s resources had meant that the current government of the Maldives had one of the highest debts to China of any country relative to the size of its economy.

Although not averse to receiving as much assistance from China as was palatable for the Maldives, Solih has tried to limit Chinese influence and debt trapping by interacting more closely with India and other major players. As Aditya Gowdara Shivamurthy of the New Delhi based think tank the Observer Research Foundation (ORF) put it, “China’s interest in the Maldives has also helped the island state to attract the much-needed reasonable and sustainable investments from India. By mid-2021, India was working on 45 major development projects worth more than US $2 billion  in the MaldivesIndia also signed the country’s largest infrastructure project — The Greater Malé Connectivity Project, and backed it with a US$ 400 million line of credit and a grant of US$ 100 million. Thus, bringing in the much-needed investments and incentives for the Maldives. On the other hand, China was on a receiving end this year. The Maldives put some efforts in the bilateral meetings, assured a push for BRI projects, and received COVID vaccines from China, trying not to estrange the former and extract some benefits. Yet, the outcomes remained less tangible. By mid-2021, China had one active project in the Maldives and was only offered an additional energy project in December 2021”.

Maldives, like Sri Lanka, is part of China's Belt and Road Initiative (BRI), which the United States (US) has labeled a “debt trap” for smaller nations. The Solih-led regime, therefore, has also sought to balance the equation with China by displaying more interest in the broader Indo-Pacific developments this year. It has even engaged with the US in its first annual security and defence dialogue, and is likely to host the US’ first diplomatic mission in the country soon.

Prior to the Wang Yi’s arrival in Male, the Chinese embassy in the Maldives had tweeted, “Looking forward, State Councillor & FM Wang Yi’s forthcoming visit will help enhance high-level exchanges, deepen practical cooperation in all areas, and advance the steady growth of the future-oriented all-round friendly and cooperative partnership between the two countries”. However, in the days leading up to the visit, the expressed Chinese desire for a friendly relationship did not prevent the pro-China former President Abdulla Yameen from fanning a ‘India Out’ campaign in the Maldives, much to the embarrassment of the incumbent leader, Solih. Even as the Maldivian government acted promptly to put a lid on the artificially created and externally backed campaign, Foreign Minister Abdulla Shahid asserted that it was thoughtless to attack neighbouring countries that provide help to the Maldives. He said, “It is a very thoughtless act to verbally attack neighbouring countries which provide assistance to our nation and have long standing friendly relations. We should refrain from such things”. Pointing out specific instances of timely Indian support to successive regimes in the Maldives, Shahid added, “It was during President Maumoon’s administration that the nation came under terrorist attack and when Tsunami crisis hit. Male’s water crisis happened during President Yameen’s administration. And President Ibrahim Solih is governing when aid has been provided during Covid-19 pandemic”.

In addition to a meeting with Abdulla Shahid, Wang Yi also called on President Solih during his visit. Five agreements were signed between the two countries, including on establishing a Hospital Assistance and Cooperation Programme between the Ministry of Health of the Maldives and the National Health Commission of China. The two sides also inked a contract for the Micro-grid Seawater Desalination Project that aims to develop desalination projects in five islands in the Maldives. An Agreement of Economic and Technical Cooperation on Grant Aid, which seeks to pave the way for more support to development projects from China in the Maldives, was also signed. A Letter of Exchange to conduct a feasibility study for the maintenance of the China-Maldives Friendship Bridge and a Visa Waiver Agreement that will allow Maldivians to travel to China for 30-days on a visa free basis were also concluded. A Maldivian Foreign Ministry readout informed that “During the Official Talks, both Foreign Minister Shahid, and State Councilor Wang Yi, discussed a whole host of issues in the bilateral and multilateral spheres, and agreed to work closely together to address shared interests, in further enhancing the close relations between the two countries. Minister Shahid thanked the State Councilor and the Chinese Government  for the generous assistance it had provided to the Maldives, including the construction of the China-Maldives Friendship Bridge, the Housing Units in Hulhumale, and the expansion of the Velana International Airport”.

After concluding his rather unremarkable Male visit, Wang flew into a Sri Lanka that is entangled in a deep economic crisis with foreign exchange reserves dropping to about $1.6 billion in November 2021, enough only to sustain about one month of imports. Further, mounting debt, a currency crisis, and high inflation had raised concerns about a possible sovereign default. Hence, while a host of issues, including promoting tourism, investments, and the fight against the COVID-19 pandemic were discussed during Wang’s visit and a number of unexceptional agreements, including an Agreement on Economic and Technical Cooperation, Letters of Exchange on the Project of Subsidized Housing for Low Income Category in Colombo, and a project on Kidney Disease Mobile Screening Ambulance Vehicles and a Conference Centre were signed, the really significant development was Sri Lankan President Gotabaya Rajapaksa’s request to the Chinese minister for debt restructuring and “concessional terms” for Sri Lankan exports. The Governor of Sri Lanka’s Central Bank Ajith Nivard Cabraal informed that “We have an understanding that they would assist us in making the repayments in that form. So maybe there is a possibility that we would have a new loan coming in order to cushion our debt repayments to China”. China reacted cautiously, with a spokesman saying that China will help Colombo to the best of its capacity.

According to the Center for Global Development, both Sri Lanka and the Maldives are vulnerable to debt distress under China’s BRI. The Maldives is considered to be “highly vulnerable” while Sri Lanka is assessed to be “significantly vulnerable”. Hence, not all Sri Lankans are enamored by the idea of further Chinese intrusion into the Sri Lankan economy, and increasingly, into the polity. As the Carnegie Endowment for International Peace pointed out in a October 2021 paper, “China is helping to construct mega infrastructure projects in every country in the region, in most cases with money that it has lent them. Its loans to Sri Lanka were at $4.6 billion in 2020, and the overall figure for Maldives is believed to be between $1.1 billion and $1.4 billion. These economic engagements serve Chinese strategic ends and help expand its influence in a region that has traditionally been considered India’s strategic backyard. Chinese actors are proactive in seeking opportunities, often approaching public or private stakeholders with suggestions for engagement, and timing project completion to coincide with upcoming elections. This earns them goodwill and increases the possibility of getting projects going”.

The growing unease among a sizeable section of Sri Lankans over China’s increasing footprint amid the uptick in Chinese investments in their country has brought Beijing under more public scrutiny than ever before. This has found expression in the local media. Just prior to Wang Yi’s visit, for example, Laksiri Fernanando, writing in The Island English language daily, on December 29 highlighted the societal implications of “capitalism with Chinese characteristics” such as a widening income gap and growing corruption, among other problems. Fernando wrote, “China is also allowing big companies, including state companies, to exploit and cheat small and poor countries in Asia and Africa. Sri Lanka probably is one victim. These must be the Chinese characteristics of capitalism!”

A new proposal aimed at further expanding Chinese influence in the region was made by Wang Yi during his talks with Sri Lankan Foreign Minister G. L. Peiris. Wang proposed the establishment of a forum for the development of Indian Ocean island nations. A press release by the Chinese Foreign Ministry quoted Wang as saying, “During my visit to several Indian Ocean island countries this time, I feel that all island countries share similar experiences and common needs, with similar natural endowment and development goals, and have favourable conditions and full potential for strengthening mutually beneficial cooperation. China proposes that a forum on the development of Indian Ocean island countries should be held at an appropriate time to build consensus and synergy and promote common development”. The six island nations located in the Indian Ocean are Comoros, Madagascar, the Maldives, Mauritius, Seychelles, and Sri Lanka.

Many, including the US and India, would view potential Chinese leadership of a forum of strategically significant island nations as sinister and worrying. Whether it be debt trap diplomacy or the creation of artificial groupings with potentially exploitative designs, India has actively been trying to counter what it assesses to be ill-intentioned Chinese moves in a region that has so far been within India’s primary sphere of influence. In a recent financial package India guaranteed Sri Lanka of currency swaps, energy security, and a line of credit for food and medical imports. Just a day before Wang’s arrival in Male, India had released money for eight High Impact Community Development projects in the Maldives that are expected to directly impact local people as they relate to procurement of ambulances and providing education, among others.

India’s relations with Beijing over the last few years have been strained due to China’s belligerence in the Himalayas, and it is in India’s direct interest to prevent further Chinese intrusion into its strategic orbit. Just as the case is with India, it certainly will not be in the interests of the US and the dozens of other leading democracies that stand opposed to Chinese expansionism if the dragon were to succeed in establishing its hegemony over the tiny but important island nations in the Indian Ocean.

India, as a developing country, does not have the deep pockets that China has, and if the US-led West is really serious about containing the rapid strides that China is making across the globe, it needs to complement India’s strong commitment towards countering Chinese intrusion into the Indian Ocean by financially empowering the island nations and strengthening their independence of action, bargaining power, and development.