China’s Maritime Silk Road: Strategic and Economic Implications for the Indo-Pacific Region

CSIS April 2, 2018

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China unveiled the concept for the Twenty-First Century Maritime Silk Road (MSR) in 2013 as a development strategy to boost infrastructure connectivity throughout Southeast Asia, Oceania, the Indian Ocean, and East Africa. The MSR is the maritime complement to the Silk Road Economic Belt, which focuses on infrastructure development across Central Asia. Together these initiatives form the One Belt One Road (OBOR) initiative designed to enhance China’s influence across Asia.

There is a shortage of infrastructure investment to meet the needs of developing nations across the Indo-Asia-Pacific region and most nations have welcomed the opportunity to bid for Chinese funding. At the same time, there are growing questions about the economic viability and the geopolitical intentions behind China’s proposals. Thus far MSR initiatives have mainly been concentrated in the littoral states of the Indo-Pacific region, especially port-development projects, which is raising questions about whether these investments are economic or military in nature. These large-scale investments are also structured in ways that invite questions about the potential for China to exert undo leverage over the domestic and foreign policies of heavily indebted recipient countries.

To shed light on some of these themes, CSIS has commissioned seven experts to unpack the economic and geostrategic implications of China’s infrastructure development across the Indo-Pacific region under the MSR. Their research is presented in this volume. The essays begin with analysis of four infrastructure projects, three by China under MSR and one by India as a counter to MSR. These are: Kyaukpyu (Myanmar), Hambantota (Sri Lanka), Gwadar (Pakistan), and Chabahar (Iran):

    • Kyaukpyu: Greg Poling explains the economic and strategic rationale behind China’s investments in Kyaukpyu, a coastal town along the Bay of Bengal in Myanmar’s western-most state of Rakhine. China recently won contracts to develop a deep-sea port at Kyaukpyu and an industrial area in a special economic zone (SEZ) nearby. Kyaukpyu is also the terminus for an oil pipeline and a parallel natural gas pipeline running to Kunming, capital of southwestern China’s Yunnan Province. Those projects reflect a strategic effort by Beijing to reduce its reliance on oil and gas imports through the Strait of Malacca, and a deep-sea port at Kyaukpyu could similarly help China in its drive to develop its inland provinces. Poling references regional concerns about the potential that China would leverage a port at Kyaukpyu for military purposes but concludes that at present the overriding fear within Myanmar is China’s potential economic leverage via debt financing.

 

    • Hambantota: Jonathan Hillman examines China’s development of the Hambantota port in Sri Lanka and questions the economic rationale of this project given existing capacity and expansion plans at Colombo port, fueling concerns that Hambantota could become a Chinese naval facility. This case also highlights the potential risks of becoming a debt trap as Sri Lanka handed the port over to China in December 2017 with a controlling equity stake and a 99-year lease—eerily similar to the imperial strategies Britain imposed on Qing China with Hong Kong in the Nineteenth Century. Hillman suggests the Hambantota case reveals the need for recipient countries to tie infrastructure projects to larger development strategies in order to better monitor debt levels, and for the international community to expand alternatives to Chinese infrastructure financing.

 

    • Gwadar: Gurmeet Kanwal highlights the development of Gwadar port as a key element in the larger China-Pakistan Economic Corridor (CPEC) initiative. Though CPEC is branded as a symbol of strong bilateral ties between China and Pakistan, Kanwal argues that both sides have misgivings about the project, including China’s concern about the safety of its workers and fears in Pakistan about increased indebtedness resulting from the project, that could increase tensions. Kanwal also addresses the security implications of China’s potential naval access to Gwadar as a gateway to the Indo-Pacific, and concludes by examining the potential from the revived quadrilateral framework of security dialogue and cooperation among India, Japan, Australia, and the United States as a way to counter China’s strategic outreach.

 

  • Chabahar: Harsh Pant notes that China is not the only country playing the great game through infrastructure investment. India’s efforts to help develop Iran’s Chabahar Port reflect Delhi’s own ambitions as a driver of infrastructure development and improved regional connectivity, particularly with Afghanistan. Close to the Chinese-backed, Pakistani port of Gwadar, the Chabahar project is also seen as a strategic play to limit the influence China seeks to gain and wield through its Belt and Road Initiative and MSR. Pant concludes by identifying complications in India’s strategy stemming from Iran’s openness to Chinese and Pakistani participation in the development of Chabahar.

These four infrastructure case studies are followed by two essays addressing the broader economic and military implications of China’s MSR initiative:

    • Economic Implications: Matthew Funaiole and Jonathan Hillman begin their chapter by framing the larger economic significance of the Indo-Pacific region, noting for example that each of the 10 busiest container ports in the world are along the shores of either the Pacific or the Indian Ocean, and more than half of the world’s maritime trade in petroleum transits the Indian Ocean alone. In order to begin addressing whether China’s infrastructure investments serve economic or strategic purposes—or both—the authors introduce three criteria for assessing the economic viability of infrastructure development projects: proximity to shipping lanes; proximity to existing ports; and hinterland connectivity, or the degree to which port projects are connected to larger development strategies inland (though some ports can arguably serve meaningful economic purposes as hubs for cargo transshipment). In their view, all three of the Chinese infrastructure projects examined in this volume are somewhat misaligned with economic objectives, particularly with respect to the third criterion of connectivity.

 

  • Military Implications: Zack Cooper posits that China’s increased military presence in the Indian Ocean should not come as a surprise. China is following in the traditional path of other rising powers; it is expanding its military operations to match its interests abroad. The Chinese economy is highly reliant on trade routes that pass through the Indian Ocean, which serves as a vital pathway, particularly for energy supplies, and it is therefore natural for the Chinese government to seek to protect its interests along these sea lines of communication. In his view, the security implications of China’s push into the Indian Ocean are mixed. In peacetime, these efforts will certainly expand Chinese influence in the region, possibly through access to port facilities to refuel or resupply naval vessels and in terms of anti-piracy operations and familiarization with other regional militaries. At the same time, however, China’s Indian Ocean presence will likely create as many vulnerabilities as opportunities in terms of protecting trade routes, bases, and ships—particularly in wartime. Nevertheless, Beijing’s political, economic, and military influence is likely to expand in future years and will remain a concern for strategists focused on the Indian Ocean, which has long been seen by the United States and Australia as a critical transit point from the Pacific to the Middle East and critical for maritime defense in depth to manage any threats to the critical chokepoints of the Gulf of Hormuz and the Strait of Malacca. These concerns are increasingly on Japan’s radar and India has also grown concerned that China’s so-called “string of pearls” in the Indian Ocean would give Beijing new options to horizontally escalate beyond long-standing Sino-Indian competition in the Himalayas.

The series concludes by examining how the maritime democracies of the United States, Japan, India, and Australia might respond to the uncertainties posed by the MSR through the newly reconstituted “Quad.”

  • Quad Response: Jesse Barker Gale and Andrew Shearer review the history of the Quadrilateral Security Dialogue, or “Quad,” which began when Australia, Japan, India, and the United States first came together to provide humanitarian assistance after the 2004 Indian Ocean tsunami. In subsequent years, the four governments failed to formalize the construct because of differences within each capital about China’s possible reaction. Fast-forward a decade, and the four countries have now reestablished the Quad in what the authors consider a response to China’s unexpected economic and military assertiveness in the region. They argue that with increasing convergence among the four maritime democracies on the need to coordinate on a broader strategy to ensure a free and open Indo-Pacific region, the “Quad 2.0” has potential to shape China’s strategy in a more benign direction, but remains underutilized and under-operationalized.

This study builds on prior work at CSIS on the geopolitics of the Indo-Pacific, including: the Asia Maritime Transparency InitiativeReconnecting Asia; China Power; and Countering Coercion in Maritime Asia. The idea for a focused examination of China’s Maritime Silk Road grew out of discussions with senior leadership on Japan’s National Security Council staff, who then provided some funding for a conference on the subject. As with our other research on maritime Asia, we have endeavored to integrate political, military, economic, and historical considerations. The analysis and prescriptions are entirely those of the authors and do not represent the official positions of any government in the region.

The overall conclusion is mixed. China’s MSR projects are neither purely military nor purely commercial. Moreover, China’s overall approach is probably evolving. It is our hope that this study will help the United States and like-minded states refine their own response to MSR—hedging or deterring where necessary, but also working to encourage a more transparent and economically viable approach from Beijing.

I am grateful to the authors for their expertise and careful work and to Nick Szechenyi for leading the project and pulling together the essays for this study.

Michael J. Green is senior vice president for Asia and Japan chair at CSIS, and director of Asian studies and chair in modern and contemporary Japanese politics and foreign policy at the Edmund A. Walsh School of Foreign Service at Georgetown University.

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