|September 4, 2020 | AMTI Brief|
Chinese investment in the Maldives is a frequent subject of concern. The archipelagic nation is strategically located along major Indian Ocean shipping routes. Its former president has very publicly speculated that China is being allowed to buy up whole islands and extend loans that the government cannot afford.
And media articles in India, long the most important external partner for the Maldives, often assume that prominent Chinese investments are a stalking horse for military access. The most frequently cited example of late is a resort development on Feydhoo Finolhu island. But the available data suggests these fears, and those surrounding other Chinese projects in the Maldives, are overblown.
Feydhoo Finolhu is a tiny islet just 0.5 square miles in area, located 3 nautical miles from the Maldivian capital, Malé. An undisclosed Chinese company received a 50-year lease to the island in December 2016 for a bargain price of $4 million. Its strategic location—the islet would be well positioned to monitor traffic to and from the nearby international airport on Malé, for instance—combined with the low price tag led to speculation that this was more than just a commercial development.
The developer remains a mystery, which has only fueled the rumor mill. The company began dredging and landfill work to expand Feydhoo Finolhu in December 2017. That work accelerated the following year, leaving observers worried that the expansion was to make room for a wharf, airstrip, or some other facility with dual civilian and military uses. But that is clearly not the case.
The Feydhoo Finolhu resort appears largely complete as of August 2020. The developer did dredge a channel into the fringing reef and create a small harbor for boats to dock. But the wharf is modest and seems intended for civilian vessels, presumably ferrying guests who fly in to nearby Malé. Small villas line the shore all around the island, while the only larger buildings are the small cluster near the harbor. These are presumably the administrative buildings and shops for the resort. And dozens of bungalows line piers over the reef itself. The island has even been planted with small groves of palm trees. And there is very little room left to build anything else, whether civilian or military. All in all, Feydhoo Finolhu has every indication of being a commercial resort, albeit one that was a steal for the developer.
Another Chinese developer is building a similar resort at Kunaavashi, an atoll 35 nautical miles from Malé. This development, the Tolarno Maldives Kunaavashi Resort, had also been the object of speculation regarding secret military uses. But those rumors have faded as the owners and operators have been more transparent than at Feydhoo Finolhu. CJL Investment, a joint venture of Guangdong Beta Oceans and a Maldivian partner, leased the island for 50 years. Dredging and construction started in 2015.
The resort was originally expected to open in late 2016 but was subsequently delayed until 2020. It is unclear if it has started operations. The resort will be managed by La Vie Hotels and Resorts, a well-respected Australian company.Like Feydhoo Finolhu, recent satellite imagery shows that the island is exactly what it claims to be: a resort, complete with seaside villas, overwater bungalows, a small wharf, and groves of palm trees.
China’s largest, and most visible, infrastructure projects in the Maldives have been on the capital island of Malé and adjacent Hulhumalé. This is the commercial and administrative center of the Maldives. And the government has dedicated a considerable amount of money and energy to upgrading its infrastructure in recent years. The two most important projects have been the expansion of the Velana International Airport on Malé and the construction of the Sinamale bridge connecting it to Hulhumalé. The Export Import Bank of China funded both projects.
Beijing Urban Construction Group signed a deal to expand the Velana International Airport in 2014, displacing India’s GMR which had previously held the contract. A new 3,400-meter runway, built to the east of the existing runway, opened in 2018. The expansion also included a new fuel farm and cargo terminal. While there may be real concerns about cost, the project made a great deal of sense for a nation that is so dependent on tourism.
The idea of linking Malé with larger Hulhumalé by bridge was first raised in 2007. The former government of President Mohamed Nasheed tried to launch the project in 2011 but it stalled when he was forced to resign in 2012. His successor Abdulla Yameen restarted the project in 2014 and construction finally kicked off the next year. China Harbour Engineering Company was the lead contractor on the project. The bridge officially opened in 2018 at an estimated cost of $210 million. China funded more than half of that with grants, and the rest with loans. As with the airport, there is an obvious commercial rationale for improving transport links between Malé, the capital and site of the international airport, with larger Hulhumalé. The latter is home to a growing number of businesses, residential communities, and diplomatic missions. And Chinese loans have funded much of that construction.
Stalled and Cancelled Projects
Chinese entities have pursued other projects in the Maldives. And several of them have sparked similar rumors about potential military access or strategic concerns. But none seem to be underway. In 2015, a deal with Asia Resorts to develop Fahala island on Thaa Atoll fell apart. The project was then reportedly handed over to China Engineering and Machinery Corporation. But recent satellite imagery shows no development.
The same is true of the mooted Fahala Aiport project at the same site. There is also rumored Chinese involvement in a project to develop Olhugiri Island. But that is located in a UNESCO World Biosphere Reserve and imagery shows absolutely nothing at the site.
Then there was the Makunudhoo Observatory. This project was actually moving forward and might have had real strategic implications. China’s State Oceanic Administration proposed to the Maldives government that the two build a “Joint Ocean Observation Station” on Makunudhoo, which is the westernmost island in the country. The deal was finalized in 2017, around the same time that China and the Maldives inked a new free trade agreement. But India became immediately worried that Beijing would use it to observe more than just ocean conditions. Indian officials spent the next several years urging that the project be dropped. And by June 2019, the Maldives scrapped it.
The Maldives is small, reliant on foreign lending, and strategically located, all of which raise concerns that China could seek to use economic leverage to extract political concessions. It might even try to go further, seeking access to facilities with obvious military implications such as the mooted observatory on Makunudhoo. India, as the Maldives’ most important traditional partner, has so far been successful in preventing such inroads. Continued vigilance is warranted, especially as the share of Maldivian debt held by China rises. But there is no evidence that the projects currently under development by Chinese companies are more than they appear.
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