May 29, 2015 1:00 pm JST
Indian Ocean economic zone

China-India rivalry grows over infrastructure projects

Larsen & Toubro of India is expanding its involvement in overseas projects in economies surrounding the Indian Ocean, including the construction of upstream oil and gas production facilities in Myanmar as seen here.

TOKYO -- Huge demand for infrastructure improvements in emerging economies surrounding the Indian Ocean is attracting global businesses eager to work on them.  

     Indian companies, though busy with local projects, are starting to aggressively take part in overseas ventures to pave the way for their future growth.

     Competition is intensifying between China and India, which are battling over security strategies in the area, to stake a claim to the projects. However, cooperation could end up serving as the diplomatic linchpin between the two powers.  

     In mid-March, Indian Oil, India's state-owned oil and gas company, agreed to partner with Ceylon Petroleum, the national oil and gas corporation of Sri Lanka, to develop an oil storage facility in Trincomalee in northern Sri Lanka.

     The deal was announced in a trumped-up manner not by the companies but by Indian Prime Minister Narendra Modi during his visit to Sri Lanka -- the first by an Indian premier in 28 years on a bilateral basis.

     Modi told the Sri Lankan public that the two countries are partners in the Indian Ocean area: "I often say that the course of [the] 21st century would be determined by the currents of the Indian Ocean." He added, "Let us get together to harness the vast potential of the Ocean Economy."

     Modi said investment from India will improve and expand infrastructure in Sri Lanka. He also declared that India will commit $318 million to Sri Lanka's railway sector and welcomed progress in joint projects by NPTC, India's state-run thermal power utility, and Sri Lankan companies to build electric generation plants in the northeastern region of the island.

     Investment in infrastructure is increasing along with the growth of emerging economies surrounding the Indian Ocean. Investment by private companies totaled $56 billion in 2013, more than trebling over the past 20 years, according to the World Bank.

Strategic importance

Infrastructure projects in the pan-Indian Ocean economic zone cannot be discussed in terms of demand alone.

     The Indian Ocean, which is strategically important for global trade, is the linchpin of various countries' security and energy policies. As a result, the countries are competitive over where they should engage in projects in the region.

     India and China are directly focused on the Indian Ocean. India sees it as its gateway, while for China it is an important sea lane for transporting energy from the Middle East.

     Sri Lanka is an important island in the middle of the huge area. China has invested in the rapid improvement of infrastructure in Sri Lanka in recent years. In Sri Lanka's biggest city Colombo, China helped build a tower for communications as well as expanded port facilities.

     The port of Hambantota in southern Sri Lanka being built by China Harbor Engineering is known as a "Chinese port" among locals, reflecting the Chinese state-run company's deep involvement in the project.

     However, the trend has changed since January's presidential election in which pro-China President Mahindra Rajapaksa lost to Maithripala Sirisena, who wants to reduce the island's excessive reliance on China.

     The new president decided to put a halt to a China-supported development project for the port of Colombo. Amid changes launched by Sirisena, Modi's newly announced support for infrastructure improvements in Sri Lanka looks like a counterattack against China.

     Politics aside, the pan-Indian Ocean economic zone remains important for Indian businesses.

     Larsen & Toubro, India's biggest construction and engineering company, won contracts worth $480 million to build thermal power plants in Bangladesh last year, including one in Chittagong in the country's southeast. Larson beat leading Chinese, South Korean, Japanese and European engineering companies to win the contracts. 

     Larson's overseas undertakings are expanding from the Middle East to Southeast Asia and Africa, said Group Executive Chairman Anil Manibhai Naik.

Eye on Africa

With the Indian government encouraging the use of renewable energy, Tata Power, India's biggest private utility, has been selected as the preferred bidder for two related projects in South Africa through its local joint venture.

      In India, concern about the presence of Chinese companies is being increasingly voiced regarding African businesses. Local media reports often say investment in Africa by Indian companies is still smaller than that of its Chinese rivals. 

     Following Modi's visit to Sri Lanka, China invited Sirisena for talks with Chinese President Xi Jinping to renew close ties between the two countries.

     In April, Xi visited Pakistan, India's archrival, and pledged $45 billion to build a China-Pakistan economic corridor through the South Asian country.

     Competition between China and India is accompanied by cooperative elements as well. For example, India declared ahead of other counties its intention to join the China-proposed Asian Infrastructure Investment Bank and is expected to be its second largest capital contributor. 

     Infrastructure projects in the pan-Indian Ocean economic zone appear likely to advance amid different motives.

(Nikkei)

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