DUQM, Oman -- As China sweeps more countries under its influence with its Belt and Road Initiative, questions are increasingly raised about Beijing setting debt traps for regional neighbors that have signed up to its program. Oman and the Maldives are such examples.
Duqm, a port town on the eastern coast of Oman on the Arabian Sea, is a supplies and refueling base for U.S., British and Japanese navies. Early May, a Japanese destroyer arrived at Duqm for a joint goodwill exercise with the local navy as well as to stock up on supplies, after completing a counterpiracy mission in the sea off Somalia.
Mitsugu Saito, Japanese ambassador to Oman, expressed alarm then at the increased presence of China in the port town, in particular Chinese ownership of vast plots of land in the area.
The Omani government wants to wean its economy off a deep reliance on oil exports and is hoping to do so by building an industrial cluster in the area and creating a special economic zone.
China in 2016 agreed to build a $10.7 billion industrial park there. The China-led multilateral development financial institution, Asian Infrastructure Investment Bank, also separately invested a total of $300 million in port development and railway construction. In the hotels in the area, Chinese businessmen and women dominate.
"Duqm has changed magically," a local civil servant said. "We owe it to China."
The land that China has acquired in the area was ostensibly to build oil refineries and hotels. But Ambassador Saito raised a question that has circulated in the minds of China observers: Will China use the port for military purposes in the future? There is no other port in the area equipped with a dry dock that can repair large vessels.
Japan, too, has interests in the area and was involved in the development of Duqm well before China. Tokyo-backed Japan Bank for International Cooperation provided $660 million in loans to develop the port in 2007. However, deep-pocketed China is redrawing the power dynamics in the region.
Since Chinese President Xi Jinping unveiled the BRI in 2013, the country has taken on more than 30 overseas projects in port development and expansion. These include key locations along a sea lane linking China and oil-producing Middle Eastern countries.
In the Maldives in the Indian Ocean, a bridge linking the capital island of Male and an airport island is under construction with help from the Chinese. A banner touting the friendship between China and the Maldives on the bridge serves as a reminder to locals and tourists that they have Beijing to thank for making their lives easier.
The U.S. Department of Defense described China's sea lane strategy in the Indian Ocean as an acquisition of a "string of pearls." The description derives from the fact that the ports China has interests in, including those in Myanmar, Sri Lanka and Pakistan, form the shape of a necklace in the Indian subcontinent.
Despite China's claims that it merely wants to secure stable procurement of energy, goods and resources, India too has its suspicions about Beijing's establishment of commanding posts for its naval force.
Investment and loans from China are typically provided in the form of private-sector deals in which Beijing-backed financial institutions, such as the Export-Import Bank of China, and state-owned companies take the leading roles. But they charge interest rates higher than typical international financial institutions. Some of the developing countries unable to service those debts may end up surrendering port operations to China.
This has raised concerns that China may be setting up debt traps, by lending money with a hidden goal of controlling the ports and turning them into military bases.
Countries that received China's funding are all those that seek fast economic growth but lack funds of their own. A recent example is Oman, which, with its oil and gas output eclipsed by other countries along the Persian Gulf coast, had experienced years of fiscal deficit. As a result, it has ended up borrowing from a Chinese government-owned bank.
The Maldives' external payments from 2016 to 2021 are estimated to total $1.4 billion, and the majority of the amount is thought to be repayments of loans from China. That is a heavy burden, considering the country's gross domestic product is only about $4 billion.
Former Maldives President Mohamed Nasheed, a critic of the current pro-China administration, warned in February the country would not be able to repay its debts to China, and eventually be forced to cede land to Beijing.
This is the third part in a four-part series on the broad implications of China's Belt and Road Initiative.