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China's 'infrastructure diplomacy' alive and well

China's infrastructure investment drive in Sri Lanka appears to have hit a temporary roadblock. Shortly after his election in January, President Maithripala Sirisena warned of scrapping the $1.34 billion Colombo port project inaugurated during last year's visit by Chinese President Xi Jinping, amid concerns about environmental issues and fears of over-reliance on Beijing.

     But the new government quickly backtracked, announcing that Sirisena would review the project in consultation with the Chinese during a planned visit to Beijing in March. As welcome as the move may have been in Beijing, Sri Lanka's volte-face may not have ended China's concerns. Apparently under pressure from India, Sri Lanka has decided to further review the Colombo port project on the grounds it could be used by China for naval activities -- particularly submarines. Power and Energy Minister Champika Ranawaka said that if "Colombo port and port city are going to be used for military operations by [the] Chinese government, then it will create serious a problem in India, and here in Sri Lanka as well." In September last year, a Chinese Song class conventional submarine docked in Colombo harbor along with a support vessel, causing anxiety in New Delhi over the growing presence of the People's Liberation Army Navy in its neighborhood.

     The Colombo reversal highlights rising suspicions in the region about Beijing's methods and motives in pursuing foreign infrastructure projects, and raises long-term questions about China's growing role as an infrastructure provider to the developing world. Last year, Myanmar's Ministry of Rail Transportation cancelled a $20 billion agreement with China Railway Engineering Corporation for the construction of a 1,215km rail link from the Chinese city of Kunming to Kyaukphyu in the western Myanmar state of Rakhine. Local news reports have quoted Myint Wai, director of Myanmar's Ministry of Rail Transportation, saying that the project had been "cancelled" after over three years of inaction on a 2011 agreement." There was strong political opposition to the project, and some civil society groups in Rakhine were concerned about its environmental impact and its potential for facilitating exports of local natural resources to China. Myanmar in 2011 canceled plans for the $3.6 billion Myitsone dam over the Irrawaddy River, which was to have been built by China Power Investment Corporation, citing environmental and social concerns, including "inadequate compensation" for displaced local people.

Global challenges

Beijing's problems are not confined to Asia. In one of the most explosive criticisms of Chinese actions, former Nigerian Central Bank Governor Lamido Sanusi warned in March 2013 that China was capable of the same exploitative practices as the former colonial powers. And in November 2014, Mexican President Enrique Pena Nieto cancelled a $3.6 billion high-speed rail contract awarded to a Chinese-led consortium amid allegations that the tender process was "opaque." Elsewhere in Latin America Chinese infrastructure activity has elicited sharp reactions from locals on grounds such as environment degradation, labor disputes prompted by the presence of Chinese workers and debt accumulation by host governments. There have been violent protests or attacks on Chinese operations in Honduras, Ecuador and Colombia.

     In Greece, one of the first acts of the newly elected government of Prime Minister Alexis Tsipras was to halt privatization projects, including the sale of the state's 67% stake in Piraeus Port Authority, just as the Chinese shipping conglomerate Cosco was about to submit an offer. The government also said it was concerned about "social rights," "industrial relations," and some of the Chinese company's employment practices in Piraeus, where it operates a container terminal. The Greek government's statements set alarm bells ringing in China, prompting Premier Li Keqiang to seek assurances from Tsipras that his government would "provide better legal safeguards for Chinese companies operating in Greece, and abide by their promises." In Iceland, plans by Zhongkun Group, a Chinese property company, to buy land and invest $200 million to develop a tourist resort and nature reserve were shelved because of legal difficulties relating to the purchase of property by foreigners.

     As these developments suggest, Chinese overseas infrastructure projects face challenges of three sorts: First, any change in government in a country hosting a Chinese infrastructure project is likely to lead to a critical re-evaluation because of concerns about lack of transparency, possible corruption, unequal distribution of benefits, and the implied level of Chinese influence. In some cases, host countries are seeking to re-negotiate contracts to correct perceived imbalances. This may be what is afoot in Sri Lanka, and it seems to be part of the explanation for what happened in relation to the Myitsone dam in Myanmar. China Power Investment Corporation has said little about the cancellation, but Sun Hongshui, vice president of Power Construction Corporation, another Chinese company with dam projects in Myanmar, said last August that his company was willing to renegotiate the ratio of electric power allocated for domestic consumption. "If the new government thinks there is more power demand now in Myanmar, then of course there is no problem to meet the local demand first," Sun told Reuters.

Lethal confrontations

Second, environmental and labor concerns plague Chinese infrastructure projects and take a heavy toll on timely and successful delivery. Although it is the responsibility of the host country to ensure that environmental clearances are in place, Chinese companies do not appear to make strong efforts to ensure they are conforming to best environmental practice, particularly in countries where environmental laws are undemanding or out of date. Chinese companies also seem to have difficulty in taking into account the social impact of these projects, which sometimes generate strong anti-Chinese sentiments among local people. Confrontations of this kind can trigger powerful -- even violent -- responses: In 2004, three Chinese nationals working at the Gwadar port in Pakistan were kidnapped and killed by Baluch rebels; in another case, three Chinese oil companies pulled out of Baluchistan because of security concerns.

     Third, Chinese infrastructure projects such as ports, telecommunications and highways are often suspected of having dual civilian and military purposes. The military element is deliberately hidden to prevent suspicion among neighbors and potential adversaries. For example, Chinese port projects in Bangladesh (Chittagong), Pakistan (Gwadar) and Sri Lanka (Hambantota) are construed as naval facilities by the Indian Navy, which considers them to be part of China's so-called "string of pearls" strategy for acquiring or building a series of civilian port facilities around Asia that could support PLA Navy operations. China also considered Sittwe, in Myanmar, as a potential element of the string of pearls strategy, but the port is now being developed by an Indian company. The various port proposals are also important nodes in Beijing's Maritime Silk Road initiative, which seeks to construct maritime infrastructure outside China to support Chinese trade with Southeast Asia, South Asia and East Africa.

     None of these political and economic setbacks have deterred Beijing; it continues to persevere in promoting new projects across the globe for economic gain, strategic influence, and to support the PLA Navy's blue water ambitions. One major example of economic interest for the Chinese is the long dormant Kra Canal project in Thailand, which would connect the Gulf of Thailand and the Bay of Bengal. A prefeasibility study, undertaken by the Thai National Committee for the Study of the Kra Canal Project and Beijing's University of International Business and Economics, suggests that the project could cost $20 billion. Similarly, Iran has invited China to help develop Jask, overlooking the Arabian Sea, as a major Iranian oil terminal. Jask could also be used as a forward support facility for the PLA Navy during hostilities in the Persian Gulf or the Indian Ocean.

     Given the tensions generated by Chinese infrastructure projects, it might be expected that the number of interested partners would be declining. Yet many Asian countries remain keen to engage with China, especially in relation to the Maritime Silk Road, which many believe will provide access to Chinese financial and technical capabilities. For these countries, the benefits of increased trade and investment take priority, even if they are concerned about China's expanding sphere of influence. They know that such projects require substantial financial, technological and human resources, which they may not be able to mobilize independently. They know that China can do so, and they are convinced of China's capacity to conceptualize such projects, to execute them and -- above all -- to deliver them on schedule. In essence, both sides benefit from such arrangements. That is a cause for immense discomfort among countries that compete with China for geopolitical and geostrategic influence. But it is also the principal reason why China's role as infrastructure provider to the developing world will probably continue to grow.

Vijay Sakhuja is director of the National Maritime Foundation, New Delhi. A former naval officer, he is author of "Asian Maritime Power in the 21st Century" and co-author of a forthcoming academic work, "Climate Change and the Bay of Bengal."

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