China’s economic and political footprint has expanded so quickly that many countries, even those with relatively strong state and civil society institutions, have struggled to grapple with the implications. There has been growing attention to this issue in the United States and the advanced industrial democracies of Japan and Western Europe. But “vulnerable” countries—those where the gap is greatest between the scope and intensity of Chinese activism, on the one hand, and, on the other, local capacity to manage and mitigate political and economic risks—face special challenges. In these countries, the tools and tactics of China’s activism and influence activities remain poorly understood among local experts and elites. Both within and beyond these countries, meanwhile, policy too often transposes Western solutions and is not well adapted to local realities.
This is especially notable in two strategic regions: Southeastern, Central, and Eastern Europe; and South Asia. China’s economic and political profile has expanded unusually quickly in these two regions, but many countries lack a deep bench of local experts who can match analysis of the domestic implications of Chinese activism to policy recommendations that reflect domestic political and economic ground truth.
To address this gap, the Carnegie Endowment initiated a global project to better understand Chinese activities in eight “pivot” countries in these two strategic regions.
The project’s first objective was to enhance local awareness of the scope and nature of Chinese activism in states with (1) weak state institutions, (2) fragile civil societies, or (3) countries where “elite capture” is a feature of the political landscape.
Second, the project aimed to strengthen capacity by facilitating a sharing of experiences and best practices across national boundaries.
Third, the project sought to develop policy prescriptions for the governments of these countries, as well as the United States and its strategic partners, to mitigate and respond to activities inimical to political independence or well-balanced economic growth and development.
To establish a comprehensive picture of China’s activities and their impact, this project dug deeply into Chinese activism in four case countries in each region—eight countries in total.
We began by holding workshops, so that influencers across countries could share experiences and compare notes. Invited participants included policymakers, experts, journalists, and others—all with deep local knowledge, steeped in their countries’ politics, economies, and civil societies. In Europe, the four countries were Georgia, Greece, Hungary, and Romania, and in South Asia, Bangladesh, Maldives, Nepal, and Sri Lanka. Cross-national discussions among these regional participants aimed to raise awareness, discuss the implications of China’s growing activism in their countries, and compare notes on the diverse ways in which these various countries had managed the rapid influx of Chinese capital, programs, people, technology, and other sources of influence.
After holding several workshops for each region, Carnegie scholars conducted extensive interviews and a comprehensive review of open-source data and literature on Chinese activities—including extensive media monitoring in local languages, from Bengali to Nepali, Georgian to Greek. These deep dives aimed to measure Chinese influence along three dimensions:
(1) Chinese activities that shape or constrain the choices and options for local political and economic elites;
(2) Chinese activities that influence or constrain the parameters of local media and public opinion; and
(3) China’s impact on local civil society and academia.
The first of these three dimensions is important because China’s sheer size means that it will inevitably play a role in these two strategic geographies. China is the world’s largest trader and manufacturer—and it sits on a significant pool of foreign exchange reserves and capital that countries in all three regions will invariably wish to tap. For this reason, these surveys aimed to identify, distinguish, and analyze only those specific activities that could constrict options, reduce the scope of choice, and reward a narrow interest group or elite.
The second of the three dimensions is crucial because China frequently couples its use of economic and political carrots and levers to broad-ranging public relations outreach. When China floods a country not just with investment but also with strategic messages designed to influence public opinion, there is often little space left for counter-narratives, especially in countries that lack independent media or have weak civil societies.
The third of the three dimensions is critical because in the most vulnerable countries of these two regions, civil society and academia are often too fragile to provide balanced coverage of the activism of external powers. In some cases, Chinese funding and so-called united front tactics have shaped domestic narratives.
Beijing, like other outside powers, cultivates friendly voices in nearly every country. But in some countries, there are few counterweights.
By exploring all three dimensions of Chinese influence simultaneously, Carnegie’s initiative has aimed to generate a clearer and well-balanced picture of Chinese activism and messaging in Europe and South Asia, while fostering a cross-national network of influencers who will continue to compare notes, learn across national boundaries, and spur a genuinely regional conversation about China’s rise and its far-reaching implications.
Erik Brattberg
Director, Europe Program and Fellow, Carnegie Endowment for International Peace
Evan A. Feigenbaum
Vice President for Studies, Carnegie Endowment for International Peace
SUMMARY
The Carnegie Endowment project “China’s Impact on Strategic Regions” comes at a time when states across several regions of the globe are experiencing China’s increased involvement in their polities, economies, and societies, and the consequences that such engagement brings with it. Over the last decade, China has developed a greater variety of interests and more connections than ever with countries, including in parts of Europe and South Asia. With these new channels of influence, it has developed expectations of exceptional consideration for its interests and is willing to exercise pressure in its pursuit for special treatment.
This paper builds on the research carried out through focus groups, extensive interviews, and detailed archival analysis and media mapping in four South Asian states—Bangladesh, Maldives, Nepal, and Sri Lanka—to learn from their rapidly evolving relationships with China, as well as explore the impact of Chinese influence cross-nationally and comparatively. All four countries have distinctive vulnerabilities. In some, state institutions are brittle. In others, civil society provides an inadequate check on the actions and powers of the state. Elsewhere, elites are prone to capture, including by external actors, such as China and its proxies. The study attempts to make sense of deepening Chinese activism by framing it in terms of the impact it has on the vulnerabilities in these states.
The paper aims to understand how China leverages specific vulnerabilities in these four states for its interests; how these vulnerabilities can be remedied; and how the states can share and learn from each other’s experiences to strengthen their individual and collective hand. Ultimately, the paper hopes to offer policy recommendations that aid the countries in discouraging unproductive Chinese actions and influences, while engendering the kind of engagement that is in their interest. The recommendations are also directed toward the United States and its strategic partners to help strengthen these states’ independence of action, bargaining power, and development.
CHINA’S GOALS
China’s main asset is its economic levers of influence, and Chinese actors are proactive in wielding these.
China is helping to construct mega infrastructure projects in every country in the region, in most cases with money that it has lent them. Its loans to Sri Lanka were at $4.6 billion in 2020, and the overall figure for Maldives is believed to be between $1.1 billion and $1.4 billion. These economic engagements serve Chinese strategic ends and help expand its influence in a region that has traditionally been considered India’s strategic backyard. Chinese actors are proactive in seeking opportunities, often approaching public or private stakeholders with suggestions for engagement, and timing project completion to coincide with upcoming elections. This earns them goodwill and increases the possibility of getting projects going.
China’s tools of influence are becoming much more diverse.
China’s tools of influence are varied and are wielded depending on the extent of its engagement in a country, on the robustness of that country’s institutions, and China’s personal relationships with key regime actors. These can be in the form of incentives or threats, used to deter or compel both state and nonstate actors in focus countries. Sometimes, coercive threats are used to lead local actors such as journalists to self-censor. At other times, blandishments and incentives such as buying advertisements, offering collaboration for a media outlet with the embassy, and so on are used to evoke compliance.
There is no “debt trap” in the four countries.
The commonly heard narrative of China practicing debt-trap diplomacy—a practice of offering easy money for unviable projects with the aim of gaining control of assets—does not hold in the four countries studied. Sri Lanka, most often cited as an example of debt-trap diplomacy, has an overall debt management problem. Studies in 2020 put Sri Lanka’s external debt to China at about 6 percent of gross domestic product (GDP). Other countries like Nepal and Bangladesh have been prudent in choosing their funders and methods of financing, often choosing traditional multilateral institutions or other bilateral lenders as partners.
Countries are learning from each other and changing how they exercise agency as a result.
In what is perhaps the most key finding from the project, stakeholders that were engaged highlighted their awareness about the negative consequences of Chinese engagement, as well as their willingness to avoid them. Correspondingly, state actors in the focus countries have exercised their agency in keeping their national interest in mind while dealing with China. This includes rejecting specific projects found to be untenable. Elsewhere, political parties have resisted giving in to China’s attempts at increasing engagement with them. In many instances, it is the governments in the states under study that have pulled China closer when they see clear benefits in cooperating—China can provide domestic political advantage ahead of elections, as well as deliver public works and other benefits to constituents.
China and its partners are still having teething trouble—for now.
China is a relatively new entrant to South Asia and is yet to clearly understand the institutions and organizational cultures of the focus countries. Likewise, the countries under study are still figuring out how Beijing thinks. These divergences account for the dissonance and diplomatic faux pas that are often visible. However, both sides are acutely aware of what they mean to each other, and keen to learn to work in the interest of the broader relationship.
India is still a more significant strategic player than China.
India continues to be the state with the most influence on the choices, interests, and conduct of the countries under study. Due to India’s historical, political, and social connections with these countries, there seem to be limits to how deeply entrenched China can become. However, the balance is gradually shifting toward China, for the role it can play as a developmental partner as well as a balancing factor against the regional power, India. Moreover, India’s close presence in their social, political, and economic lives also leaves it open to heightened levels of criticism, including allegations of meddling.
RECOMMENDATIONS FOR THE UNITED STATES AND ITS STRATEGIC PARTNERS
Consistency is the key to China’s regional engagement; it should be key to the United States’ as well.
Steady engagement from the United States and its partners is still very much desired by all four of these South Asian states. These expectations, and the China challenge, can be met with a consistent presence and a long-term policy for the region, as opposed to the current perception of piecemeal and fleeting engagement. The first Quad summit’s decision to focus on vaccines, emerging technologies, and climate—three areas where China has made a big play to support South Asia—is useful in this regard.
Chinese projects focus on what the four states are perceived to need—so should U.S. engagement.
Like China, the United States needs to marry its capabilities and proposals with the development priorities and domestic needs of the four South Asian states. Connectivity and infrastructure projects are at the top of the wish list for all South Asian states and have become a key area of cooperation with China. To increase their profile in the region, the United States and its partners must pay attention to what the countries are asking for. The Build Back Better World initiative announced at the June 2021 meeting of G7 leaders is a productive step in this direction. As countries in the region transition to middle-income status and become ineligible for much of concessional assistance, the United States could use its influence in Western multilateral organizations to help these states develop alternative avenues for development assistance.
De-hyphenate U.S. engagement in the region from the Chinese question.
It would be prudent to pitch American assistance on its own merits and intrinsic value. It should be delinked from a broader anti-China thrust, and it should not be held hostage to the focus countries tempering their relationships with China. As small countries, it is unlikely that Bangladesh, Maldives, Nepal, or Sri Lanka can afford to explicitly choose among relationships with bigger powers. Any sort of conditionality reduces the avenues for cooperation. Communicating a positive agenda, not just a negative one, will win greater favor among governments, businesses, and the public.
Acknowledge domestic drivers and build capacity to reduce space for China.
The focus countries find China’s approach of noninterference favorable. One way the United States can circumvent being seen as interfering when it brings its assistance to the table with governance conditionalities is to build domestic capacity and strengthen civil societies in these focus countries. All four states in this study have media outlets and civil society organizations that have been focusing on questions of good governance. The United States can identify and equip them with grants and training to enable them and their audiences to ask tough questions and ask for transparency. In doing this, the pressure on governments to do better comes from within rather than without.
INTRODUCTION
In May 2021, Li Jiming, the Chinese ambassador to Bangladesh, used a conversation with journalists to caution the country against joining the Quadrilateral Security Dialogue, or “Quad”—the informal grouping of Australia, India, Japan, and the United States that some in Beijing view as a prospective anti-China alliance. “Relations with China will be damaged if Bangladesh joins the Quad,” he warned.1 Foreign Minister A.K. Abdul Momen responded within a day, reminding China that Bangladesh was free to make its own foreign policy choices and to pursue alignments and relationships in its interest. He also confessed to some surprise that Beijing would wade into the internal choices of another country.2
Bangladesh should not have been so surprised. The reality is that China has been emboldened to assert its interests in South Asia more directly because of profound changes in its relationships with states in the region. Over the past decade, it has developed a greater variety of interests and more connections than ever. In parallel, China has developed more channels of influence as well as a greater expectation of deference to its interests and a greater willingness to exercise pressure in their pursuit.
Over the last decade, China has become far more attentive to its South Asian periphery, moving beyond commercial and development engagements to more far-reaching political and security ones.3 However, most analyses of these changing parameters of engagement have focused on the Chinese end of these relationships, and too often analytical attention is limited to examining specific infrastructure projects or investments under Beijing’s Belt and Road Initiative (BRI). This has left an incomplete picture of Chinese engagement because it misses the degree to which South Asian states are trying to manage and mitigate the impacts of Chinese influence that they view as inimical to their interests, even as they continue to develop political, military, and especially commercial ties with Chinese actors.
This paper is part of a multiregion Carnegie Endowment project, “China’s Impact on Strategic Regions.” It uses four cases—Bangladesh, Maldives, Nepal, and Sri Lanka—to examine not just the dynamic contours of China’s relationships with states in South Asia but also what can be learned from exploring Chinese influence cross-nationally and comparatively. The four countries have distinctive vulnerabilities. In some, state institutions are brittle. In some, civil society provides a weak check on the actions and powers of the state. In some, elites are prone to capture, including by external actors, such as China and its proxies.
The goals of this paper are threefold: to explore how China has leveraged specific vulnerabilities in these four South Asian states in pursuit of its interests; how these vulnerabilities can be plugged; and how sharing experiences among these four states could help them to strengthen their individual and collective hands, ensuring productive Chinese engagement in their interest while discouraging or mitigating the effects of unproductive Chinese actions and influences.
Ultimately, the paper aims to help strengthen local capacity through policy recommendations that could help these four countries mitigate and withstand the destabilizing elements of Chinese engagement while channeling Chinese energies in directions that support their interests. The study’s policy prescriptions are directed not only at each of the four countries but also to the United States and its strategic partners to help strengthen these states’ independence of action, bargaining power, and development.
ANALYZING THE SOUTH ASIAN SETTING
The four countries considered in this paper are not precisely alike. Neither are China’s relationships with them. For example, Maldives and Sri Lanka have been extremely receptive to Chinese loans for infrastructure projects. Bangladesh and Nepal, by contrast, have preferred alternative models to finance their development needs. In Bangladesh, China has emerged as the primary supplier of military hardware—a relationship that is not replicated in the three other countries. In Maldives, Nepal, and Sri Lanka, political actors with clear pro-China leanings have emerged, but not in Bangladesh. It is important, therefore, not to overgeneralize about the region. But, although the four countries are different, each is vulnerable in some way. And, above all, countries with such vast gaps in capacity invariably face challenges as they engage with China.
In this context, it is important to study the relationships of these countries with China individually or through a particular thematic lens such as infrastructure finance. However, examining the cases comparatively and comprehensively offers a more granular understanding. This paper, first, explores how each country measures on three axes of vulnerabilities—the comparative strength of state institutions, the robustness of civil society, and the dynamics of prospective elite capture. In examining state institutions, the study looks at how each state vets or monitors Chinese economic or political activities. Its analysis of civil society focuses especially on whether and to what extent the media and nongovernmental organizations (NGOs) identify and expose irregularities. It explores potential elite capture by tracking foreign penetration of and influences on each national elite.
Second, the study looks at the gaps in comparative analysis of the four countries.4 There are indications that each one’s main political, commercial, and social actors are aware of the increasing intensity and complexity of Chinese operations across the region, and that they are learning from some aspects of each other’s experiences. However, much of this learning takes place passively—watching closely what has happened in a neighboring country, drawing lessons, and trying to avoid making the same mistakes. As an adviser to the prime minister of Bangladesh notes, “we have learned from Sri Lanka’s [experiences with Chinese export investments], we have learned from [the same in] Djibouti.”5 More could be learned from a more active sharing of experiences by stakeholders in these countries. This second section of the paper provides them with suggestions for how to do so.
Third, the paper explains what is actually happening in China’s relationships with these countries across a spectrum of political, economic, military, educational, and social issues. This section of the study draws especially on the insights of a network of influencers and experts from each of the four countries, as well as extensive interviews, focus groups, and other forms of stakeholder engagement. Over the course of this one-year project, the Carnegie Endowment assembled this network whose members straddle major sectors, including the government, political parties, the diplomatic service, media, chambers of commerce, industrial interests, academia, think tanks, the civil service, and nongovernmental organizations. The aim was to gain a whole-of-society understanding of dynamic attitudes toward China in and across the countries. To the latter end, the Carnegie Endowment brought together some of these stakeholders from different countries, facilitating comparative discussion and a sharing of experiences and ideas.
Fourth, the paper compares what is happening in the four countries by triangulating insights from this network with primary and secondary research, media monitoring, and deep analytical dives into all aspects of their relationships with China.
For each of the four countries, the paper poses six questions:
What is the underlying strategic logic and objectives that drive China’s activities?
What vulnerabilities and weaknesses within each state has China been able to leverage, with what set of tools, and in what combination?
How effective are the various Chinese influence activities, and what impact do they have on local institutions and on public and elite perceptions of China?
What are the actual or prospective threats to the interests of the United States and its strategic partners?
Has the coronavirus pandemic been an inflection point that either bolsters or weakens Chinese influence?
How have the four countries managed and mitigated their vulnerabilities and what lessons can their neighbors learn from their distinctive experiences?
The Carnegie Endowment held closed-door workshops with domain experts from the focus countries between October and December 2020 and remained engaged with the network afterwards. The formal sessions were organized thematically and included some forty participants.
Between January and May 2021, the author undertook forty digital and phone interviews as well as primary research. This helped to triangulate data collected from the workshop discussions and to develop country analyses. This phase included a deep dive into open-source information from policy papers, academic research, private and public company websites, social media posts, official government documents, and statements in Bangladesh, India, Nepal, China, Sri Lanka, Maldives, and the United States. It also included archival research of news articles in the Bangla, Chinese, English, Nepali, Sinhala, and Tamil languages dating from 2013 to 2020. Together, these provide a more complete picture of China’s rising influence than can be gleaned only from English-language sources.
CHINESE ENGAGEMENT IN SOUTH ASIA: THE STORY SO FAR
In recent years, the most powerful sources of Chinese influence in the four South Asian countries surveyed have been commercial and financial.6 This is reflected in high-value project finance and operations partnerships, not least for the Hambantota and Colombo port projects in Sri Lanka and the Padma Multipurpose Bridge Project in Bangladesh. Without exception, the governments of the four countries have described China as a crucial development partner, either as a funder or in providing technological and logistical support.7 Additionally, it is the biggest trading partner in goods for Bangladesh and Sri Lanka, and the second-largest for Nepal and Maldives. Chinese investors have been the largest source of foreign direct investment (FDI) pledges to Nepal for six consecutive years till 2020–2021, with more than half of the country’s total FDI in the 2018–2019 fiscal year.8 However, the economic element is increasingly intertwined with political, government, and people-to-people aspects of these relationships.
Chinese tourists have become an important driver of growth for all four countries, with active encouragement from the authorities in China. For example, in 2019 before governments shut down international travel in response to COVID-19, the number of Chinese tourists in Nepal increased by over 11 percent year-on-year. They were no doubt encouraged by the Chinese ambassador who released a professionally shot set of photographs of herself visiting the country’s tourist attractions.9 On the other hand, in Maldives, leaders of the tourism industry believe that a lack of government backing in China stifled the flow of Chinese tourists to the country, which has been open to international travelers even amid the coronavirus pandemic since mid-2020.10
Educational partnerships have expanded too. Several Confucius Institutes have opened in Bangladesh in quick succession. In Nepal, multiple schools have made Chinese-language courses compulsory after the Chinese government offered to cover the salaries of the teachers involved.11 In Bangladesh, journalists have been awarded one-year, all-expenses-paid fellowships to Chinese institutions, and multiple newspapers have worked with the Chinese embassy to coordinate roundtables on the benefits of the BRI for the country.
The International Department of the Chinese Communist Party (CCP) has assiduously built alliances with political parties in the region. It has organized virtual seminars and workshops with members of the ruling parties in Nepal and Sri Lanka to discuss the relationship and avenues of cooperation between the parties.12 In Bangladesh, the ruling Awami League signed a memorandum of understanding (MoU) aimed at enhancing cooperation with the CCP in the presence of Prime Minister Sheikh Hasina, the party president.13
The CCP has also mobilized another of its arms in building influence in the region in recent years. Several ambassadorial appointees to South Asia have worked extensively in the United Front Work Department (UFWD) of the CCP, and not necessarily in the diplomatic corps. The UFWD operates to influence political, economic, and intellectual elites in other countries; in the current context, that involves forging a narrative that paints China as a key player in the global order and a partner for the future. Ambassador to Bangladesh Li Jiming and former envoy to Sri Lanka Cheng Xueyuan trace their careers back to the UFWD. Among others in the region, Nong Rong, ambassador to Pakistan is also known to have a background in the department.
The pandemic has created opportunities for China to work directly with the four countries in new ways—on the provision of medical equipment, biomedical expertise, and capital for coronavirus-related needs.14 China supplied testing kits, personal protection equipment, and medical supplies to the four countries in 2020. It extended a $500-million loan to Sri Lanka and sent a team of experts to Bangladesh to treat patients and train medical professionals. In 2021 it has supplied Sinopharm vaccines to the four countries.15 With the crisis exposing shortcomings in public healthcare capacities, it is likely that in a post-COVID-19 world, when South Asian countries talk about infrastructure, they will mean hospitals and laboratories as much as ports and highways. China will be eager to step in. Its technological and scientific collaborations, even if still inchoate, will offer options through the Health Silk Road.16 A build-out of telemedicine will require advanced 5G technologies, opening opportunities for Chinese companies, including its national telecoms champion, Huawei.
These developments demonstrate that China’s presence in South Asia is no longer predominantly economic but involves a greater, multidimensional effort to enhance its posture and further its long-term strategic interests in the region. But this increasing Chinese engagement and influence will likely exacerbate domestic divisions in all four states. It will create stakeholders in close relations with China, which has the potential to pit political and commercial elites against each other. In the case of countries with fragile institutions, underdeveloped civil society, or elites susceptible to capture, this may eventually weaken the state itself. For now, however, in most of the four states, China is still largely viewed as a partner that can assist with developmental needs—and it will not be easy for the United States to contest this. Multiple stakeholders from the region say that U.S. interest in and engagement with smaller South Asian countries is viewed locally as being sporadic at best. China, on the other hand, is perceived as a player with a plan. Moreover, despite questions about and criticism of its presence, Chinese actors have taken tangible steps to build confidence in their resolve and staying power.
BANGLADESH
The relationship between Bangladesh and China took a few years to warm up, with the two countries establishing diplomatic relations only in 1976. However, by the time Bangladesh signed on to the BRI during Chinese President Xi Jinping’s visit to Dhaka in 2016, economic, security, and geopolitical necessities had ensured all-round engagement between them. The largest number of infrastructure projects developed with Chinese help in South Asia are in Bangladesh. At the same time, the relationship embraces elements of a strong security partnership. According to a 2020 report by the Stockholm International Peace Research Institute, Bangladesh is China’s second-largest buyer of military hardware globally, accounting for almost one-fifth of the latter’s total exports between 2016 and 2020. Chinese arms make up over 70 percent of Bangladesh’s major arms purchases.17 Between 2009 and 2011, this included tanks, rescue vehicles, radars, ships, missiles, and defense systems, costing approximately $546 million.18 In 2016, Bangladesh procured two diesel electric submarines from China for $186 million.19
Bangladesh prefers to buy Chinese weapons as they are cheaper than those of established arms-exporting countries in the West or of Russia, and also because China extends soft loans to make these purchases.20 Security-related cooperation extends to the police force. In 2018, the two countries signed agreements on law-enforcement training assistance and providing arms and ammunition to the national police.21 Beyond the technical benefits that accrue to Bangladesh, this security relationship—which is unique in a region that India considers its direct sphere of influence—also points at Dhaka’s dexterity in balancing its relations with China and India.
This balancing act extends well beyond security. China has been an ideal partner for Bangladesh to expand its manufacturing base to cater to diverse export markets, including the Chinese one, and to overcome infrastructure gaps through project finance and construction. Economic engagement is primarily in trade, infrastructure, and business-to-business partnerships.
China is not among Bangladesh’s top ten export partners,22 but it aims to remedy this with policies and preferences to bolster the latter’s export prospects. For instance, China has allowed 97 percent of Bangladeshi goods duty-free access to its domestic market since June 2020.23 More important, it is helping the country to diversify its export base and move its industry up the value chain.24 Bangladeshi entrepreneurs can procure Chinese manufacturing machinery at minimal interest and with substantial grace periods.25 During Xi’s visit to Dhaka in 2016, the two countries signed twenty-seven agreements under which China would lend $24 billion to Bangladesh for projects including coastal disaster management and a road tunnel under the Karnaphuli River, as well as help to strengthen production capacity.26 China is also directly setting up manufacturing industries in Bangladesh, located in special economic zones (SEZs) such as the Chinese Economic and Industrial Zone-2 in Chittagong.27 Bangladeshi companies have expressed a preference for joint ventures with Chinese ones as, beyond attracting investment and financing jobs, this helps to facilitate the transfer of expertise and technology.28 According to Bangladeshi entrepreneurs, investment from China comes in clusters, as an initial investment generally leads to follow-on joint ventures, eventually establishing an entire ecosystem.29
The energy sector has been the greatest recipient of such investment, with Bangladeshi companies establishing joint ventures with Chinese counterparts. The 1,320-megawatt Payra coal-powered plant, the largest power plant in the country, which came online in 2020, is brought up most often as an example of the success of the model. It was developed by Bangladesh China Power Company, which was created as an equal-stakes joint venture between China National Machinery Import and Export Corporation and Bangladesh’s North-West Power Generation Company.30 Apart from electricity generation, the project is expected to develop significant transportation operations and infrastructure facilities on site, building railroads and bridges, as well as developing and increasing capacity of the Payra port. Additionally, under a maintenance agreement with the Chinese company, Bangladeshi workers will be trained and technology to run the plant will be transferred in the five years after the start of operation.31 Beyond energy, China’s role in Bangladesh’s cluster-based-industrialization approach is visible in joint ventures set up for various projects in Purbachal, the country’s first “smart” city, which is being developed in the outskirts of Dhaka, as well as for an industrial zone in Chittagong for manufacturing firms and associated industries.32
China has emerged as a key partner in constructing and funding several infrastructure projects in Bangladesh, such as the Padma Multipurpose Bridge project, several expressways, and power plants.33 As of January 2021, the government was implementing nine crucial development projects, such as the multilane road tunnel under the Karnaphuli River, with Chinese loans and credits worth $7.1 billion.34 In 2018, the Dhaka Stock Exchange enlisted the Shanghai and Shenzhen stock exchanges as strategic partners to spur the digital modernization of the trading system. The Chinese exchanges are expected to help set up platforms with information about listed companies, to offer tools to analyze performance, and to help increase network security and provide digital surveillance software.35
Reflecting a trend that has become an essential component of Chinese engagement across the region, the two countries regularly hold business matchmaking exercises through trade bodies such as the Bangladesh-China Chamber of Commerce and Industry. China also exhibits a degree of sophisticated coordination that extends beyond these usual measures. Chinese businesses, the embassy in Dhaka, and other Chinese stakeholders appear to move in concert when reaching out to their Bangladeshi counterparts to gauge areas for new business opportunities, which can then be followed by informational seminars and offers of capital, all to set the ball rolling on a rapid timeline of just a few months from exploratory contact to contract.36
Rising economic engagement has been accompanied by heightened political coordination. The CCP has been reaching out and holding meetings with the ruling Awami League and its principal opponent, the Bangladesh National Party (BNP), since at least 2015.37 BNP Chairperson Khaleda Zia visited China in 2016, meeting Xi who thanked the party for actively helping develop China-Bangladesh relations.38 Members of the two parties have also visited China at the invitation of the CCP.39 In 2019, the Awami League signed an MoU with the CCP to study ways in which the two parties could learn from each other and collaborate.40
Although these elite and institutional relationships have made rapid progress, Bangladesh’s citizens generally still view China as a blank slate. Beijing’s representatives have tried to change this by partnering with think tanks, business houses, and newspapers. In 2015, Ambassador Ma Mingqiang sought to spread Chinese economic engagement in more diverse regions of the country by promising to help Bangladesh establish two SEZs at the cost of $4.5 billion.41 These are currently under development at Anawara, Chittagong, and Gazaria, Munshiganj, which decentralizes the Chinese presence. In 2018, at an event organized by the Bangladeshi conglomerate Cosmos Group, Ambassador Zuo Zhang detailed Chinese efforts to resolve the Rohingya crisis, an issue that is important not just to people in eastern Bangladesh along the Myanmar border but also at the national level.42
In recent years, China has launched multiple initiatives to develop what it calls “soft influence.”43 Friendship centers, cultural programs, and engagements with think tanks, newspapers, and local governments around the country are China’s channels of choice. In 2015, forty years of diplomatic relations were marked with a three-day cultural program on facets of Chinese life and society.44 That same year, Beijing proposed to establish the Bangladesh-China Friendship Exhibition Centre at a cost of $80 million.45 However, as one local stakeholder pointed out, it is China’s image as an economic powerhouse that is most attractive to the public—creating the impression of it as a “wealth creator” in Bangladesh and not merely an actor passing through the country temporarily.46
China has been using scholarships and educational exchanges to reach out to Bangladeshis, especially younger ones. It has emerged as the preferred overseas destination for Bangladeshi students. During Xi’s 2016 visit, an MoU promising scholarships to 600 students was signed.47 Beyond tie-ups with local universities, where it has opened Confucius Institutes, Beijing has offered Bangladeshi students summer courses in China and visits to the Confucius Institute head office.48 Chinese businesses have also been roped into such outreach programs. China Harbour Engineering Company Limited (CHEC), a Chinese state-owned enterprise (SOE) with an extensive presence across South Asia, has provided scholarships, new facilities, and school supplies to high-school students near one of its worksites in Chittagong.49
Public health was an area of cooperation even before the COVID-19 pandemic. A Chinese naval hospital ship made a port visit at Chittagong in 2013, where it provided medical services.50 In 2015, China provided equipment amounting to $4.1 million to the Health and Family Planning Ministry.51 Since the beginning of the pandemic, it has been helping government as well as private entities with testing kits, protective suits, and other equipment.52 A team of medical experts was sent to Bangladesh in June 2020 to assist in managing pandemic response and mitigation measures.53 Help has been forthcoming from the Chinese private sector too—Alibaba, for instance, sent testing kits and masks to Bangladesh in April 2020.54 The China-backed Asian Infrastructure Investment Bank has so far approved $350 million in loans to Bangladesh to fight the pandemic.55 The vaccine relationship between the two countries hit a speed bump over co-funding of clinical trials of the Chinese Sinovac vaccine in 2020,56 but that seems to have been forgotten now, with Beijing gifting 1.1 million doses of Sinopharm vaccine in two tranches.57 Bangladesh is now reportedly exploring the possibility of co-producing Sinovac in the country, which would align with China’s growing image as a country that is producing wealth and helping Bangladesh move its industry into new areas higher up the value chain.58
Despite all of this rapidly growing engagement, there are elements of Bangladesh’s approach to China that have run into problems. The Rohingya conflict in Myanmar, which has led to an inflow of refugees in Bangladesh after sectarian conflict between Rohingya Muslims and Rakhine Buddhist communities, has been a cause of great concern for Dhaka. It views China as capable of exerting influence on Myanmar, and the two sides have discussed the issue at the highest levels when Sun Guoxiang, special envoy for Asian affairs from the Chinese Foreign Ministry, met Bangladesh’s foreign minister in April 2017.59 China has tried to mitigate any negative Bangladeshi reaction to its stance by providing Rohingya-related aid on multiple occasions. For example, in June 2019 the two sides exchanged letters on providing rice aid to the refugees.60 However, Bangladesh believes geopolitics has come in the way of China doing more to resolve the issue despite promises.61
NEPAL
Nepal is unique among the four countries studied because it borders the Tibet Autonomous Region (TAR), and the fact that the Nepali people have been tied to Tibetans through bonds of trade, culture, and family for centuries. Beijing has been keen to leverage its relationship with Kathmandu to aid its own objectives in Tibet and with Tibetan diaspora communities that have left over the decades. Ahead of the Beijing Olympics in 2008, protests that broke out in the TAR were mirrored in protests in Nepal, which has a significant Tibetan refugee population. One Nepali stakeholder confirmed that Beijing was unhappy with the daily protests organized by the Tibetan community in Nepal at the time.62 Since then, it has pressured Kathmandu into significantly reducing the number of movement passes issued to Tibetan refugees. When Xi visited the country in 2019—the first Chinese leader in two decades to do so—a mutual legal aid treaty, agreements on border management, and even an extradition treaty were discussed.63
The most recent inflection point in Nepal’s relationship with China was in 2015 when India implemented an unofficial, months-long economic blockade to express its displeasure over citizenship provisions in the country’s new constitution. This led to a critical fuel shortage and choked relief material arriving in response to the debilitating earthquake earlier in the year. Most critically, the blockade reinforced the dangers of dependence on one dominant market and infrastructure link, cementing the sense among Nepal’s elites that the country would need to cultivate China to increase its options.64 This led the two countries toward a comprehensive transit and transportation agreement that came into effect in February 2020. Apart from sending a political signal to India, the agreement enabled landlocked Nepal, at least in theory, to end its sole dependence on India for goods and trade by giving it access to Chinese ports.65 While the economic viability of Chinese facilities as an alternative to Indian ports for the transshipment of goods to and from Nepal has been questioned, the agreement also marked the beginning of a period of greater political closeness between the CCP and Nepali leaders, then led by prime minister K.P. Sharma Oli from the Communist Party of Nepal-Unified Marxist Leninist (CPN-UML).
The two parties have coordinated closely on political and ideological issues. This has included high-level meetings such as one between Oli and the chairperson of Chinese People’s Political Consultative Conference, Yu Zhengsheng, in 2016.66 Symposiums, such as one on “Xi Jinping Thought” in September 2019, are regularly organized by the CPN-UML and attended by high profile Nepali and Chinese leaders. The CCP regularly funds visits for members of political parties across the spectrum, from leaders to grassroots-level cadres.67 In May 2021, in a meeting attended by representatives of major Nepali political parties, the International Department of the CCP Central Committee proposed providing COVID-19 assistance through political parties in the country.68
China clearly accords considerable significance to having an ideologically aligned counterpart in Nepal’s power structure, and its current ambassador, Hou Yanqi, has been especially active in the country’s party politics. As rifts within the CPN-UML surfaced in early 2020, Hou met with top party leaders and urged them to stay united.69 Near the end of the year, as the party finally split, a team led by the vice minister of the International Department of the CCP, Guo Yezhou, met with President Bidya Devi Bhandari and CPN-UML leaders to bolster the ambassador’s attempts to avert the political crisis and forestall the party split.70
Increasing cooperation between Nepal and China in multiple areas is not just the product of ideological affinity between the communist parties of the two countries. It is also influenced by the reality of public support for the relationship in the post-blockade period and the elevation of China as a viable development partner, especially after Nepal signed onto the BRI in 2017. There has been growing admiration for China’s growth story and talk of China as a model of political and economic governance. The two countries have signed several agreements on legal issues including boundary management, mutual legal assistance in criminal matters, and cooperation at the attorney general level.
Infrastructure features heavily in the relationship. Even as ratification of the country’s compact with the U.S. Millennium Challenge Corporation’s (MCC) has run into trouble in parliament,71 Nepal has sought Chinese aid for major projects such as the Pokhara International Regional Airport, a cross-border optical fiber link, and the upper Marsyangdi Hydropower Station. The Kerung-Kathmandu cross-border railway project is one of the most crucial ones underway. When completed, it is expected to facilitate Nepal’s connectivity with the rest of the world through China’s road network. As Hari Prasad Bashyal, the consul general of Nepal in Lhasa, noted in 2014, “The expansion of railway networks will help develop trade, business, and tourism along with building relations at the (people-to-people) level between the two countries. The Chinese have shared that they have been considering our request to expand the railway networks to Nepal.”72
As in Bangladesh, China has facilitated technology transfer to Nepal, creating the perception and reality of aiding wealth creation and expanding employment. Emblematic of this is the rising number of joint ventures such as Hongshi Shivam Cements—a combined investment of $333.6 million into a cement factory that aims to produce 12,000 tons of cement daily and employ 2,000 Nepali workers.73 Trade relations have deepened in the past decade, with China accounting for 15.2 percent of Nepal’s imports as of 2019, up from 11.1 percent in 2012.74
Military ties and security exchanges with Nepal have been among China’s weakest in the region. However, new initiatives have been announced since 2017, including the annual joint military exercise Sagarmatha Friendship. Under a Joint Command Mechanism Agreement, the two countries have discussed joint patrolling of the border.75 During Xi’s 2019 visit, they also exchanged letters on providing border security equipment to Nepal.76
The COVID-19 pandemic has allowed China to advance its vision of a Health Silk Road in Nepal. By March 2020, Kathmandu had signed up to the “Chinese model against COVID-19” and started working with China on best practices to handle the pandemic, using Chinese testing kits and other equipment.77 In recent months, China has provided 1.6 million doses of the Sinopharm vaccine to Nepal, in addition to 1,500 oxygen cylinders as a grant.78 Nepal has also worked with China to promote traditional medicine, sending doctors to collaborate with Chinese practitioners.79 During Xi’s 2019 visit, the two countries agreed to cooperate in setting up a plant to produce Ayurvedic medicine in Nepal.80
China is also intent on public outreach. Thirty Chinese NGOs have been operating in Nepal under a framework agreement signed between the Social Welfare Council of Nepal and the China NGO Network for International Exchanges in 2018. Since 2017, Beijing has made offering Mandarin courses more attractive for schools by bearing the cost of employing teachers. Nepal’s premier higher-education institution, Tribhuvan University, among others, has signed agreements to establish Confucius Institutes.81 India has been the traditional destination of choice for Nepali students looking for higher education opportunities abroad, but China, through financial aid and scholarships, has increasingly made itself the destination of choice for those looking for technical skills and graduate degrees, in particular.82 For instance, in April 2015, China announced 1,500 scholarships for five years to facilitate the production of skilled human resources in Nepal.83 An estimated 6,400 Nepali students were studying in China by 2019.84 This has led to a steady infusion of technocrats and experts trained in China within the Nepali establishment, perhaps setting the pattern for a generation.85
Media cooperation and coordination of content has been increasing steadily too. Teams of journalists from both countries regularly visit each other for knowledge sharing and consultations.86 As far back as 2014, a team of Chinese journalists visited Nepal and was briefed by representatives of the Kantipur Media Group, one of the largest media companies in the country. China Radio International runs special Nepali programs as well as Chinese-language classes.87
China has used visits and consultations to expand institutional partnerships, such as one led by the Chinese Institute of Contemporary International Relations (CICIR), a think tank under the Ministry of State Security, just ahead of Foreign Minister Wang Yi’s visit in 2014.88 In 2016, a CICIR delegation met political leaders across the spectrum including then prime minister Pushpa Kamal Dahal, the former Maoist guerilla leader; CPN-UML Chairperson and former prime minister K.P. Sharma Oli; and Nepali Congress Chairperson Sher Bahadur Deuba, who is now serving his fifth term as Nepal’s prime minister, in preparation for Xi Jinping’s visit later that year.89 A widely read newspaper surmised that “China is monitoring Nepal’s political developments, activities of political parties, and international relations through its ‘think tanks.’”90
China has also leveraged environmental cooperation and humanitarian assistance and disaster relief (HADR) to enhance its relations with Nepal for some years. It sent a rescue team within 24 hours of the devastating April 2015 earthquake.91 It followed this up with geologists and seismologists to assess long-term measures.92 The show of solidarity reached its highest level with Foreign Minister Wang Yi visiting people displaced by the earthquake during an official visit.93 Beyond funds and human resources, China has directly participated in reconstruction; for example, by rebuilding the Durbar High School in Kathmandu, which it handed over in September 2020. The two countries also signed an agreement in 2018 under which China would provide HADR equipment to Nepal and help it establish an earthquake-monitoring project.94
SRI LANKA
Sri Lanka has been a flagship of Chinese economic engagement in South Asia since well before the introduction of the BRI in 2013. This has gradually expanded with direct investments and state-backed policy loans.95 The country features prominently in widespread narratives about China’s “debt-trap diplomacy,” with references to mega-projects such as the Hambantota Port and Colombo Port City project (also known as CHEC Port City) usually headliners. Colombo Port City is the largest foreign direct investment in Sri Lanka to date at $1.4 billion, and it promises to create 100,000 permanent jobs once completed.96 But the relationship with China is much more layered and diverse than this narrative suggests, with Sri Lanka exercising agency and intent.
The economic relationship has been highly personalized and tied significantly to China cultivating a relationship with the Rajapaksa family that was in power from 2005 to 2015 and has been again since 2019, this time with brothers Gotabaya and Mahinda serving as president and prime minister respectively. Throughout this period, questions have arisen about the viability of projects and about impropriety.97 But none of this has dislodged a relationship built on a foundation of political and strategic necessity. For Sri Lankans of diverse political stripes, China has been a useful ally—but this was especially true of the Rajapaksas, since many in the international community wanted to hold them accountable for human-rights violations committed during the civil war with the Liberation Tigers of Tamil Eelam (LTTE), and especially in the conflict’s final phase in 2008 when Mahinda was serving as the country’s president.98 For China, the country has offered a friendly stepping stone from which to expand its presence in South Asia; it also represents a potential strategic asset sitting astride sea lanes, through which China’s energy supplies from the Middle East pass.99
China has thus not reached out to just the Rajapaksas. When their bitter opponent, Maithripala Sirisena, defeated Mahinda Rajapaksa for the presidency in 2015, Beijing quickly welcomed a delegation of ministers from his new government.100 In time, Sirisena’s government approved Rajapaksa’s China-funded projects that it had criticized and initially paused.101 In a message to Xi in 2017, Sirisena endorsed the BRI, expressing hope that it would usher in a new era of bilateral ties.102 China continues to emphasize that, irrespective of the political color of the government in Colombo, it views itself as a friend of Sri Lanka. Most recently, this has been reflected in the way that the Chinese embassy named and thanked parties and leaders individually for attending a commemorative event to celebrate the centennial of the CCP.103
The most significant decision concerning Chinese engagement in the country since the return of the Rajapaksas to power has involved passing a bill approving the CHEC Port City in May 2021. This was done just days after the Supreme Court pointed out that sections of the bill were inconsistent with the country’s constitution and required a popular referendum.104 Soon after the bill was passed, ministers released statements assuaging concerns about the port city being granted extra-constitutional status and highlighting investment opportunities that the project would bring to the country.105
China’s importance as a lender, investor, trader, builder, and partner is in part guided by Sri Lanka’s own economic progress that helped it graduate to lower-middle-income status in 2017, effectively disqualifying the country from much of the concessional assistance from the Asian Development Bank (ADB) and the World Bank.106 Because of this, Sri Lanka has felt compelled to diversify its sources of capital, turning substantially toward international bond markets. The share of Chinese loans, while growing, is still less than 15 percent of external debt.107 But the trajectory is clear: in 2019, $684 million out of a total of $1.1 billion in bilateral loans was from China. By comparison, Japan accounted for $178 million in loans and $9.4 million in grants.108 In 2020, loans fell to $720 million with China accounting for $324 million and Japan $161 million.109
Experts say that Sri Lanka needs to improve its debt management overall, not only with regard to China.110 However, for the time being, Beijing is a useful source of funding and its role as a capital provider is widely accepted. Part of the reason is that China has sold the story of its own success. Sri Lankan stakeholders note how government employees on visits to the country were extremely impressed by its economic progress and particularly taken by the message that, if China as a developing nation with its own history of a “century of humiliation” by outsiders could achieve this degree of prosperity, so could Sri Lanka as a postcolonial country.111 Additionally, in the popular imagination, China is seen as a consistent partner and not a fair-weather friend. Beijing’s decision to continue to develop projects in the country despite negative publicity over ones such as the Hambantota Port has strengthened this sentiment.112
A strategy of long-term commitment is evident when one looks at China’s outreach to the general public in Sri Lanka, which is motivated by the reasoning that the Rajapaksas will not be around forever.113 In recent years, it has started coordinating events and funding people-to-people organizations such as the Sri Lanka-China Friendship Association and the Sri Lanka-China Youth Friendship Association. Sri Lanka is increasingly popular with Chinese tourists, who accounted for a peak of 13.2 percent of all foreign tourists in 2016, up from 1.8 percent in 2010, before falling back to 8.8 percent in 2019.114 To capitalize on the two countries’ common Buddhist heritage, China has cultivated the majority Buddhist religious constituency, establishing the Sri Lanka-China Buddhist Friendship Association in 2015 and funding a Buddhist television station.115
China invites Sri Lankan journalists, academics, and policy professionals to the country, and it coordinates with them through platforms such as the Sri Lanka-China Journalists’ Forum.116 Academic institutes and think tanks affiliated with the CCP have ties with research institutes considered close to the Rajapaksas.117 One local stakeholder pointed out the persistence in extending invitations to visit China, “overwhelming” Sri Lankans to the point where they would agree to attend.118
These efforts have successfully created a reservoir of goodwill among the public, which looks at the United States and India through a more cynical lens.119 Some stakeholders said that the current impression in Sri Lanka is that pandemic-related assistance from the United States is conditioned on reducing the scope and intensity of ties to China—which makes the option of accessing U.S. vaccines less attractive on policy and strategic grounds, whatever its appeal may be on public-health grounds.120 The skepticism extends beyond responses to the pandemic, making Sri Lanka wary of motives behind any kind of aid from the United States. Meanwhile, Beijing has taken advantage of this vacuum in the relationship by identifying Colombo’s other immediate needs and extending a $500-million loan to ease the strain on the country’s foreign reserves in March 2020, followed by another $500 million in April 2021.121 The two countries also signed a $1.5 billion currency swap deal this year.122 China has also plowed ahead with vaccine and medical assistance: after providing testing kits and medical equipment in 2020, it has supplied 1.1 million doses of the Sinopharm vaccine to the country.123
UNPACKING VULNERABILITIES IN SOUTH ASIA
Part of the challenge facing South Asian states is that the rapid inflow of Chinese money and the exponential increase in Chinese influence over the last two decades has come against the backdrop of three pronounced systemic vulnerabilities: brittle state institutions, weak civil societies, and high potential for elite capture and corruption.
Not all of the four countries studied have all these vulnerabilities: some have stronger states; some have stronger civil societies; some have less “capturable” elites. Nor are they vulnerable in precisely the same way. But all display at least one of these vulnerabilities, which makes it harder for them to manage and mitigate the negative effects of a rapid inflow of external money and influence while giving them fewer levers with which to steer Chinese energies in directions that support their own national strategies, priorities, and developmental objectives.
Factors that determine whether and how each of these four states is vulnerable range from relative domestic capacity to how political systems and more or less independent civil society groups have evolved in recent history. The presence of a vulnerability does not necessarily indicate an absence of institutions or some independence of civil society. It merely suggests that the ability of these institutions and civic groups to shape and steer Chinese energies varies widely across the four countries.
This is why, for example, the issue of captured or capturable elites is more relevant in Sri Lanka than in Bangladesh, while civil society in Nepal is more capable of fulfilling its role in steering Chinese influence than is the case in Bangladesh. In Maldives, while the risks of elite capture substantially lessened with the change of government in 2018, this could change if power again changes hands in 2023 or 2024. Still, no matter who is in power, the structure of elite politics and the political economy in Maldives makes all of its elites less prone to external capture than those in Sri Lanka. As China’s role in the region will continue to grow—sometimes for good, sometimes for ill—it is important that South Asian stakeholders attempt to buttress their systems and to plug vulnerabilities by learning from the experiences of each other.
VULNERABILITY 1: FRAGILITY OF STATE INSTITUTIONS
Examples of brittle or weak state institutions include those that are too weak to conduct robust due diligence and proper investment screening; weak regulatory bodies; institutions with uneven law-enforcement capabilities, or poor anti-corruption systems; and judicial agencies that are too weak or captured to conduct proper judicial review of executive or legislative decisions.
Bangladesh, Maldives, and Nepal have vulnerable state institutions while Sri Lanka has stronger ones. Sri Lanka has the most robust administrative regimes and capable institutions among the focus countries, and Bangladesh, despite substantial indications of fragility in its institutions, follows closely behind. Yet both still face hindrances in the way they operate that make it harder to stave off external pressure, including from Chinese actors. Nepal is at risk because of long-standing institutional weaknesses that flow from its choppy process of post-monarchy democratization. Maldives suffers from inadequate institutional capacity.
Political pressure on institutions of democracy and governance
Fragility within the political system can manifest itself especially where the ruling political party has a strong leader or a large majority in the national legislature, allowing it to push through laws that benefit a narrow elite or to put unofficial political pressure onto other institutions. Such fragility results in corruption, inefficiencies in bureaucratic and law-enforcement mechanisms, as well as a failure to ensure transparency and adherence to procedure.
Bangladesh has a highly personalized political system in which power has rotated between two families. In a recent event to celebrate Sheikh Mujibur Rahman, Bangladesh’s “Father of the Nation,” Sheikh Hasina, his daughter and the prime minister, asserted that democracy needs an effective opposition to flourish.124 However this is hardly the case in Bangladesh where the Awami League–led government is currently in its third consecutive term, the opposition is in disarray, and the most important opposition leader has been convicted of graft.125 The economy has been unscathed from the effects of the pandemic, at least for now, and the country has recently flaunted its economic muscle by becoming the only country in the region apart from India to help a neighbor by extending it a loan.126
This has meant regime stability in Bangladesh, yet whether elections are free and fair has been questioned, forcing the prime minister to defend the process and making the country vulnerable to interference from a powerful outside power.127 The same allegations are likely to surface during the next elections in 2023.128
Unlike in Bangladesh, recent elections in Nepal, Maldives, and Sri Lanka have seen peaceful transfers of power—from Abdulla Yameen to Ibrahim Mohamed Solih in Maldives in 2018, from Sher Bahadur Deuba to K.P. Sharma Oli in Nepal in 2018 and then back to Deuba again in 2021, and from Maithripala Sirisena to Gotabaya Rajapaksa in Sri Lanka in 2019. This suggests a certain level of stability in democratic governance. But these states are still vulnerable to outside pressure because their governments have made or attempted constitutional amendments to their own benefit and to fend off political challenges.
This is most conspicuous in Sri Lanka, where China has been extremely active and where the Rajapaksa family has been engaged in a long-drawn battle to make the presidency, which it has controlled for extended periods, extraordinarily powerful.129 These efforts began with the eighteenth amendment to the constitution introduced by Mahinda Rajapaksa in 2010. This removed the two-term limit for the presidency and constitutional oversight on presidential appointments to independent commissions, replacing a constitutional council for such appointments with a parliamentary council that would be under greater executive control. The amendment was subsequently repealed under then president Maithripala Sirisena in 2015. However, this repeal has now been overturned by the current Rajapaksa government through the twentieth amendment, which returns many of the sweeping powers from the repealed eighteenth amendment right back to the president while making these actions unchallengeable, even on the basis of fundamental-rights applications. This raises concerns about the maturity of the constitution and the extraordinary reach it offers to the Rajapaksa family.130
Constitutional provisions have been similarly questioned in Maldives and Nepal. In Maldives, which democratized under the current constitution in 2007, powerful leaders in the ruling Maldivian Democratic Party have asked that provisions be changed to transition the country from a presidential to a parliamentary system. President Solih, however, is believed to feel differently.131 In Nepal, the new constitution, which came into effect in 2015 after two post-monarchy national constituent assemblies and years of political negotiations, has been at the center of protests and demands of amendments by Madhesis—people of Indian ancestry residing in the southern Terai region—and other marginalized communities.132 To complicate matters, the CPN-UML, which was in power since 2018, split into two factions, led respectively by K.P. Oli and Pushpa Kamal Dahal. Until he was deposed in July 2021, Oli had continued to serve as prime minister even after losing a vote of confidence in parliament as opposition parties failed to corral the numbers for a coalition government.133
Bureaucratic skill and corruption
The potential to compromise electoral and especially constitutional processes are not the only vulnerabilities in this category. For instance, even though Sri Lanka and Bangladesh fare well with developed institutions, questionable practices and pressure can make their bureaucracies ineffective. In Sri Lanka, for example, questionable actions by the Rajapaksa government began coming to light after the Sirisena government that took power in 2015 reviewed earlier decisions. This included investigations into allegations of nontransparent decisionmaking and corruption in China-funded projects.134 Officials were found to have ignored procedures to provide an unfair advantage to foreigners, including Chinese tourists, leading to losses for the exchequer.135 The Sirisena government also initiated an audit of China-funded projects carried out by its predecessor—including the Hambantota Port, the Hambantota Oil Tank complex, the Sooriyawewa Cricket Stadium, and the Mattala Rajapaksa International Airport (MRIA)—to check for their commercial viability or whether they were sweetheart deals for individuals and/or interest groups.136 This is a key example of how systemic vulnerabilities in the state can make it harder to resist debilitating forms of Chinese influence, much less steer Chinese energies in positive directions for a country.
There have also been allegations in Sri Lanka of mismanagement in different government departments leading to heavy losses. Stakeholders believe there have been instances of collusion between politicians and government departments, leading to cost escalation and mismanagement of funds. Some hint that Chinese projects moved forward because contractors were willing to bribe officials.137 The most serious of these allegations involve CHEC, the company in charge of constructing the Colombo Port City, which was accused of paying over $1 million for Mahinda Rajapaksa’s election campaign through various proxies.138 However, allegations of corruption raised against various members of the Rajapaksa family failed to make much headway in the Sirisena years and were eventually forgotten. In some cases, as with Gotabaya Rajapaksa, returning to power was followed by immunity against corruption charges.139
The political pressure led government departments to hide their lapses by making their operations more opaque, including by not releasing audited financial reports, which in turn made them less efficient.140 Environmental concerns, considered critical for an island nation like Sri Lanka, were disregarded—so while review agencies may be robust in terms of staffing or budgets, they failed to perform their duties in a way that could command public respect and credibility. The 2011 environmental impact assessment report for the Colombo Port City failed to acknowledge the possibility of coastal erosion and damage to the fishing industry. Nor was there any clarity on what the land reclaimed for the project would be used for.141 In fact, in the original agreement for the project, Sri Lanka was responsible for compensating China for damages in the event of a future natural disaster, not the other way around.142 In the case of the Southern, Outer Circular, and Colombo-Katunayake expressways, concerns about flooding were raised but ignored.143
In Maldives, the transfer of power brought to light allegations of domestic corruption by the prior government. In his negotiations with China to restructure debt, Finance Minister Ibrahim Ameer accused the previous government of accepting kickbacks from contractors to keep contract prices high.144 Solih said that “state coffers have lost several billions of rufiyaa . . . due to embezzlement and corruption conducted at different levels of the government.”145 This is reflected in the flagship China-Maldives Friendship Bridge, which has faced multiple questions about environmental degradation and threats to marine life.146 Even after the bridge was completed, Chinese subcontractors were found to be illegally mining sand, claiming that this was permitted under the construction agreement, which suggests that state weakness made the government unable to exercise its proper oversight, regulatory, and enforcement functions—a clear example of how state vulnerability enables unproductive forms of Chinese engagement.147 Another highly publicized deal, the Maldives-China Free Trade Agreement (FTA) signed during the Yameen years, has fallen by the wayside as the new government believes that its terms are not beneficial.148 Beijing’s lack of governance-related requirements and the low importance given to monitoring, along with limited capacity in the Maldivian state, seems to have helped corrupt practices go unnoticed.149
More broadly, a lack of institutional capacity and skills within the civil service enabled Chinese loans in Maldives that would have been screened differently by a stronger state with more robust institutions. Stakeholders argued that Chinese financial institutions differed from all other lending agencies not just in the speed with which they disbursed loans but also in their offers to take care of the “complicated backend” of financial agreements. This resulted in an unusual arrangement during the Yameen years in which Chinese institutions offered loans to Maldivian individuals or companies backed by a sovereign guarantee from the Maldivian state. On coming to power, the Solih government admitted that it did not know the total amount of such loans.150 The central bank stated $900 million as a probable amount of the sovereign guarantee, $300 million more than what the government itself directly owed China, suggesting state collusion with a well-connected private individual working with the Chinese partners.151 In 2020, the Export-Import Bank of China (China Eximbank) asked the government to repay part of a $125 million loan after a private debtor, Ahmed Siyam, failed to make a payment. Siyam—Yameen’s close political ally and a member of the legislature during his presidency—reportedly repaid the loan eventually.152 This kind of arrangement would be almost impossible in a strong state with robust diligence and monitoring mechanisms.
State institutions in Bangladesh are relatively robust compared to those in the other three countries, but stakeholders flag issues with corruption and political influence in approving Chinese-backed projects. By some accounts, almost a third of such projects are likely to be commercially and/or financially unviable but have been allowed because state institutions were unable to resist pressure from politically connected individuals who stood to benefit.153
In 2012, the World Bank pulled out of the Padma Multipurpose Bridge Project because requests to investigate corruption in the project went unheeded by state institutions.154 The project, currently funded by the government and China Eximbank, is considered one of the flagship projects showcasing the Bangladesh-China relationship. There have been no systematic reviews or answers on the charges. The Chinese SOE Sinohydro Corporation winning a $680 million contract in 2014 for part of the project also shows how brittle state institutions can become a problem. It won the bid even though it had been temporarily debarred by the World Bank.155 The companies that lost out said that they had informed the government about the ban on Sinohydro, which the authorities denied. Local newspapers reported that a former communications minister was working with the Chinese firm and had lobbied for it to win the contract. This was not the first time Sinohydro had run into controversy around an infrastructure project in Bangladesh—it had earlier worked on the Dhaka-Chittagong Highway Expansion project and was blamed for stalling it for two years.156 In a similar case, CHEC was given a contract at the Mirsarai Economic Zone in 2019 after joining a local consortium.157 The Bangladesh government blacklisted it just a year earlier, which technically prevented it from working on new projects, after it emerged that it tried to bribe officials.158
A more effective process of bureaucratic oversight, investment screening, and contract review could have raised questions at an earlier stage of these projects, at least pushing the Chinese and Bangladeshi partners to be more transparent and adhere to stronger rules of procedure. The problem has been present across all the four countries, with stakeholders reporting that Chinese loans seem to come with an unspoken expectation that there would either be no tender process or that the tender would be arranged to favor a Chinese contractor. A 2015 report by the Finance Ministry flagged this issue, pointing out that the practice went against the country’s formal transparency and contracting laws. A stronger state might have enforced these. The commerce minister even acknowledged the practice of going with China’s preferred contractors while talking about prospects of Chinese investment in SEZs.159
In Maldives, former president Mohamed Nasheed has raised a similar concern, adding that awarding projects to other countries should have been a more transparent process—“the tendering process happens here, the award (of contract) happens here, the monitoring happens here, and the labour can come from here.”160 To enforce “buy and hire Maldivian” policies would require a much stronger set of institutions than the country has had up to this point. Indeed, under the previous government, laws were amended to bypass competitive bidding.161 And in 2015, the constitution was amended in a rushed session of the legislature to allow foreign ownership of land, which is believed to benefit Chinese projects.162
In Sri Lanka, the earlier Rajapaksa government was accused of abandoning what would have been a state-led tendering process for multiple China-funded projects from road works to stadiums.163 On coming to power, the Sirisena government canceled oil contracts with several companies, including Chinese ones, as guidelines set in law and bureaucratic processes had not been followed.164 The most serious allegations were reserved for CHEC Port City. Lawmakers alleged that the agreement with CHEC for the project was shrouded in secrecy, and the Rajapaksa government refused to share it even with the parliament or the leader of the opposition.165 The area of the project was increased from 200 hectares to 269 hectares without a reason being given or the decision being made public.166 Thus, the fast-growing relationship with China has stretched the state’s limited bureaucratic capacity. This makes it more difficult to conduct a deliberative interagency process that balances competing interests and accounts for all aspects of the relationship with China.
In Nepal, the state has allowed Chinese observers to be unofficially present in government ministries related to development so that they can keep track of China-funded projects, thus subcontracting oversight from national officials to foreign actors that should be the subject.167 Before signing an agreement to build an airport in Pokhara, officials of the civil aviation authority found that China Eximbank had demanded as a guarantee that revenue from all of Nepal’s airports be kept in a joint account with itself.168 In a separate example, the state-owned airline was forced to ground aircraft purchased from China due to unprofitability and operational issues.169 It was later established that the aircraft had been brought into the fleet even before their suitability for Nepal’s needs had been established by government oversight.170 In other cases, local officials had to make peace between Chinese contractors and local laborers in a road project after the latter accused their employer of not paying the legal minimum wage, as a stronger state would have enforced.171 Similarly, the government body in charge of setting school curriculums was left in the dark when schools across the country made Mandarin classes mandatory as part of a direct deal between the schools and the Chinese government.172
Law enforcement
Vulnerabilities that flow from weak institutions can be seen in law enforcement as well. With the expansion of engagement with China in multiple directions, state agencies need to cope with changing scenarios and to modify their operating procedures.
According to the World Justice Project’s 2020 Rule of Law Index, all four countries experience significant influence by the political regime of the moment on nominally independent law-enforcement agencies. On a scale of 0 to 1—with 1 indicating the least politicized criminal justice system, and 0 the most—Bangladesh scores lowest at 0.26, while Sri Lanka scores highest with 0.49. Nepal scores 0.40.173 It follows that, when pressured by China, politicians or governments tend to pass its requests or demands onto state agencies. And, as it has become increasingly sensitive about how it is portrayed abroad, China has started making demands on the resources of law-enforcement agencies abroad.
In 2020, for example, 122 Chinese nationals were arrested in Nepal and sent back to China after local authorities failed to file charges against them. The Nepali and Chinese authorities contradicted each other on the nature of the operation, with the former claiming that they acted alone with information from Chinese authorities, while Beijing claimed that it was a joint operation.174 According to stakeholders, Chinese requests to Nepal’s police started ahead of the 2008 Olympics when pro-Tibet protesters were arrested.175 This elevated level of vigilance returned during Xi’s 2019 visit, not only because of the government’s initiatives but also because of requests made by Beijing.176
Reports of political influence on the police and other law-enforcement agencies are not new in Bangladesh either. International human-rights organizations have highlighted instances of how the police has been used to restrain the political opposition of the day and of citizens being arrested on charges of anti-government actions.177 While incidents of police action in projects funded or constructed by Chinese entities come up in conversation with stakeholders, they rarely appear in newspapers.178 At least one project—a power plant in Chittagong, built as part of a joint venture between a Bangladeshi and a Chinese company—has seen unrest over the years. In 2016, four people were killed by the police, who fired on demonstrators protesting against the plant’s construction.179 Five people were killed in connection with the same project in April 2021 when demonstrators protesting against the Chinese subcontractor clashed with the police.180
The last word
Of the four states, Bangladesh and Sri Lanka exhibit the strongest administrative systems. However, both are impeded by domestic systemic deficiencies that make them susceptible to foreign interferences. These include pressures on the institutions and administrative apparatus from members of the establishment that prevent them from playing the roles they are designed to play. In Bangladesh, corruption and elite interference have led to the weakening of the system of investment screening and contract review, leading to nontransparent agreements with Chinese partners. In Sri Lanka, similar interference has aided entrenched elites, leading to inefficiencies, cost escalations, and mismanagement of funds.
Nepal and Maldives demonstrate deficient institutional capacity that makes them vulnerable. Nepal is still in the process of institutionalizing its systems. This—along with other reasons like the regime’s preference for Beijing as a partner—has made it particularly susceptible to Chinese influence. Faced with accelerated engagement with China on multiple fronts, this has manifested itself in stretched bureaucratic capacity, from setting up rules of procedure to oversight mechanisms and law enforcement. For Maldives, which democratized in 2007, the challenges are associated with limited institutional capacity and skills. This has been reflected most significantly in loans accepted under terms that would have raised red flags in any system with adequate checks and balances. But, unlike the issues plaguing Sri Lanka and Bangladesh, these are not inadequacies that can be corrected primarily with political will. Nepal and Maldives will need to develop robust institutions from the ground up and invest in building capacity and experience over years. Till then, these inefficiencies will exist, with the extent of Chinese entrenchment often obscured by institutional weaknesses.
VULNERABILITY 2: INDEPENDENCE OF CIVIL SOCIETY AS A CHECK ON EXTERNAL PRESSURE
In a well-functioning political system, civil society provides an independent check on state action. Robust civil society should be able to monitor and mobilize when Chinese influence is wielded at the expense of the public in the four countries studied. Individual civic actors and groups do call out improprieties by Chinese actors or by domestic political or bureaucratic institutions and report the facts. Nepal and Sri Lanka fare well in this category, albeit for different reasons, while Maldives and Bangladesh display significant vulnerabilities. This is also becoming more challenging in all four countries because of policy measures through which governments have sought to regulate and potentially restrict civic speech.
Governments in the four countries, whether weak or strong, tend to restrict the ability of civil society to criticize China or Chinese activities in two ways. When Beijing’s relations with a government are strong, the latter tries to bury criticism. Alternatively, civil society itself can be pliable and subject to government influence, altering its message under state pressure. More often than not, the state pushes harder on criticism of China where civil society is stronger. This has been the case in Nepal, for example. By contrast, in Bangladesh, which has a weaker civil society and little media freedom, civic organizations are more likely to comply with requests to tone down criticism of China-linked activities because they are prone to pressure or vulnerable to enticement.
Challenges for civil society in Nepal
Among the four countries, Nepal is probably strongest in terms of the media’s capacity to provide independent oversight of the state and of Chinese activities. According to the Reporters Without Borders (RSF) Press Freedom Index, conditions for media in the country have marginally improved in recent years.181 Problems like intimidation of journalists or holding back government advertisements to punish “recalcitrant” publications do exist. However, the media is diverse and vibrant. It carries varying perspectives on the relationship with China, including calling out either the government or Beijing when questions arise. The media has to deal with pushback from both but it has been strong enough to navigate this. However, the government has been considering various laws that are of concern in this regard, including one that would see the autonomous body that oversees freedom of the press replaced by one under government control.182 A second law would allow the government more control over state television and radio stations.183 The anti-cyber-crime National Transaction Act has been used to detain journalists.184
Nepal’s newspapers have also been the target of Chinese ire, raising the stakes for them to maintain their critical editorial line: when one newspaper published an article on the secrecy surrounding the origin of the coronavirus pandemic in China, the Chinese embassy harshly criticized the editor by name.185 The greatest Chinese pressure has been on media that report on the Tibet issue. The state-owned national news agency Rastriya Samachar Samiti does not report on China-funded projects, on international aspects of the Tibetan refugee issue, or on the Dalai Lama. This has been as a direct result of Chinese pressure: when the agency carried a report on the Dalai Lama in 2019, it was criticized by the Chinese embassy. The communications minister then confirmed that an investigation had been ordered on three journalists, saying “we should be sensitive to our neighbours’ concerns.”186
Still, despite this political pressure, a 2012 study found that the private media gives adequate space to domestic and international Tibetan issues. Tibetan issues tended to be reported more in the private media ahead of any high-level bilateral visit.187 However, journalists say that it has become increasingly difficult to get approval from editors for articles on Tibetan issues, even in the private media.188 According to one senior journalist, government officials shy away from responding to reporters who solicit comments on China-related stories.189
Civic organizations in Nepal share these challenges on Tibetan issues: space to engage with the refugee issue has shrunk substantially for all civil society organizations since the 2008 Beijing Olympics. Under instruction from the authorities, and at the request of Beijing, the police have prevented the civic activist community from public expressions of any kind at the risk of arrest. Some say this extends from major events like celebrating the Dalai Lama’s birthday to relatively minor expressions of solidarity with Tibet, including even wearing clothing with Tibetan characters. Protests or expressions of solidarity with the cause are quickly subdued.190 Stricter measures were put in place ahead of Xi’s 2019 visit, leading to detentions, which were then kept secret to prevent a public outcry during his visit.191 The same year, a member of parliament was suspended by the Samajbadi Party for attending a convention on Tibet in Latvia. His companion, another lawmaker from Rastriya Janata Party Nepal, however, escaped punitive measures.192
Tibetan refugees are not issued Nepali passports and depend on movement passes as proof of identity, the issuance of which has almost stopped in recent years, effectively restricting them to their locations. Community organizers say that it has become difficult to operate in Nepal, as government agencies are unwilling to work with civic organizations that work with Tibetans. This includes bureaucratic hurdles to getting new civic organizations registered and to existing organizations’ freedom to operate.193 In recent months, for example, community organizers have found it difficult to arrange for COVID-19 vaccines for Tibetan refugees, given that most of them are undocumented.
Pressure on media in Bangladesh
Bangladesh faces distinctive challenges, in part because the nature of Chinese pressure is different there than in the other three countries, and the Chinese embassy has adopted a distinctive strategy. The media has been largely free to regularly report on issues related to Chinese projects, including impropriety in tendering and allegations against Chinese companies lobbying for projects or the local partners that have helped them. At the same time, stakeholders say that officials periodically pass on requests and unofficial advice to not be too harsh in criticizing initiatives led by China, and that on occasion they suggest carrying reports that would be positive for its image.194
The gap between the extent of Chinese initiatives and the public’s awareness or opinion about those initiatives is widest in the case of Bangladesh. Of the four, it is the one with the greatest number of infrastructure projects being developed with Chinese assistance. Bangladesh also has a relatively well-established security relationship, based on the purchase of military hardware, with China. However, China is hardly ever present in the public’s imagination. To tackle this, the Chinese embassy prioritizes outreach to the media instead of trying to coerce it with criticism of editors and stories. It has aimed largely to shape the message, not to bury it. Scholarships that allow journalists to spend up to a year in China are awarded frequently. Some of the journalists involved have even been hired by Chinese state-owned media. The embassy also organizes workshops on various aspects of BRI engagement in Bangladesh, in partnership with local newspapers. Embassy officials, including the ambassador, regularly visit these newspapers’ offices and meet their staff in friendly exchanges.195 The Chinese embassy is more sensitive to issues touching Tibet than to criticism of the BRI. In 2016, for instance, it objected to an exhibit in the Dhaka Art Summit that featured letters written by Tibetan protesters who had self-immolated. The organizers eventually had to cover up the art, in an echo of the kind of pressure related to Tibetan issues visible against civic organizations in Nepal.196
Stakeholders argue that the gravest challenges to civil society in Bangladesh arise not necessarily from reporting on China itself but from showing the government’s cooperation with China in a bad light. Media ownership is opaque and rests with a few families with close business or political connections. Financial statements are seldom made public, and there is little official information about media owners or their other business interests.197 Weak media freedom is a systemic vulnerability in Bangladesh, and one that is deepening. RSF notes regular incidents of intimidation and detention of critical journalists.198 The Digital Security Act, which allows the police to make arrests without warrant, has been widely used to arrest media workers for allegedly criticizing the government on online platforms. This has extended to cartoonists, photojournalists, and reporters.199 Media weakness can also show up in the form of self-censorship: for instance, interviewees say that when periodic incidents of unrest occur due to labor trouble in China-funded projects, it is likely that laws and informal directives from the government are being used to keep them out of the papers. USAID’s 2019 Civil Society Organization Sustainability Index (CSOSI) notes these problems and states that the reasons for shrinking civil society space in Bangladesh can be traced back to self-censorship, intimidation, and clampdowns on protests.200
Nascent, recovering media in Maldives
The media situation in Maldives has shown strong signs of improvement in recent years, with the country steadily improving its score in the World Press Freedom Index.201 This owes much to the rollback of a draconian defamation law as part of President Solih’s electoral promise of ensuring press freedom. The law passed in 2016 threatened jail time and hefty fines for journalists accused of slander.202 The regime of former president Abdulla Yameen was known for its antagonistic approach to the media, often shutting them out of covering important political developments. Arrests of journalists occurred regularly; for example, in 2018 when British and Indian reporters were among those detained by police when covering an impasse between the Supreme Court and the president.203 When a popular blogger was stabbed to death in 2017, his family said that “Maldives is a dangerous place for anyone who dares to criticize the ruling regime, or who expresses opinions about the state of society.”204
More recently, however, there have been fewer instances of muzzled reporting on China-related issues or of censorship. Under Solih, newspapers regularly report on China-funded projects and on corruption or impropriety in awarding contracts. However, the media landscape is still nascent with limited expertise on the editorial and organizational aspects of media work.205 Popular newspapers have shut down, even under a government that is not antagonistic toward the media,206 and media independence and self-regulation are far from complete. Regulatory organizations like the Maldives Broadcasting Commission (MBC) and the Maldives Media Council (MMC) include active involvement by the government—the president nominates members to the former, while the minister of information nominates the public candidates to the latter. Reports suggest the government is planning to merge the MBC and the MMC with the eventual aim of giving the government and the parliament regulatory power over media outlets.207 This could potentially become a weapon in the hands of a future government antagonistic toward the media. It could also be a vulnerability if Chinese or other actors pressure the government to use this power to stifle critical reporting.
The regime’s long hand in Sri Lanka
In Sri Lanka, the mainstream media has traditionally been pro-government. As a result, the degree of its pro- or anti-China leanings has depended on the outlook of the government of the day.208 RSF describes media ownership patterns in the country as “concerning” because just four entities—including the government—account for 75 percent of the print readership. Many of the nongovernment media owners are known to be associated with politics, leading to questions of independence and bias.209 According to CSOSI, conditions for civil society, including the media, had improved since 2015 but started to decline in 2019. It attributes this to rising scrutiny by the state and instances of harassment.210
There were reports critical of the government during the early years of Mahinda Rajapaksa’s tenure as president, which was marked by the end-phase of the civil war and the final defeat of the LTTE. In the same period, there were several high-profile cases of abductions and murder of journalists.211 International human-rights organizations raised the issue of the protection of journalists and questioned the role of the Rajapaksas in obstructing the investigation of cases. One journalist who went into hiding after Mahinda Rajapaksa was elected prime minister in 2019 claimed to have been targeted in 2008 and again in 2019, and he told Human Rights Watch that “every time the Rajapaksas come to power, journalists are threatened.”212 The Rajapaksa regime was also accused of buying influence. According to one investigation, the government gave free laptops and interest-free car loans to over 500 journalists, while the treasury used taxpayer funds to pay the interest on these loans.213
The China–Sri Lanka relationship has been under greater scrutiny in the media since 2015, when the Sirisena government came to power. This has mostly, however, meant reports questioning decisions by the earlier Rajapaksa regime, not necessarily questioning China’s actions. The Tamil-language media has been more outspoken than the Sinhala media, albeit using nuance to get their point across. For example, they have suggested that China has always had its own best interests, not Sri Lanka’s, at heart while engaging in the country.214
The practice of calling a government in Sri Lanka pro- or anti-China is more common in the foreign media than in outlets within the country. Domestically, a government developing close relations with China is generally reported far more tactfully. The media tend to depict governments as pursuing nonalignment and not necessarily leaning toward Beijing—for instance, the Sirisena government’s decision to continue with Rajapaksa-era Chinese infrastructure projects and loans was mostly framed in these terms. Recently, however, the passage of the Colombo Port City bill and subsequent disclosure of the exceptions built into it has ignited a debate. Part the political and administrative elite seems to believe that Sri Lanka’s eagerness to benefit from its friendship with China is moving it too far away from the principles that guided its relations with other countries.215
The Chinese embassy has attempted to pressure media outlets into retracting unfavorable reports, directly or through the government. Media outlets are frequently contacted to retract reports or to “issue clarifications.”216 In 2020, the Twitter handle of the Chinese embassy was suspended for a short while after it used harsh language to criticize anti-China views in Sri Lanka.217 One interviewee suggested that, in the absence of laws that bar foreign funding for media organizations, China has invested in local media organizations, including helping to set up a Buddhist television station, although this allegation cannot be investigated or proven.218 Since 1963, the state-run China Radio International has been running its Tamil service from Colombo, which is its most popular international service.219 Its Sinhala language service has run since 1975.220
The last word
Civil society in the four states in this study are a mixed bag in terms of their ability to monitor independently Chinese inducement and pressure. Nepal and Sri Lanka fare well, though in different ways. While Nepali media organizations present a multitude of views, they have been facing mounting pressure when it comes to Tibet. Reporting of the issue is discouraged, and penalized in some cases. Organizations and individuals working with Tibetan refugees are restricted in what they can do and how they express themselves. Sri Lanka has seen more questions raised about the connections between the Rajapaksas and China since 2015, when Sirisena was elected president. Significantly, in both cases Chinese stakeholders in the country use their connections in the government to discourage actions that may be construed as critical of China.
In Bangladesh and Maldives, the problem is one of limited capacity and the role of the government in guiding the media. Bangladeshi media is prolific in its reporting of delays in China-led projects or in questioning the terms of agreements signed with Chinese companies. However, there are fewer articles that directly question the government’s decisions on engaging with China. Interviewees mention unofficial advice that is often passed on from various quarters of the government to guide the tone on issues concerning Bangladesh’s neighbors. In Maldives, where the civil society space is nascent, the government’s guidance of the media is more direct in terms of their association with regulatory bodies. In both countries, pressure for anticipatory compliance can be used by Chinese or other foreign actors that are close to the government to influence the narrative.
VULNERABILITY 3: INFLUENCE-ABLE ELITES AND POTENTIAL CAPTURE
Examples of vulnerability to elite capture include systemic or entrenched elite corruption and chronic crony capitalism. These can provide fertile ground for influence buying by an outside power or interest group. External funding can, as well, influence the findings of local research institutions.
Of the four countries studied, Bangladesh has the strongest state with the fewest indications of elite capture. Its political system is anchored by a strong political party in power that has no need to turn to foreign influences or supporters to bolster its domestic position. It is also the country whose ruling elite has most skillfully navigated and balanced relationships with India and China. The leadership’s actions suggest that tilting toward either will limit the elite’s and the country’s room for flexibility; thus, there has been no need to lean too heavily on Chinese influences for political support. At the opposite end of the spectrum lies Sri Lanka, whose elite has been prone to foreign influence and even capture because this buttresses domestic needs.
Nepal and Maldives are midway between Bangladesh and Sri Lanka in the relative strength of their elites in the face of foreign money and enticements. The Solih government in Maldives has rejected the significant Chinese influence that had shaped the priorities of the Yameen government, but this could change if power changes hands. While Nepal-China relations have evolved rapidly under the last several governments, recent communist ones have been more open to direct influence from Beijing, raising questions about how durable that will prove to be now that the Nepali Congress is back in power. In both countries, future elections will likely indicate whether the elites that will govern in the coming years will be those whose political weakness or financial circumstances make them more or less prone to capture.
Cultivating the Rajapaksas in Sri Lanka
Where domestic institutions and civil society are relatively robust, Chinese actors have turned to political and business elites in highly personalized ways to pursue and support Chinese interests. Still, it is hard to conclusively establish connections between elites and foreign stakeholders.
For China, the late 2000s provided an opportune moment to cultivate the Rajapaksa family in Sri Lanka, where state institutions are comparatively strong. The country was then grappling with the end of the twenty-five-year civil war that left the country polarized and the regime drawing international scrutiny for its human-rights violations. The economy was heavily reliant on short-term external financing, with capital flows falling as a result of the global financial crisis, leading to a demand by the elite for alternative sources of capital.221
China was already the largest donor to Sri Lanka by the end of the 2000s, offering over $1 billion in aid annually since 2008 without conditioning it on improvements in internal governance.222 Its unwavering support for the Rajapaksa government on human-rights issues at international forums, most significantly the UN Human Rights Council (UNHRC), further cemented its relationship with the family. The economic relationship flourished with Chinese investment in several mega projects, including the Hambantota Port in Mahinda Rajapaksa’s home constituency, started in 2008, and the MRIA, started in 2009. The proposal for the Colombo Port City was submitted to the government in 2012. By 2011, China accounted for the largest share of FDI flowing into Sri Lanka. Around the same time, it overtook Japan as the largest provider of development assistance.223
The close relationship between China and the Rajapaksas truly became public only after Maithripala Sirisena became president in 2015. By this time, however, Chinese actors were so deeply entrenched in Sri Lanka that no government could simply reverse the trend. The country had joined the BRI in 2014, and Chinese financial institutions and SOEs were on the lookout for even more opportunities to loan and invest, partner and build. Sirisena and his prime minister, Ranil Wickremesinghe, soon turned to Beijing too. Investigations began to reveal a rush to launch projects without feasibility studies and environmental assessments.224 The lack of a transparency clause in some Chinese loans meant that decisionmakers had steered projects to Chinese contractors often without following a tendering process. For example, the Colombo Port City project was awarded to CHEC without competitive bidding, with the company submitting a proposal after Mahinda Rajapaksa visited the prospective site.225 As one interviewee put it, the more Sri Lanka bought, the more corrupt politicians gained.
The Rajapaksas’ favoritism toward Chinese companies has faced regular criticism. Studies comparing interest rates on loans from Chinese institutions against those from the ADB or the World Bank have found the former to be comparatively expensive, raising questions about the logic and cost of borrowing from China.226 The hold that China had over the regime between 2005–2015 through companies and projects is evident in the way that agreements were proposed as well as the means through which the projects were carried out. For example, in the initial agreement for the Colombo Port City the government agreed to compensate CHEC in case of damages from a natural disaster. The agreement also stipulated that the airspace above the project would be considered Chinese airspace.227 These pledges were revised when the Sirisena government renegotiated the agreement.
However, the current Rajapaksa government pushed through the Colombo Port City Economic Commission Bill in May 2021. This sets up the Colombo Port City SEZ and Colombo Port City Economic Commission to go ahead, notwithstanding the concerns expressed by some in Sri Lanka. The bill has met with political opposition and widespread criticism.228 Opposition politicians have objected on various grounds, from claiming that it—in effect—establishes the port city as “a province of China” to claiming that it makes Sri Lankans “servile” to foreigners and noting that it violates twenty-five acts passed by parliament.229 While some of this criticism is hyperbole, the bill was pushed through even though a petition against it was still being considered by the Supreme Court. The court found parts of the bill unconstitutional and asked for a referendum, but the parliament eventually passed it, albeit after accepting suggested amendments.230 This incident is in stark contrast with Sri Lanka’s approach to infrastructure projects aided by other partners where the government has been open to revising its decisions. Examples include approving and then declining the MCC grant from the United States; or, deciding against developing the Colombo East Container Terminal with India and Japan in the face of domestic protests.231
Allegations that the Rajapaksas were captured by Chinese interests have circulated since Mahinda’s first term as president. After the 2015 elections that swept Sirisena and Wickremesinghe to power, agencies started investigating allegations that CHEC had paid over $1 million to fund Mahinda’s election campaign. CHEC’s parent company denied these allegations. The Chinese embassy waded into this controversy, vouching for the innocence of the company.232 In 2016, an associate of Mahinda’s brother, Basil, admitted that he had been given a large sum of money to purchase sixteen acres of land and build a house on it. It was alleged that the real owner of this land and house was Basil himself. The authorities eventually decided to auction off the property.233 Others in the family, including Mahinda’s son, Namal, and his brother, the former defense minister and current president, Gotabaya, were accused of embezzlement and money laundering.234 In 2019, the Rajapaksas were accused of selling off prime land belonging to the army to an international hotel chain.235 However, most of the charges were dropped and Gotabaya received immunity in 2019 when he became president.236
Maithripala Sirisena fought the election of 2015 on a platform explicitly built around taking back the country “from foreigners.” Referring to the presumed closeness between the Rajapaksas and China, he said that “this robbery is taking place before everybody and in broad daylight . . . if this trend continues for another six years, our country [will] become a colony and we would become slaves.”237 Soon after his inauguration, Sirisena visited Beijing to renegotiate more than $5.3 billion of deals signed by the previous government.238 China-funded projects were put under scrutiny and—in a move that would reduce the government’s dependence on China at the UNHRC—he signed a resolution to reconsider the government’s role in the civil war through transitional-justice mechanisms.
However, despite pledges to “protect Sri Lanka’s sovereignty” from Chinese lending, the poor state of the economy soon forced Sirisena’s government to turn to Beijing once again.239 Projects that had been placed under review were cleared as well. China accepted this renewed momentum, calling itself a friend of all Sri Lankans.240 The familiar process of grants, loans, and projects started once again.241 The Sirisena government also agreed to allow Chinese SOEs to take a controlling interest in managing the Hambantota Port under a ninety-nine-year lease. Even at this time, certain developments worked in favor of Chinese companies. For example, Wickremesinghe admitted that the government had agreed to Beijing’s request that the first set of proposals for operating Hambantota Port be solicited from Chinese companies.242
The return to power of the Rajapaksas in 2019 has been seen by both China and the returned ancien regime as an opportunity to revive the old partnership. While the Sirisena years saw the government solicit and accept Chinese help, they were also marked by greater freedom of speech, including the lifting of bans on news websites that had been critical of China-linked projects. This allowed the China–Sri Lanka relationship to be questioned in popular discourse, even as it advanced on many fronts. It also enabled public dissent against the Rajapaksas.243 This was a shift in the operating environment for Chinese actors. In one instance, the Chinese embassy commented that the “Sri Lankan people and government should have some gratitude for the things given.”244 This openness under Sirisena has affected the ability of Beijing and Rajapaksas to resume the earlier arrangement seamlessly. However, it has not stopped China from reaching out to various constituencies across the political spectrum, most recently on the occasion of the hundredth anniversary of the CCP, when Beijing invited twelve Sri Lankan political parties to attend a commemorative conference in June 2021.245
President Gotabaya Rajapaksa has let his preference for “China-style development for Sri Lanka” be known. Apart from the CHEC Port City project, some argue that an FTA is the key to the success of this putative model. The government has reportedly removed officials in the National Medicines Regulatory Authority after they questioned a decision to import Sinopharm vaccines, which were at the time unapproved by the World Health Organization. Yet soon after, 600,000 doses were imported.246 In the meantime, some have claimed that the government is setting up a process to sell more state-owned prime land to CHEC and its local intermediaries.247
Chinese engagement of civil society in Sri Lanka
Chinese interests have sought to capture and influence key individuals in Sri Lanka’s vibrant and robust media, as an alternative to politicians, to get their view across in the public discourse. Interviewees note various instances of the Chinese embassy reaching out directly or through the government to ask for retractions or clarifications on reporting it considers inimical to China’s image. In some cases, the embassy has developed highly personalized relationships with journalists to glean insights about the workings of media organizations and to wield influence over them. The goal is to have enough clout in various publications to be able to intervene in the editorial process when an article that China believes shows it in a negative light is about to go to print. The influence would allow China to have such articles spiked before they are printed, avoiding the messy process of demanding retractions after the fact.
Chinese actors also find it effective to operate through proxies. Websites modeled after traditional mainstream news websites funded by Chinese sources disseminate news and opinions that focus on portraying China positively. These websites are secretive and do not disclose ownership or funding details. Interviewees point out that, while the COVID-19 pandemic has hurt traditional media whose revenue has decreased, these websites continue to be well funded, often in the form of advertisements or sponsored articles from Chinese companies or the embassy.248
Organizations dedicated to good relations and friendship between the two countries—for instance, between elite journalists—have an active online and social media presence, helping to amplify positive impressions about China. China-linked journalists sometimes publish op-eds in mainstream newspapers on topics ranging from criticism of Western media’s propaganda about COVID-19 to commentary against “U.S. imperialism.”249 In some cases, publications acknowledge their Chinese partnerships, as in the case of the Sri Lanka Red Cross Society, which publishes the quarterly magazine Subhasara jointly with China Radio International.250 Similarly, the Sri Lanka-China Journalists Forum and the Chinese Cultural Centre sponsor the bi-monthly magazine People’s Republic of China.251 To reach out to the public-policy community, institutions associated with China’s State Council or the CCP have started directly building ties with Sri Lankan think tanks for knowledge and experience sharing.252 Chinese actors also directly fund educational institutions to set up specific centers, such as the Chinese Academy of Sciences funding the China-Sri Lanka Center for Education and Research at the University of Ruhuna in the southern part of the country.253
Cultivating political elites in Nepal
In Nepal, a whole new political elite has emerged as a result of the end of the Maoists’ guerilla struggle, the collapse of the monarchy, and the formation of a presidential republic in 2008. India’s 2015 economic blockade further changed the elite by entrenching a group of politicians carried along by a groundswell of anti-Indian sentiment and a desire in Kathmandu to forge closer relations with China. The communists, who were in power between 2018 and July 2021, were also ideologically receptive to China, with greater willingness to accommodate it on Tibetan issues, and interested in nurturing closer ties to the Tibet Autonomous Region. Taken together, these dramatic changes since 2008 have created fertile ground for China to turn the elite into a sympathetic constituency.
China’s engagement with Nepali elites focuses on political affairs to the point of contradicting one of the central tenets of its diplomacy, namely that about noninterference in a country’s internal affairs. In 2017, as the Madhesis and other marginalized groups decided to oppose elections over their objections to the new constitution, China provided $1 million to the government to hold the polls. As expected, the China-friendlier Dahal-led government showcased this Chinese support for the government and the new constitution.254 More recently, as the two factions of the communist party sparred in 2020, China’s Ambassador Hou Yanqi was particularly active, meeting leaders from various parties and the leading protagonists of the two factions—Dahal and Oli.255 She even met the president to attempt to broker a truce; however, this meeting created a minor diplomatic incident for being held without the knowledge of Nepal’s foreign ministry.256 (A former Nepali ambassador to China has claimed that there was nothing unusual about Hou’s meetings—it was normal diplomatic practice for an ambassador to try to understand the political situation during a crisis.257) Once it was clear that Oli and Dahal were not going to reconcile, a team led by the vice minister of the International Department of the CCP traveled to Sri Lanka to meet senior politicians and support Hou’s efforts.258 In its five-day visit, the delegation met the president as well as Dahal, Oli, and other senior party leaders in a final attempt to resolve the crisis. It also reached out to opposition leaders, meeting former prime ministers Sher Bahadur Deuba and Baburam Bhattarai, in case the Oli government were to be replaced by a non-communist one.259
The Nepal-China political relationship has also included workshops organized by the International Department of the CCP aimed at cultivating individual political workers, especially those belonging to the CPN-UML. One such meeting was organized virtually at the height of China-India border tensions in 2020.260 The other, a two-day symposium on “Xi Jinping Thought,” was held days before Xi’s visit to Nepal in 2019.261
The scope and scale of Chinese money inflows—jumping to $220 million in FDI for fiscal year 2019–2020 from $116 million the previous year—has the potential to fuel individual-level corruption.262 The inflows fund a range of projects, from government-to-government agreements on major infrastructure projects to micro-enterprises in the private sector. The problem of influence and corruption has arisen frequently, and Chinese actors have all but acknowledged it. For instance, a Chinese corporate participant in a workshop at Fudan University said that “every political party, government body, local pressure group and other visible and invisible groups [in Nepal] have to be paid.”263 Interviewees suggest that corruption is prevalent even at the level of senior political leaders.264
Chinese capital has flowed into major projects located in the electoral constituencies of major communist party leaders. One example is an industrial park slated to be in Oli’s constituency at the cost of millions of dollars.265 Procurement, too, has raised the specter of elite corruption. In 2016, when the tourism ministry insisted on the purchase of six aircraft from China with a concessional Chinese loan, the national carrier, Nepal Airlines Corporation, objected that the planes would be grounded often as well as cost too much to maintain and insure, affecting the airline’s profitability.266 After the ministry insisted, the planes were purchased but, as predicted, they were soon grounded and the airline is now looking for buyers for them.267 There have also been attempts to steer contracts to Chinese companies without competitive bidding. In 2018, the contract for a digital action room in the Prime Minister’s Office was canceled after it emerged that it had been awarded to Huawei without an open tender, as required by laws on public procurement. Tendering was skipped in this instance under direct pressure from an adviser to the prime minister.268
Other cases of noncompetitive contracts include the $2-billion, 1,200-megawatt Budhigandaki Hydropower Project, which has been plagued by allegations of impropriety. In 2017, the communist government led by Dahal awarded the project to the state-owned China Gezhouba Group Corporation (CGGC). There was no competitive bidding, and the agreement was signed with much fanfare in the presence of the prime minister and China’s ambassador.269 Later that year, the new government led by the Nepali Congress’s Sher Bahadur Deuba rejected the agreement after a parliamentary committee judged it irregular and nontransparent.270 However, once a communist-led government came to power again in 2018 with Oli at the helm, that decision was overturned and the project was awarded once again to CGGC without competitive bidding. In sum, projects have not followed the national interest so much as they have followed the interests of the individuals and political parties in power at any given moment.271
The last word
This analysis finds Sri Lanka to be the state where elite capture and crony capitalism has advanced the most. As evident under the Sirisena government, attempts to curb Chinese influence are limited by the heavy dependence of the economy on foreign inflows. Additionally, the Rajapaksa government’s need for external support after the end of the civil war, as well as its proclivity to limit and shape civic discourse, offered Beijing a continuing opportunity to increase its influence.
Bangladesh, led by a party strongly in control of the political process, is at the other end of the spectrum, with fewest indicators suggesting undue Chinese elite engagement or capture is underway. However, with a growing number of questions about undue influence of the administrative machinery over the electoral process, the general election in 2023 will be crucial. If the incumbent government has to turn to its powerful neighbors for an endorsement of its legitimacy in a postelection scenario, this will allow China to make further inroads.
Upcoming elections in 2023 and 2024 are also crucial for Maldives and Nepal. They will determine the direction that these countries take to confront challenges at home in the face of enticements from abroad. In Nepal, the communist regime in power over the last few years has been more receptive to Chinese influence. The current Nepali Congress–led government does not share the ideological closeness of the previous government with the CCP, but it has inherited the need to develop alternatives to Nepal’s overdependence on India as its supply and infrastructure link. Similarly, a future government in Male may decide to reverse the current one’s decision to turn away from China if that means greater support for the economy in a post-pandemic scenario along with assistance in infrastructure development. Either development will allow greater involvement of Chinese actors in these countries, increasing the likelihood of influence peddling and entrenchment.
LESSONS LEARNED
China’s Goals
China’s main asset is its economic levers of influence and Chinese actors are proactive in wielding these.
China’s primary instruments of influence in the four countries are economic, though they serve longer-term Chinese strategic ends and help expand its influence in a region that has traditionally been considered as India’s strategic backyard. Its loans to Sri Lanka were at $4.6 billion in 2020, despite the pandemic, and the figure for Maldives is believed to be between $1.1 and $1.4 billion.272 China is helping to construct mega infrastructure projects in every country in the region, in most cases with money that it has lent them. Chinese actors are proactive in seeking opportunities: interviewees offered various examples of them approaching public or private stakeholders in the four countries with suggestions for engagement.273 Chinese actors identify opportunities and make offers without waiting for the country to ask first. Chinese embassies, SOEs, private firms, journalists, and other actors present in a country share information with one another and coordinate insights to identify and hone these prospective opportunities for engagement. These could involve building local capacity, identifying a business partnership, or offering technology packages and financing around, for example, 5G telecommunications. Many Chinese companies active in the region have gauged the importance of specific big-ticket projects to the governments they are soliciting and the role that Chinese investments could play for incumbents who must face the voters. Project completion is often timed to coincide with upcoming elections, offering parties in power an achievement to showcase, thereby increasing their chances of greenlighting a proposed Chinese project in the first place.
This proactive approach has earned China much goodwill and trust.274 If proposals do not work out or if they do not win a government’s approval, Chinese companies try to keep a low profile instead of leaving the country. In Maldives, for example, once Chinese contractors found their access restricted after the change of government from Yameen to Solih, they offered extended liability periods on completed projects to ensure continued access.275 In Sri Lanka, Chinese contractors stayed on through years of controversy and bad press over projects, earning goodwill as reliable partners.276
In cases where Chinese actors are unable to immediately identify fresh opportunities for collaboration, they offer to improve upon the host country’s existing collaborations with third countries. In Nepal, for instance, China’s forays as a development partner often involved offering larger versions of projects that India was already working on, promising to complete them faster than India could and at a lower cost.277
This model seems to be making its way from Nepal to other countries, such as Bangladesh.278 In recent months, China has sought to establish a collaborative network across multiple countries to tackle COVID-19. And once the voluntary COVID-19 emergency fund proposed by India failed to take off in South Asia, Foreign Minister Wang Yi met his counterparts from Afghanistan, Bangladesh, Nepal, Pakistan, and Sri Lanka to discuss avenues of cooperation similar to the Indian effort, expanding pandemic mitigation to include economic cooperation, and regional development as means of recovery.279
China’s tools of influence are becoming much more diverse.
China employs a repertoire of means to wield influence, but how these are leveraged depends on the extent of its engagement in a country, on the robustness of that country’s institutions, and China’s personal relationships with key regime actors. These means now include coercive punishment to deter certain actions that are perceived to be inimical to Chinese interests or to compel compliance. China also continues to use tools of persuasion and positive incentives too.
Coercive threats have been used as tools of negative influence in several ways, including over-the-horizon threats that lead local actors to self-censor. For instance, in February 2020, when a Nepali newspaper carried an article on the secrecy surrounding the origins of the coronavirus, the Nepali embassy in China preempted criticism by releasing a threatening statement, asking Nepali newspapers to avoid stances that might negatively affect relations between the two countries.280 In the event, the threat failed to yield the desired result. Nepali editors refused to back down, reminding the embassy that the only way to protect the freedom of the press guaranteed by the constitution is to exercise it.281 But such a reaction can then yield more direct threats from China. A similar article in one Sri Lankan newspaper led the Chinese embassy to reportedly request the government to ask the newspaper to retract it.282
Elsewhere, China has aimed to avoid bad press through blandishments and incentives, including buying advertisements, offering collaboration for a media outlet with the embassy, making job opportunities in China available to local journalists, or offering fellowships in China. In Bangladesh, the Chinese embassy regularly takes out full-page advertisements in local dailies, and embassy officials, including the ambassador, have visited newsrooms and participated in moderated discussions with the staff to build positive relationships that can yield positive coverage.283
China uses cultural programs in similar ways, directly connecting with people to spread its influence. In Sri Lanka, this has been done by promoting connections around Buddhism—with CHEC helping to construct an international Buddhist university. Through the port city project, the company has also donated books on Confucian thought to this university.284 Cultural connections have proved to be useful tools of positive influence in Nepal as well, as demonstrated by China’s minister of press and media visiting culturally significant sites at Lumbini and Tilaurakot, and participating in the 2,640th Buddha Jayanti program organized by the Jonghua Gumba of China at the Mayadevi temple in Lumbini in 2016.285
When incentives fail to convince, threats can be used in pursuit of Chinese interests. In Maldives, for example, reports suggest that during negotiations over the FTA in 2017, the Chinese embassy tied all future financial assistance to its signing.286 Similarly, in Bangladesh, China’s state-owned Sinohydro Corporation tied the completion of the Dhaka-Chittagong highway expansion project to the signing of a new contract on management of the river waters near the Padma Multipurpose Bridge project.287 Carrots and sticks are sometimes wielded by proxy. For example, when U.S. Secretary of State Mike Pompeo complained publicly about Sri Lanka’s deepening relationship with China during his visit in October 2020, the Sri Lanka-China Friendship Association responded with strongly worded statements calling out what it considered “misinformation” and U.S. “imperialism.”288 In Bangladesh, stakeholders tell of cases in which government officials have informally offered advice about how to write stories about “friendly neighbors.”289 As an interviewee points out, while some lower-circulation newspapers report on disagreements between Chinese contractors and their local employees, the mainstream media seldom covers this topic.290
There is no “debt trap” in the four countries.
The greater exposure of some countries to Chinese loans has contributed to the narrative that China practices “debt-trap diplomacy.” According to this view, China offers easy money to fund infrastructure projects that eventually are found to be unviable. This allows the lending Chinese entity to gain a foothold and even seize the asset by converting debt to equity or dictating new terms.
However, this narrative can be questioned. For example, the Chinese share of Sri Lanka’s debt is vastly exaggerated: one study from March 2020 put it at just 6 percent of GDP, with more owed to other creditors.291 The fact is that Sri Lanka has a foreign debt problem and needs better debt management. As one member of the Sirisena government claimed in 2016, soon after it came to power, the country had to borrow from China because no one else would lend to it anymore.292
Of the other three countries, only Maldives has considerable exposure to Chinese commercial loans. Nepal and Bangladesh have been careful in choosing their funders and methods of financing to ensure less dependence on Chinese money. While Bangladesh tries for soft loans over commercial loans, Nepal prefers grants over soft loans.
TABLE: TYPES OF CHINESE ASSISTANCE TO NEPAL BETWEEN 2013–14 AND 2019–20 (IN MILLIONS OF U.S. DOLLARS)Year/Types Grants Loans Technical Assistance Total
2013/14 - - - -
2014/15 28.8 9.2 0 38.0
2015/16 27.1 8.1 0.1 35.3
2016/17 41.2 0 0 41.2
2017/18 36.4 18.5 3.8 58.7
2018/19 106.0 44.4 0 150.4
2019/20 33.0 0 60.0 93.0Source: “Development Cooperation Report Fiscal Year 2014/15,” “Development Cooperation Report Fiscal Year 2015/16,” “Development Cooperation Report Fiscal Year 2016/17,” “Development Cooperation Report 2018,” “Development Cooperation Report 2019,” and “Development Cooperation Report Fiscal Year 2019/20,” Nepal’s Ministry of Finance, accessed July, 2021, https://mof.gov.np/site/publication-category/65.
When China reached out to the Prime Minister’s Office in Bangladesh in 2015 offering to finance ten major infrastructure projects, the government decided to evaluate the offer against those from other development partners like Japan and India.293 Similarly, Nepal has turned to the World Bank multiple times for COVID relief. First, it accepted $104 million under the COVID-19 Emergency Response and Health Systems Preparedness Project.294 Then, it borrowed $800 million for various infrastructure and urban renewal projects between April and November 2020 for post-pandemic economic recovery.295 While Nepal has accepted China’s help in the form of testing kits, medical equipment, and vaccines, it has not looked to it for financial assistance to cope with difficulties associated with the pandemic. According to one interviewee, borrowing from the World Bank made far more sense because of more favorable interest rates. Nepal has also had other options, including soft loans, concessional loans, and development grants from traditional agencies such as the World Bank and the ADB, and other bilateral partners such as the United Kingdom, the United States, or India.296
Countries are learning from each other and changing how they exercise agency as a result.
Perhaps the most important conclusion of this study is that none of the four countries is an island anymore when it comes to dealing with China. Workshop participants and interviewees in all of them made it clear that stakeholders are acutely aware of the perils of overdependence on China and are eager to avoid that prospect. Many brought up the experience of other countries when discussing their own country’s engagement with Beijing. In particular, Sri Lanka’s initial struggles to make the MRIA and the Hambantota Port viable, and the subsequent investment by Chinese SOEs in Hambantota, were brought up often by actors from the other three countries. Clearly, Sri Lanka’s experience has become a significant reference point.
Despite common misperceptions, the four countries do exercise agency and ultimately determine the terms of their relationships with China. They have rejected specific projects found to be untenable. In Bangladesh, the cancellation of the Sonadia deep-sea port in 2020 after China changed the terms of funding from a soft loan to a commercial loan is a case in point.297 Instead, Bangladesh is proceeding with the construction of a deep-sea port at Matarbari, about twenty-five kilometers from Sonadia. According to the government, the new project is funded by a loan of $3.7 billion from Japan at an interest rate of 0.1 percent over thirty years with an initial ten-year grace period.298 Earlier this year, the Prime Minister’s Office stepped in to slash the budget of two crucial rail line projects being built with Chinese loans after they were found to be too high. The embassy in Dhaka has said that China is pulling out of the project.299
Bangladesh is not alone in canceling projects. The Nepal Electricity Authority terminated a contract for the first section of the Upper Tamakoshi-Kathmandu transmission line after the contractor, Guangxi Transmission and Substation Construction, finished only 8 percent of the work within the stipulated time.300 Subsequently, in a meeting with China’s ambassador, the energy minister questioned the performance of Chinese companies in the country, asking for different and more efficient Chinese companies working elsewhere in the world to be given responsibility for projects instead.301
The four countries display assertiveness and determination in the other aspects of their engagement with China as well. For instance, even as political engagement between the CCP and political parties in Sri Lanka is on the rise, some actors prefer to stay away, ideological affinity notwithstanding. The Janatha Vimukthi Peramuna, the country’s principal communist party, did not participate in a commemorative event in June 2021 to celebrate the CCP’s centenary. It has been opposed to the terms agreed by the Rajapaksa government for guiding the operation of the Colombo Port City, arguing that under the current terms, the port city will be “another province of China.”302
It is the governments of the four countries that have pulled China closer in many instances for what they see as clear benefits. Ties to China can provide domestic political advantage ahead of elections, put the opposition on its heels, and deliver public works and other benefits to constituents. Hambantota Port, built in Mahinda Rajapaksa’s constituency, started operations just in time for the former president’s sixty-fifth birthday.303 Similarly, a China-funded industrial park in former prime minister Oli’s constituency has been in the news in Nepal since protests broke out over money given as compensation for land.304 Generally speaking, China has not imposed tough governance-related conditionality on projects, making them even more attractive to politicians who want to deliver quick wins. These projects lack best practices for rehabilitating displaced persons and the environment, and even more so, demands related to human rights or electoral practices.305
China and its partners are still having teething trouble—for now.
China is a relatively new entrant in South Asia, and it is still in the process of familiarizing itself with the institutions and organizational cultures of the four countries. As a stakeholder notes, China does not know their “system, language, or culture” especially well.306 Likewise, these countries have only recently begun deepening their engagement with China and are still learning how it thinks and functions. This accounts for the gap in their understanding and communication of their respective needs and priorities.
One case in point is the incident involving the Chinese ambassador to Bangladesh commenting negatively on the possibility of the country joining the Quad. The very next day, the ambassador and the Bangladeshi foreign minister were photographed at an event celebrating Beijing’s gift of 500,000 doses of Sinopharm COVID-19 vaccines.307 As in any engagement, there are bound to be missteps on both sides, but, considering the importance of the region to China and the importance of China to the developmental journey of the four countries, the two sides will learn to overlook these and work together.
India is still a more significant strategic player than China.
India continues to be the state with the most influence on the choices, interests, and conduct of the four countries, even though the balance is gradually shifting toward China. India is more than just a hugely significant trading partner for most of these countries and one of their top sources of FDI.308 It also wields historical and social connections, and, above all, it is deeply entrenched in their domestic politics in ways that China simply is not. Various political actors have benefited from official and unofficial Indian support at various times. Moreover, the Indian military is the biggest in the region and is operationally active across it. This has been useful for some of these countries—for Maldives to prevent a coup in 1987, and for Bangladesh to establish itself as an independent nation in 1971.
All of these factors taken together suggest limitations to how deeply entrenched China can become in the region. For example, India’s objections have prevented Beijing from developing close operational security relations with the four states. However, India’s close presence in their social, political, and economic life also leaves it open to heightened levels of criticism, including allegations of meddling. Recent examples include a turning of popular sentiment against India after its 2015 economic blockade of Nepal, or Mahinda Rajapaksa accusing India’s external intelligence agency of being responsible for his election defeat in 2015.309
RECOMMENDATIONS FOR THE UNITED STATES AND ITS STRATEGIC PARTNERS
Consistency is the key to China’s regional engagement; it should be key to the United States’ as well.310
Steady engagement from the United States and its strategic partners is still very much desired by all four of the states surveyed. This includes Sri Lanka, whose local elites are the most predisposed toward engagement with China. As a key adviser to Mahinda Rajapaksa said at the time of the elections in 2019: “The thinking was, if we upset China, the West would come to us with endless bags of gold. . . But the bags of gold never materialized.”311 The solution to this problem is to meet the China challenge by assuring a consistent U.S. presence and long-term policy for the region. In the experience of these states, Western engagement has been piecemeal and fleeting, often dependent on the personalities working on the region in Washington and in the U.S. embassies. Stakeholders looked hopefully to the Biden administration and expressed a desire for arrangements like the Quad to yield greater engagement with South Asia. The decision at the first Quad summit to focus on vaccines, emerging technologies, and climate—three areas where China has made a big play to support South Asia—is useful in this regard.312
Stakeholders also argued that the United States could compete with China through nongovernmental means. In some instances, nonofficial channels were actually preferred, as these could enhance the U.S. role in the region while sparing local governments from having to appear to be choosing Washington’s side “against” Beijing. Some called for Americans, on a private basis, to launch more workshops to discuss China’s role in the region. These could also help with cross-national learning: in this project, for instance, workshop participants frequently asked questions of each other and shared experiences.
Chinese projects focus on what the four states are perceived to need; so should U.S. engagement.
One of the critical factors enabling China to escalate its engagement with so many South Asian countries at once is its willingness to make frequent offers and proposals but then also listen carefully to what its partners want. Connectivity and infrastructure projects are at the top of the wish list for all South Asian states and have become a key area of cooperation. To increase their profile in the region in the face of Chinese projects finance and investments, the United States and its partners must pay attention to what the countries are asking for. The Build Back Better World initiative, instigated by the United States and announced at the June 2021 meeting of G7 leaders, is a productive step in this direction.313 In conjunction with the Blue Dot Network, it has the potential to offer the kind of engagement these states have told China that they need.314 However in doing so, the United States must engage consistently across the spectrum of political parties and stakeholders. Workshop participants from Sri Lanka and Nepal, for example, attributed the failure of the U.S. MCC’s compact in the first case and the lack of political traction in the second to the absence of such a multi-stakeholder U.S. approach.315
The United States can also enhance its influence by helping the countries to improve their capacity vis-à-vis China. For instance, the United States can help provide technical assistance for managing debt. This does not have to mean formal debt relief, as envisaged in multilateral programs like the Multilateral Debt Relief Initiative. Instead, the United States can offer to assist the countries both before and after they agree to take Chinese loans.
In practice, this will mean helping states like Sri Lanka and Maldives not only to manage and restructure their overall foreign debt but also to become stronger negotiators by assisting them in developing terms and conditions that will strengthen their bargaining power in negotiations with Chinese actors. Stakeholders often mentioned how their bureaucracies can be inexperienced or lack the capacity to handle complex financial instruments, so China has wielded influence by offering to help them to handle the backend in a deal.316 However, this has resulted in private loans with sovereign guarantees, or sometimes agreements where conditions are unfavorable for the borrowing country. The United States can offer to train and build capacity that will prevent such outcomes in the future.
Finally, South Asian countries are on their way to attaining middle-income status. Sri Lanka has already transitioned to being a lower middle-income country and Bangladesh is projected to reach it by the end of 2021, years ahead of its 2026 target.317 This will make them ineligible to receive much concessional assistance, likely drawing them even closer to China for loans. Bangladesh and China have started discussions on a free trade agreement, and the commerce minister of Bangladesh has claimed that such a deal “will help Bangladesh face the challenges of LDC graduation.”318 The United States could use its influence in Western multilateral organizations to ease the transition and help these states develop alternative avenues for development assistance.
De-hyphenate U.S. engagement in the region from the Chinese question.
During the George W. Bush administration, the United States said that it was de-hyphenating its relationships with India and Pakistan. It is time to take a page from this playbook and de-hyphenate U.S. engagement with South Asia from the question of China. Stakeholders argued that a significant section of decisionmakers in their countries disliked what they perceive to be demands that make U.S. assistance conditional upon the countries reducing their exposure to China. That is unlikely to happen for several reasons.
As small countries, it is unlikely that Bangladesh, Maldives, Nepal, or Sri Lanka can afford to explicitly choose among relationships with bigger powers. Additionally, it is rarely an optimal strategy for a small country to go “all in” with just one major power, leaving themselves inside a bloc and reducing their options and opportunities.319 Not surprisingly, some of these states have played India and China off each other to extract the best deals to finance their development needs. That same tactic will likely occur if the United States enters the fray “against China.” Geopolitics can also lead the countries to make complex adjustments in their strategic calculus.320 Communicating a positive agenda, not just a negative one, will win greater favor among governments, businesses, and the public.
Acknowledge domestic drivers and build capacity to reduce space for China.
China’s ostensible policy of noninterference is one of its calling cards in South Asia. “China has never sought to influence the domestic politics of Sri Lanka,” claims one highly regarded former foreign minister of Sri Lanka.321 For countries that must deal with domestic fissures along multiple social, ethnic, and religious lines, that putative Chinese approach of noninterference is comfortable. As the United States aims to partner with these countries, it is faced with two equally bad options—to ask tough questions about internal governance and risk “losing” opportunities to China or to avoid these questions and allow governance challenges to deepen. Traditional multilateral organizations such as the ADB and the World Bank, whose funding is contingent on governance conditions, face the same issue.
One effective way to deal with this problem may lie in strengthening civil society and building capacity in these countries as a U.S. priority. China does not do nearly as much of this as the United States, preferring instead to focus on hard infrastructure. But all four states in this study have media outlets and civil society organizations that have been focusing on questions of good governance—from their regimes’ human-rights records to opacity in Chinese contracting practices. These groups are more effective in Sri Lanka and Nepal than in Bangladesh or Maldives. The United States can identify and equip them with grants and training to enable them and their audiences to ask tough questions and ask for transparency. Over time, capacity building could lead more stakeholders in these countries to see the dangers of opaque deals and ignoring environmental and other concerns. They would demand that their government partner only with those committed to international best practices in sustainability and accountability, which will raise the pressure on China and create new opportunities for the United States and its partners.
Finally, China leans heavily on project finance and direct investment because it is a relative newcomer to giving development assistance.322 Most Chinese projects in the four countries are undertaken by arms of various Chinese SOEs, which have been set up to concentrate exclusively on particular regions, not by the China International Development Cooperation Agency or its proxies. When Chinese companies give grants that have the flavor of development assistance, the miscommunication, delays, and failure to meet agreed terms can often be attributed to their unfamiliarity with this role. Through enhanced capacity building, the United States and its partners can ensure that stakeholders in these countries increasingly ask questions of Chinese actors when they fail to live up to their promises.
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