China’s Economic Imperialism in South Asia: Implications for India | Karamala Areesh Kumar and Lalitha. S

by Karamala Areesh Kumar and Lalitha. S

"There are two ways to conquer and enslave a country: One is by the sword; the other is by debt" —John Adams (former American President).

China, the 2nd largest economy in the world, has risen to the status of an economic superpower. Ever since China opened up its economy, it has grown exponentially to become the largest in terms of Purchasing power parity (PPP). This uninhibited growth has emboldened China’s economic visions for the world to transform the existing international economic order. China has expeditiously expanded its diplomatic, economic, political and security footprint among the developing countries. Under President Xi, China has expanded its areas of engagement into trade, education and culture. According to research by the Pew centre in 2019, developing countries have a positive outlook on the economic stature of China except for a few areas of contention. China is using its economic might to gain a strategic advantage in prominent regions, including South Asia. The rapid growth in its diplomatic ties with the South Asian regions has reshaped the global geopolitical power structure. China is also trying to establish the “Chinese School of I.R. Theory" as an alternative to the Western approach based on its ancient philosophy, Mao’s ideas, tianxia system (all under heaven), Marxism, one-party governance and Chinese socialist economic policy.

In a party meeting, Chinese president Xi Jinping said that China would expand ties with its neighbours in 2017 on the principles of friendship and mutual benefit. South Asian countries like Afghanistan, Bangladesh, Bhutan, Nepal, Sri Lanka, Pakistan and Maldives have deepened their diplomatic and economic ties with China. China has crafted a perfect strategic network that seeks to expand its national interest and influence worldwide, starting with its neighbourhood, i.e., South Asia. China’s ambitious infrastructure and investment projects like the Belt and Road Initiative (BRI), President Xi’s pet project, and China’s foreign policy centrepiece are at the core of China’s economic ties with South Asia. However, India, a major power in the region, has refused to participate in China’s BRI due to tensions between the two countries and India’s lack of trust and suspicion of Chinese projects and their intentions.

For India, China’s intervention in South Asia means geopolitical and strategic encirclement of India from all corners. China is practising what is commonly referred to by the western media as debt-trap diplomacy. All the investment projects taken up by China in South Asia have indebted most of the republics to the PRC and trapping them to serve its geostrategic interests. China’s lending has exceeded 5% of the global GDP by extending loans with strings attached to financially vulnerable countries. The bigger the debt, the more leverage China gains over the borrowing country.

While borrowing high-interest loans, these countries sign contracts that include debt-for-equity swaps, so when they default on loans or interest payments, they are forced to give up sovereign strategic assets to China. The best example of this debt-for-equity swap is the leasing of Sri Lanka Hambantota Port to China for 99 years in exchange for debt raised in the construction of the port. The Hambantota port is located at a strategic point of the Indian Ocean right in India’s backyard. Several South Asian nations like Pakistan and Nepal have also borrowed vast sums of loans from China. Because of their financial dependency, some countries become client states of China, solely dependent on the goodwill of China for economic and military security. Mired by Chinese debt, Pakistan has given the rights to China to run the Gwadar port for 40 years.

The infamous China-Pakistan Economic Corridor (CPEC), a signature project of the BRI, involves a whooping sum of $46 billion. India has repeatedly raised concerns over the project passing through PoK, an integral part of Indian territory, over sovereignty and security. The CPEC has increased Pakistan’s already high external debt to 70% of its GDP. Instead of bringing economic growth, the CPEC has destabilized the country’s financial security.

The Belt and Road initiative is crucial for China’s debt-trap diplomacy. This trap is not exclusive to South Asian countries. Several countries from Africa, Latin America and West Asia are also targets for Chinese loans and investments. By taking over several strategic assets in exchange for debt, China is trying to construct a string of pearls in the Indo-pacific. The Indian Ocean is very strategic to the Chinese maritime silk route as part of BRI. China is directly involved in constructing 13 ports, including Sudan, Djibouti, Gwadar, Karachi, Malacca, Darwin and other major ports across the Indian Ocean. The Chinese domination of the Indian Ocean is a strategic maritime threat to India and the influence India holds in the region. This string of pearls will lead to China encircling India in the Indian Ocean and dominating the trade through the region.

China starts as the economic and trade partner of a country and traps the country with big loans and investments. The Asian Infrastructure Investment Bank (AIIB) has played a significant role in expanding China’s economic footprint across the Indo-pacific on various infrastructure and investment projects as a foreign policy tool. The existing international financial institutions like the IMF and W.B. are dominated by Western powers like the U.S. and Europe; China and Chinese interests greatly influence the AIIB.

This Chinese economic expansionism is of enormous concern to India. The lack of regional integration in South Asia and regional financial institutions has paved the way for China in South Asia. The BRI appealed to several South Asian countries in terms of economic growth and political influence. However, India is confident that Beijing will leverage the BRI for political influence and dominance in the region. India is concerned about the increasing involvement of China in various port projects across the Indian Ocean as it is a threat to India’s maritime security and national interests in the region. India is actively trying to regain its dominance in the region and wane out the Chinese influence. India has joined the QUAD to thwart China in the Indo pacific. India is also renewing the South Asia Sub-regional Economic Cooperation (SASEC) to counter the BRI and improve regional connectivity in South Asia. India should also develop a regional funding mechanism to reduce the reliance on Chinese loans by South Asian countries. International Institutions should spend more on improving infrastructure and invest in development projects in the developing economies across the world. A joint response by regional and international powers is the only solution to China’s new neo-colonial ambitions.

(Authors: Dr. Karamala Areesh Kumar teaches International Relations and World Politics at P.G. and Research Centre, St. Joseph’s College (Autonomous), Bangalore, Karnataka.; Lalitha. S, Research Student, Department of Political Science, St. Joseph’s College (Autonomous), Bangalore, Karnataka)