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China & India: Power Play in Maldives; By Francis Roy

Image courtesy: Twitter@PMOIndia/ FirstPost

Article No. 046/2018

Introduction

China has been making forays into Maldives by investing heavily and acquiring ports in areas of strategic importance at the island nation. Maldivian President Abdulla Yameen’s actions have increasingly been pro-China. While there is a fierce Maldivian opposition demanding the restoration of democracy in the country, Yameen appears indomitable and has consolidated power. The appeal made to India by Ahmed Naseem, leader of the Maldivian opposition, to intervene to end Maldives’ political impasse, is a reflection of the status of democracy in the island nation.  China’s support to Maldives in the form of investments is tantamount to casting distrust in Beijing’s intentions. This is moreover because of the statement by China’s state sponsored Global Times  that Beijing will support Maldives in the event of any Indian military intervention. Nevertheless India has responded last month that New Delhi will not intervene in Male. However India expects China to not compromise “strategic trust” by not crossing “lines of legitimacy”. In this context this paper will study China’s actions in Maldives.

The materialising of an FTA between China and Maldives coupled with the latter’s participation in the BRI indicates the extent of influence which China has gained such a short span of time. China is also the largest source of investment and tourists in Maldives. However there is fear that when it comes to the Chinese investments, it could be a path to a ‘debt trap’ such as the one in Sri Lanka. The implications of the acquisition of the Marao atoll by China which could be used for projecting its naval power in the Indian Ocean Region (IOR) will also be studied. The repercussions of the possibility of Chinese military presence in Maldives on India need to be analysed.

The paper also focuses on the ramifications on Maldives environment that could emanate from excessive dredging activities by China. This includes highlighting the socio-demographic changes that could occur in Maldives as a result of Chinese economic actions.

On the other hand, New Delhi has shared robust relations with Male prior to the political crisis which unfolded in the island country (President Yameen taking centre stage). Maldives earlier followed an “India First” policy when looking for investments and development aid. However India did not reciprocate with equal enthusiasm. In contrast China signed an FTA with Maldives in 2017, significantly increasing the role of China in the Maldivian economy. To conclude India’s current forays in Maldives and recommendations for the same in light of China’s presence in the island nation will be explored. It will be deliberated whether India and China can approach Maldives with the spirit of cooperation, competition or both. The following research questions are put forth:

What are the dynamics of China’s economic and strategic inroads into Maldives since 2016?

What could be the consequences of a debt trap in Maldives on Delhi-Male relations? How would the possibility of entry of China’s military into Maldives affect India’s regional concerns?

How will China’s economic activity in Maldives affect the island nation’s environment?

Where do the solutions for India lie in context of China’s actions in Maldives?

China’s economic and strategic inroads in Maldives

At first sight, Maldives appears to be a small island nation in the Arabian Sea.  Upon closer scrutiny, it is clear that its proximity to crucial SLOCs (Sea Lanes of Communications) in the Indian Ocean grants it strategic significance in the region. China has recognized the geo-strategic importance of the island nation. By attempting to build a credible presence in Maldives, Beijing can look to challenge India in the Indian Ocean Region (IOR). This would also allow China to keep a check on India’s leverage due to its geographic location in the Indian Ocean. These moves by China have sparked off a great game between Delhi and Beijing.

China’s clout in the region is the result of heavy investments and the political support it offers to the Maldivian President Abdulla Yameen’s administration. As a result India has seen its influence waning in a country which had earlier adopted an “India first” policy. The primary reason for this is that China has invested millions of dollars into Maldives making the latter economically dependent on Beijing.

The first Chinese manoeuvre in the island nation was in response to a 2011 incident. That year, Maldives signed a deal with a consortium led by an Indian company GMR when former President Mohammed Nasheed was in power in Male. However GMR was denied the contract to upgrade the Male airport by the Maldivian government. The non-enforcement of the contract was legally challenged and won by GMR in the international tribunal for a compensation of USD 270 million. Despite this development, China scored a major point as the contract was awarded to Chinese SOE Beijing Urban Construction Group, much to the dismay of India. Had the concession agreement with GMR for USD 511 million been carried out smoothly then it would be the largest foreign direct investment in Maldivian history. There are allegations that the fine imposed on Maldives by the tribunal was paid by China. If these allegations are found to be true then it sends a disturbing signal on India’s waning influence in Maldives and gives a glimpse into how the China shapes its manoeuvres. China’s growing influence in the Maldives, blamed for discreetly scrapping the GMR airport deal, may be part of its larger game plan to dominate the strategically-important sea lanes of the Indian Ocean Region (IOR), according to an assessment of the Indian intelligence agencies.[1]

India hence has to devise innovative foreign policies to deal with growing Chinese clout in the region. The Maldives-China relationship was not pivoted by the GMR fiasco alone. In fact, Maldives became the second South Asian country to sign a Free Trade Agreement (FTA) with China. In addition, Male also signed a Memorandum of Understanding with Beijing that made Maldives a participant in the Maritime Silk Road initiative. The announcement of a free trade agreement between Maldives and China is another sign of success in the latter’s outreach in South Asia. After its push for maritime linkages across the Indian Ocean, including naval exercises and port projects, and for the enhancement of regional connectivity through the Belt and Road Initiative, China seems to be ready to ramp up business ties across South Asia.[2] Under the FTA, China and Maldives would reduce the tariffs of over 95 percent of the goods to zero. According to China the two countries are also committed to opening the service market such as finance, healthcare and tourism and have agreed to cooperate practically in key areas.[3]

The FTA, from Maldives’ point of view, will lead to much needed boost to its economy as it can access one of the world’s largest consumer markets for their fish exports and pave the way for more investments into the crucial tourism sector. Both fisheries and tourism are mainstays of the Maldivian economy. Significantly, when Maldives transitioned from a Least Developed Country to Middle Income Country in 2011, it became ineligible for tariff reductions from the European Union (EU), its largest trade partner until 2014. Consequently, Maldivian fish exporters had to pay a 25 percent duty to enter the EU market.[4] Thus for Maldives the FTA with China is a valuable economic opportunity. Beijing gains leverage to influence and flood the island nation with Chinese goods as most import duties have been done away with. Maldives may also be used by China as a third-party country to route Chinese products to the Indian market.

Despite India having an opportunity to clinch a trade deal with Maldives, New Delhi did not go forward with further deliberations. However, the Maldivian FTA with China and the manner in which Yameen’s government passed it in the Majlis (the Maldivian Parliament) without giving time for the legislators the time to go through the details regarding the same has come in for sharp criticism in Maldives. [5]

This might be a reflection of Yameens’s pro-China stance. Significantly, China’s presence, especially in Maldives’ tourism and infrastructure sectors has expanded. China has replaced Europe as Maldives’ largest source of tourists. China is funding and building mega infrastructure projects, including the Friendship Bridge linking Male to Hulhule Island and a 1,000-apartment housing project on Hulhumale, a Maldivian suburb built on reclaimed land. Beijing’s investments in Maldives are so vast that Male owes 70% of its debt to Beijing. This is likely to pull Maldives into a debt trap as the prospects of servicing these debts are highly questionable.

Besides the FTA, China is also looking to start a joint ocean observation station at Makunudhoo atoll. The location of the observatory in Makunudhoo, the westernmost atoll in the north of Maldives (not far from India), will allow China a vantage point of  shipping routes in the Indian Ocean through which large number of merchant ships and other sea vessels pass.[6] This includes an eagle’s eye view of India’s maritime traffic. Hence if the Chinese plans for an observation station in Makunudhoo atoll materialises then it will further strain India’s relations with China vis-à-vis Maldives. The facility in question here is very much similar to the one China announced in South China Sea (SCS) last year. Beijing’s influence was clearly visible in 2015 when the Majlis passed a law that allowed foreign ownership of land, a law that might pave way to a Chinese military presence in the future.

Meanwhile the involvement of the Chinese elsewhere in Maldives such as in the Gaadhoo islands have raised eyebrows about its intentions. China has in the past denied that it has any intention of  building a military facility at Laamu in Maldvies, but the recent evacuation of inhabitants from Gaadhoo, and Chinese presence there, has again raised questions about China’s objectives. India has always looked at China’s port-building exercises with scruples as the Chinese are known to seek operational control of ports they build.[7]Feydhoo Finolhu, an uninhabited island very close to Male also has a similar story. The island was leased to an unknown Chinese company for 50 years for a sum of $ 4 million in 2016.[8]What is dubious about the deal is that there was no bidding process for the sale and the Maldivian opposition’s claim that the island would have fetched more had it been sold via a bidding process.

Another similar concern has been the iHavan project, a big ticket investment in which China has been involved. China and Saudi Arabia have both invested in the project to develop a new economic zone with a port, airport, cruise hub, marina and dockyard in the northernmost atoll of the Maldives, Ihavandhippolhu. The Chinese port project in South Asia is one of that which fuels security worries in India. The ports represents the Chinese “string of pearls” to contain India’s regional power in the IOR. The iHavan website says the port is just “a few minutes away” from the nearest Indian land.[9] There are also reports on the Chinese authorities eyeing the Marao atoll in Maldives, which is identified as a gem in the so-called “string of pearls”. From the early 2000s, there have been reports in the Indian press, about China seeking to attempt a naval base in the southern Maldivian chain, such as the Marao atoll. A common pattern found in Chinese activities and acquisitions in Maldives has been that they are all strategic in nature. This is the actual cause of worry for New Delhi. As Beijing acquires further clout in the island through debt it might eventually pave way for militarisation and create a perennial problem for India.

Debt Trap and Possibility of Militarisation

“There are two ways to conquer and enslave a country,” American statesman John Adams (former U.S. president) famously said, “One is by the sword. The other is by debt.”

It is the second method that has found takers in Beijing, as evident from what has happened in Sri Lanka, Pakistan and Maldives. All these countries have incurred huge debts due to large scale borrowing at usurious rates from China. Maldives is the latest entrant to the list of countries that are in a quagmire of Chinese debt. As mentioned above Male now owes 70% of its debt to Beijing. International Monetary Fund (IMF) data shows that Maldives’ debt in 2016 was equivalent to 34.7 per cent of its gross domestic product (GDP). It calculated that the debt-GDP ratio of Maldives will rise to 51.2 per cent in 2021. Former Maldivian president Mohamed Nasheed has also supported the figure that, of all the debts incurred by Maldives, Chinese component is around 70 per cent. The Free Trade Agreement between China and Maldives has only worsened the case for the island nation.[10] The share of debt that Maldives owes to China is unsustainable as it is almost certain that Male will default on the payments. If and when such a situation arises Beijing will look to workout settlements, similar to the Hambantota takeover, in return for allaying the debt burden. This will score another success for China while causing severe implications for New Delhi. If Maldives is unable to repay its debt to Beijing, Male may have to hand over the ownership of its islands in which China has invested. If this occurs, then the long term possibility remains that China may initiate military presence on the islands it took over.

The probability of a debt trap being used by China to secure military bases may be significantly high in Maldives. Other countries that have fallen into, or are on the verge of falling into debt servitude to China are those that surround India, and include Bangladesh, Myanmar, Nepal, Pakistan and Sri Lanka. This could severely erode India’s influence in the region and can have severe implications on its foreign policy. By establishing a Djibouti-type naval base in the Maldives, China has the potential to open an Indian Ocean front against India in the same quiet way that it opened the trans-Himalayan threat under Mao Zedong by ‘gobbling up’ Tibet, the historical buffer.[11]

There are several hypothetical situations of concern to India, which can arise due to the above. A military base in Maldives will make it a vassal state under Beijing in the Indian Ocean which will further deteriorate Male-Delhi relations. If the People’s Liberation Army (PLA) builds a base in Maldives it will enhance Beijing’s capability to project power away from its shores. This would directly impinge India’s national security. Though the chances of a full scale war in the region are highly unlikely, India may have to face scenarios which involve an increasingly belligerent China in the Indian Ocean. An increase in China’s military presence in the region will make Indian intervention, if required, more difficult. This situation would perhaps leave India with less leeway to respond to calls from other states in the Indian Ocean in the event of an internal strife or a constitutional breakdown similar to what happened in Maldives. This would prompt the other states in the region to look away from India in such a crisis situation.

There is a possibility of erosion of Indian influence if China continues to increase its presence in the IOR. But the possibility of countries such as Maldives that have become flush with Chinese loans and investments might have a chance of turning against Beijing once these countries have to pay back debt owed to China, or when they have to concede their land as was done in Hambanota. A change in political leadership in Maldives that is cognizant of the ill effects of dependence on Chinese will let them look to India as an alternative. The recent development of Maldivian opposition leader asking for India’s help to contain Chinese influence is a valuable opportunity for Delhi to recalibrate its foreign policy towards the small yet significant country. It must be remembered that the chances of China covertly backing regimes in the regions unfriendly towards India is high as we already saw it providing support to the Yameen administration during the recent political crisis. Besides, as the PLA Navy (PLAN) becomes a more frequent visitor in the region it can intensify the existing security dilemma in the IOR. There is a race going on between India and China as they try to gain foothold in ports in the states in the Indian Ocean to ensure maritime dominance in the region. This is the result of an ensuing security dilemma in the IOR.

It is clear that Yameen’s actions have been undemocratic so far as was seen during the emergency- the passing of a legislation regarding foreign ownership of land and jailing of elected representatives. Such actions strain the India-Maldives relationship. The authoritarian path that Yameen follows is on the back of Chinese support. As long as Yameen is at the helm of affairs in Male the prospects of a free and fair elections in September 2018 is doubtful. It remains to be seen how India reacts to Ahmed appeal for help. Meanwhile, a sustained pro-China posture adopted by Yameen would not bode well for India.

Environmental Degradation in Maldives

Maldives due to its geographical features is on the verge of environmental catastrophe and very few are paying attention. As President Yameen’s current terms come to an end in 2018 he will be looking at another tenure. He has already started his campaign in full swing backed by rich and powerful states like China and Saudi Arabia for whom the environment and Maldivian way of life is of little importance.[12] Since assuming power, Yameen’s government has drawn flak for compromising environment regulations during implementation of mega development projects. The Maldivian Opposition argues that this is happening due to external or natural causes. Added to this is the continuing damage from the mega projects the Maldivian government has undertaken with no environmental risk assessments: the China-Maldives Friendship Bridge,the endless dredging of Hulhumale, a second artificial beach in Male, the ice-rink in Sultan Park, the many high-rise buildings planned for Male, and the planned migration of two-thirds of the population to the Greater Male Area. Many incidents have taken place during these ongoing projects already in motion that demonstrate little attention is being paid to the environmental damage they cause.[13]

Another fact that may not fare well for the Maldivian environment is that the Male-Hulhule friendship bridge is being built by a Chinese firm, CCCC Second Harbour Engineering Company: it was blacklisted for fraudulent practices by the World Bank Group in 2009. This shows the lack of priority being given to Maldives’ fragile environment by the Yameen government In addition, the massive Chinese projects have triggered an influx of Chinese workers and their families to settle on the island nation, thus affecting Maldives’ socio-demographic landscape. Thus as long as Yameen is at the helm of affairs in Male, strict environment regulations are not likely to be implemented on mega projects which are backed by external players such as China and other countries including Saudi Arabia. The Maldivian government may be content for now due to the large investments from China. However this will be short lived when the hidden costs of environmental degradation and changes in socio-demographic structure get manifested in due course of time.

Way ahead for India’s relations with Maldives

Recent events are not encouraging signs for a better India-Maldives relationship, as New Delhi has lowered the limit of export of essential commodities like onions and potatoes to Maldives. Although India has said that the lowering of exports was on the basis of actual calculation. One recalls that Male did not participate in the ‘MILAN’ naval conclave conducted by India nor did it send its defence minister to participate in the DefExpo2018.[14]All this might be a signal that all is not well with New Delhi and Male.

It is evident that China now enjoys more influence in Maldives, a country that had always looked to India for all matters. Beijing has made deep inroads into the island nation since the opening of its embassy in Male in 2011. Today China is the largest investor in the country. China has resorted to heavy investing in the island to secure influence. The Maldivian debt trap, as discussed earlier is going to further deteriorate Delhi-Male relationship.

The situation in Maldives hence demands a renewed approach from New Delhi. If China cannot be distanced from the island by easy means, it does not rule out other options for India. These include two options: Asia-Africa Growth Corridor, and strategic options that India can employ.

If India is to make good the lost ground, it has to offer a better proposition than what China has offered. The Asia-Africa Growth Corridor which is seen as a benevolent alternative could be used in this case as an effective counter to the China-led BRI. The AAGC would allow Japan and India to work together in Maldives. The Indo-Japanese mega project would also offer Maldives terms of relaxed conditions as well as expertise in areas such as infrastructure, pharmaceuticals, and solar energy technology. A strong commitment from India and Japan in the form of AAGC will go far in the wide economic and geostrategic gaps in the region created by the advent of China. [15]

An FTA between India and Maldives would boost bilateral trade. Although China has already concluded a similar agreement with Male, New Delhi should also work on a similar setup or a regional trade agreement involving states in the IOR. This will provide Maldives a market as well as an opportunity for India to pivot its role in the region. To further Delhi’s interests in Maldives, India can use regional forums like Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) or boost the existing trilateral trade setup with Sri Lanka that was signed 2013.

As there is a strategic angle to the situation in Maldives, it would be in Delhi’s advantage for India to remain prepared by enhancing its naval presence in the region. Increased maritime presence in the region through proposed overseas military bases in Seychelles and Mauritius would strengthen India’s dominance. The challenge remains getting full cooperation from the other parties. This should be addressed by tactful diplomacy and offering incentives. Until then, the Logistics Exchange Memorandum of Agreement (LEMOA) signed by Delhi with the US and France will help India counter China militarily in the region. India should wait and watch whether an alliance is stitched up among the Maldivian opposition parties to counter Yameen with a single candidate in the upcoming September elections. New Delhi can also use targeted sanctions against the members of the Yameen government.

In the meantime, New Delhi should continue with its assistance given to Male and not renege on its existing commitments, as it can push Maldives further towards Beijing.

Endnotes

[1] Bharti Jain, “China behind scrapped GMR deal to extend footprint in Maldives?” The Times of India, December 15, 2012, https://timesofindia.indiatimes.com/india/China-behind-scrapped-GMR-deal-to-extend-footprint-in-Maldives/articleshow/17620252.cms

[2] “Island Hoping – On Maldives – China FTA”, The Hindu, December 07, 2017, http://www.thehindu.com/opinion/editorial/island-hopping/article21284637.ece

[3]China and Maldives Concludes the Free Trade Agreement Negotiations, Ministry of Commerce, People’s Republic of China, http://english.mofcom.gov.cn/article/newsrelease/significantnews/201709/20170902646749.shtml

[4]Sudha Ramachandran, “The China-Maldives Connection”, The Diplomat, January 25, 2018, https://thediplomat.com/2018/01/the-china-maldives-connection/

[5]Ibid note 4

[6]Ibid note 4

[7]Sachin Parashar, “China May Build Port in Southern Madives”, The Times of India, April 11, 2016, https://timesofindia.indiatimes.com/india/China-may-build-port-in-southern-Maldives/articleshow/51771171.cms

[8]“Feydhoo Finolhu Leased to Chinese Company for $ 4 million”, Maldives Independent, December 24, 2016, https://maldivesindependent.com/business/feydhoo-finolhu-leased-to-chinese-company-for-us4m-127572

[9]Kinling Lo, “China seeks ‘healthy ties’ with troubled Maldives amid India rivalary”, South China Morning Post, February 09, 2018, http://www.scmp.com/news/china/diplomacy-defence/article/2132757/china-seeks-healthy-ties-troubled-maldives-amid-india

[10]Prabhash K Dutta, “How Maldives became China’s pocket borough under President Yameen, India sidelined”, India Today, February 07, 2018, https://www.indiatoday.in/world/story/how-president-yameen-turned-maldives-into-a-chinese-theatre-to-push-india-back-1162824-2018-02-07

[12]Dr Azra Naseem, “Maldives Inc.”, Maldives Independent, June 21, 2016, https://maldivesindependent.com/feature-comment/maldives-inc-124919

[13]Ibid note 12

[14] “Reports on India Reducing Essential Goods Exports to Maldives ‘Misleading’, Requirements Calculated on Actual Utilisation, Says MEA”, Firstpost, July 02, 2018, https://www.firstpost.com/india/reports-on-india-reducing-essential-goods-exports-to-maldives-misleading-requirements-calculated-on-actual-utilisation-says-mea-4595321.html

[15]Julian Lasius, “Is Asia-Africa Growth Corridor the Answer to China’s BRI?”, Observer Research Foundation, September 20, 2017, https://www.orfonline.org/expert-speak/is-asia-africa-growth-corridor-answer-to-chinas-bri/

(​Francis Roy is an Intern, C3S. He is currently pursuing PG in Public Administration​ at Madras Christian College​. ​He is interested in International Relations, Public Policy and Politics.​ Email id: francisroy184@gmail.com )

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