China’s influence in South Asia

By Erik Brattberg and Evan A. Feigenbaum

In May 2021,the Chinese Ambassador to Bangladesh Li Jiming, 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 US that some in Beijing view as a prospective anti-China alliance. “Relations with China will be damaged if Bangladesh joins the Quad,” he warned. Bangladesh 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.

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. 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.

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, the 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 US 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 the 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% 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 co-operating – 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 organisational 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.

The Sri Lankan context

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. 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. 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 personalised 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 Rajapaksa serving as President and Prime Minister, respectively. Throughout this period, questions have arisen about the viability of projects and about impropriety. 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 Rajapaksa was serving as the country’s president. 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.

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. In time, Sirisena’s Government approved Rajapaksa’s China-funded projects that it had criticised and initially paused. In a message to Chinese President Xi Jinping in 2017, Sirisena endorsed the BRI, expressing hope that it would usher in a new era of bilateral ties. China continues to emphasise that, irrespective of the political colour 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 China Communist Party (CPP).

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. 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.

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. 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% of external debt. 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. In 2020, loans fell to $ 720 million with China accounting for $ 324 million and Japan $ 161 million.

Experts say that Sri Lanka needs to improve its debt management overall, not only with regard to China. 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. 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.

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. In recent years, it has started co-ordinating events and funding people-to-people organisations 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% of all foreign tourists in 2016, up from 1.8% in 2010, before falling back to 8.8% in 2019. To capitalise 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.

China invites Sri Lankan journalists, academics, and policy professionals to the country, and it co-ordinates with them through platforms such as the Sri Lanka-China Journalists’ Forum. Academic institutes and think tanks affiliated with the CCP have ties with research institutes considered close to the Rajapaksas. 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.

These efforts have successfully created a reservoir of goodwill among the public, which looks at the US and India through a more cynical lens. Some stakeholders said that the current impression in Sri Lanka is that pandemic-related assistance from the US is conditioned on reducing the scope and intensity of ties to China – which makes the option of accessing US vaccines less attractive on policy and strategic grounds, whatever its appeal may be on public health grounds. The scepticism extends beyond responses to the pandemic, making Sri Lanka wary of motives behind any kind of aid from the US. 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. The two countries also signed a $ 1.5 billion currency swap deal this year. 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.

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 the 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 the 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.

This article comprises excerpts from an extensive paper published by the Carnegie Endowment for International Peace on 13 October 2021, titled “China’s Influence in South Asia: Vulnerabilities and Resilience in Four Countries”. The full paper is available on www.carnegieendowment.org.

The views and opinions expressed in this article are those of the authors and, and do not necessarily reflect those of this publication.