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China's Economic Diplomacy in South Asia: Leveraging One Resource for Multidimensional Influence

China's Economic Diplomacy in South Asia: Leveraging One Resource for Multidimensional Influence

10 mins Read
China, the emerging global economy of the 21st century, has capitalized hugely on its economic resources to influence foreign relations. Beginning in 2001 with the introduction of the "Go Global" policy, China authorized its institutions to engage in international investment for the first time. In the first 8 years, China’s foreign investment expanded rapidly from $3 billion to $70 billion. In 2022, it will be $150 billion. This investment strategy has not only yielded economic returns but has also provided China with multifaceted opportunities. One of the hotbeds of Chinese influence is South Asia, the place China itself claims to be a part of. China has crushed the long-standing and unchallenged Indian hegemony in the region and is now dominating most of the South Asian countries. All of this has been possible because of the smart and dynamic use of its economic resources.

According to American political scientist Joseph Nye, economic influence is about a country's capacity to impact the actions of others through its financial resources, trade ties, and economic incentives. He emphasizes the importance of economic strength in enhancing wealth, creating dependence, and applying pressure on rivals. Central to the exercise of power and diplomacy is the pursuit of national interests, ideally achieved through strategies that portray interactions as mutually beneficial rather than coercive tactics. This approach not only advances national objectives but also preserves a nation's reputation. China's strategic deployment of its economic resources abroad exemplifies this approach, allowing it to pursue multidimensional objectives effectively.

Primarily, China's foreign investment strategy prioritizes securing its fuel supply, a critical component of its economic stability. Currently, approximately 85% of China's fuel traverses the vulnerable and lengthy route through the Malacca Strait to reach the Shenzhen Port on its east coast, sourced mainly from the Middle East. Because it does not have sea access on its western side. This dependence on a single maritime route poses significant risks due to geopolitical tensions and potential disruptions. To mitigate this risk, China is actively pursuing projects to establish alternative access points. Notable endeavors include the development of the Hambantota Port in Sri Lanka, the ongoing Gwadar Port project in Pakistan, and plans for a deep-sea port in Bangladesh. These strategic facilities would enable China to efficiently handle its imported and exported goods, particularly fuel, and facilitate their transportation to China via these countries' territories. For instance, the Gwadar Port in Pakistan promises to significantly reduce sea distances by up to 4,500 kilometres, resulting in substantial time and cost savings for China.

In addition to port infrastructure, China has undertaken extensive road network projects in partner countries, effectively linking them to China's economic interests. The ambitious Belt and Road Initiative (BRI), also known as the One Belt, One Road project, exemplifies this effort, with investments exceeding $1 trillion aimed at enhancing connectivity and fostering Chinese business expansion. However, China's economic gains extend beyond mere infrastructure development. Many of these projects are executed by Chinese companies using Chinese materials, resulting in a significant portion of the investment flowing back into Chinese coffers. Notable examples include China's substantial investment of $2.6 billion, covering 70% of the total cost, in Bangladesh's Padma Bridge project, undertaken by the Chinese government-owned Major Bridge Engineering Group. Moreover, Chinese funding plays a pivotal role in financing various other mega projects in Bangladesh, such as the Karnaphuli Tunnel, Dhaka Elevated Motorway, Jamuna Railway Bridge, Shahjalal Airport Third Terminal, and many more, further solidifying China's economic foothold in the region.

Moreover, the lion's share of this funding materializes in the form of loans characterized by steep interest rates, resulting in a significant portion of the borrowed funds circulating back to China, albeit in substantially inflated amounts. According to Associate Press, many developing nations find themselves heavily indebted to China, with up to 50% of their foreign loans originating from Chinese sources and a considerable portion of government revenue allocated to servicing these debts. Sri Lanka's predicament serves as a poignant example, having been compelled to cede control of the aforementioned Hambantota Port to China under a 99-year lease due to its inability to meet repayment deadlines. Consequently, critics perceive China's economic engagement as employing a 'carrot and stick' approach or a 'debt trap,' characterizing it as a ‘pseudo-coercive’ strategy rather than benign diplomacy. Coercive means forcing someone to do something, while benign means harmless or gentle. These critiques suggest that while Chinese loans and aid may outwardly appear as conventional diplomatic gestures, they serve as a means to financially destabilize and assert control over recipient countries. Such dynamics challenge Nye's notion of a positive-sum game based on cooperation and align more closely with Mearsheimer's realist perspective, which posits international relations as a hegemonic struggle, inevitably resulting in a zero-sum game.

Joseph Nye believes that diplomatic agreements based on free negotiations represent positive-sum games, wherein all parties involved stand to benefit. Whereas, John Mearsheimer, a prominent political scientist specializing in international relations, subscribes to the concept of a 'zero-sum game,' wherein any gain by one party results in an equivalent loss for another, ultimately yielding a net balance of zero. The costly nature of some Chinese projects in host countries could be interpreted through this theoretical framework. However, Nye might counter by arguing that while the outcomes may appear zero-sum, they are not inherently so. Instead, factors such as corruption and incompetence among officials, as well as other domestic variables, contribute to this result. Because, without Chinese collaboration, these countries would not have been able to undertake such ambitious projects that are supposed to become groundbreaking infrastructural developments for their economies.

In addition to direct economic gains, these projects confer strategic and military advantages, particularly through the establishment of seaports that provide China with convenient access to the Indian Ocean for both commercial and, at times, military purposes. Given the Indian Ocean's pivotal role in global trade and commerce, with one-third of all trade passing through its waters, it has become a highly contested arena not only among regional powers like India and China but also among global players such as the United States. Utilizing ports across various South Asian nations accelerates the People’s Liberation Army's (PLA) critical access to the Indian Ocean, thus challenging its rivals' dominance in the region.

Furthermore, many argue that Chinese economic diplomacy aims to diminish Indian influence in South Asia while promoting a 'China-centric' approach. India has traditionally been the predominant regional power in South Asia, with Pakistan being its main military rival but unable to challenge India's influence in other South Asian countries, except perhaps Afghanistan. However, the emergence of China has shifted this dynamic significantly. Countries like the Maldives, Nepal, Sri Lanka, and Myanmar, which were previously considered heavily influenced by India, have now witnessed a significant influx of Chinese investment. As a result, they have not only drifted away from India's sphere of influence but have also, in some cases, adopted an anti-India stance.

For instance, the Maldives recently elected President Mohamed Muizzu, who has been labelled as pro-China by various media outlets, including Al Jazeera. Upon assuming office, President Muizzu initiated the 'India Out' campaign, leading to the expulsion of long-standing Indian troops stationed in the Maldives. Subsequently, a group of Maldivian officials engaged in a public spat with Indian Prime Minister Narendra Modi on social media, indicative of the strained relations between the two countries. Similar dynamics have unfolded in Myanmar, Nepal, and Sri Lanka over the past decade, further highlighting the transformative impact of China's substantial economic resources and its strategic deployment.

China's approach in this regard aligns with Mearsheimer's theory of 'offensive realism,' which posits that states aggressively pursue power to weaken adversaries and reduce potential threats. By expanding its influence in South Asia through economic means, China not only challenges regional powers like India but also asserts its dominance in strategically significant regions, in line with the principles of offensive realism.

China also uses its economic resources as a sharp power. Sharp power, as Joseph Nye defines it, refers to the tactics used to influence other nations by generating propaganda, censorship, disinformation, false perceptions, etc. For instance, China's substantial investment of over $3 billion in the renovation of Buddha's birthplace is viewed as a strategy to mitigate controversies surrounding its occupation of Tibet. This investment also aims to undermine the political and spiritual influence of the Tibetan exiled leader, the Dalai Lama, by increasing its economic presence at the site. Besides, on separate occasions, Pakistani former Prime Minister Imran Khan and the current Taliban regime in Afghanistan denied commenting on the Uighur Muslim persecution in the Xinjiang province, despite their frequent use of Islamic rhetoric in other places. Experts believe that, as the countries are so dependent on Chinese economic assistance, they have imposed self-censorship in this matter, if not imposed by China. In this way, Chinese economic influence is also curtailing the severe allegations of human rights violations in many countries.

Furthermore, reputation plays a pivotal role in soft power, defined as the ability to influence others through attraction, persuasion, and co-option rather than coercion. Usman Qais, the author of the article “China's Economic Diplomacy in South Asia: Emerging Dynamics and Regional Implications,” says, “South Asian states are in favor of developing relations with China as they are desperate to diffuse the pressure of India's regional supremacy.” Romi Jain, an Indian scholar, believes that most South Asian countries see India as a politically hegemonic power and China as a mere business enthusiast. Thus, they are more comfortable working with the latter. This dynamic exemplifies how a country's positive reputation and the negative perception of its competitors facilitate significant economic deals, ultimately bolstering its hard power—the use of military and economic means to influence and control others.

It operates in an intertwined manner as well. Nye suggests, “The resources often associated with hard power behavior can also produce soft power behavior, depending on the context and how they are used.” China adeptly employs this strategy in various instances. For example, in Bangladesh, China has funded numerous major bridges, which are named "China Friendship Bridge-1" and so forth. Additionally, China has financed the construction of the largest and most prestigious convention centre in the country, named the “China-Bangladesh Friendship Convention Centre.” In Nepal, China provides transit trade facilities due to the country's landlocked status and promptly offered substantial aid following the 2015 earthquake. In Sri Lanka, China funds and publicizes+ significant projects such as stadiums and airports, enhancing its influence through the construction of public infrastructure and the promotion of Chinese-named landmarks, which has a profound impact on mass psychology. Furthermore, many Pakistani officials view the China-Pakistan Economic Corridor (CPEC) as vital to their country's economic well-being, underscoring its significance. Moreover, China has established Chinese language and cultural institutes across the region and offers lucrative scholarships to renowned Chinese universities, further bolstering its soft power. In this way, China not only achieves economic and strategic objectives through investment in South Asia but also enhances its soft power by meticulously cultivating a positive reputation and leveraging its economic influence.

Leverage stands as the cornerstone of successful negotiations. It is defined as a strategic advantage gained from having the ability to influence or control a situation. The more a country considers different dimensions, the more it has to offer on the other side. And resources cannot be effective alone in the first place. It needs proper strategies to turn them into power. China's utilization of economic resources in South Asia serves as a quintessential example of this principle. Through adept maneuvering, China has not only harnessed its economic might to amass economic power but has also cultivated military, strategic, and soft power. It has projected a benign image, positioning itself as a non-interfering party in contrast to India, while simultaneously employing economic aid as a form of sharp power to deter leaders from commenting on its human rights violations.

However, despite projecting a benign image, China has not hesitated to wield coercive tactics when necessary. This begs the question: is China a genuine 'Benign Hegemon' or a 'Pseudo-Coercive Actor'? It can be debated. But there is no doubt about China's adeptness in swiftly advancing its multidimensional national interests through the strategic utilization of its economic power. As Napoleon Bonaparte remarked two centuries ago, "There sleeps China! God pity us if she wakes. Let her sleep!" It is indeed a great opportunity for developing countries to benefit from this. However, they must approach it with sincerity, caution, and strategic calculation, lest it become a curse in disguise.

01 Qais, Usman. "China's Economic Diplomacy in South Asia: Emerging Dynamics and Regional Implications." Journal of Political Studies 28, no. 1 (January-June, Summer 2021): 157-168.

02 Nye, Joseph. Future of Power. New York: Public Affairs, 2011.

03 Mearsheimer, John J. The Tragedy of Great Power Politics. New York: W.W. Norton & Company, 2001.

04 Westcott, Ben. (Last modified June 2021).  "Imran Khan says reports of Uyghur children being separated from their families are 'not true'." CNN.

05 Trofimov, Yaroslav, and Chao Deng. (Last modified July 8, 2021). "Afghanistan's Taliban, Now on China's Border, Seek to Reassure Beijing." The Wall Street Journal.

06 Cull, Nicholas J. "From soft power to reputational security: rethinking public diplomacy and cultural diplomacy for a dangerous age." Place Branding and Public Diplomacy 18, no. 1 (March 2022): 54-79 DOI: 10.1057/s41254-021-00236-0

07 "News on Projects | Bangladesh - Infrastructure - New projects information in India, Middle East, South Asia." Archived from the original on June 9, 2023.

08Ahmad, Rashad. (October 25, 2020). "Mayor Taposh unveils new plan for Dhaka." The New Age.
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ishfak Farhan Siyam
The author is a researcher and analyst specializing in South Asian and Middle Eastern studies, Georgetown University, Qatar
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