China has been a naval power longer than some countries have existed - the Song Dynasty, dating back to the 12th century, had a permanent standing navy, with squadrons and fighting vessels. For China, aggression via sea is an old tactic, and its growing maritime presence around India in recent years has raised eyebrows.
China's naval strategy around India involves an expanding network of ports across the Indian Ocean, essentially encircling India and forming what experts have called the "String of Pearls".
This not only positions China as a key regional player in the Indian Ocean but has also made any potential response from India more complicated.
The strategic significance of these Chinese or China-funded ports cannot be overstated, as they serve as crucial hubs for international trade, connectivity, and regional influence. It's important to note that the civilian ports China has invested in, must provide logistical support to the Chinese navy if required. The Chinese investments thus come with military commitments to China.
This edition of Chart of the Week explores the key Chinese-operated ports in the Indian Ocean region, examining their growth, investments, and the broader implications for India and its neighbours.
China encircles India, by investing in eight ports in the Indian Ocean
India’s neighbours are, Pakistan, Sri Lanka and Bangladesh. All three countries have received port investments from China.
Under the China-Pakistan Economic Corridor (CPEC), China has invested in two Pakistani ports: the Gwadar port ($248 million investment) and the Karachi deep-water terminal ($550 million investment).
China's engagement with the Gwadar Port has unfolded in two phases. The first phase took place from 2002 to 2006, involving a financial infusion of $248 million through foreign aid grants from the Chinese government and loans from the Export-Import (Exim) Bank of China. The second phase, initiated in 2013, remains undisclosed in terms of the invested amount. Under this agreement, China will be providing financial investment in exchange for a concession agreement to conduct operations at the port.
The second port, the Karachi Deep Water Container Terminal, commenced its operations at Karachi Port in December 2016. The port was established through a public-private collaboration between Karachi Port Trust (KPT) and Hong Kong's Hutchison Ports. Its significance lies in providing optimal access to ships entering Karachi, which is strategically positioned in the CPEC under China's Belt and Road Initiative (BRI).
In addition, there is a direct investment pledge of $3.5 billion from the Chinese government in the Karachi Coastal Comprehensive Development Zone (KCCDZ) from 2021, according to reports. Unlike a conventional loan, this investment aims to transform the underutilised land of the Karachi Port Trust into a multi-purpose residential, commercial, and seaport infrastructure.
Debt-ridden Sri Lanka has, thanks to its highly strategic location, two ports under Chinese influence: Hambantota Port and CICT Terminal Colombo. China has invested around $1.3 billion in the former and $500 million in the latter. State-owned China Merchants Port Holding (CMPH) is the contractor for both these ports. Hambantota Port received funding from China’s Exim Bank in two phases: an initial $508 million from 2007 to 2014, and a subsequent $808 million from 2014 onwards. Under the agreement, CMPH will get a 99-year concession agreement of $1.12 billion and 85% ownership of the port.
Bangladesh also has two ports with major Chinese investments. The Chittagong Port and the Payra Port have investments of $400 million and $600 million respectively. Mongla Port is contracted out to China National Complete Engineering, another state-owned entity. It is one of the main seaports of Bangladesh, handling about 80% of the nation's export-import trade.
As for the Payra Port, the construction and development of its core infrastructure started in 2016. The project was executed by two Chinese companies, China Harbour Engineering Company (CHEC) and China State Construction Engineering Corporation (CSCEC). CHEC was responsible for building the core infrastructure, which amounted to $150 million, while CSCEC undertook tasks such as fortifying riparian areas, reducing flood risks, and establishing housing, education, and health facilities, involving an investment of $60 million.
Much like Pakistan, Myanmar is also involved in China's BRI through the China-Myanmar Economic Corridor (CMEC). China earmarked an investment of $1.3 billion for the Kyaukphyu Port, starting from 2020. The total project cost was $7 billion. However, Myanmar’s National League of Democracy (NLD) regime reduced the project's scope in 2020, due to fears of falling into a debt trap. The China International Trust and Investment Corporation Group (CITIC) leads the project, which also involves creating an industrial zone. Situated on the western coast of Rakhine state, , the Kyaukphyu Port occupies a strategic location on the Bay of Bengal. This geographical positioning follows the trajectory of the 21st-century Maritime Silk Road, a modern-day maritime route that interlinks Asia, Europe, and Africa.
China looks to expand far east with ports in Cambodia and Malacca
China has increased its presence in Cambodia through a $1.5 billion investment in the Ream Naval base. This initiative, led by state-owned Shanghai Construction Company and China Bridge and Road Company, is set to be operational by 2025. The initial project phase has a $200 million investment to establish container operation zones, commencing with a yearly capacity of 300,000 TEU (twenty-foot equivalent unit). Plans include highway connections, including one to the nearby capital, Phnom Penh. Recent reports indicate swift progress, with the pier development underway in the first half of 2023.
Adjacent to the Cambodian naval base is Malaysia's Malacca Port, a crucial link between the Indian Ocean and the South China Sea. The project was awarded in 2016 to Malaysian developer KAJ Development. Collaborating with Chinese companies like PowerChina International Group, a subsidiary of China's State Power Investment, along with Shenzhen Yantian Port Group and Rizhao Port Group, KAJ envisioned a 246-hectare project featuring economic zones, upscale housing, hotels, and diverse tourist attractions. However, the project was left incomplete after the Malacca government cancelled the agreement with KAJ Development owing to three years of inactivity in November 2020.In December 2022, the countries made new plans for the redevelopment of the port into a new deep sea port with an investment of $7.2 billion from China. The redevelopment deal also includes a commitment of imports of $2 trillion from Malaysia over the next five years.
China continues to make new investments in African nations
We now shift our focus to the African continent, where China stands as one of the top four investors with investments reaching $3.4 billion in 2022 and another $1.3 billion by April 2023.
Among African countries, Sudan represents one of China's earliest engagements with the continent. Sudan’s Haidob port received a Chinese investment of $141 million, and was inaugurated in December 2020. This facility is dedicated to the transportation of livestock such as cattle, camels and sheep to Asian markets. In the vicinity, Eritrea and Djibouti have two ports with major Chinese investment - the Massawa Port and the Doraleh Multipurpose Port, respectively. Massawa Port’s project was contracted to state-owned China Harbor Engineering Company for $400 million. Doraleh, on the other hand, was financed for $405 million by China’s Exim Bank and was contracted to state-owned China Civil Engineering Construction Corp and Channel Engineering Bureau Group.
Coming to the Southern part of Africa, we encounter Tanzania, home to the Dar Es Salaam and Bagamoyo ports. For the Dar es Salaam Port, a $154 million contract was awarded to China Harbour Engineering Company in 2017. The project involves the expansion of the primary port in the commercial hub, the construction of a roll-on, roll-off terminal, and the enhancement of the depth and resilience of seven berths within the port. On a different note, the Bagamoyo Port is a stalled $10 billion project, which is being renegotiated between the Tanzanian Government and China Merchant Port.
Mirroring Tanzania, Kenya also hosts two ports with Chinese funding - Lamu and Mombasa. The Lamu Port plays a crucial role in the expansive transportation corridor linking Lamu, South Sudan, and Ethiopia. This corridor, known as the Lamu Port South Sudan-Ethiopia Transport (LAPSSET) corridor, is valued at $23 billion. The initial phase of this project, which involves constructing 32 berths, was undertaken by the state-run China Communications Construction Company at $367 million in 2021, focusing on the first three berths. The Mombasa-Nairobi standard gauge railway received a $3.2 billion loan from China’s Exim bank. The initial auditor’s report suggested that the Mombasa port served as collateral, and any default on yearly payment of $705 million could result in a Chinese takeover, akin to the events in Sri Lanka.
China eyes global trade with two ports in the Suez Canal
From eastern and southern Africa, we move to the ports along the Suez Canal, which is a vital route for India’s trade with Europe. Among these, Port Said is situated in the northern part of the canal and Ain Sokhna Port occupies the southern part. China’s COSCO Shipping Ports (CSPL) has purchased a 25% stake in a new container terminal at the Ain Sokhna Port for $375 million. The company already had a 20% stake in the non-controlling container terminal at Port Said.
In Australia, the Darwin Port was leased to China’s Landbridge group for $390 million for a period of 99 years. As Australia’s relations with China deteriorated in recent years, the Australian government decided to build a new port in Darwin for $1.5 billion.
In conclusion, China's "String of Pearls" strategy involves strategic investments in maritime ports along the Indian Ocean, thereby reshaping regional geopolitics. Ports like Gwadar, Hambantota, and Chittagong enhance China's influence through initiatives like BRI and CPEC. The situation in Hambantota, Sri Lanka, is a warning about the risks of falling into debt traps. The impact extends to trade routes like the Suez Canal, reflecting China's global maritime ambitions. These nations are striving to strike a balance between reaping economic benefits and addressing security concerns, thereby reshaping policies in response to China's ever-expanding maritime network.
