Running Header: The Maritime Silk Road

Twists and Turns Along the Maritime Silk Road

By: Tedric Hadeen

California State University Maritime Academy

The Maritime Silk Road 1

Abstract

The Maritime Silk Road is a Chinese foreign policy launched in 2013 as a part of China’s One

Belt One Road Initiative. The Maritime Silk Road is a vast infrastructure and investment project that stretches from eastern China to Europe. China instituted the MSR with the objective of securing important Sea Lanes of Communication, expansion of trade through infrastructure investments, and to increase its influence to a global scale. This paper aims to investigate the following research questions based on the case studies of Sri Lanka and Myanmar: How do

Chinese interactions between itself, Sri Lanka and Myanmar differ because of China’s distinct goals in each country?; What are the economic, geopolitical, and naval goals China will achieve by means of investment in Sri Lanka and Myanmar? How does the MSR, used as a foreign policy, aid China’s rise as a global power? In conclusion, China used numerous un-economical projects to debt trap Sri Lanka to achieve a footprint in the Indian Ocean, with the lease of

Hambantota port. This move secures Chinese trade in the region of its rival, India, and could give China a forward presence advantage in coming conflicts. China pursues a mutual beneficial trade relationship in Myanmar through infrastructure projects in Myanmar’s hinterland. China is using these projects to increase trade efficiency into central China while decreasing its dependence on the Malacca straits for trade. This relationship provides China with energy security, overland access to the Indian Ocean, and a growing export market. For Myanmar, it provides needed infrastructure and technology to expand its economy, which will help solve

Myanmar’s social unrest.

The Maritime Silk Road 2

Tedric Hadeen

Twists and Turns Along the Maritime Silk Road

Introduction

“Connectivity, including infrastructure, projects have long been recognized as an integral element of global political and economic change as well as a reflection of new political and economic realities” (Blanchard & Flint, 2017, p. 1).

China has risen to become a powerful global economy in recent times. This is partially due to their aggressive foreign policy known as the “Maritime Silk Road” (MSR). The MSR an infrastructure and investment project along China's key trade routes, with strategic partners, to ensure China's economic and strategic well-being. The MSR is the maritime embodiment of the larger Belt and Road Initiative (BRI) and is meant to facilitate increased investment and collaboration between China and countries that lay along the ancient Silk Road. The Maritime

Silk Road was first conceptualized in 2013 when president Xi Jinping made a speech at the

Indonesian parliament, calling for a “close knit China-ASEAN community and offered guidance on constructing a 21st Century Maritime Silk Road” (Xinhua, 2015, para. 6).

The Maritime Silk Road strategy was created to achieve three main goals. First, China is looking to continue its unprecedented economic growth and must explore new energy and natural resources. Secondly, the largely export based country is beginning to assert itself as a global hegemon and are conducting strategic policies in the South China Sea, Indian Ocean,

Mediterranean and Africa to restructure global trade around China. (Klemensits, 2018). This is an effort to increase their export capacity as well as their trading partners’ ability to receive such exports. Thirdly, and unstated by China, it is widely believed that China aspires to use this economic initiative as a geopolitical power move to spread their hegemony and become an The Maritime Silk Road 3 influence of power on the global scale through the use of “puppet states” (states whose government is controlled or is influenced heavily by the government of another country) and a growing navy. (Klemensits, 2018).

The MSR is one of two aspects that are conjoined under the Belt and Road Initiative

(BRI). The Silk Road Economic Belt (SREB) is the land-based version of the MSR, which focuses on road and railroad infrastructure. The MSR and SREB connect at various points during the plan but do not solely rely on each other. Just as the MSR is under the BRI, the “Cabbage” and Salami strategy are sub-strategies to the MSR. The cabbage strategy shows the growing power of China in the South China Sea region and is used to slowly acquire more ocean by claiming islands, which extend the Chinese territorial waters. “The String of Pearls” strategy refers to the spread of Chinese power through man-made islands and foreign-leased ports.

Figure 1: Belt and Road Initiative, An accurate representation of Chinese infrastructure projects attached to their Belt and Road Initiative. Funaiole, M., & Hillman, J. (2018, April 2). China’s Maritime Silk Road Initiative: Economic Drivers and Challenges. Retrieved October 4, 2018, from https://www.csis.org/analysis/chinas- maritime-silk-road-initiative-economic-drivers-and-challenges

Thesis Statement and Research Question

I am interested in this topic because China’s investment in these countries has not only benefited it economically, but also strategically and works to extend the countries global The Maritime Silk Road 4

influence. There are three main questions that will be answered in this thesis. First, how do

Chinese interactions between itself, Sri Lanka and Myanmar differ because of China’s distinct goals in each country? Secondly, what are the economic, geopolitical, and naval goals China will achieve by means of investment in Sri Lanka and Myanmar? Thirdly, how does the MSR, used as a foreign policy, aid China’s rise as a global power?

Case Studies

In this paper, I have chosen two countries in which to examine the MSR’s actions, effects, and overall strategy. Sri Lanka and Myanmar have both been targets of Chinese MSR ambitions. I will be looking exploring Chinese projects in these countries. I have chosen Sri

Lanka and Myanmar as my case studies because China has interests in each, but for different reasons. Their actions and strategies in these regions reflect the different needs of China. This enables me to look at these countries and determine what economic, geopolitical, and naval interests China has in them and how these various interests are pursued through use of the MSR.

Background

The term Silk Road was originally used as the name for the ancient trade route that ran from East Asia to Western Europe. This was the longest trade route in the world at the time and was a large proponent of cultural and economic exchange. It was key to the exchange of food, goods, the spread of religious thought, and cultural customs across a vast expanse. (Hansen,

2012).

“Through these routes, Buddhism, Islam and Arab astronomy, calendar and medicine found their way to China, while China's four great inventions and silkworm breeding spread to other parts of the world. More importantly, the exchange of goods and know-how spurred new ideas. For example, Buddhism originated in India, blossomed in China and was enriched in Southeast Asia. Confucianism, which was born in China, gained appreciation by European thinkers such as Leibniz and Voltaire” (Yamei, 2017, para. 6).

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China repurposed the term Silk Road in 2013 when president Xi Jinping announced the

Belt and Road policy, which is broken into two sections: One Belt One Road strategy and the

New Maritime Silk Road strategy, The MSR is the focus in this report. (Xinhua, 2015).

The Chinese economy has been steadily growing since the takeover of the Peoples

Republic of China (PRC) under Mao Zedong. It only faltered during the period of the Great Leap

Forward, between 1958 and 1962. During this period, China opened up to foreign investment for the first time in decades, which helped boost Gross Domestic Product (GDP) from six to nine percent where it held steady from 1978 to 2012. (Hirst, 2015). During this time, China began a rapid urbanization process, which, in part, has been attributed to the economic boom. People in the rural areas flocked to new cities in the hope of better pay in factories. The low wages and industrialization saw China turn into the largest exporter country in the world and the second largest economy. (Hirst, 2015).

Early Development of the MSR

The Peoples Republic of China (PRC) initiated the MSR because they realized the country could not continue its high economic growth without a remodeling of its economic and foreign policy. The Chinese economy is extremely strong but unbalanced and does not have enough wealth in its domestic consumer base for continued growth. “…that consumption is very low, especially household consumption, which is at only one-third of GDP” (Dollar, 2015, para.

3). China also saw its need to grow in strength by spreading its global influence as it moves from a developing nation to being a global power. The MSR was born of both these needs.

China first approached Kazakhstan and Indonesia about the SREB and MSR initiatives in 2013. (Xinhua, 2015). This is symbolic of both the SREB and MSR since Indonesia contains the Malacca Strait and overland railways would pass through Kazakhstan. Kazakhstan and China The Maritime Silk Road 6 began construction on a jointly funded port in eastern China. The Chinese began laying railroad tracks across Kazakhstan and Central China. The year 2014 was significant in Silk Road development as twenty-two countries signed on to the Asian Infrastructure Investment Bank

(AIIB) as stakeholders.

The Asian Infrastructure Investment Bank

The AIIB was created by the Chinese with a net worth of fifty billion dollars. It is the artery through which China pumps foreign investments to the other member countries. Through this bank, the Chinese government is able to budget money towards its MSR plan and also send or receive project proposals. It is a platform on which China and other member countries can invest and plan projects. The forming of this bank is significant because it included a contract called “Memorandum of Understanding on Establishing AIIB”. “This Memorandum records the intentions of the parties and their desire to cooperate in the manner outlined within it. It is not intended to create binding obligations on the party or confer any right on any third party” (Asian

Infrastructure Investment Bank, 2017, p. 3). This meant that these countries were excited to collaborate with China and viewed them in a similar way as countries look up to the US. This is further backed up by many countries signing onto the AIIB and the US Asia-Pacific economic initiative, known as the Trans-Pacific Partnership (TPP). (Dollar, 2015).

The AIIB headquarters are located in Beijing. Their location represents China’s initiative in taking the leading role in the South-East Asian region and ensures that any countries applying for an investment must come to the Chinese homeland for it. This act suggests China as an emerging hegemon in the region. Many of the member countries, including Myanmar and Sri

Lanka, are located along the main trade route of the MSR. (Asian Infrastructure Investment

Bank, 2017). The Maritime Silk Road 7

Modern Development of MSR

In 2015, members of the international community, especially the western states, began to accuse China of using the MSR to achieve geopolitical motives. The Chinese government abruptly rebutted this idea stating that the MSR is “the product of inclusive cooperation, not a tool of geopolitics, and must not be viewed with an outdated Cold War mentality,” (Wang,

2015). In late 2015, China began to further explain their narrative. In an important statement by

Vice Premier Zhang Gaoli at the “Asia-Europe Meeting Industry Dialogue on Connectivity.”

“MSRI was not just about physical infrastructure but roads, people-to-people exchanges, policy coordination and trade and capital flows.” (Blanchard & Flint, 2017). To further show their diligence on the matter, China created a Silk Road Fund that contained 40 billion dollars for future use in development. (Blanchard & Flint, 2017; Xinhua, 2015).

China has focused on the Southeast Asian countries (ASEAN) to be a large part of the

MSR plans due to their geographical importance because of their proximity to both China and trade routes. As suspected, Indonesia, which contains the Strait of Malacca, was one of the first countries they approached, but many countries were quick to show cautious interest in the proposals before them. Myanmar, Malaysia and the Philippines are some of these countries.

(Blanchard, 2017; Klemensits, 2018).

The main problem China faces today is how to keep their economic growth rate from slowing. The Chinese economy is unlike any other because its economy is strong enough to take on both the internal demands of a still developing country and the responsibilities of an emerging global power. This means that the country can continue development of its interior and cities while still investing in foreign competition. This is astonishing as no other countries in recent history have been able to achieve this type of feat. While strong, their economy is unstable The Maritime Silk Road 8 because of its large reliance on its export market. This reliance could be exploited by rival countries who could then weaken the Chinese economy through trade embargos or blockades of shipping lanes. Exports and government projects, especially those in foreign infrastructure, are a large part of the Chinese MSR plan and are predicted to help slow the falling growth rate. Many analysts suspect that China will have to look for markets that are more domestic and encourage spending there if they wish to stabilize their government. “China will increasingly have to rely on expanding its own domestic demand to meet the government’s ambitious growth targets”

(Hirst, 2015, para. 17). It is important to understand China’s history because their foreign policy is based on past wrongs and failed policies. Through interpreting their past economic failures, successes, and government agenda, we are able to better understand future policies intentions, such as intentions of the MSR.

MSR Related Strategies

It is important to understand the difference between the MSR and its land-based

“sibling”, known as the Silk Road Economic Belt (SREB). The SREB has many of the same intentions of the MSR due to both being joint strategies under the Belt and Road Initiative. It differs in the fact that it focuses on land-based infrastructure. While the MSR focuses on building ports and investing in coastal nations’ port infrastructure, the SREB focuses on building land- based infrastructure such as pipelines, railways, and roads to ensure that the developing nations’ ports do not become over encumbered as trade increases. China tries to predict the long-term outcomes when investing in these developing countries such as the various drawbacks and advantages the inflow of invested money or money lent could have for both the countries and

China. (Ghiasy & Zhou, 2017). The larger Belt and Road Initiative (BRI) is the broader scope of the combined efforts of SREB and MSR. The Maritime Silk Road 9

The String of Pearls is another Chinese strategy that must be understood to completely realize the scope of MSR. The String of Pearls describes the amassing of Chinese international influence through ports and airfields around the South China Sea, Strait of Malacca, and the

Indian Ocean.

“Each “pearl” in the “String of Pearls” is a nexus of Chinese geopolitical influence or military presence. Hainan Island, with recently upgraded military facilities, is a “pearl.” An upgraded airstrip on Woody Island, located in the Paracel archipelago 300 nautical miles east of Vietnam, is a “pearl”” (Pehrson,2006, p.3). The String of Pearls also includes foreign ports that China has recently leased due to the parent countries’ inability to pay back debt owed on the port. China can now station naval assets there, which furthers their control into the surrounding oceans. This establishes a forward presence for China, which is much like what the United States (US) has with naval bases in

Okinawa, Saipan, etc. In future conflicts, this would allow China to protect its trade, while providing agility in both warning and the retaliating offensive. (Pehrson, 2006).

The Cabbage strategy, while not being an essential part of the MSR, is related to it through the String of Pearls Strategy and is a tool China uses to enforce claims on disputed islands in the South China Sea. By gaining these islands, China gains economic rights to natural resources in the surrounding ocean and spreads its influence to these areas. (Nune, 2018).

“Chinese military officials themselves have referred to their country's gradual seizure of territories as a "cabbage" strategy, in which they likened areas targeted for seizure to cabbage slowly being wrapped, leaf by leaf” (Brago & Aurea, 2015, para. 6). The Chinese navy will surround a disputed area with multiples layers of ships and other security forces to block other countries personnel from accessing the island or atoll. China then slowly builds up infrastructure on the disputed area and often militarize it by stationing Navy and Air force planes there. Many in international politics have condemned this strategy because it does not follow the principles of The Maritime Silk Road 10

Unclos or the Law of the Sea, which is international law. Salami slicing is a term dubbed by the

United States to explain aspects of the cabbage strategy. (Nune, 2018). It describes how China is making extremely small steps when using the cabbage strategy. It will only take one island here or possibly one port there. None of these steps is large enough to create a crisis however, which allows China to slowly claim these regions with limited blowback within the international community. (Brago & Aurea, 2015).

“Peaceful Development” was a strategy adopted by the Chinese in the mid 1990’s to combat four factors that could be potential problems for the developing country, which ultimately led to geopolitical policies such as the MSR. It can be seen as akin to the modern day

“Salami Slicing” strategy mentioned above. Peaceful development was a way for China to continue its economic growth and development while minimizing the hazard of other nations seeing China as a threat. The first of the four factors is that Chinese officials realized that there was only going to be one global hegemon at the end of the Cold War and they believed it was the

United States who would keep their spot at the top. This would mean China would be rising into a uni-polar powered world, one where the US could undercut Chinese policies and development.

Secondly, China also realized that it could not compete with other world powers of the time when it came to military and economic function, despite its already astounding growth rate. The

US show of force in Desert Storm only bolstered this notion. Thirdly, China did not want its rise to be alarming or appear aggressive to the international community due to fear of the US imposing Cold War containment tactics to counteract its growth. Finally, China knew if it tried to force its claim of Taiwan, the US would back Taiwan with the backing of the international community and easily exhaust Chinese efforts. Chinese foreign policies have been largely dictated by these four factors and is why they have largely relied on geopolitics through The Maritime Silk Road 11 economic means to spread their global influence. The BRI and MSR are the current foreign policy of China now.

Case Studies: Analytical Approach

I have chosen Sri Lanka and Myanmar as my case studies because of China’s interest in them. Sri Lanka was one of the first countries to feel the negative affect of Chinese investment and has been trying to recover, which makes it a point of interest. Myanmar is a neighbor to

China, which only recently has shown any interest due to the MSR project being implemented as a Chinese foreign policy. Myanmar has always been wary of other countries conducting affairs on their soil.

These countries have interested me greatly and I look forward to exploring them within this paper. Both of these regions are spread out geographically, which gives the paper a bigger scope instead of just focusing on the ASEAN countries. China has different reasons for interest in each of these regions as well which I aim to explore. Sri Lanka already contains the Chinese built and now operated port of Hambantota and was one of the first countries to feel repercussions from the accruing amount of debt that they owe to China. (Hillman, 2018).

Myanmar is another obvious choice because China has completed several projects and is expecting to make further proposals to this country whose coast lies along the Bay of Bengal.

The Chinese built port of Kyaukpyu has been receiving many ships, which has made it self- efficient economically. China also has a keen interest to increase land-based infrastructure in order to expedite shipping to its interior and give it the strategic ability to bypass the Malacca

Strait. (ChinaPower, 2017; Poling, 2018). Myanmar is also well known to be rich in natural resources, which gives China another reason to find interest with them, as well as being a viable trade partner. I am focusing on these reasons because this is an integral part of MSR: re- The Maritime Silk Road 12 centering global trade and increasing exports. (Klemensits, 2017; Shinn, 2012). I will be looking at Chinese involvement in each of these countries with three different aspects: Economic expansion and development, foreign investment in relation to spread of global influence, and naval actions related to the MSR.

Economic Expansion and Development

The economic expansion and development of these countries, which is done with Chinese investment and firms, is an area of importance when digging into the MSR. It is important to look for what China sees in these countries. Is China looking to increase the infrastructure of these countries to give them the ability to receive more goods in order to help solve China’s overproduction problem? What projects is China proposing in order to carry this out and will these projects generate enough money for the host country to successfully pay off their debt to

China? By looking at the economic expansion and development in these countries before and after the MSR, we can tell if the investments made by China have really helped these countries or harmed them.

There are ways to examine China’s economic moves in order to determine whether they are purely economic or also have geopolitical implications. The MSR can be looked at in this way by first scrutinizing the Chinese investments in ports. A good economist would assess the

MSR countries for their economic importance using three different criteria. First, does the country in mind have a close proximity to shipping lanes? Secondly, does the said country have operating ports or is it close to any existing major ports? Thirdly, is there a possibility of hinterland connectivity? Hinterland connectivity is “the degree to which port projects are connected to larger development strategies inland” (Green, 2018, para 9). In building its economy, China should be looking at these criteria when it is choosing in which regions to take The Maritime Silk Road 13 interest. If they are choosing countries outside of said criteria, an assumption can be made that

China’s motives are not purely based on economics as presented and instead have geopolitical implications as well. (Funaiole; Hillman, 2018).

A port project’s distance from shipping lanes must be taken into account if the project is expected to be economically feasible. By building ports close to shipping lanes, ships save money on fuel, crew wages, and most importantly time. Ports closer to the worlds shipping routes will receive more trade than those that are farther away. (Funaiole; Hillman, 2018).

The proximity to ports criteria is used to judge ports built by Chinese investment based on their distance to already existing ports. When it comes to economics, if a liquor store is the only source of alcohol for a hundred miles, it will get a lot of business. If another liquor store builds next to it, that store is unlikely to do well because one store has the business and unless that store fails to meet the customer’s needs, the new store will bring in less profit. According the proximity to ports criteria, a port can expect to do well if it is built far enough away from existing ports to be worth stopping at and attract trade for its access to another region. China is finding a hard time doing this because ports have historically been built as close to trade routes as possible in order to cut shipping costs. China argues that the expected influx in trade over the next decade will overwhelm the neighboring ports, which would lead to further use of the port they build.

Hinterland connectivity is the final criteria through which we can judge Chinese economic movements. Many of their ports do not have the land infrastructure such as roads, pipelines, and railways to support them. This is not as important for ports serving as mainly transshipment tools but this is not part of China’s plan. Hinterland connectivity is important The Maritime Silk Road 14 because if the goods cannot be effectively transported from the port inland, the port will become backed up and unpopular. This will lead to inefficiencies and less stops for commercial vessels.

Foreign Investment and Spread of Global Influence

Chinese foreign investment is the main driving factor of the MSR strategy. By using the three criteria method above, it was determined that, while China claims the port investments are for a “win-win” economic gain, some ports are not seeing these benefits. This is because several of their projects currently lack the ability to make an economic boom and the problems have yet to be addressed. This means that they serve another purpose, one of a geopolitical nature.

(Klemensits, 2018; Pehrson, 2006). Many of the Western countries see China’s new initiative as the future form of colonialism. One where, instead of guns, large debt traps and trade dependency push countries into unfair contracts against better judgement. “Research by the

Centre for Global Development found Djibouti was among eight Belt and Road countries significantly or highly vulnerable to debt distress from the loans” (Van Mead, 2018, para 19).

This section will examine the various investments, and debt penalties given to developing countries to look at China’s actions as a creditor and compare these actions to those of other foreign creditors on the international field.

“A debt trap is a situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments on the principal of a loan. These traps are usually caused by high-interest rates and short terms” (Opploans, 2018, para 1).

China has been lending large amounts of money to smaller developing nations through the course of their MSR initiative. Many critics have looked at these investments as debt traps and a threat to the borrowing countries sovereignty. The Center for Global Development is a non-profit research organization based out of Washington D.C. has done studies on the debt The Maritime Silk Road 15 accrued by nations involved in China’s Belt and Road projects. (Fernholtz, 2018). Out of the BRI nations, the study recognizes twenty-three that are vulnerable to debt trapping. By looking at a countries debt-GDP ratio as well as the amount of the debt for which China is the creditor, the study looks at eight of the countries that may experience debt trouble because of Chinese projects. Not all of these countries currently have projects going on within them but they have been mentioned due to their representation at BRI events. (Hurley & Morris & Portelance,

2018).Of these eight, six: Ethiopia, Kenya, Sri Lanka, Maldives, Djibouti, and Lebanon are located along the MSR.

Many members of the international community are urging China to conduct their investment like that of other prominent international lenders, especially when dealing with weaker economies. The International Development Association (IDA), which is part of the more well-known World Bank, is one such lender. It provides service to developing countries in three different ways. First, they can supply “long term loans” which are regular loans that are supplied at market interest rates. Secondly, they can supply “Credits” which are elongated long term loans offered below market interest rates, generally, directly from foreign government investments.

Thirdly, the IDA can help with economic and development strategies from experts in the field.

This gives the developing countries the ingenuity to carry out their tasks as well as other strategies for development. (Hansen, 2007). While the IDA does have critics, its standards are much above that of the AIIB or of China and has been very lenient with debt forgiveness.

Chinese response to indebted countries has varied widely. Some have been forgiven while others have not been so lucky where either land or control of infrastructure, like those countries in the

Chinese “String of Pearls”, has been demanded. If China wishes to fix this problem, it should adopt lending characteristics used by other investment institutions or bring other donor countries The Maritime Silk Road 16 into these programs. By bringing in more countries, it would spread out the debt more equally, which would give developing countries a better chance to recover. (Fernholz, 2018). I believe that, China’s reluctance to follow this path further promotes the idea that the infrastructure accrued from the in-debt countries has been forwarding China’s geopolitical goals, even though at the cost of a growing distrust among the developing nations.

Naval Actions Related to MSR

Aggressive actions made by the Chinese military have increased in recent years. From challenging the United States navy in the South China sea to the continuation of the “String of

Pearls” and “Cabbage” strategies, China is beginning to emerge as a player on the global scale and it will have to rely heavily on its navy in any future conflicts as the protector of its shipping lanes and assets. “Although China is using its Belt and Road Initiative (BRI) to fund many of these projects, there is no question that the infrastructure is being created with dual-use purposes in mind.” (Cooper, p.1, 2018). The naval implications are there as Chinese naval ships have made diplomatic visits too many of the ports built by their country. Some have even stayed for extended periods, despite local dislike.

Case Study: Sri Lanka

The Maritime Silk Road 17

Figure 2: Port of Hambantota, Satellite view of Hambantota Port. Hillman, J. (2018, April 2). Game of Loans: How China Bought Hambantota | Center for Strategic and International Studies. Retrieved October 18, 2018, from https://www.csis.org/analysis/game-loans-how-china-bought-hambantota

Sri Lanka is a developing island country, located a few miles south of India. It is just north of several major shipping lanes that carry goods from Europe and Middle East to Eastern

Asia. The countries government is a Democratic socialist Republic with a GDP of 87.59 billion.

The economy has recently been struggling due to its large amount of debt accrued to China, which culminates at 79% of its GDP. (CIA, 2018). Chinese investment in Sri Lanka began in

2006, after the election of President Mahina Rajapaksa in 2005. This took place after a brutal twenty-five year conflict between the Sri Lankan government and the rebel Tamil Tigers that saw horrendous Human Rights violations committed by both sides. The United Nations (UN) condemned these violations, which shied away all potential investors with one exception, China.

President Mahina had promised large-scale development, especially in the southern areas where he had grown up. The biggest of these projects included the Port at Hambantota, an International

Airport, and a large cricket stadium. All of these projects were supplied by Chinese lenders and built by Chinese contractors at steep interest rates that have led to the country’s current economic crisis and the Chinese acquisition of the Hambantota Port. (Hillman, 2018). The new president

Maithripala Sirisena is much more cautious of investments from China, which shows Sri Lanka’s ability to adapt and begin to take investments more economically with less risk to debt exposure.

The MSR in Sri Lanka

China aims to increase infrastructure on the island of Sri Lanka in order to increase trade efficiency on the island and to establish diplomatic relations with the country. This could be because of its close proximity to India, which is seen as a rival to China in the area. (Abi-Habib, The Maritime Silk Road 18

2018). Chinese actions in Sri Lanka have been widely criticized by western experts, as a geopolitical move, which gives them a footprint in the Indian Ocean. Two main Chinese sponsored projects in Sri Lanka right now are directly connected to the MSR initiative. These are the Port cities being built in Sri Lanka’s capital of Colombo, located on the South West side of the Island, and the Port of Hambantota, located on the southeastern side of the country.

The project in the port city of Colombo, also known as the “New Dubai”, is planned to be an upscale city that the China Communications Construction Company (CCCC), a state owned firm, is building. “Within a few years, however, Port City will be the site of glass skyscrapers, a busy financial district, hospitals, hotels and even a theme park” (Safi, 2018, para. 3). Sri Lanka has taken on a 1.4-billion-dollar investment from China as well which is the largest single foreign investment in the country’s history. The project started in 2009 and made very slow progress at first. This is because the port city was to be built on land reclaimed from the Indian

Ocean, which was a job that required at least 100 million cubic meters of sand. (Safi, 2018).

Additionally, it required an immense amount of dredging which eventually faced opposition from many local environmentalist groups and fishermen. The environmentalist group named

“Center for Environmental Justice” (CJE) claims that just the collection and deposit of sand itself has the ability to affect 15,000 fisherman as well as onshore jobs that have to do with fish packaging and delivery. The influx of cars on the road would also worsen air conditions for which Colombo is already exceeding according to World Health Organization guidelines.

Due to local pressure and the election of a new prime minister, Ranil Wickramasinghe, the project was put on hold in 2014. The delay was short however as the CCCC claimed it was spending 380,000 USD a day the port was on hold and that it would sue for compensation if the project was not continued quickly. Due to this threat, Prime Minister Ranil approved The Maritime Silk Road 19 continuation of the project in 2016. It is projected that the CCCC will finish the land reclamation by the end of 2018 with buildings expected in the following four years. (Safi, 2018).

The second MSR related project in Sri Lanka is the port of Hambantota. The port, originally built to be operated by the government of Sri Lanka, is now fully functional and controlled by China through a 99-year lease along with the 15,000 acres of land surrounding it.

The lease came about because of Sri Lanka’s inability to pay back the steep interest rates incurred on money it borrowed from China for the project. Many see this as a threat to Sri

Lanka’s sovereignty and stability.

Economic Feasibility and Development

In order to determine what China’s ambitions are in this country, it is important to look at the nature of their investments, and to determine whether the investments are economic or geopolitical by using the “three criteria” economic method detailed earlier in this paper. In doing so I will identify reasons why the port is not likely to succeed economically due to its proximity to shipping lanes, ports, and infrastructure that gives hinterland connectivity.

Proximity to Shipping Lanes

The Port of Hambantota passes the first of the three criteria, which is based on their distance to shipping lanes. The Euro-Asian shipping lane is a busy lane that runs only ten to fifteen kilometers off its shores. Being one of the main global shipping lanes, it is “estimated to be 23.1 million twenty-foot equivalent units (TEUs) in 2017 and expected to grow in the coming years” (Funaiole & Hillman, 2018, p.3).

Proximity to Ports

The Port of Hambantota in Sri Lanka is located 235 kilometers from the previously built

Port of Colombo. This translates to 146 miles, which is not enough to justify the building of this The Maritime Silk Road 20 port. This is partially because the President at the time, President Rajapakse, had a vision to develop his homeland of the Hambantota region. It was not a feasible plan at the time as the population remained low and travel a minimum. Hambantota has received low amounts of ships every year because of its relative distance to Colombo. This led to a low economic output, below that which it was supposed to gross. (Betigeri, 2018). This is part of the reason that the port had to be turned over to China.

Figure 3: Hambantota vs Colombo, Colombo has received many more ships than Hambantota. Funaiole, M., & Hillman, J. (2018, April 2). China’s Maritime Silk Road Initiative: Economic Drivers and Challenges. Retrieved October 4, 2018, from https://www.csis.org/analysis/chinas- maritime-silk-road-initiative-economic-drivers-and-challenges

What is making the port so unsuccessful? Colombo is the capital of Sri Lanka with the largest population base and the most amount of money. This means this is where most of the goods in the country are bought and sold because people have enough money to afford items of commodity. This means ships will continue to stop here because it is a shorter distance to the markets for the goods they carry. Colombo also has all of the necessary transportation infrastructure to deliver goods to all main cities in the south. The Port of Hambantota would succeed only if the Port of Colombo became over encumbered with the promised increase in trade among MSR countries. (Mair, 2018). The Port of Colombo acknowledges an “Increase The Maritime Silk Road 21 from 4.9 million TEUs in 2014 to 6.2 million TEUs in 2017. But with a capacity of 7.1 million

TEUs and plans to further expand its capacity, Colombo is well-positioned to handle future growth in maritime trade” (Funaiole & Hillman, 2018, para. 11). It is impossible that China did not have access to this information and explains why the Hambantota port only received 183 ships, most of which were car carriers that Colombo deferred, in 2017. This is in comparison to

Colombo who received over 4,000 ships. (Mair, 2018). These reasons fail the Port of

Hambantota out of the distance to ports criteria of economics. (Islam, 2017; Funaiole & Hillman,

2018).

Hinterland connectivity

Hinterland connectivity is the final criteria through which we can judge Chinese economic movements. Many of the ports, invested in by China, do not have the land infrastructure such as roads, pipelines, and railways to support them. This is not as important for ports serving as mainly transshipment tools but China does not plan on these ports just being transshipment terminals. Their port in Gwadar, Pakistan, for example, is seeing trouble with this due to a lack of rail and road infrastructure leading into their heartland. The same is seen in

Hambantota, Sri Lanka as this port is farther removed from the main population base and lacks both road and rail infrastructure that would be needed to efficiently move goods from the port to their markets within the country. (Funaiole & Hillman, 2018). While there are rail and road infrastructure projects going on in Sri Lanka, there is the argument that Sri Lanka does not have a possibility of hinterland connectivity that would suit China. This is because Sri Lanka is an island nation. China wishes to use hinterland connectivity with their other ports in Pakistan and

Myanmar to decrease shipping costs to their interior and to connect the MSR to the SREB. Sri The Maritime Silk Road 22

Lanka does not have the ability to become this due to its geography. (Funaiole & Hillman, 2018;

Mengjie, 2017).

Conclusion

In conclusion, by using the three criteria concepts of economics, we were able to determine why the Port of Hambantota was not viable to succeed. The port only matches one of the three criteria, proximity to shipping lanes, because of the Euro-Asian trade route that runs off its shores. This is negated by its lack of hinterland connectivity, and its proximity to the Port of

Colombo. Its location is also detrimental to its success as it is not near any large population bases that would make it worth stopping at for shipping companies. The closest main city to

Hambantota already has the port of Colombo supplying it and this port has the ability to process much more cargo than it currently is. This means ships will keep stopping in Colombo for much longer than originally thought, leaving the port of Hambantota empty. The port city project in

Colombo will only further alienate the Port of Hambantota as people from the outside areas move into Colombo to fill the increase in job opportunities the new development will create. The

Port of Hambantota also has limited hinterland connectivity because, while land infrastructure is being built around the port, the country itself is an island and China will not benefit greatly in these projects. The Port of Colombo already has the infrastructure it needs to continue to supply the major cities of the country for a long time to come. For these reasons, the Port of Hambantota was going to fail from the start and was an ill-advised choice that has only increase debt in Sri

Lanka without a return to help pay that debt back. This Chinese investment was not propelled by economic advantages because it was a poor plan that was not going to succeed from the start and will not show returns for years to come. The Maritime Silk Road 23

It is important to notice that the Chinese do benefit economically through stimulations of their construction corporations. China required that all work done on Chinese backed projects was to be done by Chinese companies. The Chinese companies would import the necessary materials from China, which helps alleviate China’s product surplus. This move successfully circulated China’s investment back into its own economy, which minimized losses.

Geopolitics of Foreign Investment

“The goals, actions and outcomes of geopolitics are a combination of politics and economics so that geopolitics is not best seen either as purely political or strategic or narrowly as geoeconomics. Instead, a political economy approach that sees capital accumulation and territorial control as necessarily and mutually supporting activities is the most effective way to interpret geopolitical projects such as the MSRI” (Blanchard & Flint, 2017, Para. 24).

The Port in Hambantota was a successful spread of Chinese global influence that sent shockwaves through the international community. It has been likened to the same type of deal that Britain made in Hong Kong, that is the forcing of a nation to sign unfair contracts while under pressure, in this case debt. Due to evidence in the Economic Feasibility and Development section, the investment of the Chinese in Sri Lanka was not a “win-win” benefit for both countries as it had been pitched. China has seemed to build as many projects as possible in the country without thought for economic feasibility. (Abi-Habib, 2018). “A cricket stadium with more seats than the population of Hambantota’s district capital marks the skyline, as does a large international airport — which in June lost the only daily commercial flight it had left when

FlyDubai airline ended the route” (Abi-Habib, 2018, para 48).

China made a condition on the investment that any of the projects accepted were to be built by Chinese companies. This meant that not Sri Lankan, but Chinese workers would be building the projects, effectively swung China’s investment back into its own economy. Not only was labor pay going back to China, but also the Chinese construction companies would import The Maritime Silk Road 24 building materials from China. This was an effort to help solve the problem of China’s surplus in construction materials and spurred the industry. By investing in Sri Lanka and then funneling the money back into its own economy, China was able to increase the chances of Sri Lanka falling into a debt tap. This means the port project has, and was meant to have, geostrategic implications.

The combination of a large amount of projects and low revenue returns, has put Sri Lanka into a debt trap that it will be hard pressed to escape. The biggest of these projects, The Port of

Hambantota, has not brought economic growth. Sri Lanka’s enlarged public debt gives China power over the smaller country and weakens its sovereignty. (Duchatel & Duplaix, 2017). This is given evidence by the seizure of the Port of Hambantota by state owned Chinese firms in 2017.

China’s aversion to easing the terms of the agreement and their demands for a lease on the port suggest that this has been their objective the entire time. “The Chinese president stated that by

2050 China will have “become a global leader in terms of composite national strength and international influence” (Duchatel & Duplaix, 2017, p.4). To follow these ambitions, China must first spread its global influence and secure strategically important shipping lanes. This begs the question, how does Sri Lanka fit in to China’s strategic plan?

“China portrayed the 1997 restoration of its sovereignty over Hong Kong, following more than a century of British administration, as righting a historic injustice. Yet, as Hambantota shows, China is now establishing its own Hong Kong-style neocolonial arrangements. Apparently Xi’s promise of the “great rejuvenation of the Chinese nation” is inextricable from the erosion of smaller states’ sovereignty” (Chellaney, 2017, para 7).

Geostrategic Implications

The strategic importance of Sri Lanka is seen in its geography and influence in international politics. The country itself lies only 12 kilometers from the border of India, depending on where you measure. Threatened by the looming debt, Sri Lanka is more likely to The Maritime Silk Road 25 accept unfair contracts from China and continue allowing investment. “John Adams said infamously that a way to subjugate a country is through either the sword or debt. China has chosen the latter” (Abi-Habib, 2018, para. 14). Due to its debts, Sri Lanka has more reason to support China in the international community. While it is a relatively small and weak country,

Sri Lanka still holds a seat on international organizations, for both regional and global contingencies. This includes motions in the United Nations (UN) and other International

Organizations. This adds to China’s growing global influence acquired from other MSR projects, which is slowly turning more countries in the MSR toward China. This turns them away from the

US and other western nations and marks a large shift in power that has not been seen in hundreds of years. (Blanchard & Flint, 2017; Klemensits, 2017).

Naval Implications

Many in the international community worry that China will soon militarize the port of

Hambantota, even though Sri Lanka stated in the contract that this would not be allowed. In

2014, Chinese submarines docked at the harbor the same day that Prime Minister Shinzo Abe of

Japan was visiting Colombo, in what was seen across the region as a menacing signal from

Beijing” (Abi-Habib, 2018, para 95). Since then, Sri Lanka has sought assurances that the subs would not visit again and this was reflected in their Hambantota contract that denies China the ability to station any military force there. This does not diminish the worries that China may make use of Sri Lanka’s looming debt as leverage to achieve a renegotiation of this aspect of the contract. This would put the Chinese navy just off the shores of their major rival in the area,

India. (Abhijit, 2018). Hambantota also allows the Chinese Navy or Peoples Liberation Army

Navy (PlAN) more maneuverability in the region because Colombo has more traffic and is where the Sri Lankan Navy is based. Chinese naval ships could exit and enter Hambantota quicker and The Maritime Silk Road 26 with less eyes on them. (Hillman, 2018). Now while this could be seen as a threat to India, it is not enough to provoke a confrontation. This relates directly to the “Salami Slicing” strategy that

China is seen using in the South China Sea. (Nune, 2018). Their use of this strategy outside of their territorial zones shows the growth of their influence. This is akin to their first overseas military base, which is a naval base located in Djibouti, just a few miles from a US naval base.

(Chellaney, 2017; Abi-Habib, 2018).

By using leased ports such as Sri Lanka, as waypoints, China is making an effort to secure shipping lanes, or sea lines of communication (SLOCS), that are important to its economy. (Blanchard & Flint, 2017). This method has been dubbed the String of Pearls, which the Port of Hambantota in Sri Lanka has recently become a part of. Each “pearl” represents a center of geopolitical or naval power. The lines that connect the pearl are the shipping lanes and airways that connect these different centers to each other and the mainland. (Pehrson, 2006). It is important for China to protect its shipping lanes because the Chinese economy is extremely reliant on its exports to keep the economy turning. “China’s greatest strength and its greatest vulnerability is the economy, and therefore it is the centerpiece of Chinese policy and strategy”

(Pehrson, 2006, p.5). Over 70% of its oil and gas imports come from either the Middle East or

Africa, all of which come by ship. If an aggressor country were to blockade Chinese shipping routes, the Chinese economy would begin to collapse without the aggressor having to conduct much military action. (Cooper, 2018).

The MSR, using the string of pearls concept, gives PLAN the advantage of forward presence. Forward presence is the ability to place troops, ships, missile systems, and other military technology on areas outside of your mainland. (Shunk & Hornick & Burkhart, 2017).

During peacetime, forward deployed troops in Hambantota would deter conflicts and provide an The Maritime Silk Road 27 overseas station where their naval ships could refuel and resupply in the Indian Ocean, instead of making the long trek back to the mainland. This idea follows along the Chinese strategy of

“peaceful development”. During war times, a base at Hambantota would allow the state to have an extended warning of any attack coming from their rival India whether by troops or missile and gives said state time to respond and counter strike. This would also encourage conflicts abroad rather than on domestic soil, where more losses would be seen. (Cooper, 2018). Being the global hegemon, the US is well known to have thousands of active troops and machinery overseas within its various military bases worldwide. Through the accumulation of foreign ports, China is trying to gain a forward presence along its SLOC.

Initial Assessment

I believe, from the evidence shown above, that China has invested in Sri Lanka in pursuit of their geopolitical and naval goals. I was able to determine this by examining the economic plausibility, geopolitical potential and naval actions surrounding the port project of Hambantota.

China received the most economic benefits due to the export of surplus product and stimulation in the Chinese construction industry. Otherwise, was very little economic plausibility to be seen in the investments being made it Sri Lanka. China knew this and recognized that the new

President, Rajapakse who had little economic experience, was willing to go through with proposed projects, despite multiple warnings. The resulting debt has put Sri Lanka in a debt trap it will be trying to climb out of for years, and at the economic mercy of China. China’s debt control can be used to influence the Sri Lankan economy and politics, which gives China a voice in Indian Ocean. I believe China will eventually use this debt leverage over Sri Lanka to revise the terms of the lease agreement to turn Hambantota into a PLAN facility. The Sino-Sri Lankan relationship will only increase China’s international influence by weakening Sri Lanka’s The Maritime Silk Road 28 sovereignty. This will hurt the Sri Lankan government’s relationship with its people and with the international community.

Case Study: Myanmar

Figure 4: MSR in Myanmar, MSR related projects in Myanmar creating hinterland connectivity from Port Kyaukpyu to China’s hinterland. Malik, M. (2018, January 4). Myanmar’s Role in China’s Maritime Silk Road Initiative. Retrieved November 24, 2018, from https://www.researchgate.net/publication/322098426_Myanmar’s_Role_in_China’s_Maritime_S ilk_Road_Initiative

Myanmar, also known as Burma, borders India and Bangladesh on its west side, with

Thailand and Laos on its eastern side. Most importantly, it shares a border with China to the north. To its south and southwest lay the Bay of Bengal and the Andaman Sea. The population of

Myanmar is around fifty-five million. A third of all Myanmar’s perimeter consists of coastline, which gives the country a good amount of territorial water. With a large amount of territorial water and land-based resources, Myanmar has all the tools it needs to run a successful economy.

(CIA, 2018; Lambert, 2018). Due to years of militaristic oppression and economic mismanagement, this has not been the case. Myanmar became independent of the British on

January 4, 1948. Elections were held successfully but the country was in a period of ethnic upheaval and an unsuccessful try for socialism left the country in social in economic upheaval. The Maritime Silk Road 29

The military soon took hold of the government and crushed any opposition violently. (Lambert,

2018). Economic sanctions from the Western powers had little effect on the country and a popular election in 1990 was not accepted by the military. Human rights violations continued consequently. The Sanctions only served to increase Myanmar’s dependence on China who they turned to for assistance. In 2011, the military government was disbanded and a Civilian elected government took over along with the release of many political prisoners. In 2015, the anti-regime party (opposition to military) took control of both houses of government. While this improved

Myanmar’s standing with the UN, the country is still criticized for their alleged, “ethnic cleansing” manifest and harsh treatment of minorities. (Malik, 2017; Chenyeng, 2010).

The MSR in Myanmar (Burma)

Chinese investment in Myanmar was first seen in 1988 as political goals of both

Myanmar’s military regime and China’s communist party aligned. China began lending financial, military and political aid to help steady the smaller country that had been embroiled in several civil wars since its independence. “Nearly 60% of Myanmar’s weapons imports came from China and Chinese firms contributed to 42% of the country’s total foreign direct investment

(FDI)” (Malik, 2017, p. 2). The first stages of the MSR plan can actually be seen in 2008 when

China promised thirteen billion USD in infrastructure invest over the next three years. This is prior to their announcement of the MSR, which took place in 2013. (Xinhua, 2015). In return,

China received access to the country’s natural resources and was able to press on with negotiations for rail and pipeline infrastructure leading from Myanmar’s coast into central China.

(Malik, 2017). Multiple infrastructure projects continued until 2011 when President Thein Sein suspended several multi-billion dollar Chinese projects due to concerns of Chinese economic domination. These included the “Myitsone Megadam” and the trans-country railway project. The Maritime Silk Road 30

This signaled Myanmar’s wishes to diversify their economic and political relations and distanced themselves from Beijing. (Malik, 2017). The seizure of the Sri Lankan port of Hambantota served as a further warning to Myanmar’s government and many contracts were subjected to revisal, much to China’s chagrin. Myanmar has been very cautious about the amount of investment it accepts from China. (Poling, 2018; Reuters, 2018)

MSR Related Projects

Three main Chinese projects in Myanmar are directly related to the MSR. The first is their recently won contract for a port in the small coastal town of Kyaukpyu in 2016. There is an industrial area in the special economic zone (SEZ) that surrounds Kyaukpyu, which I have placed in the same category of the port since the two are so closely connected. The second is the railroad that would connect Kyaukpyu to the Yunnan province in central China but has since been suspended. It is suspected, however, that China will pursue this project in the future.

Thirdly, the Chinese built oil and natural gas pipelines leading from Kyaukpyu to Kunming,

Yunnan province. This is a large part of the reason why China has been so committed to developing a port at Kyaukpyu. (Polling, 2018; Malik, 2018).

The Port of Kyaukpyu and industrial zone in the SEZ surrounding it were contracts awarded to China in 2016. Together, the port and industrial area were to amount to ten billion

USD, which Myanmar has carefully negotiated to avoid Kyaukpyu becoming like Hambantota.

(Poling, 2018). In 2018, Myanmar’s government scaled back the port investment from 7.3 billion to 1.3 billion after worries surfaced that the large debt accrued would lead the country into debt trouble. Instead of the original plan for ten berths, there will now only be two with room left for further development in the future if need be. (Reuters, 2018; Poling, 2018). The surrounding SEZ is still scheduled to go on as planned, as it was more economically manageable at 2.3 billion. The Maritime Silk Road 31

The Sino-Myanmar railroad project that was suspended in 2011 has recently been resurrected in October 2018, during talks between Chinese companies and the Burmese government. The project, a 1,700-kilometer railroad that will connect Kunming to Mandalay, will go through a feasibility study. The feasibility study will focus on land ownership, social relations, environmental impacts, companies viable to receive the contract, and other potential conflicts that the railway could produce. This study is set to take place within the next two years.

(Lo, 2018). China has already completed the part of the railroad that is on its side of the border, which is a sign that they will be hard to dissuade from further efforts if the feasibility study is opposed to Chinese interests. (Malik, 2017).

The oil and gas pipeline project was completed in 2015 with trial operations beginning the same year. After two years of pushback from the Burmese people, the pipeline was finally running at operational capacity in 2017. The China National Petroleum Corporation and the

Myanmar Oil and Gas Enterprise built the pipeline. (Poling, 2018). The pipeline runs from

Kyaukpyu, Myanmar to the Yunnan province of China. The Pipeline project has had little trouble since reaching operational capacity and helps satisfy China’s growing appetite for oil.

(Bloomberg, 2017).

Economic Expansion

The Chinese investment in Myanmar differs much from that of Sri Lanka’s when looking at the economic feasibility. Much of the projects in Myanmar are connected and provide an economic network that works for both countries. Much of this is due to the Burmese government carefully navigating the Chinese contracts and proposals, with much thought to the amount of investment their country can handle. In this section, I will use the three criteria method to examine the port of Kyaukpyu to examine whether the project is economically feasible. I will The Maritime Silk Road 32 then look into the oil and gas pipeline and the proposed railway to examine how they will work in conjoint efforts with Kyaukpyu.

Proximity to ports

The Chinese project in Kyaukpyu, Myanmar fits the proximity to ports criteria. The port of Kyaukpyu is located just 200 miles south from the main port in the region, Chittagong,

Bangladesh, which is located at the northern point of the Bay of Bengal. Now while this distance is not extremely substantial, several factors overweigh this problem. The Port of Chittagong has been running at a level of tonnage that is over the designed maximum capacity. “For years, reports have indicated that Chittagong is congested and inefficient, with throughput in 2017 double that of the port’s designed capacity” (Funaiole & Hillman, 2018, para. 13). As Chittagong became overrun with cargo, it has become inefficient and costs shipping companies more money to stop at.

Not only is Chittagong operating at tonnage over its capacity, but also much of the port needs maintenance and several of their terminals require dredging. “Severe congestion in

Bangladesh’s prime seaport Chittagong caused by low draft and broken ship-to-shore gantry cranes has crippled loading and unloading” (Islam, 2017, para. 1). This would encourage shipping companies to reroute their ships to Kyaukpyu for quicker processing. If the port proves successful, the Burmese government will be able to meet its debt dates to China on time, making this a smart investment by China, as judged by the proximity to ports criteria. (Poling, 2018;

Funaiole & Hillman, 2018).

Proximity to shipping lanes

The Port of Kyaukpyu is located several hundred miles from the Euro-Asian shipping route, which is the closest major trade route to Myanmar. This is much farther than the few miles The Maritime Silk Road 33 between Sri Lanka’s ports of Colombo and Hambantota and the same route. This does not necessarily fail the port in this area, but it is acknowledged that the placement is not ideal.

(Poling, 2018). There are several smaller shipping lanes that lay in the Bay of Bengal that run along Myanmar’s coast. The port of Chittagong, however, reported that almost two-thirds of its traffic was traveling both west to the Indian Ocean and European countries and East to the

ASEAN countries. (Islam, 2017). This means the Bay of Bengal region is an important transshipment and midway point for global trade. Transshipment is a term defining when cargo is dropped off at one port only to be picked up by another ship that is heading to the cargo’s destination. In effect, this will potentially double the amount of ships a port will see in a year, possibly triple. The increase in ships will make the port more successful, boosting the chances that it will succeed economically. If Kyaukpyu can capitalize on transshipment and Chinese backed trade, it will not need to be near a major shipping lane to become successful. (Funaiole &

Hillman, 2018).

Hinterland connectivity

Hinterland connectivity is already seen evolving across the country of Myanmar with the development of the Sino-Myanmar oil pipeline and plans for the Sino-Myanmar railroad. Both of these projects are aimed to connect the Kyaukpyu port and SEZ to the Yunnan province of

China. In between, these crucial points the economic corridor will run through the Myanmar’s capital of Mandalay and the new city of Yangon. (Mengjie, 2017). These, together, will save shipping costs from any countries west of the South China Sea as goods could be shipped over the shorter land route to central China. This route would be a more efficient alternative to travelling to Chinese ports in the South China Sea and then transporting the cargo hundreds of miles inland by rail and truck. (Poling, 2018; Funaiole & Hillman, 2018; Mengjie, 2017). The Maritime Silk Road 34

These connectivity projects will also be helpful to the development of Myanmar, as domestic companies have worked jointly on the projects with the Chinese companies. This equates to smaller loans from China with less risk involved, although, the Chinese companies still get a large share of the pay. These projects will also help develop the areas of South Western

China that run along this economic corridor.

Myanmar also has the opportunity to use these projects to further develop its country.

These projects allow their companies to gain experience working alongside Chinese contractors, which will only help Myanmar develop further projects domestically. It will also give Myanmar insight into the development of energy resources and refineries to produce them. (Malik, 2017).

With all the positive impacts of hinterland connectivity, Kyaukpyu will have to focus on development of its SEZ if it wishes to become more than just a waypoint for larger cities or

China. With that being said, Kyaukpyu has sufficient hinterland connectivity for it to pass this third criterion, much more than that of Sri Lanka. (Poling, 2018).

Conclusion

The multiple investments in Myanmar, consisting of hinterland connectivity projects aimed to connect the Chinese port of Kyaukpyu with China, has great potential for economic success. The Port of Kyaukpyu passes two of the three criterion for economic feasibility. While it is, only 200 nautical miles away from its largest neighbor, Chittagong, Kyaukpyu will still be able to attract ships because of Chittagong’s overload on cargo. This overload makes Chittagong inefficient due to it taking double the time for a ship to be unloaded. These conditions will turn more and more ships toward Kyaukpyu, helping the port succeed. While it does not do as well in the proximity to shipping lanes criteria, factors such as Chinese backed trade and overflows at the neighboring port will prove sufficient if it is not able to attract trade from the Euro-Asian The Maritime Silk Road 35 trade route. Finally, Kyaukpyu’s possible greatest attribute is its ability for hinterland connectivity. The oil and gas pipeline will ensure that many tanker class ships will be calling to port there to deliver the energy resources to be piped into China’s hinterland. The Kyaukpyu

SEZ will provide Myanmar with the ability to increase profits by further industrializing the area to process imports. Once the Sino-Myanmar railway is done, the port will see a vast increase in container ships as goods headed to China’s hinterland will stop here to be transported over the much shorter and quicker land route.

As shown above, the port is highly likely to succeed for several factors. This means that the country of Myanmar will be making money off these projects, unlike Sri Lanka, and will be able to pay back their debt to China, which means these investments have economical value to

China. They also will save increase the efficiency of the transport of goods and energy sources into China’s hinterland, which is good for economics as well. This is partially due to Myanmar’s cautious nature when negotiating with China. Myanmar’s government downsized or cancelled many projects that it thought would put the country at risk of a debt trap. Other countries should take note of these actions when accepting or making proposals to China for investment.

Geopolitics of Foreign Investment

As seen in the last section, the various projects funded by China in Myanmar all have a large chance of being economically successful. This does not mean that they do not serve geopolitical goals as well. With Myanmar being located between Central/ Southern China and the Bay of Bengal, it does hold a geo strategic importance to China.

Energy Security

China sees the Port at Kyaukpyu and the connecting projects as a way to decrease their dependence on the Malacca Straits, which are vital to China’s SLOCs. The Malacca Straits has The Maritime Silk Road 36 long been looked at as an Achilles Heel for the Chinese. Around 80% of Chinese energy imports are transported through the Malacca Straits each year. If a hostile country were mount a successful blockade of the Straits, China would be hard pressed to continue on a prolonged conflict. (Chenyang, 2010). The oil and gas pipeline leading from Kyaukpyu to Yunnan province is an effort to lower their dependence on the Malacca Straits. “It can reportedly carry 22 million barrels of oil per year, which amounts to about 6 percent of China’s 2016 oil imports” (Poling,

2018, para. 6). The Gas pipeline itself can carry 12 billion cubic meters of natural gas into the

Yunnan province every year.

The Sino-Myanmar railroad, once built, will serve the same purpose as the pipelines by lessening dependence on the Malacca Straits. The Sino-Myanmar railroad transportation of container goods. Goods and energy resources could enter the Asian continent in Myanmar and then be quickly transported to China. “Bypassing the Malacca Straits shortens the distance to

South Asia and beyond by 3,000 kilometers and reduces travel time by five days” (Chenyang,

2010, p. 115). This could prove strategically important in a coming conflict, where resources are scarce and the Malacca Straits impassible. (Poling, 2018; Reuters, 2018).

Economic Interdependency

Through investment in Myanmar, China is trying to create economic interdependencies that will allow China to have greater influence in invested regions. As China gains more economic sway over these countries, it will discourage them from making policy choices that may go against Chinese policy. “In 2014, China accounted for 42.7% of Myanmar’s imports by value and 65.2% of its exports” (Malik, 2017, p. 7). The next largest economic partner by comparison was Thailand who was liable for 19.3% of imports and 16.4% of exports. The Sino-

Myanmar economic relationship makes up a third of all Burmese trade. With this amount of The Maritime Silk Road 37 leverage, China may be able to influence the Burmese government to produce polices that favor its economic partner which will push a pro-China narrative and spread Chinese global influence in the region. This can be shown by China’s economic leverage it holds over the country of

Cambodia. China has used this leverage to secure veto power in ASEAN, which it uses to veto any anti-Chinese policies that may be presented. (Malik, 2017).

Chinese federal direct investment (FDI) has been shown as another factor to worry about.

China’s FDI in Myanmar has been estimated to be 28.13% of total investments made in 2016.

(Malik, 2017). There is the argument that China’s FDI in Myanmar has been decreasing as the total investment percentage declined in recent years. This is due to increased investment from countries such as Japan and Singapore. As Myanmar begins to develop in a more democratic way, more countries will begin to lift restrictions and begin investment. This diversification of investment will help ease Myanmar’s economic dependency on China and will ease its debt stress, making borrowing safer. (Poling, 2018).

“China has a major footprint in Myanmar, both in trade and investment, but so do other partners like Japan that provide Myanmar with a significant degree of maneuverability. That is not likely to change in the short term, though the potential debt burden from Kyaukpyu bears watching.” (Poling, 2018, para. 11).

Border Security

Being neighboring countries, social unrest, instability, and conflict in Myanmar could have the potential to spill over into China. Examples of this could be disease, crime and other unconventional security concerns, and armed conflicts. China is trying to use the economic benefits of the MSR to develop Myanmar. (Chenyang, 2010). As Myanmar’s economy begins to expand, so too will development, which will help combat the countries many social problems.

Likewise, social problems, including the multiple warring militant groups along the Sino-

Myanmar border region, make investment risky and slow down development. Chinese and The Maritime Silk Road 38

Burmese authorities work together to eliminate drug smuggling operations along the border, which the warring groups use to fund their operations. (Chenyang, 2010).

By improving the security of its economic partner, China is achieving two important goals. First, MSR development projects will proceed much faster in a socially peaceful

Myanmar, as will economic returns. Second, by improving Myanmar’s national security, China is increasing its own security, both against conventional and unconventional threats. By improving its security, China is able to extend its global influence. Improved economic development and security are main focuses of the MSR strategy. (Blanchard & Flint, 2017;

Chenyang, 2010).

Natural Resources

China does not only look to Myanmar as waypoint for energy and natural resources coming from nations to the west, but also as a supplier itself. Myanmar is extremely rich in natural resources despite its size. This is partially due to its large EEZ relative to EEZs of other

ASEAN countries. “Beyond natural gas, Myanmar is rich in hydropower, timber, gems, jade, nonferrous metals, and arable land” (Chenyeng, 2010, p. 115). Myanmar has a population around

50 million people which China sees as a new consumer base. This consumer base will only grow as Myanmar becomes more developed because as the economy begins to boom, citizens will have more spending money for

Naval implications

China’s only use of PLAN in cohesion with projects in Myanmar has come in the shape of a joint naval exercise between the two countries. The exercise was meant to symbolize

China’s growing security in the region and its partnership with Myanmar. Interactions between the countries have been respectful and reflect the relationship of a partnership, in contrast to the The Maritime Silk Road 39 boldness shown by the Chinese in Sri Lanka. There has been speculation that China may push for Kyaukpyu to become a military port if they were to gain a severe economic hold over

Myanmar. This is very unlikely to happen, as the Burmese are extremely protective of their sovereignty. “In fact, the country’s 2008 constitution expressly forbids the deployment of foreign troops on its soil” (Poling, 2018, para. 9). While Chinese naval ships may call to the port, the international community does not see it as the same style of threat as that presented at the

Hambantota port in Sri Lanka.

Initial Assessment

As I examined this case study, a “win-win” relationship between the two countries began to surface. Now whether this is because of Chinese good intentions or cautious selection and navigation of the proposals by Myanmar is an argument harder to determine. Nevertheless, both

China and Myanmar benefit positively from this partnership. While China does have a geopolitical agenda in the region, it is not of great threat to Myanmar’s sovereignty as long as

Myanmar does not put itself at risk of debt.

I believe that Chinese interest in Myanmar, as a member state of the MSR, is multilateral in its objectives. I believe this because China achieves both economic and geopolitical goals in this relationship. All of China’s MSR related investments in Myanmar have large potential for economic success. The Chinese built port at Kyaukpyu allows China to use the oil and gas pipeline as an overland route for energy resources. China is now less reliant on the Malacca

Straits for trade, which enhances its energy security. The development of its neighbor, Myanmar, will lead to better living conditions, which will help fight social unrest in the country. Having a secure neighbor will enhance China’s own security and keep trade flowing smoothly across the border. Increased trade along this border will help China develop its hinterland as well. While I The Maritime Silk Road 40 do not believe China to have a geopolitical motive towards Myanmar’s sovereignty, I do not believe China would pass up the opportunity of obtaining economic leverage over its smaller neighbor.

Myanmar, in turn, has received affordable infrastructure projects that will boost the country’s economy and facilitate further development. Since the Kyaukpyu port has passed the three economic criteria test, companies will have more reason to have their ships call at the port.

Due to hinterland connectivity projects, such as the oil and gas pipeline and the possibility of a

Sino-Myanmar railroad, heading from Kyaukpyu to Yunnan province, the country will see an influx of trade heading to China. The transport and taxation of these products will make the

Burmese government millions, which will support their debt payments. This will help keep the

Sino-Myanmar relationship even and healthy. Myanmar’s companies have also gained experience working alongside the more technologically advanced Chinese engineers. This experience can be used in future, state run infrastructure projects, especially in reference to energy resources. The economic boost the new infrastructure brings may help Myanmar put an end to its social unrest, ending years of bloodshed. Myanmar must continue to act tentatively when dealing with Chinese investment, however, as one over budgeted project may put the country in a debt trap it would be hard pressed to escape.

Conclusion

Research questions

China was attracted to Sri Lanka and Myanmar for asymmetric factors, which created a distinction in its interactions with each country. I found that China’s interest in Sri Lanka stemmed from geopolitical and naval goals. With no need for friendly relations the Sino-Sri

Lankan relationship resembles that of a hegemon and puppet state. Sri Lanka has very little The Maritime Silk Road 41 choice in any of the interactions. China’s unwillingness to revise the debts or provide methods for debt forgiveness strengthens this argument.

In contrast, the relationship between Myanmar and China is much more balanced. While

China has made proposals that could have put Myanmar at risk, China was willing to negotiate the terms of the contracts, showing a leniency that was not exhibited with Sri Lanka. This is because China wants to pursue an economic relationship with Myanmar. While it does have geopolitical goals in the area, they do not take on the same shape as those in Sri Lanka. In

Myanmar, economic and geopolitical goals run side by side. It sees Myanmar as its ancestral neighbor and realizes that development there will see benefits on both sides of the border. I believe China will continue to respect Myanmar’s sovereignty and build friendly trade relations, to the economic benefit of both countries.

China has distinct economic, geopolitical and naval goals that it means to achieve with investment in Sri Lanka and Myanmar. In Sri Lanka, China’s goals are geopolitical and naval in nature. Economically, China is able to its construction industry and export its surplus of construction materials by requiring Chinese contractors build the projects and source their own materials. This mitigates loss on the investment. Geopolitically, China debt trapped Sri Lanka, allowing a 99-year lease of the Hambantota port. Addition of this port to China’s “String of

Pearls” establishes a Chinese foot print in the Indian Ocean. This destabilizes Indian power in the region. In reference to naval actions, China can use Hambantota as a waypoint for fueling and supplying PLAN’s ships. This would give China enhanced security of its SLOCs. While China is not currently allowed to base military forces in Hambantota, experts worry that China’s debt leverage over Sri Lanka may be used to dispute this aspect. A naval base in Hambantota would The Maritime Silk Road 42 give China’s PLAN a forward presence advantage over India, tipping the balance currently seen along the Sino-Indian border.

In Myanmar, China sees economic and geopolitical opportunities that coincide with one another. Economically, China wishes invest in Myanmar’s infrastructure development to foster trade relations and gain access to natural resources. The infrastructure projects (Kyaukpyu port,

Sino-Myanmar railroad and energy resource pipelines) will increase shipping efficiency between central China and the Indian Ocean, which will aid both countries in their hinterland development. Geopolitically, a trade reliance with Myanmar will increase Chinese influence in

South Asia. By increasing trade with Myanmar, China is trying to create an economic dependency that will discourage Myanmar from making anti-Chinese policy. The hinterland connectivity project in Myanmar lessens China’s dependence on the Malacca Straits, securing its energy resources and trade.

The MSR aids China’s rise as a global power by increasing trade and securing its SLOCs while spreading its global influence. The MSR aims to increase trade by investing in the infrastructure of developing nations, which will in turn boost the host countries economy, fostering trade relations. By creating a large web of connectivity, China is beginning to restructure global trade around itself. The MSR secures China’s SLOCs through use of its

“String of Pearls” strategy, as seen with Hambantota port in Sri Lanka. This strategy increases the range and presence of PLAN abroad. The MSR spreads Chinese global influence through trade relations that form economic dependencies with developing countries. As China gains economic relationships and dependency over these countries, it increases China’s influence in regional and global policies.

The Maritime Silk Road 43

Sri Lanka Success? Myanmar Success?

Economic- Proximity to Less than 20 km from Yes Far from major shipping lanes. No Shipping Lanes Euro-Asian shipping lane Close to sea routes in Bay of Bengal Economic- Proximity to Hambantota Port located No Kyaukpyu Port less than Yes Ports 200mi from Colombo Port 300mi from Chittagong Port. Closer to shipping lanes. Chittagong is inefficient Economic- Hinterland Hambantota located far No Energy Pipelines, Sino- Yes Connectivity from main cities w/ limited Myanmar railroad, SEZ. connectivity Geopolitical Gives China a footprint in Yes Friendly relations with Yes the Indian Ocean. Debt neighbor/ trade dependency. trap over Sri Lanka means Lessens dependency on less opposition Malacca straits Naval Waypoint for PLAN Yes Joint naval operations increase Yes activity in Indian Ocean. diplomatic ties. Secures SLOCs.

As seen by the Graph above, Sri Lanka was used by China to achieve geopolitical and naval goals in the Indian Ocean. Investment in Myanmar was to achieve economic and geopolitical goals in cohesion. Myanmar serves as a shining representation of the MSR’s objectives, while Sri Lanka serves as a warning of the unforeseen dangers. Future MSR participants should not cordon themselves from the initiative as they will be surpassed in development and trade by their neighbors. Neither should they become too enthusiastic with the projects lest they end up indebted. A country that carefully examines proposed project and weighs their budget, like Myanmar, will find the most rewards from the MSR.

Next Steps for Research

There were other areas of research I did not get to include in this paper. The most prominent of these is United States and Chinese contention in South Asia. The US has formed a

“Quad Response” that includes India, Vietnam, and Australia in efforts to combat Chinese influence while China continues to spread influence with the use of trade as a diplomatic force.

What are the chances of these soft power conflicts inducing military response, and if so, will

China be ready? The Maritime Silk Road 44

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