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In January 2024, the President of the Maldives Mohamed Muizzu visited China as his first state visit. Unlike his predecessors who chose India, Muizzu’s choice for Beijing indicated the new administration’s massive expectations from China. Yet, a year later, little has materialised. This is not an isolated incident. In Sri Lanka too, China has not been very proactive since the beginning of the economic crisis in late 2021. China’s outreach in the South Asian region, specifically in the Maldives and Sri Lanka, seems to be changing. China is now hesitant to use its past strategies like offering financial assistance and supporting mega-infrastructure projects. Instead, it has increased its high-level interactions, bilateral engagements, and small development projects.
China is now hesitant to use its past strategies like offering financial assistance and supporting mega-infrastructure projects.
Unparalleled Chinese inroads and the new passivity
Owing to the increasing geopolitical importance of South Asia and the Indian Ocean Region, the beginning of the century saw Chinese interests and influence in the region expand significantly, especially through loans, investments, and development assistance. As the civil war intensified in Sri Lanka, China emerged as a significant donor and development partner. At the same time, China made steady inroads in the Maldives. However, its influence increased drastically in both countries with the institutionalisation and launch of the Belt Road Initiative (BRI) in 2013. Minimal conditions on domestic reforms and the quick disbursement of loans made China a go-to partner for both countries. By 2020, infrastructure investment in Sri Lanka was estimated to be around US$12 billion.
China created significant leverage and interdependencies in these countries by addressing their infrastructure deficit. While in Sri Lanka, the focus was on roads, airports, seaports, energy, the telecommunications sector, and water supply projects, Maldives focused largely on road upgrades, airport upgrades, mega-bridge, housing projects, power, and desalination projects. Most of these projects were on loans, but a few strategic projects in Sri Lanka took the form of investments, and in the Maldives, a few took the form of grants and sovereign guarantees. Tables 1 and 2 indicate several such Chinese projects in Sri Lanka and the Maldives respectively.
Table 1. Key Chinese projects in Sri Lanka
Key projects |
Form of Assistance |
Amount |
Colombo - Katunayake expressway |
Loan |
US$248 million |
Southern expressway |
Loan |
US$1.5 billion |
Outer Circular Highway |
Loan |
US$494 million |
Hambantota (Mattala) International Airport |
Loan |
US$190 million |
Norocholai power station |
Loan |
US$1.3 billion |
Colombo Port City |
investment |
US$1.3 billion |
Colombo International Container Terminal |
Investment |
US$500 million |
Lotus Tower |
Loan |
US$88 million |
Hambantota Port |
Loan |
US$1.3 billion |
Water supply projects |
Loan |
US$400 million |
Matara-Kataragama Railway Line |
Loan |
US$278 million |
Source: Chatham House, Times of India, Department of External Resources
Table 2. Key Chinese projects in the Maldives
Key Projects |
Form of Assistance |
Amount |
Sinamale Bridge |
Grant |
US$108 million |
|
Loan |
US$72 million |
Airport road upgrade |
Sovereign guarantees |
US$31 million |
Housing projects |
Sovereign guarantees |
US$548 million |
Seaplane facilities at Velana airport |
Sovereign guarantees |
US$47 million |
Power projects |
Sovereign guarantees |
US$181 million |
Housing projects |
Loan |
US$219 million |
Velana Airport upgrade |
Loan |
US$374 million |
Laamu link road |
Grant |
NA |
Desalination Plants |
Grant |
NA |
Source: Baani Centre
However, over the last few years, China has slowed down on its financial assistance and promotion of mega-infrastructure projects.
For instance, China last offered its financial support to Sri Lanka in 2021, in the form of a currency swap worth US$1.5 billion. The swap was issued on the condition that it could be used only if the country had foreign reserves worth three months. When the economic crisis deepened by 2022, China offered a mere US$76 million as humanitarian relief. It continued to turn a blind eye to Sri Lanka’s request for assistance of US$4 billion (US$1 billion in fresh loan, US$1.5 billion in credit line, and US$1.5 billion in currency swap). Even during Sri Lanka’s debt restructuring, China stayed out of the official creditors committee and was the last country to ensure the International Monetary Fund (IMF). The restructuring of Chinese commercial loans worth US$2.5 billion was finalised only in December 2024. Apart from the US$4.5 billion oil refinery at Hambantota port, China has also not invested in any other mega-infrastructure projects in the country.
China is hesitant to offer new loans and has maintained that debt restructuring would further limit the Maldives’ possibility of borrowing new loans.
Similarly, President Muizzu, during his visit to China, signed over 20 memorandums of understanding (MoUs) and requested financial assistance as well as debt restructuring. So far China has offered a US$130 million grant to upgrade roads in Maléand Vilimalé and maintain the Sinamale bridge for free. Even one year after Muizzu’s visit, China is yet to act on its promise of a five-year grace period, despite the Maldives’ increasing economic difficulties. China is hesitant to offer new loans and has maintained that debt restructuring would further limit the Maldives’ possibility of borrowing new loans. In October, China refinanced (offered a new loan) a US$75 million loan so that the Maldives could repay part of its China EXIM (export-import) loans. While China has expressed an interest in agricultural zones, housing projects, and upgrading the Kadhdhoo airport, this is taking place in the form of investments rather than assistance.
Decoding the passive policy
This lack of proactive approach could be attributed to the following factors:
This could be in tandem with China’s general policy of preferring “small and beautiful” projects over mega-infrastructure projects. This push comes at a time when the Chinese economy has continued to struggle with its post-COVID growth. Economic slowdown, slow manufacturing, high real estate prices, unemployment, reducing consumer confidence, and a mounting debt burden have compelled Beijing to rethink its commitments abroad and the need to invest and assist in high-risk and high-cost projects, especially as indebted countries are struggling with debt repayments.
Concerns of a debt trap have also convinced Beijing to rethink its modus operandi. For almost a decade, China made significant inroads in the developing world by leveraging its economic might and lending power. With few conditions and calls for reforms, these increasing debt burdens exacerbated the structural economic issues of borrowing countries and amplified criticism against China and its lending tactics. China’s decision to manage Hambantota port as Sri Lanka struggled to repay its loans, and Sri Lanka’s economic crisis of 2022, has further intensified concerns over Chinese debt traps, likely contributing to China rethinking its strategy.
Smaller countries have continued to ask China to be more lenient in offering and restructuring loans, and have sometimes cancelled Chinese projects to please India or to not harm Indian interests.
While China enjoyed a significant advantage in its addressing of the infrastructure deficit, volatile South Asian politics and geopolitics have questioned the sustainability of these tactics. Today, South Asian countries have begun to exercise their agency and balance their relationships with India and China as India ups its economic statecraft and concerns over Chinese debts increase. Smaller countries have continued to ask China to be more lenient in offering and restructuring loans, and have sometimes cancelled Chinese projects to please India or to not harm Indian interests. Sri Lanka's cancellation of Chinese hybrid energy projects, its economic crisis, and the Solih government’s cornering of several Chinese projects seem to have convinced China to rethink the need for lending, and the sustainability of mega-infrastructure projects in the region.
Finally, Sri Lanka and the Maldives are at the periphery of China’s connectivity calculus. China’s BRI in the Indian Ocean had three key corridors—the China-Pakistan Economic Corridor (CPEC), the China-Myanmar Economic Corridor (CMEC), and the Bangladesh-China-India Myanmar (BCIM) corridor. The three initiatives were designed to find new markets for Chinese production and offer alternate land routes to escape choke points in the Malacca Strait. China was keen on creating road linkages to the Indian Ocean, before connecting to the distant island countries of the region. In this regard, Sri Lanka and the Maldives were to supplement Beijing’s market expansion. As BRI and mega-infrastructure projects progressed elsewhere, they did so in Sri Lanka and the Maldives. However, with BCIM not being implemented, and CPEC and CMEC witnessing significant delays due to the security, economic, and political situation in Pakistan and Myanmar, creating forward linkages with Sri Lanka and the Maldives now adds little value.
Continued outreach
While China’s tactics of development assistance and mega-infrastructure projects have slowed down, it has enough economic interlinkages and influence to further its interests. China has continued engaging Sri Lanka and the Maldives in the China-Indian Ocean Forum, and the Belt and Road Forum for International Cooperation. It has also involved them in new initiatives like the Global Security Initiative (GSI), the Global Development Initiative (GDI), and the Global Civilisational Initiative (GCI).
China has continued engaging Sri Lanka and the Maldives in the China-Indian Ocean Forum, and the Belt and Road Forum for International Cooperation.
Similarly, China is consistently pushing to expand its trade relations. Maldives recently implemented its free trade agreement (FTA) with China on 1 January 2025, and China is also discussing an FTA with Sri Lanka. With its “small and beautiful” projects, China has increased cooperation with countries on Community Development Projects, grants, and humanitarian assistance. They are also involved in capacity building, scholarships and exchange programs. China continues to have regular high-level visits and training programs for the political class and civil servants from Sri Lanka and the Maldives.
As the Indian Ocean grows important, China will not risk severing its current influence in Sri Lanka and the Maldives. While its lending and support for mega-infrastructure projects are under stress, it is making up for it through other engagements and interactions. Therefore, it will continue to leverage them to enhance its influence, keep India under check, and further its interests and presence in the region.
Aditya Gowdara Shivamurthy is an Associate Fellow with the Strategic Studies Programme at the Observer Research Foundation.
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