China's International Investments Under Xi Jinping: Long Term Implications of the Belt and Road Initiative and Asian Infrastructure Investment Bank

Introduction

Since 1978, China has undergone multiple political and economic reforms, which have transformed China’s trajectory, enabling it to rise as an economic superpower. The economic reforms of 1978 conveyed the beginning of the end of the Maoist version of a centrally controlled economy by increasing the role of market forces and reducing government planning and direct control.2 Finally, in 2000 with the introduction of the “Going Out Strategy,” China bid farewell to the Mao-era mentality of self-reliance, where resources were allocated to lower-level administrative units such as provinces, districts, counties, prefectures, and rural collectives, and encouraging them to improve their economies. This shift was undertaken to resolve resource insecurity and take advantage of the booming world market.3 Under Xi-Jinping’s leadership, the Strategy has evolved to echo its domestic goal of “great rejuvenation of the Chinese Nation” by creating a sphere of influence in the international community and while simultaneously safeguarding its rights and interests.4

Within a year of assuming power, Xi Jinping launched two of his signature foreign policy initiatives: the Belt and Road Initiative (BRI, formerly known as One Belt One Road), seeking to build up trade, infrastructure, investment, and human linkages across Eurasia and Africa, and the Asian Infrastructure Investment Bank (AIIB), a multilateral bank intended to overcome dependence on Bretton Woods institutions such as the International Monetary Fund and World Bank. These initiatives enabled China to penetrate the global economy along with investment and trade agreements, thereby growing China’s economic footprint. Moreover, a significant part of these investments aims to develop infrastructure, especially ports across Asia and Africa, bolstering China’s military presence.5

While China plans on investing $8 trillion in at least 68 countries within a decade, these programs may eventually leave the countries with a debt problem that will be unsustainable and create an unfavorable level of dependency on China as a creditor. The continuous cycle of debt created by China will enhance its regional and global influence, regardless of a state's resentment towards the debt due to its dependence on China. On the other hand, while this action plan may seem persuasive enough to be followed, in reality, a partnership whose foundation is laid in economic coercion is likely to be politically and strategically unstable. A case in point being Sri Lanka, where commercial investment by Chinese state-owned enterprises and the intermittent visit by People’s Liberation Army Navy (PLAN) vessels have already proven to be politically fraught.6

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The conditions created by these investments lay the groundwork for leveraging its commercial infrastructure for intelligence collection and forging robust-surveillance information-sharing agreements with countries in the Indian Ocean Region (IOR). China’s growing commercial activities and economic influence over other states in the IOR serves as a forewarning of China’s ability and ambition to operate high-end military missions. The signs of debt distress due to BRI projects have started to appear in Djibouti and Pakistan, as they eventually might be coerced to make a debt-for-equity swap deal as in Sri Lanka or Tajikistan case of debt cancellation in exchange for territory. China can leverage its monetary investments in the China-Pakistan Economic Corridor to pave the path for military access to the strategically located Gwadar port for the PLAN.7

This study examines the degree to which Xi Jinping has brought about a strategic shift to the Chinese outward investment pattern and how this may present significant political leverage and military advantages for China in the IOR. In order to do so, the study surveys the numerous outbound investments made by Chinese businesses and state-owned enterprises since 2005, especially in the infrastructure and energy sector. It involves creating a framework to distinguish the investment trends before and following Xi Jinping assuming office as President of the People's Republic of China in 2013. This provides the ability to prove the strategic shift brought by Xi Jinping to achieve his domestic objectives.

Moreover, the study looks at the agreements signed by states in the IOR with BRI and AIIB to find the terms and conditions on which China has invested in these states. It provides information about China's scope and power when states fail to pay back and fall into a debt spiral. This information is essential to understand a state's likelihood to tumble into a debt-trap and give in to Chinese demands, allowing China to gain leverage and influence over states in the IOR.

The study focuses on the effort made by China has attempted to gain political leverage and military advantage through the dual-use of investments and driving states into a situation of debt distress, leaving them vulnerable to Chinas influence. However, while utilizing debt-trap and dual-use investment may seem compelling, agreements grounded in financial intimidation may create political and strategic instability. The study lastly investigates the strategic ramifications of these investment and implication for other states.

Background

Since the People’s Republic of China’s foundation in 1949, China’s economic growth has been tumultuous and inconsistent. Under the leadership of Mao Zedong (1949-1977), China’s aimed at reducing social inequality, overhaul land ownership and restore the economy, which has been devastated by the war through a centrally planned economy. Economic output and allocation of resources were controlled and directed by the state. It was Mao’s goal to make China self-reliant and -sufficient; thus, foreign trade was limited to goods that could not be produced or obtained in China. Mao introduced a communal farming system to balance the growing industrialization and agriculture output. The economy was distorted as a result of such policies. There were few incentives for companies, employees, and farmers to become more profitable or concerned about the quality of what they generated because most parts of the economy were regulated and run by the central government.8 As a result, there were no competition structures to distribute capital effectively, and hence there were few incentives for firms, staff, and farmers to become more productive or concerned about the quality of what they produced.

Shortly after the death of Mao in 1978, the Chinese government under the leadership of Deng Xiaoping disregard certain Mao-era tenets of economic policy and reform them based on the principles of free-market and opening up the economy to trade and investment. These reforms were brought after the failure of ten-year Cultural Revolution in 1966, where anything related to capitalism or "bourgeois"ideals was removed, which crippled the country politically and economically. Deng Xiaoping put these reforms as: “Black cat, white cat, what does it matter what color the cat is as long as it catches mice?” as a means of assuring the country that no matter what kind of economic policies Chinapursues, the only thing that matters is that the economy grows. The central government provided farmers with price subsidies and ownership incentives, enabling them to sell a portion of their crops in the open market. Furthermore, they created special economic zones (SEZs) to attract foreign investment, boost export, and import new technology into the country. Gradually, the economic control was handed over to the local and provincial governments, allowing them to operate and compete in a free market rather than under the supervision of the state and state price controls eliminated on a wide range of goods and services. In addition to this, citizens were empowered to start their own businesses by offering tax and trade incentives.

Before 1978, the economy was growing at an annual average of 6.7%, according to official Chinese government statistics (critics have argued that the government has exaggerated the numbers for political reasons, and the annual average growth rate is somewhere near 4.4%). After implementing structural reforms, China’s economy has expanded much faster than it did before reform and, for the most part, has prevented major economic shocks. Since 1979, the Chinese economy has been growing at an annual average of 9.5%. In other words, China has been able to double its economy in real terms every eight years.9 Large-scale infrastructure spending (financed by significant domestic savings and foreign investment) and strong productivity growth are the two primary drivers of rapid growth. Despite China’s remarkable economic growth over the next two decades, restructuring the state sector and modernizing the banking system remained significant challenges. More than half of China’s state-owned enterprises were dysfunctional and losing money. President Jiang Zemin decided to lose the dead weight created by the state-owned enterprises by either selling, merging, or closing them. Within three years, the majority of the previously owned state-owned enterprises were now profitable.10

After almost two decades of decentralization and allowing foreign companies to invest and trade in China, it had accumulated vast foreign reserves, placing upward pressure on the Renminbi, the official currency of China. Moreover, local Chinese firms were competing in a pitched battle against foreign multinational cooperation’s in China, with no external support from the government. Thus, in 2000, Zemin introduced the “Going Out Policy” (also known as “Going Global Strategy,” “Going Out Strategy” and “Go Out Policy”) to encourage its Chinese firms to invest overseas, allowing China to employ its foreign reserves by acquiring assets overseas and equip domestic firms with international experience, to take the balance the competition in the world market.11 Apart from FDI outside of China, the ‘going out strategy prompted local companies to begin extending their activities by creating multinational supply chains for distribution. State-owned companies played a crucial role in rallying support for this initiative.12 However, there were few target areas of this initiative, which were granted export tax rebates, financial assistance and foreign exchange assistance, and other incentives when tapped by local firms.

The National Development and Reform Commission (NDRC) and the Export-Import Bank of China (EIBC) jointly released a circular in October 2004 to stimulate foreign investment in specific areas: “(1) resource exploration projects to mitigate the domestic shortage of natural resources; (2) projects that promote the export of domestic technologies, products, equipment and labor; (3) overseas R&D [research and development] centers to utilize internationally advanced technologies, managerial skills and professionals; and (4) [mergers and acquisitions] that could enhance the international competitiveness of Chinese enterprises and accelerate their entry into foreign markets.”13

Interest in overseas investment by Chinese companies has increased significantly since the start of the Going Out Policy, especially among State-Owned Enterprises. China’s outward direct investment grew from US$ 3 billion in 1991 to US$ 35 billion in 2003, and by 2007 it had reached US$ 92 billion.14 State-owned companies continue to account for the majority of China’s outward direct investment. State-owned enterprises under central supervision produced around $38.2 billion (67.6%) of total Chinese outward direct investment in 2009, whereas the gross outward direct investment flows were $345 million (or 0.6 percent) by 33 private companies, while the rest came from joint partnerships between state and private companies ($17.95 billion).15

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This expansion of overseas investment has allowed China to gain access to foreign raw materials and advanced technologies, raise foreign exchange earnings, and promote China’s exports. To sustain China’s strong economic growth rate, gaining access to overseas energy supplies and raw materials remains a vital strategic driving force. In the case of aluminum, copper, nickel, iron ore, and other primary commodity goods, a similar image of the exponential rise in demand from China is growing. This can be seen through influential policy-setting National Development and Reform Commission (NDRC), requiring China’s energy companies to purchase equity in upstream energy suppliers, primarily through overseas acquisitions like in the case of China’s fourth-biggest producer of the fuel, Yanzhou Coal Mining, which bought Australia’s Felix Resources Limited in 2009 for $2.9 billion, to secure supplies.16 Local firms are encouraged to form joint ventures or buy international firms in order to acquire cutting-edge technology and thereby “leapfrog” many phases of growth and upgrade, a prime example being Lenovo’s purchase of IBM’s personal computer division in 2005. Chinese businesses often check out for bargains in the American or European markets, companies with high name awareness but weak financial standing, and buy them as a means to establish a foothold in established markets and acquire marketing skills.17

Like the 1978 economic reforms reached their peak in the late 1990’s, the “Going Out Policy” reached its peak by the early 2010’s. Projects were hampered by economic and governance challenges, rarely breaking even. Most of the state-owned enterprises were filled with corruption and the rent-seeking rooted culture. Failure to comply with local norms and practices like in the case of China Overseas Engineering Group, when Poland hired them to construct a highway for almost half a billion dollars, they failed to include the culverts that are needed to enable small animals to travel under the road, which ultimately led to the cancellation of the project. Global demand fluctuations, especially in western countries after the 2008 financial crisis, aggravated macroeconomic issues.18 Understanding the strategy issues, China, under Xi Jinping’s leadership, took a different approach and launched the Belt and Road Initiative and Asian Investment Bank.

China under Xi Jinping

With the world developing at an unprecedented rate of 4.3% after the economic crash of 2009, there was an increasing need, both at home and abroad, for China to change its diplomatic structure and welcome the historic transition of its relationship with the rest of the world. The shift began at the 18th National Congress of the Communist Party of China in 2012, when Xi Jinping succeeded Hu Jintao as General Secretary of the Chinese Communist Party. Under Xi Jinping Chinese diplomacy underwent a significant transition with the realization that China needs to change with the world and replaced its “tao guang yang hui” [keeping a low profile] strategy with a “fen fa you wei” [striving for achievement] strategy. After the first stage of "revolution diplomacy" under Mao and the second stage of "development diplomacy" under Deng Xiaoping, China has reached the third stage of “going out diplomacy” under Xi Jinping's leadership.19

The conceptual mechanism for constructing the “Silk Road Economic Belt” and a companion “21st Century Maritime Silk Road,” collectively known in Chinese parlance as the “One Belt, One Road” (OBOR) (now known as BRI) initiative, is a direct demonstration of this transformation.20 In official Chinese statements, BRI represents a

[S]ignificant strategic concept proposed by China to keep up with the development trend of the era and the shared aspirations of all countries in the region, and to promote regional cooperation. It will undoubtedly release colossal development potential, bring countries in the region closer, and deepen cooperation and expand development space, bringing benefits to nearly 3 billion people.21

It is the vehicle by which China plans to expand connectivity with over 65 countries and more than 30 international organizations, centered in part on the ancient Silk Road land and maritime routes. The economic aggregate of the BRI economies is approximately $21 trillion, representing 65 percent of global output revenue and 30 percent of global maritime trade. The initiative seeks to strengthen these ties by investing in infrastructure, establishing transportation and economic corridors, and linking China to other countries “physically, financially, digitally, and socially.”22

The introduction of BRI is based on two considerations. First, China's robust economic development over the last two decades is starting to cool down. Owing to an increasingly ageing population, a declining birth rate, a tightening Federal Reserve, and a weakening global economy, China's growth rate dropped by nearly half from 14.23 percent in 2007 to 7.86 percent in 2012.The BRI represents an opportunity to re-energize expansion, reduce energy insecurity, and boost China's global footprint and reputation while ensuring that China retains the potential to self-fund many of the initial BRI ventures. Furthermore, the BRI provides a lifeline to inefficient state-owned enterprises. From 2013-216, the share of loans secured by state-owned enterprises from state-owned banks increased by 45.6% in order to fund BRI projects.23 Second, the BRI stems from China's discontent with the status quo, at least in its own area. China's military buildup, accumulation of power over political and economic decisions in the IOR, and actions against international financial institutions such as World Bank and International Monetary Fund (IMF) all suggest discontent with the status quo.24 China's adamant emphasis on being viewed as a developing nation is a major source of discontentin its trade ties with advanced economies and organizations. Another source of conflict with IMF and World Bank comes from China's non-compliance with universal standards and norms in its bilateral trade ties with other developed countries.25

BRI represents a transition in China's "going out" policy as part of the country's attempt to change its economic growth paradigm. Although the early years of the “going out” strategy stressed the procurement of necessary components to boost China's heavy industry, investment-led, and export-oriented economy, this seemed to limit the effort's target countries to resource-rich countries primarily in Latin America and Africa. The redesigned “going out” strategy prioritizes initiatives to help China's economy climb up the value-added chain in every possible economic segment, broadening the effort's reach and ambition. BRI not only allows China to extend its reach abroad, but it is also accompanied by a domestic investment push in which virtually every Chinese province has an interest.26

After a year, at the Asia-Pacific Economic Cooperation meetings in Beijing, Xi Jinping announced that China would create a $40 billion fund to help finance the development of the BRI.27 The Bank of China, which has the most extensive international networks, announced plans to expand credit to BRI-related projects worth no less than $20 billion in 2015 and $100 billion between 2016 and 2018.28 By 2019, the Bank of China had sanctioned over $140 billion in credit and had financed over 600 big BRI ventures. It has founded overseas institutions in 24 of the initiative's affiliated countries and regions.29

China has made a persuasive contribution to the BRI initiative for a more open world economy by establishing the Asian Infrastructure Investment Bank (AIIB), and the Silk Road Fund (SRF), among other government-led initiatives, with the goal of being a significant, if not a key, part of globalization in the new century. Moreover, China has developed new multilateral and domestic Chinese institutions to finance BRI, especially the China Development Bank and the Export-Import Bank of China. Under BRI, the Chinese investment estimate varies from $1 trillion to $8 trillion US dollars, with $1 trillion being the most widely quoted figure.30

The catalyst for China's establishment of the AIIB stemmed from frustration with the governance of established international financial institutions, mainly an inadequate "focus on infrastructure and growth." The Bank's stated aim, as its name implies, is to provide funding for infrastructure needs in Asia and neighboring regions. The Bank establishedin 2013, and started operations in mid-2016, has 57 founding members, including four G-7 economies (France, Germany, Italy, and the United Kingdom).31 The AIIB's Articles of Agreement state:

The purpose of the Bank shall be to (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors; and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions32

The AIIB's initial gross funding is $100 billion, with 20% of the shares are paid-in, thus has to be passed on to the bank, while the rest remaining 80% of the shares are callable on demand, depending upon the project. The shares are distributed using the GDP Nominal of 60% and GDP Purchasing Power Parity of 40%, depending on the size of each member country. The approved capital fraction in the bank is also determined by the amount of shares. China is investing $50 billion, or half of the original capital subscribed. India is the second-largest shareholder, with an $8.4 billion investment. The Bank is headquartered in Beijing, China, and is led by Jin Liqun, a former Chinese vice-minister of finance, chairman of a Chinese sovereign wealth fund, and ADB vice president.33

As the AIIB membership grew, Chinese officials distanced it from China's BRI strategy in order to get broader recognition and support from international community. During a meeting with global executives in June 2016, AIIB President Jin Liqun explained China's stance, stating that while the Bank will fund BRI ventures, the AIIB was not established solely for this purpose. President Xi made the remarks while attending the World Bank's spring 2016 meetings in Washington, DC, "We would finance infrastructure projects in all emerging market economies even though they do not belong to the Belt and Road initiative."34 In addition, AIIB began collaborating with the New Development Bank (NDB), a multilateral development bank founded by the BRICS countries, to meet development and infrastructure needs. The AIIB and NDB collaboration is targeted at improving infrastructure with a focus on long-term sustainability in the BRICSand BRI states. The banks form a financial, regional, and local collaboration network with multilateral and national development banks, as well as other institutions and market participants. To meet Asia's rising infrastructure demands and contribute to the region's social and economic growth, the banks are leveraging their partnerships with other multilateral development banks and private financiers.

Compared to the AIIB, China's policy and commercial banks have a more flexible choice for funding BRI projects, which is especially important to China's interests. Policy banks work as “agents of Chinese state-capitalism that employ subsidized capital to achieve a combination of commercial and geopolitical aims.”35 Infrastructure, energy, and transportation programs are all funded by the China Development Bank.36 The Exim Bank focuses on trade finance and the promotion of Chinese goods and services, all of which are important to China's state-owned enterprises.37 The AIIB was projected to lend $10 billion to $15 billion every year over the first five or six years, and its establishment was seen as further evidence of the world economy's rebalancing from West to East. However, according to a 2018 survey, the AIIB has only loaned a little more than $3.5 billion to date, with only one-third of it appearing to be linked to BRI. In comparison, the China Development Bank and Exim Bank announced lending around $102 billion and allocating “hundreds of billions in BRI-related credit.”38 The Silk Road Fund, which also finances BRI ventures, is affiliated with the People's Bank of China and has a total capitalization of $40 billion. State Administration of Foreign Exchange, China Investment Corporation, Exim Bank of China, and China Development Bank are among the four Silk Road Fund members.39

Since becoming General Secretary of the Chinese Communist Party, Xi Jinping has been pushing the “Chinese dream," which is best exemplified by the BRI and AIIB. The “Chinese dream” is a unifying element for the Chinese to pursue a great national rejuvenation to build a prosperous society and alter the global environment, which has been dominated by Western countries since industrialization throughout the last two centuries. A top-down political strategy to promote the dream was launched in the party, and it has since become a recurring theme in the majority of Xi's public speeches. In an attempt to make a statement, Xi Jinping's "Chinese dream" is part of the new Chinese leadership's effort to ensure domestic peace and retain power and prestige at home.

When public outrage and demonstrations erupted around the country in 2012 due to growing economic disruptions in the country, the "Chinese dream" offered an impetus to mobilize or organize the Chinese people and launch anti-corruption and rectification efforts to demonstrate commitment and clean-up the party. It enabled Chinese people to look past the country's immediate problems of slowing economic growth and lack of consumption, by providing them with a vision for China's growth over the next several decades.40

Xi Jinping has emphasized many times in his speeches on the "Chinese dream" that China, as a significant force, should have a proper perspective and approach to defending "justice" and pursuing "interests" in the international community. It encourages China to pursue their own desires in order to achieve greater growth while still considering those of others.41 By spreading the “Chinese dream” internationally as a continuation of China's peaceful growth strategy of BRI and AIIB, it also becomes part of China's soft power program, and hence of Chinese attempts to cultivate a better picture of itself internationally as a state that stands against biased international organizations like World Bank and promotes development, and thus to address the China threat rhetoric.42 China is attempting to improve the BRI narrative by incorporating the concepts of "harmony and inclusion" and "promotion of people-to-people bonds" into the BRI objectives. These ideas are intended to strengthen China's soft power, as well as cultural exchange and cooperation among countries along the BRI path. China tends to prioritize economic cooperation and peaceful growth by downplaying the BRI's diplomatic and military impact.43 However, the “Chinese dream” is not just “peaceful development” and “win-win.”

With international cooperation, on the one hand, BRI and AIIB provides a more authoritarian and more assertive Chinese approach to defending Chinese sovereignty and core interests. This is particularly evident in light of Xi's insistence on China's rejuvenation, which is portrayed as China regaining international status, privileges, and influence. Under Xi, China has become more optimistic in advancing China's own ideas about the growth of the international community and China's position in it, as well as in presenting its own political principles and programs, such as the BRI, and more proactively attempting to transform events and trends. The "Chinese Dream" is the perfect example to signify the acceptance of the “fen fa you wei” [striving for achievement] strategy and exemption from maintaining a low profile and instead to begin displaying and using skills and declaring or vying for leadership.44

In order to fulfill the "Chinese dream," China has to secure its core interest, which was first identified by the State Councilor Dai Bingguo officially in 2009 as (i) fundamental power structure and security of the state; (ii) state sovereignty and territorial integrity; and (iii) secure economic and societal growth. With Xi Jinping in power, these interests were expanded to include “peaceful development” and "national reunification" of territories currently occupied by the People's Republic of China and the Republic of China, potentially leading to the establishment of a formal union between the two republics. These interests were included to the list of China's core interests in the 2011 White Paper. Xi Jinping has brought these core interests to the forefront of China's foreign policy.45 China has made it clear that upholding its core interests is an integral part of win-win cooperation and has cautioned that foreign countries must respect China’s interest in order to achieve the benefits of their relation. Xi Jinping often employs this idea of mutual growth and “Chinese dream” in his speeches at international conferences, both within and outside of China.46 In 2017, Xi Jinping stated that:

[China] will never give up its legitimate rights and interests. No country should ever expect China to trade off its core interests or swallow the bitter fruit that undermines its sovereignty, security, and development interests. 47

China's core interests extend beyond fundamental sovereignty and state security. China has made multiple territorial claims and has staked out its positions on Taiwan, the South China Sea, and other issues pertaining to China's main core interests, especially in the IOR, since the 18th Party Congress. China has drawn a straight distinction between what is appropriate and what is not, and it has acted aggressively to protect its core interests as well as its legal rights.48

Currently, 90% of China’s crude oil is imported by maritime transportation. The oil is transported through three main paths: (i) Persian Gulf-Hormuz Strait-Malacca Strait-China; (ii) North Africa-Mediterranean-Strait of Gibraltar-Cape of Good Hope-Malacca Strait-China; and (iii) West Africa-Cape of Good Hope-Malacca Strait-China. The Malacca and Hormuz Straits have a massive influence on China's oil import networks. Because of its daily oil influx of 17 million barrels per day, the Strait of Hormuz is the world's most significant oil chokepoint. According to the Energy Information Administration, more than 85 percent of the crude oil that passed through this chokepoint went to Asian markets, the vast majority of which went to China.49 It is, thus, one of China's core interests to ensure open sea lanes of communication (SLOC) in the IOR.

Overcoming the Malacca and Hormuz Dilemma is one of the biggest challenges faced by China since the beginning of the century in South and Southeast Asia. The term “Malacca Dilemma” and “Hormuz Dilemma” became popular after Hu Jintao announced in 2003 that "some major forces" were determined to dominate the two straits, giving them the opportunity to cut off China's energy supplies.50 The solution proposed was to “reduc[e] import dependence through energy efficiencies and harnessing alternative sources of power, investment in the construction of pipelines that bypass [the] strait[s], and building credible naval forces capable of securing China’s sea lines of communications.”51 However, on paper China did have a solution to tackle the aforementioned issues but during the leadership of Hu Jintao, China did not have the capability nor capacity to either bypass the straits, have a credible naval force or run a nation with more than a billion people with alternative sources of power.

The Belt and Road Initiative & Investment

In order to achieve the “Chinese dream” of great rejuvenation and economic prosperity, Xi Jinping realized that China has to grow outwards and tap the vast underdeveloped region in Asia and Africa. These regions have the ability to become a significant growth driver of the global economy, opening up new opportunities for Chinese exports and outwards foreign direct investment, and allowing China to get over the economic stagnation that China started to face since 2007, as the GDP growth rate almost halved from 14.23% to 7.86% in 2012. Thus, the BRI initiative focused primarily on the low-income countries, which account for 64% of the global population but just 30% of the global GDP.52

China's outward and inward foreign direct investment (FDI) was just $68.8 billion and $114.7 billion, respectively, prior to 2010.53 However, OFDI from China increased by thirteen-time to $883.3 billion between 2014 and 2019.54 Chinese foreign investments in BRI countries were approximately US$47 billion in 2020, roughly 54% less than in 2019, whereas Chinese investments in non-BRI countries fell by 70% from 2019 to about US$17 billion in 2020. Asia continued to collect the lion's share of Chinese BRI investments (about 54% in 2020), while Africa received approximately 27% of BRI investments. Among the BRI nations, contributions were widely dispersed across continents. Djibouti, Indonesia, Pakistan, and Myanmar got a tremendous amount of investment.55

The priority of BRI has remained on infrastructure, especially energy and transportation, with the share of investments in transportation and energy infrastructure rising from about 70% in 2019 to nearly 80% in 2020. Hydropower (35%) received the most energy investment in 2020, led by coal (27%) and solar (23%). When examining Chinese energy investments in various countries, it can be seenthat Pakistan got the most energy investments between 2013 and 2020, led by the Russian Federation and Indonesia.56

Investments in transportation are critical for trade between China and the BRI countries. As a result, China has made global investments in road, rail, aviation, transport, and logistics.57 Aviation investments were mostly cantered on the construction of airports in Africa, but they also included the expansion of the upgrading of the Osmani International Airport in Sylhet, some 241 kilometers northeast of Bangladesh's capital Dhaka.58 Rail ventures included high-speed rail projects linking China to Singapore via Thailand and Malaysia (Kunming-Singapore rail).59 Pakistan is also one of the primary beneficiaries of Chinese port infrastructure projects, such as the Gwadar port run by China Overseas Port Holding Company, which is a strategically significant and contentious project for China. Other strategic port investments include Piraeus, Greece, Lamu and Mombasa, Kenya, and Djibouti.60

With a significant rise in OFDI, China has added another feather in its cap by becoming transforming its economy that was once simply seen as global manufacturer, to become a global investor. Following the United States, China has been the second-largest producer and consumer of OFDI.61 However, in the absence of a central coordinating structure that manages all the investments made by the state owned enterprises, there is a clash created by various motivations, structures, and cultures between China and the host countries continues to create entry obstacles for China's OFDI.

While many BRI countries appreciate China's efforts to foster regional economic cooperation and growth, there is widespread concern that China's vast excess capacity will be exported to their domestic economies through OFDI, displacing competitors in the local market as China's OFDI is seen as a resource-seeking and even rent-seeking drain, which can exacerbate the host country's resource reliance and contribute to corruption as seen in the case of Sri Lanka. Furthermore, underdeveloped BRI countries with poor governance could not prosper entirely from China's investment. These implications of BRI can be further seen in details in the next section.

China's introduction of the BRIis a tactical effort to achieve predominance in IOR as a way to ensure the security of its core interest. China's current strategy of securing control is not outright aggression but rather the use of BRI to strengthen its posture by taking countries into its orbit while increasingly increasing its strength and capacity to assert force politically, diplomatically, and militarily.

Investment Implications

China's expanding economic and military clout in the IOR has sparked widespread concern in the region and around the world. The Indian Ministry of External Affairs and the Indian Navy are aware of Beijing's gradual implementation of its proposals in the IOR. India has attempted to match China's maritime diplomacy in order to demonstrate its strength as a neighbor, including by moving small ships and Dornier aircraft to Mauritius and the Seychelles. However, since China's economy is four times that of India, India faces a large capital gap.62

China has expressed an exceedingly broad public vision for its military efforts in the IOR. Several general priorities that guide Chinese military presence in the region can be discerned from China's security policy papers, as well as the broader literature: securing critical energy supplies, defending overseas investments and civilians, bolstering China's prestige and political strength, and preserving strategic deterrence.63 These general priorities, which guide the military strategy, are bolstered by China's commercial activities and investment patterns in the IOR.

Infrastructure is critical to the BRI's vision and goals, as shown by the fact that it has had the most substantial spending over the most prolonged period of time. However, there has been little economic return on investment. China's state funding of the BRI generates enough externality to make any investment that would otherwise be un-investible a successful project. China hopes that by coordinating all these projects – linking all of the railways, connecting all of the rivers with the railways – each individual project can achieve a higher return in the aggregate. However, no return can be expected if there are no stable institutions behind any of these investments. Moreover, it is unclear if China is following "geopolitical needs" or merely trying an economic return on investment.64

Cambodia and Myanmar are good examples of China's stance in Southeast Asia. Because of land transportation routes, ports, and sea lanes, as well as their ASEAN membership, both countries are strategically relevant. China would gain strategic positions on the eastern and western sides of the Malacca Strait if ports were built in Cambodia and Myanmar, solving one part of the Malacca Dilemma. Simultaneously, pipelines in Myanmar allow for a supply route that avoids the Strait of Malacca altogether. Furthermore, both countries offer an option to relocate some low-end factory manufacturing overseas as part of China's "going out" strategy, as both countries' labor costs are much lower than China's. This policy encourages Chinese firms to invest overseas, particularly in the energy sector.65

Due to billions of dollars in Chinese investment, Cambodia has become one of the world's fastest-growing economies.66 Hun Sen, the Cambodian president, is now seen as China's stooge in ASEAN. In 2016, he prevented ASEAN from condemning China's South China Sea territorial demands. The Cambodian government is ready to go to whatever length to appease Chinese authorities.67 For instance, the Royal Cambodian Navy-controlled Ream Naval Base on the Gulf of Thailand's coast in the province of Sihanoukville has been the site of a Chinese-led casino boom and the establishment of a special economic zone. With a 99-year contract, the project is owned by a Chinese corporation and includes staggered proposals for an international airport, a deep-water seaport, an industrial park, and a luxury resort complete with power stations, water treatment plants, and medical facilities. The resort's scale and reach have sparked fears that it may be part of a broader Chinese scheme to base military assets in Cambodia. A naval presence there will broaden China's geopolitical footprint into Southeast Asia, consolidating its control over contested territories in the South China Sea and waterways that bear trillions of dollars in trade.68

According to reports, Chinese firms were responsible for 70% of industrial development in Cambodia in early 2017. China-owned at least 369,000 hectares of land concessions and had construction rights for roughly 20% of Cambodia's coastline.69 The Koh Kong Port, located in the province of Koh Kong, is an example of significant Chinese infrastructural investment. It is a 45,000-hectare lease that was given to a Chinese corporation with a 100% equity interest for 99 years.70

This base in Cambodia will expand China's military reach beyond the nine-dash line, used by China and Taiwan for the claims to the majority of the South China Sea, as an ill-defined demarcation line that includes the Paracel Islands, Spratly Islands, and numerous other areas, putting it on the verge of a possible canal through Thailand, a long-proposed project that has recently resurfaced that will be shortening China's route to the Indian Ocean.71 Moreover, this port would enable China to challenge military vessels entering the South China Sea from all directions, rather than just the Spratly Islands.72

Although Hun Sen maintains that Cambodia will not accept a foreign naval installation, recent reports suggest that China's Union Development Group is nearing its end of a runway in Koh Kong Province that is the same length as the runways China constructed on South China Sea islands to have equipment for “military reconnaissance, fighter, and bomber aircraft.” The template for construction of new Chinese military bases can be seen by China’s accelerated buildup and militarization of installations in the Spratly Islands. Initially, Chinese state-owned and private construction firms started to pursue efforts to create a naval base, which were denied by the Chinese officials stating that these efforts never existed. Chinese officials said the construction undertaken by private companies were carried out for humanitarian reasons and repeatedly stated that they would not militarize the South China Sea. Once these installations had been militarized, Beijing changed its explanations again, claiming that the military bases were solely defensive in nature. China rejected plans to militarize the islands, but now it house “anti-ship cruise missiles, surface-to-air missiles, and military jamming equipment.”73 Cambodia may find it profitable to allow China to invest, but these investments carry risks such as lack of autonomy due to long-term leases, exclusion of the host nation and other countries from ventures, and involvement in a state's domestic politics.

Myanmar had depended heavily on China for economic survival since the 1990s when it was ruled by a military junta. Beijing aided Myanmar by supplying low-interest loans and technical assistance, as well as much-needed weapons purchases, which the generals used to shore up internal security. In 1989, the junta imported $1 billion in weaponry from China, the biggest weapons sale in Myanmar's history. In 1994, another $400 million military contract was signed. During this period, China also assisted Myanmar in rebuilding and modernizing a number of commercial harbors and naval bases. In exchange, China obtained access to natural resources and pushed closer to establishing a strategic corridor from southwest China to the Bay of Bengal. Following Myanmar's transition to democracy, the government revived several previously halted Chinese projects while also approving others. Myanmar's government receives $2 billion from Chinese-owned pipelines that transport oil and gas to China's Yunnan Province. This is an excellent example of China using infrastructure investments in Southeast Asia to boost its energy stability by building alternate supply routes to the Malacca Strait.74

The CITIC Group of China will own70% ofa deep-sea port, industrial zone, logistics center, and other facilities in Kyaukpyu, which started construction in 2015. Furthermore, the CITIC Group is investing $2.7 billion in the creation of an industrial park within the particular region. These industrial parks result in the creation of a proxy Chinese city within the borders of another sovereign state.75 Furthermore, when things do not go as planned, China sanctions the state, as in the case of Myanmar, where China threatened the country with a one-billion-dollar economic penalty for abandoning the Myitsone Dam project in an attempt to restart it.76

Laos is one of Southeast Asia's poorest nations, but it has been growing steadily in recent years, with GDP growth averaging 8%. Since 2013, the IMF has expressed concerns over Laos' ability to pay its debts if it proceeds with proposals to build the China-Laos railway, as well as other big capital projects. The USD$6 billion expense of the railway constitutes nearly half of the country's GDP, and while Lao Ministry of Finance officials emphasize that the government will not guarantee the vast majority of the funding from China Exim Bank, the Laotian government will be under significant pressure to cover any losses.77

China has economic relations with other Indian Ocean countries, including the Maldives, where it has funded a new bridge and other investments. Former Maldives President Abdulla Yameen signed a Free Trade Agreement with China in 2017 to build the ambitious iHavan project on the northern island of Ihavandhippolu, near India. It will have a new port, airport, cruise terminal, marina, and dockyard. Chinese investment in the Maldives is motivated by economic interests of securing the vital waterways; however, the costs of these large-scale ventures exceed Maldives' funding capability, causing the country to slip into a debt trap and being vulnerable to China’s geopolitical motives.78 Debt-trap is China's coercive lending practices, in which developing nations are overburdened with excessive debt and are forced to hand over ownership of vital properties to China, which is then leveraged for access deals that favor the Chinese military.79 This vulnerability to China’s geopolitical motives is better seen in the case of Sri Lanka.

Overreliance on China for development assistance was caused by indebtedness and foreign condemnation of the Sri Lankan government for failing to pursue peace before and after the civil war. Following the war, the country's post-conflict reconstruction activities became heavily reliant on Chinese loans. In 2006, China's Exim Bank loaned a Chinese state-run corporation $1.35 billion to construct a coal power plant in Puttalam, Sri Lanka. In 2008, Exim loaned millions to Sri Lanka to help develop the Hambantota Port in the country's south.80

Sri Lanka has accrued a $15 billion debt to foreign creditors as of 2020. Due to lack of funds, Sri Lanka negotiated a debt-for-equity swap, giving China Merchants Port Holding a 99-year lease and an 80 percent interest in the Hambantota Port, as well as 15,000 acres of land surrounding the port to be established as an industrial zone for Chinese developers.81 In 2016, the Sri Lankan government gave China Harbour Engineering Company a 99-year lease on two-thirds of the 269-hectare land reclamation project, allowing it to begin construction on the $1.4 billion Colombo Port City project.82 China's security cooperation with Sri Lanka is more substantial, thanks to Beijing's strategic assistance to Colombo during the civil war's final stages. Recently, the PLAN has made a few visits to Colombo; the two militaries have conducted joint exercises, and the PLAN has donated a frigate to the Sri Lankan navy and is building infrastructure at the Sri Lankan military academy.83

Malaysia and China have a long history together. China is investing US$7.2 billion in the redevelopment of a modern deep-water port in a deep seaport, further making thehistorical connectionstronger bond. It also contributes funds to transport programs along Malaysia's eastern coast. China has also committed to importing goods worth US$2 billion from Malaysia over the next five years (a nearly eight-fold increase from 2016 imports), investing up to US$150 billion in Malaysia, and offering 10,000 training spots in China. However, Malaysia's former prime minister-turned-opposition leader Mahathir Mohamad has criticized these investments, claiming that the country will be forced to cede power to China in exchange for capital and that local industries will suffer as a result.84

BRI initiatives are another way of getting capital into the hands of government officials in order to obtain influence. The BRI allows China to build infrastructure in other nations, a mechanism rife with official permits, feasibility assessments, stakeholder participation, and other time-consuming procedures. BRI has a plethora of instruments for facilitating corruption: injections of readily redirected funds, sparkling infrastructure to appease the citizenry, and the imprimatur of a friendly partnership with one of the world's most influential nations—all bundled together in a virtual promise that their rich benefactor would, at the very least, turn the other way if any irregularities arise as long as the project is built. For example, a Chinese state-owned company was paid $2 billion in advance for two Malaysian pipeline projects on which it had just recently begun work. Another BRI scheme, Malaysia's East Coast Rail Link, was so costly that officials suspect it was overpriced.85

The China-Pakistan Economic Corridor (CPEC) is a vital connection that connects China to other countries as well as the strategically vital Gwadar seaport. BRI's flagship initiative is the CPEC. CPEC entails “expanding Gwadar port, and constructing energy pipelines, power plants, hundreds of miles of highways and high-speed railways, fiber-optic cables, and special economic zones,” with a total cost of $62 billion.86

Gwadar Port is one of China's overseas strategic pivots, with the aim of facilitating China's civilian and naval militaryoperationsin the region. It is a Chinese-funded and built project that gives China access to a port near the Strait of Hormuz at the mouth of the Persian Gulf. For the development of a special economic zone, Pakistan granted China a 43-year lease on hundreds of hectares of land at the Gwadar Port. The port was also leased to the China Overseas Port Holding Company for a 40-year contract, with the company receiving a “91 percent share of revenue collection from gross revenue of terminal and marine operations and 85 percent share from gross revenue of free zone operation.”87

China's Gwadar port project is strategically aligned with the PLAN's massive shipbuilding program and bold agenda to construct a fourth PLAN fleet specifically for the IOR, thus satisfying Beijing's goal of creating a blue water navy.88

CPEC is essential not only for China's defense but also for the economic well-being of northwest China. In contrast to other BRI ventures, CPEC has the ability to change the economy of China's underdeveloped, rural, and restive Xinjiang province. Reducing separatist sentiments in Xinjiang is a goal that China hopes CPEC can aid in achieving by giving Xinjiang access to the sea. Furthermore, Gwadar Port and the Gwadar-Kashgar gas pipeline, which will link the Bay of Bengal to China's Yunnan Province via Myanmar, are critical components of CPEC that can assist China in overcoming its Malacca Dilemma.89

Though Pakistan is one of the most critical BRI countries in terms of investment and one of the BRI's most vocal proponents, worries about excessive debt have prompted the Pakistani government to reconsider certain facets of the CPEC initiative. Under Prime Minister Imran Khan, the leader of the new populist government, who has expressed concern about growing debt levels and says the country must wean itself off foreign loans, the opposition has become more assertive. The Pakistani government withdrew from a $14 billion agreement with China to develop the Diamer-Bhasha Dam in late 2017 because it did not meet the “hyper strict” financing terms, which included China taking control of the project as well as operations and maintenance. According to reports, the project will proceed with Pakistani support.90

Djibouti is the African nation with the smallest land area, situated at the far end of the Horn of Africa. However, it is immediately adjacent to the Middle East, and its positioning on the oil trade routes, due to the Bab al-Mandab Strait, Djibouti is vital to global supply of energy. Djibouti's links with China have grown primarily as a result of the BRI increasing economic links. For many significant factors, Djibouti serves as a trading gateway for China's overseas investment and economic activities on the African continent. First, Djibouti's strategic position, at the crossroads of one of the world's busiest shipping lanes, is the most valuable commodity for Chinese economic interests. Second,Djibouti has served as a vital logistical and trading center in Beijing's latest Silk Road strategy, which calls for the expansion of maritime trade routes from China to the Indian Ocean, the Gulf of Aden, the Red Sea, and the Mediterranean through the Suez Canal.The logistics and training facilities built in the African nation for China's military would enable Chinese troops to properly fulfill escort missions. The Chinese naval base in Djibouti aids in the expansion of trade across the Gulf of Aden and the Red Sea, as well as the success of anti-piracy operations in the Gulf of Aden. Third, due to its position along highly trafficked sea channels, Red Sea waters, and the Bab-el-Mandeb Strait, Djibouti is of general strategic significance for China's energy security. Finally, it gives China a key entry point into Africa's infrastructure, allowing the nation to extend its trading and logistics capability.91

Since 2013, Chinahasgiven more than$1billion in funding for major development projects in Djibouti. A $3.5 billion free-trade zone (FTZ) is being established by Chinese companies and is planned to be Africa's first. The first phase was finished in 2018, and between 2018 and 2020, it generated 200,000 new jobs and handle over $7 billion in trade. Other Chinese-backed ventures include the construction of seaports and other infrastructures, such as a railway and two airports (a $420 million contract) and a pipeline to bring water from Ethiopia to Djibouti (a $320 million contract). Huawei Marine, a subsidiary of Huawei, is connecting Djibouti and Pakistan via an undersea fiber-optic cable that is part of Huawei's latest 7,500-mile Asia-Africa-Europe cable, which is funded by China Construction Bank. The cable will bind to a land-based connection to China in Pakistan. Foreign officials from all around the world are concerned that the data carried by these cables might be used for spying.92

China built a naval base in Djibouti in 2017, marking the first time it attempted to create a permanent military presence outside of its borders. Moreover, China Merchants Group, the country's largest port operator, has agreed to spend $350 million with the state-owned firm Great Horn Investment Holding to turn Djibouti's port into an international trade center. Given Djibouti's location, strategic role in international energy market, and the largest deep-water port in East Africa, this venture provides opportunities and economic benefits in building, running, and maintaining the reconstruction project for the Chinese group, which owns a 23.5 percent stake in the Port of Djibouti.93

Officials in Djibouti are following the footsteps of their Sri Lankan counterparts of binge borrowing. According to the Center for Global Development, Djibouti's real gross debt-to-GDP ratios for 2015 and 2016 were 72.1 percent and 86.6 percent, respectively, while its projected debt-to-GDP ratios for 2017 and 2018 were 88.1 percent and 87.5 percent, respectively.94 Countries with debt-to-GDP levels above 77 percent over long stretches of time face significant economic slowdowns. Particularly, for every percentage point of debt above this amount, countries sacrifice 1.7 percent of their economic growth.95 According to the Washington Center for Global Development, China has provided Djibouti with $1.4 billion, almost equal to the country's total GDP, for financing new projects equivalent, with additional projects worth billions planned. Djibouti is already one of the debt distress nations, according to the IMF, and this has increased considerably due to the state's externally funded infrastructure programs by BRI.96

Djibouti's federal deficit is expected to rise in the coming years as a result of these massive loans. However, Djibouti's finance minister, Ilyas Moussa Dawaleh, believes Djiboutian state enterprises "are overperforming or have the capacity to overperform," thus, should not be worried by IMF’s evaluation. It is unclear if the different ventures would be successful enough to generate the funds required to repay the debts, as well as how Djibouti will repay the loans. It would not be surprising if China, like Sri Lanka, pressures Djibouti into a debt-for-equity swap or cancels debt in exchange for a land or natural resource concession, or secures new debt-financed ventures, as it did with Cambodia. Former US Secretary of State John Bolton speculated that China Merchants could seize ownership of the Doraleh Container Terminal in a debt-for-equity exchange, and that if this occurred, the balance of power in Africa would tip in favor of China.97 Emmanuel Macron, the French President, chastised Djibouti for being too reliant on Chinese aid. He said, “What can look good in the short term, can often end up being bad over the medium to long term… [W]ouldn’t want a new generation of international investments to encroach on our historical partners’ sovereignty or weaken their economies.”98

When it was first announced, BRI was hailed as a golden chance to revitalize the Asian and African economies. Today, however, several countries are concerned about China's intentions. As shown above, China has and plans to use loans with commercial interest rates for their own personal gain. Although the BRI offers critical infrastructure support to developed nations, it still leaves many of them in excessive debt. BRI loan terms and agreements are notoriously ambiguous, and they can saddle nations with significant debt.99 These agreements include a range of long-term tax breaks, long-term concessions for Chinese firms and imports, as well as waivers from foreign worker quotas, many of which are sure to raise concerns about the viability of local domestic enterprises in the long run. When it comes to BRI finance, it seems that recipient countries would face the majority of the financial burden, while China profits from both infrastructure financing and construction. For instance, the 142-kilometer Jakarta-Bandung railway in Indonesia, which started in January 2016, is running behind schedule. With just 10% of the construction done and just half of the overall land purchased, the project's price has now risen from $5.5 billion to $6 billion due to cost inflation. Since China develops its loans on a case-by-case basis instead of adhering to the IMF or World Bank's "rules of the road," it may end up addingdebt vulnerabilitiesin Indonesia.100

According to a new study conducted in 2019 by the Center for Global Development, eight BRI recipient countries—Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan—are at high risk of debt distress as a result of BRI loans. These countries will all have debt-to-GDP levels that exceed 50%, with at least 40% of foreign debt owed to China after BRI financing is completed.101 Several international lending best practices, including sourcing, accountability, and dispute resolution, are violated by Chinese loans. For instance, Laos' who already has unstable debt levels, which hit 68 percent of GDP in 2016, have been aggravated by the 414-kilometer railway project connecting Vientiane to Boten (on the China-Laos border). The IMF is concerned that Laos, which does not have any railroads, is being led into a debt trap.102 The agreements tend to be mostly benevolent, but they do include the seeds of what might be used as negotiating instruments by China for personal benefit in the future.

Conclusion

This paper has argued that Xi Jinping has brought about a transformation to the Chinese outward investment pattern, primarily through the introduction of BRI, and through this investment in South and Southeast Asia, it has gained significant political leverage and military advantages, allowing predominance in the IOR. After a decade of predominantly prosperous reforms that finally came to stagnation in the 2010s, Xi Jinping began his first term by highlighting significant problems facing the country and pledging drastic improvements to ensure the country's economic progress. Xi Jinping tried to reframe the restructuring effort that had been at the heart of "reform and opening" as a "national rejuvenation" agenda in order to fulfill the "Chinese dream."

Implementing these policies is centered on a development plan and structure that emphasizes communication and cooperation between states and intergovernmental organizations, resulting in economic growth. Undertaken as a network of regional infrastructure projects, these initiatives have grown to include a trade network, which aims to facilitate the free exchange of resources, technologies, workers, and commodities, successful cooperation between China and the rest of the world's economies, and improved policy coordination. These strategies would ensure the safe transportation of oil, coal, and other critical commodities, as well as access to the Central Asian energy supplies needed to keep China's economy afloat. The introduction of these policies, which enabled Chinese products to enter regional markets and helped make use of China's tremendous industrial overcapacity, has eased the end of the property and investment boom at home, which left China with substantial overcapacity in industry and construction, stagnation, and increasing debt management problems.

Although as there are thousands of hamlets on thousands of stages, there are numerous interpretations and understanding behind these initiatives undertaken by Xi Jinping. China emphasizes the plan's economic benefits; foreign analysts are more concerned with China's priorities and the challenges the policy may pose than with its economic aspects. The way these initiatives are organized, China prefers less formal agreements that give it ability and allow it to maximize its economic and political capabilities over potential formal treaties with observable enforcement criteria. Furthermore, China has engaged chiefly with government agencies, with no regard for the interests of corporations, civil society organizations, and local populations. One of the more incendiary criticisms is that China uses these initiatives to overburden recipient countries, drown them in debt, and then take collateral, which is frequently strategic assets like natural wealth or a port.103

BRI, a Chinese-led bilateral initiative that aims to use multilateral processes to meet its funding targets, is beset by debt sustainability issues. China has used the BRI in Myanmar and Pakistan to build overland connections to the Indian Ocean while also strengthening its energy security by building pipelines as an alternative to imports across the Malacca Strait and the South China Sea. While Chinese presence and power in the IOR, access to and construction of new ports, and diplomatic measures will resolve China's Malacca Dilemma, China's chosen method of securing supremacy by strengthening its position by luring countries into its orbit while progressively increasing its presence and capacity to assert force politically, diplomatically, and militarily, has been criticized heavily by foreign players.

Russia has been wary of Xi Jinping's investment policies, fearful of China's desire to extend into Russia and Central Asia, territories that Moscow regards as vital in terms of stability and economic development. China's efforts to target political and economic vulnerabilities in Europe have prompted retaliation, with European Unions labeling China a "systemic rival" in a recent article. The European Union is also concerned that Chinese businesses pose an existential danger to their European competitors due to their scale, government financial and political patronage, and ability to play foul. From it's announcement, India has seen the BRI with skepticism and has made critical remarks regarding transparency and debt burdens. China, India argues, is using the BRI to extend and exploit its regional geopolitical advantages. The United States and some in the international community have serious questions about China's investment practices in Africa and Asia. Corruption has plagued Chinese programs, which lack economic sustainability initiatives, regulatory accountability, and good governance.104

China has said that much of its investment in the IOR so far can be justified by economic cooperation, but the US, India, and their allies are concerned that China has adopted a broad range of pretexts to acquire dual-use capabilities that might one day be useful for higher-end missions in a warm climate. There are several reasons to be worried about China's ability to wield coercive economic and political influence especially on small and developing states in the IOR; many of its high-profile projects and operations, such as those at seaports, can easily be converted into significant military advantages like in the case of Sri Lanka. China's state-owned enterprises can entice countries to take on excessive debt loads and then agree to swap the debt for equity, which they can then exploit for access deals that favor the Chinese military. In non-conflict conditions, China uses its investments, businesses, and shipping firms to augment PLAN logistics. A softer version of the debt-for-equity-for-entry logic proposes that China might use its economic investments in the China-Pakistan Economic Corridor to pave the way for military access agreements at new locations like the strategically situated Gwadar port.

There are also investments in China's economic activities in the IOR that could foreshadow China's purpose and capabilities to conduct high-end military missions that would be seen as dangerous to US and Indian interests. The overall conclusion of this paper is that there are many grounds for states to be worried about China's increasing involvement in the IOR under Xi Jinping's leadership. In IOR, Chinese investments have given Beijing new and often worrying economic and political influence.

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Endnotes

1.) Harding, Harry.China's second revolution: Reform after Mao. Brookings Institution Press, 2010.

2.) MacFarquhar, Roderick. "The succession to Mao and the end of Maoism."The Cambridge History of China15, no. Part 2 (1991): 1966-1982.

3.) Wang, Hongying. "A deeper look at China’s “going out” policy." (2016).

4.) Wang, Zheng. "The Chinese dream: Concept and context."Journal of Chinese Political Science19, no. 1 (2014): 1-13.

5.) Aoyama, Rumi. "“One belt, one road”: China's new global strategy."Journal of Contemporary East Asia Studies5, no. 2 (2016): 3-22.

6.) Hurley, John, Scott Morris, and Gailyn Portelance. "Examining the debt implications of the Belt and Road Initiative from a policy perspective."Journal of Infrastructure, Policy and Development3, no. 1 (2019): 139-175.

7.) White, Joshua T. "China’s Indian Ocean ambitions: Investment, influence, and military advantage."Washington, DC: The Brookings Institution, June5 (2020).

8.) Naughton, Barry J.The Chinese economy: Transitions and growth. MIT press, 2006.

9.) Morrison, Wayne M.China's economic rise: history, trends, challenges, and implications for the United States. Washington, DC: Congressional research service, 2013.

10.) Tien, Hung-mao, and Yunhan Zhu, eds.China under Jiang Zemin. Lynne Rienner Publishers, 2000.

11.) Mantzopoulos, Victoria. "China's" going out" policy: Inception, evolution, implication."Journal of Business and Behavioral Sciences25, no. 2 (2013): 121.

12.) Yelery, Aravind. "China’s ‘Going Out’Policy: Sub-National Economic Trajectories."ICS Analysis24 (2014).

13.) UNCTAD, UNDP. "Asian foreign direct investment in Africa: Towards a new era of cooperation among developing countries."United Nations, New York, NY and Geneva, Switzerland(2007).

14.) Daily, China. "China’s direct investments abroad top $92 by 2007."Beijing17 (2008): 2008-04.

15.) China's Ministry of Commerce. "Statistical bulletin of China's outward foreign direct investment." (2009).

16.) S Salidjanova, Nargiza.Going out: An overview of China's outward foreign direct investment. Washington, DC: US-China Economic and Security Review Commission, 2011.

17.) Gao, Paul, Jonathan R. Woetzel, and Yibing Wu. "Can Chinese brands make it abroad?."McKinsey Quarterly(2003): 54-65.

18.) Policy, China. "China going global between ambition and capacity."Beijing: China Policy(2017): 1-11.

19.) Zhao, Kejin, and Xin Gao. "Pursuing the Chinese Dream: Institutional Changes of Chinese Diplomacy under President Xi Jinping."China Quarterly of International Strategic Studies1, no. 01 (2015): 35-57.

20.) Goh, Brenda. "China Pays Big to Expand Its Clout along the New Silk Road."Reuters. Thomson Reuters10 (2014).

21.) Jointly Build Silk Road in the New Era with Mutual Learning of Civilization and Common Development, September 14, 2013. https://www.fmprc.gov.cn/mfa_eng/topics_665678/xjpfwzysiesgjtfhshzzfh_665686/t1078943.shtml.

22.) “UNDP in China.” UNDP. http://www.cn.undp.org/.

23.) Samuelson, Robert. "Why China clings to state capitalism."The Washington Post(2019).

24.) Lim, Yves-Heng. "How (dis) satisfied is China? A power transition theory perspective."Journal of Contemporary China24, no. 92 (2015): 280-297.

25.) Feigenbaum, Evan A. "Reluctant stakeholder: why China’s highly strategic brand of revisionism is more challenging than washington thinks." InChina's Economic Arrival, pp. 113-130. Palgrave Macmillan, Singapore, 2020.

26.) Mierzejewski, Dominik.China's Provinces and the Belt and Road Initiative. Routledge, 2021.

27.) Kemp, John. "China’s Silk Road challenges US dominance in Asia."Reuters, November10 (2014).

28.) Cai, Peter. "Understanding China’s belt and road initiative." (2017).

29.) “Bank of China Approved $140 Billion of Credit for Silk Road Projects.” RT International, September 2 (2019). https://www.rt.com/business/467779-bri-china-credit-projects/.

30.) Hillman, Jonathan E. "How big is China’s Belt and Road?."Center for Strategic and International Studies3 (2018).

31.) Weiss, Martin A. "Asian infrastructure investment bank (AIIB)." (2017).

32.) “Asian Infrastructure Investment Bank Articles of Agreement.” Asian Infrastructure Investment Bank , n.d. https://www.aiib.org/en/about-aiib/basic-documents/_download/articles-of-agreement/basic_document_english-bank_articles_of_agreement.pdf.

33.) Martin A. "Asian infrastructure investment bank (AIIB)."

34.) Nan, Zhong, and Cai Xiao. "AIIB Leas support for Belt and Road Infrastructure Projects."China Daily(2016).

35.) Ferchen, Matt. "How New and Crafty is China’s “New Economic Statecraft”?."Carnegie-Tsinghua Center for Global Policy8 (2016).

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37.) Export-Import Bank of China, 2019, http://english.eximbank.gov.cn/tm/en-TCN /index_617.html.

38.) Mobley, Terry. "The belt and road initiative."Strategic Studies Quarterly13, no. 3 (2019): 52-72.

39.) “Overview,” Silk Road Fund, June 2019, http://www.silkroadfund.com.cn/.

40.) Sørensen, Camilla TN. "The Significance of Xi Jinping's" Chinese Dream" for Chinese Foreign Policy: From" Tao Guang Yang Hui" to" Fen Fa You Wei"."Journal of China and International Relations3, no. 1 (2015).

41.) “The 4th Conference on Interaction and Confidence Building Measures in Asia (CICA) Summit Held in Shanghai Xi Jinping Presides over the Summit and Delivers Important Speech, Advocating Common, Comprehensive, Cooperative and Sustainable Security in Asia for New Progress in Security Cooperation of Asia.” Ministry of Foreign Affairs of the People's Republic of China, May 21, 2014. https://www.fmprc.gov.cn/mfa_eng/topics_665678/yzxhxzyxrcshydscfh/t1162057.shtml.

42.) Liu, Mingfu. "China Dream: The Great Power Thinking and Strategic Positioning of China in the Post-American Age." (2010): 506-7.

43.) “The Dilemma of China's Soft Power: the Narrative of the Belt and Road Initiative (BRI) within and beyond China.” International Association for Media and Communication Research. https://iamcr.org/node/13135.

44.) Camilla TN. "The Significance of Xi Jinping's" Chinese Dream"

45.) Nanda, Prakash. “China's Demand to Respect Its 'Core Interests' Is an Ugly Manifestation of Its Newly Acquired Power.” Firstpost. https://www.firstpost.com/world/chinese-demand-to-respect-its-core-interests-is-an-ugly-manifestation-of-its-newly-acquired-power-3345154.html.

46.) “US Must Respect China’s Core Interests, Treasure Ties.” China Daily (2018). http://www.chinadaily.com.cn/a/201806/27/WS5b339b69a3103349141df4ef. html

47.) Lams, Lutgard. "Examining strategic narratives in Chinese official discourse under Xi Jinping."Journal of Chinese Political Science23, no. 3 (2018): 387-411.

48.) Ibid

49.) Wang, Yao, and Jing Lu. "Optimization of China crude oil transportation network with genetic ant colony algorithm."Information6, no. 3 (2015): 467-480.

50.) Storey, Ian. "China’s Malacca dilemma."China Brief6, no. 8 (2006): 4-6.

51.) Ibid

52.) Huang, Yiping. "Understanding China's Belt & Road initiative: motivation, framework and assessment."China Economic Review40 (2016): 314-321.

53.) UNCTAD. World Investment Report 2017: Investment and the Digital Economy; United Nations: New York, NY, Geneva, Switzerland, 2017

54.) UNCTAD. World Investment Report 2020: Investment and the Digital Economy; United Nations: New York, NY, Geneva, Switzerland, 2020

55.) Wang, Christoph N. “China Belt and Road Initiative (BRI) Investment Report 2020.” Green Belt and Road Initiative Center (2021). https://green-bri.org/china-belt-and-road-initiative-bri-investment-report-2020/.

56.) Ibid

57.) Ibid

58.) Javad, Hasan Al. “Deal Signed with Chinese Firm for Sylhet Airport Expansion.” Dhaka Tribune (April 19, 2020). https://www.dhakatribune.com/bangladesh/nation/2020/04/19/deal-signed-with-chinese-firm-for-sylhet-airport-expansion.

59.) GCR Staff. “China's CRCC Lands First Major Contract on China-Thailand High-Speed Railway.” Global Construction Review (2020). https://www.globalconstructionreview.com/news/chinas-crcc-lands-first-major-contract-china-thail/.

60.) Christoph N. “China Belt and Road Initiative (BRI) Investment Report 2020.”

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63.) Brewster, David. "A contest of status and legitimacy in the Indian Ocean."India and China at Sea. Competition for Naval Dominance in the Indian Ocean(2018): 10-38.

64.) Meyer, Marshall W., and Minyuan Zhao. "China’s Belt and Road Initiative: why the price is too high."Knowledge@ Wharton, April30 (2019).

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66.) Faulder, Dominic, and Kenji Kawase. "Cambodians wary as Chinese investment transforms their country."Nikkei Asian Review18 (2018).

67.) Heijmans, Philip. “Pivot to China.” Newsweek Global 171, no. 4 (August 10, 2018).

68.) Heijmans, Philip. “The U.S. Fears This Huge Southeast Asian Resort May Become a Chinese Naval Base.” Bloomberg (July 18, 2019). https://www.bloomberg.com/news/features/2019-07-18/u-s-fears-cambodia-resort-may-become-china-naval-base.

69.) Penh, Phnom. “The Giant’s Client: Why Cambodia has Cosied Up to China," The Economist (January 21, 2017). https://www.economist.com/asia/2017/01/21/why-cambodia-has-cosied-up-to-china.

70.) Thorne, Devin, and Ben Spevack. "Harbored ambitions: How China's port investments are strategically reshaping the Indo-Pacific." (2017).

71.) Edel, Charles. "Hiding in Plain Sight: Chinese Expansion in Southeast Asia."War on the Rocks9 (2019).

72.) Ibid

73.) Ibid

74.) Mohan Malik, J. "Myanmar’s role in China’s maritime silk road initiative."Journal of Contemporary China27, no. 111 (2018): 362-378.

75.) Nitta, Yuichi. "Myanmar cuts cost of China-funded port project by 80%."Nikkei Asian Review28 (2018).

76.) Malik, “Myanmar’s Role in China’s Maritime Silk Road Initiative”

77.) IMF (2017). Lao People’s Democratic Republic: Staff Report for the 2016 Article IV Consultation—Debt Sustainability Analysis (February 2017).

78.) Saran, Shyam. “Enter the Dragon.” India Today (February 16, 2018). https://www.indiatoday.in/magazine/up-front/story/20180226-india-china-maldives-abdulla-yameen-male-mohamed-nasheed-1170909-2018-02-15.

79.) Kliman, Daniel, Rush Doshi, Kristine Lee, and Zack Cooper. "Grading China’s Belt and Road."Center for a New American Security(2019).

80.) Behuria, Ashok K. "How Sri Lanka walked into a debt trap, and the way out."Strategic Analysis42, no. 2 (2018): 168-178.

81.) Ibid

82.) Safi, Michael. "Sri Lanka’s “New Dubai”: Will Chinese-built city suck the life out of Colombo."The Guardian2 (2018).

83.) Samaranayake, Nilanthi.China's Engagement with Smaller South Asian Countries. United States Institute of Peace, 2019.

84.) “China Wants This Malaysian Port to Rival Singapore (and That's Not All).” Today Online (July 31, 2017). https://www.todayonline.com/world/asia/chinese-money-pouring-malaysia-could-help-najib-votes.

85.) Doig, Will. "The Belt and Road Initiative is a corruption bonanza."Foreign Policy15 (2019).

86.) Xinhua. "Silk Road Fund's First Investment Makes China's Words into Practice." Xinhua News Agency (April 21, 2015). http://www.xinhuanet.com/english/2015-04/21/c_134171060.html.

87.) Kanwal, Gurmeet. "Pakistan’s Gwadar Port."Center for Strategic and International Studies(2018).

88.) Huang, Mike Chia-Yu. "A New Game Started? China’s ‘Overseas Strategic Pivots’ in the Indian Ocean Region."China Report54, no. 3 (2018): 267-284.

89.) Ramachandran, Sudha. "China-pakistan economic corridor: Road to riches."China Brief15, no. 15 (2015): 1-4.

90.) Hermesauto. “Fearing Debt Trap, Pakistan Rethinks China's Belt and Road Projects.” The Straits Times (September 30, 2018). https://www.straitstimes.com/asia/south-asia/fearing-debt-trap-pakistan-rethinks-chinese-belt-and-road-projects.

91.) Dutton, Peter A., Isaac B. Kardon, and Conor M. Kennedy.Djibouti: China's First Overseas Strategic Strongpoint. NAVAL WAR COLLEGE NEWPORT RI NEWPORT United States, 2020.

92.) Ibid

93.) Bearak, Max. "In strategic Djibouti, a microcosm of China’s growing foothold in Africa."Washington Post. December30 (2019): 2019.

94.) John Hurley et al., “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective.”

95.) Caner, Mehmet, Thomas Grennes, and Fritzi Koehler-Geib. "Finding the tipping point--when sovereign debt turns bad." (2010).

96.) John Hurley et al., “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective.”

97.) Norbrook, Nicholas. “Djibouti's Debt to China Has the US and France Worried.” The Africa Report.com. The Africa Report (April 8, 2019). https://www.theafricareport.com/11551/djiboutis-debt-to-china-has-the-us-and-france-worried/.

98.) Manek, Nizar. "Djibouti needed help, China had money, and now the US and France are worried."Bloomberg (February5 2019).

99.) John Hurley et al., “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective.”

100.) Hamzah, Hanim. "Legal Issues and Implications of the BRI."China’s Belt and Road Initiative (BRI) and Southeast Asia(2018): 19-25.

101.) John Hurley et al., “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective.”

102.) Hamzah, Hanim. "Legal Issues and Implications of the BRI."

103.) Du, Michael M. "China’s “One Belt, One Road” initiative: Context, focus, institutions, and implications."The Chinese Journal of Global Governance2, no. 1 (2016): 30-43.

104.) Haenle, Paul, Dmitri Trenin, Alexander Gabuev, Tomáš Valášek, D. Baruah, Feng Yujun, and Ma Bin. "How Are Various Countries Responding to China’s Belt and Road Initiative?."Carnegie-Tsinghua Center for Global Policy(2019).