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China:Another Debt Trap - BRI’s Predatory Nature Stands Exposed in Maldives

Paper No. 6659                       Dated 14-Aug-2020

By Vandana Mishra

On July 27, 2020 China’s EXIM Bank ordered the Maldivian Government to pay USD 10 million (MVR-Maldivian Rufiyaa 154 million) from a loan issued to Sun Siyam Resorts Pvt. Ltd. The company is owned by Ahmed Siyam, a parliament representative from Meedhoo constituency of Dhaalu Atoll. As reported in Mihaaru, a local media, USD 127 million (MVR 2 billion), by far the largest loan was issued in 2017 to the said company on the basis of sovereign guarantee by the state. The loan was issued to Ahmed Siyam Holdings Pvt. Ltd. (ASH), during the regime of Abdulla Yameen, who is also considered to be an ally of Siyam. Siyam has been involved towards developing Maldives’ largest resort ‘Iru Fushi’ at Dhigurah on Noonu Atoll.

Sovereign guarantee means that if the state fails or refuses to pay the debt, it would result in a sovereign default, which may devalue the Maldivian currency putting country’s global standing at stake. Usually, such facility is made available only to governments and the state sector, and except the Sun Group, all other debtors with ‘sovereign guarantee’ for a total of $9 billion Chinese loan were public sector undertakings. However, Minister of Finance, Government of Maldives claimed on August 6, 2020 that the said loan has been paid back to China’s EXIM Bank.

The entire episode revealed once again Chinese debt-trap diplomacy with yet another South Asian country. China takes good advantage of the internal divisive politics in these countries by cultivating political forces opposed to the existing government and supporting them to win elections to be exploited in furtherance of its own vested interests. It obviously supports those leaders which are pro-China. It seems most of the South Asian countries have developed pro-Chinese elements within owing to the growth of ‘power-politics’. Such forces go to any extent to win elections and form government to sell the prime assets of their country at the hands of China. Their first loyalty is to power rather than the country and its citizens. The debt happens to be a burden on the people as the taxes will be increased to solicit money and repay loans. Beneficiary would be both China and the power-hungry political leaders of these countries that China is eying for.  

Maldives is an island in the Indian Ocean and a hub of international tourism. The economy of Maldives is heavily depended on the tourism sector, which has been hit hard by the pandemic. The domestic condition of Maldives is also marred by the domestic conflicts due to the opposition continuously targeting the government. Asking for the loan repayment in such times of global crisis by the Chinese Banks must be at the behest of government which reflects the opportunistic intention of China. It is important to mention here that in the last Presidential elections China supported Yameen was ousted and the new government is trying to be balanced in its approach towards China. Hence, China is resorting to arms twisting techniques.

This is not the first time that China has used this strategy. There are similar instances in case of Sri Lanka, Malaysia, and Pakistan to name but a few. Chinese debt-trap is one of the diplomatic tools being used by China in furtherance of Xi Jinping’s dream project called BRI (Belt and Road Initiative). BRI by nature is predatory rather than only a mega infrastructure projects to enhance connectivity and promote trade and commerce across the regions and the globe.  

Chinese Debt-Trap:

This is a clear case of creating debt-trap for Maldives by China. If the claims of the Maldivian Finance Ministry are authentic then Maldives have successfully evaded the trap this time. However, Maldives must learn from the experiences of its other neighbouring countries where China ended-up grabbing the very projects that it executed, may be for valid reasons. Hambantota, in Sri Lanka is in its immediate neighbourhood from which it may learn how and why the port was leased out to China. Maldives is gradually receding into one such trap and it needs to take due care of its economic engagements with China. Former Maldivian President Nasheed accused China of using infrastructural projects to increase the debt-trap. Nasheed also pleaded for international intervention.

Former President Yameen during his tenure has invited heavy investments into Maldives in the “One belt One Road” initiative renamed as BRI. This infrastructure programme aims to revive the land and sea trading routes and enhance its influence on the international platform. Through this initiative China lends large amount of money to the smaller nations for the infrastructural development. The international airport, the major road connecting it to the capital and other projects also fall under BRI. All the infrastructure projects undertaken by the Chinese government are a part of China’s BRI and enhance its influence in Asia, Europe and Africa. Thus, in the garb of BRI China is trying to grab the economic and infrastructural assets within the territory of these countries. During Yameen’s regime itself, the Chinese took the island of Feydhoo Finholu on a long-term lease. According to President Nasheed, China has been leased out 17 out of the 1200 islands of Maldives. Nasheed also claimed in August 2018 that China has handed over invoice of 3.2 billion dollar. This is done precisely by creating the debt-trap through investing in power plants, bridges, hotels, stadiums, ports, airports and roads.

BRI: China’s Strategic Move with Predatory Nature

China is an economic powerhouse by now and under Xi Jinping has ambitions to be a Global power. It is making all efforts to prevail over South East Asia, South Asia, Central Asia, Europe, Africa and Americas. Maldives like Sri Lanka is on the shipping lanes in Indian Ocean, hence of tremendous strategic importance for China. President Jinping during his visit to Maldives in 2014 had announced that Maldives could become a part of Maritime Silk Road (MSR), which means BRI. Thus, BRI is one such projects through which it is endeavouring to loom large over these regions. This fact cannot be denied, owing to several reasons.

First reason is the very nature of China for which it is infamous, that it is an expansionist power. It forces acceptance of ‘One-China Policy’ on all those countries which wishes to have diplomatic relations with China, in the contemporary world. This is in line with China’s endeavour to integrate territories like Hong Kong, Mongolia, Taiwan, Tibet, Xinjiang, and the whole of South China Sea, which it claims as part of its own territory (nine dash line).  

Secondly, China has been making deep inroads into South Asian countries through BRI and other related infrastructural projects. China is continuously taking advantage of the political instability within South Asian countries. It has been using the internal crisis to its own advantage in Nepal, Sri Lanka, Pakistan, Maldives and Bangladesh. This is done by supporting the forces that need money and other kind of supports to win elections. Once a political leader and party supported by China comes to power, they act like its stooge. Then it enters into economic engagements with them to bag infrastructural projects. The projects are executed by lending money to the government. Rising number of such instances of lending huge amount of money for the infrastructural projects and controlling the assets of small and unstable nations, is one of the strategies adopted by China to enhance its expansionist policy.

Thirdly, China claims on one hand that its BRI will enhance growth and development in the smaller countries such as Maldives; but Maldives on the other hand is struggling with the huge debt that it owed to China. Similar situations have been faced by other countries pointed above.

Implication and Imperatives for India:

India under the present political dispensation has devised ‘Neighbourhood First’ policy. Yet, its influence in the neighbourhood has been waning on account of China’s fast and well-calculated moves. India has been victim of miscalculations in Maldives internal politics earlier as well. Hence, India is struggling to renew its ties with the neighbours. China is already undergoing militarization in the South China sea and it has so many political, economic and military interest in Maldives and other countries sitting astride in Indian Ocean.

Firstly, Indian Ocean is India’s maritime neighbourhood, where India aspires to maintain its influence and hence needs to be pro-active and vigilant all the time and engage constructively with littoral countries.

Secondly, Maldives is extremely important strategic locations for India and it has vast opportunities in the wake of Chinese advance. Maldives became the first international destination of Prime Minister Narendra Modi after taking oath for the second term in May 2019. He has also visited during the swearing in ceremony of Solih, the President in 2018. Solih, emphasized on his “India’s first policy” and expressed strong commitment towards a strong relationship. He also expressed appreciation for the development initiatives that are being undertaken. Several MoUs were signed between both the government. Such efforts towards bilateral relations need to be increased since the present government has revealed its inclination towards India. It is an important opportunity for India to revive the relations that were strained during the previous government of Yameen. China must be wary of this; hence India needs to be cautious of and devise diplomacy accordingly.   

Thirdly, Indian has offered $1.4 billion for the developmental project of Maldives. India does not carry pockets as deep as China, hence cannot compete in financial terms and help Maldives to pay its debt. India cannot make due interventions to rescue such countries from debt-trap of China. Therefore, it needs to adopt a holistic approach and open other foreign policy avenues and make way for cooperation. India can assist towards review of the Sino-Maldives bilateral Free Trade Agreement and prevail upon the Solih government to find a way out to avoid debt-trap like situations in future.

Fourthly, India has been making efforts to strengthen SAARC amidst the Pandemic, and it must continue to do so where it can bring its neighbours together and create its influence. India can also gear-up international community and other multilateral organizations to restrain China from debt-trap diplomacy.

Fifthly, scrapping of GMR Infrastructural Ltd. contract by Maldives to develop Male International Airport, and awarding to Chinese company is a reflection of  India’s diplomatic failure. Neighbours must be educated that China’s ‘land grab’ is not ‘economic cooperation’ but economic banditry!

Vandana is a Research Scholar who can be reached at