China’s Long-Term Indian Ocean Presence Strategy – I
by Ramtanu Maitra on 09 Jan 2019 0 Comment

…I admit that geographically speaking India has a special role to play in stabilizing the Indian Ocean region and South Asian region. But [for the Indian Ocean], ‘backyard’ is not a very appropriate word to use for an open sea and international areas of sea. … If the Indian side views the Indian Ocean as its backyard, it cannot explain why navies from Russia, the United States, and Australia have the right of free navigation in Indian Ocean.

- Senior Captain Zhao Yi, associate professor, Institute of Strategy of China’s National Defense University

 

China’s spectacular economic performance during the last four decades has brought that country to the forefront of all trading nations. China’s per capita GDP, which was US$ 155 in 1978, grew to US$ 8,836 by 2017, adjusted for inflation. In 2009 China surpassed Japan to become the second-largest economy in the world, and in 2010 surpassed Germany to become the world’s largest exporter. In 2013 China’s trade exceeded that of the United States, and it became the biggest goods trading nation on the planet.

 

China’s economic performance and the imperatives behind it largely drive Beijing’s foreign policy and overarching long-term geopolitical strategy in the Indian Ocean and across the globe. The most populous nation on earth, China lacks the raw materials that are among the building blocks of an industrial economy; its existence as a growing economy is thus fundamentally dependent on ever-expanding networks of trade and commerce.

 

Economic Drivers

 

China accounts for a significant portion of the global trade in natural resources. It is the largest importer of crude oil in the world, accounting for some 17 percent of global crude oil imports. The country is also the biggest importer of iron ore by a significant margin, accounting for more than 67 percent of total global iron ore imports (Japan, the second-biggest iron ore importer, accounts for a mere 8.5 percent of total imports). Aluminum, coal, copper, natural gas and oilseeds such as soybeans are also significant imports; and the last two are growing rapidly. China is also a significant importer of electrical and electronic machinery and equipment, including computers, integrated circuits and optical, technical and medical equipment - this broad category makes up about 35 percent of China’s imports.

 

First among China’s top four exports are machinery, specifically electronics, and transportation equipment (nearly 50 percent combined). Furniture and textile products are also top exports - China is the largest cotton spinner in the world, and its textile industry, which employs 300 million people, is the biggest globally in terms of overall production and exports. Rubber, plastic and metallurgical products are also major, and fast-growing, components of China’s export trade.

 

China’s import-export imperatives are clear. A brief review of the country’s geographic location rounds out the context for Beijing’s strategy. China is bordered by 14 countries - Korea, Vietnam, Laos, Myanmar, India, Bhutan, Nepal, Pakistan, Afghanistan, Tajikistan, Kyrgyzstan, Kazakhstan, Mongolia and Russia. China is connected to those countries by land. Across the seas, China’s neighbors include eight countries - North Korea, South Korea, Japan, the Philippines, Brunei, Indonesia, Vietnam and Malaysia.

 

While a large part of China’s trade takes place through the Indian Ocean, China does not have a direct access to that body of water, which comprises at least one fifth of the world’s total sea area. The Indian Ocean is bounded by Africa and the Arabian Peninsula, India’s coastal waters, the Bay of Bengal near Myanmar and Indonesia (eastern Indian Ocean) and washes the coastal areas of Australia further south. It also provides access to the oil and gas-rich Middle East region through one of its bays, the Arabian Sea.

Oil Chokepoints: The Indian Ocean Corridor

 

Because of its vastness and its bays, the Indian Ocean, which comprises more than one-fifth of the world’s total sea area, offers China, along with its littoral states, the critical sea trade routes to the Middle East, Africa, Australia, and South Asia. It also provides access to the oil- and gas-rich Middle East region through one of its bays, the Arabian Sea. The Indian Ocean is not only host to vital international trade routes; the region contains a number of the world’s most important strategic chokepoints, including the Strait of Hormuz - a strait between the Persian Gulf and the Gulf of Oman - and Malacca, through which 32.2 million barrels of crude oil and petroleum are transported per day, more than 50 percent of the world’s maritime oil trade (Center Stage for the 21st Century: Rivalry in the Indian Ocean: Robert Kaplan - March 16, 2009).

 

China’s only access to these essential routes is through the Malacca Strait, the narrow waterway connecting the Andaman Sea (Indian Ocean) and to the South China Sea (Pacific Ocean) that is one of the world’s busiest channels. Nearly 100,000 vessels pass through it annually; accounting for about one-quarter of the world’s traded goods. Oil shipments through the Strait of Malacca supply both China and Indonesia, two of the world’s fastest-growing economies. This strait is the primary chokepoint in Asia, with an estimated 16.0 million b/d flow in 2016, compared with 14.5 million b/d in 2011. Crude oil generally makes up between 85 percent and 90 percent of total oil flows per year, and petroleum products account for the remainder (World Oil Transit Chokepoints: U.S. Energy Information Administration (EIA): July 25, 2017).

 

Fully 80 percent of China’s vital oil imports come through the Indian Ocean-Strait of Malacca passage. Beside the Strait of Malacca, the vast amount of China’s oil (as well as that of Japan, India, South Korea, and Singapore) also passes through another chokepoint, the Strait of Hormuz. A major part of China’s strategy of engagement, including developing and building port facilities, along the Indian Ocean’s shores is focused on keeping these extremely important sea lanes free of any single nation’s - or group of nations’ - control.

 

China is at the same time working to bring in oil and gas from distant lands by through land-based pipelines to feed its growing energy demand. Separate crude oil pipelines from Russia and Kazakhstan to China illustrate efforts to increase overland supply. In 2015 the Russia-China crude oil pipeline started expanding to double its capacity from 300,000 to 600,000 barrels per day (b/d) by 2016. At the same time, construction was finished on the 440,000-b/d Myanmar-China oil pipeline, which bypasses the Strait of Malacca, transporting crude oil from Kyaukphyu in Myanmar to Kunming, China. The crude oil for this pipeline will be supplied by Saudi Arabia and other Middle Eastern and African countries. However, these land-based pipelines can serve only as supplemental supply routes; China is and will remain heavily dependent on the sea lanes via the Strait of Malacca and the Strait of Hormuz to bring in the bulk of its oil (2016 China Military Power Report: U.S Department of Defense: China’s Energy Strategy).

 

Reaching Westward: A Maritime Silk Road Focus on Africa

 

Beyond its oil requirement to keep the huge economic machine growing, China has now become a leading trading nation. Its overall annual export is close $ 2.1 trillion and annual import is about $1.6 trillion. Although much of its exports and imports - about $2.1 trillion and $1.6 trillion respectively - travel through the Pacific and the South China Sea, in the future, China has plans to significantly expand in a big way its trade with both Africa and the Middle East in the future. To achieve that objective, China will have to depend more and even more on the Indian Ocean.

 

During a visit to Indonesia in October 2013, China’s President Xi Jinping addressed the Indonesian Parliament, proposing to join efforts with countries in the region to build a new "maritime silk road." At the time, Xi’s statement was considered a bid to enhance maritime partnership with China’s Southeast Asian neighbors to overcome territorial disputes and usher in opportunities for cooperation. Subsequently, the Maritime Silk Road (MSR) became one part of China’s Silk Road Economic Belt (SREB).

 

The MSR aims to reach Europe, originating from cities on China’s southeastern coast and using a system of linked ports and infrastructure projects. The planned sea route begins in Fuzhou, China, and goes via Vietnam, Indonesia, Bangladesh, India, Sri Lanka, the Maldives, and East Africa. Along the African coast, China plans to develop ports in Kenya, Djibouti, Tanzania, and Mozambique. The MSR would then continue from the African coast into the Red Sea and through the Suez Canal to the Mediterranean. After passing Athens, the road terminates in Venice, where it joins the land-based “belt” route (China and The Maritime Silk Road: Dan Blystone: Investopedia).

 

Africa: China’s Economic Focus

 

In recent years since the Belt and Road Initiative (BRI) became center of its foreign policy strategy, China has put in a lot of effort in making its presence felt in Africa and the Middle East. In accessing the Middle East, China has developed a railroad link that goes through western China in to the Central Asian countries to reach Iran. That land access, however, has its limitations. The amount of Chinese goods that are going into the Middle East is well beyond what the railroads can handle. In other words, trade with the Middle East will be primarily carried out through sea traveling through the Indian Ocean. China is also developing a Pakistani port, Gwadar, close to the Iranian borders on the Arabian Sea, and a 2300-acre Special Economic Zone around it, as an importation hub for oil, gas and other products that the western part of China would need in the future.

 

Since the beginning of this millennium, from being a relatively small investor in the continent, China has risen to become Africa’s largest economic partner. China-Africa trade amounted to US$ 174 billion in 2017, a huge increase from just over US$ 10 billion in 2000. Chinese foreign direct investments in Africa have has risen from US$ 10 billion in 2010 to over more than US$ 60 billion in 2017.

 

Speaking to the China Daily on the sidelines of the 6th Conference of Chinese and African Entrepreneurs at Beijing last September, President of the African Development Bank (AfDB), President Akinwumi Adesina noted: “There’s a perfect alignment between the Belt and Road Initiative and the ‘High 5s’ of the African Development Bank Group. The Bank is already discussing with China Development Bank about formulating large-scale projects, which can fit in the both of the frameworks.” The “High 5s” are: to (1) Light up and Power Africa; (2) Feed Africa; (3) Industrialize Africa; (4) Integrate Africa; and (5) Improve the Quality of Life for the People of Africa. (“Africa is the place to be,” African Development Bank President tells Chinese business leaders at the China-Africa forum: Africa Development Bank: Sept 5 2018).

 

A McKinsey & Co report of June 2017 pointed out that “Chinese firms operate across many sectors of the African economy. Nearly a third are involved in manufacturing, a quarter in services, and around a fifth in trade and in construction and real estate. In manufacturing, we estimate that 12 percent of Africa’s industrial production - valued at some $500 billion a year in total - is already handled by Chinese firms. In infrastructure, Chinese firms’ dominance is even more pronounced, and they claim nearly 50 percent of Africa’s internationally contracted construction market.” (Dance of the lions and dragons: Irene Yuan Sun, Kartik Jayaram, Omid Kassiri: McKinsey & Co: June 2017)

 

The report concluded that China’s investments in Africa are bound to grow. “We interviewed more than 100 senior African business and government leaders, and nearly all of them said the Africa-China opportunity is larger than that presented by any other foreign partner - including Brazil, the European Union, India, the United Kingdom, and the United States.

 

“But exactly how quickly will the Africa-China relationship grow in the decade ahead? We see two potential scenarios. In the first, the revenues of Chinese firms in Africa grow at a healthy clip to reach around $250 billion in 2025, from $180 billion today. This scenario would simply entail ‘business as usual,’ with Chinese firms growing in line with the market, holding their current market shares steady as African economies expand. Under this scenario, the same three industries that dominate Chinese business in Africa today - manufacturing, resources, and infrastructure - would dominate in 2025 as well.” (Dance of the lions and dragons: Irene Yuan Sun, Kartik Jayaram, Omid Kassiri: McKinsey & Co: June 2017)

 

(To be continued …) 

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