Chinese Footprints in Maldives under One Belt One Road (OBOR) Initiative

1. China accords much importance to the Indian Ocean for the security of its own sea lanes of communication passing through the region. Majority of its oil imports and international trade are carried out via the Indian Ocean. In this respect, good bilateral relations with the countries in the region are equally important to China. The formal diplomatic ties between China and Maldives established in the early 1970s were further strengthened with China opening its Embassy in Maldives in January 2014.

2. Maldives joined the OBOR initiative after the visit of President Xi Jinping in Sept 2014. Maldivian President Yameen signed the MoU on “Jointly promoting the Belt & Road construction”, and the first-ever Maldivian Free Trade Agreement (FTA) with any country during his visit to China in 2017.ⁱ In pursuance of its signing the MoU on the initiative, the island nation was represented by the then Minister of Economic Development, at the first and the second Belt and Road Forum (BRF) summit in Beijing in May 2017 and April 2019 respectively.

3. The Maldivian Government, under President Yameen, had awarded a majority of the high-value public sector projects to Chinese companies. Most of these projects were in transport, housing, infrastructure and energy sectors. Major infrastructure projects such as expansion of Velana International Airport, Sinamale Bridge, construction of several government buildings and various housing projects were financed by China and constructed by Chinese SOEs. Apart from the public sector projects mentioned here, Chinese companies were also involved in many commercial projects in Maldives. China’s Huawei Marine Networks (HMN) undertook work in 2016 for laying the 1,200-km submarine telecommunications cable under the National Submarine Cable Project to equip Maldives with ICT infrastructure. In Feb 2020, HMN signed a contract to construct the Maldives-Sri Lanka Cable System (MSC), a new submarine cable project for facilitating digital connectivity between the two island nations.ⁱⁱ

4. China is the second largest trading partner of Maldives. Bilateral economic ties have received impetus through Agreements on Economic and Technical Cooperation, Mutual Exemption of Visas and Visa Fees, etc. However, the present government under President Solih is keen to review the FTAⁱⁱⁱ signed earlier with China and may not agree to implement it under the initial terms.^iv China’s share in the imports of the island nation rose significantly from 5.3% in 2014 to 16% in 2019.^v As per sources, the Chinese Foreign Direct Investment (FDI) in Maldives is about USD 1.23 billion.^vi Major share of the investments are in Transport and Real Estate sectors under OBOR.

5. China had also focused on cultivating the local political leadership, intelligentsia, media houses and youth in Maldives through use of its soft power during the Yameen government. As a means to win over the Maldivian populace to advance Chinese national interests, a combination of instruments were used to influence the perceptions, preferences, and actions of citizens and leaders there. People to people (P2P) ties between the two countries have increased in the recent years through tourism, sister city relationship and education.

6. Tourism accounts for more than 28% of Maldives’ GDP and 60% of foreign exchange receipts. China was the largest source of tourists to Maldives in the last five years till 2019. According to the data released by the Maldivian tourism authorities, the country attracted a total of 1.7 million tourist arrivals in 2019, of which Chinese tourists numbered 284,029^vii (one-sixth of total arrivals). In 2018, about 300,000 Chinese tourists had visited Maldives (whereas total 166,030 Indians visited the country in 2019, an 83.5% increase compared to the previous year^viii). However, possibly due to COVID-19, Indian tourists have outnumbered their Chinese counterparts in Maldives in 2020.

7. Boosting the Chinese arrivals are direct flights from Beijing, Shanghai, Guangzhou, Kunming, Chengdu, Chongqing and Hong Kong to Maldives. Chinese companies have invested heavily into Maldivian tourist infrastructure. In 2016, a Chinese company bought Feydhoo Finolhu, a tiny but strategically-located islet on 50-year lease for just about USD 4 million.^ix Lot many joint ventures (JVs) were signed between the two countries to expand tourism in Maldives during the previous government.^x

8. To enable cross-border banking supervisory cooperation, the China Banking Regulatory Commission (CBRC) had signed a MoU with the Maldives Monetary Authority (MMA) in 2017. E-payment platforms like WeChat Pay and AliPay are available in Maldives since 2015. An existing agreement between the Bank of Maldives (BoM), and the China UnionPay (CUP) facilitated acceptance of UnionPay cards within the country.^xi

Concerns arising out of Chinese Involvement

9. Outstanding Chinese loans (about USD 1.5 billion) accounts for almost 70% of total external debt which is more than one-third of its GDP. The loan repayments will cost the island nation USD 92 million annually^xii, leading to concerns over the financial viability of the projects.

10. In July 2020, Exim Bank of China prevailed upon the Maldivian government to pay USD 10 million as instalment to service a private loan lent against sovereign guarantee.^xiii Although the matter was subsequently resolved, it serves to highlight the vulnerability of a debtor nation partnering China under OBOR.^xiv

11. Chinese companies have taken advantage of the constitutional amendment of 2015 that permits land ownership by foreigners.^xvThese companies have bought entire islands such as Feydhoo Finolhu and Kunaavashi on long term leases (50-years) on the pretext of development of tourist resorts.^xvi As earlier stated by Mohamed Nasheed, former President and current Speaker of Maldivian Parliament, about 16-17 islands were leased to China during erstwhile government.^xvii