Published Twice a Month
June 27, 2018 – July 10, 2018
Centre on Asia and Globalisation
Lee Kuan Yew School of Public Policy
Grey Zone and FTA: Maldives in the Center of China-India Great Power Rivalry
By Xu Shengwei
Some 400 kilometres southwest of Malabar Coast is the chain of atolls known as the Maldives. The tiny nation was thrust into the global spotlight earlier this year when a political crisis broke out on February 6th. The Maldivian president, Abdulla Yameen, had ignored a Supreme Court order to release imprisoned opposition members and instead, ordered the arrests of the Chief Justice and a former president, before declaring a state of emergency.
Since 2014, China had been investing heavily in the Maldives, led by state-owned enterprises under the framework of the Belt and Road Initiative (BRI). The South Asian state also showed a clear shift towards a “China-first” policy under President Yameen. In August 2017, three Chinese naval warships were allowed to dock in the country for the first time. And in December that year, Yameen signed a free trade agreement with China, which he then forced the Maldives Parliament to approve. Alarms were raised in India after Yameen also said that he would sign another free trade agreement with India. New Delhi feared that Chinese goods would flood into the Indian market unhindered from Maldives, as a preferential trade pact had been in place between the two nations since 1981.
China’s investments in the Maldives may not be totally altruistic. Viewed from Beijing, the Indian Ocean may be seen as an easier region to expand its might and influence compared to waters in East Asia or the South China Sea. Or perhaps more likely, China has come to recognize the strategic value of the small nation-state. Geographically, the Maldives forms a crucial link in China’s “string of pearls” – a network of Chinese military and commercial facilities stretching from Myanmar to Djibouti. These overseas bases have been seen as a means to support China’s “conversion from a continental power to a maritime power”. The Maldives also serve as an important part of the BRI. It was reported that China is interested in building ports in Laamu, one of the southernmost atolls of the Maldives. The islands are thus ideally located to support China’s projection of economic and political influence into the Indian Ocean.
This has certainly caused concern in India, which has always seen the Maldives as part of her own sphere of influence. In 1988, India demonstrated its willingness and ability to intervene in its tiny neighbor’s affairs when it sent troops into the country to foil an attempted coup. But India has also sought to cultivate good relations with its neighbour. For instance, goods from the Maldives are allowed to enter India freely. India also “gifted” two helicopters to the Maldives National Defense Force, though they were operated by Indian personnel. The helicopters were subsequently returned in April this year after relations deteriorated.
It is because of such designs from China and India that the Maldives Crisis escalated into a power struggle between the two countries. When a state of emergency was declared in the Maldives in February 2018, India ordered its paratroopers on standby, put its warships on readiness, and launched large-scale operational exercises with its navy. Members of the Maldives opposition, along with Former President Nasheed openly called for Indian forces to intervene. Nonetheless, Yameen did not yield, and India’s military stayed put. The very fact that there were military maneuvers by India suggests that an intervention was being seriously considered. It was thus all the more surprising when the expected intervention did not materialize. What stayed India’s hand during the crisis was likely China’s power and influence in the region.
At the onset of the crisis, at least 11 Chinese naval vessels crossed into the Indian Ocean. The Chinese government also proclaimed that the situation in the Maldives was an internal affair and that other countries should not get involved. In Colombo, a source close to the Chinese diplomatic community had revealed that Beijing had informed its diplomats that it would intervene to help Yameen if India ever tried to unseat him. The Maldives Embassy in Colombo also confirmed that Beijing had given the same assurance of support to Yameen.
Beijing’s actions during this political crisis have been referred to as “grey zone” tactics by Abhijit Singh, a former Indian naval officer, at the New Delhi-based Observer Research Foundation. Such actions would not usually lead to any escalation of the situation. In ideal scenarios, it would not constitute a casus belli by China, but it would allow Beijing to send a clear message to its opponents. In the case of the Maldives Crisis, the message was, according to Abhijit Singh, “If you come too close to the Maldives, then we are not too far away either.”
While some may argue that India lost this round of its ongoing rivalry with China, in actual fact, both sides could benefit if only they were willing to make concessions. This was demonstrated last year when the Doklam standoff was resolved peacefully after both sides agreed to pull back their forces. China should reassure India that its investments and infrastructure projects in the Maldives do not pose any security threat; instead, India could benefit from these developments under the BRI framework. Furthermore, China’s use of “grey zone” tactics ironically reduces the likelihood of another Doklam-style confrontation or military conflict with India. What China had sought to achieve in the Maldives was continued political stability so as to protect its investments in the country. Therefore, it was only normal for China to throw its support behind Yameen who had taken a pro-China stance. Likewise, while India felt entitled to having influence over the Maldives, it should respect its neighbour’s decision to develop relations with other major powers, like China. After all, the Maldives is not a vassal state of India.
Most importantly, if Chinese investments and infrastructures could really benefit the Maldivian populace as a whole, then there is no reason why anyone should prevent such projects from taking place. A strong and wealthy Maldives would also benefit India, as it would stimulate trade and human movement between the two countries. Moving forward, if China and India are willing to understand and respect each other’s position on the Maldives, then this episode in February could well mark the beginning of a new chapter in cooperation between these three countries that promises growth and opportunities.
 “Maldives returns helicopter gifted by India: A look at how ties between the two nations have deteriorated in 2018,” First Post, April 4, 2018, https://www.firstpost.com/india/maldives-returns-helicopter-gifted-by-india-a-look-at-how-ties-between-the-two-nations-have-deteriorated-in-2018-4417923.html.
 Sunaina Kumar & Angela Stanzel, “The Maldives Crisis and the China-India Chess Match,” The Diplomat, March 15, 2018, https://thediplomat.com/2018/03/the-maldives-crisis-and-the-china-india-chess-match/.
 Indrani Bagchi, “How 'India First' turned into 'China First' for Maldives,” The Times of India, February 10, 2018, https://timesofindia.indiatimes.com/india/how-did-india-first-turn-into-china-first-in-the-maldives/articleshow/62864889.cms.
 “Why does China Want Everybody to Look Away from the Maldives Crisis? – Mainstream,” Maldives Times, March 24, 2018, https://maldivestimes.com/why-does-china-want-everybody-to-look-away-from-the-maldives-crisis-mainstream/.
 Bagchi, “How 'India First' turned into 'China First' for Maldives.”
 Samanth Subramanian, “'China factor' deters India from Maldives intervention,” The National, February 18, 2018, https://www.thenational.ae/world/asia/china-factor-deters-india-from-maldives-intervention-1.705660.
 “Maldives returns helicopter gifted by India: A look at how ties between the two nations have deteriorated in 2018.”
 Subramanian, “'China factor' deters India from Maldives intervention.”
 Sanjeev Miglani & Shihar Aneez, “Asian giants China and India flex muscles over tiny Maldives” Reuters, March 7, 2018, https://www.reuters.com/article/us-maldives-politics/asian-giants-china-and-india-flex-muscles-over-tiny-maldives-idUSKCN1GJ12X.
Xu Shengwei is a Research Assistant at the Centre on Asia and Globalisation (CAG). He holds a Masters in Arts (Philosophy) from the University of Tuebingen and a Bachelor of Arts (Double Major in European Studies and Political Science) degree from the National University of Singapore. His research interests include political philosophy, Sino-centric political theories, and governance.
The views expressed in the article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.
Chinese carriers fly into great wall of India
The Economic Times, July 7
India has rejected the Chinese government’s request to allow its carriers add more flights on the India-China route after strong opposition from Indian carriers which felt that the move would jeopardise their own expansion plans.
China hardens stance against India over Indo-Pacific strategy, warns New Delhi may lose opportunities by following US
Firstpost, July 3
Since US president Donald Trump adopted the term 'Indo-Pacific', China has time and again expressed its disapproval and even issued demarches to countries participating in the quad. It has always been wary of the "free and open Indo-Pacific" strategy that Trump has been attempting to push. Beijing has also warned that US' efforts to contain China's rise would be viewed with scorn.
Top Chinese military delegation in India to boost confidence building between the two armies
The Times of India, July 3
In the first such visit after the Doklam troop face-off last year, a high-level Chinese military delegation is in India as a confidence-building measure between the two armies ranged against each other along the Line of Actual Control (LAC), even as they prepare to resume their annual bilateral “Hand-in-Hand” combat exercise later this year.
Trump's Trade War Pushes China Closer to Old Foe India
Bloomberg, June 28
President Donald Trump’s moves to protect U.S. trade interests are creating unusual bedfellows in Asia. Since May, China has made it easier for India to export non-Basmati rice, removed import duties on anti-cancer drugs and agreed to share data that predicts river flows between the two countries during the flood season. Chinese President Xi Jinping and Indian Prime Minister Narendra Modi have met twice since April, pledging to strengthen bilateral ties.
China and India in the Regions
Moon heads for India to cultivate markets beyond China, US
Nikkei Asian Review, July 7
South Korean President Moon Jae-in embarks on a six-day state visit to India and Singapore on Sunday (July 8), seeking to expand the country's economic influence in southern and southeastern Asia through exports and local production amid the growing trade war between the U.S. and China.
Prodded by Beijing, Air India joins others: Taiwan is now Chinese Taipei
The Indian Express, July 5
“Taipei, Taoyuan International Airport, TPE, Chinese Taipei” — this is how the Air India website now refers to Taiwan, more than two months after a diktat by the Civil Aviation Authority of China. The move comes after several other airlines including Delta Airlines, Qantas, Singapore Airlines, Japan Airlines and Air Canada also changed the name to avoid any tussle.
India to hold maritime dialogues with China, Russia to discuss Indo-Pacific policy
The Hindu, July 5
India will discuss its Indo-Pacific policy with China at the upcoming second maritime dialogue. This development follows the series of efforts to improve bilateral relations after the Wuhan summit between Prime Minister Narendra Modi and President Xi Jinping.
On way to Brics, Modi and Xi vie for East Africa's attention
The Times of India, July 5
The Brics summit in South Africa later this month is likely to see a revving up of India's rivalry with China for influence in the resource-rich Africa. While PM Narendra Modi will use the occasion for a major east Africa outreach with a visit to 2 countries in the region, at least one of these countries will also be visited by President Xi Jinping days ahead of Modi’s arrival.
Japanese helicopter carrier to tour South China Sea, Indian Ocean for two months
Reuters, July 4
Japan will send a large helicopter carrier to the South China Sea and Indian Ocean for a second straight year as it looks to bolster its presence in the strategic maritime region. In the Indian Ocean, tension between China and India has flared over China’s growing presence in the Maldives.
Sri Lanka to shift naval base to China-controlled Hambantota port
The Times of India, July 3
Sri Lanka is shifting a naval base to a port built and controlled by China, it said on Monday (July 2), a move that will strengthen security at a harbour that foreign powers fear China could use for military purposes. The base currently in the tourist district of Galle will be moved 125 km (80 miles) east along Sri Lanka's southern coast to Hambantota, nearer a main shipping route between Asia and Europe.
Trade and Economy
RBI grants licence to Bank of China to set up branch in India
The Times of India, July 4
The Reserve Bank of India (RBI) has issued licence to Bank of China to launch operations in India, official sources said on Wednesday (July 4). India and China have been focusing on expanding their economic ties notwithstanding differences on several sticky issues including on the boundary dispute.
RCEP trade pact members seek year-end deal despite differences
Nikkei Asian Review, July 2
Top trade officials from 16 Asia-Pacific countries agreed Sunday to aim for a deal on the Regional Comprehensive Economic Partnership by the end of the year, but this may prove too little time to bridge the gaps remaining on many key issues.
India grants tariff concessions on 3,142 items to members of Asia Pacific Trade Agreement
The New Indian Express, July 2
The recent trade wars sparked by the Trump administration is forcing India and China to rethink of their economic ties as India announced the slashing of import duties on as many as 3142 items from China and other Asia Pacific nations one after a day after China initiated the move of slashing duties for more than 8500 items.
U.S.-China Trade War Could Flood India With Steel
Bloomberg, June 29
Indian companies are bracing for a possible flood of steel imports should the U.S. and China follow through on their threats about a trade war. Duties imposed by the U.S. would trigger “trade diversion” from other steel makers, who would then dump their products in India, according to Bhaskar Chatterjee, secretary general at Indian Steel Association.
Energy and Environment
U.S. Oil Sellers May Look to India as China Tariff War Escalates
Bloomberg, July 7
American oil producers may find a new friend in India as they brace for a trade war with China that could curb US shipments. Refiners in China were the top buyers of American crude oil in May, and have been regular importers since the U.S. revived domestic output and exports in recent years. But sales have slowed amidst a growing trade war between Beijing and Washington.
India explores ‘all options’ in view of US November deadline on Iran oil imports
Livemint, June 29
With the US pressure on India and other countries to stop oil imports from Iran, the National Democratic Alliance (NDA) government is evaluating ‘all options’ to ensure the country’s energy security. This comes in the wake of the US government’s 4 November deadline, after President Donald Trump pulled the US out of a historic 2015 accord with energy-rich Iran.
China to ignore US demand for Iran oil ban
Nikkei Asian Review, June 28
China looks set to defy U.S. calls to halt imports of Iranian oil by November, potentially adding another source of friction to the already fractious trade relationship between Washington and Beijing.
China, Pakistan show interest in joining solar alliance
Livemint, June 27
China and Pakistan have shown interest in becoming members of the International Solar Alliance (ISA), potentially adding heft to the first treaty-based international government organization based in India.
China-India Engagement: Towards A New-Normal?
The Eurasia Review, July 5
By P S Suryanarayana - Visiting Senior Fellow, South Asia Programme, S. Rajaratnam School of International Studies
The “Shanghai Spirit” has yet to become a universal alternative to the “Washington Consensus,” which helped create current global institutions. Unfazed, China and Russia, co-founders of the Shanghai Cooperation Organisation (SCO), say mutual trust and equality among nations and the pursuit of their common development can produce “win-win” outcomes for all.
Why India Needs to Take a Fresh Look at China's Belt and Road Initiative
The Wire, July 2
By Talmiz Ahmad - Former Diplomat, Ram Sathe Chair for International Studies, Symbiosis International University, Pune
Over the past year, India has emerged as a fierce opponent to China’s BRI. Indian media has begun to view this opposition as part of the larger divide between India and China – on par with the border dispute, concerns relating to China’s increasing influence in South Asia and the burgeoning naval competition in the Indian Ocean. In fact, recent developments necessitate that India take a fresh look at it.
Why India needs to safeguard its ties with Nepal
Observer Research Foundation, June 27
By Harsh V. Pant – Distinguished Fellow and Head of ORF’s Strategic Studies programme
Nepal’s Prime Minister Khadga Prasad Sharma Oli was in China last week to bolster an important bilateral partnership in Nepalese foreign policy matrix. Though Oli is widely viewed as pro-Beijing in his outlook, he has been relatively cautious in his trying to maintain a semblance of balance in Kathmandu’s ties with China and India.
The Belt and Road Bubble is Starting to Burst
Foreign Policy, June 27
By David G. Landry – International Development Consultant
Since the turn of the century, the Chinese government has been using cheap and easy credit to incentivize domestic firms to look for business overseas. Chinese firms responded to these incentives, taking on increasingly risky projects. Unsurprisingly, many of these projects have underperformed massively. And the impacts for Chinese banks, and through them the Chinese economy, are now becoming visible.
India-Seychelles Keep Friendship Afloat Amid Assumption Island Row
The Quint, June 27
Aditi Malhotra - PhD Candidate at the Graduate School of Politics (GraSP), University of Münster, Germany
The President of Seychelles, Danny Faure, is currently on a state visit to India, marking his first official bilateral visit to the country. The six-day trip has grabbed attention largely because it comes on the heels of growing uncertainty about the Indian naval base in Assumption Island.
Books and Journals
Is India ready for the Indo-Pacific?
The Washington Quarterly, 2018
By Harsh V. Pant and Abhijnan Rej
Harsh V. Pant is a professor of International Relations at King’s College London and head of the Strategic Studies Programme at the Observer Research Foundation in New Delhi. Abhijnan Rej is a fellow in the Strategic Studies Programme at the Observer Research Foundation in New Delhi.
One of the key geopolitical developments in 2017 was the first-ever formal enshrinement of the “Indo-Pacific” as a unified strategic theatre in the U.S. National Security Strategy. Subsequently, the U.S. National Defense Strategy also adopted this terminology, suggesting buy-in across the Executive Branch. The development was arguably the result of the growing realization in Washington, D.C., and other capitals that it cannot be business-as-usual going forward with China, given its increasingly assertive foreign policy since 2013.
While India endorses the idea of the Indo-Pacific rhetorically, three issues prevent actual operationalization of the concept for New Delhi. These issues geographically pertain to India’s east, north, and west. On its east, strategic, naval capability, and normative deficits prevent India from playing a larger role in the western Pacific. To its north, a manifest power differential with China—and an uncertain future trajectory of India-China relations—further contributes to India’s reticence to play a larger and more robust role in regional security. Finally, to its west, divergent Indian and American positions in the western Indian Ocean, in particular on Pakistan and Iran, prevent the creation of a unified cohesive view of the Indo-Pacific that both countries share. These divergences have concrete consequences for the future of U.S.-India regional cooperation.
Compiled and sent to you by Centre on Asia and Globalisation and the Lee Kuan Yew School of Public Policy, National University of Singapore.
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