China's Belt and Road Initiative: Risk Outlook China's Belt and Road Risk Outlook | Page 11

REGIONAL OUTLOOKS
SOUTH ASIA
Chinese investment projects in South Asian countries have met with some resistance, reflecting a
rising trend of internal disagreements among China and its BRI partners.
CHINA'S PORT INVESTMENTS
In 2015, China and Pakistan launched the China-
Pakistan Economic Corridor (CPEC), signing 49
agreements to finance projects valued at $46 billion,
including upgrades to Pakistan’s Gwadar Port, oil and
gas pipelines, roads and railways. CPEC aims to
connect Kashgar in China’s Xinjiang Province with
Gwadar, via 2,000 miles of railroad and pipelines,
cutting transport costs for commodities. Chinese
investment in Gwadar Port is important for its
proximity to the Strait of Hormuz, a strategic choke
point providing sea passage to the open ocean for
many of the petroleum-exporting countries. China
would be able to provide safe passage to its oil
tankers, and monitor U.S. naval activities in the
Persian Gulf and Indian activity in the Arabian Sea.
Besides Pakistan, Sri Lanka has been the leading beneficiary of Chinese infrastructure investment in
South Asia, with nearly $15 billion worth of projects between 2009 and 2014. Since construction began
in 2008, China has taken a prominent role in developing Hambantota. Billions of dollars have gone
towards construction in this town on Sri Lanka’s southern coast, including a $1.4 billion port, an airport,
numerous highways, and a planned 15,000-acre industrial zone. China Merchants Port Holdings is to
invest $1.1 billion to develop the port and related facilities. China’s interest in Sri Lanka is driven by the
country’s strategic location, equidistant from the eastern coast of Africa and Indonesia. As China’s
interests in East Africa grow, huge quantities of bulk energy and other raw supplies will be transported
from Africa to China. As such, investing in ports in Sri Lanka becomes a strategic imperative.
China has also financed the modernization of the Chittagong Port, which handles around 92% of
Bangladesh’s trade. China has also expressed interest in investing in the proposed Sonadia Island
deep-water port in Cox’s Bazaar. Similar to both Pakistan and Sri Lanka, Bangladesh is also located at a
strategically significant location, which can provide the Southern Chinese province of Yunnan access to
the Indian Ocean via Myanmar or India. Bangladesh also has a huge economic potential to provide a big
market opportunity for Chinese entrepreneurs as its economy has grown roughly 6% per year since
1996 and has maintained steady export growth in the garment sector. More importantly, Bangladesh
has confirmed reserves of 200 trillion cubic feet of natural gas; the government has already offered
exploration rights to China at Barakpuria.
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