15th June 2024 NIICE Commentary 9234
Harshita Prashar
The Maldives’ beaches seem awash with Chinese tourists and foreign investment. China is the Maldives’ biggest bilateral creditor. Its largest investments comprise an $830 million upgrade of an airport, which includes a 1.3-mile “Friendship Bridge” linking the airport islands of Hulhulé and Hulhumalé with the capital city, Malé. Moreover, China has given the Maldives an unspecified amount of medical aid to improve its healthcare system.
However, interestingly, before 2012, China did not even have an embassy in the Maldives’ capital of Male. China understood the strategic importance of the archipelago late, nevertheless has ever since been making continuous efforts to gain momentum in the Indian Ocean Region (IOR). Given the outcome of the recent elections held in the Maldives, the changed perception of its citizens, and the diplomatic row with India, the Maldives’ economic dependency seems to be shifting from India to China.
Significance of the Archipelago
Essentially a water nation, the Republic of Maldives is a group consisting of approximately 1,200 islands, incorporating 26 tolls and a land area of about 300 square kilometers. In spite of being the smallest country in Asia, the Maldives has been a battleground for regional and global powers, specifically China and India, due to its lucrative geographical positioning in the IOR. The Maldives is situated in the middle of the Indian Ocean, with chokepoints of the Gulf of Aden and the Strait of Hormuz on the western side and the chokepoint of the Strait of Malacca on the eastern side.
The archipelago is positioned next to the primary regional shipping pathways of the globe. The only two safe passages for ships to travel through the IOR are situated at the north and south ends of this group of islands. Both of these sea lanes of communication (SLOCs) play a critical role in the flow of maritime trade. These are particularly significant for India, as almost half of India’s external trade and 80 per cent of its energy imports travel through these important westward SLOCs into the Arabian Sea. On the other hand, to pursue its ‘strings of pearls’ strategy, China wants to engage the Maldives as a pearl in its Indian Ocean line of communication. China’s increased interest in the area has been owing to making the Indian Ocean centre of the Maritime Silk Route (MSR) project, a stepping stone in the Belt and Road Initiative (BRI).
Changing Alliances with Changing Leadership
The Maldives’ foreign alignment has always been deeply influenced by its domestic political administrations. The choice of a powerful Asian partner, whether China or India, has often been a direct reflection of the prevailing political leadership. Domestic politics play a critical role in determining the nation’s strategic alliances. It is due to this reason that the India-China competition has intensified over the region.
Historically, India and the Maldives have maintained cordial relations. India was one of the first countries to recognise the Maldives as a sovereign state in 1965. New Delhi has backed the Maldives through its transition from an authoritarian regime to a democracy as well as aided the island country in forms of disaster relief, such as during the Indian Ocean Tsunami of 2004 and trade cooperation. Under the Exim Bank Line of Credit, India has provided grants to the Maldives for various infrastructure and connectivity projects, including the Airport Redevelopment Projects in Hanimaadhoo and Gan. Apart from aiding in social overhead capital, New Delhi has enhanced the Maldives’ human capital by setting up an institute of technical education in 1996 and providing its teachers and youth vocational training. It has also been a chief player in protecting the Maldives exclusive economic zone (EEZ) through maritime cooperation. However, with such cooperation came the involvement of India in the Maldives’ domestic politics.
While the Maldives islands have time and again objected to India’s interference in its internal affairs, their foreign policy strategy was inclined towards India till 2013. Afterwards, political turmoil and the presidency of autocratic Abdulla Yameen shifted Malé to Beijing. During Yameen’s tenure, the country secured grants for many large-scale projects including China’s ambitious BRI, prompting President Yameen to declare that China was one of the Maldives’ “closest friends, most trusted allies, and the most dependable development partners.” A China-Maldives Free Trade Agreement followed in 2017, but it was unable to get ratified before a political crisis unfolded in early 2018. The crisis was caused by Yameen’s China policy which has since led his country into a debt trap. According to the World Bank, in the Maldives around half of its external debt is towards China, labeling it as one of the nine countries at high risk because of Chinese loans.
With fresh elections in 2018, democracy was restored in the country and pro-India Ibrahim Mohamed Solih assumed the role of the Head of State. The Joint Ocean Observation Station project which was to be built by China was retracted by the Solih government. Despite having an “India First” policy, several Chinese projects of importance continued in the island country. In 2022, former Foreign Minister Wang Yi visited Malé. His visit resulted in several cooperation agreements between the two nations, including upgrading the Velana International Airport, renovating the Ministry of Foreign Affairs building and initiating certain residential projects. The next elections held in 2023 saw Mohamed Muizzu emerge as the winner. This may be attributed to his ‘India Out’ campaign. Moreover, the Indians caused delays in projects, including the completion of the Greater Male Connectivity Project, which left the public disappointed. This implies a shift in the views of the population as well. Recently, during his state visit to China, Muizzu and the Chinese government signed a total of 20 agreements aimed at enhancing cooperation in various sectors, such as tourism, the blue economy, infrastructure, media analysis, and the BRI. The FTA, previously withheld, is expected to be implemented in the coming months.
A Permanent Shift?
The Maldives’ administration does not follow long-term political calculations owing to changing foreign alliances with changing governments. A drastic pendulum shift can be seen from Solih’s “India First” policy to Muizzu’s “India Out” policy. This implies even further collaborations between Beijing and Malé in the future. However, the Maldives’ over-dependence on China can lead to severe negative implications, affecting its economy, political landscape, and military security. Given its “debt distress” the Maldives can slip into an economic crisis, from which recovery will be difficult. In 2023, official data indicated that the foreign debt of the Maldives surpassed $4 billion, amounting to approximately 118 per cent of the country’s gross domestic product, which is an increase of nearly $250 million from 2022. By June 2023, the largest single lender to the Maldives was the Export-Import Bank of China, which held 25.2% of the nation’s external debt, as confirmed by the Maldives Finance Ministry. With regard to political instability, Beijing can play a significant part as was perceived during Yameen’s presidency. Yameen’s violation of human rights and authoritarian regime had invited international criticism and condemnation, yet Beijing supported him without faltering. This support helped Yameen withstand external pressures, but on the other hand, helped establish a temporary dictatorship in a democratic country. In terms of military and maritime security, China’s increased activities in the IOR can disrupt the Maldives’ traditional naval operations and security exercises conducted by other regional players. Besides, over-reliance on China can result in limiting the Maldives’ ability to forge and maintain strategic partnerships with countries such as India, the United States of America and regional coalitions which are all crucial for a balanced security framework. It is also highly unlikely that the Maldives will completely ignore India, given their historical, cultural and geographical proximity. As observed in Malé’s past, if China fails to deliver its promises, the Maldives may shift its financial burden back on India.
Therefore, one thing is for certain, the Maldives cannot afford to worsen its ties with either of the countries. This oscillation can have dire effects, not only on China and India but also on its economic growth and prosperity. Thus, the Maldives needs to reconsider its priorities. It should strike a balance between the two Asian countries as well as between its economic and geopolitical strategy. It should adopt a pragmatic and more nuanced approach. By balancing between the two, the Maldives can harness the advantages of economic benefits, investment, diplomatic ties and security cooperation without risking over-relying on any one of the two nations. Additionally, the Maldives should seek diversifying its partnerships beyond India and China. Strengthening ties with regional powers such as ASEAN and global powers such as the USA, Japan and the European Union will broaden its support base. Lastly, internally, the Maldives can search for new avenues to overcome its economic vulnerabilities. This will help safeguard the country’s sovereignty and ensure its long-term prosperity.
In conclusion, the Maldives’ economic dependency on India or China or a swing between the two from time and again can hamper its economic and political stability. Thus, the Maldives stands at a crossroads where strategic foresight and diplomatic agility are imperative.
Harshita Prashar is a Research Intern at NIICE and currently pursuing a Bachelor of Arts in Economics (Honours) at Mehr Chand Mahajan DAV College affiliated with Panjab University, India.
