Commentary: China’s Maritime Infrastructure Projects in the Indian Ocean: Lend and Lease Agreements

Economic corridors, connectivity and port projects, and strategic access arrangements in the Indian Ocean Region resonate in the contemporary oration. Further, China’s 21st Century Maritime Silk Road (MSR), under the Belt and Road Initiative (BRI), is both symbolic and substantive issue of the above homily. The MSR is also a portrayal of Beijing’s ability to provide fiscal resources and technological expertise to develop maritime infrastructure projects, for which it has crafted ‘lend (money) and lease (infrastructure)’ agreements with a number of countries. However, the Chinese strategy has been labelled as ‘creditor imperialism’, ‘debt-trap diplomacy’ and ‘Land of Morning Warning’¹, amid fears that host counties may partially lose sovereignty and control of area where infrastructure is being developed.

Leasing territory and developing maritime infrastructure is not a new practice; and in modern times, States have transacted such agreements with allies, partners and friends to advance geopolitical, geo-economic and geo-strategic interests. Similarly, States have leased military assets such as ships, submarines and aircraft to allies and friends to be either returned on expiry of the agreement, or as gifts to them out of goodwill gesture to symbolise the practice of naval diplomacy.

Recalling the Past

One good example of the lend-lease approach is the May 15, 1940 agreement between President Franklin D. Roosevelt and the Prime Minister of the United Kingdom (UK) Winston Churchill, wherein the two leaders agreed to exchange 40-50 old United States (US) Navy destroyers against obtaining British naval and air bases in the Atlantic Ocean on lease², amid fears that a British defeat would bring Germans to the US shores. Although the US was constrained by the Johnson Act of 1934 that prohibited the extension of credit to countries that had not repaid US loans made to them during World War I - which included Great Britain, Washington invoked the Neutrality Act of 1939 which permitted “belligerents to purchase war materiel from the US, but only on a cash-and-carry basis.” This was further reinforced by a law from 1892 in accordance with which the Defense Secretary can “lease army property for a maximum of five years if the country does not need it.”

On March 11, 1941, ‘an Act to Promote the Defense of the US’ was approved by the US Congress³ and it resulted in the US’ access to various British possessions (in Newfoundland, and many places in the Caribbean) for setting up naval or air bases, on ninety-nine-year rent-free leases. President Roosevelt announced that “The US should loan what articles were needed, as a man would loan his garden hose to help his neighbor put out a fire without reference to payment, but with the expectation that the hose itself would be returned.” ⁴

Earlier in 1898, after the US victory in the Spanish-American War, Spain relinquished claims on Cuba, and ceded sovereignty over Guam, Puerto Rico, and the Philippines to the US.⁵ The Cuban government agreed to lease three locations for use as naval or coaling stations including the Naval Station at Guantanamo Bay. Subsequent lease agreements of 1903 and 1934 resulted in the US being granted ‘complete jurisdiction and control over’, so long as they remained occupied.

Soviet / Russian Access Strategy

During the Cold War, the Soviet Union negotiated with other countries a number of agreements for military access. For instance, the Tartus Base in Syria was offered to the Soviet Union in 1971 on a 74-year renewal agreement (49-year lease followed by a 25-year automatic extension).⁶ One of the significant feature of this agreement was that it stated that the facility will operate outside of Damascus’ legal jurisdiction, and Syria will not interfere with any military activities related to its operation. Russia also leased an airbase in Western Syria for a period of 50 years.

In Vietnam, the Cam Ranh Bay served as a forward base for the Soviet Navy during the Cold War. The lease expired in 2004; and since then, there have been speculations that Moscow is negotiating a deal with Hanoi for access to that Bay. Likewise, in 1964, Soviet Union set up the Lourdes listening post in Cuba and according to the Russian Military Intelligence’s (GRU), it was the ‘greatest single overseas asset’ and ‘provided 60-70 percent of all Russian electronic intelligence data on the United States’.⁷ After the Cold War, Russia abandoned the Lourdes facility due to financial constraints, as Cuba was reluctant to reduce the annual rent of US$ 200 million for leasing the facility.

China: A Newcomer

China has, by way of agreements, obtained long term leasing rights to a number of ports and maritime spaces in the Indian Ocean and the Mediterranean Sea. These are: Gwadar Port (Pakistan) for 40 years; Piraeus Port (Greece) for 35 years; Djibouti Port for 10 years; Hambantota Port (Sri Lanka) for 99 years; 20 per cent of Cambodia’s total coastline for 99 years; and Feydhoo Finolhu Island (Maldives) for 50 years.⁸ It is pursuing similar arrangements in other port projects such as Kyaukpyu Port (Myanmar) and Malaka Gateway (Malaysia) for 99 years.

The China-Sri Lanka 99-year lease agreement for Hambantota Port involves 70 per cent stake in the port to the state-controlled China Merchants Port Holdings. The port was developed using Chinese financial and technical assistance totaling nearly US$ 1.3 billion, and the deal invited severe criticism in Sri Lanka. The agreement has been labelled as a ‘debt trap’. Similar fears have echoed elsewhere, particularly in Pakistan, Nepal and Myanmar, who have either cancelled or temporarily put on hold major projects planned by Chinese companies.

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