ANNUAL REPORT

16
exporter of manufactured goods, an area where India cannot keep up
due to its lagging manufacturing capacity (in fact, India’s persistent
trade deficit with China contributes to bilateral frictions). China’s
efforts to expand its global influence, embodied by infrastructure
investment under the “One Belt, One Road” (OBOR) initiative, are
gaining traction in South Asia, which is one of the least economically
integrated regions in the world. To the extent that Chinese-driven
transportation and other connectivity infrastructure projects can
help alleviate these regional divisions, OBOR would make a positive
contribution to the region. On the other hand, China’s activities in
the region may exacerbate tensions and revive long-simmering conflicts.
For example, India’s government is particularly troubled by
the China-Pakistan Economic Corridor, a $46 billion infrastructure
investment plan under OBOR, because it would pass through the
territory India claims in the disputed Kashmir region.
Though India has long been the dominant military power in the
Indian Ocean, China has been seeking a greater presence and more
influence there, primarily to protect the sea lines of communication
upon which its economy depends. In recent years, this trend
has been illustrated by PLA antipiracy patrols in the Gulf of Aden,
submarine deployments and a combat readiness patrol in the Indian
Ocean, and the announcement that China will establish its first
overseas military logistics facility in Djibouti. China has also been
investing in port facilities in strategic locations in the India Ocean
(including Chittagong in Bangladesh, Gwadar in Pakistan, Colombo
and Hambantota in Sri Lanka, Marao in the Maldives, and Kyaukpyu
in Burma [Myanmar]), which is viewed by many in India as
a geopolitical “string of pearls” to contain India. As both countries
grow their maritime presence and capabilities, the Indian Ocean is
likely to become an area of increasing competition between them.
As the threat of extremism and terrorism facing China grows,
counterterrorism has become an increasingly important facet of
Beijing’s engagement with South Asia. Chinese leaders have for
decades been concerned about Islamic extremism and terrorism in
Xinjiang, China’s westernmost region and home to a large Muslim
minority, as well as links between terrorist activities in China and
groups based in Pakistan and—to a lesser extent—Afghanistan and
Central Asia. In recent years, Beijing has been more willing to increase
pressure on Islamabad to take steps to eliminate any Pakistan-based
activities that could potentially be directed at China or
Chinese citizens abroad. China has also been enhancing bilateral
and multilateral security engagement with Afghanistan, recognizing
that it must shoulder greater responsibility in shaping the country’s
future. This is driven by the following factors: desire to ensure Afghanistan
does not provide safe haven for extremists targeting China;
fear that the departure of U.S. and coalition forces could leave
Afghanistan in turmoil; and hope that Afghanistan can provide opportunities
for Chinese companies, whose engagement in the country
could encourage greater stability and security.
Conclusions
• China’s key interests, concerns, and objectives in South Asia fall
into four broad categories: (1) checking India’s rise by exploit-