Beijing’s decision to construct its first overseas naval base in Djibouti in 2016 has alarmed the West and its allies. Most Western media sources have portrayed the move in a negative light, describing the act as a reflection of Beijing’s intention to pursue global hegemony. However, this is only part of the story.

The presence of a Chinese naval base in Djibouti has led to an inflow of significant amount of Chinese investments and development aid into the small country. With the arrival of massive Chinese capital, Djibouti can potentially become a regional, if not global, trade hub; and, a gateway for investors interested in the growing markets of Ethiopia, South Sudan, Somalia and the Great Lakes region.

One of the World’s Most Important Security Beachhead
Although the small, resource-poor country that is Djibouti rarely makes the headlines, it currently hosts military bases of some of the world’s most powerful economies such as the U.S., Germany, France and Japan. America’s Camp Lemonnier military base in Djibouti has over 4,000 personnel and serves as the command centre of six U.S. drone launching stations across Africa, which have carried out operations against targets such as Al Shabab in Somalia and Boko Haram in Nigeria (Huffington Post, 2016).

In March 2016, Beijing also decided to join the club. It built its first overseas naval base in Djibouti to provide “logistical support” to China’s “anti-piracy, humanitarian and peacekeeping operations,” according to the Chinese Defense Minister (South China Morning Post, 01.12.2015). Although it is unknown how many Chinese military personnel will be stationed at the base, analysts estimate the number to be as high as 10,000.

The reasons that Djibouti has attracted major economic powers to install military bases in the country is first and foremost its strategic location, and secondly, its relatively stable regime and economy (Huffington Post, 2016). Seen from a security perspective, Djibouti is essential for assisting military, peacekeeping and anti-piracy operations since the country is located 20 miles from war-torn Yemen and is within destroyer range of the western edge of the Indian Ocean, which is plagued by piracy. This makes Djibouti one of the world’s most vital security beachheads.

Furthermore, the small country is also hugely important for global commerce and energy supply. Djibouti is located near sea lanes connecting Asia, the Middle East, and Europe. Specifically, it sits next to the Bab El Mandeb Strait, the southern gateway to the Red Sea, and is close to the Suez-Aden canal where 10% of the world’s oil exports and 20% of the global commercial exports are shipped through every year. Hence, it is not surprising that global powers consider Djibouti ideal for military installations (South China Morning Post, 01.12.2015).  

Beijing’s Grand Vision and Djibouti’s Role
It is often said that China’s decision to set up its first overseas military base in Djibouti is due to Beijing’s intention to counter the military influence of Western powers, particularly that of the U.S. This argument, however, is very simplistic and Western-centric. China’s presence in Djibouti cannot merely be explained as a reaction towards Western policies. Beijing can of course potentially use its base in Djibouti to pin down U.S. operations, but there is much more to that.

Firstly, a naval base in Djibouti can play an important part in helping Beijing advance its One Belt One Road (OBOR) strategy, and the “string of pearls” initiative (South China Morning Post, 01.12.2015).  

The OBOR, portrayed by Beijing as a pan-Asian sphere of common prosperity, essentially seeks to boost China’s exports as well as project Chinese economic and political clout overseas through commercial land and sea routes largely along the historic Silk Road. This initiative is the brainchild of China’s President, Xi Jinping, who has been actively promoting the so-called “Chinese Dream” to the domestic audience over the past few years, calling for the reestablishment of China’s regional, if not global, pre-eminence (South China Morning Post, 07.02.2017). Therefore, to a certain extent, its OBOR initiative may be seen as an attempt by the increasingly confident Beijing to revive China’s ancient tributary system in a modern way as Beijing reclaims centrality in the region, and commands respect and loyalty from the peripheral vassal states.

The “string of pearls” is a metaphor that refers to an ambitious network of naval ports of call largely along the Indian Ocean, such as ports in Sri Lanka, India, Pakistan, Oman and Yemen, to ensure safety of sea routes for trade, transit and communication from China to Sudan (Huffington Post, 2016). As most of China’s U.S. $1.1 billion worth of daily exports to Europe are shipped through the Gulf of Aden and Suez Canal, the naval base in Djibouti can help protect China’s growing maritime interests and its key trade routes.

Secondly, the Djibouti base can help Beijing safeguard its growing number of citizens that live and work in MENA. It is estimated that, over the past decade, 1 million Chinese have moved to Africa to live and work, and an increasing number of Chinese businessmen have started enterprises in the Middle East (South China Morning Post, 01.12.2015).  The Arab Spring has made Beijing realise the urgent need for a naval base in the region that can help evacuate citizens quickly in case of major security threats. It is reported that during the Arab Spring, Beijing evacuated 35,680 Chinese citizens, most of whom worked in the Libyan oil industry, and 629 more in Yemen (Huffington Post, 2016).  During the evacuation in Libya, there was only one Chinese frigate available near the region. As a result, Beijing had to resort to commercial aircrafts to fly most of its citizens out of the country. A base in Djibouti could therefore greatly enhance Beijing’s capability of protecting its citizens and investments in the region.

Moreover, as David Shedd, the former Director of the Defense Intelligence Agency, rightly pointed out, Beijing intends to use the base to “signal to the world that they have a worldwide presence. Part of the mission is simply defined as being seen. That in and of itself is defined as an interest” (Huffington Post, 2016).

Over the past few years, China has been increasingly flexing its military muscle overseas. On the 13th of March 2017, Beijing announced that it planned to enlarge the size of its marine corps by an astonishing 400% from around 20,000 to 100,000 to protect its major maritime transit routes and its mounting economic interests overseas (South China Morning Post, 13.03.2017).  Parts of these highly trained and well-equipped forces – capable of carrying out rapid deployment and offensive missions launched from the sea – will be stationed at the new base in Djibouti and a southwest port of Pakistan, Gwadar (South China Morning Post, 13.03.2017).  The strong desire to want to be seen shows that Beijing has shifted its traditionally inward-looking defense strategy that centres on the protection of domestic territory, and is now actively looking outward to protect its expanding interests abroad.

A naval base in Djibouti hence enables Beijing to send a message to the world that China is interested in moving beyond the first stage of economic expansion into exerting political and military influence worldwide.

Why the Chinese Base in Djibouti is Good News for Investors
Although the ongoing construction of China’s naval base in Djibouti has generally been perceived as a major security threat to Western powers and their allies, it, in fact, brings good news for global investors.

The strategic importance that Beijing places on Djibouti has led to significant amount of Chinese investments and aid being injected into the Djiboutian economy. Djibouti can utilise Chinese capital to cut debt, overhaul its poor infrastructure and invest in human capital. With a stable economy and a strategic location that allows it to access key trade routes, Djibouti can potentially become “Africa’s Singapore”, according to Deborah Brautigam, Director of the China Africa Research Initiative at Johns Hopkins School of Advanced International Studies (International Business Times, 04.02.2016).  

China and Djibouti have signed an initial 10-year lease for the naval base with Beijing paying U.S. $100 million annually in rent (International Business Times, 04.02.2016).  As of 2016, the country has also received at least U.S. $16.6 million in development aid from Beijing including food aid and funding for construction of hospitals and government buildings since the first Forum on China-Africa Cooperation that took place in 2000.

More recently, on the 16th of January 2017, construction of a China-backed project said to be Africa’s largest free trade zone was launched (Reuters, 16.01.2017).  The 48-square kilometre free trade zone agreement was signed in March 2016 and is now being built by China’s largest public port operator. It is estimated that the project will create 15,000 jobs for locals. Moreover, Chinese corporations are also expanding the Doraleh Multi-Purpose Port which is said to cost around U.S. $590 million (Reuters, 16.01.2017). Furthermore, Chinese companies are also constructing two new airports in Djibouti which cost a total of U.S. $599 million.

On the 17th of January 2017, the state-owned China Merchants Group (CMG)’s subsidiaries – China Merchants Port Holding Company, Cheer Signal and China Merchants Investment Development Co. – have teamed up and formed an asset joint venture to help the companies co-invest in Djibouti’s International Free Trade Zone. This asset joint venture plans to acquire a 30% stake in a Djibouti asset company named Great Horn Investment Holdings which will invest in development rights for developing infrastructure and commercial projects within the country’s free trade zone (Sea Trade Maritime, 17.01.2017).  

It is also worth noting that Beijing has built a U.S. $4 billion railway line linking Djibouti with its neighbour Ethiopia, a landlocked country that is currently the 6th fastest growing economy in the world. Notably, Ethiopia also hosts Ivanka Trump’s shoe factory which has been moved from China to Addis Ababa (Shanghaiist, 12.01.2017). The railway officially opened for business on the 12th of January 2017. It is said that nearly 95% of Ethiopia’s imports go through Djibouti due to high security risks and instability in other neighbouring countries such as Somalia and South Sudan (NATO Association, 01.02.2017).  On top of this, 70% of trade activity at Djibouti’s port is comprised of Ethiopian exports. With the railway now operating, it can be expected that Djibouti will further strengthen its position as a vital trade hub that links Ethiopia to its main trading partners, Kuwait and Saudi Arabia.

Hence, although the presence of a Chinese naval base in Djibouti is largely perceived in a negative light from a Western standpoint due to concerns over Beijing’s intention to assume global hegemony, it is in fact good news for global investors. In the near future, with the inflow of Chinese capital, Djibouti can potentially become a regional, if not global, trade hub and a gateway for investors interested in the fast-growing markets of Ethiopia, South Sudan, Somalia and the Great Lakes region.

 

Photograph by NASA Astronauts via Wikimedia Commons, accessed on 21st March 2017