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US-China Rivalry Likely To Result In Long-Term Bifurcation

Of World Order
11 Jun 2020 Global Political Risk

Key View

• Rising tensions between the US and China over trade and geopolitical issues are increasing the prospects of a
bifurcation of the world order into rival camps over the coming decade, starting in the Indo-Pacific region.
• Asian countries will resist having to make a choice between the US and China for as long as possible, but could
eventually be forced to do so. Countries elsewhere will face somewhat less pressure to choose, but may also be
compelled to lean towards either Washington or Beijing.
• The bifurcation of the world order could lead to significant disruption to business and diplomacy during the
‘adjustment’ period.

Rising tensions between the US and China over trade and geopolitical issues are increasing the prospects of a
‘bifurcation’ of the world order into rival camps over the coming decade, starting in the Indo-Pacific region. For
the purposes of this article, we define bifurcation as a de facto division of the international system into two main
geopolitical, economic, and trading blocs. This bifurcation does not mean that the two blocs would be completely
unintegrated with each other; rather, we would expect a considerable loosening of ties between them.

We have been arguing for many years that the world has been transitioning away from the US-led unipolar system that
existed from the end of the Cold War until the 2008-2009 Global Financial Crisis to a multipolar system. This has been
characterised by the rise of China, the economic emergence of India, the geopolitical revival of Russia and Japan, and the
increasing assertiveness of regional powers such as Turkey, Iran, and Saudi Arabia. Although we still believe that the
world will remain multipolar for at least the next five to ten years, we see a growing possibility that the intensification of
rivalry between the US and China could result in a de facto bipolar system by the end of the 2020s.

The potential bifurcation of the world order between the US and China reflects the fact that they are the only
two countries with the combined ability and willingness to shape the international system. Their economies are
by far the biggest in the world in nominal US dollar terms, as are their military budgets. China also appears to have the
ambitions to become a world leader, as evidenced by its promotion of the ‘Belt And Road Initiative’ and economic forays
into the Middle East, Africa, and Latin America.

US And China Have An Overwhelming Lead

Selected Major Economies - Nominal GDP, USDbn
 Source: National sources, Fitch Solutions. f=Fitch Solutions forecasts.

Other world powers have far less ability to influence global affairs. Russia, for instance, has military strength and global
diplomatic ambitions, but has a much smaller (and less diversified) economy and population, with the latter ageing and
forecast by the UN to decline over the coming decades. India has a population comparable to China, but its economy is
much smaller and unlikely to catch up with China’s for many decades at least, in our view. India is also much poorer than
China on a per capita GDP basis, and its political system is much more fragmented, implying that its leaders will largely
have to prioritise domestic issues rather than foreign policy for the foreseeable future. For its part, the EU is too
internally divided and lacks the unified foreign policy to be a potential world leader (although it has emerged as a shaper
of international regulation in many economic spheres). This leaves the US and China as the two most powerful actors in
the world.

The division of the world order would begin in the Indo-Pacific region, because that is where the interests of the
US and China are most actively in competition. The US has been a Pacific power since the early 20th century, and
fiercely fought against Japanese imperial ambitions in the region during the Pacific War (1941-1945) and against
Communist forces in Korea (1950-1953) and Vietnam (early 1960s-1973) during the Cold War. Furthermore, the US has
been committed to the defence of Japan, South Korea, the Philippines, Australia, and New Zealand (and more
ambiguously, Taiwan) for many decades, and retains a substantial military presence in Japan (50,000 troops) and South
Korea (28,000 troops). China’s position and size automatically make it an Asian power, and it vigorously fought against
US interests in the 1950s and 1960s. Although China aligned with the US against the USSR during the 1970s and 1980s,
from the 1990s it slowly began to challenge US interests. However, Beijing did not become significantly more assertive
until around 2010, by which time China had emerged as the world’s second-largest economy and had displaced the US
as most Asian countries’ biggest trade partner.

US-China Competition Will Intensify Over Coming Decade

Indo-Pacific Region – Geopolitical Alignments
 Source: Fitch Solutions. Template Image: D-maps.com

Thus far, most Asian countries have carefully balanced growing economic ties with China and security ties with
the US, but this will prove difficult to sustain over the long term, if some of the developments listed below take
place.

New economic blocs: During the Barack Obama administration (2009-2017), the US actively promoted the Trans-Pacific
Partnership (TPP, consisting of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore,
Vietnam, and the US itself) as a new trade bloc notably excluding China. Beijing interpreted the TPP as a means for the
US to ensure its continued economic dominance of the Pacific region. Although the Trump administration abandoned
the TPP in 2017, its 11 other members in 2018 implemented the rebranded Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP), which claims to meet high standards of governance, human rights, labour,
intellectual property rights, and dispute resolution. Although the US is not a member of the CPTPP, its members are all
mostly pro-US in orientation. Meanwhile, China has supported the bigger Regional Comprehensive Economic
Partnership (RCEP) trading bloc, which observers say do not meet the CPTPP’s standards on environmental, human
rights and labour protections. The RCEP is not necessarily a rival of the CPTPP; indeed, seven countries (Australia,
Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam) are signatories of both schemes. However, rising Sino-US
trade tensions could eventually augur a deeper economic and trade ‘decoupling’ between the world’s two biggest
economies, which could further disrupt regional supply chains. This would happen if the US-China trade war re-
escalates in 2021 or if either of the two introduces new investment restrictions against the other. Against such a
backdrop, the US and China could both pressure countries in the region to join their respective economic blocs. China,
for example, could formally set up an ‘Asian Monetary Fund’ that would be aimed at superseding the IMF and
complementing the Asian Infrastructure Investment Bank (AIIB), which was established in 2015. Global technology
systems would likely be bifurcated in line with these new blocs, with the US having actively encouraged its allies to reject
the presence of Chinese telecoms giant Huawei in their 5G networks.
 New Trade Pacts Taking Shape Without US Involvement
RCEP And CPTPP Members

Source: Fitch Solutions, international media

New security alliances: Thus far, the Indo-Pacific region has lacked a multilateral security alliance comparable to NATO
in Europe. (The Southeast Asia Treaty Organization (SEATO) existed from 1954-1977, but lacked NATO’s breadth and
depth.) Instead, the US guarantees the region’s security through bilateral defence pacts with Japan, South Korea, the
Philippines, Australia, New Zealand, and Taiwan, through defence co-operation with other regional nations, and through
patrols of the key international waterways. However, there has long been speculation among regional security observers
that eventually an Asian equivalent of NATO could emerge. Indeed, in recent years, the US has stepped up multilateral
defence cooperation with Japan, India, and Australia under the Quadrilateral Security Dialogue (‘Quad’), which aims to
secure the maritime commons between the Indian and Pacific oceans. Although the Quad has fallen far short of
becoming an Asian NATO, and was not intended to become such an organisation, its existence underscores the
possibility for such an eventuality.

Looking towards the late 2020s, we cannot preclude that China will eventually seek to shape the region’s security, either
through bilateral pacts with nearby countries, or through a new multilateral organisation. China currently lacks the
experience of organising regional security. It’s only defence pact is with its long-time ally North Korea, and while China
has taken the lead with Russia in establishing the Shanghai Cooperation Organisation (SCO) in Eurasia in 1996, the latter
falls far short of NATO in terms of depth of military co-operation, let alone operational experience. However, persistent
reports that China may establish a formal military presence in Pakistan and Cambodia, and possibly Sri Lanka, suggest
that Beijing is increasingly interested in playing a key role in regional security. In the event that China establishes bilateral
or multilateral defence pacts with regional states, this would be a further sign of the bifurcation of Asia into pro-US and
pro-China blocs.

SCO Could Provide Framework For New China-Led Security Bloc

Shanghai Cooperation Organisation
 Source: Shanghai Cooperation Organisation, Fitch Solutions. Template Image: D-maps.com

Future conflicts: The outbreak of conflict between the US and China would also force many Asian nations to take sides.
Armed confrontation could occur in the South China Sea, East China Sea, Korean Peninsula, and Taiwan. During the
Korean War (1950-1953), Australia, New Zealand, the Philippines, and Thailand were among around 20 nations that sent
troops to fight against North Korea, which was backed by China and the USSR. During the Vietnam War (1960s-1970s),
Australia, New Zealand, the Philippines, South Korea, and Thailand all sent troops to fight against China- and USSR-
backed North Vietnam. In both conflicts, China was aligned with North Korea, but failed to win significant backing from
other Asian states. However, back then China was not a significant global economic force. In the event of a future US-
China conflict, Beijing could likely deter some US allies from assisting Washington by threatening punitive economic
measures. Overall, allegiances would be most evident from which countries offered or deployed their troops on the US’s
and China’s behalf, which countries offered or denied their military facilities to the US and China, and the diplomatic
stances taken by regional nations at the UN. Overall, all regional states would be under tremendous pressure to take
sides. However, it cannot be assumed that existing US allies would automatically side with the US against China or vice
versa. For example, during the US invasion of Iraq in 2003, Turkey, a close US ally, denied the US the use of its territory
to attack Iraq. Similarly, China could not guarantee access to future military bases in Pakistan or Cambodia (for example)
in the event of a conflict with the US. Overall, a US-China conflict could result in some surprising geopolitical
realignments in Asia.

The bifurcation of the Indo-Pacific region could lead to significant disruption to business and diplomacy during
the ‘adjustment’ period. For example, countries that remain firmly aligned with the US would probably see their
governments encourage their companies to reduce their reliance on China as a manufacturing hub by moving their
operations and investment back home or elsewhere, especially to countries that are not aligned with China. The idea
would be to reduce their reliance on China so that Beijing would be less capable of using economic dependency as a
pressure point. For example, the Japanese government in April 2020 allocated USD2.2bn towards encouraging its firms
to move manufacturing out of China, and anecdotal reports suggest that South Korean firms have been moving
manufacturing out of China, with India emerging as a possible beneficiary. While some of these shifts were probably
inevitable because of rising labour costs in China, they now have added geopolitical impetus. That said, diversifying
operations away from China will not be easy, because no single country or even small group of countries can match
China's scale and capacity for manufacturing.

We also note that if geopolitical tensions rise dramatically in Asia, foreign firms may seek to avoid investing in countries
that are formally aligned with China, lest this allows Beijing to disrupt local business operations by proxy. In addition,
more countries would increasingly seek to source goods and raw materials from countries that are members of the
same ‘bloc’ as themselves, in order to reduce the risk of being denied access to certain resources at times of heightened
tensions. For example, some security planners are concerned about China’s overwhelming dominance of the production
of rare earth elements that are used in many high-tech goods, and of the possibility that China could deny access to
such materials to make a political point. (Indeed, during a maritime stand-off with Japan in 2010, China appeared to cut
off supplies of rare earths to Japan.) Although a clean-cut division of intra-Asian trade is unlikely, and would in any case
take many years to achieve, there would be significant disruption to business and commerce during any adjustment
period. On the diplomatic front, governments would also be hard at work forming new agreements with their respective
new bloc partners, which could be expected to be very time consuming and potentially detract from day-to-day
domestic governance issues.

NO INDIVIDUAL COUNTRY WILL BE ABLE TO ABSORB CHINESE MANUFACTURING

If 1% of Chinese Exports Moved To This Country,

How Much Would Domestic Manufacturing Have
To Increase By? (%) Av 3YR Growth Rate of Manufacturing, %
India 6.4 6.9
Indonesia 11.7 4.3
Mexico 11.8 2.1
Brazil 13.5 -0.3
Thailand 17.2 2.7
Poland 25.5 4.1
Malaysia 33.3 5.1
Philippines 35.0 6.8
S. Africa 57.7 0.5
Vietnam 58.7 13.1
Egypt 61.2 2.5
Hungary 84.9 1.8
Morocco 135.0 2.1
Myanmar 135.0 9.9

Source: Local sources, Fitch Solutions

Within individual countries, the bifurcation of the Indo-Pacific region would also greatly exacerbate tensions
between pro-US and pro-China political factions, business groups, and segments of society. In theory, pro-China
positions are more likely to be favoured by segments of society that are less liberal in orientation and place economic
opportunities in China above other considerations, while pro-US positions are likely to be held by relatively liberal
elements that are troubled by the prospects of Chinese hegemony. However, this division is likely to be more complex
and vary greatly from country to country, as local nationalist dynamics and historic grievances with China and the US are
factored in. Also significant would be tensions between ethnic Chinese minorities and the majority populations of
Indonesia, Malaysia, the Philippines, and Thailand, among others. Chinese minorities have long been viewed with
suspicion in South East Asia, because of their vast economic influence, and they were subject to violence in Indonesia in
1998 (and also in previous decades) and Malaysia in the 1960s. In countries that become hostile to China, ethnic
Chinese could be viewed with greater suspicion and become subject to greater harassment or violence, thus
destabilising society. Overall, given that geopolitical alignments reflect strong ‘identity’ undercurrents, identity politics
could rise up the political discourse. These tensions could broadly reflect pro- and anti-Brexit schisms in the UK (with
the EU substituted by China), which led to a three-year political crisis in the aftermath of the June 2016
Brexit referendum, or pro- and anti-Russian schisms in Ukraine that led to the 2014 uprising and subsequent conflict. In
the more democratic Asian countries, such as Japan, South Korea, and the Philippines, there could even be pressure to
hold referendums on whether to join putative new China-centric blocs. At the very least, China could feature more
prominently as a general election issue.

BRI Countries To Feel Pressure To Align With China

Belt And Road Initiative – Map of Land and Maritime Corridors

Source: Hong Kong Trade Development Council, Fitch Solutions

Beyond the Indo-Pacific region, the pressure to ‘take sides’ between the US and China would be somewhat less
pronounced, but still significant. For example, we would expect substantial pressure on Belt and Road Initiative
participant countries to align with China. This would be most acutely felt in Asia and parts of Africa. The EU and most
other European countries would most likely remain aligned with the US under the auspices of NATO, which could itself
be ‘reimagined’ as an instrument to resist China’s growing clout in Eastern Europe. Indeed, at its annual summit in
December 2019, NATO for the first time formally recognised that the ‘rise of China has security implications for all allies’,
albeit without outlining a clear policy towards Beijing. Meanwhile, Serbia appears to be becoming a key area of EU and
Chinese competition in Europe. However, the EU and NATO may not necessarily reach consensus on China, and the EU
could thus adopt a more ‘pragmatic’ stance than the US and act as a sort of mediator between the US and China at
times of crisis. Elsewhere, large parts of Sub-Saharan Africa (especially countries seeing rising investment from and trade
ties with China) will be pressured to align with Beijing while Latin America will be pressured to remain within the US
sphere of influence. However, the pattern of allegiances could be quite varied, with long-standing anti-Americanism
providing opportunities for China to gain political support in Latin America.

North-South Corridor Could Provide Basis For 'Unaligned' Third Bloc

The North-South Transport Corridor
 Sources: Valdai Discussion Club, International Media, Fitch Solutions

Several major and some minor countries will seek some form of ‘non-alignment’ from either the US or China,
reflecting a similar phenomenon during the Cold War. Russia would most likely portray itself as an independent
world power, yet its long-standing anti-Western stance would likely lead to it aligning more with China than the West, for
at least as long as Vladimir Putin remains Russia’s paramount leader. Eventually, political change after Putin could lead
to Moscow becoming more sceptical towards Beijing, especially if China displaces Russia’s influence in Central Asia and
shows territorial designs on the Russian Far East, where Chinese migration has been rising and the Russian population
declining. In the event that Russia were to align with the US-led bloc, this would give a huge strategic advantage to the
latter. India, too, may seek to position itself as an independent force on the global stage, while leaning broadly towards
the Western camp out of concerns about China’s influence on India’s periphery (i.e. the Himalayas, Pakistan, the Indian
Ocean, and South East Asia). Attempts by Russia, India, and other like-minded countries to establish a de facto 'third
camp' could accelerate the development of the long-touted North-South Transport Corridor connecting India and South
East Asia to Europe via Iran, Azerbaijan, and Russia.

Overall, the ‘bifurcation’ of the global order could persist for several decades, once established. It is difficult to
see what would cause the new system to unravel. One possibility would be either severe internal weakening or
disintegration of the US or China (or both), which would remove one or both of the major ‘poles’ from power. Another
possibility would be the emergence of less adversarial leaders in the US and China, that consciously seek to end this
strategic rivalry via a power-sharing agreement and two-way economic reintegration. A third possibility would be the
aforementioned emergence of a third ‘pole’ of comparable (or greater) power to the US and China, with India the most
plausible single candidate. Alternatively, the third ‘pole’ could be a very cohesive alliance of medium-sized powers.
However, all these possibilities are likely decades away.
 ASIAN STATES AND THEIR RELATIONSHIPS WITH CHINA

Geopolitical Boosters Obstacles Future Direction

Significance
North East Asia
Japan Japan is China's China is the top trade partner. Relations are clouded by Japan's Relations will be subject to
most formidable Many Japanese firms have imperial legacy and territorial periodic tensions. Japan will
rival in East Asia andfactories in China. China disputes in East China Sea. Japan seek closer ties with India and
serves as an represents a massive market is very concerned about China's Vietnam to balance China. In
extension of US for Japanese goods, and a military build-up. Japan remains long term, Japan's fiscal and
military power in source of tourism. the top ally of the US in Asia. demographic weaknesses could
Asia. Japan hosts force it to subordinate itself to
50,000 US troops. China.
Korea, China regards China is the top trade partner China wants North Korea to Chinese influence will remain
North North Korea as an and main economic anchor. reform economically, but strong. If North Korea collapses,
essential buffer Beijing provides diplomatic Pyongyang is reluctant. Chinese China is likely to intervene, and
state against the support for Pyongyang, and is investment has disappointed N could consolidate a sphere of
South, which hosts the latter's only true ally. China Korea. Pyongyang does not want influence there.
28,000 US troops. needs North Korea as a buffer to remain a Chinese satellite
state. state.
Korea, South Korea is a China is the top trade partner. China and South Korea are South Korea will seek to balance
South formidable military Many Korean firms have major economic competitors. China and US ties. Tensions
power in East Asia factories in China. Beijing and Seoul wants Beijing to do more could emerge with China over
and serves as an Seoul share antipathy towards to restrain N Korea. South Korea the future of North Korea if the
extension of US Tokyo. remains key ally of US in Asia. latter collapses.
military power in
Asia.
Russia Russia is still a China and Russia have been China will increasingly seek to Relations will remain co-
formidable power in boosting military and energy displace Russia as dominant operative over the next decade,
Asia and has vital ties, and share opposition to power in Central Asia. Russia is as both challenge US
strategic interests in US-led 'hegemonic' policies. concerned about Chinese 'hegemonic' tendencies.
North East Asia in Both have an interest in 'Belt migration into Russia's However, rising competition in
particular. and Road' transport corridors. underpopulated Far East. Eurasia beyond 2030 will hurt
relations. Russia may eventually
align with the US.
Taiwan China regards China is top the trade partner. Taiwan continues to resist Taiwan is likely to remain
Taiwan as a Many Taiwanese firms have domination by China, and economically reliant on China.
renegade province. factories in China. Taiwan has maintains close relations with However, political integration
Taiwan straddles close cultural ties with China. the US. China has threatened seems unlikely in the next 10
vital sea lanes. Economic ties, including war, if Taiwan declares years, unless China attacks,
China fears US tourism and transporation, are independence. blockades, or invades Taiwan
support for Taiwan growing, but subject to volatility and forces the issue.
in the event of war. of cross-Strait relations.

South East Asia & Australia

Source: Fitch Solutions

Australia Australia is a major China is the top trade partner. Concerns about Chinese Australia will remain a
US ally and Chinese demand for Australia's influence could provoke fundamentally Western country
commodity commodities is rising. economic nationalism. Australia and remain allied with the US.
producer, and the remains a major ally of the US.
dominant power in
the South Pacific.
Cambodia Cambodia's China is the biggest foreign The US and EU are far bigger Chinese influence is likely to
significance is investor and aid donor. export markets for Cambodia. grow. Cambodia is too poor and
somewhat limited There is lingering suspicion too small to stand up to China.
compared to its towards China for backing the
neighbours. Khmer Rouge regime
(1975-1979). Chinese investment
is facing a backlash from some
quarters due to land evictions.
Indonesia Indonesia is the 4th China is a major trade partner. Indonesia harbours some Indonesia is likely to seek
most populous Chinese demand for suspicion towards China. strategic independence from
country in the world Indonesian commodities is Indonesia has been rebuilding China through closer ties with
and straddles key rising. military ties with the US. the US and India.
sea lanes between
the Indian and
Pacific Oceans.
Laos A large part of the China is a major trade partner Vietnam still exerts considerable Laos is likely to be caught
Mekong River runs and investor. Chinese demand political and economic influence between the competing
through Laos. Laos for Laotian commodities is in Laos. Vietnam does not wish influences of China, Vietnam,
is a key buffer for rising. to see Chinese influence there and Thailand. Chinese influence
several SE Asian rise. is likely to grow, because Laos is
states. too poor and too small to resist
China.
Malaysia Malaysia is adjacent China is the top trade partner. Malaysia has a limited territorial Malaysia will pursue a pragmatic
to the crucial Malaysia has been seeking dispute with China in the South approach towards China, but
Malacca Strait closer economic ties with China Sea. balance this through close ties
maritime choke China. with other Asian states.
point.
Myanmar China views China is the top trade partner. Despite close ties, Myanmar's Chinese influence will remain
Myanmar as a very China has been building leaders retain some suspicion strong. However, the
important transit infrastructure. Beijing provides towards China. Locals in border government is seeking reduced
corridor to the Naypyidaw with diplomatic regions fear Chinese migration dependency on China. India and
Indian Ocean. support, reducing its isolation. and business/economic the US could find opportunities
competition. for closer relations with
Myanmar.
Philippines The Philippines was China is the top trade partner. The Philippines retains strong The Philippines is likely to retain
a key 'offshore Chinese demand for Philippine economic, cultural, and military its close ties with the US to
balancer' containing commodities is rising. ties with the US. The Philippines counterbalance China. However,
Chinese influence in is a treaty ally of the US. China in future the Philippines could
SE Asia during the and the Philippines dispute become increasingly 'contested'
Cold War. territory in the South China Sea. between the two.

Source: Fitch Solutions

Singapore Singapore is China is the top trade partner, Singapore has traditionally Singapore will pursue a
adjacent to the and is Singapore's top overseas leaned towards the US, and pragmatic rather than
crucial Malacca investment destination. there is lingering suspicion ideological policy, but continue
Strait maritime towards China stemming from seeking to balance rising
choke point. the Lee Kuan Yew era Chinese influence in Asia with
(1959-2011). close ties with the US.
Thailand Thailand is a major China is a major trade partner. Thailand retains strong Thailand will pursue a pragmatic
economy in South economic ties with the US and approach towards China, but
East Asia. Japan. Thailand is a major non- retain close military ties with the
NATO ally of the US. US.
Vietnam Vietnam has an China's importance as a trade The US and EU are bigger export Vietnam is likely to seek
extensive coast on partner is rising. markets. There is lingering strategic independence from
the South China Sea suspicion towards China for China through closer ties with
and is a major long-term historical reasons. the US, Japan, and India.
emerging market. China and Vietnam have major
disputes in the South China Sea.

South Asia
AfghanistanAfghanistan lies at China is a major foreign China is still a neglible export China will become more
the crossroads of investor and seeks Afghan market. China has very limited important for Afghanistan, but
Iranian, Pakistani, commodities. Afghanistan means to shape events in the ongoing war will deter
Indian, Russian, and regards China as alternative Afghanistan, due to lack of troop Beijing from playing a major
Western influence. partner to counterbalance the presence and ties with the role. In the longer term, India
China fears the influence of Pakistan, Russia, intelligence community. China's and Pakistan will remain greater
spread of Islamist and the US. close ties with Pakistan could influences on Kabul.
militancy to its compromise perceptions of
Xinjiang province. 'good intentions'.
BangladeshChina sees China has been building China remains negligible as an Bangladesh is likely to be caught
Bangladesh and its infrastructure. Some export market compared to the between the competing
ports as potential Bangladeshi politicians see EU and US. China is a competitor influences of India and China,
trade outlets. China as a counterweight to in low-end goods such as but drift more towards India.
Indian and Pakistani influence. textiles.
Bhutan Bhutan borders China has very limited influence Bhutan is for all intents and Bhutan is likely to remain an
Chinese Tibet, in Bhutan. purposes an Indian satellite Indian satellite state.
making it of interest state. More than 90% of its trade
to Beijing. is with India.
India India is the only China and India stand to India is China's biggest India will seek to
Asian country with benefit from increased trade competitor as an emerging giant. counterbalance China's
the economic, and mutual exchange of China is a close ally of India's influence through closer ties
demographic, and knowledge. arch-enemy Pakistan. The two with the US, Japan, Vietnam, and
military potential to are rivals for influence in the possibly others.
overtake China as a Himalayan region and the Indian
future world power. Ocean.

Source: Fitch Solutions

Maldives Maldives's position China is the biggest trade Maldives' current government, Maldives is likely to be caught
in the Indian Ocean partner and major investor. elected in 2019, has a pro-India between the competing
makes it an stance, differing from its pro- influences of India and China.
attractive China predecessor.
geopolitical partner.
Nepal Nepal's adjacency China has been developing China is a negligible export Nepal is likely to be caught
to Tibet means that diplomatic, military, and market for Nepal. India has between the competing
Beijing will seek to economic ties with Nepal in traditionally exerted political, influences of India and China.
prevent the flow of recent years. economic, and cultural influence.
weapons and
money to Tibetans.
Pakistan Pakistan is a key China is Pakistan's most China is still a small export If Pakistan's relations with the
corridor connecting consistent ally. China is destination compared to the EU US experience a decisive break
the Middle East and developing the port of Gwadar and US. Pakistan remains a US or continue long-term
Asia. China fears theand the China-Pakistan major non-NATO ally. Pakistan's deterioration, Pakistan will have
spread of Islamist Economic Corridor as part of frequent instability could no choice but to ally more
militancy to its 'Belt and Road'. jeopardise Chinese investment. closely with China.
Muslim population.
Sri Lanka Sri Lanka's China is a major investor and China is still a minor export Sri Lanka will be caught between
importance stems has developed the port of market compared to the EU and the competing influences of
from its location on Hambantota, of which it has a US. India, the US, and China.
the key east-west 99-year lease (2017-2116).
and Asia-Africa
trade routes.

Source: Fitch Solutions

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