India and China’s past disputes over border issues are now moving to the economic front. As China becomes India’s largest trading partner, Chinese construction companies are gearing up to compete for infrastructure work there against local firms and to follow them to growing markets in nearby countries.

Chinese enterprises have already completed infrastructure projects in India worth more than $10 billion and are involved with nearly $6 billion in projects in nearby Sri Lanka. China has become a larger presence in that island nation than even its traditional investor-donors, India and Japan.

India’s discomfort was clear when prospective bidders for the 22-km long bridge that is part of the Mumbai-Trans Harbor Link project were cautioned against linking with Chinese companies, citing security reasons because of an atomic research center and naval installation in the vicinity, ENR has learned.

With Chinese firms taking an aggressive competitive stance, India has expressed concerns that China's growing presence in the “string of pearls” nations surrounding it—Sri Lanka, Nepal, Pakistan and Bangladesh—will hurt its own dominant role. Already, the Chinese are also assisting in constructiing Sri Lanka's first coal-fired power plant and are involved in several highway projects.

Hefty Package

Despite India’s robust economic partnership agreement with Sri Lanka, China has edged its way into its marketplace, thanks to a hefty finance package on one project from the Chinese Export-Import Bank. The bank is financing 85% of the nearly $1-billion Hambantota Ruhunu Magampura Mahinda Rajapaksa International Port in southern Sri Lanka, one of the single biggest development projects.

Constructed by China Harbour Engineering, Hambantota port is part of a $6-billion drive to rebuild infrastructure after the country's 26-year civil war that ended in 2009. President Mahinda Rajapaksa said in an interview two years ago that the port project was first offered to India, but was turned down.

Sri Lanka’s ambassador to the U.S, Jaliya Wickramasuriya, said that of all foreign investors invited, China offered the best terms. State-owned Chinese companies that are experienced in large infrastructure projects, offer low costs and do not bring the baggage of competitive bidding or transparency, often strike a chord with clients.

China Harbour Engineering is also constructing and financing Sri Lanka's second international airport on 2000 hectares at the Hambantota port site that will cost $200 million and be set to operate by year end.

On a much smaller scale, India is helping reconstruct the Palali Airport and develop the Kankesanthurai Harbor in the former war torn northern and eastern regions of Sri Lanka. “The Indian government will continue to assist the reconstruction process and will also find an Indian partner to review the Elephant Pass saltern in the area, which has been inoperable for the past 20 years,” says V Mahalingam, India's consul general in Jaffna.

Nepal becomes new battleground

As China develops port facilities in Pakistan, Bangladesh and Myanmar, it is now planning to build railroad lines in Nepal, which shares a border with India on three sides. With a growing presence in Nepal’s energy market, Chinese firms are vying with Indian companies for hydropower projects.

Following Chinese Prime Minister Wen Jiabao’s visit to Nepal earlier this year, China announced a $118-million grant over three years—the single largest so far for projects—as well as a one-time $20-million grant  for infrastructure development.

China has pledged to provide a soft loan to build the Upper Trishuli Hydropower project, support construction of the international airport in Pokhara, the North-South Link Road and a dry port in Tatopani.

China also is building a 256-km extension of the 1,956-km Golmud-Lhasa railroad to the Nepal border to be completed by 2014. The government-funded $1.9-billion rail extension will eventually reach the outskirts of Kathmandu. China-assisted projects in Nepal such as the Syafrubensi-Rasuwagadhi Road Project linking Tibet with Nepal are also under way. This year, China announced a $1.6-billion loan for Nepal's 750MW West Seti hydropower project.

Meanwhile, Bangladesh has requested Chinese assistance to build a deep-sea port in Sonadia Island, which is raising eyebrows in India. Discussions are also on with the Chinese and Myanmar governments to build a highway connecting Bangladesh's southern port city of Chittagong with Kunming, by way of northwestern Myanmar. It is believed that the Chinese also may build underground oil pipelines from Bangladesh through Myanmar for supply to Kunming that will serve China's southeastern and central provinces. The route would be much shorter and less expensive.

Further, a $255 million railway line to connect the port cities of Myanmar’s Jhilongjha with Chittagong will be complete by 2013. Bangladesh has a 300-km border with Myanmar.