The flurry of analytical pieces in the media and the continuing political point scoring at China’s expense, suggests intense interest in the outcomes as Sri Lanka recalibrates its relationship with China following the uncertainties that accompanied the change of government in 2015. India’s views on the ongoing adjustment process are unknown at this stage but [...]

Sunday Times 2

China, Sri Lanka and politics of Indian Ocean


The flurry of analytical pieces in the media and the continuing political point scoring at China’s expense, suggests intense interest in the outcomes as Sri Lanka recalibrates its relationship with China following the uncertainties that accompanied the change of government in 2015.

Chinese workers at a construction site in Colombo: China positively responded to Sri Lanka's call for funds to support post-conflict infrastructure development programmes.

India’s views on the ongoing adjustment process are unknown at this stage but academic and media speculation is rife. Western countries, especially the US, busy with their own immediate preoccupations, will probably not react adversely unless a dramatic change of direction results from the current finessing of Sri Lanka’s China policy.

Sri Lanka’s drift towards China should not have been unexpected, both under the Mahinda Rajapaksa regime and, now, under the new leadership. In fact, it should not have come as a surprise. Even during Sri Lanka’s conflict with the terrorist LTTE, as options for weapons purchases from the traditional suppliers such as the US, Britain, other EU countries dwindled, following restrictions imposed by them on the sale of arms to Sri Lanka, the Government was forced to look elsewhere for its armaments.

These restrictions could have stalled Sri Lanka’s unexpectedly successful military campaign. The curtailment of ammunition shipments for the US supplied Bushmaster guns following pressure exerted by pro-LTTE lawmakers, during a critical period of the military advance, is a case in point. Sri Lanka had desperately pleaded for the ammunition. Spares for the Bell 412 helicopters were similarly withheld. Czech battle tanks could not be sent to a port to be shipped to Sri Lanka due to EU restrictions on transit countries. Eventually, the tanks were shipped along a circuitous route, but only after intense engagement through diplomatic channels.

Naturally, the Rajapaksa regime, which for the first time was sensing the distinct possibility of militarily defeating the LTTE, was forced to look for more reliable suppliers of weaponry. China, Pakistan, Russia and Ukraine (also Israel) stepped into the breach earning the eternal gratitude of the Sri Lankans. The Chinese arms supplier, Norinco, even began to maintain a weapons dump in Colombo. The US and India continued to provide low key assistance using military-to-military contacts, especially through intelligence sharing.

The Rajapaksa administration’s drift away from the West, while traceable to the difficulties faced in procuring arms during the conflict, may be more directly attributed to events in the post conflict period. With the military campaign ended, the Rajapaksa regime chose to focus its attention essentially on rapid economic revival as a prerequisite for healing the wounds of war and nation building. This message was conveyed clearly to all development partners but it ran counter to the advice profferred by most Western countries and the UN Secretary-General who, curiously and without precedent, wanted accountability and reconciliation addressed first. The West’s primary focus on human rights, while not rejected, was not consistent with the Government’s priorities. This fundamental difference, based on causes which need much more detailed consideration, contributed significantly to a buildup of suspicion and a lack of trust on both sides. As the parties were drifting apart, the US, upset Sri Lanka further by resiling on its commitment to provide $500 million from the Millennium Development Account for road development. The West intensified economic and financial arm twisting to make its political point. There was reluctance among the major Western countries to endorse Sri Lanka’s approach to the IMF for a standby loan of $1.5 billion, but India did extend its support. The EU rescinded Sri Lanka’s GSP Plus status employing dubious justifications.

On the whole, India for its part, was too slow in responding to Sri Lanka’s needs. India-funded projects have also tended to drag on. Their primary focus on the North and the East did not help to create much positive public acceptance among the majority community. The limited aid provided by Australia and the EU was used for restoring schools and village level infrastructure, mostly in the North and the East.

A Government which enjoyed overwhelming popularity among the vast majority of the population for having eliminated the hated terrorists could not see a convincing reason to address accountability as its preeminent priority as the West demanded.
Much has been written about the almost $8 billion borrowed from China to fund infrastructure projects by the Rajapaksa regime. Mahinda Rajapaksa was in a hurry to address the infrastructure development needs of the country after thirty years of conflict and $200 billion of lost opportunity. In the absence of any significant assistance from Western or multilateral sources, it naturally turned to the source that most Western countries themselves, including members if the EU, rely on for funding, China. Western critics of the Rajapaksa dalliance with China have suggested that Western companies were consciously excluded from major projects. The projects naturally were awarded to companies that were able to bring the funding.

China has provided assistance worth $5.056 billion to Sri Lanka between 1971 and 2012. Around $4.7 billion of this amount, or 94 percent, came after Mahinda Rajapaksa came to power in 2005. China committed funding worth another $2.18 billion after 2012, mostly loans.

The projects funded by China include the Hambantota port, the Mattala airport, Moragahakanda reservoir, the Norachcholai power plant and many trunk roads. Some critics have questioned their commercial viability but there are many who praise them also. China’s “no-strings attached overseas aid and loans” policy extended through offers to Rajapaksa soon saw China replacing Japan as the largest donor to Lanka. The Rajapaksa Government, pursuing its own goal of rapidly modernising Sri Lanka, was happy to receive these funds, especially in the absence of any significant assistance from Western donors. The West became increasingly uncomfortable with the diminution of its influence due to China’s assistance to Sri Lanka.

Some have criticised the wisdom of borrowing on such a large scale. While borrowed funds have to be repaid, Sri Lanka has an excellent record of meeting its obligations to its creditors. Most developing countries have had to rely on borrowings, either from public or private sources, to fund their development. China has never pushed a debtor to the edge of the cliff of bankruptcy. But those who relied on commercial borrowings from the West have had a different experience. Argentina is a good example. The Rajapaksa regime’s enthusiasm for Chinese funding was clearly explainable.

India also focused its efforts on concluding the less tangible Closer Economic Partnership Agreement (CEPA) with Sri Lanka which would bind Sri Lanka’s economy firmly to India’s. While Sri Lanka, at official level, went along with this initiative, the Rajapaksa regime backed off quickly under pressure from the business and professional communities. The many negative perceptions of the bilateral free trade agreement concluded in 1999 did not help to advance the cause of the CEPA.

Attempts to re-engineer the CEPA under the new Government into an Economic and Technology Cooperation Agreement (ETCA) has run into opposition from the same business and professional groups and also from the joint opposition which have questioned the very need for such an agreement. While Prime Minister Ranil Wickremesinghe appears to remain committed to concluding the ETCA this year, he faces resistance from the Rajapaksa-led Opposition which has stoked fears about the agreement, inter alia, leading to loss of jobs in the country in the services sector.

The current Government in the lead-up to the elections, and since then, engaged in gratuitous China bashing until economic reality forced a reassessment of its approach. Rhetoric critical of China may have won some plaudits from certain Western capitals, which themselves have enthusiastically courted China, but no significant tangible economic benefits for the country. So in early April, the Prime Minister himself went to Beijing to try to restore the relationship. The visit resulted in the revival of the flagship $1.4 billion Colombo Port City project and the resumption of the major infrastructure projects China had begun in the past and which were criticised as impracticable until recently. It has been suggested that China will exact a heavy price for the gratuitous insults heaped on it by the new authorities.

China and Sri Lanka are now considering setting up an SEZ in Hambantota. Sri Lanka has announced recently that it was looking to convert a portion of its debt to China into equity for infrastructure investment by Chinese companies. Sri Lanka has also signed on to the Chinese initiated Asian Infrastructure Investment Bank.

While Sri Lanka has assured India that it won’t allow China any outright ownership of land as part of the Colombo Port project, its revival of Chinese projects, according to strategic affairs expert Brahma Chellaney, is likely to have a long-term geopolitical consequences.

“Lanka, under Maithripala Sirisena’s government, has reversed course and is returning into China’s embrace, in part because of its precarious balance-of-payments situation …..,” says Chellaney.

While some Indian writers continue to highlight a possible threat to India’s security from China’s increased economic engagement (projection of soft power) in the Indian Ocean region, one begins to wonder how much of this is unsubstantiated hype and simply a case of charging at non existing demons. China’s blue water capability, now limited to one aircraft carrier, is unlikely to pose a challenge to the US dominance of the Indian Ocean or India’s own strength in its backyard. With the bulk of its energy needs being shipped through the Indian Ocean, China cannot be expected to be so naive as to challenge the US or India. India, for its part, needs China to clearly confront Islamic terrorists.

One recalls that Prime Minister Narendra Modi was effusive in his calls for an Indian Chinese partnership in his address to Chinese CEOs in Shanghai while India’s bilateral trade with China has exceeded $80 billion. The PM invited Chinese businesses to invest in India and agreements to the value of $20 billion were signed. The new Government of Sri Lanka is beginning to realise that an anti-Chinese stance is unlikely to burnish its image in New Delhi. A peaceful commercial engagement of China in the Southern Silk Route will benefit India and Sri Lanka and the region.

“It now appears that Rajapaksa’s ouster only temporarily represented a setback for China’s ‘string of pearls’ strategy in the Indian Ocean,” Chellaney says. In fact, after Premier Wickremesinghe’s visit to China last month during which he reiterated Lanka’s endorsement of Beijing’s Maritime Silk Road, Mahinda Rajapaksa was quoted as saying that he stood vindicated by the Lankan Government’s recent action.

(The writer is former Permanent Representative of Sri Lanka to the United Nations and former
Foreign Secretary of Sri Lanka.)

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