Monday, May 7, 2012

China’s Footprints in Sri Lanka and India’s Concerns

Dr. N. Manoharan
Senior Fellow, VIF

China’s footprints in Sri Lanka go beyond the so called “String of Pearls” framework. Being a “time-tested friend” of Sri Lanka, China is one of the major players in the island in many fields. The diplomatic engagement goes to 1950s though intensity of it has picked up tremendously in the recent years.

In the present context, the bilateral relations between the two countries are cast within the broad structure of the ‘China-Sri Lanka All-round Cooperation Partnership of Sincere Mutual Support and Ever-lasting Friendship’ proclaimed in 2005. The Chinese involvement ranges from infrastructure development, economic aid, oil exploration, investments, trade and a strong diplomatic support to the island state when in need, especially in the wake of human rights accountability issue that emerged after the end of ‘Eelam War IV’.
Infrastructure development having wider strategic ramifications is the main Chinese footprint in Sri Lanka that has attracted considerable attention of India. Some of the important infrastructure projects developed by China in the island state include Hambantota port, Katunayake-Colombo Expressway, the Norochcholai Coal Power Project, Maththala Airport, Colombo South Harbour Expansion Project, 661-room Shangri La hotel and the Center for Performing Arts in Colombo. Statistically speaking, funding from China accounts for more than half of Sri Lanka’s construction and development loans. In value terms, it is estimated at over USD six billion; more than any other country.

The most talked about project is Hambantota port. The first phase of the port was completed in 2010 by the China Harbour Engineering Co. Ltd at a cost of $360 million. It includes a high-quality passenger terminal, cargo handling, warehousing, bunkering, provisioning, maintenance and repair, medical supplies and customs clearing facilities. The harbour is strategically located not only for the Chinese merchant vessels and cargo carriers sailing to and from Africa and the Middle East to make a stopover, but can also be used by any military fleet. A strong foothold for the Chinese in Hambantota would allow them to have dominance over a vast area of the Indian Ocean extending from Australia in the east, Africa in the west and up to Antarctica in the south. It may not be difficult for China to closely monitor all ships – military and non-military – that shuttle between east and west coasts of India encircling Sri Lanka. Ironically, Colombo had proposed building the Hambantota port as a joint venture with India, but New Delhi had let the offer pass.

When it comes to infrastructure development, India’s involvement in Sri Lanka is less, if not insignificant, in comparison to China. Sri Lankans rate the Chinese better in terms of timely completion of projects, cost effectiveness and quality of infrastructure. Indian companies have certain inherent disadvantages compared to their Chinese counterparts. While most Indian companies are privately owned, Chinese ones are state-owned and supported by state financial institutions like China Development Bank Corporation, and Exim Bank. Profit motive comes last for the Chinese companies. Their priority is to look towards aspects like strategic advantages, diplomatic mileage and good will gained through projects. Most importantly, in the Indian case, the private sector and the government do not seem to complement each other’s efforts and gains. Risk-averse Indian companies care less about projection of Indian ‘soft power’ without much state support and motivation. This point should be taken into consideration by the government of India in its economic diplomacy.

Sri Lanka is not alone where China’s presence is increasingly seen. Beijing has for long been building maritime and other linkages with, apart from Sri Lanka, countries of eastern Africa, Seychelles, Mauritius, West Asia, Pakistan, Maldives, Bangladesh, Myanmar and Southeast Asian countries. The main objective behind is to ensure the security of its sea lanes, especially unhindered flow of critically-needed energy supplies from Africa and West Asia. At the same time, these linkages have doubled up as virtual encircling of India, which some experts call as “String of Pearls” construct.

Although India’s presence in reconstruction of post-war Sri Lanka is huge, China’s involvement is also notable. It has already provided one million dollars for the humanitarian needs. This apart, it gave tents meant for IDPs worth 20 million Yuan. As far as economic engagement is concerned, the volume of trade between China and Sri Lanka reached nearly 2.1 billion US dollars in 2010 and grew further to USD 3.14 bn in 2011. The balance of trade is hugely in favour of China (ratio of 1:19 compared to 1:10 with India in 2011); yet Sri Lankans are not complaining. China is Sri Lanka’s largest foreign investor and lender. To cite recent figures, China gave USD 1.2 billion and USD 821 million respectively in 2009 and 2010; this accounted for 54 percent of total foreign loans in 2009 and 25 percent in 2010. Sri Lanka’s Central Bank announced in June 2011 that China’s national currency, the Yuan (renminbi), would be allowed to be used in international transactions. On the other hand, the Indian rupee does not enjoy the same privilege, despite India remaining as Sri Lanka’s largest trading partner and one of the largest donors and investors.

The more the Sri Lankans appreciate is China’s diplomatic support to Colombo against West-led call for international investigations on war crimes committed during ‘Eelam War IV’. China, along with India and Russia, was instrumental in defeating the UN resolution in May 2009 censuring Sri Lanka. China once again supported Sri Lanka when US-sponsored resolution was passed in March 2012. When India insisted on providing only “non-lethal weapons” to Colombo during the ‘Eelam War IV’ considering domestic political implications especially in Tamil Nadu, China liberally supplied requisite arms and ammunition to Sri Lankan troops to defeat the LTTE. These fetched China tremendous good will from the Sri Lankan government and the Sinhalese in general.

There is no free lunch, however. In return, apart from deeply appreciating China’s help, Sri Lanka has time and again reiterated its strict adherence to ‘one China policy’: “that the Government of the People’s Republic of China is the sole legal government representing the whole of China and that Taiwan is an inalienable part of the Chinese territory.” Colombo does not seem to mind giving more leeway to Beijing in the island to strengthen its economy, which is the top priority at the moment. In the words of President Rajapaksa himself, “Sri Lanka’s economy is currently at an important turning point and it is our country’s strategy to enhance our ports-related economy.” Rajapaksa’s vision is to “reposition Sri Lanka as the ‘pearl of the old Silk Route’.” Colombo is more than happy to be one of the pearls in China’s “String of Pearls”. In turn, India’s interests and concerns are not in Sri Lanka’s radars, although the island state tries its best to do the fine balancing act to keep both big powers of Asia in good humour, while at the same time benefitting from both. To distinguish India from other players, President Rajpaksa recently observed, “We are a non-aligned country. Our neighbours are Indians. I always say, Indians are our relations. From the time of Asoka, we have had that culture… but that doesn’t mean we won’t get commercial benefits from others; from China, or Japan, or whoever. They will come here, they will build and they will go back. India comes here, they will build and they will stay. This is the difference…” Keeping this in mind, development projects are offered to both India and China from time-to-time. But, China is closer to the heart of present Left-of-the-Centre regime headed by Mahinda Rajapaksa.

India’s involvement in Sri Lanka’s infrastructure development cannot be underestimated. They range from helping fund the Matara-Colombo rail line, the dredging and refurbishment of the Kankesanthurai Harbor, and the renovation of Palaly Airport. India’s line of credit is about USD $1.8 billion, although the figure is roughly half of China’s current line of credit which stands at roughly USD $3.4 billion. Sri Lanka’s preference, therefore, is known. It is now in a position to juggle India and China, but is closer to Beijing, which has “no strings attached”, at least overtly, to any of the projects implemented or aid granted. Sri Lanka knows well that China will never demand to address the grievances of Sri Lankan minorities through a reasonable negotiated political settlement, and will not place restrictions on the involvement of any other country in the island in any manner. Beijing’s interests in Sri Lanka are purely strategic and, to a little extent, commercial.
India is not panicky about China’s footprint, but at the same time concerned about the strategic implications. The main concern is the possibility of use of infrastructure put in place by China against Indian interests. In the Annexure of the India-Sri Lanka Accord of 1987 India and Sri Lanka have agreed that “Trincomalee or any other port in Sri Lanka would not be made available for military use to any country in a manner which is prejudicial to India's interest.” India trusts that Colombo would abide by this provision seriously. But, caution is better, given the fact that Sri Lanka has not fully abided by even the core provisions of the Accord citing various excuses and justifications. To flout this provision in the Annexure will not take much time. The matter of concern for India is the possibility of dual-use mode of certain infrastructure projects. Like for instance, China is allowed to have storage and fuelling facilities at Hambantota, although India has also been offered to enjoy the same facilities. Similarly, the Colombo port that handles about 70 percent of India’s shipping is being modernised with Chinese assistance. If China’s wishes, it can always turn these projects to India’s disadvantage in a conflict situation.

New Delhi has indeed been taking various steps to address these concerns. In a similar situation in the 1980s, India was assertive in conveying its viewpoint. It in fact made sure that Sri Lanka was not used by forces inimical to India’s interests through the bilateral Accord of July 1987. But, in the present context, India has been dealing the issue in a more subtle manner. India has to balance out between regional peace, its own strategic interests and that of long-term peace, and development of Sri Lanka. The key is to sustain bilateral ties with Sri Lanka in the long run and make up for the lost ground.

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