China’s growing presence ratchets tensions in Sri Lanka

China’s growing presence ratchets tensions in Sri Lanka

Holding a key position along strategic maritime routes, Sri Lanka has drawn a high level of economic investment. China and India, long-time competitors for influence in the Indian Ocean, have brought their geopolitical competition to the ports of Sri Lanka – and raised social unrest risks locally in the process.

From Chinese investment to Chinese management

On 30 October, Chinese Foreign Minister Wang Yi told his counterpart in Sri Lanka that the two countries should strengthen their relationship and work towards greater cooperation on key investment projects. In recent years, Beijing has invested heavily in Sri Lanka’s infrastructure as part of its “One Belt, One Road” (OBOR) initiative—a new trade route linking China with the West through billions of dollars of infrastructure investment.

Since construction began in 2008, China has taken an increasingly prominent role in development in Hambantota.  Billions of dollars have gone towards construction in this town on Sri Lanka’s southern coast, including a $1.4 billion port, an airport, numerous highways, and an as-yet-unbuilt 15,000-acre industrial zone.

As Sri Lanka has struggled to keep the port profitable on its own, Chinese investment has gradually become Chinese management. In late 2016, Colombo announced a deal to trade an 85 percent stake in the project, which would include a 99-year lease on land there, to China Merchants Port Holdings (HKG:0144) in exchange for $1.1 billion in debt relief. Hambantota port, close to the main shipping route from Asia to Europe, is likely to play a key role in China’s OBOR initiative.

Like the ports of Gwadar in Pakistan and Chittagong in Bangladesh, Chinese investment in Hambantota’s port will facilitate regional connectivity and trade across strategic maritime and land routes. However, China’s attempt in Hambantota has sparked violent protests and drew a backlash from parliament in January, fueling fears that Beijing is attempting to effectively establish a Chinese colony on the strategically valuable island.

 A series of deals with India

While China establishes a foothold on Hambantota, India has focused on another port in Sri Lanka: Trincomalee. During Modi’s May visit, India and Sri Lanka discussed a series of deals for increased Indian involvement and investment in energy and industrial infrastructure at Trincomalee. As with the Chinese deal, these plans have faced setbacks.

A move to hand over 84 oil storage tanks to the Indian Oil Corp. drew resistance from Ceylon Petroleum Corp. workers, who argued that the deal would grant the Indian company undue influence over Sri Lankan fuel prices.

On 24 July, a strike took place over the government’s refusal to rescind the offer, which not only disrupted nationwide fuel supplies but even prompted Colombo to send military support to Trincomalee.

China’s long shadow over India’s periphery

China’s massive infrastructure projects along the Indian periphery, including in Pakistan, Bangladesh, and Myanmar, have fed into a growing fear in India of encirclement by its long-time competitor.

India worries that China is encroaching on India’s traditional sphere of influence and eroding its commercial and cultural links with Sri Lanka. In particular, China could use its foothold in the country to translate its economic heft into military might, by establishing a military base or using its majority owned port facilities for military purposes.

As with the deployment of troops to Djibouti for China’s first permanent overseas military mission, Beijing’s development projects in the region signal an intent to establish a much stronger presence in the Indian Ocean, and there has been a gradual uptick in Chinese naval forces in Sri Lanka.

In September 2014, a Chinese submarine docked in the Chinese-operated South Container Terminal in Colombo, just days ahead of a visit by Chinese President Xi Jinping. Indian Prime Minister Narendra Modi complained to then-Sri Lankan President Mahinda Rajapaksa about the move, but another Chinese submarine and a warship docked in Colombo the following month.

A tense compromise

In May, Modi visited Sri Lanka in an attempt to ease some concerns, working out a compromise on Hambantota meant to mollify India and domestic protesters while maintaining Chinese financial support. The agreement would divide management of Hambantota between business and security.

China Merchants Port Holdings would retain its 85 percent share of the entity overseeing the commercial operations and broader security of the port, and this share would decrease to 65 percent over a decade. Another entity would handle all security functions, with a 50.7 percent controlling share held by the state-owned Sri Lanka Port Authority and the remainder held by China.

The agreement also states that foreign military vessels will not dock at the port.

This deal may temporarily quell some of India’s anxieties about China’s influence in Sri Lanka, but it does not preclude a future security or military role for Beijing in the country. Further, the agreement does not limit China’s 99-year lease of land, which was a major concern for local protesters.

No surrender

Neither China nor India is likely to back down or surrender any influence in Colombo. China has considerable financial resources and the support of Sri Lanka’s political establishment. Meanwhile, New Delhi can rely on its geographical proximity and cultural ties to secure a place in Sri Lanka’s development.

Despite the deal with China over Hambantota being revised, China’s competition with India over Sri Lanka and its ports will continue. During the Sri Lankan civil war in 2009, in the absence of substantial assistance from India in defeating the Tamil Tigers, Sri Lanka relied on Chinese, Pakistani and Iranian aid. As Sri Lanka struggles to find a new equilibrium between Indian and Chinese patronage, New Delhi may find it no longer holds the same historically high level of access.

About Author

Qi Lin

Qi is a Washington, D.C.-based analyst. She specializes in East Asian security and Chinese foreign policy. She is a Chinese native speaker and proficient in English. She holds a Bachelor’s in Political Science from the University of North Carolina and a Master’s in International Affairs from the George Washington University.