Sino-Indian relations in the Indian Ocean can be win-win

Sino-Indian relations in the Indian Ocean can be win-win

With Chinese- and Indian-funded capital projects in Sri Lanka mired in controversy, it is tempting to assume that the island state has become a new frontier in Sino-Indian relations. The reality, however, is not nearly so dramatic.

A small island off the south of India, Sri Lanka has emerged as an increasingly popular tourist destination in Southeast Asia. As travellers from around the world flock to its sandy beaches, expansive plains and soaring mountain ranges, the decades of intermittent and bloody war with local insurgents seem a thing of the past. But now, there are fears that Sri Lanka has emerged as a new hotspot for regional tensions, with India and China vying to secure maritime footholds via Sri Lankan shores.

Sino-Indian competition

Earlier this month, the Sri Lankan Foreign Minister said he was hoping to expedite free trade discussions with China, describing the neighbour in the north as a “true and trusted” friend and ally. Announcements such as these are inherently controversial. India, traditionally Sri Lanka’s most significant trade and security partner in the region, has been watching China’s expanding reach in the region with concern. As China seeks to revive the ancient Silk Road route under the “One Belt, One Road” (OBOR) initiative, major investment and infrastructure projects in Pakistan, Bangladesh and Myanmar have no doubt contributed to a growing sense of claustrophobia for Indian policymakers.

China has been a major investor in Sri Lanka ever since the end of a brutal war with the Liberation Tigers of Tamil Eelam (LTTE) in 2009, and plans for a $1.4bn Chinese port city in the heart of Colombo will see sea reclamation of 269 acres- almost half of which will be leased to the Chinese government. In the south, the port of Hambantota has attracted billions in Chinese investment, including a new $1.4bn port, an airport, a network of highways, and industrial zone, to form a key component of the OBOR maritime route. As with the Colombo port project, China intends to secure significant oversight of its investments, announcing its claim to an 85 percent stake in the project.

India has countered Chinese moves by focussing on Trincomalee port to the east; in May, Prime Minister Modi discussed a string of deals designed to boost Indian investment in major industrial and energy infrastructure in the port, almost 15 years after the 1987 Indo-Sri Lanka Accord first granted preference to India in running the facility.

Nonetheless, both Indian and Chinese attempts to expand engagement have been met with domestic resistance. In January this year, violent protests and parliamentary opposition to the Hambantota project were stoked by fears of a Chinese soft-power takeover in Sri Lankan communities; in Trincomalee, petroleum workers went on indefinite strike against perceived Indian encroachment.

Overstated tensions?

Amid the controversy, there remain questions of the viability of these projects regardless of where the money is flowing from. Near the end of his term, former President Rajapaksa was criticised for funnelling investment into white elephant projects in his home state of Hambantota, including an expanded port, new airport, convention centre and cricket stadium that remain underused to this day.

Inheriting national debt of almost 80 percent of GDP, incoming President Sirisena was forced to accept a $1.5 billion IMF bailout in May 2016, negotiating further debt-to-equity deals with the Chinese government. After five months of negotiations, China Merchant Port Holdings (HKG:0144) signed a takeover deal for Hambantota port for $1.12 billion despite staunch local opposition. As a result of this pressure, the Sri Lankan government founded a strategy to ensure no land would be leased directly to CMP, and that CMP would divest 20 percent of its shares to the Sri Lanka Port Authority after a decade. Further negotiations have seen a number of concessions on the part of Chinese investors; with almost half of Sri Lanka’s loan portfolio held by international financial markets, Chinese financing in Sri Lanka is far from being a controlling interest.

At the same time, the OBOR initiative in 2017 is little more than diplomatic fanfare, plagued by reports of poor planning, a lack of economic foresight and an underestimation of the mammoth task of navigating the regulatory diaspora along proposed routes. In fact, a similar infrastructure proposal floated by Japanese prime minister Keizo Obuchi in the 1990s began with similar pageantry, only to fall victim to political bickering and corruption allegations; only a handful of projects were ever realised. Until the OBOR proves able to live up to the brouhaha, visions of a sustained Chinese takeover of Sri Lankan ports are dramatically overstated.

Indo-China cooperation is inevitable

In fact, India stands to gain from OBOR fringe agreements. Discussions to revive the Bangladesh-China-India-Myanmar Economic Corridor (BCIM) have been renewed this year after nearly three years of silence; once an agreement is reached, the initiative will further bind China and India in realising their respective development goals in the subregion. Furthermore, taking a broader perspective on regional issues reveals that China and India have numerous reasons to cooperate in maritime security, including anti-piracy efforts, combating maritime terrorism, protecting overseas interests and ensuring the evacuation of citizens from risky areas, just to name a few.

Now that Doklam border tensions appear to have been reduced to a fizzle, analysis of Indian-Sino relations must be realistic. As both India and China seek to sustain mammoth economic growth in the 21st century, money talks: bilateral tensions are unlikely to ever be completely resolved, but China’s emphasis on “win-win” cooperation may not be unfounded. Sri Lanka, too, has the opportunity to be proactive in managing its relationships with both countries, and should not be regarded as a mere proxy playground for Southeast Asian politics.


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