Chinese Involvement in Sri Lanka, Implications for India

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By Syed Ali Mujtaba, Copy Edited By Adam Rizvi, TheIndiaObserver, TIO: China is now waiving, its hand at India, not only from the spurs of Pangong Tso in Ladak but also from the Lotus Tower in Colombo where it is developing a Port City or Economic zone.  On May 20, 2021, Sri Lankan Parliament passed the Colombo Port City Economic Commission Bill, which may have huge implications for India.

Colombo Port City is being developed by the China Harbour Engineering Company (CHEC). It is spread across 269 hectares (660 acres) mostly on land reclaimed from the sea. The $15 billion projects were launched in 2014, during a visit by Chinese President Ji Xinping to Sri Lanka, when Mahinda Rajapaksa was the President.

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Colombo Port City is slated to be a mini-city with its own rules and regulation on trading, investment, and on terms of ease of doing business. The Colombo port city may well be called a ‘Chinese enclave.’ There many Sri Lanka laws that may not be applicable and even its currency may not be a legal tender and any international currency can be used there.

Apart from this, Chinese-built structures are dominating the capital of Colombo’s skyline. China has developed a $1.4 billion business district encompassing apartment towers, office skyscrapers, and hotels. A new concert hall and 1,150-foot-high Lotus Tower is built by China. The Lotus Tower is a hub for telecom companies that have a revolving restaurant and an observation deck to attract the tourists visiting the city.

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China is funding more than 50 projects in Srilanka. China has invested in several key sectors like infrastructure, roads, water treatment plants, and power, etc.  Apart from Colombo port city, other important projects developed by China are; Hambantota Port and the Lakavijaya thermal power plant, the Colombo-Katunayake expressway, which connects Colombo with the Bandaranaike International Airport. The Mattala Rajapaksa International Airport located 18 km from Hambantota port, the second international airport of Sri Lanka.

The value of cumulative Chinese infrastructure investment is 14 percent of Sri Lanka’s GDP. Chinese FDI comprises 35 percent of Sri Lanka’s total FDI. Rajapaksa asked Beijing for a $90 million aid for fighting the pandemic in October 2020, which was instantly granted by China.

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The modus-Operandi of China is to pay the debt of Sri Lanka to the donor agency and seek investments there without any condition and finally make it a trading partner where it can export its goods.

All these have raised many concerns for India.  First, Colombo Port handles over 30% of India’s container traffic, so a disruption there could harm India’s foreign trade.

Hambantota Port, which is close to the international sea lane, may have military implications in the future. The current Sri Lankan government has prohibited military use of the port, but a more China-friendly government could change this arrangement in the times to come. This may have implications for India.

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The Trincomalee port may fall into the Chinese hands if it succeeds in getting hold of 99 oil tankers near the port. Trincomalee port is one of the deepest natural harbor developed by the British government during World War II.  The British had developed an oil tank farm constructing 99 oil tanks for refueling its ships in the Indian Ocean region. After the British left, these oil tanks went to Sri Lanka that leased it out to the Indian Oil Corporation. The last lease was renewed in 2003. Now Sri Lanka has canceled the lease of the oil tanks and India has agreed to it. The fear is if Sri Lanka gives these oil tanks to China, which may have implications for India.

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The China-Lanka axis is a major strategic and foreign policy challenge for India. New Delhi has to find answers to such developments in its strategically important neighborhood.

India must respond to growing Chinese control over Sri Lankan ports. The majority of Colombo’s container traffic is transshipped to India. Even Hambantota handles large Indian container traffic. As a result, India has to be keen to augment its growing share of cargo traffic.   India needs to develop its own transshipment ports at Vizhinjam (Kerala) and Enayam (Tamil Nadu) as transshipment ports. This must be expedited at the earliest to engage Sri Lanka not necessarily against China.

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Secondly, India must face competition and try to sell its products at competitive rates to Sri Lanka. The Chinese construction equipment, steel, and trucks are flooding the Sri Lankan market.  India has to recover the space that it has lost to China in terms of its imports. Further, India has to increase its foreign direct investments in Sri Lanka and catch up with the gap with China.

India continues to have significant economic ties with Sri Lanka. India can build ties with the island nation by integrating the power-grids of Sri Lanka via an undersea cable. This will give Sri Lanka an alternative to building thermal power plants with Chinese funds. India can also help Sri Lanka increase its capacity to refine petroleum. Indian Oil Company has signed a proposal to build a new oil refinery in Sri Lanka. However, this project is also being discussed with China. India has to show its keenness to clinch such deals. There are many other things like this that India can do to increase its leverage over Srilanka.

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There are two other options for India to neutralize Chinese influence in Sri Lanka. One is to revive the LTTE. It may be recalled that during the Cold War when Sri Lanka moved close to the US, New Delhi took the decision to back the Tamil separatist group to neutralize US influences in Srilanka.  Now, if India revives the Tamil struggle to counter China in Sri Lanka, it may prove counter protective, because in such a case, China’s involvement in Sri Lanka will deepen further.

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The second option before India is to court the pro-Sinhala nationalist government in Sri Lanka.  This again will be counterproductive because New Delhi cannot afford to antagonize its own Tamil population in Tamil Nadu.

Well, these are the challenges for India in dealing with the grown Srilanka –China axis. The construction of Colombo port city is a wake-up for India to take stock of the situation developing in its backyard. The hard read reality is it’s not only in Ladak that China waving its hand at India, now it’s doing the same from Colombo too.

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