China Expands Its Footprint in Sri Lanka

China Expands Its Footprint in Sri Lanka

China’s role in Sri Lanka, which has grown remarkably in recent years, is poised to expand geographically as well. Hitherto, Beijing’s projects were confined to the southern parts of the island. It is now making inroads into the Northern Province and the rubber, tea, and coconut plantations of the central highlands.

In April, state-run China Railway Beijing Engineering Group Co. Ltd. won a more than $300 million contract to build 40,000 houses in Jaffna district in the Northern Province, which suffered extensive damage during Sri Lanka’s 26-year-long civil war.

China is also engaged in negotiations to invest $30-40 million in Sri Lanka’s plantation industry. This amount is reportedly just a fraction of investment planned in this sector.

China’s plans in the plantation sector are likely “to aid Sri Lanka’s goal of increasing its sagging exports through investment in the rubber industry,” Nilanthi Samaranayake, strategic studies analyst at the Center for Naval Analyses, a non-profit research organization in the Washington D.C. area, told The Diplomat.

This is not the first time that China will provide a shot in the arm to Sri Lanka’s rubber industry. Back in 1952, Sri Lanka (then Ceylon) and China signed a barter trade pact under which the two countries agreed to exchange Sri Lanka’s natural rubber for Chinese rice. This was a period when synthetic rubber was in demand globally. With the international market for its natural rubber much reduced, Sri Lanka’s economy slumped. China’s purchase of Sri Lanka’s natural rubber helped ease the crisis.

China’s footprint in Sri Lanka is “expanding into the island’s Tamil-dominated areas,” a retired Indian diplomat said, adding that these are areas where “India’s influence in the island has been the strongest.” According to him, Beijing could have pressured Colombo to open up the north to a Chinese role in reconstruction. Its “entry into these pockets of strong Indian influence” is “worrying” as its role here could “grow at India’s cost.”

Sri Lankans view the recent developments differently.

“There was no policy of keeping the north apart for Indian reconstruction work,” retired Sri Lankan diplomat Dr. John Gooneratne said. “From the Sri Lankan point of view there is no problem for Chinese assistance in Tamil areas. China has no preference in that respect and the government is not separating the county into Tamil-areas, Sinhalese-areas, and Muslim-areas in its foreign-assisted reconstruction work,” he told The Diplomat.

Both the Northern Province and the central highlands are populated predominantly by Tamil-speaking people; the former by the 2.7 million-strong Sri Lankan Tamil community, which has lived on the island for over 2,500 years, and the latter by the 0.7 million plantation Tamils, who are descendents of those brought from India as indentured labor just two centuries ago.

Both the Sri Lankan Tamils and the Tamils of recent Indian origin have strong linguistic, cultural, and kinship bonds with their ethnic kin in India. Besides, both communities have traditionally turned to India for protection of their political and other rights and “still  look to it to intervene on their behalf, when Colombo reneges on its promises,” Smruti Pattanaik, research fellow at the New Delhi-based Institute for Defence Studies and Analyses, said.

The recent Chinese inroads into the Northern Province and the central highlands will “not dent” Delhi’s political influence among the Tamils, she said.

However, India will “face competition from the Chinese” over reconstruction projects in the Northern Province, the Indian diplomat argued.

Since the end of the war in 2009, India has assumed a huge role in reconstruction of the Northern Province. It is constructing 50,000 houses at a cost of $ 270 million across this war-ravaged province. It has restored the Jaffna-Colombo railway link as well as upgraded the Kankesanthurai harbor and the Palaly airfield. Besides, India provides rehabilitation assistance to small businesses, set up an industrial estate in Jaffna, and constructed and equipped hospitals, clinics, and water supply projects.

India is also building some 10,000 houses in the plantation areas.

India’s transparent and norm-based process for selection of beneficiaries and the owner-driven model it has adopted for the construction of houses in the Northern Province has earned it praise. However, some of its projects are running late, unlike Chinese ones, which have a better record of meeting deadlines. This could put Indian projects in a negative light, the Indian diplomat said.

For decades, it was India that was Sri Lanka’s foremost partner, whether it was with regard to investment, trade, or defense. That has undergone significant change over the past decade, with Colombo-Beijing ties warming especially during Mahinda Rajapaksa’s presidency (2005-15).

Increasingly China has become indispensable to Sri Lanka. In the final years of the civil war, Beijing fulfilled the Sri Lankan government’s wish-list for military hardware; in the immediate post-war years it defended the Rajapaksa government from censure on war crimes at international human rights forums. Importantly, China has played a major role in post-war Sri Lanka’s infrastructure development.

Among the main Chinese projects are the $1 billion Hambantota Development Zone, the $1.4 billion Colombo Port City project, which is expected to attract $13 billion in investment over the next 20 years, and the $1.35 billion Norochcholai Coal Power Plant project.

Of these, it is the Hambantota project that has garnered the most attention worldwide as it has laid bare the negative side of China’s ambitious Belt and Road Initiative. Unable to pay back the loan to China as the port failed to attract business, Sri Lanka handed over the port to the Chinese in 2017 on a 99-year lease.

That triggered alarm in New Delhi, as it has implications for India’s national security. Although the Sri Lankan government says it will not allow Chinese military activity in Hambantota port, analysts warn that this could happen, especially as Sri Lanka slips into deeper debt and dependence on China. Such fears gained traction in 2014 when Chinese submarines docked at Colombo harbor twice in 2014 despite India raising concerns.

Media coverage of Sino-Sri Lankan projects has focused on Chinese loans for the Hambantota project. Consequently, “an assumption is often made that Sri Lanka’s projects with China are all loan-based,” says Samaranayake.

In fact, Chinese projects in Sri Lanka “have been funded through FDI as well as grants, although most are loans. And the terms of Chinese loans to Sri Lanka vary widely by project.” Around “60 percent of Sri Lanka’s loans from China are concessional and go back a decade,” Samaranayake points out.

The housing project in Jaffna will be financed through a loan from China but the terms have not been specified yet. “Regardless of the nature of the loan, Colombo likely feels this is an important project to pursue given its importance to post-war reconciliation,” notes Samaranayanke.

With regard to the housing and plantation projects, Samaranayake said that these projects “as currently envisioned are not likely to impact India’s security.”

Critics of China’s loans to BRI member states often blame China for luring the latter into debt traps. While there is some truth to this, it is a fact too that there is a demand for Chinese loans too.

As Gooneratne pointed out, post-war Sri Lanka needs huge funds and China has “deep pockets and is prepared to give loans.”

Public skepticism in Sri Lanka over Chinese loans seems to have receded somewhat since it peaked in 2013-14. During the Rajapaksa presidency, the Sri Lankan public had “considerable doubts” about the agreements reached with China. The Mahinda Rajapaksa government was opaque about these deals and did not provide details of the agreements reached. That has changed with the new government in Sri Lanka renegotiating agreements with China, Gooneratne said.

Meanwhile, China’s plans to build houses in the Jaffna district seem to have run into a bit of trouble. Work has stopped, with local residents demanding brick houses instead of the concrete structures that China proposed to build. This is reported to have provided India with space to step in. According to M. A. Sumanthiran, a legislator representing the Tamil National Alliance, Sri Lankan authorities are in negotiations with India on the project.

This provides another lesson for other countries participating in the BRI. Chinese projects could run aground if there is little local ownership of the project. China will need to consult local communities and activists before setting projects in motion.

Back