Silent when Sri Lanka needed it, China now provokes India again

Going on twin-engines, China has chosen Sri Lanka to take on India and the US, respectively, on strategic and economic fronts — that too after months of deafening silence when the island-nation was appealing for food, fuel and forex, to which only the Indian neighbour responded. In doing so, China has told India without naming it that New Delhi should not interfere with Beijing’s “legitimate maritime activities”. In the same vein, China also took on the US on matters other than Taiwan, for ridiculing Beijing’s “debt diplomacy… that has led to bankruptcy in Sri Lanka”.

“China hopes that the relevant parties will view and report on China’s marine scientific research activities correctly and refrain from interfering with normal and legitimate maritime activities,” the foreign ministry said, after India voiced concern over a ‘dual-purpose’ Chinese ship’s planned visit to the controversial Hambantota Port in Sri Lanka, which in turn was funded and operated by Beijing. China had always exercised freedom of the high seas lawfully, the foreign ministry told news agency Reuters.

After The Hindu reported the Sri Lankan defence ministry’s initial denial of sorts, the newspaper has since quoted ministry spokesperson that Chinese vessel Yuna Wang 5 was after all visiting Hambantota. “The vessel will be in Hambantota from 11-17 August, mainly for replenishment, including fuel,” The Hindu quoted Col Nalin Herath.

An earlier report in the website of China’s Belt & Road Initiative Sri Lanka (BRISL) that Yuan Wang 5 would be in Hambantota for a week and “will conduct space tracking, satellite control and research tracking in the north-western part of the Indian Ocean Region through August and September,” but without citing any source. There is thus no clarity if the vessel would undertake scientific studies in the Ocean and space areas, respectively closer to and above Indian territory.  

The question thus remains if China is keeping Sri Lanka (mostly) out of the loop, or if the bilateral Hambantota pact(s) even provide for sharing such information. As The Hindu report pointed out, Sri Lanka’s defence ministry did not explain why it had earlier denied the vessel’s arrival, but quoted Col Herath that “such vessels periodically come from various countries such as India, China, Japan, Australia. It is nothing unusual.”

Indian concern

This is the first time that China has aroused Indian concerns viz Sri Lanka in recent years after the host-nation’s economy hit a tail-spin, leading to an unprecedented political crisis, leading to the forced exit of President Gotabaya Rajapaksa, his brother and Prime Minister Mahinda Rajapaksa and also their other siblings and relatives, all from the government — and in the reverse order. This is also a major strategic issue after China’s 2020 Galwan massacre.

Reacting to the early reports on the Chinese vessel, Aridam Bagchi, spokesperson of India’s External Affairs Ministry, said in New Delhi: “The government carefully monitors any developments having a bearing on India’s security and economic interests, and takes all necessary measures to safeguard them.” He did not elaborate but added, “I think that should be a clear message.”

However, The Indian anxieties over Sri Lankan conduct vis a vis China’s strategic interference in the shared waters has a precedent in the visit of Chinese nuclear-powered submarine Changzheng 2 to Colombo Port in 2014, and then President Mahinda Rajapaksa’s regime not taking New Delhi into confidence in good time or voluntarily, as should have been the case. Though the Rajapaksas are generally blamed for inviting China into Sri Lanka with their high-interest, ‘white elephant’ projects, it is current President, Ranil Wickremesinghe, who as Prime Minister actually converted what was still a construction-cum-concession contract into a 99-year-old leasehold in 2017.

In doing so, Wickremesinghe then blamed the preceding Rajapaksa era (2005-15) Chinese debt-trap as the reason for the lease-hold, implying that the leasehold squared off the debt at least on that one project. Subsequent reports have indicated that possibly was not the case, and the government expended the money received from China as a part of the lease, only on revenue expenditure, thus contributing to the current forex crisis in its way.

As Prime Minister under President Maithripala Sirisena (2015-19), with whom he had a cat-and-mouse relationship, Wickremesinghe also borrowed more money from China for more expressways than what the Rajapaksas had borrowed, with no expectation, hence sign of substantial revenues required at least to service a part of the credit owed to Beijing on the project.

‘Boosted’ Sri Lankan economy

In an even more significant aspect of traditional Chinese assertion that was absent for long, Beijing also defended its massive infrastructure ventures and investments in Sri Lanka and said that they have ‘boosted’ its economic development. “The China-Sri Lanka practical cooperation has always been led by Sri Lanka with scientific planning and thorough verification with no strings attached,” Chinese Foreign Ministry spokesman Zhao Lijian told a media briefing in Beijing, as if responding to the US criticism that China’s unproductive projects and opaque loan deals were among the among the major causes the island-nation becoming ‘bankrupt’.  

 “Chinese projects have boosted Sri Lanka's economic development, and brought tangible benefits to the Sri Lankan people,” he said while responding to a question on the criticism of China's projects and policies towards Sri Lanka by the USAID administrator Samantha Power. In New Delhi, Samantha Power had recalled how India reacted ‘really swiftly’ with an absolutely critical set of measures to help Sri Lanka tide over its economic crisis, recalling how Colombo’s calls to China to provide significant relief have gone unanswered.

Refuting Power’s charge that China had become one of Sri Lanka's ‘biggest creditors’, offering often ‘opaque loan’ deals at higher interest rates than other lenders and wondered whether Beijing would restructure the debt to help the island-nation, spokesperson Zhao would only say, “What China provides for Sri Lanka are almost preferential loans with low-interest rates and long terms, which have played a positive part in improving Sri Lanka's infrastructure and livelihood.” He went on to add how ‘there are multiple components to Sri Lanka's foreign debt, where China-related debts take far less share than the international capital market and multilateral development banks’.

As if taking the war-of-words to the rival camp, Zhao stressed that the ‘global economic and financial markets have taken a heavy toll as the US' recent sudden interest rate hikes and balance-sheet reduction has siphoned off dollars more rapidly, reverse from the long-running quantitative easing policy and irresponsible massive stimulus’. Likewise, without referring to the US-led sanctions on Russia in the wake of the Ukraine War, without referring to them directly, he said, “The US' unilateral sanctions and tariff-barriers have undermined the security of industrial chains and have worsened the price surge of energy, food and other commodities. This has further aggravated the financial and economic situation of many developing countries, including Sri Lanka,” he said.

The truth lies in between. China’s loans to Sri Lanka account for only 10 percent of the total external debt of $51 billion that Colombo has since ‘defaulted’. Barring Hambantota, China-funded projects were mostly white elephants with no hope for timely revenue-generation required to meet debt-repayment. Of them, the Matala International Airport is acknowledged as the only airport of the size that generates near-no business years after inauguration. Numerous expressways all across the country from the Mahinda Rajapaksa regime definitely helped improve traffic movement, especially around capital Colombo and arterial highways, but again they were not justified in terms of revenue-generation. It is here Chinese spokespersons, when accosted, have reiterated that Sri Lanka alone took decisions on the projects to be funded by Beijing.

Yet, spokesperson Zhao seemed to be careful not to commit himself to future Chinese assistance and credit-restructuring required for the IMF ‘bail-out package’. Sri Lankan news reports have since spoken about China’s Exim Bank commencing credit-restructuring negotiations with Sri Lanka, but after months of reluctance. Recently, they also talked about Sri Lanka’s ambassador to China, Palitha Kohonoa, the nation’s war-time Foreign Secretary, seeking a $4-billion emergency aid package from Beijing, and also help to boost trade, investments and tourism. China has also reportedly promised Sri Lanka of its support in obtaining IMF assistance. And on the IMF’s conclusions after negotiations with Sri Lanka would remain aid, if any, from the western nations and other ‘independent financial institutions’ like the World Bank.

 Simply nothing

China’s debt-restructuring becomes a critical component especially after IMF chief economist Pierre-Olivier Gourinchas reiterated in a Twitter discussion that Sri Lanka must reach an agreement with its creditors before the IMF can step in and provide financial assistance. “Sri Lanka had a balance of payment crisis. The foreign exchange reserves ran dry and there was nothing they could use to pay for basic necessities and pharmaceuticals and energy.”

For its part, however, the Sri Lankan President’s Media Division asserted that the government has made significant progress in negotiation with the IMF. Blaming it on the wrong policies of the previous government of President Gotabaya Rajapaksa and also the political instability that delayed the negotiations until recently, the statement said that the formation of a ‘politically-stable government’ under President Wickremesinghe and his initiative to form an all-party regime would help. However, it did not address the IMF’s core concern, regarding overseas debt-restructuring, involving multiple lenders. 

Wishy washy

What more, almost simultaneously, the World Bank has announced that it has no plans to offer funds to Sri Lanka until it has put a “macroeconomic policy framework” in place. Translated, between them, the IMF and the World Bank are addressing two critical areas that caused Sri Lanka’s economic collapse — external debt, and domestic policies. It is going to be more difficult than already and equally time-consuming.

The Ranil government being seen as wishy-washy over the Chinese ship’s Hambantota visit, it remains to be seen how much more India would be enthused to rush aid and assistance with the same amount of enthusiasm as through the past months, though New Delhi’s commitment to help the Sri Lankan population would remain. The question is if Colombo would come clean with New Delhi on the Chinese vessel, and if so, how early or how late — and also how far Beijing is ready to rush massive quantities of aid continuously for months, and/or push credit-restructuring, on either Beijing has said simply nothing, thus far!

The writer is a Chennai-based political analyst & commentator. Views expressed are personal.

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