New Delhi showed little interest in funding a costly and massive port construction project in the underdeveloped fishing village of Hambantota, a district that had been crushed by the Indian Ocean tsunami in 2004.
“It was offered to India first. I was desperate for development work, but ultimately the Chinese agreed to build it,” Rajapaksa said in an interview with Singapore’s Straits Times in 2010.
Beijing invested $1.5 billion in 2010 to build the port.
The venture was considered economically unviable and indeed, in the years that followed, the port sat empty and neglected, and Sri Lanka’s debt ballooned.
But India’s economic foresight might have cost it in terms of strategic geopolitics, since the debt incurred on the port and the surrounding infrastructure undertakings now belong to its great rival.
China’s official licensing of the port in December last year gives it yet another point of access over a key shipping route, and the prospect of providing it with a sizeable presence in India’s immediate backyard and traditional sphere of influence, bringing China closer to India’s shores than New Delhi might like.
Moreover, Sri Lanka’s decision to sign a 99-year lease with a Chinese state-owned company for the Hambantota port to service some of the billions it owes to Beijing has some observers concerned other developing nations doing business with China as part of China’s One Belt One Road initiative might fall into similar financial straits.
A trap, they warn, that may well have them owing more than just money to Beijing.
“China is, in many cases, the only party with the interest and the capital to deliver on these projects,” said Jeff Smith, a research fellow on South Asia at the Heritage Foundation in Washington DC. “The relevant question for everyone is: at what cost?”
China has for decades invested in Sri Lanka, particularly during moments in recent history when much of the international community held off.
As the European Union and the United States sought to punish Sri Lanka over human rights abuses during the decades-long civil war between government forces and the Tamil Tigers, China acted on its behalf diplomatically at the United Nations. It also supplied the Rajapaksa government with military aid and it promised to spend to rebuild the country’s damaged infrastructure. India had also sent in military help, but nowhere near the levels Beijing dispatched.
The civil war ended in 2009. Between 2005 and 2017, China spent nearly $15 billion in Sri Lanka. By comparison, the International Finance Corporation, which is part of the World Bank group, says that between 1956 and 2016, it invested over $1 billion.
Jeff Smith points out that along with the Hambantota port investments, Beijing loaned Sri Lanka $200 million in 2010 for a second international airport and a year later a further $810 million for the “second phase of the port project.”
There was more. $272 million for a railway in 2013 and more than $1 billion for the Colombo Port City project, ventures that hired mostly Chinese workers (one Sri Lankan report put the number of Chinese workers dedicated to projects in 2009 at 25,000), and all with money Sri Lanka could barely afford to repay.
By 2015, Sri Lanka owed China $8 billion, and Sri Lankan government officials predicted that accumulated foreign debt — both owed to China and other countries — would eat up 94% of the country’s GDP.
After an equity swap, an IMF bailout and more control over the projects ceded to Beijing, the terms of the debt were restructured, giving Sri Lanka some breathing space.
In 2017, however, the Hambantota port proved too costly for Sri Lanka to sustain.
“They (the Chinese) called in the debt, and the debt has been paid by Sri Lanka giving them the (Hambantota) port. That port then gives them not only a strategic access point into India’s sphere of influence through which China can deploy its naval forces, but it also gives China an advantageous position to export its goods into India’s economic sphere, so it’s achieved a number of strategic aims in that regard,” said Malcolm Davis, senior analyst at the Australian Strategic Policy Institute in Sydney.
“This is part of a determined strategy by China to extend its influence across the Indian Ocean at the expense of India and it’s using Sri Lanka to achieve it,” he said.
Details of the new agreement between China and Sri Lanka have not been made public.
The port is an “important project aimed at spurring local economic growth based on equality and mutual benefits,” according to the Chinese Ministry of Foreign Affairs. It declined to answer further when asked by reporters. (CNN)