Sri Lankan Prime Minister Ranil Wickremesinghe visited China for three days from April 6, and met top Chinese leaders including President Xi Jinping and Prime Minister Li Keqiang. The visit helped to repair the relations between the two countries
Under President Mahinda Rajapaksa, the Sri Lanka foreign policy had a Beijing tilt and it became pronounced from the last phase of the Eelam War. The Magampura Mahinda Rajapaksa Port, also known as the Port of Hambantota, and the Colombo Port City (CPC) project became the manifestations of the bonhomie.
Post-2015 election, which brought Sirisena- Ranil combine to power, work on the Chinese-funded CPC was suspended citing “irregularities, corruption and absence of proper environmental impact assessments,” as the reason notwithstanding the fact that the project involving reclamation of 233 hectares (575 acres) from the sea front adjacent to Colombo harbour had attracted the single largest foreign investment of $1.4 billion.
Expectedly, Sirisena-Ranil decision had upset the Chinese leadership since Beijing considers the CPC as an important component of its Maritime Silk Road through the Indian Ocean to protect its all-important energy cargo movement from the Gulf region to its South China Sea coast.
Like any lender, Beijing tried to flex muscles. The China Communications Construction Company (CCCC), the CPC builder, said it was losing $380,000 a day as a result of suspension of work. It lamented that about 5000 workers were forced to sit idle or lose jobs. And demanded $125 million in damages.
China came down a peg during Wickremesinghe’s talks with Xi Jinping and Li Keqiang. It settled for a 99-year lease over 20 hectares, instead of previously-promised outright ownership, and control of 108 hectares.
Wickremesinghe offered some concession to his Chinese hosts too. Accordingly, Chinese companies would be given control over a section of the CPC in order to develop a financial district. The government has already included CPC in the Western Province Mega Polis program, which seeks to develop a cluster of cities for financial, commercial, tourism and industrial ventures to attract foreign investments. At the same time, the Sri Lankan Prime Minister announced that the government would disinvest forty percent stake in the CPC. This inter alia means entry of other investors or stock market players like venture capitalists which will lead to creation of a level playing field in the CPC per se.
The move will give relief to the cash strapped Sirisena government. It has already approached the lender of last resort, the International Monetary Fund (IMF) for a loan of some $1.5 billion. The Rajapaksa years saw Sri Lanka become dependent on Chinese Yuans for bulk of the funds needed for infrastructure projects and post-war reconstruction effort. This dependence was upto 70 per cent in some cases. Result: Lanka today owes some $ 8 billion to China.
In the changed circumstances, Wickremesinghe has asked China to convert debt due to its state-owned companies into equity. His government is also willing to sell some enterprises to the Chinese. With China eager to reinvent itself in the Sri Lankan landscape, Wickremesinghe generally had his way.
Sweetening the deal, the Sri Lankan leader made an offer that could result in proper utilisation of the assets created at Hambantota. He wants to turn Hambantota into another Shenzhen— the city that was at the heart of former Chinese leader Deng Xiaoping’s reforms. As of now both the port and the airport are underutilised.
In the new plan of things, the Chinese will be allowed to develop an exclusive economic zone spread over 1000 hectares at Hambantota. This is a win-win proposition for both sides. Prime Minister Li is gung-ho about the development and is taking in his stride Colombo’s unwillingness to convert Hambantota into a Gwadar, the Pakistani port on the Balochistan coast which is Chinese built and managed. “We welcome the resumption of the Colombo Port City project, and stand ready to work with Sri Lanka to push forward the construction steadily,” he said and announced a $500 million grant to Colombo. Wickremesinghe was not displeased though he was disappointed by the grant.
Both sides agreed to use the development of a 21st Century Maritime Silk Road as “an opportunity to further advance infrastructure development”. In addition they decided to enter into negotiations for a China-Sri Lanka Free Trade Agreement, and promote joint ventures.
FTA has been a sore point between India and Sri Lanka with several sections within and outside the government openly opposing it.
So much so, the question: Is Sri Lanka returning to the Dragon’s hug? Leading Delhi daily, Times of India, fielding the has fielded the question remarked: “Sri Lanka has accepted China’s bidding to make the Indian Ocean an economic hub, ignoring India’s concern.”
From a Sri Lankan perspective, it is difficult to discount the financial troubles Sirisena regime is facing and the urgency to tap any avenue, the Chinese including to tide over the crisis. Moreover, it cannot allow the incomplete CPC to remain as an eye sore and thus offer a talking point to the deposed president Rajapaksa.
Anyhow, going by what is in public domain, there is every reason to believe that India has been kept in the loop. ““We have discussed it with India and we are willing to discuss it with India further. As you know, this is not going to be a China-Sri Lanka venture. It is going to open to everyone and already many Indian businessmen have told me that they are willing to come to the port city,” Wickremesinghe told the media at the end of Beijing visit.
Nonetheless the fact remains that Wickramasinghe gives pride of place to China as a core partner in devising a regionally inclusive “economic plan”, which would establish Sri Lanka as a “financial, business and logistics hub”. This plan gels well with China’s Belt and Road initiative.
According to Sri Lankan leader, it also aligns with India’s Make-in-India policy, and Singapore’s vision of economic engagement with Colombo.
Put differently the issue – whether Sri Lanka is back in Dragon’s hug -is neither closed nor wide open, as of now.
-By Malladi Rama Rao