April 12, 2010

CHINESE INROADS INTO SRI LANKA

B.RAMAN

INTRODUCTION

  • Sri Lanka has a right to develop close relations with China and Pakistan. India cannot legitimately oppose it.
  • At the same time, the Government of India has a duty to take note of the various aspects of the relations, which could be detrimental to our national security and evolve an appropriate policy response.

  • The policy response could be either actively countering their influence in Sri Lanka or actively promoting our interests in Sri Lanka or a mix of both.
  • Another response could be in the form of a mix of incentives and disincentives---- incentives to make it worthwhile for Sri Lanka to have closer relations with India than with China or Pakistan and disincentives if it is insensitive to India’s concerns and interests.

  • A good incentive could be by making the huge Indian market easily accessible to the goods and services of Sri Lanka, by making it worthwhile for Sri Lankan students to study in India, by sharing our IT expertise with Sri Lanka, by encouraging networking between the corporate worlds of the two countries etc
  • A strong disincentive could be by using our traditional pressure points in Sri Lanka such as the dependence of Sri Lanka’s tourism economy on Indian tourists, the goodwill for India in large sections of SL society etc

  • Unfortunately, we are yet to work out a comprehensive and workable policy response.
  • We are worried over the increasing Chinese influence and its implications for India’s security, but we do not articulate our concerns. We pretend as if Indian and Chinese interests will never clash in Sri Lanka and we try to give an impression that we can take it in our stride.
  • Our policy response, if at all there is any, is ad hoc and not strategic with the immediate and long-term interests influencing the response.

  • China’s policy, on the other hand, caters to its interests of today as well as its likely interests of tomorrow and the day after. There is nothing ad hoc about it.
  • China is not a South Asian power, but has acquired a robust South Asian presence through its carefully-cultivated relations with Pakistan, Sri Lanka, the Maldives, Bangladesh and Nepal.
  • China is not an Indian Ocean power, but it is seeking to acquire a robust Indian Ocean presence through its relations with Myanmar, Bangladesh, Sri Lanka, Maldives, Mauritius & Seychelles.

  • India is a South Asian and Indian Ocean power, but its South Asian and Indian Ocean influence is being eroded by the increasing inroads of China at the expense of India.
  • This presentation will focus essentially on China and not on Pakistan.The threat to us from Pakistan through Sri Lanka is more tactical than strategic, more subversive than military, more political than economic. China is a dragon, but Pakistan is still only a pinprick.

  • We should be alert to the possibility of China and Pakistan acting in tandem in Sri Lanka and the Maldives to undermine the Indian influence, but there is as yet no evidence of this possibility becoming a reality, but it could in the long-term.Our policy response should nip this bud before it starts blooming.Beyond this caution, I will not say anything else on Pakistan in this presentation.

General Observations & Quotes

  • Under President Mahinda Rajapaksa, Chinese presence and influence in Sri Lanka have increased.He has visited China thrice since assuming office. Increase in bilateral interactions and exchange of visits.Sri Lanka opened a consulate—its second one in China—in Chengdu, where Pakistan already has an active Consulate.The Chengdu Military Region coordinates China’s military strategy in South Asia.
  • “China and Sri Lanka are long standing friends. China never deserted Sri Lanka in its times of distress”---Rajapaksa in April 2008 while inaugurating the construction of Sri Lanka’s National Theatre of Performing Arts to be built with Chinese assistance.

  • “The friendly relationship between the two countries has stood long test and the two countries are tested friends. Sri Lanka has always firmly stood by and will never change its stance on one-China policy”—Rajapaksa on September 4,2009, while receiving a delegation of the Chinese Communist Party.

  • “The Chinese Government endeavors to develop its friendship and cooperation with Sri Lanka on the basis of the Five Principles of Peaceful Co-Existence. Chinese enterprises are contracted to build the Hambantota port. Any vicious distortion of the normal business deal holds no water. Social stability, economic development and ethnic reconciliation of Sir Lanka serve the shared aspiration and fundamental interest of the Sri Lankan people. We sincerely hope this goal can be achieved at an early date” ---.Chinese Foreign Ministry Spokesperson Ma Zhaoxu at his regular press conference on May 12, 2009.

  • “Sri Lanka’s traditional donors, namely, the United States, Canada and the European Union, had receded into a very distant corner to be replaced by countries in the East. The new donors are neighbors; they are rich; and they conduct themselves differently. Asians don’t go around teaching each other how to behave.There are ways we deal with each other — perhaps a quiet chat, but not wagging the finger. Chinese assistance has grown fivefold in the last year to nearly $1 billion, eclipsing Sri Lanka’s longtime biggest donor, Japan” ---Palitha Kohona, Sri Lankan Foreign Secretary as quoted by the “New York Times” dated March 9,2008

Bilateral Trade

  • Trade between the two countries has doubled over the last 5 years from US$ 660 million to US$ 1.13 billion, making China the second largest exporter to Sri Lanka and the 13th largest export destination for Sri Lanka’s exports.

    "We have paid far too much attention to the export markets in the US and now we need to move towards the Asian giant China. We have had an over dependence in the US market for our exports for too long," Prof. A. D. V. De S.
    Indraratna, President, Sri Lanka Economic Association.

  • Sri Lanka exports coconut fiber products, natural rubber, tea, spices, precious and semi-precious stones and ready made garments to China. There has been a significant increase of Sri Lankan exports to China since 2000, mainly due to the bulky export of mineral sands as zicronium ores , coir fiber and electrical components etc. The exports of mineral sands rose from Rs. 10 million in 2001 to Rs. 226 million in 2008. Only 0.45 per cent of Sri Lanka’s total exports go to China, but 12 per cent of its total imports come from China.

Project Assistance—Hambantota Port

  • The foundation for the construction of a modern port with Chinese assistance at Hambantota in southern Sri Lanka was formally laid in October,2007. The construction actually started in January,2008.
  • It is a 15-year project to be completed in stages. The entire project is estimated to cost US $ one billion. The present Chinese commitment is for the construction of the first stage only, which is estimated to cost US $ 360 million. China has agreed to give 85 per cent of this amount at concessional interest. The balance is being contributed by the Government of Sri Lanka.
  • The first stage of the 15-year (2008-2023) project is expected to be completed by the end of 2010. This stage envisages the construction of a 1000-metre jetty, which will enable the harbour to function as an industrial port for the import and export of industrial chemicals, fuel and heavy machinery. By 2023, Hambantota is projected to have a liquefied natural gas refinery, aviation fuel storage facilities, three separate docks giving the port a transshipment capacity and dry docks for ship repair and construction. The project also envisages that when completed the port will serve as a base for bunkering and refueling.
  • The draught (depth) of the new harbour will be 16 metres against 15 metres in Colombo. A 230 metre passage-entrance channel will be created at the breakwater which is 988 metres long on the west end and 311 metres long on the east end.
  • The Government hopes that as a refueling location Hambantota will have many advantages over the Colombo port or ports in South India. The construction has been undertaken by a consortium of Chinese companies headed by the ChinaHarbour Engineering Company and the Sino Hydro Corporation.

  • The project doesn’t have a separate consultant. The Sri Lanka Port Authority (SLPA) is functioning as the client-cum-consultant while the China Harbour Engineering Co Ltd is the contractor. In September,2008,there were 328 Sri Lankans and 235 Chinese working at the site-engineers, administrative personnel and others. The present number is not known.
  • The first stage due to be ready by end 2010 will allow three
    ships to berth. The final stage, for which there is no offer of funding yet from China, is planned to accommodate more than 30 ships, which is the present capacity at Colombo.
  • Reliable reports say that while the Sri Lankan authorities want Hambantota to emerge as a modern port with better facilities and efficiency than any of the ports in South India, they do not want the present importance of the Colombo port to be reduced. Colombo presently has the reputation of being the most modern and most efficient port in South Asia. They want this reputation to be maintained. There is no proposal at present to set up container yards and cater to container ships at Hambantota.
  • The present Chinese interest is in the use of the docking and refueling facilities that would come up in Hambantota for their commercial and naval ships. There is no proposal at present for a Chinese naval base at Hambantota.

New Container Terminal at Colombo

  • Chinese port operator China Merchants Holdings (International) is negotiating with the Sri Lankan authorities a contract for the construction of a new container terminal at Colombo. The company has bid for the contract jointly with a Sri Lankan company Aitken Spence.

Maththala Airport--Hambantota

  • On November 27,2009, Rajapaksa inaugurated the construction of Sri Lanka's second international airport at Maththalain Hambantota.
    The new airport will be constructed on a plot of 2,000 hectares in
    Hambantota district at a cost of US$ 190 million. The Government of the People's Republic of China will provide financial assistance for the project with a soft loan through its Ex-Im Bank.. According to the Ports and Aviation Ministry, the construction of the airport will be completed in two phases. All basic facilities including runways, taxiways and parking facilities will be completed in the first phase to be completed by 2011. All other airport and aviation related facilities will be completed in the second phase. These include servicing and repairing centre for aircraft, hotels, pilot training centre, maintenance hub, private jet parking, and technical training centers. The Government hopes to commission the airport by the end of 2011 and land the first flight by December 2011.

Other Projects with Chinese Assistance

  • The construction of the Colombo--Katunayake Expressway.( US $ 248 million)
  • Improvement of the railways---US $ 100 million to be given by China’s Ex-Im Bank. Agreement signed on March 10,2010.
  • Norochcholai Coal Power Plant (US$855 million)

  • A flood protection system for Colombo suburbs of Kotte, Dehiwela-Mount Lavinia, Maharagama, Kesbewa and Moratuwa. ( US $ 59 million) To be given by China Construction Bank.

    National Theatre of Performing Arts in Colombo ( US $ 21 million)
  • Sri Lanka's investment promotion agency, the Board of Investment, announced in July,2009, it has signed a deal with China's Huichen Investment to manage a special economic zone dedicated to Chinese investors. Huichen will invest US $28 million in the zone in Mirigama, north of Colombo, to improve infrastructure in the first phase over three years.Thecompany, a conglomerate that specialises in infrastructure development and does coal and iron ore mining, will also market the zone and attract Chinese investors.
  • More than 50 per cent of the funding received by Sri Lanka from abroad for construction and development projects sinceRajapaksa came to power came from China.

  • "Since 2007, Sri Lanka has been trying to launch a communication satellite. China has agreed to provide financial and technical assistance," Executive Director of the Institute of Policy Studies, Dr. Saman Kelegama was quoted as saying in November 2009. In May 2009, Priyantha Kariyapperuma, Director-General of the Telecommunications Regulatory Commission, had said that the Government had begun work on a space programme hoping to launch two communication satellites. "The University of Surrey specializes in satellite technology having created about 35 satellites. They have made a presentation to President Mahinda Rajapakse and have entered into an agreement to transfer technology and knowledge to our universities," he told the Island Financial Review. Kariyapperuma said a consortium of vice chancellors from universities with engineering faculties had been formed for this purpose. He said the Government planned to launch two communication satellites—a lower earth orbit satellite used mainly for images and a geo stationary communication satellite. The two satellites will be used not only for communication purposes but also for disaster management, agriculture planning, irrigation planning, town/urban planning and coastal conservation. He said the low earth orbiting satellite could be financed with domestic funds particularly from the Telecommunication Development Fund. The private sector would also be called to contribute to the development of the two satellites.

Chinese Project Assistance—Some Features

  • All except a thermal power plant in Sinhalese majority areas.
  • The Chinese have agreed to consider project proposals from the Tamil areas in future, including a proposal for improvement of road communications in the Jaffna peninsula.

Projects of Concern from India’s security point of view

  • Hambantota Port: Though at present there is no talk of a naval base, it could emerge ultimately to cater to the requirements of Chinese oil & gas tankers and anti-piracy patrols.
  • Communications satellite with Chinese assistance could be used for the collection of TECHINT about India’s nuclear and space establishments in South India.

Other Chinese Assistance

  • One million U.S. dollars in humanitarian aid to help internally displaced persons.
  • Technical assistance for demining operations in the Northern and Eastern Provinces .
  • China’s humanitarian assistance is meagre. Its assistance focuses on areas which could benefit its strategic goals.

Chinese Military Equipment Supplied for Use Against LTTE

  • Jian-7 fighter jets, anti-aircraft guns and JY-11 3D air surveillance radars .Average military supplies to Sri Lanka estimated at US $ 100 million per annum.

Exploration of Oil & Gas

  • The policy of the Rajapaksa Government is whatever benefit is offered to India, an equal benefit will be offered to China. It offered one block each without bids in the Gulf of Mannar area to India and China for exploration.

India’s Response

  • No public articulation of Indian concerns.
  • It is not known whether there has been any private articulation through diplomatic channels and, if so, how strong & effective.
  • With the SL Government having subdued the Tamils with Indian, Chinese and Pakistani assistance, India no longer has this pressure point in Sri Lanka.

  • Economic pressure may still work because of the large flow of Indian tourists to Sri Lanka and their contribution to the Sri Lankan economy.
  • The present Government in New Delhi will be disinclined to use economic pressure or engage in a robust response to counter the growing influence of China in Sri Lanka.

  • One sees no prospect of reversing the gradual erosion of the Indian influence and the growth of the Chinese influence.
  • India should not keep its economic presence confined only to the Tamil areas. It should be active in the Sinhalese areas too.
  • India should vigorously exploit its advantages vis-à-vis China---huge Indian market next door to SL, our mastery of the English language, India’s robust corporate sector which should compete against the Chinese companies

The private sector can compensate for the lack of Indian Government activism in Sri Lanka. The SL Govt. first approached an Indian company for the Hambantota project. When the response was negative, they approachedChina.When they invited bids for a new container terminal at Colombo, no Indian company responded. Only a Chinese company did.



( The presenter is Additional Secretary (retd), Cabinet Secretariat, Govt. of India,New Delhi, and Director, Institute For Topical Studies, Chennai. Also associated with the Chennai Centre For China Studies. E-mail: seventyone2@gmail.com Paper presented on April 12,2010, at a seminar on Sri Lanka jointly organised by the Indian Centre for South Asian Studies and the Centre For Asia Studies, both of Chennai.)

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