Why is India worried about China consolidating in Sri Lanka?
Posted on August 3rd, 2017

Swaran Singh

Author is Senior Fellow at Institute for National Security Studies Sri Lanka (Colombo) and professor of Diplomacy and Disarmament at Jawaharlal Nehru University (New Delhi).

On Saturday, Sri Lanka finally signed a $ 1.1 billion deal selling China 70 percent stake in its strategic Hambantota port. The fact that the Chinese signatory, the state-run China Merchant Port Holdings, is a Hong Kong based firm reminds not just of a similar 99 year lease that Chinese had signed in 1841 following their Opium War with Great Britain. Much closer example would be China’s recent 43 year lease for managing Pakistan Gwadar port and adjoining 2,282 acre special economic zone that was singed in November 2015.

But this time round, China has moved several steps forward from than those older models. First, its Concession Agreement for 99-year lease of running operations of the Hambantota port and an enormous special economic zone of 15,000 acres around it has formalised much anticipated “debt-into-equity” swap model. Second, this 99-year Concession Agreement comes after protracted negotiations following their original 2014 draft under the Rajapaksa government but more recently following their January 2017 framework agreement and these negotiations have since been accompanied by widespread public criticism and concerns in Sri Lanka and abroad.

Sri Lankan government had accordingly promised to re-negotiate the deal and has now changed the ratio of Chinese ownership from original 80 to less than 70 per cent. It has also provided security assurances for Colombo’s other partners including India, Japan, United States etc as also inserted newer provisions for relocation and compensation for thousands of villagers who will be uprooted from their traditional homes. This wheel of time appears increasingly unstoppable and its pace is likely to be further accelerated as part of China’s Belt and Road juggernaut which will ensure that this evolving new model will be further improvised and replicated elsewhere as well.

China has clearly emerged as the fastest growing investor nation in Sri Lanka. This trends had witnessed an upsurge especially following the brutal civil war of 2009. Hambantota that was completed in 2010 represents today as the most symbolic ‘flagship’ project of their ever expanding partnership involving a slew of several mega projects. Indeed, the new coalition National Unity government came to power in 2015 riding the wave of anti-Rajapaksa sentiment promising to review all Chinese projects sanctioned by president Mahinda Rajapaksa. After a brief period of haggling and talking tough, however, the realty of external debt was to dawn upon these new set of leaders who’s have gradually moved to accommodating Chinese demands and drifted towards Beijing for Sri Lanka’s much needed financial relief and redemption

Debt-traps model

Rising debt has made Sri Lankan leaders admit having landed in debt-trap which remains their most formidable existential challenge with limited exit options. As of April 2017, Sri Lanka’s total outstanding external debt stood at $25.61 billion. This means it has to pay back around $2.42 billion during this year itself and this figure will rise to $2.56 for the coming year and so on. Chinese loans alone account for over $8 billion and Chinese projects have especially not yielded any returns. The Hambantota port today presents one such while elephant with no teeth or tusk. It has progressively handled lesser number of ships each year. From 19 ships in 2015 ships visiting this port have decreased to 14 in 2016 and only ten ships have anchored for first half of this year. These numbers of course exclude car carriers that have been forcibly diverted from Colombo port since year 2012.

These investments had been originally invited by the Rajapaksa government who had also initiated this “debt-into-equity” framework during 2014. This agreement however could not be signed then in view of declaration of elections followed by the change of government. But the debt trap thus created has not disappeared. The only change today is that new government has reduced the Chinese share ratio from 80:20 to now 69:55 and 30:45 between China Merchant Port Holdings and Sri Lanka Port Authority. Worse, the lease in case of Hambantota involves evicting thousands of villagers which have also triggered simmering resentment though government promises to provide new lands as also appropriate compensations. IN view of Chinese practices elsewhere, Sri Lankan government has also been facing huge resistance from various trade unions and petroleum workers last week had brought the whole nation to a standstill with their two days of stopping fuel distribution.

It is interesting that Namal Rajapaksa, member of parliament and son of former president recently told the BBC how he feels India would “be very uncomfortable with this arrangement.” No doubt India’s anxieties have also continued.  Provisions of this new deal do provide ample clarifications on how the Chinese company will be responsible only for commercial operations and Sri Lankan navy will be responsible for security yet this 99 lease of this deep-sea port is bound to trigger speculations about this port becoming a base for the Chinese navy. Let alone India, such sentiments have also been expressed by various Chinese commentators. Indian experts of course feel convinced of this being at least potentially part of China’s so-called string of pearls. Sitting close to the east-west shipping lines in busy Indian Ocean, port of Hambantota is bound to become a major a major staging post in China’s Maritime Silk Road initiative.

Addressing India’s Concerns

Sri Lanka of course has made efforts to balance its relations with all major partners. As prime minister Ranil Wickremesinghe recently explained, the accumulated loss of the port was more than $304 million and money realised from the deal will set off the debts Sri Lanka owed to the Chinese.  Before being elected to office leaders of opposition had criticised the project but have gradually come around to understand inevitability about China’s help in addressing its problems of port’s underperformance and heavy debt repayments. It is reported that port’s annual load repayment stands at $59 million and by 2016 the port had suffered loss of $304 million.

As regards India, this Concession Agreement is sure not a happy news but given Colombo’s debt situation India perhaps has few options other than accepting this fait acompali and shore up its pragmatic defence mechanism. Already entangled in rough relations with China for last two years India is politically not in position to choose confrontation with China through any emergency bailout of Sri Lanka in case of Hambantota. India is believed to having been kept in confidence by Colombo’s negotiators who apparently included several specific security clauses in this agreement on insistence from or in deference to India. For instance as per the July 25 cabinet note, the concession agreement has provisions to prohibit “any form of military related activities” by China clarifying that “sole responsibility and authority for such activity and for National Security of the port of Hambantota with the Government of Sri Lanka” which will be the only authority to grant permission to any naval vessels to anchor at this port. Also, all personnel involved in security related apparatus shall be Sri Lankan nationals. While such security assurances may be important yet India can not escape the fact that this deal clearly signifies Sri Lanka’s increasing path dependency on China with deeper strategic implications.

Moreover, India also remains engaged in various projects including development of northern deep-sea port of Trincomalee and an adjoining oil tank farm. India also remains Sri Lanka’s largest trading partners with their bilateral trade standing at $4.38 billion. India has also committed development assistance of over $2.6 billion in various loans and grants. But given India’s understanding on its core security interests in its immediate periphery Sri Lanka’s policy of equidistance itself generates anxieties amongst India’s policy makers.  It is equally important for India not to overlook Sri Lanka’s domestic unease about this agreement. Their experience with China is likely to make Sri Lankans far too cautious even with India. The ‘joint opposition’ made up of the Rajapaksa loyalists and Left parties has already been critical of ‘giving’ Trincomalee to India. There are questions about Sri Lankan leaders overlooking widespread and persistent protests and signing the deal in a hurry without deliberating it in their national parliament. Sri Lanka leaders could have used this to buy time to assuage anxieties of these domestic and foreign stakeholders though they could never have fully addressed their concerns.

6 Responses to “Why is India worried about China consolidating in Sri Lanka?”

  1. Dilrook Says:

    Very few remember that the sale of Hambantota was first considered by the Rajapaksa administration in 2014 and the UNP vehemently opposed it then as Mahinda opposes it now. These two groups are just playing politics with it.

    [Quote] These investments had been originally invited by the Rajapaksa government who had also initiated this “debt-into-equity” framework during 2014. This agreement however could not be signed then in view of declaration of elections followed by the change of government. But the debt trap thus created has not disappeared. The only change today is that new government has reduced the Chinese share ratio from 80:20 to now 69:55 and 30:45 between China Merchant Port Holdings and Sri Lanka Port Authority. [Unquote]

    India’s concerns are unwarranted. India has a habit of interfering in other regional nations’ affairs. India should stay within its boundary without venturing into others’ business.

    Hopefully the JO will not become India’s new darlings though they are trying hard to become so. Namal’s claim that [quote] India would “be very uncomfortable with this arrangement [unquote] is an indication and so is the unplanned meeting Mahinda and Gotabhaya had with Modi. It is foolish of India to trust them. Voters will not be kind to this approach either.

  2. SA Kumar Says:


    So what is long team plane (99 years) for these day light thieves deals ,where Mother Lanka people end up in another 10 or 20 years time will end to 99 years …

    are We Mother Lanka are still living cuckoo land ????

  3. Christie Says:

    Tell the truth Mr. Singh.

    India is not worried about what we do or will do.

    India got all its ports dug out or natural for its surface boats.

    Then it got Assumption, (Seyschells), Agadega (Mauritius) and Andaman and Nicobar (India) to cover India’s Ocean.

    We have no deep sea naval weapons and Trincomalee Harbor is India’s harbor.

    Oil Tanks and Indian Colonists around provide the support from land.

  4. NAK Says:

    This agreement is not an agreement between two totally commercial entities. Both parties to the agreement are government owned establishments.So,if the Chinese company faces any difficulties Chinese government will definitely intervene on behalf of their interests.
    Isn’t it is kind of hilarious if not serous to believe that Sri Lankan security forces will be able to enforce prohibitions in the agreement in case of Chinese navy chooses to pay a visit to a port that is leased, paid and run by a Chinese government owned company.
    Indians seem to console themselves for the disaster they brought upon themselves by believing people like RW.

    Prof.Singh conveniently refrains from elaborating about the 2014 draft which was only for operating of the port for a fee.
    The debt trap is also another made up canard like the security concerns of India when the Chinese subs called in to Colombo.
    Also he gives misleading information regarding the unloading of vehicles in Hambanthota. Vehicle unloading was transferred to Hambanthota mainly because of the delays in unloading in Colombo and the long backlog of ships waiting to unload costing millions of Dollars.
    Anyway,the way these same people ridiculed the Hambanthota port one wonder how they could shamelessly talk about making money out of it.

  5. Senerath Says:

    It is foolish of India to trust them ? Why ? They have never betrayed them.
    INDIA IS OUR BROTHER OUR FRIEND , they said and they acted and kept the word. Look at the number of 3 wheelers, TATAs, Maru-tees, Mahendras, A-shoker lay-lands on the road. Trillions work sales !

  6. Fran Diaz Says:

    INDIA’s main Trading Partner is China, next America.
    INDIA has signed 10 Border Peace Agreements with China.

    So why would INDIA be concerned ?
    Trinco Harbor ?
    Earlier Tamil Nadu Separatism from INDIA (till PM Nehru’s Anti-Separatism Laws came in and stopped it).

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