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Game of Loans: China – Sri Lanka Relations; By Georgekutty Antony

Image Courtesy: Hindustan Times/NYT

Article No. 052/2018

Abstract

Sri Lanka has permitted China to make significant economic inroads into the island nation. Beijing’s actions are illustrative of a pattern that marks China’s engagement with several other Indian Ocean littoral states. This has developed into a situation of immense concern for India. According to Indian envoy Gautam Bambawale who stated in March 2018 that India is not worried about China’s attempt to establish close ties with other South Asian countries, given that New Delhi has strong relations with its neighbours. On the other hand, Raveesh Kumar, the spokesperson for the Ministry of External Affairs (MEA), India, while addressing the Hambantota “trade-off” in December 2017 emphasized that, “India expects Sri Lanka to be mindful of its security concerns and sensitivities”. Perhaps in response to India’s concerns, Sri Lankan Naval Chief Admiral Ravindra Wijegunaratne, while addressing the Indo-Pacific Dialogue in February 2018, assured that no actions will be taken by Colombo in Sri Lankan harbours and waters which would jeopardise India’s security. It is clear that Chinese investments in Sri Lanka were being alluded to.

However, this statement was delivered long after the Sri Lankan government, in December of 2017, formally handed over the Southern port of Hambantota to Chinese firms- HIPS (Hambantota International Port Services) and HIPG (Hambantota International Port Group). The port will be managed by the China Merchants Port Holdings Company (CMP). The decision by Colombo was labelled a ‘sell-out’ by the Sri Lankan opposition parties and trade unions.

This article seeks to analyse the rationale behind Colombo’s decision to lay out the red carpet for China. Sri Lanka’s national debt escalated to US$71.9 billion in 2018, and almost 80% of national income is spent on servicing this debt. This article will argue that in the interest of maintaining fiscal equilibrium, Colombo has sought foreign investments from China.

The article will also explain how Sri Lanka plans to leverage its geo-strategic location to attract foreign investments and how this goal plays into the dynamics of China’s strategic interests in the Sea Lines of Communication (SLOC) of the Indian Ocean Region (IOR).  According to the Government of Sri Lanka’s Economic Policy Document titled ‘Vision 2025’ published in 2017, Colombo is envisioning a transformation of Sri Lanka into the maritime hub of the Indian Ocean by nurturing a knowledge-based, highly competitive social-market economy.

Amidst these developments, the Indian dimensions will also be studied to examine India’s contributions to the infrastructural backbone of Colombo. Additionally, socio-economic assistance provided by India to Sri Lanka in the form of post-war reconstruction viz. rehabilitation of refugees and other means will be analysed in this article.

Finally, the paper will propose how India can proactively assist Sri Lanka’s ambitions while simultaneously balance its ties with China. This paper explores the possibility of India working alongside Sri Lanka to earn its trust and help the island nation achieve its aspirations.

The following research questions are studied in the paper:

1)            What are the reasons behind Sri Lanka’s engagement with China, which permit Beijing to make inroads into the economy of the island nation?

2)            How can India assist Sri Lanka to achieve its aspirations of becoming a regional hub in the Indian Ocean Region (IOR)?

3)            While carrying out the above, how should India deal with the Chinese presence in Sri Lanka?

Sri Lanka: Post-Civil War Scenario

Besides the quest for seeking foreign direct investments (FDI) and achieving developmental goals, Colombo has several reasons for allowing China and other countries to make investments in Sri Lanka’s economy. A poor economic performance of 3.5% growth in GDP in 2009 after the onset of the global economic and financial crisis in September 2008 left a dent in the growth prospects of the Sri Lankan economy. This period (September, 2008) witnessed a series of capital outflows from Sri Lanka, especially from foreign investors holding government bills and bonds. However, the defeat of the Liberation Tigers of Tamil Eelam (LTTE) and the end of the Sri Lankan civil war has restored a favourable investment climate in Sri Lanka. This has given the Government of Sri Lanka (GSL) an impetus to ensure the country’s long-term economic stability.

Economic pressures is the main reason that drew Colombo closer to Beijing. Over the past three decades, Sri Lanka has considered Western financial assistance as the solution to maintaining fiscal equilibrium and carrying out financial rebuilding. However, financial assistance through Bretton Woods institutions viz. International Monetary Fund (IMF) and World Bank Group imposed strict austerity measures and conditionality on Sri Lanka. These measures required structural changes and cutbacks in the welfare budget, which resulted in reduced welfare expenditure in areas like education, health and agriculture. This has been a bitter experience for the islanders. Moreover, there was hesitation among the major western countries to accept Sri Lanka’s appeal to the IMF for a standby loan of 1.5 billion USD in 2009. When the country’s governance system displayed a lack of efficiency, it forced the West to withdraw preferential tariff rates on Sri Lanka’s exports as well. This resulted in job losses for thousands of Sri Lankan workers. Cancelling Sri Lanka’s GSP Plus status also caused a downgrade in the financial credibility of Sri Lanka. These measures, coupled with financial arm-twisting tactics of Western nations, left Sri Lanka stranded.

To appear as a viable financial alternative to Western financial institutions, China has managed to develop itself as an economic power house. China’s economy has grown into a position from which it can challenge the trinity of Washington Institutions (the World Bank, IMF and the US Treasury Department) and offer an alternative of unconditional financial assistance. China’s EXIM Bank (Export-Import Bank) provided more than 6.1 billion USD as a loan in 2009 for post-civil war development projects- including the Hambantota deep water seaport – in Sri Lanka[i].  This single loan amount was more than the loans provided by the United States, Japan and India combined.

The 2015 launch of the Asia Infrastructure Investment Bank (AIIB), a multilateral development banking institution, mainly financed by China, was projected to be a parallel establishment that bypassed the World Bank Group. Notably, Sri Lanka has signed the Articles of Agreement (AoA) as a regiona member of AIIB with an initial Capital Subscription of US$269 million. AIIB was observed by Sri Lankan economists to be an easy source of credit albeit at a higher interest rate. Sri Lanka had to choose from either seeking credit with no regulations at high commercial rate (via AIIB) or receive low cost funds with conditionality (from Western led institutions). The small country’s ambitions for greater economic growth after a brutal civil war led it to opt for the former.

Sri Lanka – Geo-strategic Leverage:

For the past few years Sri Lanka has been maximising its focus on maritime trade to extract benefits out of its proximity to Sea Lines of Communication (SLOCs), by developing as a regional maritime hub in the Indian Ocean Region (IOR). Sri Lanka is hopeful of leveraging its geo-strategic location as a mechanism to draw global investments into Sri Lanka. The country sits astride SLOCs that connect the Asia-Pacific region with the Middle East and North Africa Region (MENA). In fact, the sea line that connects the Eastern Indian Ocean with the Western Indian Ocean lies approximately hips pass through this route annually. Two-third of world’s oil and half the world’s container shipment traffic traverses this sea line. The proximity of Sri Lanka to one of the most dynamic markets in Asia i.e. India, and to the South East Asian economic grid makes ports and other investments a promising bet for international investors. Oil exploration in the Mannar basin has also contributed to increased global interest in Sri Lanka. China is the most prominent of many international players keen to cash in on Sri Lanka’s advantages.

Strategic and economic relations between China and Sri Lanka can be analysed from two angles. First, Sri Lanka is leveraging its geo-strategic location to enhance its own prospects for economic growth. Second, China is engaging with Sri Lanka to expand its sphere of influence in the Indian Ocean Region.

There are other factors that can explain Sri Lanka’s current attitude toward China. For instance, in the context of defence purchases, during the conflict with the LTTE, Colombo’s options for weapon purchases from traditional suppliers such as the U.S., U.K and other western countries was diminished due to restrictions imposed on Sri Lanka. This forced the government to look elsewhere for its armaments, one main alternative being China. Besides, the hard-line western demands for a UN-led investigation into the allegations of war crimes in Sri Lanka had put the island nation at loggerheads with the West. During this time, the strategic stance taken by China in the face of the West’s disapproval has drawn Colombo closer to Beijing.

The circumstances under which Colombo chose to turn to China for investments, have been described by Patrick Mendis, an American Diplomat:

“With rapidly growing military, diplomatic and economic ties with China since the brutal twenty-five-year civil war between the Government of Sri Lanka and the LTTE ended in May 2009, the war-shattered island nation desperately needed foreign assistance to support post-conflict reconstruction, protect war refugees, avoid further crises, and guarantee overall economic development for its highly literate and industrious people.”[ii]

One major avenue where Sri Lanka has allowed China to make such development efforts felt is in Hambantota. However, there are several complexities to the deal for the Sri Lankan port as is outlined in the sections below.

Hambantota – Contours of the Deal:

The Sri Lankan seaport of Hambantota was a flagship billion-dollar project which has been a part of the country’s official development plans since 2002. The ambitious Hambantota project commenced in 2008 and was mostly financed by the China EXIM Bank. The first phase of financing involved lending 307 million USD at 6.3% interest rate. Other than a prerequisite of a partnership with Chinese contractors, there were no stringent requirements from Beijing’s side concerning safeguards or norms. The prerequisite was that Sri Lanka would disallow third party countries from participating in Hambantota’s port development. The provision also restricted the development of another port within 100 km of Hambantota and prevented Sri Lanka from accepting competing offers. China sought to eliminate competition in and around the port, and it became the sole entity to operate the entire Hambantota project. At the same time, other multilateral development banks offered loans to Sri Lanka for the project at rates closer to 2-3% or sometimes even close to 0%.   However, Colombo chose to accept China’s offer. The first phase of Hambantota port was opened on 18th November 2010 and was named after the then President of Sri Lanka, Mahinda Rajapaksa.

White Elephant – Challenges faced by the Port:

Major challenges faced by Sri Lanka vis-à-vis the southern port of Hambantota came from other ports within the country itself. The proximity of the port of Colombo to Hambantota took the edge off the profitability of Hambantota. The setting up of a new port close to an established one makes economic sense if the established port cannot satisfy existing demand. However, with an existing capacity of 7.1 million TEU and expansion plans in the works, Colombo port poses a major challenge to the profitability of the Hambantota project. In fact, according to the Sri Lankan Ministry of Shipping and Ports, only 183 ships visited Hambantota in 2017, while 281 ships visited the southern port in 2016. In contrast, approximately 4500 ships visited the Colombo port in 2017.

At first, the massive Chinese investments in Hambantota showed themselves as a positive trend in the economy of the island nation. Sri Lanka’s debt to GDP ratio in the year 2009 was 86.063 %; this dipped to 68.71% in the year 2012. But the country’s economy saw major downturns in the following years.

By 2015, close to 95.4% of government revenue was being spent on servicing the national debt.  These conditions forced the government of Sri Lanka to resume negotiations with China. The negotiations finally culminated in a deal that let Sri Lanka lease out the Hambantota port to China for a 99-year bond. According to the agreement, China would pay 1.12 billion USD in a debt equity swap; with China Merchant Port Holdings Company (CMP) getting 69.55% of the shares and the Sri Lankan Port Authority (SLPA), a public sector organisation, in control of the remainder 30.45% of shares. SLPA would be able to buy another 10% stake after 10 years, eventually making the deal an equal partnership for both countries.

The agreement between Beijing and Colombo resulted in the formation of two companies- HIPS, responsible for maintaining port services and security and HIPG, to deal with the commercial aspects of the port. In HIPS, the SLPA holds a share of 50.7% and CMP 49.3% and in HIPG, CMP owns 85% share and SLPA owns 15% stake. HIPG will pay SLPA dividends and royalties on the ports commercial activities[iii]. But according to financial experts[iv], the CMP stake in HIPS is not 49.3% but actually 58%, as 8.7% of the SLPAs stake of 50.7% comes from the funds of HIPG in which CMP has 85% stake. This allows CMP to gain a majority stake in both HIPS and HIPG, and hence become the de-facto owner of the port. The structure of ownership raises the question of whether the government of Sri Lanka will have the rights and authority to grant permission, clearance and approval to Chinese naval vessels at Hambantota, based on mutually agreed terms of payment.

An analysis of the Hambantota deal is incomplete without an examination of the internal political situation in Sri Lanka. The coalition consisting of Sri Lanka Freedom Party (SLFP) and United National Party (UNP) tailored its election propaganda in 2015 by promising to end corrupt deals allegedly transacted by the previous government in relation to the Colombo port city project and the Hambantota project. However, the credibility of the coalition government came into question when it cleared the same deal they claimed would hurt the island nation’s economic and political interests.

The deals with Chinese companies were initially put on hold soon after the SLFP-UNP alliance came to power, because the deals created political uncertainty in Sri Lanka. Despite concerns over the ownership of the land, the Sirisena government in Sri Lanka was forced to make a deal over the Hambantota port with China, as debt accumulated alarmingly ever since the day the project was put on hold. Colombo’s will to act independently was greatly diminished when Chinese contractors of the Hambantota port demanded 143 million USD as compensation for freezing the works.

This deal has created contention in Hambantota as well. The promise of “One job per family” was made by Sri Lankan authorities to the families living near the Hambantota port project as compensation for taking over their land in 2009. Nearly 475 families have been resettled on government allocated land 15 km from the port. Rajapaksa’s vision for his hometown, while he was in power, was to build the Hambantota seaport and airport, along with a convention centre, an international cricket stadium and an investment zone in the city, that would transform Hambantota into the island’s second capital after Colombo. Along with drawing tourists to nearby Yala National park and Kataragama temple, he promised jobs for the locals. But none of these big-ticket projects made a hit in a long run.

According to government officials and data, the district unemployment rate of Hambantota is 5.2%, significantly higher than the national average of 4.4%. These numbers are comparable to Vavuniya and Batticaloain; districts in the country’s war torn north and east[v].

After the agreement was signed with China on 29 July 2017 the government faced huge criticism from the Sri Lankan opposition and President Sirisena allowed the inclusion of a provision that could amend the agreement at any time, with the consent of the two countries. A day after the handover of the port, China’s official news agency Xinhua celebrated the deal as another milestone on the path of the Belt and Road Initiative (BRI).

Sri Lanka has welcomed China’s BRI, due to the Chinese policy of non-interference in the domestic affairs of BRI partner countries. The BRI focuses on linking the Asia-Pacific economic circle in the east and the European economic circle in the west by constructing and developing a network of ports along the Maritime Silk Road (MSR). The BRI has been planned as the longest economic corridor that would have a direct impact on 4.4 billion people and include deals worth 21 trillion USD.

However, for the past decade, China’s growing presence in the IOR and development of its naval and military capabilities has been a cause for concern. This is because China’s advent into the Indian Ocean Region, strategically and economically, is triggering instability and uncertainty in smaller states. China is building ports on small island states in the IOR and Beijing’s strategy is to override potential choke points in the IOR which can be achieved by leveraging these ports along the MSR. Beijing is engaged in a game of loans by pumping huge amounts of money into these small economies to finance projects that cannot be run profitably and which finally result in huge debts, risking a compromise of the countries’ sovereignty in the long run. There are also debates among scholars about the possibility of China gaining control over these littoral states and eventually developing overseas military bases.

According to former US Secretary of State Rex Tillerson, Beijing is encouraging a relationship of dependency using opaque contracts, predatory loan practices and corrupt deals that mire nations in debt traps and undercut their sovereignty, denying them long term, self- sustainable growth[vi]. The future of Sri Lanka’s mounting debt to Beijing is comparable to that of Zambia, where according to the United Progressive Party (UPP) President, Saviour Chishimba, Zambia is not under Chinese influence but under “China’s rule”. It indicates how assertive China is in implementing foreign policy.

These manoeuvres by China in the Indian Ocean Region can be linked to a game of “Wei Qi” (Surrounding Chess), a board game in which each player tries occupy a larger portion of the board using black and white pebbles. The winner of the game is the one who can environ most of the territory on the board. This board game can be compared to the way China is encircling India on all fronts. But the burden of distance is preventing China from making swift moves in the Indian Ocean Region. Meanwhile, India is making significant progress in Sri Lanka through other channels.

Socio-economic Assistance by India

Addressing India’s concerns over the possible militarization of Hambantota port, Sri Lanka’s Army Chief Admiral Ravindra Wijegunaratne, on 27th February 2018, assured India that no country will be allowed to use a Sri Lankan port as a military base. In spite of an official declaration by the head of the Army in Sri Lanka there is still apprehension in India regarding China’s stake in Hambantota.

The Mattala airport takeover by India must be examined keeping in mind the China-Hambantota nexus.  In the event of a standoff between India and China in the Indian Ocean Region (IOR), Hambantota would be an ideal location for the PLAN to transform the seaport into a vantage point. Although Colombo has assured New Delhi that no such Chinese facilities will be permitted in Sri Lanka, New Delhi agonises that Beijing’s political and economic clout will one day reach a point where the Sri Lankan government simply cannot say no to Beijing. This is where the investment into the Mattala International Airport, dubbed the world’s emptiest airport, comes into the picture.  In light of developments in the Hambantota seaport, the proposed deal by India to operate, manage, maintain and develop Mattala airport for a period of 40 years will provide India with a base to spot any out of place activities by Beijing in the seaport which is situated only 30 km from Mattala. In short, India is spending 300 million USD to buy an airport as a move to block a potential Chinese naval base in the long run.

India is not in an ideal position to effectively leverage its economic clout to alter Sri Lanka’s behaviour. Nevertheless, New Delhi is engaged in strategic and economic cooperation with Colombo to turn the tables in India’s favour.  New Delhi has invested a substantial amount of money and time into reconstructing the socio-economic structure of the island nation.

The India-Sri Lanka Free Trade Agreement (FTA) of 1998 and the Comprehensive Economic Partnership Agreement (CEPA) were two of the initial bilateral trade agreements that stood to liberalise trade in goods, services and investments between New Delhi and Colombo. The Economic and Technical Cooperation Agreement (ETCA) signed in 2016-17 is an extension of the existing FTA. ETCA has been negotiated and formulated on terms that promote trade in services and technological exchange, which the CEPA failed to accomplish. Trade between the two countries grew rapidly after the India-Sri Lanka Free Trade Agreement (FTA) came into force in March of 2000. As per the official documents[vii], bilateral trade in 2016 amounted to 4.38 billion USD. Exports from India to Sri Lanka in 2016 were 3.83 billion USD, while exports from Sri Lanka to India were 551 million USD[viii].

India commenced delivering humanitarian aid in 2012 to its north-eastern Sri Lanka housing project to build 50,000 houses in the island nation. This aid was later extended to cover tea plantation areas in the central districts of Sri Lanka. On 26th October 2017, Sri Lanka and India signed two agreements to construct 1200 houses in the island nation, an effort taken by the Indian government to improve the socio-economic condition of the war-torn island. Till 2017, grants for housing projects in Sri Lanka have been limited to the North, East and tea plantation areas of Central Sri Lanka. But in an effort to promote comprehensive development, the grant has been extended to the southern districts too. This project targets low-income, landless and homeless beneficiaries, by providing a cash grant of 5 lakh Sri Lankan rupees in five instalments linked to the stages of construction. Notably, India has agreed to build 50,000 houses for the internally displaced persons (IDP) in the North and East, and out of which nearly 46,000 houses have been completed.

Moreover, India has  extended developmental assistance to Sri Lanka which includes the rehabilitation of northern railway lines[ix], wreck-removal and rehabilitation of KKS harbour[x], establishment of vocational training centres, construction of a cultural centre at Jaffna, restoration of Thiruketheeswaram temple[xi], establishment of an agricultural research institute in the northern province, a scholarship program for Sri Lankans to pursue their higher studies in India[xii], setting up centres for English language training and providing technical assistance for the national action plan for a trilingual Sri Lanka[xiii]. In an attempt to provide livelihood support to nearly 70,000 people from the farming and fishing communities in Hambantota district, the Indian government has launched a joint project with Colombo. The project, with a budget of 138 million SLR, aims to provide useful tools and equipment to the communities.

India-Sri Lanka ties also have a crucial energy component. Earlier this year, India’s biggest importer of gas– Pertronet LNG limited, and its Japanese partner (Mitsubishi and Sojitz Corp), have jointly invested US$300 million to set-up Sri Lanka’s first LNG terminal near Colombo. As the location of the proposed LNG terminal is close to Sri Lanka’s economic power house i.e. Colombo, it would boost the island nation’s aspiration to rise as a regional hub in the Indian Ocean Region (IOR). Following the successive investments made by China in Sri Lanka, the Indo-Japan collaboration may be an effort to offset China’s growing influence in Sri Lanka. In a Memorandum of Understanding (MoU) between India and Sri Lanka, the development and operation of an oil tank farm on the eastern coast of Sri Lanka will aid New Delhi to secure a strategic foothold in the region.

Meanwhile, there are concerns that India may be lagging behind while China is transcending borders with its Belt and Road Initiative (BRI) in the Indian Ocean Region. As a country of great historical and cultural might, India has great potential to apply its cultural soft power to get through to its neighbours. Project Mausam launched in the year 2014 was an initiative from Indian government that would re-establish its ties with its ancient trade partners and re-establish an “Indian Ocean World” along the littorals of Indian Ocean. The project has a three- pronged approach: first, to deepen cultural bonds; second, to ensure maritime security; third, to broaden the economic connectivity with nations in the Indo-Pacific. It was an idea undertaken by New Delhi, to counter the revival of the ancient Silk Route. Project Mausam would be a transnational initiative involving about 40 countries, including China and Pakistan. However, the project hit a wall when India attempted to secure a transnational heritage status at UNESCO, which would have given the project with an exclusive identity. Beijing is lobbying to oppose India’s move at UNESCO, as Project Mausam will prove to be a challenge to the Maritime Silk Route. Similarly, the revival of the Cotton Route and the Spice Route was envisaged to bring about an alternative to China’s Belt and Road Initiative. But the lack of proactive foreign policy decisions and reactive, ad-hoc solutions are explanations for India’s sub-par engagement in the international arena.  In this light, India’s collaboration with Japan stands out as a feasible alternative.

Indo-Japanese Alternative

It has become an imperative for states with small economies to choose an attractive alternative to Western financial institutions, namely the BRI. A broad Indo-Japanese partnership would be a suitable response to China’s BRI. Such a partnership would operate through transparent deals and negotiate fair terms with the recipient countries.  There is also scope for the Asia-Africa Growth Corridor (AAGC) to counter the growing influence of China and its debt-generating BRI investments in the Indian Ocean Region (IOR). AAGC is a joint venture that India and Japan launched during the 2017 annual meeting of the Africa Development Bank (ADB) at Gandhinagar, India. Japan is moving forward with its Free and Open Indo-Pacific (FOIP) strategy, meant to further connect Asia, Africa, Pacific and the Indian Ocean while promoting stability and prosperity in the region.  AAGC has been established to support four elements of development and cooperation projects: quality infrastructure, institutional connectivity, enhancing capacities and skills and people-to-people partnership[xiv].  Combining India’s expertise in ‘human resource development’ and Japan’s expertise in ‘delivering quality infrastructure’, AAGC could finance and execute economically viable projects in contrast to China’s infrastructure diplomacy that leads to debt traps.

However, the late entry of the India-Japan consortium into Sri Lanka is something that has given Beijing an upper hand in stabilising its foundation in Colombo. Beijing’s early entry into the island nation has enabled China to secure significant agreements and a stake in most big-ticket infrastructure projects. Moreover, China’s economic strength, which exceeds the combined economic strength of India and Japan, gives Beijing an upper hand in Sri Lanka. India and other major powers are taking notice and acting in concert.

India’s investment and initiatives in Sri Lanka have not been very effective for more than a decade. On the bright side, the launch of AAGC has increased investments considerably. For instance, a project expected to cost between 10 billion Yen and 15 billion Yen to expand an existing small-scale port in Trincomalee into a trade port will be undertaken by Japan, Sri Lanka and India under the FOIP strategy. Moreover, in collaboration with Japan, India has invested in Sri Lanka to build the island nation’s key central express highways, extended support for humanitarian removal of mines in Northern Sri Lanka and provided assistance in its fisheries sector. Indian and Japanese investments on the island would complement the Sri Lankan government’s efforts to reduce Colombo’s dependence on Beijing.

Qaudrilateral Security Dialogue (QUAD):

On 12th November 2017, officials from India’s Ministry of External Affairs, Australia’s Department of Foreign Affairs, Japan’s Ministry of Foreign Affairs and United States’ Department of State met in Manila to carry out consultations on issues of common interest in the Indo-Pacific region. This meeting witnessed the revival of a major multilateral setup called the Quadrilateral Security Dialogue or the ‘Quad’ which is a consortium of the US, Japan, India and Australia. Though envoys from these countries have managed to clarify that ‘Quad’ is not a “rival” but an “alternative” to the BRI, it indicates the predicament faced by these partners in trying to deal with what they perceive as “the China threat”. However, the proposed ‘Quad’ group is unlikely to be successful and attain its full potential because of many factors[xv].

First, due to domestic economic priorities, these countries have difficulty in developing a single, coherent, consistent approach towards China. As the economies of these countries are well connected with the Chinese economy, it would be a difficult task to formulate an “Anti-BRI” policy. Second, to set the ‘Quad’ in motion, financing will be a major problem for these countries. As US President Donald Trump is proceeding with his “America First” policy and policy of non-interventionism and Japan is on a path of economic recovery, none of these countries are likely to pour huge amounts of money into financing the proposed project[xvi].

While the concept of ‘Indo-Pacific’ has gained importance, implying a wider focus on the IOR, this quadrilateral mechanism can be moulded and developed into a security provider for the rising AAGC. Besides, the expansion of the ‘Quad’ into ‘Quad-plus’ by including ASEAN countries would develop a comprehensive mechanism for the region. This region also forms the main arc of the Belt and Road Initiative (BRI), hence the ‘Quad’ will be a crucial security balancer in the event of Beijing militarising ports along the BRI in the future.

As China makes headway with its international ventures like MSR and BRI on Sri Lankan soil, the question arises whether India should work in synergy with China or continue to compete with China. The 5th India-China Strategic and Economic Dialogue, held in Beijing on 14th April 2018, that took place amidst contentious strategic and economic issues, has drawn great attention. Importantly, a dialogue that was organized just days after the Boao Forum, where Chinese President Xi Jinping defended his ambitious multi-billion-dollar Belt and Road Initiative by saying China has no “geopolitical calculations”, which can be understood as an attempt to put relations back on track.  As competition between India and China results in a ‘lose-lose’ scenario, engaging in limited cooperation will be the best dynamic to work with. Since both the countries share a common interest and rely heavily on maritime trade and secure sea routes, a trilateral equation of China-India-Sri Lanka on maritime security will serve a good cause – to develop a stable mechanism in the region. While there exist differences in strategic cooperation, engaging in developmental cooperation will definitely get both countries on the same page of ensuring regional stability. While following such a path, New Delhi can engage in limited cooperation with China in Sri Lanka while simultaneously keeping the AAGC in high gear.

References:

[i] ‘China gets dragon’s share of post-war projects in Lanka’,Sunday Times, December 6, 2009

[ii] Patrick Mendis, ‘Destiny of the Pearl: How Sri Lanka’s Colombo Consensus Trumped Beijing and Washington in the Indian Ocean’, Yale Journal of International Affairs, September 18, 2012

[iii] Smruti S. Pattanaik, ‘New Hambantota Port Deal: China Consolidates its Stakes in Sri Lanka’, Institute for Defence Studies and Analyses, August 14, 2014

[iv] Ibid note 3

[v] ‘A port town’s story of myopic vision and fading development ’, The Hindu, November 12, 2017

[vi] Ankit Panda, ‘Tillerson Slams Chinese Financial Practices in Africa’, The Diplomat, March 08, 2018

[vii] India – Sri Lanka Relations, MEA, Ministry of External Affairs, 2017

[viii] ‘India-Sri Lanka Relations’, 2017

[ix] T.Ramakrishnan, ‘India’s US$318-million aid for Sri Lankan railways’, The Hindu, July 27, 2016

[x] R. K Radhakrishnan, ‘Kankesanthurai Harbour wreck removal complete’, The Hindu, January 12, 2012

[xi] ‘Launch of the Thiruketheeswaram temple restoration project’ , Daily Financial Times, August 12, 2012

[xii] ‘Sri Lankan students get scholarships from India for higher education’, India Today, January 12, 2015

[xiii] ‘India-Sri Lanka Bilateral Relations’, High Commission Of India,

[xiv] ‘Asia-Africa Growth Corridor vision document’, AAGC, May, 2017

[xv] Zhiqun Zhu, ‘Can the Quad Counter China’s Belt and Road Initiative?’, The Diplomat, March 14, 2018

[xvi] Ibid note 15

(Georgekutty Antony is an intern with the Chennai Centre for China Studies. He is currently pursuing his Post Graduation in Political science at the Madras Christian College, Chennai. He can be reached at vavolilgeorge@gmail.com. The views expressed in this article are the author’s own.)

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