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India-led Quad can rescue Sri Lanka from its ‘Made in China’ crisis. But timing is key

Chinese foreign minister Wang Yi is touring Sri Lanka that faces an economic crisis and Maldives badly in Beijing's debt. But there’s enough wiggle space for India.

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Wang Yi’s on the move. In his first trip abroad this year, the Chinese foreign minister will visit a bunch of Indian Ocean states, including Maldives and Sri Lanka. As Beijing well knows, New Delhi will be watching with an eagle eye.

The portents are not good. Sri Lanka is facing an economic crisis, while Maldives is badly in debt, with China holding the bills. But there’s enough wiggle space for India, provided it moves quickly, and positively. Meanwhile, others will be watching too. The Indian Ocean is, after all, now a major area of contestation.

The Maldives visit 

Wang is in the Maldives to celebrate 50 years of diplomatic relations, for which he has allotted two whole days in a hugely hectic schedule. Even as his tour was announced, a ‘Go India Go’ was being organised by former president Abdullah Yameen, whose intensely pro-China stance led to debt to China rising to US$1.4 billion, representing 38 per cent of the country’s national debt and 78 per cent of its external debt. Maldives’ current government is adopting a more cautious stance, though total debt still stands at 125 per cent of GDP. It wants to re-negotiate terms with China, but there was no mention of that at all in a singularly insipid press statement that did not indicate any major deliverable.

Beijing has offered visa free status, which is hardly of any moment, but gives a certain cachet to the Ibrahim Solih government locally. The desalination plant proposal was signed last year, but there is an Economic and Technical Cooperation Agreement on Grant Aid, totalling 400 million Yuan (approx. $63 million) to be used for infrastructure projects as well. Beijing is already crowding out the archipelago with a slew of projects that include the China-Maldives Friendship Bridge and the expansion of the Velana International Airport (which displaced India’s GMR) apart from massive housing units in Hulhumale, not to mention Chinese companies moving in to lease the island of Feydhoo Finolhu for 50 years at a paltry sum, another similar lease of Kunvaashi atoll, and a huge stadium in the capital. A proposal earlier for Makunudhoo Observatory raised the hackles of New Delhi and was finally scrapped.

Maldivian foreign minister Abdullah Shahid thanked Beijing for 200,000 Covid-19 vaccines, but it also equally gratefully accepted the US’ Pfizer and AstraZeneca. Meanwhile, with China suspending 26 weekly flights to the archipelago, it’s Russian and Indian tourists who have picked up the slack, to allow tourism which is the bedrock of financial stability, to almost pre-pandemic levels. Meanwhile, foreign minister Shahid was fulsome in his praise of the Belt and Road Initiative, and is to attend the 2022 Winter Olympic games in Beijing in his capacity as president of the UN General Assembly. That’s one in the eye for the US.


Also read: New study shows China’s stark influence in 70 global institutions in charts


Wang in Lanka 

Wang’s visit to Sri Lanka was already overshadowed to an extent, when Lankan companies refused to accept contaminated fertiliser from China. A huge row followed, with the People’s Bank of Sri Lanka blacklisted by the Chinese embassy, and threats to influence the country’s credit rating adversely. The row occurred amid a courageous decision by President Gotbaya Rajpaksa to switch entirely to organic fertiliser, which is alleged to have led to a severe drop in the harvest. True or not, it became a political scandal, and Colombo gave in, paying up $6.9 million before Wang’s visit.

Wang’s meetings were not unattended by political embarrassment, as President Rajapaksa called for debt restructuring and ‘concessional terms’ for its exports. Earlier, Sri Lanka’s Ambassador to China, Dr Palitha Kohona, stressed the need to learn from Pakistan and Bangladesh and opt for a Free Trade Agreement with China, something that Sri Lanka has so far resisted, due to its fears of being swamped by Beijing’s industrial might.

Some six meetings have been held, and Wang again raised the issue, with his Ambassador in Colombo rather more forceful on the subject. The request that China allow its tourists back to the island is unlikely to pass, given that Beijing is unlikely to relax its strict Covid restrictions. Meanwhile India topped the list of tourist arrivals in 2021.

The foreign ministry read-out in the end referred to none of these critical issues, merely stating that ‘discussions’ had been held on investments, fostering trade and tourism, and notably on ‘fostering Buddhist ties’ with the nation. The agreements signed seemed unexceptional, and included an Agreement on Economic and Technical Cooperation, Letters of Exchange on the Project of Subsidized Housing for Low Income Category in Colombo, and a completed project on Kidney Disease Mobile Screening Ambulance Vehicles and a Conference Centre.

The embassy, however, reported a LKR 25.5 billion grant (RNB 800 million), which seems to be the overall valuation of the agreements by the Ambassador Zhenhong. He also chose to point out that ‘no third party can derail strong China-Lanka ties’. No prizes for guessing who that was aimed at. He also pressed again  for the FTA, and envisaged $15 billion investment in the port city in future. The Chinese foreign ministry merely praised and committed nothing.

In the final analysis, the visit did not give in on debt rescheduling, which is Sri Lanka’s most pressing problem at present. Foreign debt repayments alone amount to over $4.5 billion per year through 2025 – absorbing approximately 40 per cent of the annual export receipts of goods. Official figures say that only 10 per cent of the total $35.1 billion is held by China. That doesn’t cover a recent 10 billion RMB (USD $1.5 billion) swap that rescued Sri Lanka from a serious forex crisis at the end of 2021, which underlines just how dependent Colombo has become on Beijing’s assistance. Neither does this figure cover Chinese assistance through the Asian Development Bank. China is also the largest investor accounting for 23.6 per cent of total FDI.

The end result is, however, apparent from the facts, which are that China took over Hambantota (for 99 years, it’s virtually that); that a Chinese company is the first to own a highway in the island; that Beijing holds 88 hectares of the Colombo Port City (CPC), again on a 99-year lease; that clauses of the CPC led to the Supreme Court directing Parliament to do a revaluation on sovereignty issues; and that India and Japan were both ejected out of the East Container Terminal in late 2021, apparently due to ‘resistance’ from unions. In other words, the Chinese domination of infrastructure is far greater than apparent from debt statistics or FDI figures.

Even more curious is that Chinese seem to invest in projects that the host country cannot possibly develop, like Hambantota, which was virtually overgrown with weeds until the Chinese took over, and the Mattala International Airport called the “World’s Emptiest Airport’. The CPC again will require Colombo to depend on Beijing. All are, however, hugely strategic and when taken together with other projects like Colombo port container terminals, China is everywhere, and to its own advantage, rather than to Colombo’s profit.


Also read: Decades-old amendment to Sri Lanka’s Constitution still straining ties with India. Here’s why


Beijing’s new tactics

Meanwhile, Beijing is learning. Earlier, Chinese Ambassador to Sri Lanka, Qi Zhenhong, chose to visit the Tamil majority Northern Province, and perform puja, bare-chested, wearing a traditional white silk vetti (scarf), something unheard of even among China’s wolf-warrior diplomats. The reason for this is not far to seek. Tamil politicians have been the most critical of the CPC in Parliament, including former Northern Province Chief Minister C.V. Wigneswaran Tamil National People’s Front leader Gajen Ponnambalam and Tamil National Alliance MP and senior lawyer M.A. Sumanthiran among others. Moreover, sidling up to the Tamils is probably perceived as another way to undercut Indian influence.

President Rajapaksa had once commented that other countries could invest in Sri Lanka. “That is how you can counter, just complaining won’t do.” That is true in part, but India did invest as did Japan, and was turned away. Though lacking Beijing’s deep pockets, New Delhi has recently raised its profile, extending lines of credit and modest grant aid, rather than massive loans. But major Indian banks are cautious about extending lines of credit given the serious dollar shortage of the Sri Lankan central bank, which means that investment is not available when it is needed the most.

In Maldives, India has been more aggressive with the massive Greater Male Connectivity Project and grants of more than $100 million. Japan has followed with aid, as has Australia at a smaller level, and the US. Clearly, Male has options being presented to it. But Sri Lanka  has seen little US interest, and Australia is virtually invisible. Japan is a strong partner, and all three could do more, together with India, provided Colombo makes up its mind that overdependence on Beijing is bad for its health. But timing is everything. If the ‘Quad’ has to mean anything, all four need to step up smartly to rescue Colombo from its ‘Made in China’ crisis, and rescue Sri Lankan sovereignty for itself. As for Maldives, all four need to plan their respective pleasure-seeking populations holiday seasons around it. It’s that simple.

The author is a Distinguished Fellow at the Institute of Peace and Conflict Studies, New Delhi. She tweets @kartha_tara. Views are personal.

(Edited by Prashant)

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