In a massive strategic victory for China, Sri Lanka’s Hambantota port was officially transferred to China for 99 years by the government of Prime Minister Ranil Wickremesinghe under a landmark agreement finalized on 25 July 2017. Sri Lanka took this step to service the debt on the loan it took from Exim Bank China to build the port (for the $ 1.5 billion Hambantota Port, 85% of the finances came as loan from China’s Exim Bank, at an interest of 6.5%), the repayment amounting to SL Rs 9.1 billion ($ 60 million) annually.
No doubt Sri Lanks needs investments to grow especially after decades of fighting the LTTE, but wonder if Sri Lanka took into account the wider strategic ramifications of handing over of Hambantota to China for 99 years.
The cabinet paper on the agreement was discussed in Parliament and the agreement eventually signed on July 29. China’s Merchants Ports Holdings Company Ltd, which also has the contract for Colombo Port, gets charge of the operations under a $1.12 billion deal with 70% stakes. Given the Chinese strategy of dealing with the political core of the target country as a centre of gravity, all types of pressure would have been exerted on individuals, political party (s), the administration and organizations, as has happened for the CPEC deal in Pakistan.
Not that India has been an exception considering that the Shyam Saran report during the UPA II rule (not made public) reportedly revealed over the years India had allowed some 645 sq km territory to be nibbled away by China in addition to China’s illegal occupation of Aksai Chin (38,000 sq km – a matter that Nehru waived off in Parliament by saying “not a blade of grass grows there” with no one wiser what he gained) and the Shaksgam Valley (5180 sq kms).
No doubt Sri Lanks needs investments to grow especially after decades of fighting the LTTE, but wonder if Sri Lanka took into account the wider strategic ramifications of handing over of Hambantota to China for 99 years. The advent of East India Company in India was nothing compared to what Sri Lanka is likely to face in the future; the example of the camel head entering the tent too would be poor simile. It is actually akin to the advent of the devious sloth whose cancerous spread would continue to devour Sri Lanka systematically, as Pakistanis are beginning to realize.
Three years back, an article in the China Daily stated that China plans to build 18 bases in the IOR. This must have been a rare lapse and heads may have rolled because China immediately denied such plan. However, it is pertinent to note that the original article not only outlined a blueprint for the establishment of 18 Chinese “Overseas Strategic Support Bases” in the IOR, but also recommended three specific categories of such facilities: fueling and material supply bases for peacetime use (like Djibouti, Aden and Salalah); relatively fixed supply bases for warship berthing, fixed-wing reconnaissance aircraft and the naval staff ashore rest (Seychelles); and fully functional centres for replenishment, rest and large warship weapons maintenance (like Gwadar in Pakistan).
China has already dispatched naval troops to Djibouti and plans to deploy PLAN to ‘safeguard’ Gwadar, given the strategic location of Sri Lanka, Hambantota is a major jewel in the crown of China.
Gwadar gives China immense strategic advantage because of its proximity to the Persian Gulf and the Strait of Hormuz. While China has already dispatched naval troops to Djibouti and plans to deploy PLAN to ‘safeguard’ Gwadar, given the strategic location of Sri Lanka, Hambantota is a major jewel in the crown of China. Over the past decade, not only has China engaged in ports development projects in Myanmar, Bangladesh, Pakistan and Sri Lanka, Chinese economic ties with Africa, and the concomitant rise in its naval profile across the IOR have been conspicuous.
The magnitude of investments like in Sri Lanka (Colombo and Hambantota) knowing full well the economy of the country, pay back is aimed to be retrieved in strategic terms. When a Chinese nuclear submarine and warship docked at Colombo in yesteryear, the nuclear submarine did not dock at the Sri Lanka Port Authority (SLPA) berths in Colombo mandated to accommodate military vessels but instead at the Colombo South Container Terminal (CSCT), a deep-water facility built, controlled and run by the China’s Merchants Ports Holdings Company Ltd through an aid project costing $650 million.
The CSCT may be better suited for submarine dockings, but it is also a ‘Chinese enclave’ within a Sri Lankan administered harbor, the berthing itself being a violation of protocol.
Similarly, in Maldives, China’s Integrated Development Project rides on huge concessional loans and aid financing from China. The loans are on such high rate of interest that Male will default unless given a waiver. So the waiver will come with a strategic price - in exchange to ‘control’ over maritime projects as done in Sri Lanka.
Sri Lankans may recall that former President Mahindra Rajapaksa, known for corruption (his wife and son too interrogated) gave Hambantota to China for the first phase of development.
This is just the beginning of the debt trap that Sri Lanka will find very difficult to recover from.
Last year, the present Sri Lankan government declared Hambantota Port a “white elephant” that was bleeding the nation and adding to its huge foreign debt, a large portion of it owed to China as repayment of loans for infrastructure projects launched by the Rajapakse government in 2008-09. The default of Premdasa perhaps left no option for the Ranil Wickremesinghe government to hand over Hambantota to China for servicing the debt on the loan it took from Exim Bank China to build the port.
Why for 99 years (read permanently) is something that Sri Lanka could have avoided.
This is just the beginning of the debt trap that Sri Lanka will find very difficult to recover from. Notably, the first phase of development of Hambamtota under Premdasa cost $ 650 million and commenced operations in 2011 but by December 2016 instead of being able to adhere to the agreed debt repayment schedule, the cumulative losses rose to over $ 3 billion. China’s debt invasion of Sri Lanka had begun which has now been compounded by the 99-years Hambantota deal.
Wonder if the Sri Lankan public is watching how the CPEC is unfolding in Pakistan – a one-way traffic to benefit China. In the first half of 2016, Chinese imports to Pakistan surged by 30% while Pakistani exports to China dropped by 8%.
Pakistani authorities are blaming trade barriers put by Beijing on Pakistani goods and a FTA that is tilted “against” Pakistan – so much for the ‘Higher than the Mountains, Deeper than the Ocean’ friendship. But there is more; Pakistan’s current account deficit rose 121% between July 2016 and February 2017.
With Sri Lanka already on the established international sea trade routes in the IOR, Sri Lanka would do well to evaluate China’s sweet pill of gains by coming onto China’s Maritime Silk Route vis-à-vis handing over Hambantota to China forever.
In fact, Pakistan is heading for a current account deficit as a percentage of GDP almost double that of India. With the Chinese company expected to invest additional $600 million to make the Hambantota port operational, the Sri Lankan Government is confident they would be able to repay the loan but look at what is happening in Pakistan where Pakistan’s current account deficit deficit must also be viewed given the billions of dollars of investment promised by China but Pakistan received only $1.3 billion in that period. So, is the CPEC largely being financed by intra-Chinese transfers or ‘debt’? Pakistan will have to pay $90 billion back to China over 30 years for the CPEC and this does not include cumulative debt interest in case of default. Pakistani writers and traders are already raising voices about gains of CPEC gong solely to Beijing aside from China’s cultural invasion.
Like Hambantota, CPEC started with loans that will eventually be converted into equity.
With Sri Lanka already on the established international sea trade routes in the IOR, Sri Lanka would do well to evaluate China’s sweet pill of gains by coming onto China’s Maritime Silk Route vis-à-vis handing over Hambantota to China forever. The Chinese company has agreed to sell to SLPA 20% of its stake in 10 years but what would happen in event of default in repayment is anybody’s guess. Sure, the agreement prohibits “activities involving military personnel and/or any kind/type of activities of military nature whatsoever” and that the “sole authority for granting all requisite permissions, clearances, and approvals for bringing in or berthing warships, submarines or storing, warehousing of any military equipment and machinery, installation of communication networks, facilities, shall only be with GoSL” but that is the established Chinese sweetner.
To start with, PLA personnel would already be present in Hambantota right from the development of the first phase. Many would be unaware that China had actually asked the Premdasa Government to position a company of PLA at Hambantota, which was refused. But all Chinese development projects across the globe have PLA personnel including Chinese Special Forces in civil attire. Besides all personnel of China’s Merchants Ports Holdings Company Ltd too would have served at least one tenure in PLA and would be under control of the Communist Party of China (CPC).
What should be of prime concern to Sri Lanka is that it is getting inexorably drawn into the Great Game unfolding, with the IOR becoming the centre of gravity.
As regards PLA vessels and submarines berthing at Sri Lankan ports, sure Sri Lanka refused permission for a Chinese nuclear submarine to dock at Colombo during the visit of Prime Minister Narendra Modi, but previously Chinese nuclear submarines and warships have merrily docked at the Colombo South Container Terminal (CSCT) in clear violation of a similar agreement signed when China’s Merchants Ports Holdings Company Ltd was given the project to develop the Colombo port costing $650 million.
There should be no doubt that Hambantota is one of China’s 18 ‘Strategic Support Bases’ planned in the IOR – more for supporting her operations, not trade alone. Periodic docking (for unspecified periods) of Chinese nuclear submarines and warships at the CSCT and Hambantota under Chinese operations with or without permission of a debt ridden Sri Lanka would be the norm.
In any case, who would refuse a rest and recoup temporary halt – the temporary becoming cyclic for a fresh set of vessels and submarines? What should be of prime concern to Sri Lanka is that it is getting inexorably drawn into the Great Game unfolding, with the IOR becoming the centre of gravity.
China has recently commissioned its second aircraft carrier, is building another six, and with her nuclear submarines and warships already crisscrossing the region, plans to deploy two CBGs in the IOR for the time being. That by itself is not worrying given the size and needs of China. However, what is of great concern is the mounting aggressive attitude of China, expanding territorial claims in some 23 countries even as it shares borders with only 14, and flouting of international laws and norms.
China plans of OBOR and MSR are not only China-centric, it includes replacing the dollar with the Yuan which is going to generate plenty heat and turmoil.
China’s recent actions of bullying a small and peaceful neighbour like Bhutan by arbitrary intrusion in the Doklam Plateau underscores the vicious path of aggression China is following. President Xi Jinping is in tearing hurry to thrust his ‘China Dream’ down the throat of the world, to elevate him to the level of Mao. His plans of OBOR and MSR are not only China-centric, it includes replacing the dollar with the Yuan which is going to generate plenty heat and turmoil.
China nuclearized Pakistan and North Korea as its proxies and is seeking conflict in Western Pacific between North Korea and the US; instigating and supporting North Korea while posturing that it is the US and North Korea that are threatening China – Xi’s coterie appears to have convinced him that the world is naïve.
What Sri Lanka needs to ponder over is that will China’s aggression lead to multinational conflict in the IOR in a future time-frame and should that happen, will Hambantota and the CSCT, Colombo become targets?