Walking a Tightrope: Sri Lanka’s Economic Partnership with China

For decades, Sri Lanka was embroiled in one of the bloodiest internal conflicts in South Asia, against the Liberation Tigers of Tamil Elam (LTTE), which finally came to an end with a ceasefire in 2009, hailed as a victory for peace. Now that the battlefield had been abandoned, it was time to take a seat in the boardroom, and kick start Sri Lanka’s economy which had been held back by the war. In January of 2017 however, protests broke out when the first ceremonial brick was laid down at the induction of the South Industrial Zone in Hambantota, where a collection of Chinese investments had been declared by Prime Minister Ranil Wickremesinghe as a ‘once in a lifetime opportunity’. Clearly the protestors disagree. But is there space for compromise?

The protestors seem to have legitimate concerns about these Chinese investments. Firstly, under the new agreement, the Hambantota port is to be leased for 99 years to a company that has 80% Chinese ownership. In addition, the construction of the 15,000 acre South Industrial Zone entails a mass eviction of villagers living in the area. Combined, these concerns morph into a singular one of encroaching Chinese influence upon a country that had just barely emerged from a war against itself. These concerns have been articulated by the ex-President Mahinda Rajapaksa who stands “against giving the rights of the landlord over the industrial zone to a foreign private company” and ensuring Sri Lanka’s “control and sovereignty”.  

Of course, most Chinese investment into Sri Lanka began during President Rajapaksa’s tenure as President from 2005. After looking towards India and the United States for arms in the fight against Tamil Tigers, the Sri Lankan government had turned towards China, which didn’t have the same ethnic ties to Tamils as India did, or the human rights abuses concerns the United States had insisted be part of the discussion. Hence, from 2008 Sri Lanka began to receive significant amounts of arms and military equipment from the Chinese Government, and in a parade celebrating victory against the LTTE, it was toted that,  “the majority of the hardware on display was Chinese-made.”

Since the end of the war, China has invested heavily in Sri Lanka as part of its One Belt One Road (OBOR) initiative which aims to connect China to through land and maritime routes to Europe and the Middle East. As part of its initiative, China launched the Colombo Port City Project (CPCP), a $1.4 billion project designed to create a ‘mini city’ on reclaimed land in the nation’s capital. This was followed by a $1 billion project to create a deep-water port in Hambantota (Mr. Rajapaksa’s constituency and hometown), which also included the construction of an international airport. The port however, has lost massive sums of money, while at the same time the Sri Lankan government has incurred massive amounts of debt from China, as the ‘Chinese investment’ often came in the form of loans from Chinese commercial banks.

President Sirisena had campaigned in 2015 on reducing this dependence on China, but soon increased economic involvement with the country after assuming power. In the case of both Presidents then, it seems that the case for economic partnerships with China is solely premised on when one is President and confronted with inevitable economic realities which never have universally acceptable solutions. This lesson is extremely important to understand, amid growing concerns from the United States, India, and opposition parties of China’s encroachment on the country’s sovereignty.  However, to say that we have no choice is not a choice at for the Sri Lankan government. It implies the exact loss of control that most Sri Lankans and other international actors are most afraid of.

The Sri Lankan government is on a tight rope set up by previous administrations that it must transverse, without falling completely towards Chinese control on one side, and anti-Chinese paranoia and economic detriment on the other. Perhaps it would be an interesting exercise to learn from another South Asian neighbor which has made it further across the Chinese tightrope. The Government of Pakistan has launched a brilliant media campaign in allaying concerns about Chinese investment by constantly toting its benefits to the public, while maintaining strategic relationships with other allies such as the United States to maintain some semblance of neutrality. The key to maintaining balance hence, is good PR.

The lease of the Hambantota port for example, provides $1.2 billion debt relief on Chinese loans, while additional Chinese investment is estimated to create revenues of $5 billion and 100,000 jobs. These are victories and need to be presented as such to the Sri Lankan people and the international community at large. Of course, that won’t in any way diminish the reality of Chinese control. But it will provide valuable breathing space for this Sri Lankan administration to work its way around it. In an increasingly interconnected, aware, and politically active world, such breathing space could set the foundations for Sri Lanka’s oft-mentioned economic success.