China Finds a Use for Sri Lanka’s Hambantota Port

New Delhi is increasingly jittery about Colombo's expanding synergy with Beijing in developing Sri Lanka’s ports and infrastructure, especially the sensitive Hambantota port, which may not be the white elephant that it has been described, at least from China’s perspective.

The port, located at the southern extremity of the country, overlooks South Asia’s vital sea lanes connecting the Middle East and East Asia. But although 60,000 ships a year pass by Sri Lanka, almost none stop at Hambantota. From a commercial perspective it has been described as a disaster, built as a vanity project to please the deposed former prime minister, Mahinda Rajapaksa, in his home area. But in what had been conceptualized as a pivotal role in Xi Jinping's ambitious Belt and Road initiative, its strategic and military applications have started to come clear.

Sri Lanka, struggling with huge development debt to China, last December leased the naval unit at the port to two Chinese firms - Hambantota International Port Group and Hambantota International Port Services managed by the China Merchants Port Holdings Company for 99 years at the equivalent of US$1.12 billion in December 2017. In addition to running the port with a joint venture partnered by the Sri Lanka Ports Authority, the Chinese government has also secured 6,070 hectares of land around Hambantota, which includes the Mattala Rajapaksa International Airport, to develop an industrial park.

Strategic foothold

Hambantota’s maritime significance for Beijing is enormous as the Asian superpower expands its geopolitical footprint in the Indian Ocean. It gives China a strategic foothold along a critical commercial and military waterway. New Delhi's fears center around the fact that the creation of a Chinese naval outpost in its strategic backyard could trigger a more dense positioning of Chinese naval assets at the facility. Because of its proximity to India, Hambantota also opens up the possibility of the region being used as a base to launch air strikes in Southern India.

As analysts have pointed out, Beijing’s investment in Hambantota is not without a strategic dimension. As is usually the case with all of China's investment projects engineered to `help' debt-addled countries, there's a catch here too. Asia Sentinel reported in several 2016 and 2017 stories that massive sums were contributed to former President Mahinda Rajapaksa’s re-election campaign in 2015. When Beijing’s revised its loan interest rates from 1-2 percent floating to 6.3 percent, it was revealed that Hambantota was more than just an investment opportunity for China. The New York Times, on June 28, also reported on the situation.

In recent years, Beijing has pumped billions in Sri Lanka’s infrastructure as part of its “string of pearls” policy aimed at establishing a naval presence across South Asia by building ports and other facilities. In 2014, India raised its concern with Sri Lanka when a Chinese submarine docked at the Colombo Port. In December 2017 again, Delhi communicated to Colombo that it expects the latter to be mindful of India's "security concerns and sensitivities" while handing over the port to China.

Just for Commercial Purposes

Each time, Colombo has tried to assuage India's fears by stating that the Hambantota port will only be used for commercial purposes while triggering much-needed economic development in the region. However, Indian foreign ministry sources have told Asia Sentinel that the cash-strapped Sri Lankan government's real intent is to leverage the competition between rivals China and India -- who are competing for investment and influence in the island nation -- to secure the best deal possible for Colombo’s development plans.

"There's no harm in that," added the source. "After all, self-interest is supreme. But Colombo needs to be wary that China has a history of ensnaring smaller nations in debt traps and then expecting return favors from them in terms of buttressing its causes and interests at regional/global forums."

It is highly possible also, added the official, that China is planning to ultimately turn Hambantota into its naval base to exercise control over the premium shipping lanes passing south of Sri Lanka in the Indian Ocean. This will obviously not be acceptable to India.

For that matter, says Pramod Jhaveri, a New Delhi-based security analyst, nor does the Hambantota port deal seem like a win-win for Sri Lanka either. "Though the deal has erased roughly US$1 billion in debt for the port project, the island nation is more in debt to China than ever since loans for major infrastructure projects were taken by Rajapaksa at rates much higher than those charged by international lenders," explains Jhaveri. The Sri Lankan government currently owes Beijing US$8 billion, more than 12 percent of its total US$64.9 billion foreign debt.

"China is, in many cases, the only party with the interest and the capital to deliver on these projects," Jeff Smith, a research fellow on South Asia at the Heritage Foundation in Washington DC told CNN. "The relevant question for everyone is: at what cost?"

Massive loans to Colombo

Smith pointed out that along with Hambantota port investments, Beijing loaned US$200 million in 2010 for a second international airport and a year later a further US$810 million for the "second phase of the port project." In addition, there was US$272 million for a railway in 2013 and over US$1 billion for the Colombo Port City project, ventures that hired mostly Chinese workers.

However, New Delhi also has to share the blame for making itself vulnerable. It didn't snap up the opportunity to invest in the port when then-Sri Lankan Prime Minister Mahinda Rajapaksa begged Indian officials for funding to transform the harbor of his home town in 2010.

The underdeveloped fishing village, ravaged by the Indian Ocean tsunami in 2004, held little appeal for New Delhi officials who, while recognizing the port had little commercial value, lacked the vision to see its strategic value. China quickly stepped in and now exercises leverage over India.

China's influence in Sri Lanka, pretty much like everywhere it goes to invest, is based heavily on economic leverage, using its deep pockets to push forth its projects and what former US secretary of state Rex Tillerson termed as "predatory loan practices." Former US Secretary of State Hillary Clinton referred to Beijing's business interests in the 54-nation continent as "China's new colonialism."

India Trying to Protect Itself

To counter growing Chinese influence, India is now trying to protect itself in the Indian Ocean by allying with the United States and Japan. Despite China's enticements, however, it will be tough for Sri Lanka to ride roughshod over India. India is the island’s largest trading partner and has provided more than US$2.5 billion worth of development assistance. India also uses the Colombo port for more than 70 percent of its Sri Lanka shipping. Civilizational and cultural links between the two nations go back centuries with Tamils, from India's southern states of Tamil Nadu, forming a sizeable population in the island.

Despite New Delhi’s concerns over China’s forays in the island nation, India and Sri Lanka are also engaging in high-level exchanges and signing of pacts. Sri Lanka is keen on a new trade pact, the Economic and Technology Cooperation Agreement to bolster commercial ties with India’s fast-growing southern states. Modi too, visited Sri Lanka this May, his second visit to the country in two years. The sojourn was aimed mainly at reinforcing the traditional connect between India and Sri Lanka at a time when China is foraying fast and furiously into the island. A classic case of better late than never?

Neeta Lal is a New Delhi-based editor & journalist who tweets at @Neeta_com and a longtime contributor to Asia Sentinel