Sri Lanka’s Rajapaksa Seeks a Comeback

After an unexpected defeat in January’s presidential elections, ex-President Mahinda Rakapaksa, who ruled Sri Lanka for over nine years, is seeking a comeback.

Often criticized in the West for alleged human rights abuses during Sri Lanka’s protracted civil war against the Tamil Tigers, which came to a close in May 2009 after more than 25 years, Rajapaksa has been formally accepted to stand as a candidate in upcoming parliamentary elections in August.

Since replacing Rajapaksa, current incumbent President Maithripala Sirisena has taken Sri Lanka on an about-turn in policymaking, and has been highly critical of the former strongman. Yet Rajapaksa will be representing Sirisena’s own United People’s Freedom Alliance (UPFA) party in August’s elections, which will seek contestants to compete for 225 seats in the parliament.

Blaming pressure from members within his party for allowing Rajapaksa to run, Sirisena recently warned that UPFA is now “at risk” of losing the elections.

Nonetheless, a victory by Rajapaksa could have implications for the country’s broader policymaking and foreign policy pendulum. Many outsiders see the elections as a crucial litmus test for Sri Lanka’s broader reengagement with the rest of the world.

Under Sirisena, Sri Lankan relations with China, the country’s largest inbound investor, have cooled dramatically this year. Almost immediately after assuming office, Sirisena’s government effectively halted several major planned and ongoing infrastructure projects that are funded by Chinese government lending, over claims of corruption and high interest rates that have saddled the government with a public debt-to-GDP ratio of 85 percent.

The biggest of these is the Colombo Port City project, a planned US$1.5bn port and real estate project to be built on 450ha reclaimed land off the sea in downtown Colombo, directly adjacent to the iconic Galle Face Green.

With construction planned by China Communications Construction Company (CCCC) and China Harbor Engineering, Colombo Port City’s size and scope has encountered local resistance, in somewhat similar fashion to the Chinese real estate projects on reclaimed land in Malaysia’s Iskandar.

Also “subject to review” is the “Lotus Tower,” a 350-meter tower in central Colombo, set to be South Asia’s tallest building, funded by a US$104 million China Exim Bank loan and built by China National Electronics Import & Export Corp (CEIEC) and China Aerospace Long-March International Trade Co Ltd.

The tower became a subject of controversy after Indian media published opinion pieces that labelled the project as a front for Chinese electronic surveillance in the Indian Ocean.

Indeed, as part efforts to “rebalance” Sri Lanka’s relationship away from China towards India and other regional powers, Sirisena recently met with leaders including Indian Prime Minister Narendra Modi and US secretary of state John Kerry.

Partly as a result of the changes wrought by Sirisena, inbound arrivals from both India and the United States have seen healthy growth of 27.3 percent and 19.1 percent annually respectively in the first half of the year, according to data from the Sri Lanka Tourism Development Authority.

Chinese arrivals continue to surge

Nonetheless, the cooling in diplomatic relations has only marginally affected growth in the growing swarms of Chinese tourists that are flocking to the island.

Although down from the 136 percent recorded in 2014, arrivals from China rose 81.1 percent in the first half of 2015 to 94,585, by far the highest growth of any nationality.

Sri Lanka tourist arrivals by country of residence, 1H15 1H15 total arrivals YoY growth (%) India 145,453 27.3 China 94,585 81.1 United Kingdom 72,580 9.8 Germany 57,062 14.5 France 44,779 11.8 Russia 33,918 -12.4 Australia 27,134 8.7 United States 22,394 19.1

Source: Sri Lanka TDA

Many Chinese tourists are seeking alternative sun-soaked destinations to increasingly crowded markets like Thailand and Malaysia, and Sri Lanka’s myriad range of natural and cultural attractions make it a natural choice.

What’s more, Sri Lanka produces an abundant amount of products that in medieval times were also the top-traded products between the island and the Middle Kingdom – gems, spices, tea, and seafood. Chinese seafood restaurants have mushroomed across Colombo in recent years under Rajapaksa, serving authentic Chinese seafood dishes at highly-affordable prices.

In the southern city of Galle, famous for its blend of Portuguese, Dutch, and British-inspired heritage, Mandarin-speaking shop owners in the Old Fort now sell gemstones, pearls and tea by the bulk to Chinese visitors.

Increasingly prominent are independent Chinese travelers, often young, urban middle class from cities like Shanghai and Guangzhou, with backpacker guesthouses set up specifically to cater to this group.

Sri Lanka’s Tourism Promotion Bureau, which has a near-term target of 300,000 annual Chinese visitors, is also seeking to particularly woo younger visitors.

This month, it began an aggressive marketing campaign in China to promote the “Monkey Kingdom”, a recently released Disney movie filmed in Polonnaruwa, the inland capital of one of Sri Lanka’s former ancient kingdoms.

China down, but not out

For China, the recent halt of several funded projects has been an unpleasant experience, both in a commercial and financial sense.

“A lot of money has already been spent – and potentially wasted – on these projects”, a Chinese government analyst told Asia Sentinel. In the case of Colombo Port City, where development had already begun, this amounts to an estimated $380,000 per day, according to CCCC officials.

Nonetheless, the cooling in China-Sri Lanka relations has not been comparable to those between China and Myanmar, which has also halted major China-funded infrastructure projects since President Thein Sein assumed office in 2011.

In recent months, a number of Chinese projects that had been subject to review appear to have been given the green light, including the half-built Lotus Tower, as well as a US$180 million expressway linking the southern towns of Matara and Hambantota, where construction was formally inaugurated in mid-July, and will connect to the existing China-funded Colombo-Galle-Matara expressway.

Moreover, despite having been officially scrapped, large advertisements promoting Colombo Port City still adorn the walls of Colombo’s Bandaranaike International Airport. In June, Sun Ziyu, the vice-president of CCCC voiced optimism that the project would resume, following a recent approval by Sri Lanka’s cabinet to appoint a new committee, chaired by Prime Minister Ranil Wickremesinghe, which will examine the possibility of resuming construction.

The revival of Rajapaksa would surely be good news for China, and the companies involved in infrastructure. Nonetheless, Sri Lanka needs a financial hedge against the high levels of borrowing incurred during Rajapaksa’s reign, and will continue to look to India and global financial markets.

With outstanding foreign debt having alone reached $23bn last year, close to 34 percent of GDP, the Sri Lankan central bank is currently seeking concessional loans from abroad – including institutions in the US, Japan, and EU – to refinance debt incurred since 2009.