Cause for Suspicion

Strategic Vision vol. 10, no. 49 (May, 2021)

Beijing’s growing influence in Sri Lanka stokes security concerns in New Delhi

Mary Kavita Dominic

Colombo is the capital city of Sri Lanka, which occupies a strategic position in the Indian Ocean.

photo: Roel Raymond

Sri Lanka has reneged on a 2019 tripartite agreement with India and Japan that would have provided for the joint development of an East Container Terminal (ECT) at the Port of Colombo, putting a damper on New Delhi’s plans to amplify island diplomacy across the Palk Strait. Strategically positioned in the Indian Ocean, this project was envisioned as a counterbalance to the Chinese game of checkers in the region.

Belying these expectations, however, the cabinet of Sri Lanka’s Prime Minister Mahinda Rajapaksa has unilaterally shelved this scheme, purportedly at the behest of port trade unions and nationalist groups who vehemently opposed the sale of national assets to India. At the same time, other development projects in the island-nation, which bear the imprint of foreign powers like China, have not faced any similar pushback in the country.

The Strait of Hormuz and the Persian Gulf are visible in a photograph taken from the International Space Station.

photo: NASA

Implicit in this seemingly contradictory stance is a complex socio-political history that Sri Lanka shares with its regional neighbors, together with economic and security imperatives that pull its domestic forces in different directions. These dynamics are reflected in the collapse of the ECT infrastructure venture, a fact that Indian analysts will have to take into account as they recalibrate their strategic calculus in the Indian Ocean.

The maritime domain is a critical component in shaping geopolitical strategy. This reality has been well-appreciated in recent times, with China’s aggressive pursuit of economic and military objectives in areas like the South China Sea. As focus shifts from the Atlantic Ocean to the Indo-Pacific, like-minded nations are seeking to ensure a free, open, inclusive, and rules-based regime in the region.

It is against this backdrop that one must view the strategic relevance of the Indian Ocean. More than 80 percent of the world’s seaborne oil trade passes through here, via chokepoints like the Strait of Hormuz and Malacca straits. This fact has not been lost on major powers like India, China, Japan, Australia, and the United States, which actively cultivate relationships with small island-states in the region through naval establishments, trade, and infrastructure aid. By doing so, they hope to gain proximity to important shipping routes and vital sea lines of communication.

Naturally, fostering rapprochement with Sri Lanka has been an integral part of this strategy. Situated at the northern part of the Indian Ocean, this islandstate overlooks major sea routes that connect West Asia and Eastern Africa to China and the rest of Southeast Asia, making it an ideal location for global transshipment businesses. With the Great Game ensuing in the Indo-Pacific, its surrounding waters are also a key site for power projection. Only recently, member countries of the Quadrilateral Security Dialogue, or Quad, engaged in a series of naval exercises in the Bay of Bengal. This was viewed with trepidation in Beijing, as it was uncomfortably close to sea lanes through which nearly two-thirds of China’s oil imports pass. Due to critical issues like energy security, therefore, global heavyweights are vying for influence in Sri Lanka, whose ports and other infrastructure are strategic vantage points in the region. The proposed ECT project is just the latest manifestation of this historic rivalry.

Symbol of cooperation

The contentious tripartite pact for joint operation of the ECT was inked in 2019, during the tenure of the Sirisena-Wickremesinghe government. The memorandum of cooperation enjoined India and Japan to participate in enhancing the Colombo port’s harboring capacity so that more international cargo ships could be hosted for transshipment activities. Pitched at a cost of US$500-US$700 million, the terminal was to be run by the Terminal Operations Company in which Sri Lanka had a 51-percent stake, while India and Japan together held 49 percent.

Warships from India and Japan operate off the west coast of India during the Bilateral Maritime Exercise Between Japan and India (JIMEX 20).

photo: Indian Navy

When President Gotabaya Rajapaksa came to power, however, the deal was put under review. Since the country’s parliamentary elections were scheduled around the same time, he was keen to ensure that controversial issues like the ECT, which had attracted the ire of domestic port workers’ unions, did not erode his party’s share of the vote. In any case, the majority Sinhala-Buddhist community that forms a core constituency of Rajapaksa’s party has always harbored suspicions about the Big Brother across the Palk Strait. Bearing all this in mind, the project was put on hold by the president until the elections were completed. New Delhi was reportedly assured that things would be back on track once the results were out.

In August 2020, the president’s party went on to sweep the polls under the leadership of his brother and former President Rajapaksa. Ever since then, the Indian government has been urging Sri Lanka to implement the ECT deal.

For New Delhi, this project is an important trade and connectivity link, as nearly 70 percent of the transshipment businesses at Colombo Port comprise goods coming to and from India. The fact that this venture is planned near the Colombo International Container Terminal, in which an 85-percent stake is owned by a Chinese company, only adds to its allure. Moreover, by including Japan, India was trying to send a strong signal about the ability of Indo-Pacific partners and Quad members to rival China’s deep pockets and provide viable options for development financing. The Rajapaksa government threw a spanner in the works, however, backtracking on the ECT deal. This came despite numerous assurances from the Sri Lankan Government that it would follow an “India First” foreign policy.

While widespread opposition by port workers’ unions and a feared loss of sovereignty have been ostensibly cited as reasons for Sri Lanka pulling out of the ECT venture, similar objections have not been raised in the case of Chinese-funded projects. It is worth remembering that Beijing has a controlling equity in the Colombo International Container Terminals Ltd., as well as a 99-year lease on the strategic Hambantota Port. Just three kilometers away from the proposed ECT, there is also the Chinesesponsored Colombo International Financial City, where a major investment agreement was concluded as recently as December 2020. Such apparent double standards will not go unnoticed in India, especially when rumors are rife that the Rajapaksa brothers are tilting toward China, based on the personal rapport they share with Chinese President Xi Jinping.

Strategic implications

While China justifies its expansion of ports and other infrastructure in South Asia as an economic endeavor devoid of security imperatives, there are obvious strategic implications that India cannot afford to ignore. For instance, it is entirely conceivable that Beijing’s sea-based silk road may be weaponized as a tool for economic coercion, by foisting partnerstate dependencies on Sri Lanka. In fact, this is how the Hambantota lease was secured in the first place: China took over the port as debt relief, after Colombo failed to repay the massive amounts invested by the Asian giant in the construction of this project.

President Mahinda Rajapaksa introduces Parliamentarian Namal Rajapaksa to PRC President Xi Jinping during an official welcome ceremony in Colombo.

photo: Mahinda Rajapaksa

At a time when nearly 10 percent of Sri Lanka’s external debt is owed to China, the possibility that such debt diplomacy and “assets-for-money-swap arrangements” may be capitalized upon to establish military and naval bases encircling India remains a pressing concern for New Delhi. While the Hambantota port is only used for commercial purposes at present, it could potentially act as a naval dockyard for Beijing in the future. Together with escalating Chinese ambitions in the Coco Islands, Chittagong, and the Kyaukpyu and Gwadar ports, this supports the widely hypothesized String of Pearls theory, which continues to dominate strategic thinking in India.

China’s leader Xi Jinping and former Sri Lankan President Mahinda Rajapaksa inspect a model of the proposed ‘Colombo Port City’ in 2014.

photo: Mahinda Rajapaksa

Colombo, however, has been quick to dispel rumors about its pro-Beijing tilt. It has proposed the West Container Terminal (WCT) as an alternate avenue for investment by New Delhi and Tokyo, under the public-private-partnership model. Claiming that it is strategically no different from the ECT, it has tried to sweeten the deal by offering an 85-percent stake to developers in India and Japan.

Such actions are symptomatic of Sri Lanka’s efforts to strike a balance between India, China, and other major powers in the foreign policy domain. On the one hand, its government has been hosting trilateral security meetings with countries like India and the Maldives, apart from high-level visits by US delegations. On the other hand, it has also been enhancing geo-economic cooperation with China.

At an inflection point

While such balancing behavior or non-alignment posturing may have worked for the country in the past, this will not always be the case. The world is at a decisive inflection point, where even countries like India, which spiritedly advocate for strategic autonomy, are seen to be openly drifting toward specific alliances and partnerships. As China’s relations with other nations continue to deteriorate, it will be challenging for the island-state to remain neutral in the years to come.

Of course, this is not a desirable position to be in, especially for a relatively small country with no established defense guarantees. Colombo might have to navigate its way out of the binary dilemma posed by the Indo-Pacific construct and China’s Belt and Road Initiative (BRI), through forging strategic partnerships with middle powers. Even then, it may not be entirely possible for the state to avoid making difficult choices at critical times.

Insofar as India is concerned, the ruling administration is visibly miffed by the failure of the ECT venture. There is speculation that it abruptly terminated a US$400 million currency swap facility with Sri Lanka in retaliation. Although both countries have clarified that this is not the case and that the settling of accounts between the Central Bank of Sri Lanka and the Reserve Bank of India was nothing more than a routine matter, the timing is still suspect. It is well-known that Sri Lanka’s foreign reserves are in dire straits, due to an economic crisis triggered by the COVID-19 pandemic. In such circumstances, where the country is hard put to repay its debts, it is inevitable that people will question the hurried nature of this transaction.

In any case, the immediate priority for India is to determine whether it will accept the alternate proposal concerning the WCT. Although it is similar to the ECT in terms of capacity, it will take a longer time to be put into operation, as it has to be built from scratch. Nevertheless, a hasty dismissal of Colombo’s offer would not be prudent, as Sri Lanka continues to be strategically important for India.

New Delhi must embrace the cold reality that projects like the ECT may face impediments from time to time, based on the prevailing political environment in Sri Lanka. Members of the majority Sinhala community continue to be wary about India’s political motives, as questions of Tamil autonomy show no signs of abating in their homeland. Indeed, their approach to foreign policy will always be layered with memories of India’s intervention in the Sri Lankan Civil War.

On the other hand, China has been relatively successful in leveraging its religious and cultural ties with the erstwhile state of Ceylon. For instance, its support for the Colombo Lotus Tower in the past invoked references to the shared Buddhist history of the two countries. In recent times, such philosophical rebranding has been supplemented by economic strategies that situate Colombo on the map of Beijing’s BRI.

Acknowledging this, New Delhi will have to exercise patience and restraint in its ties with the island-state. Even while choosing future projects more carefully, it will need to place Colombo at the center of its Indian Ocean strategy. The focus should be on bolstering transparent relations, which diminish the glow of China’s debt diplomacy.

At the end of the day, if India is to stand any chance of countering China’s String of Pearls strategy, it will have to diligently nurture relations with its immediate South Asian neighbors. Only a robust “inner arc” strategy can position the country to engage with other partners in the broader arc of the Indo-Pacific sphere through policies like Act East and mechanisms like the Quad.

Ships and gantry cranes at the Colombo Harbour in Sri Lanka.

photo: Rehman Abubakr

Mary Kavita Dominic is a policy research associate with the Synergia Foundation. She can be reached at marykavitadominic@gmail.com