Sri Lanka-China ink deal

Sri Lanka has inked a $1.12 billion trade agreement with a state-run Chinese firm.

The agreement, which comes amid security concerns voiced by India, will allow the firm to operate a port in Sri Lanka.

Background

Bilateral relations between Sri Lank and China are friendly. Historic and cultural ties between the nations date back to centuries. Recent years have found the governments of both countries working to strengthen their ties. Over the years, China has provided economic, military and technical assistance to Sri Lanka. This is largely due of Sri Lanka’s geographical location. The country plays a key role in China’s ambitious vision as dictated by the One Belt One Road project (OBOR). Nearly every South Asian country has signed into OBOR and the project aims at increasing the connectivity and cooperation among Asian countries, Africa, China and Europe. This will provide a significant boost to China’s economy. Due to the friendly nature of their ties, Sri Lanka is one of the few countries that has supported China over the dispute South China Sea territory.

Sri Lanka also maintains an important and positive bilateral relationship with India. Part of its foreign policy is to maintain balance between the Chinese and Indian influence on its region.

Analysis

According to the current deal, the Sri Lanka Ports Authority has agreed to sell a 70% stake in the Hambantota port to China Merchants Ports Holdings. The lease is for a period of 99 years.

The agreement has been long delayed for multiple reasons. The key issue that has emerged in the past several months is due to fears in security. India has voiced its concern that the port will be used by Chinese military. Sri Lanka has vouched that this will not happen.

Ties between India and China have deteriorated in the recent months and the two nations are facing a military stand-off in the Doklam plateau.

Domestically, trade unions in Sri Lanka are worried that deal gives an advantage to China in the bunkering business. Opposition in Sri Lanka has also condemned this sale accusing the government of essentially giving away a strategically important port to China.

Sri Lanka’s Prime Minister Ranil Wickremesinghe has argued that this deal will help address the nation’s foreign debt, which stands at $26.52 billion as of March 2017. He also assuaged fears that this affect the region’s security by noting, “We will sign the Hambantota agreement tomorrow. We are giving the country a better deal without any implications on security.”

Assessment

Our assessment is that this agreement will prove to be advantageous to China. As it assimilates soft power across Asia, these ports will be invaluable to its vision of a new “Silk Road.” We believe that India must cautiously assess China’s increasing clout.