Colombo, June 19: Looking at China's attitude to the economic and humanitarian crises in Sri Lanka over the last six months, it is clear that Beijing wants Sri Lanka to meet certain onerous conditions, which it cannot fulfil easily or soon, at any rate.
Although not said in so many words – the message from Beijing has been clear and consistent: (1) Sri Lanka will have to distance itself from India and the West and hitch its economic and political wagon to China. (2) Sri Lanka will have to clean its economic stables by beginning to meaningfully use the infrastructural facilities put up by the Chinese for the benefit of the country, (3) facilitate further Chinese investments, and (4) sign a Free Trade Agreement with China.
Apart from pious words about wanting to help Sri Lanka to tide over the current difficulties, statements from China's representatives, including President Xi Jinping, mention the conditions, sometimes bluntly and sometimes obliquely. Even the latest message from the Chinese capital – President Xi's letter wishing President Gotabaya Rajapaksa on his birthday in advance – has nothing to offer in terms of humanitarian or financial aid. The burden of Xi's letter was that Sri Lanka should defy the West and link up with China.
According to the Chinese embassy handout on the letter, Xi drew President Gotabaya's attention to the“spirit of the Rubber-Rice Pact – independence, self-reliance, unity & mutual Support.” The 1952 Rubber-Rice barter deal was entered into by Sri Lanka, braving US commercial opposition, and by China, defying US sanctions. Xi was hinting that the current Lankan President should also not submit to Western dictates but opt for a tie up with China.
Xi then goes on to make a bland statement on Sino-Lankan ties saying:“We have been understanding and supporting with each other for 65 years. I attach great importance to the development of our relations and would continue work to elevate it to new heights. China always stands ready to extend its support to Sri Lanka.” There was no assurance of help to meet the severe shortages in forex, food, fuel and fertilizer.
Sri Lanka urgently needs foreign exchange support and material aid, not a lecture on foreign policy and on how to run its economy. And yet, spokesman after spokesman has been tendering only advice.
It all began on January 9, when President Gotabaya Rajapaksa asked visiting Foreign Minister Wang Yi to re-schedule debt repayments. Wang had nothing to say on the President's request but advised him to“make good use of the two growth engines, the (Chinese-built) Colombo Port City and Hambantota Port projects, tap the opportunities provided by the Regional Comprehensive Economic Partnership (RCEP) and China's vast market, and discuss the restart of talks on a Free Trade Agreement between China and Sri Lanka to send more positive signals to the world and contribute to Sri Lanka's economic recovery and development.”
In March 2022, Chinese Ambassador Qi Zhenhong said that Beijing is considering a fresh loan of US$ 1 billion, and a credit line of US $ 1.5 billion in lieu of rescheduling repayment of the existing loans. However, the promised loan and buyers credit did not materialize. They are apparently tied to the signing of the FTA which has been pending since 2015. But FTAs have been anathema for Sri Lankan governments. Chances of the Sino-Lanka FTA being signed are slim.
On June 8, reflecting Wang Yi's view, the Chinese Foreign Ministry spokesman Zhao Lijiang said Sri Lanka should“boost its own effort, protect the stability and credibility of the investment and financing partners and ensure the stability and credibility of its investment and financing environment.” On June 9, the Director-General of the Department of Asian Affairs of the Chinese Foreign Ministry, Liu Jinsong, told Sri Lanka's Ambassador Palitha Kohona that Sri Lanka should stick to“independent” domestic and foreign policies.
Earlier, the Chinese Ambassador in Colombo, Qi Zhenhong, had complained about Sri Lanka's lurch towards IMF with India's help, and said that if China was approached first, it could have helped Lanka negotiate a good deal using its heft in the IMF.
President Gotabaya explained China's lack of empathy by saying that it has lost interest in South Asia and is concentrating on South East Asia and Africa instead. But Prime Minister Ranil Wickremesinghe differed and said that Beijing has significant stakes in Lanka and that efforts would be made to get China on board in Colombo's efforts to put together a consortium of India, Japan and China to work out an aid scheme for Sri Lanka. Efforts would also be made to amend some conditions attached to Chinese loans to ease repayment, he said. But it is unlikely that geo-political rivals China and India will actually work together on Sri Lanka.
Meanwhile, the IMF is expecting Beijing to join in its efforts to get Lanka's loan repayment schedule restructured because China is a major lender to Sri Lanka. According to economist Umesh Moramudali, (DailyFT June 17, 2022) China's Public and Publicly Guaranteed (PPG) loans to Sri Lanka at the end of 2021 constituted 19.9% of the total PPG loans. And the debt service on that debt stock was 20% of the total PPG debt service.
Moramudali further says that when on April 12 this year, Sri Lanka suspended the repayment of foreign loans totaling US$ 26.4 billon, the Chinese component amounted to US$ 7.1 billion.
Rivalry with India
China's reluctance to put money into Sri Lanka is partly due to its geopolitical rivalry with India. China was put off by Sri Lanka's decision to cancel the US$ 12 million project given to the Chinese firm Sinosoar-Etechwin to install hybrid renewable energy systems in the Palk Bay islands of Nainativu, Delft or Neduntheevu and Analaitivu. It was an ADB sanctioned project. India had said that the islands were too near India and asked Sri Lanka to hand over the projects to it for security reasons.
The cancellation of the islands' power project had taken place when China was showing a deep interest in investing in the Tamil-dominated North Sri Lanka. China is keen on challenging India's claim to have exclusive rights there. China has already set up an export-oriented sea cucumber farm and factory there. Ambassador Qi Zhenhong even said that the“Tamils love China”.
China has turned its attention to the Tamil-speaking Eastern province too, where also India has vital strategic interests. Besides the 99 giant oil tanks in China Bay in Trincomalee, India also has a plan to build a floating dockyard at Trincomalee port.
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