16.08.2017 Author: Vladimir Terehov

China and Sri Lanka Jointly Invest in Hambantota Port

452343242Half a year ago, the NEO wrote on the deep political passions that were stirring up between India and China in connection with a concession agreement that was expected to be signed between the a state-run Chinese firm Merchants Port Holding Company (CMPort) and the Government of Sri Lanka. The agreement concerned joint investments in the development of the Sri Lankan maritime port of Hambantota situated at the southern tip of the Ceylon Island as well as the concession term.

The delay in the signing of the ready agreement by the Sri Lankan Government and the introduction in it of material amendments designed to allay the fears of India and its two de-facto allies were in fact caused by the political collisions between two Asian giants (with the US and Japan pulling strings of one of them).

As with any responsible government of a small state, the last thing the Government of Sri Lanka wants is to be ground by global political millstones. Deriving benefits from various aspects of the global political game between the major players is also a good thing.

The challenges faced by Sri Lanka are representative for this kind of a state with an undeveloped economy and infrastructure, coupled with a massive foreign debt (about USD 27 billion) that is equal to one third of the country’s GDP. The business project, conventionally known as “Development of Hambantota Port with the Support of China”, was launched at the end of the last century, and it perfectly fits the above problem-solving policy.

First, the world’s largest sea route connecting the Persian Gulf and Africa with the world’s leading economies (China, Japan, South Korea and Taiwan) runs dozens of kilometres south of Ceylon Island. Any why can’t Hambantota become a new Singapore (in the future, clearly)? Second, there is a country that is ready to invest in this project under the concession terms and conditions.

According to the agreement that was finally signed at the end of July, CMPort shall undertake to secure 70% (about USD 1.1 billion) of the total investments for the development of Hambantota Port over a period of 99 years.

A significant (thought rather symbolic) amendment had been introduced to the draft agreement prepared half a year ago. The winter-2007 agreement between China and Sri Lanka stipulated an 80:20 investment share distribution. By increasing its share in the planned investment expenses to almost one-third, Colombo sends an important political message to the global community that China will not be entitled to the exclusive possession of Hambantota Port, and “interested parties” have nothing to worry about.

This message was also supported by one more clause of the agreement that stipulates that the port will be fully administered by the Sri Lankan Navy, and that military vessels of “other countries” would not be allowed to use it anyhow.

The question, however, is why China is interested in spending money to develop a port in the middle of the Indian Ocean, separated from its territory by the Strait of Malacca, a 1000-km bottleneck? And the more so when the Strait (like the entire Indian Ocean in general) is controlled by the Navy of its major geopolitical rival?

When the Hambantota project was started in the second half of the last century, China already had its clearly comprehensive (i.e. political, economic and military) reasons. The importance of the military reason was closely related to China’s priority strategic task to secure an overland access to the Indian coast.

The Hambantota Port was regarded as one more link in the so-called “String of Pearls” of bases in the Indian Ocean, with the starting point on the Myanmar coast. After the regime change in this country, which was supported by China’s major geopolitical rival, Beijing had to re-direct the development of this overland corridor to Pakistan.

And now, Gwadar and Karachi, the Pakistani ports at the end of the corridor that starts in the western provinces of China, are China’s major military outposts on the Indian coast. This is why when China’s foreign political rivals talk about potential use of Hambantota Port by the Chinese Navy, Beijing officials pretend to be surprised, “It never crossed our minds”.

However the political and economic reasons for China’s development of the port remain valid. Moreover, after 2013, when Chinese leader Xi Jinping initiated the restoration of the Silk Road, those reasons became even more vital. The Hambantota Port has good chances of becoming one of the major maritime parts of the New Silk Road.

It is worth noting in this regard that China assessed the signing of the disputed agreement as the display of the “independence” of the foreign policy of Sri Lanka.

Finally, it is worth noting that the comments on the signing of the agreement between China and Sri Lanka emphasize the political context resulting mainly from the aggravation of the situation at the high-mountain borderline between China and India.

And this is no surprise, because the division of the functioning of any state into political, economic, military and other parts is not natural, but rather serves the convenience of their description.

Vladimir Terekhov, expert on the issues of the Asia-Pacific region, exclusively for the online magazine New Eastern Outlook.”