Dissanayake’s China visit reinforces Beijing’s importance to Sri Lanka’s development

Sri Lanka is crucial for China’s growing geopolitical ambitions in the Indian Ocean Region. This is bad news for India.

Newly elected Sri Lankan President Anura Kumara Dissanayake concluded his first four day visit to China on January 18. During his visit, Dissanayake met with Chinese President Xi Jinping, Premier Li Qiang, and Zhao Leji, the chairman of the Standing Committee of the National People’s Congress of China. The Sri Lankan president described the bilateral relations as “ushering in a new chapter in bilateral relations”.

Around 15 agreements were signed, which included Colombo’s 2030 digital blueprint and initiatives under the Belt and Road Agreement (BRI), export of agricultural products to Beijing, news and broadcasting, etc. Both sides also agreed to push forward with a comprehensive Free Trade Agreement (FTA) and the development of the integrated Colombo Port City and Hambantota Port. They also renewed the currency swap agreements. However, the details of the agreements have not been made public. Reports also suggest that Colombo is in a position to attract around $10 billion in investment in various sectors from Chinese companies.

The visit was crucial from the perspective that Sri Lanka has been struggling because of a major financial crisis and civil unrest. Dissanayake, who is a Marxist leader, won the election in September on the promises of improving the livelihood of the people and focussing on domestic growth and development while strengthening the economy. He also underscored his agenda of correcting the domestic challenges and focussing on foreign policy.

Most of Sri Lanka’s debt challenges are rooted in investments made during the Mahinda Rajapakse’s government, which was closer to Beijing. Infrastructure projects like the Hambantota Port and airport have proved to be financial disasters adding further strain on Colombo’s fragile economy. The economy also faced major challenges because of the Covid-19 pandemic which adversely impacted the tourism, adding to foreign reserve woos.

As expected, questions around Beijing’s debt trap diplomacy were omnipresent. In 2017, Colombo had to lease the Hambantota Port to China for 99 years, and since then has become the prime example of the challenges which the BRI poses for smaller nations, especially in the form of a debt trap. No surprises then that during his visit Dissanayake asserted that, “Global South countries need development, which cannot be achieved without external investment and loans. We cannot view such assistance as a 'debt trap'”. The centrality of tourism in Sri Lankan economy was reiterated when Dissanayake urged Chinese tourist to visit his country in large numbers.

The highlight of the visit, however, was the announcement of $3.7 billion investment by Sinopec in a Sri Lankan oil refinery, one of the largest foreign investments till date. Though the Chinese foreign ministry statement did not mention this. India is also a key player in Colombo’s energy sector and has been vying greater investment in grid and solar projects. As per an Indian official, Colombo is not dependent on Beijing in the energy sector. However, one cannot ignore the fact that such a massive investment can change the energy landscape in Sri Lanka further adding to New Delhi’s woos.

Dissanayake’s first official visit was to India in December, where he extended assurance to New Delhi that the Sri Lankan soil will not be used in “a manner that is detrimental to the interest of India”. However, given the rising geopolitical dynamics between India and China, smaller nations in the region, like Sri Lanka, will have to adopt a fine balance. India perceives the Indian Ocean Region as its natural sphere of influence. The increasing inroads made by Beijing in the form of investment in ports and regular ship docking, submarine docking, and reconnaissance is adding to India’s security concerns. Sri Lanka is crucial for Beijing, given its prominent position in the Indian Ocean Region and its naval aspirations.

The range of agreements, areas under discussion, and the hope of huge investments underscores that China will continue to be a key player in Colombo’s economy and by extension its regional and global diplomatic manoeuvring. Chinese investments and loan restructuring are crucial for Colombo if it wants to continue accessing loans from International Monetary Fund (IMF). The visit highlights that China is central to Colombo’s development aspirations.

On the other hand, the Chinese media has continued to assert that the idea of debt trap is a Western and Indian creation. The Global Times argued that a ‘significant proportion of Sri Lanka's debt is owed to India and Western financial institutions, such as the IMF and the World Bank. Interestingly, few Western or Indian media outlets discuss an "Indian debt trap" or an "IMF debt trap”.’ Though it failed to assert that most of the Chinese loans come at a huge interest rate and are generally shrouded in secrecy.

In the last few years, South Asia has become the focal point of Chinese geopolitical aspiration. China has massive investments in most of the smaller nations and has used these to its leverage. Even though Beijing continues to harp on respecting sovereignty, examples of Hambantota underscore its hegemonic ambitions.

(Gunjan Singh is Associate Professor, OP Jindal Global University.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.