Vaibhav Dabas asked: What are the Chinese strategic interests in Sri Lanka and what are its implications for India?

Gulbin Sultana replies: China under President Xi Jinping seeks to reach out to overseas markets and promote new sources of growth for its economy. Xi Jinping’s vision of a global free trade regime and open world economy includes efforts to enhance connectivity between Asian and African continents and their adjacent seas for free flow of trade. To fulfil this vision, China is looking for facilities along strategic transit channels through “land-use agreements” between Chinese state-owned companies and local authorities to reduce geo-economic risks and ensure energy security.

In addition to economic interests, China has the vision to emerge as a global maritime power. Chinese People’s Liberation Army Navy (PLAN) has shifted its focus from “offshore waters defence” to “open seas protection” in order to project power in the distant waters through a blue water navy. In this regard, PLAN needs reliable logistical chains to resupply food, fuel and armaments across the sea lines of communication (SLOCs). However, faced with the so-called ‘Malacca Dilemma’, China requires logistical infrastructure at strategic locations in the Indian Ocean.

China considers Sri Lanka, strategically located on the busy East–West trade route in the Indian Ocean, and also in close proximity to India, as an extremely important partner of its Belt and Road Initiative (BRI) and has offered assistance in terms of loans worth billions of dollars.  

Sri Lanka under former President Mahinda Rajapaksa joined the BRI expecting that it would facilitate the achievement of his vision (of development) for the country. Unfortunately, many of the projects funded by China could not make any profit and thus made the debt unsustainable. Taking advantage of Sri Lanka’s economic vulnerability and inability to repay the debts, China made an equity swap agreement on the loss-making Hambantota project under which it acquired a 70 per cent stake and land on lease for 99 years. China Harbour Engineering Corporation (CHEC) Port City Colombo (Private) Limited, the project company of Colombo International Financial Centre financed by China, too has acquired 116 hectares (ha) of land out of 269 ha of total reclaimed land on lease for 99 years. The company is allowed to enjoy commercial benefits from 43 per cent of the 269 ha of reclaimed land to recover its investment in the Colombo International Financial Centre project. The company also has the right to grant the land it acquired on lease to third-party developers for another 99 years. It is not clear whether there is any condition being put for selecting any such developer.

The Sri Lankan Government has stated that the lands acquired on lease for infrastructure projects financed by China would be under Sri Lankan sovereignty and their security would be under the command of Sri Lankan forces. This trend of China acquiring the lands on long term leases by providing loans with high-interest rates and hidden conditions is of strategic concern for India as it is not very clear how much control Sri Lanka has over the lands leased to the Chinese despite the government’s claims of sovereign rights.

Posted on 13 May 2022

Views expressed are of the expert and do not necessarily reflect the views of the Manohar Parrikar IDSA or the Government of India.