Cooperation between China, India can improve prospects for Sri Lankan economy
Recent moves by China to improve the infrastructure in South Asia have resulted in India following in its footsteps. In theory, this is a good thing for local economies, but New Delhi’s zero-sum thinking seems to increase the likelihood of inefficient investment.
Sri Lanka’s Mattala airport, one of the world’s lowest-traffic airports with just one airline using it, has drawn attention from the Indian government in the wake of a $290 million offer to take it over, the Nikkei Asian Review reported earlier this week. India’s interest in the airport, located in Hambantota, was widely seen as a response to the deal in which China got a 99-year-lease to operate the Hambantota Port. India’s Economic Times said a report in August that “China has a seaport in Sri Lanka, India may get an airport.”
War-like words cannot help the airport turn losses into gains. The airport in Hambantota had reportedly lost about $113 million as of the end of 2016. It will not be easy for India to bring the airport to life and then use it to create jobs and generate tax revenues for the local economy. A quick deal to buy an existing airport, instead of focusing on greenfield manufacturing investment that can generate sustained income, is a shortcut to increasing New Delhi’s presence in Sri Lanka to counter China’s influence, but the local economy can hardly benefit from a deal like that. Given Sri Lanka’s close proximity to India, the two countries have the potential to cooperate in many areas, including services and manufacturing. Focusing on cooperation that can drive the growth of Sri Lanka’s economy will help establish sounder and more sustainable relations between the two South Asian countries.
The same principle applies to Sino-Sri Lanka relations. In addition to the Hambantota Port, China is setting up an industrial zone in Hambantota, which will likely transform the area into an important trading and logistics hub and attract massive investment. Infrastructure facilities like ports and airports themselves play only a limited role in supporting the economy but will yield better economic returns as the facilities become a way to speed up industrialization. Both China and India have been stepping up infrastructure investment in Sri Lanka. Now it’s time to consider how to expand the investment scope to energize the local economy in Sri Lanka. India and China must work together to tap the potential of manufacturing cooperation and establish sustainable relations with the island country.