Chinese infrastructure deals subtly step up competition with India

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LATE last month the Sri Lanka government handed over control of the strategically important Hambantota port, that juts out into the Indian Ocean, on a 99-year lease to a Chinese company.

Considered important for China’s much vaunted Belt and Road Initiative (BRI), the Hambantota deal has given a new spin to the fierce contest that has been taking place between India and China, including on the cold Himalayan plateau.

New Delhi dislikes its South Asia neighbours to do business with China as it fears that it could become a precursor to military partnerships that could diminish India’s influence. These fears may or may not be misplaced, but the neighbours are slowly learning to do business with both the Asian powers. This has not been easy. The earlier SL government of Mahinda Rajapaksa was perceived unkindly by the Indian government when it allowed Chinese investments in Colombo. What riled India even more was that a Chinese submarine paid a visit to the Colombo port. Rajapaksa lost the elections and blamed India for his misery.

Hambantota and other infrastructural projects that were initiated to reconstruct post-war SL through a hefty $8 billion (R104bn) loan from China, was his legacy.

Soon the new government of President Maithripala Sirisena and Prime Minister Ranil Wikremesinghe realised that their government or economy did not have the depth to service its debt.

It was then that this clamour began – to rescue the port and the economy lest it be trapped in a spiral of debt.

The choice to return to the Chinese for help to restructure its debt into equity was due to the failure of the government to raise funds from elsewhere. Some thought that if India was so keen to prevent Colombo being enticed by China then they should have put their money where their mouth was. Quite obviously, India did not have the funds to walk the talk.

It failed to show them the money and hence had little moral authority to question how Sri Lankan leadership was sorting out its debt issues. This was evident when some influential SL voices opined similar views of India when the local media questioned them about the growing Chinese influence in the island.

In this controversial deal, for $1.1 billion, Sri Lanka has given a 70% stake in the port authority to the Chinese company and 6 000ha of land, which will be used for setting up a special industrial zone.

Taking cognisance of Indian sensitivities, the port will only be used for commercial vessels and naval ships will not be permitted there. The Sri Lankan Navy will provide protection to the port.

Despite its manifest security and commercial implications, India has not reacted officially to the SL decision to give ownership of such an important port to a Chinese company. Perhaps it has something to do with the concession that New Delhi has had for many years to operate a tank farm in the equally strategic Trincomalee port.

However, without naming Sri Lanka’s sale of its port, India has used it as an example of why it is opposing the BRI of China.

The BRI conference that was held in Beijing earlier this year was boycotted by India as it claimed the grand project was not democratic and could undermine the sovereignty of participating countries in Asia and Africa.

In the case of Pakistan, China has invested $61 billion in an ambitious 3 200km road corridor called the China Pakistan Economic Corridor (CPEC) that would link the Gwadar port in Pakistan to that of Kashgar in its Xinjiang province. After the project is completed, Pakistan may have to pay $8 billion as debt.

Questions have been raised in Pakistani media whether a country that has been strapped for cash would have the ability to absorb such a big investment and whether it can service this gargantuan burden year after year. Besides issues of regional development, there is plenty of chatter on what China expects from this grand project.

Exposés in Pakistani newspapers reveal that the CPEC is not just for road connectivity or helping China to ferry oil from the Gulf without having to take the sea lanes, but a lot more.

China, as the CPEC documents show, would not just help Pakistan fight terror, but also use the agreement to grow food for its people on Pakistani soil.

A fierce debate is raging in Islamabad about the implications of the CPEC and how such a huge loan will impact the country’s economy and sovereignty.

Examples of Sri Lanka and how it had to cede control over its land and its port to China, and its visible enlargement in Africa is finding space in Pakistani editorials.

Though China is working hard to put the fears of many countries to rest where it is bringing in investments, it has not yielded desired results.

The blame for such a negative image rests perhaps with the way China executes its projects.

It has been accused of bringing in its own workers, thereby not generating employment for the local people. Indians, by comparison, claim that their loans or grants allow the recipient country to decide on how it wants to spend the money.

Also, it allows employment of local people.

Multilateral bodies like the IMF-WB still give freedom to employ indigenous labour, although with harsh conditions. On the other hand, the Chinese believe they can speedily execute projects with their own workers.

In many societies where unemployment is high, this is resented.

In Nepal, for instance, which has been under the sway of India for many years, cosiness with China is bringing in new anxieties for small businesses. Nepalese complain that they are losing small businesses even in their hipster hangout Thamel.

Despite these fears, China is bringing in rapid development in areas that were largely ignored by many national governments.

Its Belt and Road Initiative could be transformative for the participating countries that have been starved of development funds despite suggestions by India that it could come at the cost of nations’ sovereignty.

The military stand-off that is currently taking place between China and India on the Bhutan plateau is a manifestation of their contested world views.

A war between them would have no winners.