The canary in the Belt and Road coal mine

Friday, June 1, 2018

1. A brief history of China’s investments in Sri Lanka

Yesterday, Sri Lanka’s Daily Mirror published an interview with Professor Rory Medcalf, head of the Australian National University’s National Security College, in which he explains why Sri Lanka is of vital interest to anyone following China’s rise and the rollout of the Belt and Road project:

I think Sri Lanka is strategically important. This is in part because the major economies that all of us depend on in Asia — China, India, Japan and South Korea — in turn rely on the sea-lanes in the Indian Ocean. Sri Lanka is a central point in these sea-lanes. It is a vital place for ships to stop. Sri Lanka also has potentially excellent visibility over what is happening in this region, in terms of maritime traffic. Secondly, Sri Lanka has become terrain for strategic competition as we see the rise of China and the expansion of China’s interests and its presence into the Indian Ocean.

But what exactly is China doing in Sri Lanka? And what are the consequences for Sri Lanka? It’s complicated. Here is a brief history of recent events, ending with a new item from today to bring the story up to date:

  • In June 2007, Sri Lanka’s Sunday Times reported that at the port of Hambantota, the China Harbour Engineering Company was building breakwaters “to enable this fishery harbor to be used throughout the year.” The project was worth $2.1 million (Rs334 million) and was financed with a loan from the Exim Bank of China.

  • By 2008, the project had expanded greatly: The Sunday Times said that the port construction site had expanded to “more than 1,000 hectares,” with financing up to US$360 million, of which 85 percent was as a loan from China’s Exim Bank.

  • At around this time, the term “China’s String of Pearls” began frequently popping up in media reports to refer to an alleged Chinese strategy of building a network of naval bases around the Indian Ocean. The term has been used in academic literature and in Indian newspapers since at least 1999.

  • In 2009, Sri Lanka’s 25-year-long civil war ended after the national army defeated the Tamil Tigers. By December 2009, China had “bagged the largest chunk of post-war development projects in Sri Lanka’s North and South with ongoing and projects concluded estimated at more than US$ 6.1 billion,” according to the Sunday Times.

  • In 2010, Sri Lankans began to complain about the China deals in the media. The Sunday Leader editorialized: “The Sri Lankan people get little or no benefit from the large amount of monies spent on the projects. The money lent from China is going back into the pockets of Chinese construction firms and workers, completely bypassing Sri Lankans and minimizing any trickle down and/or multiple effects which could have stimulated the local economy.”

  • But in the same year, “Sri Lanka gains from Indo-Chinese supremacy battle” was how the BBC saw the benefits to the island nation of an investment rivalry between China and India, while the New York Times said (paywall) that China’s investments in Sri Lankan and other South Asian ports was “irking India” and forcing it “to rethink relations with its neighbors.”

  • “The White Elephant In Hambantota” is how Sri Lanka’s Sunday Leader, a consistent opponent of Chinese deals, characterized the Beijing-led port development in 2011. In the same year, the main opposition United National Party (UNP) complained after rock on the seabed delayed the development of the port. In December 2011, the UNP said that the government had continuously misled people over the Hambantota Port’s maximum depth. The UNP complained that it was 17 meters, not deep enough for unloading larger cargo vessels.

  • In June 2012, the Hambantota port opened for business. Agence France-Presse reported: “Sri Lanka’s first Chinese-built port, a strong symbol of Beijing’s investment in South Asia, opened for international shipping yesterday with the handling of 1,000 cars from India.”

  • “News that Sri Lanka had granted Chinese state-owned companies operating rights to four berths at the Hambantota Port once they are completed next year has caught the shipping industry unawares,” reported Sri Lanka’s Sunday Times in October 2014. The report notes that the government had essentially handed over control of the port to Chinese entities without any consultation with the Sri Lankan public.

  • Promising to scrutinize Chinese activities in Sri Lanka, and pursue better relations with India, opposition leader Maithripala Sirisena won the 2015 Sri Lankan presidential elections. The Washington Post asked if his new government could really break free from China.

  • It soon became clear that Sri Lanka could not break free from China as the government worked to finalize a 99-year lease of the Hambantota Port to a Chinese company, China Merchants Port Holdings.

  • In January 2017, “hundreds of Sri Lankans clashed with police” at the opening of an industrial zone at the port, according to Reuters, which said it “was the first time opposition to Chinese investments in Sri Lanka turned violent.” Interestingly, the man leading the protests was the former president Mahinda Rajapaksa, who had first encouraged Chinese investment in Sri Lanka during his time in office, from 2005 to 2015.

  • After the protests, Sri Lanka negotiated with China Merchants Port Holdings to “cut its stake in a strategic port project by up to a quarter.” However, China’s stake remained a majority, leading Sri Lankan opposition politicians to characterize the plan as wanting “to give permanently the Hambantota Port” to China.

  • In July 2017, the Sri Lankan government approved a new $1.5 billion deal for commercial operations at a Chinese-built shipping port in the southern city of Hambantota, Reuters reported. The new deal “sought to limit China’s role to running commercial operations at the port,” while leaving Sri Lanka in charge of “broader security.”

  • In December 2017, Reuters reported that Sri Lanka’s parliament last week approved a  deal that leases the Hambantota Port to China Merchants Port Holdings for 99 years and offers tax concessions for up to 32 years. The deal was now valued at $1.1 billion.

  • “Debt-trap diplomacy” was how Indian author and commentator Brahma Chellaney characterized the news on Twitter. He explained, “In a reminder of how Chinese loans are collateralized by strategically important physical assets, Sri Lanka today formally handed over the Hambantota port to China on a 99-year lease because it is simply not in a position to repay its onerous debt to Beijing.” If you prefer an article to a tweet, here is Chellaney’s article on the same subject, titled “China’s creditor imperialism.”  

  • But China continues to invest. In January this year, Reuters reported that a consortium led by state-run China Harbour Engineering Company Ltd had signed a deal to invest $1 billion “to build three 60-storey office towers on reclaimed land of the Port City development in Sri Lanka’s capital.” You can see artist renderings of the planned flashy development here.

That brings us to today: Reuters reports (via Sri Lanka’s Daily Mirror) that “talks between China and Sri Lanka for a free trade agreement have hit major hurdles, mainly because Beijing doesn’t agree to Colombo’s demand for a review of the deal after 10 years.” Reuters says that concerns about Beijing-led investments have recently prompted “greater scrutiny of deals with China.”

Also today: Press Trust of India reports:  “Amid the global concern over China’s ‘debt trap diplomacy’, a bipartisan group of influential US lawmakers has visited Sri Lanka to gauge the ground-level situation.”

2. Will Liu Xia ever be free?

Liao Yiwu 廖亦武, a Chinese writer and dissident exiled in Germany, is a close friend of Liu Xia’s 刘霞, the widow of the Nobel Peace Prize-winning Liu Xiaobo 刘晓波, who died in state captivity on July 13 last year.

Today, Liao published on China Change an audio excerpt of a recent phone call he had with Liu, whose effective house arrest has now stretched to nearly eight years, since her late husband first received the recognition from Norway that so upset Beijing. She has never been charged with a crime.

  • “Loving Liu Xiaobo is a crime, for which I’ve received a life sentence,” Liu cried out during the phone call. “They’re going to keep me here to serve out Xiaobo’s sentence,” she continued.

  • Police have reportedly promised Liu that in July, after the politically sensitive month of June — particularly for the remembrance of a June 4, 1989, protest leader like Liu Xiaobo — and after the first-year anniversary of her husband’s death, she would finally be free to leave the country.

  • “I’ve lost count of how many times this promise has been made,” Liao writes in a letter accompanying the recording. He explains, “In early April this year, in response to numerous apparently optimistic signals, Liu Xia packed, and packed again, getting ready to travel — but her dreams dimmed and went dark. The Chinese official who had made promises to her had disappeared, and in despair Liu Xia declared that she would ‘use death to defy.’”

Meanwhile, while the Chinese Communist Party goes to extreme lengths to snuff out the memory of one of its most prominent dissidents, Taiwan plans to commemorate him on the anniversary of his death with a sculpture in the heart of Taipei, right by the city’s iconic Taipei 101 skyscraper. The New York Times notes (paywall) that the Taipei 101 plaza, of course, is “one of the most popular areas in the city for Chinese tourists to visit and take photographs.” The South China Morning Post reports that a group of activists in Hong Kong has already erected a statue commemorating Liu Xiaobo, in advance of that city’s annual candlelight vigil to remember the 1989 Tiananmen crackdown.

—Lucas Niewenhuis

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—Jeremy Goldkorn, Editor-in-Chief


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