Bad news for Beijing: Colombo will not allow China to use Sri Lanka as base to threaten India

Bad news for Beijing: Colombo will not allow China to use Sri Lanka as base to threaten India

There is bad news for Beijing from Colombo. President of Sri Lanka Ranil Wickremesinghe has announced that his government will not allow the island nation to be used as a base for threats against India. He has also emphasized that Sri Lanka is a neutral country and has no military agreements with China.

In an interview with the television channel Frane24 on June 27, 2023, the Sri Lankan President also assured that Colombo was increasing its own military presence in the Hambantota Port to ensure that China could not use the harbour to carry out anti-India activities. A brigade of the Sri Lankan army was already stationed at Hambantota and Colombo would soon shift the headquarters of the Southern Naval Command to Hambantota to ensure security of the port.

Colombo has given the Hambantota Port to the China Merchants Group on 99 years’ lease. Catching Sri Lanka in the debt trap called Belt and Road Initiative, Beijing has managed to gain control of the strategic Indian Ocean port on a long-term lease. That a merchants’ group in China has obtained lease of the port is no guarantee that the waterfront will not be used to carry out military operations against India; as in China the dividing line between commercial and military establishments is thin. The China Merchants Group is in any case a state-owned entity in China and most likely to have close connections with the communist party, the Chinese government and the Chinese military.

The Indian concerns are not unfounded. In August 2022, a Chinese spy ship posing as a research vessel docked at Hambantota Port for about a week. In the face of Indian reservations, Colombo had first denied permission to the Chinese vessel to dock at Hambantota and the ship had to wait for a few days 600 nautical miles away in the high seas. Colombo finally had to bow under pressure from Beijing and allow the Chinese ballistic missile and satellite tracking ship ‘Yuan Wang 5’ to dock at Hambantota.

New Delhi was concerned that the tracking devices of the ship would attempt to snoop on Indian installations while being on the way to Hambantota Port. The final permission for the Chinese vessel to call at Hambantota was, however, conditional; it was allowed to dock for a limited period and for “replacement purposes only” and on condition that no so-called scientific research would be conducted in Sri Lankan waters. Earlier in 2014, the ties between India and Sri Lanka came under strain when Colombo gave permission to a Chinese nuclear powered submarine to dock in one of its ports.

In fact, the initial permission for the Chinese vessel to dock at Hambantota had been given by the previous Sri Lankan government when the island nation was in turmoil because of its external debt crisis and the frequent changes in government. The previous governments in Sri Lanka led by Mahindra Rajapaksa and Gotabaya Rajapaksa had followed a pro-China policy and accepted the Belt and Road Initiative of China which had landed the island nation in the debt crisis. Now a stable government under Ranil Wickremesinghe is trying to keep China at an arm’s length and improve the economic situation of the beleaguered country with India’s help.

China, with its BRI investments in infrastructure, is not only the main creditor of Sri Lanka and the main cause of the external debt crisis facing the island nation; but also, through its refusal to restructure the Chinese debt, the main obstacle in the way of Sri Lanka receiving a bailout package from the International Monetary Fund. India, on the other hand, has been the lifeline of Sri Lanka in its ongoing economic crisis. New Delhi has been at the forefront of extending economic assistance of nearly $4 billion to Colombo to meet the crisis.

Meanwhile, in March 2023 the IMF approved to Sri Lanka $3 billion under its Extended Fund Facility for a 48-month extended arrangement. Under this, Sri Lanka immediately received an initial disbursement of about $330 million. “But it is now important for the Sri Lankan authorities and creditors to closely coordinate and make swift progress towards a debt treatment that restores debt sustainability under the EFF-supported programme,” IMF Senior Mission Chief in Sri Lanka Peter Breuer said while announcing the approval of the Extended Fund Facility arrangement for Sri Lanka.

Notably, on July 8, 2023, Speaker of Sri Lankan Parliament Mahinda Yapa Abeywardena expressed his gratitude to “trustworthy friend” India for saving Sri Lanka and preventing a “bloodbath” during the unprecedented economic crisis of 2022. Not a single nation had extended that kind of assistance to Colombo as done by New Delhi, he said. “Sri Lanka and India are very closely interconnected countries, culturally, nationally and policy-wise. India has been a very close associate and trustworthy friend of India,” he said at an event.

India has reiterated its willingness to play a constructive role in supporting the efforts of Sri Lanka to recover from the economic crisis facing it. On July 9, 2023, Deputy High Commissioner of India in Colombo said the recent developments in India – Sri Lanka ties had strengthened the friendship and all-round cooperation between the two countries. “We were the first creditor nation in January this year to convey the financing assurances needed to kick-start the IMF process,” he said. In January 2023, India was the first country to hand over its letter of support for financing and debt restructuring of Sri Lanka to the IMF. The financial and humanitarian support of India to Sri Lanka was worth $4 billion.

Unfortunately for Sri Lanka, Beijing has till lately kept Colombo waiting for the promised restructuring of Chinese debt to take place. Foreign Minister of Sri Lanka Ali Sabry said on July 3, 2023, that Sri Lanka was still hoping that China would assist the island nation in its bid to restructure the external debt. According to Sabry, China was believed to hold over 50 percent of the total external debt of China of $41 billion. “We have had several rounds of discussions with them,” a hopeful Sabry said. “We are very confident that China will help us in debt restructuring.”

The restructuring process should be completed by September 2023, in time for the first review of the IMF of its $2.9 billion bailout package extended in mid-March, 2023. “Achieving timely restructuring agreements with creditors in line with the programme targets by the time of the first review is essential in restoring debt sustainability,” IMF Mission Chief Peter Breuer said on May 23, 2023, at the conclusion of a visit to Colombo to review the Fund-supported programmes.

Sri Lanka approached the IMF for a bailout in April 2022. Beijing has since dragged its feet on the question of restructuring of the Chinese debt. On November 3, 2022, Colombo said China had not changed its stance on accepting “haircuts,” that is, accepting marginally less than what is due. On December 5, 2022, Beijing continued to be ambivalent and silent about its stand on loans to Sri Lanka.

The apparent reason for Beijing’s ire was that Colombo had approached the IMF for a bailout package, as indicated by Ambassador of China to Sri Lanka Qi Zhenhong after China had rejected a request made by Sri Lanka in March 2022 to reschedule its loan.

According to reports from Beijing, till the middle of June 2023 China had not committed anything on debt restructuring. Chinese Vice Minister of Foreign Affairs Sun Weidong visited Colombo and had a meeting with the President of Sri Lanka, but in the official announcements made after the meeting between the two there was no mention of debt restructuring. It merely said China would give “maximum support” to Sri Lanka to recover from its economic crisis.

Reports from Sri Lanka say a Chinese assurance on debt restructuring is unlikely to come in 2023. According to observers in Colombo, China is playing a game of “hide and seek” with Sri Lanka on the issue of debt restructuring as Beijing wants to sign more agreements with Colombo to “develop” the Hambantota Port to cover the loss it is incurring there.

It is not surprising that China is incurring losses at Hambantota. Sri Lanka had earlier made a request to India to develop Hambantota Port. The request was rejected by New Delhi as it was found that the port at that location would not be commercially viable. China subsequently advanced credit to Sri Lanka under BRI and gained control of Hambantota Port when Colombo could not repay the loan. The interest of China was not commercial gains but geopolitical interests which its strategic location on the Indian Ocean could serve. Now with Colombo refusing to play ball with Beijing and denying any military use of the port by China, Beijing has no option but to ensure that the port becomes commercially more useful.

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