Sri Lanka gains from Indo-Chinese supremacy battle

Dancers at a celebration for Hambantota seaport Sri Lanka's relationship with China and India is complex

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As India and China jostle for influence in the Indian Ocean region, the island nation of Sri Lanka seems to be getting unintended economic benefits.

China has pledged more financial assistance as Sri Lanka's President Mahinda Rajapaksa visited Shanghai Expo exhibition earlier this month.

China is already the biggest lender for the Indian Ocean island. Sri Lanka's Deputy Minister for Economic Development Lakshman Yapa Abeywardene says that China has, so far, pledged more than $3bn (£1.9bn) for infrastructure development, maintenance and other projects.

"China has been investing in Sri Lanka when many other countries were reluctant to invest during the war," he tells BBC Sinhala service.

China has finished the first phase of the major sea port of Hambantota on the southern Sri Lankan coast - Mr Rajapaksa's hometown - and is funding a new airport in the south. Chinese firms are also rebuilding roads in the north.

Many other projects are already in the pipeline, including handling a Special Economic Zone, a 900 megawatt coal-fired power plant and the Colombo-Katunayake expressway, the road connecting the capital with the island's only international airport.

China is also funding port projects in Chitagong in Bangladesh and in Pakistan and Burma.

Indian influence

Sri Lanka's closest neighbour, India, seems to be worried about the country's tilt towards China.

Start Quote

While HSBC, for example, was offering loans with 9% interest rates, China has been offering loans for very low rates, such as 1% or even 0.5%”

End Quote Lakshman Yapa Abeywardene Sri Lanka's Deputy Minister for Economic Development

Both countries supported the Sri Lankan government's war efforts, which brought an end to the Tamil Tigers separatist movement.

A move by Western democratic nations calling for an investigation into allegations of war crimes at the United Nations Human Rights Council was also defeated by the combined efforts of these two Asian giants.

Alarmed by these Chinese investments, India too has started pumping in financial aid.

It has announced more than $100m of aid to rebuild houses for Tamil civilians living in the North who were displaced by the war.

India's plan to build a coal-fired power plant near the port city of Trincomallee is beset with problems. But still Indian companies are bidding for projects in the energy sector.

Power Grid Corporation of India, National Thermal Power Corporation, Lanka India Oil Corporation and many other Indian companies are planning massive investments in the war-ravaged country.

In order to check the growing Chinese clout, India has also opened a new consulate in Hambantota, where China is building a massive port. It also plans to open a new consulate in Jaffna to reinforce its cultural ties.

Indian investment in Sri Lanka has so far exceeded $400m, according to media reports.

Exporting labourers

Asantha Sirimanne of Lanka Business Online is of the opinion that the battle for regional supremacy has economically benefited Sri Lanka.

"The rates offered by China are higher than those offered by the World Bank, and direct government loans from Japan," he tells BBC Sinhala service.

"But it is definitely lower than the commercial bank rates."

Start Quote

India should offer more incentives to Sri Lanka to offset Chinese influence”

End Quote DS Rajan Chennai Centre for China Studies

Minister Yapa agrees: "While HSBC, for example, was offering loans with 9% interest rates, China has been offering loans for very low rates, such as 1% or even 0.5%," he says.

While any infrastructure development invariably helps the economy, questions remain over other critical issues, such as job creation and poverty reduction.

"Chinese loans by Exim bank are mainly offered to buy Chinese products and services," says Mr Sirimanne.

He adds that the contractors, the subcontractors and even labourers involved in these major projects are Chinese nationals.

No exact figures are available, but journalist Namini Wijedasa claims in the Lakbimanews English weekly that 7,844 Chinese workers are currently on employment visas in the country. Other media reports have put the figure at over 30,000.

"And all raw material is imported from China," says Mr Sirimanne.

The deputy minister, however, says the figures are exaggerated.

"Sometimes, China uses its own labourers because of the language difficulties, but we don't have similar issues with regard to Indian labourers," Minister Yapa says.

There has also been concern over the lack of transparency in awarding these contracts, and the government's lack of enthusiasm to inform the public over the real costs involved, and the repayment methods.

But Minister Yapa says there is a "wrong attitude" that thousands of Chinese workers were imported specifically for Chinese projects.

"When they bring in specialists from China, many say Chinese labourers were brought in to Sri Lanka. But there is no huge impact," he says.

Rival interests

Not everybody is optimistic, though.

In the past, Sri Lanka has had bitter experiences for trying to outsmart India.

To move out of India's shadows, in 1977 this country moved towards the United States and the West.

Political analysts say India punished Sri Lanka for trying to ally with the West by providing arms and training to Tamil militant groups. It also forced the JR Jayawardene government of the time to sign the Indo-Lanka accord that gave more powers to minority regions, they say.

But both China and India have publicly insisted that they have enough space to develop, and that there is no battle over each other's supremacy.

The reality may not be that straight forward.

"The Indian government should not be concerned if China is only interested in energy security and maritime security to secure energy supplies," says DS Rajan, director of Chennai Centre for China Studies.

The former senior Indian government official says, however, it is always important to focus on any potential strategic partnership between Sri Lanka and China.

"Too much reliance on China will not be in the benefit of Sri Lanka in the long run," he says.

"India should offer more incentives to Sri Lanka to offset Chinese influence."

There are concerns in India that, in the future, China may try to use the Hambantota port for its navy.

Sensing India's anxiety, President Rajapaksa recently told Times of India newspaper that India should treat Sri Lanka, "not in a Big Brother sort of way, but perhaps like its little sister".

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