By Gustav Eurenius
Out of the ten international ports China contributed to finance in the last decade, the case of Hambantota, Sri Lanka, makes an intriguing example. Official plans for the port were released in 2002, and it opened for traffic in 2010. In 2012 the Sri Lankan port of Hambantota, with 69km2 of appurtenant land, an area larger than the city of Uppsala, was effectively Chinese territory. How did it happen, and what thoughts and learnings can the scenario generate about Chinese foreign policy and its implications?
To reach an understanding of what is taking place in Hambantota one must first be familiar with the Chinese undertaking of the Belt and Road-initiative. The project’s initial ambition was to establish a more efficient trade network in the footsteps of the ancient silk road, a trade network connecting, among others, China and the Roman Empire. The plans for the present project have now out-grown its predecessor, building infrastructure from Pakistan to Kenya. The project has both met praise and suspicion in affected areas, bringing both much-needed investments in infrastructure, but also fear of falling under Chinese political influence.
Sri Lanka’s former president, Mahinda Rajapaksa, was a key player in the making of the port in Hambantota, his underdeveloped hometown, coming into existence. His government accepted many of the loans that now make up Sri Lanka’s more than $8 billion debt to Chinese state-controlled firms.
Investment from Chinese firms was a heavily contested issue during both the 2005 and 2010 Sri Lankan elections, which Rajapaksa won. A contributing factor in swaying the result in his favor may have been his funding. Rajapaksa´s campaign received about $7.6 million from affiliates of the major construction firm China Harbor. Contributions that financed campaign t-shirts and saris, a female clothing garment.
Part of the loan deals made between China and Sri Lanka for the Hambantota port was that the project was to be realized by a Chinese firm, and the contract was given to China Harbor, the same company that sponsored campaign saris and t-shirts for Rajapaksa.
Given that the relatively small country of Sri Lanka already has a large and well-functioning harbor in the capital Colombo for trade vessels passing through the Indian Ocean, the idea of an additional harbor was deemed unprofitable to potential investors. Hence it never happened. That is until the deep-pocketed state-capitalism in the form of China Harbor came along.
The initial loans given to finance the project started out at a marginally higher interest compared to other similar loans, settling at about one-two percent, compared to Japanese infrastructure loans at below half a percent. But the port continued to be unprofitable, with unexpectedly high bills coming from China Harbor. The Sri Lankans needed more funding to pay their loans. And the loans became more expensive, being renegotiated to an interest rate of 6,3 percent.
With debt escalating the two parties sought for other means of settling rather than more loans. Thus, the deal was struck: China would lease the port with adherent land for 99 years, elevating about $1 billion from the debt-ridden shoulders of Sri Lanka. One may wonder why China would not only wish to fund but also operate a port that is estimated to never be profitable by a vast majority of international analysts.
If the port is not to make money, what is it for? Speculative answers to this question rose security political concerns in neighboring India, arguing that China’s willingness to take financial losses implies long-term geostrategic motives. According to the current agreement China’s navy, the world’s now largest in terms of the total number of ships, is not allowed to reside at Hambantota, if not given permission by the Sri Lankan government. But fears prevail that China will trade allowed military presence for debt relief. Sri Lanka today owes China more money than ever. This year, Sri Lanka has planned repayments to several financiers at about 83 percent of its state revenue. As former American President John Adams put it almost 200 years ago: “There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”
The relationship between China and India, the world’s most populous nations and the fastest growing major economies, will play a pivotal role in the future political landscape. The struggle over influence in the Indian Ocean gives an indication that this relationship may increasingly be characterized by competition and a certain level of distrust between the two emerging power-houses.
On October 26, Rajapaksa made his return to the first tier of Sri Lankan politics. In an unprecedented action the current president appointed him as prime minister, just moments after dismissing the incumbent. The move perplexed many and gave rise to confusion about its constitutional legitimacy. What seemed to remain clear is that China’s political power ambitions will keep on growing along its economic progress. The wake will be felt by neighboring countries.
Gustav Eurenius is perusing a bachelors degree in peace and conflict studies. He daydreams about off-pist skiing and Lebanese food. Gustav would encourage everyone with a appetite for international politics too apply for Uppsala Model United Nations, which he is part of organizing.