A Chinese chakravyuha in South Asia

Confident of victory in Sri Lanka’s prolonged and bloody ethnic conflict, President Mahinda Rajapaksa decided to develop the port of Hambantota and its neighbourhood, along Sri Lanka’s south-western coast. He was determined to make this region his impregnable political base.

Taking note of Rajapaksa’s aversion to India and the western world, China obliged by offering to undertake a number of projects in and around Hambantota. Given the attention India focused on Colombo port, building and taking control of Hambantota, whose economic viability was questionable, was imperative for China. Beijing decided to acquire naval facilities in Hambantota, in the way as it has taken control of Gwadar in Pakistan.

Funds for the Hambantota project were made available at near commercial terms by China’s Exim Bank, which extended credit of over $1.2 billion for the construction of the port, and $1.35 billion for a power plant. Assistance was also extended for a southern highway, a tele-cinema park and an airport. Rajapaksa’s ambitions for his constituency also included a sports zone for a proposed international sports meet that was never held and an international cricket stadium. Not a single international cricket match has been played in the cricket stadium. Not a single worthwhile film has been made in the tele-cinema park. All his projects in the constituency have been financial disasters.

Given its location, Colombo is the natural port for transit of goods to and from India. Apart from a few vehicles that India, Japan and South Korea export to Sri Lanka, Hambantota receives virtually nothing else from international trade. Against annual interest repayment liabilities of around $ 65 million, revenues from trade shipments amount to around $1.3 million. The entire range of projects is financially unviable. Despite offering free landing facilities to foreign airlines, there are virtually no flights to Hambantota airport. The power project is also proving a white elephant.

Unable to repay the debt incurred to build the coal-fired Norochcholai power plant, the government is now transferring its ownership to the Chinese, in a debt-equity swap. The earnings of the Southern Expressway annually are now less that one-sixth of the debt repayment bill. Between 2009 and 2014, Sri Lanka’s debt tripled. The current total debt stands at around $65 billion. Sri Lanka spends over 90 per cent of all government revenue to service its debts. Finance Minister Ravi Karunanayake has announced that his government has decided to sell 80 per cent of the $1.5-billion Hambantota port to a Chinese company. China has also been offered an investment zone in the same region, in another bid to cut the country’s debt burden.

China has now virtually taken over the Hambantota port, its surrounding areas and adjacent industrial park, despite widespread local protests. Reports indicate that this ‘investment zone’ will be used by China to manufacture a wide range of products for export to India. China will thus, in effect, be seeking to export its products from Sri Lanka, making use of the free-trade advantages that Sri Lanka enjoys in trade with India.

What happens in and around Hambantota is of crucial strategic and economic interest to India. We need to make it clear that the use of Hambantota to berth Chinese warships and submarines, and control of the port and surrounding areas in Chinese hands, are unacceptable to India. Gwadar and Hambantota will become staging areas for the Chinese navy to operate across the sea-lanes of the western Indian Ocean, giving the Chinese the ability to interdict vital oil supplies.

While Hambantota could become a crucial part of China’s Maritime Silk Route, Gwadar is fast becoming the nerve centre for a China-Pakistan nexus, to exercise maritime control over the sea-lanes used for oil/gas supplies from Iran and the Arab Gulf states. Gwadar port has been leased to China for 43 years, till 2059. China’s Silk Road Project connects with the Maritime Silk Route in Gwadar. The China-Pakistan Economic Corridor (CPEC) connects China’s Xinjiang province to Gwadar through Gilgit-Baltistan, which India regards as its territory, as it is a part of Jammu and Kashmir.

Unlike, in the case of Hambantota, the the Gwadar port project is being financed in a number of areas by zero per cent Chinese loans. The total Chinese investment in developing the port and its neighbourhood has been estimated at around $3.5 billion. The total cost of projects along the CPEC is estimated at around $51 billion. There is considerable opacity about the proportion of these investments, which will come in the form of zero interest credits, concessional credits, bank credits with near commercial rates of interest, or as foreign direct investment.

There are misgivings even within Pakistan about who the main beneficiaries of the Chinese-funded economic vorridor will be. There is strong opposition in Baluchistan, where Gwadar is located, because the people of the province have received no benefits from Chinese-funded projects.

The Saindak copper and gold mining project in Baluchistan’s Chagai district, being developed with Chinese participation, is estimated to contain copper and gold resources valued at around $70 billion. The people of Baluchistan will reportedly receive just 1 per cent of these earnings. There are also fears that outsiders will swamp the province as the CPEC and the development of Gwadar move ahead. New Delhi, like many others who are viewing the strategic dimensions of the growing China-Pakistan relationship with legitimate concern, will no doubt be closely observing these developments.

The last year saw the first-ever visit by a Chinese nuclear submarine to Karachi. In more recent days, Pakistan claims to have successfully tested its first submarine-launched nuclear-capable cruise missile with a range of 450 km.

Significantly, this launch came after China, infuriated by the latest launch of India’s Agni V, warned that it could transfer missile capabilities to others, to deal with India. With access to Gwadar and Hambantota, China’s navy partnered by Pakistan will have easy access to the Gulf of Hormuz, through which 30 per cent of all global maritime-traded petroleum is transported from Saudi Arabia, the UAE, Qatar, Iran and Iraq. Control over these maritime routes by China and Pakistan will have serious implications for energy security across Asia.

The writer is a former High Commissioner to Pakistan