Posted on June 8, 2021
With China all set to take sovereign control of Colombo Port City, a wary India must realign its South Asia strategy
The Sri Lankan Parliament on May 20, 2021, passed the Colombo Port City Economic Commission Bill, raising a few eyebrows in New Delhi. The Bill was debated for two days in the Sri Lankan Parliament. It was earlier challenged in the Sri Lankan Supreme Court by opposition parties and members of civil society. Its Supreme Court suggested a few amendments, and finally, the Bill got Parliament’s approval with 149 lawmakers voting in favour of it, while 58 remained opposed.
However, it drew flak not just within but outside Sri Lanka too. This Bill establishes a Special Economic Zone (SEZ) that a Commission will control. What irked people in Sri Lanka is that this Commission will be like a sovereign agency authorised to take any decision. This includes granting “registrations, licences, authorisations and other approvals to carry on businesses and other activities in and from such Zone”.
Commission Control
Moreover, after the endorsement of the Bill, the Commission is entitled by none other than the Sri Lanka Parliament to “establish an International Dispute Resolution Centre within such a zone”. Theoretically, it is the prerogative of only the sovereign state to be an arbitrator, but in this case, the Sri Lankan government wilfully delegated this critical political responsibility to a Commission. Although most of it may be related to trade and commerce, still leaving everything on a Commission for a zone that will have the presence of foreign firms is liable to make people uncomfortable, particularly those who firmly believe in undiluted sovereignty of the state.
Sharing and pooling sovereignty at the international level is not uncommon for states willing to compromise with sovereignty when they accept membership of international or regional organisations. States commit themselves to international law and norms that, at times, restrict their autonomy. Still, to compromise sovereignty at a domestic level is something not discernible. In the Colombo Port City, what is astonishing is that a Chinese firm will be operating this city through the Commission.
China Harbour Engineering Company (CHEC) has exclusive rights in the SEZ, and it operates with the name CHEC Port City Colombo Pvt Ltd. CHEC is a subsidiary of China Communication Construction Company Ltd (CCCC). CCCC is amongst the Fortune 500 companies and has worked in Africa, West Asia, South America, etc. The interesting point is that the Chinese state has more than 60% control in CCCC. Thus, CCCC is majorly guided by China, and is not a private entity. So the Colombo Port City will be under the direct domination of China.
Back to 1998
CHEC is not new to Sri Lanka, and its presence could be traced back to 1998. The company was involved in several infrastructural projects of Sri Lanka, including two really ill-reputed ones – the Mattala Rajapaksa International Airport (MRIA) and the Hambantota Port.
MRIA was termed as the ‘world’s emptiest airport’. China funded the airport on a high-interest rate loan, and the Sri Lankan government suffered a huge loss. As per estimates, the airport cost nearly $200 million, of which China funded over $180 million. The heavy losses prompted the Ranil Wickremesinghe’s government to enter into a negotiation with India in 2018 to jointly operate the airport. Albeit, after the election of Mahinda Rajapaksa, things changed. Rajapaksa was not in favour of India jointly operating the airport, and ended the negotiation with India. The airport, located almost 250 km from Colombo in Hambantota district, started receiving some passengers during the pandemic. There is though no surety that the airport will be preferred by international airlines.
Likewise, the Hambantota Port, also known as Magampura Mahinda Rajapaksa Port, emerged as an example of the ‘Chinese debt trap’. The Exim Bank of China majorly funded its construction. When Sri Lanka failed to meet the loan repayment conditions, which were quite stringent, it entered into a 99-year lease with China Merchants Port Holdings Company Limited to operate the port. Lately, there has been some revival of commercial activities at Hambantota. The present commercial activities at both these projects are far below expectations, and they may not see a big improvement soon.
These two projects indicate two things: the Sri Lankan economy is not robust enough to utilise these mega projects properly by itself. Secondly, with such huge financial involvements, China is now the most important ally of Sri Lanka. This relationship will only strengthen with the Colombo Port City project.
Colombo Port City
The Colombo Port City is on 269 hectares of reclaimed land from the sea. As per initial estimates, it is a $15 billion project, and is presented as something like Dubai or Singapore of future. According to the CHEC website, it will be “South Asia’s premier residential, retail and business destination, offering unmatched plan city living along the warm waters of Indian Ocean”. The port city will have “Financial District, Central Park Living, The Marina, and the International Island”. The city, likely to be completed by 2041, will have a water sports arena and could cater to 80,000 residents.
In short, after completion, this will be one of the most elite and exclusive living and commercial spaces in the world. Nevertheless, the success of this project is dependent on the potential end-users, the majority of whom will be from outside Sri Lanka. When we compare it with other such gigantic projects like MRIA and Hambantota, the fate of the Colombo Port City project is in the hands of external factors that are completely out of the Sri Lankan government’s control.
The pertinent question is who will invest, reside and come for holidaying at the Colombo Port City. While the Port City is free to formulate its rules, it is apparent that all of it will be guided by Beijing. When the Port City is compared with Singapore and Hong Kong, a few relevant issues are overlooked. In Hong Kong, the world had witnessed the suppression of democratic movement by China. Singapore is politically and economically a liberal state, and the business gentry always prefers free space. Mere infrastructure is not a city; its dwellers and governance make it lively. Also, for commercial activities, one needs to know about the central authority, and if it is Beijing, things will be different.
West and China
In the last few years, competition between the West and China has intensified, and it ranges from political to business issues. Despite concluding the negotiations, the European Union (EU) has not ratified the EU-China Comprehensive Agreement on Investment (CAI). The reason was not commercial but political, and the EU was critical of human right violations in the Xinjiang province and Hong Kong.
Likewise, American President Joe Biden is also strict on China. The pandemic, which has caused an immense loss to life and livelihood, is, in all probability, a new flashpoint between the West and China. Let us not forget that Biden had ordered American intelligence to investigate the origin of the coronavirus – whether this virus is transmitted from animal to human or spread from a lab in Wuhan. The Chinese government is vehemently opposed to the American move and has called the investigation a ploy of America to malign its image.
Although we have to wait for a report from America on the issue, one thing is clear, that competition between the two sides is getting murkier. In these developing circumstances, to think that international elites, most of whom are based in the West, will invest in the Colombo Port City is a difficult proposition.
Beside India
The port city looks like an attractive destination for the Chinese neo-rich and elites of strategically aligned countries with China. Thus, it will not be wrong to say that the Colombo Port City is like a new Chinese colony in South Asia. This is the reason for the wariness of New Delhi. A supposedly Chinese colony in a South Asian state, some 300 km from the Indian territory. The flying time between the Colombo Port City and Chennai is not much. Thus, it is China with all its resources in the backyard of India. The Chinese advantage is clear that they are far off from their mainland but close to India in strategic terms.
If we look at Chinese intervention in other South Asian countries, India is almost surrounded. It is like a ‘string of pearl’. In Nepal, Chinese investment has gone up and political relations have fortified over the years. Even in the present political crisis, a section in Nepal is blaming India and going soft on China. Bangladesh is the major arms importer of China, and in the past, it received Chinese submarines. Chinese business has a substantial presence in Bangladesh. China-Bangladesh relation has grown over the years. Needless to mention the China-Pakistan strategic closeness.
While discussing South Asia and China, let us not ignore that all other South Asian countries are partners of China’s ambitious Belt and Road Initiative except for India and Bhutan. So while India is reaching out to the West, China is consolidating its position in South Asia.
For all practical purposes, the Colombo Port City is a Chinese space; from here, if desired, it can militarily intervene in Indo-Pacific. It is imperative to mention that China, as of now, commercially controls Sri Lanka — it is in MRIA, Hambantota Port and now the Colombo Port City. Geopolitically, Sri Lanka is a critical country from an Indian security perspective, and this level of Chinese involvement, although commercial, is a matter of concern.
New Delhi has not taken a tough position on the Colombo Port City, but it is aware of its potential threat, as expressed by a few foreign policy officials. The real dilemma for India is as to how to respond to Sri Lanka. Aggressive posturing will reflect on political ties and go in favour of China. Being ignorant is not a choice either. China is making it difficult for India in South Asia. One solution is that New Delhi should focus more on South Asia. Only looking towards the West is not a solution.
(The author is Senior Assistant Professor, Department of International Relations, South Asian University)
