In Sri Lanka’s post-tsunami rise, China is key

Saturday, 27 December 2014 00:00 -     - {{hitsCtrl.values.hits}}

  •  Town’s $ 1 b port, quiet airport raise questions of what strings are attached

Wall Street Journal: HAMBANTOTA, Sri Lanka—When the Indian Ocean tsunami pulverized much of this town 10 years ago, locals wondered if it would ever recover. Then China stepped in. It came through with money for big projects including a $1 billion port and a $209 million airport. It is also providing assistance for other developments across Sri Lanka, including a $500 million Colombo port expansion, new highways and rail links, a $1.4 billion landfill project near Colombo’s financial district and a $1.3 billion power plant. Such aid reflects how Beijing has stepped up to replace Western-backed financing for many projects in developing countries as it vies for greater economic and strategic influence in Asia. In Sri Lanka, such aid has been key in the reconstruction after the 2004 Indian Ocean tsunami that killed 35,000 people here on 26 December 2004. But it has also raised concern over what strings may be attached.  

Remarkable resurgence

As countries tally their progress 10 years after the tsunami, which left 228,000 people dead or missing across more than a dozen countries, Sri Lanka has in some respects staged a remarkable resurgence, especially since a 26-year civil war ended in 2009. Most coastal areas are rebuilt, tourism is surging and investment is rebounding. Many Sri Lankans credit the Chinese cash for helping fuel that recovery after decades of civil war drained its coffers. Even though the economy has grown by more than 6% a year since the war with the Tamil Tigers ended, businesspeople say it is still sometimes hard to get cash from Western lenders, who demand highly detailed feasibility and environmental studies. Officials say some of China’s loans come with discounted interest rates. “China just came and said, ‘Let’s get it done.’ And [things] got done,” said Ajit Gunewardene, Deputy Chairman of John Keells Holdings, a tourism and services conglomerate. He cited a highway from Sri Lanka’s main airport to central Colombo that cuts travel times by half. It was envisioned in 1969 but languished until China offered financing after the tsunami, he said.  

A potential curse

To others, China’s money is a potential curse, making Sri Lanka overly dependent on a rising power that could demand payback in unexpected ways. Some worry Beijing could force Sri Lanka to welcome Chinese military vessels at facilities China is helping build in Hambantota and Colombo. Others are concerned over what they say is a lack of transparency in the loans and over what happens if Sri Lanka can’t repay them. They worry President Mahinda Rajapaksa is pushing some projects that don’t make economic sense to bolster his support before elections next year, which Sri Lankan officials deny. “It’s a very dangerous game we’re playing,” said Harsha de Silva, an opposition politician. “At the end of the day you give your pound of flesh.”  

India alarmed

China’s support is also alarming India, which views greater Beijing involvement in Sri Lanka as a security risk, especially after a Chinese submarine surfaced at Colombo’s port this year. “If these sorts of activities become more frequent, the Indian Ocean will become a familiar operating area for the Chinese Navy, bringing them much closer to the Indian peninsula,” said C. Uday Bhaskar, a retired Indian Navy Commodore and Director of the New Delhi-based Society for Policy Studies. A China Foreign Ministry spokesman said its support for Sri Lanka is aimed at boosting commercial ties for “mutual benefit” and that speculation over military or other objectives is “groundless.” In the first state visit to Sri Lanka by a Chinese Head of State in 28 years, Chinese President Xi Jinping in September visited the Colombo Port City Project being built by China Harbour Engineering Co. on landfill, with plans for a Formula One track and a 100-story skyscraper. Xi has also upped the ante recently with Chinese money for the rest of Asia, pushing a $50 billion Asian Infrastructure Investment Bank and a $40 billion Chinese ‘Silk Road Fund,’ aimed at improving trade and transport links in Asia. David Brewster, a researcher at Australian National University, said China probably sees a number of advantages to its Sri Lanka investments, even if some projects underperform. Sri Lanka could become a new base for Chinese manufacturing as costs in China rise, he said, while big projects there yield contracts for its state companies. Military considerations can’t be ignored, he said. “There probably is some element of truth that they’re trying to leverage their investments into some broader strategic advantage,” he said.  

Changing Hambantota

Chinese money is certainly changing Hambantota, a sleepy outpost of about 25,000 people, which lost more than 1,500 in the tsunami. Many survivors were moved to concrete and corrugated-metal homes a few km inland. The money really started flowing after Rajapaksa, a local politician, became president in 2005 and Sri Lanka’s war ended. In addition to China, South Korea helped pay for a new convention centre; European donors also contributed. Other big new projects in the town include a 10-storey hospital under construction near signs warning of wild peacocks. For now, many of the projects appear to be underused. Stray dogs sleep in the road leading to the airport, which opened in 2013 and handles a half-dozen flights daily. It had only one car in the parking lot during a recent afternoon visit. But it is central to ambitions of turning Hambantota into a tourist hub, as arrivals surge nationwide. Hong Kong-based Shangri-La Hotels & Resorts is planning a resort with more than 300 rooms. Signs advertise a Hyatt Regency opening in 2016.  

Sprawling port complex

But it is the sprawling port complex, already partly open, that is Hambantota’s centrepiece. Phase one is 85% financed by the Export-Import Bank of China. A joint venture of Chinese companies will handle further expansion. Designed to be one of the biggest ports in Asia when fully built, it now attracts 45 to 50 ships a month, said Sri Lanka Ports Authority engineer Chaminda Bandara, compared with about 350 at Colombo’s port. The goal is to take advantage of Sri Lanka’s location north of one of the world’s busiest shipping lanes. Officials want more traffic to stop in Hambantota to refuel or transfer goods for distribution across South Asia. Chinese factories could also use local labour in an industrial zone being set up nearby. The port doesn’t generate enough revenue to pay its debt obligations, Bandara said. Sri Lanka’s government is responsible for the difference. That is not a problem, said Eraj Ravindra Fernando, the local Mayor. There will be new jobs and “significant profits, massive profits,” he said.  

Grim conditions

For some families, the upside remains to be seen. Locals displaced by the tsunami say they are grateful for the houses and land they got from the Government and aid groups. But conditions are grim, with standing water in dirt roads, piles of trash and a greater distance to travel to fish or work. Benefits from Hambantota’s big developments “may not come to us,” said 42-year-old N.M. Salahuddin, a labourer. Inside his house of concrete blocks painted aqua blue. “But we hope it will come to our children.”