Loanly!

The Indian Ocean and Bay of Bengal ports are part of an even bigger plan to secure China’s future.

The geopolitical writer Robert Kaplan expounds on the theory that the South China Sea is to the Chinese in the twenty-first century what the Caribbean was to the USA at the beginning of the twentieth century. Having consolidated their landmass, the Americans had become a two-ocean power (Atlantic and Pacific) and then moved to control the seas around them, pushing the Spanish out of Cuba.

China also intends to become a two-ocean power (Pacific and Indian). To achieve this, China is investing in deep-water ports in Myanmar, Bangladesh, Pakistan, and Sri Lanka — an investment that buys it good relations, the potential for its future navy to have friendly bases to visit or reside in, and trade links back home. A good example came in 2017. Sri Lanka had repeatedly asked China for loan after loan to build the Hambantota port, to which the Chinese had repeatedly said ‘yes’. Despite feasibility studies suggesting it wouldn’t be successful, a Chinese state-owned company built the port. It wasn’t. The Sri Lankan government found it couldn’t make the debt repayments and handed over the port, along with 15,000 acres of land surrounding it and a ninety-nine-year lease.

At a stroke, China had acquired a naval base a few hundred miles away from one of its main strategic rivals — India.

‘Silk Road Economic Belt’ — a land-based route formed from the old Silk Route, which goes straight through Xinjiang and connects down southwards to the massive deep-water port China is building in Gwadar, Pakistan.

In late 2015 China signed a forty-year lease on the port. This agreement is part of how the belt and the road will be connected to a port. Its lease on the new deep-water port at Gwadar, Pakistan, will be key (if the Pakistan region of Baluchistan is stable enough) to creating an alternative land route up to China.

The Hambantota Port in Sri Lanka and Gwadar Port in restive Baluchistan in Pakistan are classical cases of white elephant projects. Both the ports are located strategically but are commercially unsustainable as there is not enough traffic. China has already acquired Hambantota, and it is not a matter of wild imagination that it will acquire Gwadar too in the coming months. Fact is that there is no real income from these ports, and cargo traffic is being diverted from Colombo and Karachi ports to keep them operational. In the meantime, Matala airport is sometimes used for storing paddy.

An earlier Rajapaksa government headed by Mahinda, Gotabaya’s brother, borrowed heavily to finance infrastructure projects that have yet to generate returns. The current one slashed taxes, which bashed government revenue just before the pandemic halted tourist arrivals (a significant source of foreign currency). In addition, it briefly banned fertilizer imports to save dollars, hitting food production.

It then delayed going to the IMF until March, hoping that returning tourists and help from China would be enough to tide it over. But just as tourism began to recover, Russia’s invasion of Ukraine pushed up commodity prices yet again, making imported fuel and food dearer still.

With the Ukraine-Russia war not showing signs of any resolution and parts of China being hit by the omicron outbreak, global finance will continue to lag, putting countries like Sri Lanka and Pakistan in the high-risk category for investment as they are also facing severe political turmoil.

Economic engagement of the dragon will prove very costly to both Islamabad and Colombo with the gullible masses taken for a royal ride.