Where Sri Lanka fits in China’s BRI plans

Where Sri Lanka fits in China’s BRI plans

There has been much reporting around the standoff between the US and China at the recent APEC summit in Papua New Guinea. Much of this reporting is based on either a poor misunderstanding of what China’s Belt Road Initiative (BRI) is or on a preconceived bias as to the intentions of China in the region. In effect, this stirs the debate based on emotions rather than careful analysis.

Take the claims that China’s BRI is merely ‘debt diplomacy’ designed to take advantage of poorer countries so that China can take a strategic hold over a shipping lane or establish a military footprint. At a superficial level, this appears to make sense, particularly when the Sri Lankan port of Hambantota is used in the debate. A recent New York Times article ran the headline that China’s hard ball finance dealings forced Sri Lanka to “cough up a port” as China seeks to control strategic commercial and military routes. Whilst the article is accurate in highlighting the important strategic location of Hambantota, what it does not evaluate is the response by the likes of the US to the development. Like many others, it does not consider that Hambantota was considered by Sri Lanka following feasibility studies between 2003 and 2007 as Sri Lanka evaluated a new growth engine for the country. The first phase of the port was actually completed in 2011 – well before the 2013 BRI announcement.

Taking a philosophical view, questions that need to be asked are: With the BRI claiming to be an open infrastructure investment plan, why did other nations not participate by investing in the project? As argued in an earlier article, the financial and investment rules within a western framework precluded them from investing. It is material to note that India was initially invited to participate, but declined. Their expressed concerns around China suggests that they may now regret that decision. Furthermore, the issue of the debt burden began emerging back in 2015. It can be argued that those now expressing concern over the deal have had plenty of opportunities to assist Sri Lanka by securing loans to help them meet debt repayments. Does this not illustrate a case of trying to close the gate after the horse has bolted? The recent engagement by Japan with China’s BRI as well their recent MOU regarding joint funding of projects suggests that lessons are being learned, with successful negotiated settlements in Myanmar, the Philippines and Thailand providing templates for future funding models.

On a more practical level, Hambantota port is under Sri Lankan sovereignty, emphasised by the recent relocation of their southern naval facility to the port. Taking a deeper look at the agreement, it must be noted that both Chinese and Sri Lankan ventures share the revenue as well as operate the port. Security, however, is the responsibility of Sri Lanka. These provisions are guaranteed by the five parties to the agreement, namely: China Merchants Port Holdings, Sri Lanka Ports Authority, Hambantota International Port Group, Hambantota International Port Services and the Sri Lankan government. The deal to invest a further $1.3bn to develop a marine logistics precinct, whilst split 70/30 in favour of China, has a 10-year period in which Sri Lanka can buy 20% of the debt back, giving it 50/50 ownership with China.

It also interesting that criticism focuses on developments within Asia and little is said about the European leg of China’s engagement. Asia need only look to Europe to see the impact of the BRI, particularly when taking the Greek port of Piraeus as an example. Initially COSCO’s 2016 investment in Piraeus was seen by many as evidence of the BRI as having no real substance. Whilst seaborne trade between Europe and Asia has slowed in 2018, Piraeus has seen growth in its status as China’s maritime gateway to southern Europe, growing from 3.75m teu in 2017 to an anticipated 4m teu in 2018. Initially Italy did not see the BRI, nor the likes of Piraeus as a threat. However, it has had to respond to this loss of trade to Greece. The response, taken through the northern port of Trieste, is to position itself to become the western end of the BRI by integrating its operations with EU rail networks. This has seen the port double its container traffic from 2016. More importantly, this has been enabled by the doubling of freight train volumes over the same time period. Trieste’s $1.3bn development model is said to be funded by China (no more than 50%), with the balance coming from Kazakhstan, Azerbaijan, Turkey, Iran and Malaysia.

So what is the BRI then? Let us first start by saying that it is not just an ordinary infrastructure programme built on benevolence and a feeling of goodwill to mankind. The scope of the BRI extends beyond simply building infrastructure. It is a logistics and transportation network that focuses on those regions promising high economic growth with strategic resources by developing infrastructure that connects trade and manufacturing markets. It connects a market that has 600m people with access to a market that covers 65% of the world’s population and one third of the world’s GDP.

In order to achieve this level of connectivity, the Maritime Silk Road converges on the Inland Belt at strategic ports. This pairing of ports and rail networks is the new logistics hub and spoke framework that has a focus on door-door operations rather than the current port-to-port delivery. These pairings are paired in order to optimise trade routes between China and Europe by integrating logistics/transport networks with terminals /docks/yards with logistics platforms and supply chains.

Contrary to what is claimed at APEC with regards China, evidence on the ground suggest that the BRI at its core is an infrastructure plan to promote global trade. It is ironic that the US’s first response in the region is not to build infrastructure that enables global trade, but to build a military base in Papua New Guinea.

Andre Wheeler

CEO of Asia Pacific Connex with more than 20 years’ experience in international business, with a diverse network throughout the USA, Asia, SE Asia , Africa and the United Kingdom. Holding a B. Science (Hons) degree and an MBA, he is currently working towards his Doctorate on the Impact of the China One Belt One Road initiative. Andre has expertise in oil/gas, construction, marine services and mining.

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