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It Boils down to Rice: Why China Enjoys Special Treatment in Sri Lanka

It is now taken for granted in Colombo that China would respond positively to Sri Lanka’s request for debt restructuring, writes Sathiya Moorthy. Photo: Reuters

It is now taken for granted in Colombo that China would respond positively to Sri Lanka’s request for debt restructuring, writes Sathiya Moorthy. Photo: Reuters

Though India signed its first Free Trade Agreement with Sri Lanka in the late 1990s, upgrading it at the appropriate time has remained an uphill task.

Going by what’s on record, Chinese Foreign Minister Wang Yi’s two-day visit to Sri Lanka did not generate any additional cause for concern, especially for the Indian neighbour. Unlike in the past, the local media too played it down through and through. A day after his visit, many of Colombo’s English language newspapers, euphemistically referred as the ‘national media’, instead, played up how the crippling forex crisis had hit domestic electricity supply too hard, dependent that the nation is on imported oil and coal for burning its thermal power stations.

According to early media reports, Sri Lankan President Gotabaya Rajapaksa urged the visitor and his team for a restructuring of the monies that the island nation owes to them. It’s a pragmatic request even without the forex crisis, given the global COVID conditions of the past year and more. Wang Yi also met Prime Minister Mahinda Rajapaksa, who is the non-executive head acting under the President, his brother. With the latter, the visitor mostly discussed future cooperation efforts, for which decisions lay with the President and the Cabinet as a whole.

In sum, Wang Yi’s visit was uneventful, one way or the other—at least until one or more skeletons tumble out of the cupboard.

Spirit of R-R Pact

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During Wang Yi’s Colombo visit, the two sides also discussed the path covered together over the last 65 years of diplomatic cooperation. Significantly, bilateral economic cooperation had commenced six years earlier in 1951-52, with the two sides signing the ‘Rice for Rubber Pact’ and acting on it immediately in the wake of food crisis in Sri Lanka, then Ceylon.

Under the scheme, Mao’s China, still settling down to business after taking over power in 1949, supplied rice to drought-hit Ceylon at lower-than-market prices and purchased rubber, the only exportable commodity of the island-nation at the time, at prices higher than international prices. It should have shown global adversaries of the fledgling communist nation how deep and far-sighted the new masters were. Some of China’s much-praised strategic thinking and economic leveraging ideas may have begun there.

India, in comparison, was itself reeling under economic pressures flowing from accompanying drought years and the post-Independence, post-Partition social and developmental woes. It did not have rice to offer to Ceylon. While Sri Lankans do not complain about India of those days, they definitely have not forgotten China’s ‘grace and generosity’, making it as dependable an ally as good-neighbourly India.

As some of Sri Lanka’s strategic thinkers point out, at the time of the R-R Pact, China did not have any global ambitions, its place even in the immediate Asian context was unknown, so was the future of communist China. So, the argument goes, there was no strategic intent in what China did for their nation at the time. It was, plain and simple, humanitarian assistance, of which the rest of the world began hearing a lot in later years.

Jobless Growth

It is now taken for granted in Colombo that China would respond positively to President Gotabaya’s request for debt restructuring. Beijing has been doing so for other borrower-nations since the COVID pandemic began crippling their economies too. Hence the question arises if the two sides discussed medium- and long-term economic cooperation plans that could pull Sri Lankan economy out of the mess that it finds itself in.

For India and the world, the price that Colombo will be expected to pay and will be willing to pay for China’s eleventh-hour assistance would be of as much interest and concern as the size of further Chinese assistance, if any. Friends of Sri Lanka, other than China, will also be interested in knowing where that money would be going and how it would be spent.

The reasons are not far to seek. Through the past decade, the massive Chinese debt investment did not create a single job for a Sri Lankan, nor did it put money in the pocket of any Sri Lankan entrepreneur or supplier (barring politicians, if any). The Chinese brought their men and material to execute their work, no questions asked, no murmur of protests.

If only the politicians, including the eternal Opposition in the Left-leaning Janatha Vimukthi Peramuna (JVP), had protested as much as they had done on other occasions, especially when it came to Indian, US and other investments, they could have saved their nation from this sad day. People standing in long queues for (imported) milk powder in what essentially is an agrarian economy would not have to hoot at President Gotabaya as his motorcade passed the point in capital Colombo, if only they had protested the Chinese investments.

Independent of the white-elephant Chinese projects, there was always the element of jobless growth even when there was growth, induced by massive Chinese credit, especially under the government of then President Mahinda Rajpaksa (2005-2015). Much of the present crisis in economic terms could be explained thus. Though China is the fourth largest lender/investor in Sri Lanka, after Japan, the concept of not creating jobs for the locals and not putting money in their pockets has dried up those pockets during this pandemic even as creditors stand in long queues, demanding repayment when due.

Indian Irony

In contrast, every thing Indian in terms of aid and assistance faces instant protest. Though India signed its first Free Trade Agreement (FTA) with Sri Lanka in the late ‘90s, upgrading it at the appropriate time has remained an uphill task. The previous Rajapaksa era initialled the MoU for a Comprehensive Economic Partnership Agreement (CEPA) after bilateral negotiations for years, but just ahead of Prime Minister Manmohan Singh’s Sri Lanka visit in 2008, public protesters mysteriously appeared on the Colombo streets, delaying it indefinitely.

Successor Prime Minister Ranil Wickremesinghe in Sri Lanka dumped CEPA in 2015, but promised anther agreement in its place. But till he left power in 2019, his government was negotiating what came to be known as ETCA, or Economic and Technology Cooperation Agreement (ETCA). It is yet another forgotten page in bilateral economic relations.

As Prime Minister, Ranil piloted the conversion of Hambantota construction contract, inherited from the Mahinda regime, into a leasehold in China’s favour. Pre-poll 2015, he unilaterally declared that he would stop China-funded Colombo Port City (CPC), as if to please the Indian neighbour and also his US-led western allies. After coming to power, when the current Gotabaya regime piloted the CPC management bill in Parliament last year, Ranil’s party and the breakaway Samagi Jana Balawegaya (SJB) reiterated that they were all for the project, and had problems only with Gotabaya’s scheme.

Now comes the most recent of them all. In the week that China’s Wang Yi was visiting Colombo, India and Sri Lanka signed the much-delayed agreement on cooperative usage of the Second World War vintage oil tank farms in eastern Trincomalee. Unlike what Colombo promised to India’s Adani Group on handing over controlling stakes in the Western Container Terminal (WCT) in the Colombo Port, on the Trinco deal, they are talking about Sri Lanka retaining the controlling 51:49 stakes.

Needless to refer to the intervening ECT deal, for which the Wickremesinghe government signed only an MoU with India and Japan and which the present Gotabaya regime dumped, citing (manufactured?) protests by labour and Buddhist monks. Trade unions had protested some time back when the Trinco deal was on the anvil. A Buddhist organisation, the Bhikkhu Front, has since moved the Supreme Court, challenging the Trinco deal.

In this context, it remains to be seen how the Trinco deal takes shape on the ground, especially after the Indian funding to tide over the immediate forex needs of Sri Lanka has met its purpose—and has dried up, too. Will there be a revival of trade union protests, or a dis-spirited government defence of the deal in the Supreme Court, or both—whether or not these involve China, as is often suspected in India but need not always be the case—such a course would make Beijing happy, all the same.

The writer is Distinguished Fellow and Head-Chennai Initiative, Observer Research Foundation, the multi-disciplinary Indian public-policy think-tank, headquartered in New Delhi. The views expressed in this article and those of the author and do not represent the stand of this publication.

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first published:January 10, 2022, 15:13 IST