wo men surprised the world last week with impressive moments in politics. They are the acceptance of Rishi Sunak, a man of colour of Indian heritage as the Prime Minister of the United Kingdom, and the reappointment of Xi Jinping as the President of China for a third consecutive term. They had one thing in common: They were not elected by the people, but China’s strongman Xi will lead the country for the next five years, consolidating his leadership and also as the Chairman of the powerful Central Military Commission. The Belt and Road Initiative (BRI), of which Sri Lanka is a partner, will be one of his top priorities.

Due to its precarious financial situation, Sri Lanka might receive a wake-up call from China if the IMF deal stalls and they could support to overcome the crisis. President Xi had emphasised that their international influence, appeal, and power to shape the world has significantly increased and there is enough evidence that it has become part of China’s foreign policies to have a say in nations where Chinese presence is growing.

Xi for life?

The most intriguing feature is that no one knows if Xi will be re-elected after his next five-year term, which ends in 2027. The Belt and Road Initiative (BRI) is a trade and political tool used to compete with other global giants like the US and India, which are China’s biggest rivals. Xi, 69, has once again shown that it is a modern, powerful China and he is going for it. He is changing the rules of international trade and luring more nations ebbing in friendship and politics.

Xi, who came to power in 2012, was given a third five-year term as the General Secretary of Chinese Communist Party (CCP), breaking with party tradition that required his predecessor to step down after ten years in office. Xi was elected as the CCP Leader in a ballot held behind closed doors following a week-long convention when he solidified his hold on power.

The secrecy of Xi’s rule and others attempting to contradict him was virtually seen on news screened on TV the day Xi was selected to be the leader of China. On the last day of the CCP Congress, an intriguing situation took place. Former Chinese President Hu Jintao was dragged out of the CCP Congress Hall on the penultimate day of the great CCP gathering on 22 October and still remains a mystery. He was hustled out while he was attempting to read something to the audience, where Xi sat next to Hu, tight-lipped and without a grin. China’s news agencies simply reported that Hu was feeling ill. It was Hu Jintao who said in November 2003, that China’s sea routes through the Indian Ocean remain vulnerable due to the “Malacca Dilemma.”

Chinese President Xi has increased his power, which has benefited the Chinese on a larger scale. Under Xi’s leadership, China has eradicated extreme poverty and met the United Nations’ poverty reduction target ten years ahead of schedule. China also achieved its first centennial goal of developing a moderately wealthy society over the last decade by adhering to people-centred governance. He once said: “The party leads everything: The Government, the military, the people, education; east, south, west, north, and centre.” He even reminded the State media that their “surname is the Party (CCP),” and that their information efforts should help the Chinese people as well as the Party.

To the rest of the world, Xi remains a confusing figure, full of secrecy and who has prompted countries to be wary of China’s business practices. No one outside of China believes that China’s rise is peaceful.

The IMF saga

Sri Lanka is in the midst of a subtle row with China over debt restructuring, which is key in obtaining the IMF loan. When the Government defaulted on foreign debts, former President Gotabaya Rajapaksa was forced to resign. From April this year, the IMF loan became the loan facilitator for Sri Lanka and talks are still continuing, with no clear indication when the new government will secure it. Sri Lanka is now in a critical position and if China withdraws its support for Sri Lanka in restructuring its debt repayment, the tiny island will have serious implications in proceeding with the application for the IMF loan that is urgently required.

Several IMF staff meetings have been held and the IMF team had said in September 2022, that they and the
Sri Lankan authorities have reached a staff-level agreement to support the authorities’ economic adjustment and reform policies with a new 48-month Extended Fund Facility (EFF) with a requested access of about SDR 2.2 billion (equivalent to USD 2.9 billion). But to that effect, various top diplomats from the US, Japan, and India had been holding virtual talks and also visiting Sri Lanka.

US Deputy Assistant Secretary of the Treasury for Asia Robert Kaproth, US State Department Under Secretary for Management John Bass, and Assistant Secretary of State for South and Central Asian Affairs Donald Lu have all visited Sri Lanka within the last week. Americans have been working hard to ensure that Sri Lanka receives the American-backed IMF bailout, while China, one of the donors who have not agreed, knows that the IMF conditions will stymie their BRI initiative and will discriminate against doing multimillion-dollar business with Sri Lanka under loan facilities (perhaps), which the IMF agreement will not allow.

President Ranil Wickremesinghe rushed to Japan to ask for its support to call for a meeting related to Sri Lanka’s debt restructuring programme to obtain the IMF loan, but he has still not been successful in doing so with a positive outcome. China has since taken the decision-making role for the IMF loan. The IMF staff meeting is now in session.

On Friday (28), President Wickremesinghe’s Chief of Staff and Senior Adviser to the President on National Security Sagala Ratnayake met the IMF team including the incoming IMF Resident Representative for Sri Lanka, Sarwat Jahan to discuss the views on debt restructuring and the prior action measures, according to the President’s Media Division. The IMF team also wanted Sri Lanka to reduce corruption vulnerabilities through improving fiscal transparency and public financial management, introducing a stronger
anti-corruption legal framework, and conducting an in-depth governance diagnostic, supported by IMF technical assistance.

The IMF agreement is subsequently subject to approval by IMF management and the Executive Board in the coming months, contingent on the implementation by the authorities of prior actions, and on receiving financing assurances from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors. Sri Lanka’s creditors are said to include India, China, Japan, and some private bondholders. To assure debt sustainability and fill financing gaps, Sri Lanka will need debt relief from its creditors and additional investment from multilateral partners. 

Catastrophe

Today, Sri Lanka serves as a model for eroding its own political and commercial culture, which is marred by corruption and a lack of transparency with those with whom it does business. China is accused of many of the charges, pointing out that unproductive development projects supported by Chinese loans are one of the reasons the country is in debt, and that it has collaborated with corrupt governments. The Committee on Public Enterprises (COPE) has also handled various claims about Chinese investment. Bangladesh and several South Asian countries have observed how Sri Lanka, once a role model, has become a labyrinth.

There is also a Canadian firm that charges China of taking over their energy project, claiming that if it were in place now, the country would not have blackouts. Sithe Global Power Development Inc (Sithe), a wholly-owned subsidiary of the Blackstone Group in New York, USA, was introduced to Sri Lanka by Canada’s Greenlink in March 2012, and they had signed an exclusive Memorandum of Understanding (MoU) with the Board of Investment (BoI) for the Hambantota Energy Project. In addition, they had undertaken world-class feasibility studies and gained all in-principle approvals from all HEP stakeholders prior to the Letter of Intent (LoI). The project, however, was given to China for a 99-year lease. Even former Canadian High Commissioner Shelly Whiting brought it up. Then Prime Minister Wickremesinghe ignored it as well. The same investor is now attempting to persuade the Government to allow the Hambantota Port to be opened for the same project and has attempted to meet former President Gotabaya Rajapaksa for the umpteenth time without success.

There is also a financial trap in which Sri Lanka paid the Chinese fertiliser company USD 6.9 million for organic fertiliser, but was unable to unload it due to a laboratory report stating that it was contaminated. The Ministry of Agriculture now claims that the USD 6.9 million paid for organic fertiliser from the Chinese company Qingdao Seawin Biotech Group Co. is an issue for the Foreign Ministry to address, and that neither the Department of Agriculture nor the Ministry of Agriculture can intervene. The granular organic fertiliser was not allowed to enter the country due to contamination, and the shipment was returned to China, sparking controversies and a diplomatic dispute between Sri Lanka and the Chinese Embassy in Colombo, which stated that the National Plant Quarantine Service’s (NPQS) final decision was not binding. The USD 6.9 million payment remains with the Chinese fertiliser company, which sued the NPQS in November for USD 8 million. It is now unclear whether the Chinese company will repay the USD 6.9 million because it is also suing the country for USD 8 million.

India and China

Everything that China does in Sri Lanka has been politically mooted. The Chinese Envoy’s visit to the North and East is nothing but an implication of its geopolitical interest and working against rival India’s national security and India, through its diplomatic channels, has been conveying its strong objections on China making inroads in Sri Lanka and reaching the North and East, which is closer to India’s Southern tip.

Former Central Bank Governor, Dr. Indrajit Coomaraswamy last week in an interview with Indian Express said, “What has to be axiomatic is that Sri Lanka has to be mindful of India’s strategic interests,” highlighting Sri Lanka’s economic crisis and the debt restructuring needed for IMF to release the USD 2.9 billion bailout package.

China has continued to support Sri Lanka financially and with medicinal supplies worth millions of rupees while being silent on the IMF issue. On Thursday (27), the Chinese Government sent a fresh consignment of medicine worth over RMB 35 million (Rs 1.8 billion) as a donation under its RMB 500 million emergency humanitarian assistance. China rarely works in accordance with what is right for others, but will do what they believe is best for them. This is why several countries are directly disputing with China. 

The Asia-Pacific Center for Security Studies quotes Dr. Srini Sitaraman, who received a Doctorate in Political Science and International Relations from the University of Illinois Urbana-Champaign, who says India worried about Chinese military designs in the region and is apprehensive about China’s aggressive diplomacy in South Asia, India has increased its military spending and embarked on a domestic manufacturing process and is attempting to increase the diversity of its external trade partners. Principally, there is heightened concern that China could (and would) easily choke off the supply of goods and basic commodities to India during a larger military conflict with China.

He further explains that India and China entered into a free-trade agreement in 1984 and bestowed the most favoured nation (MFN) status on each other. Both countries started slowly, with bilateral trade averaging less than USD 3 billion in 2001. A series of bilateral trade agreements opened the door to increase trade between both the countries, which was recorded at USD 125 billion in 2021, with the balance of trade sharply tilting strongly in favour of China. At the same time, India’s negative trade balance with China has witnessed a sharp increase during the pandemic, from USD 45.9 billion in 2020, to USD 69.4 billion in 2021. The trade relations with Beijing resembles the classic developing economy model. India’s exports predominantly consist of primary commodities and raw materials such as cotton, iron ore, copper and diamonds, natural gems and import of machinery, power-related equipment, telecom, organic chemicals, and fertilisers. For a long time, India has been seeking to persuade China to open its pharmaceutical markets and its domestic Information Technology (IT) market to Indian firms without much avail. Indian trade analysts argue this would allow India to close the trade gap and bring some balance to the bilateral economic relations. But, importantly, there is growing alarm over India’s increasing trade dependence on China while the military conflict along the LAC continues to be a major source of friction between the two countries.

The US and China

The US has been a strong contender too, making sure that Sri Lanka does not have its way only by embracing China and US Ambassador Julie Chung is advocating to create a level playing field and do business with countries that have bilateral ties with Sri Lanka.

According to Commodore Kazi Emdadul Haq, Founding Member, Bangladesh Institute of Maritime Research and Development (BIMRAD), China has planned two-pronged land connectivity in the Indian Ocean to avoid the Malacca Strait: the China-Pakistan Economic Corridor (CPEC) and the China-Myanmar Economic Corridor (CMEC). China established basing facilities in Djibouti, Maldives (Feydhoo Finolhu), and Sri Lanka to offer logistical assistance and security for the Indian Ocean’s Sea Lines of Communication (SLOC) (Hambantota Port). These strategic arrangements will, at the very least, provide a more secure Chinese position in the Indian Ocean in the event of confrontation. China and Russia’s ‘No Limits’ friendship may provide China with more options to use Russian base facilities near the Indian Ocean.

He goes on to say that the US needs to incorporate (Pacific Island nations) in its security umbrella to compete in great power competition. Otherwise, China will gain power by deceiving Pacific states and winning without resorting to war. The Russian invasion of Ukraine on 24 February 2022, will have long-term ramifications in the Pacific region. If Russia succeeds in Ukraine, the Pacific nations dread of attack will skyrocket. Fear of a lack of reliable security providers might entice these states to side with favoured large powers. The Pacific nations appear to be disenchanted with the West, as the West has failed to address their most important issues for the last couple of decades, such as climate change. Lack of commitment among the great powers on climate and in keeping the global warming level to 1.5°C, has added more frustration to the Pacific region. Instead, China took this opportunity and began to pursue Pacific leaders through various economic and security engagements.

US Secretary of State Antony Blinken last week said, China wants a world order, but theirs would be an illiberal one. “We want a world order, but ours would be inspired by liberal values.” He was speaking about the Taiwan issue.

Furthermore, the US National Security Strategy, which was unveiled last week, states that Beijing routinely utilises economic power to force countries. It benefits from the international economy’s openness while restricting access to its home market, and it strives to increase the world’s reliance on the PRC while decreasing its own reliance on the world. The People’s Republic of China (PRC) is also investing in a military that is fast upgrading, becoming more capable in the Indo-Pacific, and boosting its global strength and reach – all while attempting to weaken US ties in the area and around the world.

The US Strategy 2022 adds that there are three components to the US approach to the PRC: To defend our interests and advance our future vision, we must: 1) Invest in the pillars of our domestic strength — our competitiveness, our innovation, our resilience, and our democracy, 2) Coordinate our efforts with those of our network of allies and partners, and 3) Engage in responsible competition with the PRC. The first two components — invest and align — were discussed in the section before and are critical to outperforming the PRC in the fields of technology, economy, politics, military, intelligence, and international law. The Indo-Pacific region is where competition with the PRC is most noticeable, but it is also becoming more global.