By: Husanjot Chahal, Columnist
Photo Credit: BBC
Japan and India’s growing bonhomie is often touted as a counter to China’s geopolitical clout across Asia, particularly in the Indian Ocean region, where the former’s recent Asia-Africa Growth Corridor (AAGC) is cited as in direct competition with Beijing’s Belt and Road Initiative (BRI).[i] Such a power struggle is most evident in Sri Lanka—a country where the full weight of the BRI’s established grand strategy and profitmaking potential is challenged by emerging Indo-Japanese project partnerships.[ii] Recent developments in Sri Lanka indicate how this power play is coming into view, with the island nation poised to become a hub of rival strategic interests in the Indian Ocean region. This column analyzes these developments to underline how the firmly established Chinese investments and growing Indo-Japanese interests are unfolding in Sri Lanka. Could this set the stage for a potential power imbroglio among the top three Asian economies?
Sri Lanka is a classic example of Beijing’s debt trap, the effects of which cyclically obligate Colombo to work with Chinese investments. Carrying a burden of $64 billion dollars, and shedding 95% of government revenues to debt repayment, Colombo, under the Sirisena-Wickremesinghe government, has adopted a policy of trading Chinese debt for financial stakes in its enterprises. The most recent illustration of this is the $1.12 billion deal, that gives China’s Merchants Ports Holdings (CMPH) 70% stakes in the strategic Hambantota Port in Sri Lanka’s south for 99 years.[iii] Not only is the Hambantota deal a major strategic victory for China and its BRI, but the route taken by Colombo to handle the issue implies that Sri Lanka has now established the Chinese foothold that won’t be going anywhere in the near future.
Not long after the signing of the Hambantota agreement, India expressed its interest in operating Sri Lanka’s second largest international airport in Mattala (the MRIA), situated 40 kilometers from the Hambantota port.[iv] It is interesting to note that India had rejected investments in Hambantota more than a decade ago (before they were offered to China) considering it financially unviable. What has made New Delhi reconsider its options for what is often considered the ‘world’s emptiest’ airport is another question worth further discussion.[v] However, what remains clear is the fact that New Delhi’s push for active economic cooperation with Colombo has not been this strong in more than ten years. Its investment especially increased after the launch of the AAGC with Japan in November 2016.
For instance, April 2017 saw India and Sri Lanka sign a ‘Memorandum of Understanding [MoU] for cooperation in economic projects—the only significant economic arrangement realized by the two in more than a decade.[vi] The MoU lists a host of projects to work towards, with the spotlight on a proposed joint venture to develop the World War II-era oil storage facility in Trincomalee, one of Sri Lanka’s major resort port cities. Although India’s planned infrastructure investment in Trincomalee will be well below Beijing’s in Hambantota, analysts highlight how it will enable New Delhi to get a foothold in the island’s northeast.[vii]
In September 2017, not long after the MoU signing, Tokyo initiated trilateral discussions with New Delhi and Colombo on the joint development of Trincomalee, potentially adding Japanese expertise in mass projects to the northeastern hub.[viii] India and Japan have also received a letter of intent from the government of Sri Lanka to jointly build the country’s first liquefied natural gas (LNG) terminal near Colombo.[ix] The two Asian giants now see each other as strategic, rather than purely economic, partners.[x]
Japanese investments on its own are also seeing an upturn, beginning with a statement by the country’s ambassador this February that Tokyo is keen to increase its trade and investments with Sri Lanka.[xi] A Japanese consortium of three companies is set to invest in setting up a solar power plant in Sri Lanka, making it one of the first such energy projects on the island.[xii] Although Japan’s major investments so far have been in collaboration with India, moves such as building Sri Lanka’s key Central Expressway, support for humanitarian removal of mines in Northern Sri Lanka, assistance in its fisheries sector, and other affirm Japan’s commitment to investing in the island.
Even though the AAGC has been a source of caution for Beijing, who considers it as one of China’s ‘geopolitical challenges’, the Indo-Japanese efforts in Sri Lanka are not of vital concern as they currently stand.[xiii] When weighed against China, India and Japan suffer major limitations in Sri Lanka. Their entry has come after a significant delay, with Beijing firmly established in the island country. China’s early lead has enabled it to secure significant deals and a role in most big-ticket infrastructure projects. The two also lack the economic resources that Beijing has. India’s economic growth parallels that of China, but its per capita GDP is roughly one-third its size. Japanese per capita GDP is five times higher than China’s, but its economy barely grows, and is struggling in debts.[xiv]
As of now, the Japanese and Indian investments in infrastructure and energy projects on the island, at best, provide a welcome relief to the Sri Lankan government seeking to minimize its dependence on Beijing. At the same time, however, depending on how agreements in Trincomalee advance, India and Japan are gradually building an option to meet any potential Chinese military deployments in the south with a counter in the northeast. This would work to allay New Delhi’s concerns of helplessness in case Beijing plans to use Hambantota as a military base. With India and Japan gradually advancing, Beijing is likely to keep a close watch. A fact of significance remains that, in times ahead, any potential clash of the BRI and AAGC will see Sri Lanka as a significant battleground.
[i] African Development Bank Meeting, “Asia Africa Growth Corridor: Partnership for Sustainable and Innovative Development,” 22-26 May 2017. Accessed September 30, 2017, http://www.eria.org/Asia-Africa-Growth-Corridor-Document.pdf; Julian Lasius, “Is Asia-Africa growth corridor the answer to China’s BRI?,” Observer Research Foundation, September 20, 2017. Accessed September 30, 2017, http://www.orfonline.org/expert-speaks/is-asia-africa-growth-corridor-the-answer-to-chinas-bri/; Jagannath P. Panda, “Asia-Africa Growth Corridor (AAGC): An India-Japan Arch in the Making?,” Institute for Security & Development Policy, August 2017, pp. 11. Accessed October 01, 2017, http://isdp.eu/publication/asia-africa-growth-corridor-aagc-india-japan/
[ii] Peter Fuhrman, “China-owned port in Sri Lanka could alter trade routes,” Financial Times, September 25, 2017. Accessed October 01, 2017, https://www.ft.com/content/f0d88070-9f99-11e7-9a86-4d5a475ba4c5
[iii] The Hindu, “Sri Lanka, China sign $1.1 billion Hambantota port deal,” July 29, 2017. Accessed October 01, 2017, http://www.thehindu.com/news/international/sri-lanka-china-sign-11-bn-hambantota-port-deal/article19385932.ece
[iv] Meera Srinivasan, “India keen to run Sri Lanka airport,” The Hindu, August 12, 2017. Accessed October 01, 2017, http://www.thehindu.com/todays-paper/tp-international/india-keen-to-run-sri-lanka-airport/article19477500.ece
[v] Wade Shepard, “The Story Behind The World’s Emptiest International Airport,” Forbes, May 28, 2016. Accessed October 01, 2017, https://www.forbes.com/sites/wadeshepard/2016/05/28/the-story-behind-the-worlds-emptiest-international-airport-sri-lankas-mattala-rajapaksa/#4bd9505d7cea
[vi] The Indian Express, “India, Sri Lanka sign MoU for cooperation in economic projects,” April 27, 2017. Accessed October 01, 2017, http://indianexpress.com/article/india/india-sri-lanka-sign-mou-for-cooperation-in-economic-projects-4629826/
[vii] Anjana Pasricha, “India’s Planned Investment in Sri Lanka’s Trincomalee Port Gets a Push,” voanews.com, April 27, 2017. Accessed October 02, 2017, https://www.voanews.com/a/india-investment-sri-lanka-trincomalee-port/3826456.html
[viii] Daily Mirror (Sri Lanka), “Japan talking to SL and India on developing Trinco Port,” September 06, 2017. Accessed October 02, 2017, http://www.dailymirror.lk/article/Japan-talking-to-SL-and-India-on-developing-Trinco-Port-136033.html
[ix] Nidhi Verma, “Petronet to form JV with Japan, Sri Lanka firms for LNG plant,” Livemint, September 06, 2017. Accessed October 02, 2017, http://www.livemint.com/Industry/oXUhxNRqgO7xFhXfGQ67kI/Petronet-to-form-JV-with-Japan-Sri-Lanka-firms-for-LNG-plan.html
[x] Darshana Baruah, “New Delhi and Tokyo: Asia’s New Leaders,” Carnegie India, September 20, 2017. Accessed October 02, 2017, http://carnegieindia.org/2017/09/20/new-delhi-and-tokyo-asia-s-new-leaders-pub-73179
[xi] Lalin Fernandopulle, “Japan keen to increase investments in Sri Lanka,” Sunday Observer, February 26, 2017. Accessed October 02, 2017, http://www.sundayobserver.lk/2017/02/26/business/japan-keen-increase-investments-sri-lanka
[xii] Lanka Business Online, “Japanese consortium seeks approvals for 10MW solar plant in Sri Lanka,” February 07, 2017. Accessed October 02, 2017, http://www.lankabusinessonline.com/japanese-consortium-seeks-approvals-for-10mw-solar-plant-in-sri-lanka/
[xiii] Global Times, “India, Japan seek to counter China with AAGC plan,” August 28, 2017. Accessed October 02, 2017, http://www.globaltimes.cn/content/1063546.shtml; The Economic Times, “Chinese daily cautions India, Japan over trade corridor,” August 02, 2017. Accessed October 02, 2017, http://economictimes.indiatimes.com/news/defence/chinese-daily-cautions-india-japan-over-trade-corridor/articleshow/59883723.cms.
[xiv] Panos Mourdoukoutas, “India And Japan Cannot Stop China,” Forbes, September 14, 2017. Accessed October 02, 2017, https://www.forbes.com/sites/panosmourdoukoutas/2017/09/14/india-and-japan-cannot-stop-china/#5b8578985540