China Maritime Silk Road Is Sri Lanka’s Boon as Xi Visits

Construction Continues
Construction continues on reclaimed land for the Colombo Port City project near Colombo Port. Source: Lanka Ports Authority via Bloomberg.

A view from Sri Lanka’s capital of land curving into a sea once famed for its pearls now shows giant yellow digger trucks piling boulders. It’s another show of China’s increasing global influence.

Once fought over by European powers, Sri Lanka is now benefiting from the attention of Asia’s biggest economies, drawn to its Indian Ocean location along some of the world’s busiest sea-lanes. The Chinese-financed $1.4 billion “Colombo Port City” project is its largest foreign-funded investment on record.

President Xi Jinping, who has sought to restore China’s prestige and historical links along the “maritime Silk Road” through Southeast and South Asia, arrived in Colombo today, shortly after a visit by Japanese Prime Minister Shinzo Abe. Deepening ties with East Asia would reduce the role of neighbor India in Sri Lanka’s trade, and aid its recovery from 26 years of civil war.

“China’s growing influence must surely be a cause of some concern to both Japan and India, evident from renewed Japanese interest in Sri Lanka and a more supportive approach by the new Indian government,” said Dushni Weerakoon, head of macroeconomic policy at the Institute of Policy Studies in Colombo. “Sri Lanka stands to benefit from its growing economic links with each of these countries, but it will also require a careful balancing act on the political front.”

Singapore Competition

The Port City will be built by a unit of state-controlled China Communications Construction Co. on 233 hectares (576 acres) of reclaimed land, an area slightly larger than Monaco. The offices, hotels, apartments and shopping centers will draw as much as $20 billion in investment over about 15 years, according to ports authority chairman Priyath Wickrama.

“The government wants to convert Sri Lanka into a maritime center,” Wickrama said in an interview at his office overlooking the project area and adjoining port, which is also part-funded by China. “We can give some competition to Singapore and Dubai, which are running out of capacity.”

The unsolicited investment will boost job creation as China will bring only “expert category labor,” Wickrama said. Sri Lanka will own rights to 125 hectares of the reclaimed land and 20 hectares will be held by China Communications, with the remaining 88 hectares leased to the company for 99 years.

Colombo’s port is the only one in South Asia that can accommodate 18-meter deep draft vessels, putting it in position to serve the Indian subcontinent, the Middle East and some African states, said Parakrama Dissanayake, former chairman of the Chartered Institute of Logistics and Transport in Sri Lanka.

‘All-Weather Friend’

China last year overtook the U.S. as Sri Lanka’s largest trading partner after India, and has described itself as an “all-weather” friend. Chinese government lending to the island nation has increased 50-fold over the past decade to $490 million in 2012, compared with $211 million combined from Western countries and lending agencies.

India has focused on development and reconstruction in the north, which was affected by the civil war that ended in 2009. As many as 40,000 civilians died in the conflict, according to a 2011 report from a panel appointed by UN Secretary General Ban Ki-Moon, most of whom shared ethnic links with the southern Indian state of Tamil Nadu.

“Both countries have mutually important strategic interests” in Sri Lanka, Deshal de Mel, senior economist at Hayleys Plc in Colombo, said of India and China. “Whilst it is probable that China’s interests in Sri Lanka are largely strategic and commercial in nature, particularly in terms of logistics and access to resources, it is inevitable that India will feel a degree of insecurity.”

‘Completely Non-Transparent’

Unlike previous infrastructure projects undertaken by Chinese companies in Sri Lanka, the port city is financed by equity from China Communications or funds raised through it, with no commitment or guarantee from the Sri Lankan government.

The project is “completely non-transparent,” according to Sri Lankan opposition lawmaker Harsha de Silva. His United National Party has demanded the government submit all relevant documents for parliament scrutiny.

“There have been no competitive selections,” de Silva said in a June 30 e-mailed statement. “These are just deals, done between the regime and various people.”

China has asserted its control over disputed islands off its shores, raising concern among Japan and Southeast Asian nations that it will seek to dominate waters that contain some of the world’s busiest shipping lanes.

Silk Road

Before Sri Lanka, Xi also visited the Maldives, which he called “an important stop of the ancient maritime Silk Road” in an article published on the local website of the Sun Online.

Xi’s counterpart in the Maldives, Abdulla Yameen, expressed interest in joining the Silk Road initiative during their talks on Sept. 15 and he called Xi’s trip “historic,” the official Xinhua News Agency reported. The two signed a series of agreements on expanding cooperation in trade, tourism, infrastructure construction and the maritime economy, including a project to build a bridge connecting the capital with the airport island of Hulhule.

Xi also told Yameen that China understands the concerns expressed by Maldives and other small island nations on climate change and sustainable growth, according to Xinhua. He promised to boost coordination and cooperation with Maldives in international climate change negotiations and provide resources and energy conservation technology to battle global warming.

Commodity Imports

Asia’s biggest economy, which will import more than $10 trillion of commodities and invest more than $5 billion overseas in the coming five years, is committed to peaceful development, Yang Jiechi, a State Councilor and the country’s former foreign minister, said in Beijing in June.

Xi last year unveiled plans to build a maritime Silk Road, referring to an ancient series of land routes that connected China to the Mediterranean Sea, linking traders, priests, artists and explorers. Details on the project are short and may be fleshed out at the Asia-Pacific Economic Cooperation meeting in Beijing in November.

Xi was welcomed in Sri Lanka by President Mahinda Rajapaksa, according to a statement from the president’s office. During today’s visit, they commissioned the last phase of the $1.3 billion Norochcholai Lakvijaya power plant -- funded by a concessional loan from China -- and signed more than 20 bilateral agreements, including a pact to pursue talks on a free trade agreement.

Xi will inaugurate the Port City tomorrow. Artist impressions of the planned development show a palm-lined promenade and a yacht-filled marina surrounding what will be the island’s tallest skyscraper.

The project will attract “big Western” companies to Sri Lanka besides Chinese investment, Treasury Secretary P.B. Jayasundera told reporters in July. “It may be a Chinese built city, but it will be a catalyst for growth overall.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE