Sri Lanka crisis will have ‘great impact’ on Chinese investment and ties

Following the crisis, Sri Lanka defaulted on $51 billion in foreign debt, including Chinese loans.


While China has so far kept a blatant silence on the dramatic downfall of Sri Lanka’s pro-Beijing Rajapaksa brothers, experts have warned that the current chaos in Colombo will have a “significant impact” on the country’s close ties and its large-scale infrastructure investments. in the island nation strategically located in the Indian Ocean.

President Gotabaya Rajapaksa fled the country on a military plane days after protesters invaded his residence. He had pledged to step down on Wednesday amid mass protests against the island’s worst economic crisis. For months, people have grappled with daily power cuts and shortages of basics like fuel, food and medicine.

“In the short term, there will be a significant impact on China’s relations with Sri Lanka as the influence of the Rajapaksa family in Sri Lanka’s political circles will be undermined and a political comeback will be unlikely in the near future.” , said Lin Minwang, a South Asia expert at Fudan University in Shanghai said on Tuesday, as quoted by the Hong Kong-based South China Morning Post.

As President Gotabaya Rajapaksa fled the country on Wednesday amid violent protests, including the seizure of his official residence by protesters, his older brother and former Prime Minister Mahinda Rajapaksa had to take refuge initially in a naval base in amid public fury.

Mahinda Rajapaksa is a Sri Lankan leader highly regarded in China for promoting large-scale Chinese investment in the island nation, in defiance of India’s security concerns and US criticism and warnings of “death trap diplomacy”. debt” of Beijing in the strategically important Indian Ocean country. .

China has so far kept an ostentatious silence over the fall of the powerful Rajapaksa clan, seen as the main backer of Chinese investment in the country, which is now facing its worst economic crisis since independence in 1948.

Responding to a question on the Sri Lankan crisis on Tuesday, Chinese Foreign Ministry spokesman Wang Wenbin told a press conference that China is paying close attention to the unfolding situation in Sri Lanka. Lanka and called on all parties to work together to resolve the crisis.

As a friendly neighbor and cooperative partner, China sincerely hopes that all parties in Sri Lanka will act in the fundamental interests of the country and its people, work together to overcome difficulties and quickly achieve social stability, recovery economy and improving livelihoods. , he said.

During the current crisis, China has provided more than $73 million in aid and recently sent a large shipment of rice, but for inexplicable reasons has not provided the large-scale monetary assistance sought by the Rajapaksas and their requests for postponement of repayment of Chinese loans.

“As for Sri Lanka’s debts related to China, China is supporting relevant financial institutions to discuss with Sri Lanka and resolve them properly. We are also ready to work with relevant countries and international financial institutions to continue to play an active role in overcoming Sri Lanka’s current difficulties, easing the debt burden and achieving sustainable development,” Wang said.

China was also angered by Gotabaya Rajapaksa’s remarks last month that Beijing was focusing on Southeast Asia from South Asia.

“My analysis is that China has shifted its strategic focus to Southeast Asia,” Gotabaya Rajapaksa said.

“They see more strategic interest in the Philippines, Vietnam and Cambodia, this region and Africa. They have less interest in this region.

“I don’t know if I’m right or wrong, even the attention in Pakistan has diminished. It shows that their interest here is not like before. Their interest has shifted to two other areas,” a- he declared.

When Gotabaya Rajapaksa’s older brother Mahinda was in power from 2005 to 2015, he opened Sri Lanka, which values ​​its strategic location in the Indian Ocean, to huge Chinese projects, including the port of Hambantota, which China was awarded for a 99-year contract in a controversial debt-for-equity swap on top of the unfinished Colombo port project being built on land reclaimed from the sea.

Lin Minwang also warned that Chinese investors could suffer losses due to the crisis in Sri Lanka.

The crisis, fueled by runaway inflation, high debt and poor economic management, has also reminded Chinese investors looking to developing countries that are vulnerable to rising fuel costs, food shortages and rise in US interest rates.

“I won’t call it a lesson, but it is a reminder that local governance competence must be taken into consideration when investing abroad, especially when the global international environment is not good and given that the debt ratio of South Asian countries is generally very high,” he said.

Chinese investments (in Sri Lanka) will suffer losses, he added.

However, Lin Minwang said, there is no need to be overly pessimistic about Sino-Sri Lankan relations, because Sri Lanka-India relations have their inherent structural contradictions, and Sri Lanka has in fact need a country like China as a counterweight to India.

But Liu Zongyi, a senior fellow at the Shanghai Institutes of International Studies, said Beijing has maintained friendly relations not only with the Rajapaksa family, but with all political parties in Sri Lanka.

China does not lean towards one faction or the other, Liu said.

This is why previous Sri Lankan governments have all wanted to maintain ties of friendship and cooperation with China.

There are fears that Pakistan, which faces a severe shortage of foreign exchange reserves, may follow Sri Lanka’s path. China recently stepped in to provide $2.3 billion to its all-time ally to bolster its foreign exchange reserves.

Following the economic crisis, Sri Lanka also defaulted on $51 billion in foreign debt, including Chinese loans.

The state-run Global Times, in its editorial on the Sri Lankan crisis on Tuesday, said the United States and the West should not have distorted their enthusiasm for the Sri Lankan crisis by saying that the troubles were not caused by Colombo’s debt to Beijing.

Sri Lanka is already scarred and cannot bear the pressure and cost of becoming a geopolitical arena. Numerous research reports have repeatedly demonstrated that Sri Lanka’s current debt crisis is not directly linked to Chinese-funded infrastructure investments. Bilateral external debt to China is only 10% of Sri Lanka’s total external debt stock, he said.

Commercial creditors and multilateral financial institutions of Western countries are responsible for Sri Lanka’s external debt, he added.

The crisis of “national bankruptcy” facing Sri Lanka is essentially triggered by global deficits in development and governance.

The regional security crisis exacerbated by the United States and the West has aggravated the global development crisis, he said, hoping that the United States and Western countries can restrain their geopolitical impulses to engage in a competition between great powers.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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