On January 9, Chinese Foreign Minister Wang Yi concluded his trip to five Indian Ocean countries with his departure from Sri Lanka. During a 24-hour visit to Colombo, Wang kicked off the 65th anniversary celebrations of China-Sri Lanka relations by inaugurating the Colombo Port City Promenade, a landmark project of the Belt and Road. . Wang’s talks with Sri Lankan leaders took place against the backdrop of the worst foreign exchange crisis in the island’s history. Thus, the Minister of Foreign Affairs GL Peiris opened the talks by reminding the visitor that the proverb “a friend in need is really a friend”, is the eternal theme of bilateral relations”. Similarly, Prime Minister Mahinda Rajapaksa thanked China for “always lending a helping hand” during Sri Lanka’s time of dire need.
Similar hopes were gratuitously expressed by President Gotabaya Rajapaksa who asked the visitor “if attention could be drawn to the restructuring of debt repayments as a solution to the economic crisis”. He also asked China to provide “concessional” trade credit for its exports to Sri Lanka, which amounted to $3.5 billion in 2021.
Wang, however, remained evasive about further relief. Having already bailed out the island nation with a $1 billion loan and a $1.5 billion currency swap deal since March 2020, Wang has avoided any promises of additional aid. Instead, he pushed to restart negotiations for a free trade agreement (FTA) to help Sri Lanka’s economic recovery. Notably, Wang chose to focus on the 1952 rubber-rice pact rather than the major event of his visit – the 65th anniversary of diplomatic relations between China and Sri Lanka.
The Rubber-Rice Pact was signed between the two countries in 1952 when the end of the Korean War boom led to a drop in prices for rubber, one of Sri Lanka’s main export commodities. As the island nation faced a currency crisis, it became unable to secure a supply of cheap rice for its people. At the same time, China was struggling to secure its rubber supply, following the UN resolution of May 1951, which banned the sale of rubber to China. The signing of the rubber-rice pact finally paved the way for the establishment of diplomatic relations between the two countries in 1957. As Wang Yi said, the pact was signed on the “basis of equal negotiations”, which “broken the isolation of the Cold War”. of China and “created the spirit of independence, self-reliance, unity and mutual support” between the two countries.
Wang’s call for “equal negotiations” with Sri Lanka is particularly interesting since Chinese leaders have long had a patron-client relationship with the ruling Rajapaksa regime. Still, China’s call for reciprocity in its dealings with Sri Lankan leaders offers clues to Beijing’s falling fortunes in the island nation. Sri Lanka’s inability to deliver ‘rubber’ in exchange for Chinese ‘rice’ is becoming a major source of irritation. With major BRI projects – Hambantota Port and the Colombo Port City Project – already completed, China is stuck in its relationship with Sri Lanka. As the Rajapaksa regime’s demands for preferential loans and bailouts continue, Colombo is hardly able to offer Beijing any other big plans. This has become especially true after the recent rise of anti-China sentiment in Sri Lanka.
After the controversial enactment of the Colombo Port City Economic Commission (CPCEC) Act in May 2021, China has become the main target of Sinhalese Buddhist nationalists in Sri Lanka. Suspicions of Port City becoming a Chinese enclave in Sri Lanka outside the authority of parliament led to an anti-CPCEC mobilization by the opposition, civil society and Sri Lankan religious leaders. Since then, the Rajapaksa regime has struggled to advance Chinese projects in Sri Lanka.
So, when in July 2021, a Chinese company tried to get the presidential secretary to intervene on its behalf, the CPCEC president immediately pushed back. Similarly, China’s success in forcing the Sri Lankan government to pay $6.7 million in compensation due to Colombo’s rejection of importing contaminated fertilizer has caused a backlash in Sri Lanka. Then, in November 2021, Sri Lanka canceled a Chinese renewable energy project after India offered to provide a $12 million grant to run the project. This led to a statement from the Chinese Embassy on Twitter calling out “third party” security concerns behind the cancellation.
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In this regard, Wang’s emphasis on “equal negotiations” was made alongside an assertion that China-Sri Lanka relations “do not target any third party and should not be disrupted by any third party”. . The mention of “third party”, a euphemism for India’s influence in Sri Lanka, comes after India’s protracted efforts to counter China’s growing influence in the region. In particular, New Delhi’s success in persuading Colombo to cancel the Chinese renewable energy project, located about 50 kilometers from the Indian mainland, was duly noted in Beijing.
Moreover, as Chinese loans dry up, India has stepped up its efforts to provide an economic package worth $2.4 billion in preferential loans and lines of credit. Consequently, Sri Lanka has begun to reemphasize the ‘India first’ nature of its foreign policy and is seeking to integrate its economy with India to take advantage of the Indian market. This contrasts sharply with the February 2021 statement by the then Sri Lankan foreign minister, when he considered China to be Sri Lanka’s “closest friend” and a “growing force” for its “development”. independent”.
Therefore, Wang’s push for “equal negotiations” between the two countries was not just aimed at Sri Lankan public opinion to counter the growing narrative of Chinese dominance over Sri Lankan society. It was also the balancing of Beijing by Colombo with the support of New Delhi that generated a Chinese demand from the ruling Rajapaksa regime to offer it the same opportunities granted to New Delhi.
However, the space available to the Rajapaksa regime to respond to Chinese demands will continue to shrink due to opposition from its domestic allies – the Sinhalese Buddhist nationalists. Thus, to act on its domestic compulsions, the government should pursue its rapprochement with India. Furthermore, Sri Lanka’s growing desire to approach the IMF to improve its economic problem makes it likely that it will have to stifle its opposition to the US Indo-Pacific strategy. This creates a tailor-made case for Indo-American convergence in the Indo-Pacific to lift Sri Lanka out of China’s debt trap.
Shrey Khanna is a research analyst working on the Indo-Pacific Studies program at the Takshashila Institution. The opinions expressed in this article are those of the author and do not represent the position of this publication.
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