The nagging question of how Sri Lanka would repay the USD 1.5 billion loan it had taken from China to build the non-performing Hambantota harbour has now been resolved with Beijing agreeing to convert 80 per cent of the debt into equity.
To make the port commercially viable, Colombo has given Beijing 15,000 acres around it to be developed as an economic center. The deal reduces the amount owed to China from USD 8 billion to USD 6.8 billion. But it is of concern to India, which sees Sri Lanka as its strategic backyard and China as its rival in the region.
Sri Lanka has been trying to assuage India’s anxieties by saying the port won’t be used for military purposes, and China, on its part, has invited Indian participation in hinterland development. But India continues to be concerned, given that the Sri Lankan Finance Minister admitted China agreed to the deal not because it believes the port can be run profitably, but because it is of “strategic value”.
Given that Hambantota sits on the main East-West shipping route in the Indian Ocean, and China is posing a threat to unfettered navigation in the South China Sea, New Delhi is apprehensive about Beijing’s intentions. With terror and separatism making Gwadar in Balochistan problematic, China needs a safe alternative port in the Indian Ocean, and Hambantota fits the bill admirably. A state-owned Chinese company already owns the Colombo port’s South Terminal.
Sri Lanka is acutely aware of India’s sensitivity about China’s projects in the island, especially after alarm bells went off in New Delhi after a Chinese nuclear submarine docked in the South Terminal in 2014. To keep India in good humour, Colombo is giving it many development projects and investment opportunities.
India understands the now-friendly Sri Lanka’s financial difficulties, but it can’t but checkmate Colombo whenever Sino-Lankan deals threaten India’s strategic interests in the Indian Ocean region.