Tag Archives: Sri Lanka

China’s Debt Diplomacy Takes A Credit Hit

SRI LANKA AND Pakistan might count as among the ‘dangerous and chaotic places’ that President Xi Jinping last November advised Belt and Road (BRI) investors to avoid. Both are strategically important waystations along the BRI that are under severe financial stress and in political turmoil.

As friends of China, both would be looking east for assistance, aid that Beijing is being slow to provide. It has not yet reissued a promised $4 billion of loans to replace those Pakistan paid off in late March. Nor has it responded to Sri Lanka’s request for $2.5 billion in credit support.

China has become the largest government creditor over the past decade. Its state-owned policy banks often best the International Monetary Fund (IMF) and the World Bank in annual lending to developing countries.

The scale of that lending and the lack of transparency as to its terms have drawn criticism for exacerbating debt problems in poorer countries and accusations of ‘debt-trap diplomacy’.

Sri Lanka and Pakistan’s optimism that Beijing will come through for them is running into a new realism in Beijing. This is already evident in China’s circumspect approach to debt relief in Africa.

At last November’s high-level BRI symposium, Xi urged a cautious approach to lending along the Belt and Road. For the past couple of years, it has been apparent to top leadership that China’s banks have taken on too much debt in countries with uncertain repayment prospects.

A slowing economy at home and the persistence of domestic financial stability concerns have only made these worries more acute.

Securing approval for new credit lines is becoming harder even for policy banks as authorities emphasise the need for improved risk management and controls.

Sri Lanka has already turned to IMF in Washington for help with preparing an economic recovery programme as a basis for restructuring its debt and emergency financial assistance. Pakistan’s new leaders also plan to work with the IMF to stabilise the country’s economy.

Sri Lanka, in particular, will have as weak a negotiating hand with the IMF as it has had with Beijing.

China’s concern will be that Sri Lanka will have to accede to IMF demands, including who should occupy key government positions. That could mean a government less well disposed to China than some of its predecessors.

Similarly, the ousting of Imran Khan as Pakistan’s prime minister may cost Beijing a friendly if not necessarily firm ally in a country that provides an essential connection between the BRI’s two halves.

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India Hardens Anti-China Stance High And Low

IT HAS BEEN nearly half a century since there has been a deadly clash along the disputed Himalayan border between India and China, despite regular jostling between the forces of both sides.

Tensions have been elevated in recent months but the Indian army’s announcement that 20 of its soldiers died as a result of a skirmish with PLA forces in the Ladakh region of Kashmir at the start of the week is a shock for two reasons.

First, the two sides had agreed a week earlier to respect the Line of Actual Control (LAC) that runs through the remote Galwan Valley. Second, local reports say the Indian soldiers were bludgeoned to death in a fight involving clubs and rocks.

China has not confirmed Indian claims of casualties on its side, as is its won’t, but said in a statement published on the official Weibo account of the PLA Daily that Indian forces had crossed the border, provoking the skirmish.

India has accused China of sending thousands of troops into the valley and says it occupies 38,000 square kilometres of Indian territory. In May, it accused Chinese forces of setting up a tented camp and moving heavy equipment onto the Indian side of the LAC adding another 60 square kilometres.

However, the proximate cause of the latest tensions appears to be India’s construction of a new road along the LAC, a belated tit-for-tat for an attempt by China in 2017 to extend a border road through a disputed area, which is the world’s longest disputed land border.

Indian and Chinese officials are meeting to defuse the latest incident, but broader talks on settling the border are probably needed to de-escalate the situation. The history of repeated break-downs of such discussions is not encouraging, however.

If this is Beijing using the cover of the Covid-19 pandemic to push a foreign policy agenda more nationalistically, just as it appears to be doing with Hong Kong, in the South and East China Seas and with Taiwan, then the prospects of de-escalation are further reduced.

Meanwhile, there is no physical evidence that China is backing away. Its heavy weaponry remains at the border. For its part, India would lose face if it stopped its road-building in the region, although it could slow it down as an olive branch if it so chose.

Separately but no less worryingly for Delhi, Nepal’s parliament has approved a controversial new map that shows disputed territories along the India-Nepal border as belonging to Nepal, a cartographical land grab that some in India see China’s hand behind.

India’s offer of new credit deals to Sri Lanka and Mauritius looks ever more like an effort to steer both island nations away from pro-China positions as India hardens its anti-China stance.

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An Awkward Catch

China’s fishermen are venturing further afield in search of their catch, and getting in trouble further from home. Following the detention last month of 36 Chinese fishermen by the Russians for illegal fishing for squid, two trawlers have been arrested by the Sri Lankan navy and the 37 Chinese crew on board accused of fishing without authority in Sri Lankan waters.

Unlike in the South China Sea there is no question of disputed waters. Yet the incident is tricky for both governments. Relations between the two have been getting closer in what is becoming another proxy diplomatic war for regional influence between Beijing and New Delhi. The island is strategically located in the Indian Ocean on the trade routes between East and Southeast Asia and Africa and the Gulf. Chinese built and financed roads, railways, airports, ports and power plants are already to be found in Sri Lanka. New Delhi and Washington fret that a military base may be next as Beijing looks to add to its so-called string of pearls, the modern-day equivalent of coaling stations for its growing blue-water navy. Illegal fishing is an awkward diversion.

Update:  Peace has broken out. Sri Lanka’s navy says the fishermen have been handed over to Chinese diplomats. “The fault is not with the [Chinese] crew. The case is against the [Sri Lankan] owner [of the trawlers] now,” navy spokesman Kosala Warnakulasuriya tells the Reuters news agency.

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