China Dream

How China's Belt And Road Became A Global Trail Of Trouble
By Wade Shepard

Sri Lanka's most corrupted President Mahinda Rajapaksa Mahinda Rajapaksa, the Chinese Ambassador to Sri Lanka Cheng Xueyuan and attendees look at a proposed construction model of Port City during an event to officially declare the 269 hectares of land reclaimed from the sea for the project as part of the capital Colombo on December 7, 2019.

China’s Belt and Road initiative (BRI), a network of enhanced overland and maritime trade routes better linking China with Asia, Europe and Africa began in 2013 with much fanfare and hope. Upwards of a trillion dollars were being put on the table to boost economic development in globalization’s final frontiers, Asia and Africa’s infrastructure gap was to be lessened, and the world’s second largest economy was taking more of an active role in international affairs with the prospect of creating a true multi-polar global power structure. 

With catchphrases like “a rising tide lifts all ships,” China stepped beyond its borders to an extent that hasn’t been seen for centuries—perhaps ever—and was welcomed by many emerging markets with open arms.
But today, nearly seven years since the Belt and Road began, the story is much different, as Chinese investment has become a euphemism for wasteful spending, environmental destruction and untenable debt. 

Many major projects are currently strewn around the world in half-finished disrepair and the opportunities that were sold to local populations rarely materialized. 

All up and down the Belt and Road, projects have been marred by delays, financial implosions and violent outpourings of negative public sentiment.
In the initial stages of the Belt and Road, it seemed as if China was trying to rewrite the book on international development. 

The projects were bigger, more costly, and riskier than what the world was used to seeing, which created a buzz and sense of excitement: could China step up onto the global stage and show us how it’s done? 

While the news tickers sparkled with headlines of multi-billion dollar deals, big moves, and action along the Belt and Road, a broader view would have shown that a large portion of these deals were being made with countries that had credit ratings classified as “junk.” 

Making big deals with countries like Pakistan, Sri Lanka and Malaysia showed the initial propensity of the Belt and Road to shoot for quantity over quality, expediency over transparency—and the reactions from this strategy was quickly felt across the entire network.
It was in Sri Lanka that the deficiencies of China’s international development activities were first revealed globally. 

China partnered with Sri Lanka’s most corrupted president, Mahinda Rajapaksa, who now faces allegations of financial irregularities, to build a series of infrastructure mega-projects in Hambantota, a vastly undeveloped region on the island nation’s southern coast. 

To start, the plan called for a new deep sea port, an airport, a stadium, a giant conference center and many miles of new roadways. 

These projects were mostly funded with loans from China, which a few years later Sri Lanka struggled to pay back, as the country sunk into a debt trap of its own making.
China eventually seized a 70% share of the deep sea port at Hambantota for 99 years for $1.12 billion. 

While this at first appeared to be a debt-for-equity swap, news later came out that Sri Lanka actually used the money to beef up its foreign reserves and make some other foreign debt repayments to save itself from economic collapse. 

However, the optics on the situation were entirely unhelpful, with headlines like “How China Got Sri Lanka to Cough Up a Port” echoed across media sources around the world as the “Chinese debt trap diplomacy” theory was born.
The Hambantota fiasco put a black mark on the Belt and Road’s financing strategies and served as a warning for emerging markets looking to make similar deals with China. 

Bangladesh, Malaysia, Myanmar, Pakistan and Sierra Leone have all subsequently decided to cancel or downsize some of their Belt and Road projects over concerns of ending up like Sri Lanka. 

China’s bags of money, which emerging markets were ogling over in the early days of the Belt and Road, seem to have lost a touch of their luster.

Chinese dictator Xi Jinping speaks with Sri Lanka's most corrupted President Mahinda Rajapaksa.

“As Chinese companies push deeper into emerging markets, inadequate enforcement and poor business practices are turning the BRI into a global trail of trouble,” wrote Jonathan Hillman of the Center for Strategic and International Studies. 

“A long list of Chinese companies have been debarred from the World Bank and other multilateral development banks for fraud and corruption, which covers everything from inflating costs to giving bribes.”
When the Belt and Road was first announced, Malaysian Prime Minister Najib Razak welcomed the initiative, and China quickly became the top source of FDI in Malaysia. 

According to the World Bank, between 2010 and 2016 nearly $36 billion was pumped into Malaysia by Chinese state-owned firms. 

Multiple big ticket infrastructure projects—including the East Coast Rail Link project and a massive port city called Melaka Gateway—were started, Chinese firms bought up multiple Malaysian ports, and bonafide mega-projects, such as the $100 billion, 250,000+ person Forest City, were being built with Chinese direction and financial backing.
Then came the problems. 

News of the 1MDB and other scandals connected with the prime minister came out, as it was discovered that over $7.5 billion of government money had disappeared. 

Via Belt and Road projects, China had a role in trying to help the embattled prime minister cover evidence of financial irregularities by artificially inflating the costs of infrastructure projects so the excess could be available for other uses. 

This favor came with a catch, however, as Malaysia was to give Chinese companies big stakes in national railway and pipeline projects and permission for the Chinese navy to use two Malaysian ports. 

This deal didn’t come to pass, but it yet again cast the Belt and Road in a dubious light.
There are many other examples of parties from China allegations of corruption up and down the Belt and Road. 

Bangladesh shut down a highway project that was supposed to have been built by the China Harbour Engineering Company due to the company reputedly offering a Bangladeshi official a bribe, Chinese development funds were reportedly allocated for Rajapaksa’s ill-fated reelection campaign, Chinese tech giants Huawei and ZTE have been probed for wrongdoing in numerous BRI countries, and the U.S. arrested the emissary of China’s CEFC Energy Company for illicit payments to officials in Chad and Uganda. 

A 2017 McKinsey survey found that between 60% to 80% of Chinese companies in Africa admitted to paying bribes and, almost needless to say, in the latest Transparency International Bribe Payers Index, Chinese firms scored second to last.At this point, it is clear that the BRI does not keep good company. 

In addition to most Belt and Road countries having poor debt ratings, they also tend not to fare so well in international corruption indexes. 

According to the TRACE Bribery Risk Matrix, 10 Belt and Road countries were deemed to be among the countries most at risk to bribery.
While the lack of transparency and oversight as to what China is doing abroad was a boon in the early days of the Belt and Road, the initiative has lost support amid the scandals, debt traps and failed projects that have emerged in recent years. 

Countries along the corridors are now operating with far more caution and scrutiny, pumping the breaks on many projects and potentially setting the BRI back for years to come.

Chinese Peril

Freeing China's South Asian string of 'little pearls'
By Michael Bender


The annual G20 Summit reminded us that disregarded countries also can be opportunities. 

As the escalating U.S. trade war with Communist China dominates attention, smaller countries that Americans don’t think much about are suddenly important pieces of the Chinese chessboard. 

They offer an important lesson in the perils of our dismissive strategic engagement, but also an opportunity to challenge China’s growing national security hegemony while not harming America’s consumers and economy.
China has what it calls a “String of Pearls” strategy to dominate small countries in Southeast and South Asia — a maritime Silk Road along the world’s most vital maritime route that the U.S. Navy and its allies will be hard-pressed to counter. 

Stretching from the South China Seas to the Horn of Africa, the route is linked with deep-water “commercial” ports and bases — the so-called pearls — and with them China will tighten its string of control in the Indian and Pacific oceans.
China’s island-building and outright appropriation of islands in the South China Sea — and America’s seemingly too-little, too-late opposition — is well-known. 

But it is the Maldives and Sri Lanka, the largely ignored but critically significant “Little Pearls” of South Asia, that still offer hope.
In recent years, China has pumped resources into the diminutive island nation of the Maldives. 

It established a Joint Ocean Observation Station on the Mukunudhoo atoll near a crucial shipping route close to India. 

This follows China’s previous acquisition of 17 other islands in the same area, raising concerns that the real and unstated purpose is for naval dominance. 

Last March, shortly after announcing the JOOS initiative, Beijing sent a combat naval force there to reassure the pro-China Maldivian president during a declared state-of-emergency.
Meanwhile, China’s huge infrastructure “investments” have driven Maldives into an unpayable debt equal to more than 25% of the archipelago’s GDP.
To the opposite side of India’s southern tip, Sri Lanka is becoming a more important “Little Pearl” on China’s string. 

The George W. Bush administration halted U.S. aid to Sri Lanka in 2007, leaving Communist China to jump in and fill the vacuum. 

Since then, the state-owned China Communication Construction Company (CCCC) funded a multibillion-dollar “Port City” project in the port city capital of Colombo, with over $13 billion expected to be invested in this project over the next 20 years. 

Beijing is poised to monopolize the financial and development market of the benign but geo-strategically important island nation.
Meanwhile, China is building a billion-dollar deep water complex called Hambantota Port on the south of Sri Lanka, about 10 nautical miles from the main shipping route between Asia and Europe. The port project gives the Chinese primary operational control of the port for the next 99 years. 

Smaller deals, such as the $50 million to be paid to a state-run Chinese company to augment the state-run Jaya Container Terminal, are also completed fairly regularly and continue to add to financial leverage that the Chinese are accumulating over Sri Lanka.
With Sri Lanka’s debt, much of it to China, continuing to balloon out of control, Beijing has seized on this as an opportunity to gain further control of Sri Lanka’s financial future through its manipulative loan collection practices and by controlling of some of the country’s most significant commercial facilities, and capturing Sri Lanka in an $8 billion debt-trap.
Making matters worse is Sri Lanka’s ongoing constitutional crisis that has paralyzed the country politically for several months — and promises to continue to do so for another year. 

The Chinese have taken advantage of the crisis, squeezing Sri Lank for more and more development deals.
Sri Lanka’s political leadership is paralyzed. 

In late October, President Maithripala Sirisena sacked his prime minister and appointed his arch-rival Mahinda Rajapaksa, the still-popular former president, in his place. 

This rare moment of realpolitik and unity in Sri Lanka was short-loved, however, because the incumbent prime minister refuses to step aside. 

Now the Supreme Court of the nation is seemingly overburdened with being the sole entity responsible for solving the constitutional stand-off and re-instating a functional government.
Without effective leadership, Sri Lanka will continue to drift into the hands of the Chinese — which the obdurate former prime minister seemingly welcomes. 

Only a snap election, such as a plebiscite, can break the stalemate and empower the Sri Lankan people to pick their own prime minister — and to break Chinese Communist economic, military, and political domination of their country.
The growth of China’s commercial investment and soft power in South Asia’s “Little Pearls” bring Beijing closer to achieving their global ambitions. 

They also erode democratic values and processes in nations like the Maldives and Sri Lanka, whose democracies have begun to crumble under the weight of burgeoning debt and influence from the power-driven, Communist hegemon.
The G20 summit is an opportunity to highlight these troubling facts. 

The Trump Administration must not only expose Beijing’s economically disastrous developmental schemes as the manipulative power grabs that they really are. 

It must also actively engage the vulnerable small nations targeted in China’s String of Pearls. 

In doing so, the United States can strike at China’s mercantile and military hegemony while gaining much-needed leverage over the Red Tiger’s other economic and fiscal bullying, and help to free vulnerable countries like Sri Lanka and the Maldives from indenture. 

It’s time to free China’s “Little Pearls.”

China’s Debt-Trap Diplomacy

National Review
Chinese dictator Xi Jinping at the 19th National Congress of the Communist Party in Beijing, October 18, 2017. 

To understand China’s geopolitical ambitions, look to Sri Lanka. 

Mahinda Rajapaksa was elected president in 2005 after making ambitious campaign promises to rebuild his country’s infrastructure. 

When he came to office, he struck a deal to develop the Hambantota port — located in the south of the island — with a Chinese state-owned enterprise called China Harbor. 

The contract with China Harbor was expensive; Sri Lanka is not exactly awash in cash. 

So its government had to borrow money to put up its share of the cost. 

Sri Lanka first borrowed $307 million from the Chinese Export-Import bank, then $700 million (this time with a higher interest rate), and, finally, $1 billion. 

By the time Rajapaksa was out of office, the port was a commercial failure and the country owed more than $3 billion to China. 

After negotiations, Sri Lanka ceded sovereignty over the port to China. 

A port of geostrategic significance for its spot on the Indian Ocean will be China’s for the next 99 years.
The story, as reported by the New York Times, is one Americans should familiarize themselves with — for China’s “Belt and Road Initiative” (BRI) is bound to produce several more like it in the coming years. 

Sold as a magnanimous undertaking to bestow infrastructure on impoverished countries in Central, South, and Southeast Asia, the BRI in reality is a signifier of China’s ongoing strategy to consolidate its power in the region and strengthen its geopolitical hand.
The land-based “belt” refers to a series of infrastructure projects across Eurasia, following the path of the ancient Silk Road. 

These would connect China to European and Middle Eastern markets, and provide access to Central Asia’s abundant resources. 

The maritime “road,” meanwhile, comprises railway and maritime infrastructure projects in Southeast Asia, around the rim of the Indian Ocean, and along the East African coast. 

These would give China easy entry to the Mediterranean Sea, Indian Ocean, and Persian Gulf.
Public data from the Chinese Global Investment Tracker, compiled by the American Enterprise Institute and the Heritage Foundation, suggest that approximately $340 billion in combined investment and construction has gone into BRI projects since 2013. 

Analysts sometimes overstate the amount of money China has spent on the BRI, but even conservative estimates predict spending is set to increase at an accelerating clip.
Participating countries — Pakistan, Laos, Thailand, Mongolia, Kazakhstan, Kenya — often don’t have the means to build the infrastructure China is offering. 

But as Will Doig notes in his new book High-Speed Empire, local politicians often have opportunistic motivations for approving BRI projects. 

They can point to progress on the infrastructure they promised their constituents while securing kickbacks for themselves. 

In the process, these officials wind up bargaining away their own countries in exchange for infrastructure that serves the interests of China more than those of local citizens. 

A railway in Laos, for example, was estimated to cost half the country’s GDP and took a path through a little-traveled region that made little sense for the country’s industries. 

It did, however, make sense for China, which has long sought a continuous rail line to Singapore and lent Laos capital to cover the cost.
The heart of the BRI is debt-trap diplomacy: China oversells the benefits of these infrastructure projects, offers credit for them on onerous terms (via its own export-import bank, or the supposedly multilateral Asian Infrastructure Investment Bank, which China de facto controls), and, when the bill comes due and its debtors aren’t able to pay, demands control over the infrastructure and influence in the region to compensate.
The attempt to turn these countries into satellite states via the strategic construction of infrastructure is pure geopolitics. 

China has eyed a westward turn for years, and its desire to advance in Southeast Asia is no secret. The BRI has not come without snags: The China–Pakistan Economic Corridor has hurt Sino–Indian relations, while political upheaval in Southeast Asia is connected to China’s increased visibility and influence.
Regardless, the U.S. should be clear-eyed about the BRI, seeing it for what it is rather than what China sells it to be. 

We continue to believe that a multilateral approach is the most effective way to counteract Chinese regional ambitions, contrary to the Trump administration’s inclinations toward bilateralism. Economic reengagement in the region should come via the Trans-Pacific Partnership, which would allow us to shore up ties with many BRI-participating countries. 

Meanwhile, through diplomatic channels, the U.S. should discourage specific infrastructure projects that have no discernible benefit to the host countries. 

Above all, we should not tolerate the construction of dual-use infrastructure that one day could be home to People’s Liberation Army deployments. 

Last week, defense secretary James Mattis criticized China for its archaic approach to diplomacy, “where all other nations have to pay tribute or acquiescence to the more powerful nation.” 

He has that right — but the U.S. needs a strategy to match his rhetoric.

China's Debt Trap

How China Got Sri Lanka to Cough Up a Port

By Maria Abi-Habib

A cargo ship navigating one of the world’s busiest shipping lanes, near Hambantota, Sri Lanka, in May.

HAMBANTOTA, Sri Lanka — Every time Sri Lanka’s president, Mahinda Rajapaksa, turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes.
Yes, though feasibility studies said the port wouldn’t work. 

Yes, though other frequent lenders like India had refused. 

Yes, though Sri Lanka’s debt was ballooning rapidly under Rajapaksa.
Over years of construction and renegotiation with China Harbor Engineering Company, one of Beijing’s largest state-owned enterprises, the Hambantota Port Development Project distinguished itself mostly by failing, as predicted. 

With tens of thousands of ships passing by along one of the world’s busiest shipping lanes, the port drew only 34 ships in 2012.
And then the port became China’s.
Rajapaksa was voted out of office in 2015, but Sri Lanka’s new government struggled to make payments on the debt he had taken on. 

Under heavy pressure and after months of negotiations with the Chinese, the government handed over the port and 15,000 acres of land around it for 99 years in December.
The transfer gave China control of territory just a few hundred miles off the shores of a rival, India, and a strategic foothold along a critical commercial and military waterway.
The case is one of the most vivid examples of China’s ambitious use of loans and aid to gain influence around the world — and of its willingness to play hardball to collect.
The debt deal also intensified some of the harshest accusations about Xi Jinping’s signature Belt and Road Initiative: that the global investment and lending program amounts to a debt trap for vulnerable countries around the world, fueling corruption and autocratic behavior in struggling democracies.

Former President Mahinda Rajapaksa of Sri Lanka, center, holding court at a wedding in Colombo in June.

Months of interviews with Sri Lankan, Indian, Chinese and Western officials and analysis of documents and agreements stemming from the port project present a stark illustration of how China and the companies under its control ensured their interests in a small country hungry for financing.
• During the 2015 Sri Lankan elections, large payments from the Chinese port construction fund flowed directly to campaign aides and activities for Rajapaksa, who had agreed to Chinese terms at every turn and was seen as an important ally in China’s efforts to tilt influence away from India in South Asia. The payments were confirmed by documents and cash checks detailed in a government investigation seen by The New York Times.
• Though Chinese officials and analysts have insisted that China’s interest in the Hambantota port is purely commercial, Sri Lankan officials said that from the start, the intelligence and strategic possibilities of the port’s location were part of the negotiations.
• Initially moderate terms for lending on the port project became more onerous as Sri Lankan officials asked to renegotiate the timeline and add more financing. And as Sri Lankan officials became desperate to get the debt off their books in recent years, the Chinese demands centered on handing over equity in the port rather than allowing any easing of terms.
• Though the deal erased roughly $1 billion in debt for the port project, Sri Lanka is now in more debt to China than ever, as other loans have continued and rates remain much higher than from other international lenders.
Rajapaksa and his aides did not respond to multiple requests for comment, made over several months, for this article. 

Officials for China Harbor also would not comment.
Estimates by the Sri Lankan Finance Ministry paint a bleak picture: This year, the government is expected to generate $14.8 billion in revenue, but its scheduled debt repayments, to an array of lenders around the world, come to $12.3 billion.
“John Adams said infamously that a way to subjugate a country is through either the sword or debt. China has chosen the latter,” said Brahma Chellaney, an analyst who often advises the Indian government and is affiliated with the Center for Policy Research, a think tank in New Delhi.
Indian officials, in particular, fear that Sri Lanka is struggling so much that the Chinese government may be able to dangle debt relief in exchange for its military’s use of assets like the Hambantota port — though the final lease agreement forbids military activity there without Sri Lanka’s invitation.
“The only way to justify the investment in Hambantota is from a national security standpoint — that they will bring the People’s Liberation Army in,” said Shivshankar Menon, who served as India’s foreign secretary and then its national security adviser as the Hambantota port was being built.
The Hambantota Port gets only a small percentage of Sri Lanka’s port business, overshadowed by the main complex in the capital.
Sri Lankan workers processing cars being unloaded from a ship at Hambantota Port.
An Engaged Ally
The relationship between China and Sri Lanka had long been amenable, with Sri Lanka an early recognizer of Mao’s Communist government after the Chinese Revolution. 

But it was during a more recent conflict — Sri Lanka’s brutal 26-year civil war with ethnic Tamil separatists — that China became indispensable.
Rajapaksa, who was elected in 2005, presided over the last years of the war, when Sri Lanka became increasingly isolated by accusations of human rights abuses. 

Under him, Sri Lanka relied heavily on China for economic support, military equipment and political cover at the United Nations to block potential sanctions.
The war ended in 2009, and as the country emerged from the chaos, Rajapaksa and his family consolidated their hold. 

At the height of Rajapaksa’s tenure, the president and his three brothers controlled many government ministries and around 80 percent of total government spending. 

Governments like China negotiated directly with them.
So when the president began calling for a vast new port development project at Hambantota, his sleepy home district, the few roadblocks in its way proved ineffective.
From the start, officials questioned the wisdom of a second major port, in a country a quarter the size of Britain and with a population of 22 million, when the main port in the capital was thriving and had room to expand. 

Feasibility studies commissioned by the government had starkly concluded that a port at Hambantota was not economically viable.
“They approached us for the port at the beginning, and Indian companies said no,” said Mr. Menon, the former Indian foreign secretary. 

“It was an economic dud then, and it’s an economic dud now.”
But Rajapaksa greenlighted the project, then boasted in a news release that he had defied all caution — and that China was on board.
The Sri Lanka Ports Authority began devising what officials believed was a careful, economically sound plan in 2007, according to an official involved in the project. 

It called for a limited opening for business in 2010, and for revenue to be coming in before any major expansion.
The first major loan it took on the project came from the Chinese government’s Export-Import Bank, or Exim, for $307 million. 

But to obtain the loan, Sri Lanka was required to accept Beijing’s preferred company, China Harbor, as the port’s builder, according to a United States Embassy cable from the time, leaked to WikiLeaks.
That is a typical demand of China for its projects around the world, rather than allowing an open bidding process. 

Across the region, Beijing’s government is lending out billions of dollars, being repaid at a premium to hire Chinese companies and thousands of Chinese workers, according to officials across the region.
There were other strings attached to the loan, as well, in a sign that China saw strategic value in the Hambantota port from the beginning.
Nihal Rodrigo, a former Sri Lankan foreign secretary and ambassador to China, said that discussions with Chinese officials at the time made it clear that intelligence sharing was an integral, if not public, part of the deal. 

In an interview with The Times, Mr. Rodrigo characterized the Chinese line as, “We expect you to let us know who is coming and stopping here.”
In later years, Chinese officials and the China Harbor company went to great lengths to keep relations strong with Rajapaksa, who for years had faithfully acquiesced to such terms.
In the final months of Sri Lanka’s 2015 election, China’s ambassador broke with diplomatic norms and lobbied voters, even caddies at Colombo’s premier golf course, to support Rajapaksa over the opposition, which was threatening to tear up economic agreements with the Chinese government.
As the January election inched closer, large payments started to flow toward the president’s circle.
At least $7.6 million was dispensed from China Harbor’s account at Standard Chartered Bank to affiliates of Rajapaksa’s campaign, according to a document, seen by The Times, from an active internal government investigation. 

The document details China Harbor’s bank account number — ownership of which was verified — and intelligence gleaned from questioning of the people to whom the checks were made out.
With 10 days to go before polls opened, around $3.7 million was distributed in checks: $678,000 to print campaign T-shirts and other promotional material and $297,000 to buy supporters gifts, including women’s saris. 

Another $38,000 was paid to a popular Buddhist monk who was supporting Rajapaksa’s electoral bid, while two checks totaling $1.7 million were delivered by volunteers to Temple Trees, his official residence.
Most of the payments were from a subaccount controlled by China Harbor, named “HPDP Phase 2,” shorthand for Hambantota Port Development Project.
An expressway extension to Hambantota Port. Chinese analysts have not given up the view that the port could become profitable.

China’s Network
After nearly five years of helter-skelter expansion for China’s Belt and Road Initiative across the globe, Chinese officials are quietly trying to take stock of how many deals have been done and what the country’s financial exposure might be. 

There is no comprehensive picture of that yet, said one Chinese economic policymaker, who like many other officials would speak about Chinese policy only on the condition of anonymity.
Some Chinese officials have become concerned that the nearly institutional graft surrounding such projects represents a liability for China, and raises the bar needed for profitability. 

Xi Jinping acknowledged the worry in a speech last year, saying, “We will also strengthen international cooperation on anticorruption in order to build the Belt and Road Initiative with integrity.”
In Bangladesh, for example, officials said in January that China Harbor would be banned from future contracts over accusations that the company attempted to bribe an official at the ministry of roads, stuffing $100,000 into a box of tea, government officials said in interviews. 

And China Harbor’s parent company, China Communications Construction Company, was banned for eight years in 2009 from bidding on World Bank projects because of corrupt practices in the Philippines.
Since the port seizure in Sri Lanka, Chinese officials have started suggesting that Belt and Road is not an open-ended government commitment to finance development across three continents.
“If we cannot manage the risk well, the Belt and Road projects cannot go far or well,” said Jin Qi, the chairwoman of the Silk Road Fund, a large state-owned investment fund, during the China Development Forum in late March.
In Sri Lanka’s case, port officials and Chinese analysts have also not given up the view that the Hambantota port could become profitable, or at least strengthen China’s trade capacity in the region.
Ray Ren, China Merchant Port’s representative in Sri Lanka and the head of the Hambantota port’s operations, insisted that “the location of Sri Lanka is ideal for international trade.” 

And he dismissed the negative feasibility studies, saying they were done many years ago when Hambantota was “a small fishing hamlet.”
Hu Shisheng, the director of South Asia studies at the China Institutes of Contemporary International Relations, said that China clearly recognized the strategic value of the Hambantota port. 

But he added: “Once China wants to exert its geostrategic value, the strategic value of the port will be gone. Big countries cannot fight in Sri Lanka — it would be wiped out.”
Although the Hambantota port first opened in a limited way in 2010, before the Belt and Road Initiative was announced, the Chinese government quickly folded the project into the global program.
Shortly after the handover ceremony in Hambantota, China’s state news agency released a boastful video on Twitter, proclaiming the deal “another milestone along the path of #BeltandRoad.”
The Mahinda Rajapaksa International Cricket Stadium in Hambantota. The stadium has more seats than the population of the area’s main town.
Pilgrim monks visiting the largely empty Mattala Rajapaksa International Airport, just 150 miles southeast from the country’s main airport.

A Port to Nowhere
The seaport is not the only grand project built with Chinese loans in Hambantota, a sparsely populated area on Sri Lanka’s southeastern coast that is still largely overrun by jungle.
A cricket stadium with more seats than the population of Hambantota’s district capital marks the skyline, as does a large international airport — which in June lost the only daily commercial flight it had left when FlyDubai airline ended the route. 

A highway that cuts through the district is traversed by elephants and used by farmers to rake out and dry the rice plucked fresh from their paddies.
Rajapaksa’s advisers had laid out a methodical approach to how the port might expand after opening, ensuring that some revenue would be coming in before taking on much more debt.
But in 2009, the president had grown impatient. 

His 65th birthday was approaching the following year, and to mark the occasion he wanted a grand opening at the Hambantota port — including the beginning of an ambitious expansion 10 years ahead of the Port Authority’s original timeline.
Chinese laborers began working day and night to get the port ready, officials said. 

But when workers dredged the land and then flooded it to create the basin of the port, they had not taken into account a large boulder that partly blocked the entrance, preventing the entry of large ships, like oil tankers, that the port’s business model relied on.
Ports Authority officials, unwilling to cross the president, quickly moved ahead anyway. 

The Hambantota port opened in an elaborate celebration on Nov. 18, 2010, Rajapaksa’s birthday. Then it sat waiting for business while the rock blocked it.
China Harbor blasted the boulder a year later, at a cost of $40 million, an exorbitant price that raised concerns among diplomats and government officials. 

Some openly speculated about whether the company was simply overcharging or the price tag included kickbacks to Rajapaksa.
By 2012, the port was struggling to attract ships — which preferred to berth nearby at the Colombo port — and construction costs were rising as the port began expanding ahead of schedule. 

The government decreed later that year that ships carrying car imports bound for Colombo port would instead offload their cargo at Hambantota to kick-start business there. 

Still, only 34 ships berthed at Hambantota in 2012, compared with 3,667 ships at the Colombo port, according to a Finance Ministry annual report.

A fish stall in a zone that is due to be turned into a large industrial area surrounding the Hambantota Port.
Harvesting rice in a field where the industrial area is due to be built.
“When I came to the government, I called the minister of national planning and asked for the justification of Hambantota Port,” Harsha de Silva, the state minister for national policies and economic affairs, said in an interview. 

“She said, ‘We were asked to do it, so we did it.’ ”
Determined to keep expanding the port, Rajapaksa went back to the Chinese government in 2012, asking for $757 million.
The Chinese agreed again. 

But this time, the terms were much steeper.
The first loan, at $307 million, had originally come at a variable rate that usually settled above 1 or 2 percent after the global financial crash in 2008. (For comparison, rates on similar Japanese loans for infrastructure projects run below half a percent.)
But to secure fresh funding, that initial loan was renegotiated to a much higher 6.3 percent fixed rate. Rajapaksa acquiesced.
The rising debt and project costs, even as the port was struggling, handed Sri Lanka’s political opposition a powerful issue, and it campaigned heavily on suspicions about China. 

Rajapaksa lost the election.
The incoming government, led by President Maithripala Sirisena, came to office with a mandate to scrutinize Sri Lanka’s financial deals. 

It also faced a daunting amount of debt: Under Rajapaksa, the country’s debt had increased threefold, to $44.8 billion when he left office.

And for 2015 alone, a $4.68 billion payment was due at year’s end.
Chinese construction workers, bottom left, walking home from work in front of Colombo’s changing skyline.

Signing It Away
The new government was eager to reorient Sri Lanka toward India, Japan and the West. 

But officials soon realized that no other country could fill the financial or economic space that China held in Sri Lanka.
“We inherited a purposefully run-down economy — the revenues were insufficient to pay the interest charges, let alone capital repayment,” said Ravi Karunanayake, who was finance minister during the new government’s first year in office.
“We did keep taking loans,” he added. 

“A new government can’t just stop loans. It’s a relay; you need to take them until economic discipline is introduced.”
The Central Bank estimated that Sri Lanka owed China about $3 billion last year. 

But Nishan de Mel, an economist at Verité Research, said some of the debts were off government books and instead registered as part of individual projects. 

He estimated that debt owed to China could be as much as $5 billion and was growing every year. 

In May, Sri Lanka took a new $1 billion loan from China Development Bank to help make its coming debt payment.
Government officials began meeting in 2016 with their Chinese counterparts to strike a deal, hoping to get the port off Sri Lanka’s balance sheet and avoid outright default. 

But the Chinese demanded that a Chinese company take a dominant equity share in the port in return, Sri Lankan officials say — writing down the debt was not an option China would accept.
When Sri Lanka was given a choice, it was over which state-owned company would take control: either China Harbor or China Merchants Port, according to the final agreement, a copy of which was obtained by The Times, although it was never released publicly in full.
China Harbor employees heading to work in Colombo.
Chinese workers in their dormitory in Colombo.
China Merchants got the contract, and it immediately pressed for more: Company officials demanded 15,000 acres of land around the port to build an industrial zone, according to two officials with knowledge of the negotiations. 

The Chinese company argued that the port itself was not worth the $1.1 billion it would pay for its equity — money that would close out Sri Lanka’s debt on the port.
Some government officials bitterly opposed the terms, but there was no leeway, according to officials involved in the negotiations. 

The new agreement was signed in July 2017, and took effect in December.
The deal left some appearance of Sri Lankan ownership: Among other things, it created a joint company to manage the port’s operations and collect revenue, with 85 percent owned by China Merchants Port and the remaining 15 percent controlled by Sri Lanka’s government.
But lawyers specializing in port acquisitions said Sri Lanka’s small stake meant little, given the leverage that China Merchants Port retained over board personnel and operating decisions. 

And the government holds no sovereignty over the port’s land.
When the agreement was initially negotiated, it left open whether the port and surrounding land could be used by the Chinese military, which Indian officials asked the Sri Lankan government to explicitly forbid. 

The final agreement bars foreign countries from using the port for military purposes unless granted permission by the government in Colombo.
That clause is there because Chinese Navy submarines had already come calling to Sri Lanka.
The Port of Colombo, Sri Lanka.
Strategic Concerns
China had a stake in Sri Lanka’s main port as well: China Harbor was building a new terminal there, known at the time as Colombo Port City. 

Along with that deal came roughly 50 acres of land, solely held by the Chinese company, that Sri Lanka had no sovereignty on.
That was dramatically demonstrated toward the end of Rajapaksa’s term, in 2014. 

Chinese submarines docked at the harbor the same day that Prime Minister Shinzo Abe of Japan was visiting Colombo, in what was seen across the region as a menacing signal from Beijing.
When the new Sri Lankan government came to office, it sought assurances that the port would never again welcome Chinese submarines — of particular concern because they are difficult to detect and often used for intelligence gathering. 

But Sri Lankan officials had little real control.
Now, the handover of Hambantota to the Chinese has kept alive concerns about possible military use — particularly as China has continued to militarize island holdings around the South China Sea despite earlier pledges not to.
Sri Lankan officials are quick to point out that the agreement explicitly rules out China’s military use of the site. 

But others also note that Sri Lanka’s government, still heavily indebted to China, could be pressured to allow it.
And, as Mr. de Silva, the state minister for national policies and economic affairs, put it, “Governments can change.”
Now, he and others are watching carefully as Rajapaksa, China’s preferred partner in Sri Lanka, has been trying to stage a political comeback. 

The former president’s new opposition party swept municipal elections in February. 

Presidential elections are coming up next year, and general elections in 2020.
Although Rajapaksa is barred from running again because of term limits, his brother, Gotabaya Rajapaksa, the former defense secretary, appears to be readying to take the mantle.
“It will be Mahinda Rajapaksa’s call. If he says it’s one of the brothers, that person will have a very strong claim,” said Ajith Nivard Cabraal, the central bank governor under Rajapaksa’s government, who still advises the family. 

“Even if he’s no longer the president, as the Constitution is structured, Mahinda will be the main power base.”

The Colombo Port City development.

Dances with Wolves

Sri Lankans who once embraced Chinese investment are now wary of Chinese domination
By Jessica Meyers

Fishing boats line the beach in downtown Hambantota, Sri Lanka. 

A highway built by China threads almost all the way from Colombo, the capital of Sri Lanka, to this scruffy fishing town on the country’s southern tip, where Buddhist chants mark the time of day and wild elephants occasionally lumber through.
On the way, drivers pass a quiet international airport, a cricket stadium that holds wedding receptions more often than sporting matches, and a foundering deep-sea port — all produced with Chinese loans or construction.
The thoroughfare has yet to reach Hambantota, whose dusty main road hugs the sparkling expanse of the Indian Ocean. 

But it’s here where Chinese ambitions to develop a maritime Silk Road have run up against Sri Lanka’s tangled politics and identity, stirring distrust and creating an unlikely symbol of Beijing’s global leverage.
Violent protests broke out in January after the government announced a deal with China to develop the port and build a massive industrial zone. 

Officials agreed to lease 80% of Hambantota harbor to state-controlled China Merchants Port Holdings for 99 years. 

Officials also plan to set up a 15,000-acre zone for factories.
Sri Lanka’s government marketed the $1.1-billion framework deal as a bailout that would help pay the multibillion-dollar debts it owes China and transform the struggling port in this impoverished region of brush and jungle.

A car transporter docks at Hambantota port in Sri Lanka. 

“No negative force can stop the cooperation between China and Sri Lanka,” Chinese Ambassador Yi Xianliang said at the zone’s opening ceremony, as government supporters threw rocks at villagers and Buddhist monks protested nearby. 

They fought back until police unleashed tear gas and water cannons to disperse the crowd.
“If everything goes well,” Yi said, China would invest $5 billion in three to five years and create 100,000 jobs.
Yet details are murky and suspicions run deep. 

Environmentalists worry about elephant habitats; locals fear losing their homes to development. 

And the political party that once embraced Chinese money is now fighting the deal as too expansive for the former British colony.
“It’s been 69 years since we got our freedom, we don’t want to be under any other country,” said D.V. Chanaka, a Parliament member for the district who helped organize the protests. 

“People here fear it will lead to Chinese colonization.”
This marked the first time the country’s dependence on China clashed so openly with its sense of sovereignty. 

But like much in Sri Lanka — a picturesque island nation ruled by three European countries and then ruptured by nearly three decades of civil war — tensions built over time.
The Colombo skyline is a testament to China’s role in Sri Lanka, whose 21 million people total less than the population of Beijing. 

Chinese companies are building luxury apartments with views of the water and constructing an entire business district on land reclaimed from the sea.
Sri Lanka owes China, its largest lender and trading partner, more than $8 billion.
Hambantota port is particularly significant because it lies along one of the world’s busiest trade routes, connecting Asia with Europe. 

This spot, about 100 miles southeast of Colombo, plays a key part in China’s “One Belt, One Road” initiative that seeks to revive ancient trade routes and spread influence.
“The Indian Ocean is going to be one of the most strategically contested in the future, with a rising India and a rising China making inroads into Africa and the Middle East,” said Kadira Pethiyagoda, visiting fellow in Asia-Middle East relations at the Brookings Institution’s Doha Center. 

“Sri Lanka is right in the center of that.”
The tear-shaped island lies off the southern edge of India, but it was China that offered the military and diplomatic support the previous government desired.
Chinese money poured in after Mahinda Rajapaksa became president in 2005, while the civil war against the Tamil Tigers guerrilla organization still raged. 

He welcomed Chinese jet fighters and ammunition when concerns about civilian casualties kept many Western countries from offering assistance.
Rajapaksa sought Chinese loans even after the war ended in 2009, as he tried to transform his poor hometown district of Hambantota into an international destination. 

He created a convention center in his name and a cricket stadium that rose out of the jungle. 

China spent nearly $2 billion building Hambantota port and the nearby airport.
It didn’t work.
The port has hemorrhaged more than $200 million, and the country’s second international airport rarely handles more than three outbound flights a day.

The international airport in Hambantota, Sri Lanka, sees three outbound flights on its busiest days. 

President Maithripala Sirisena beat Rajapaksa two years ago on a platform to loosen ties with China. 

It didn’t take long to change that view. 

Administrators estimate Sri Lanka owes China and other debtors $65 billion, with 90% of government revenue going toward repayment.
Essentially, officials said, they had no choice.
“Hambantota port can contribute immensely in the journey towards making Sri Lanka one of Asia’s modern, economic success stories,” the Development Strategies and International Trade Ministry said in a full-page note last month in local papers.
“Given the weaknesses in the government budget and the entire fiscal system in the country, the government … will not be able to finance the required investments to achieve this objective.”
Leaders see the deal as an opportunity to establish a thriving maritime hub for an economy driven largely by tea and tourism.
The government’s tone toward China has shifted from indignation to appreciation. 

Prime Minister Ranil Wickremesinghe plans to visit Beijing in May, where he will participate in a Silk Road summit. 

Officials also aim to complete a free trade agreement with China this year.
His visit could provide an opportunity to finalize the port deal, which faces more delay with domestic pushback and a court challenge.
The trade minister was unavailable for comment. 

China Merchants Port Holdings did not respond to an interview request.
Residents around Hambantota, which has yet to rebuild seaside houses swept away in a 2004 tsunami, are caught between a desire for development and an uncertainty about the cost.
“I don’t know why we need 15,000 acres for industry,” said Prithiviraj Fernando, chairman of the Center for Conservation and Research in Hambantota district. 

“It would rank among the world’s largest” industrial zones, he said.
Wildlife roams the region; peacocks strut on orange-tiled roofs and trucks stop for iguanas in the road. 

Fernando worries the industrial zone will disrupt habitats of about 400 elephants that live outside the region’s national parks.
This isn’t the first time China’s Silk Road hopes have fueled backlash. 

In Bangladesh, one person died this month protesting a Chinese-backed power plant. 

Beijing has run into tensions in Laos and Thailand, where it wants to build a rail line.
China has tried to allay fears of displacement. 

Foreign Ministry spokeswoman Hua Chunying told reporters that discussions with Sri Lanka occur “in the spirit of equality and mutual benefit, and following market rules.”
The Chinese Embassy in Sri Lanka recently helped open a vocational training center near the airport, where workers can develop construction skills. 

They also learn Chinese.
“We just want to let local people know Chinese regulations because they will be working for Chinese companies,” said Andrew Gao, who runs the center.
India also is eyeing the port deal. 

Some fear China’s Silk Road plan resembles a “string of pearls” meant to choke its neighbor. 

India fumed in 2014 when a Chinese submarine docked twice in Colombo. 

The Sri Lankan ambassador to China this month promised the country would not allow Chinese military into the port.
With China, “there’s no question there’s a strategic angle,” said Sasha Riser-Kositsky, Asia analyst at Eurasia Group, a political risk consultancy in New York. 

The problem is “untangling how much.”
Residents are just as confused.
Aruna Shantha Sayakkara spent one morning chatting with auto-rickshaw drivers outside the small, neat home he might lose.
“Seventy percent of people like this area getting developed,” said the Hambantota municipal council board member. 

“The deal will bring more.”
Down the road, S. Rushaun Dean slumped in a plastic chair.
“Twenty-five percent like the deal,” said the 37-year-old laborer, whose concrete walls held posters of Mecca and roses. 

“I’m worried we’ll have to leave. I was born here.”
Armed guards patrolled the port entrances nearby, where a lonely cargo ship docked. 

Another Chinese company is building the final stretch of highway that will connect the capital to Hambantota — and, quite possibly, its future.
“Sri Lanka can’t not take the deal,” Eurasia’s Riser-Kositsky said. 

“The Chinese are the only game in town.”

China's 'Silk Road' push stirs resentment and protest in Sri Lanka

By Shihar Aneez | HAMBANTOTA, SRI LANKA

Demonstrators react during a clash with police during a protest against the launching of a Chinese industrial zone by China Merchants Port Holdings Company, in Mirijjawila, Sri Lanka January 7, 2017. 

Demonstrators shout at police officers at a protest against the launching of a Chinese industrial zone by China Merchants Port Holdings Company, in Mirijjawila, Sri Lanka January 7, 2017. 

Police clash with demonstrators during a protest against the launching of a Chinese industrial zone by China Merchants Port Holdings Company, in Mirijjawila, Sri Lanka January 7, 2017. 

China signed a deal with Sri Lanka late last year to further develop the strategic port of Hambantota and build a huge industrial zone nearby, a key part of Beijing's ambitions to create a modern-day "Silk Road" across Asia.
The agreement was welcome relief for the island nation of 20 million people. 

As they try to reduce the country's debts, officials in Colombo see China's plans to include Sri Lanka on its "One Belt, One Road" initiative as an economic lifeline.
China has spent almost $2 billion so far on Hambantota and a new airport and wants to spend much more.
But Beijing now faces a new and unpredictable challenge to its presence in Sri Lanka and broader Silk Road project.
Hundreds of Sri Lankans clashed with police at the opening last month of the industrial zone in the south, saying they would not be moved from their land. 

It was the first time opposition to Chinese investments in Sri Lanka turned violent.
Leading the campaign against the latest deal, which is too generous to China, is former President Mahinda Rajapaksa, an influential opposition politician who first allowed Chinese investment in Sri Lanka when he was leader from 2005-15.
The clashes, in which demonstrators threw stones and police used tear gas and water cannon, underlined the depth of resentment at China's expansion felt by local people, who feared they would be forced from their homes.
The Chinese foreign ministry said Beijing was doing what was best for both countries. 

The Chinese embassy in Colombo did not respond to a request for comment on investments in Sri Lanka.
The Sri Lankan protests are not the first sign of opposition to China's One Belt plans to build land corridors across Southeast Asia, Pakistan and Central Asia and maritime routes opening up trade with the Middle East and Europe.
Rail links from China through Laos and Thailand have hit the buffers over resistance to Beijing's excessive demands and unfavorable financing.

"IMPINGES ON SOVEREIGNTY"
Under the original deal negotiated by Rajapaksa during his tenure, the container terminal at Hambantota was to be operated by a joint venture between China Harbor Engineering Co. and state-run China Merchants Port Holdings for 40 years.
The Port Authority of Sri Lanka would retain control of all other terminals in the harbor, as well as a 6,000 acre industrial zone.
But last month, the administration of Rajapaksa's successor President Maithripala Sirisena, who came to office threatening to cancel high-value Chinese contracts on the grounds they were unfair, approved a deal to lease 80 percent of the port to China Merchants Port Holdings for $1.12 billion.
The company also got the lease for 99 years.
Officials said Sirisena's hand was forced by the country's high debt burden and the fact that inflows from countries including India and the United States were less than expected, despite a $1.5 billion, three-year IMF loan program agreed last year.
"A 99-year lease impinges on Sri Lanka's sovereign rights, because a foreign company will enjoy the rights of the landlord over the free port and the main harbor," said Rajapaksa.
"This is not an issue with China or with foreign investors. It is about getting the best deal for Sri Lanka," he told Reuters in an interview.
The government also announced the lease of a much bigger 15,000 acres of land around the port for an industrial zone controlled by China Merchants Port Holdings, which has become a lightning rod for protests.
The demonstrators said they feared eviction from their land to make way for the site, a concern that China put down to a misunderstanding.
China Merchants Port Holdings declined to comment on the protests.

"WE ARE NOT LEAVING"
China has spent $1.7 billion building Hambantota port and the adjacent Mattala Rajapaksa airport, named after the former president, both of which are under-utilized and losing money.
Losses at the port added up to around $230 million in the five years to the end of 2016, according to the Sri Lankan finance ministry.
China's ambassador to Sri Lanka, Yi Xianliang, said the country would invest $5 billion more in the next three to five years and create 100,000 jobs "if everything goes well."
Last week, a policeman stood guard at the foundation stone of the proposed new zone in a forest clearing in Hambantota to prevent protesters from marching on the area.
"We are firmly against this project. We don't want our land to be given to the Chinese. We are not leaving the area," said Upul Dhammika, a farmer whose land is located where the government has tried to survey for the industrial zone.

SLEEPY OUTPOST
Rajapaksa questioned the need for the Chinese to be given 15,000 acres, which he said was more than three times the area of all other economic zones in the country combined.
Isolated from the West over allegations of human rights abuses during the country's civil war, Rajapaksa struck major deals with the Chinese when he was in power, including Hambantota and the nearby airport.
Sirisena, elected two years ago, vowed to review some of those agreements, including a $1.4 billion "port city" in the capital Colombo which was put on hold in 2015.
That, said a Chinese source with knowledge of the recent negotiations, upset Beijing, and so it pushed for the best possible deal on Hambantota.
"They (China) were really angry with the new government, until it agreed (to) an 80 percent port deal," the source said, speaking on condition of anonymity because of the sensitivity of the talks.
The Chinese embassy in Colombo did not respond when asked about that aspect of the negotiations.
Beijing also threatened lawsuits when the new administration sought to review some of the old agreements, an official in the international trade ministry said.
China's position was that it won the contracts on merit and a change of government should not have a bearing on these deals.
Sri Lankan Port Minister Arjuna Ranatunga said Hambantota port was losing money and the government had to go for a debt-for-equity deal to reduce the financial burden on the country.
Sri Lanka's national debt stands at around $64 billion, or 76 percent of gross domestic product, one of the highest among emerging economies. 

It owes China over $8 billion.
For now, Hambantota remains a sleepy outpost. 

Four years after the port and airport were completed, there is one flight a day and barely five to six ships docking each week.
The highway leading to the town is largely deserted, a new conference hall is unused and even a large cricket stadium built by the Chinese is used mainly for wedding receptions.