Chinese Peril

Australia invests in unmanned spy drones to fly over South China Sea
By Jamie Tarabay

Australia is spending $6.2 billion to acquire six Northrop Grumman MQ-4C Tritons as part of its regional surveillance operations.

Australia is spending billions on unmanned American spy drones that will be able to fly higher and further than its manned aircraft, to beef up its surveillance operations in areas that include the disputed South China Sea.
On Tuesday Australian Prime Minister Malcolm Turnbull said his government was investing $6 billion to acquire six MQ-4C Tritons, remotely piloted aircraft, from US defense contractor Northrop Grumman, "through a cooperative program with the United States Navy."
The Tritons would complement the current surveillance aircraft Australia already uses to survey its maritime borders, conduct search and rescue, and carry out Freedom of Navigation exercises in the contested South China Sea.
Defense Industry Minister Christopher Pyne told the Australian Broadcasting Corporation that the drones, which can travel up to 25,000 miles, will also be used to track foreign ships, smugglers and pirates.
The aircraft, which have a de-icing capability, will fly as far north as the Indian Ocean, and as far south as Antarctica, where the Australian military monitors activity over the country's Exclusive Economic Zone, a marine area of around 4 million square miles.
"It is very important for us to know who is operating in our area and therefore be able to respond if necessary to any threats," Pyne told ABC News.
"Australia insists on its right to be able to travel through the South China Sea in international waters as we have always done, whether that is with surface ships or with aircraft."

Whatever intelligence the Australian Navy is able to glean from its surveillance operations will be shared with the other nations that are members of the "Five Eyes" -- the United States, New Zealand, Canada and the UK.
The acquisition of the drones was first announced by former Prime Minister Tony Abbott in 2014.
"I think there is a view that this is a long time coming, previous prime ministers have been talking about these things, now it's real, not just an idea," said Michael Shoebridge, director of defense and strategy at the Australian Strategic Policy Institute.
He believes the announcement was prompted by the news that Canberra was spending $150 million of that money on a joint program with the US Navy to develop and sustain the aircraft at the Royal Australian Air Force base in Edinburgh, north of Adelaide, the capital city of South Australia state.
"I don't think this will be news for the Chinese because it's been a public thing that the Australian government has been investing in it," Shoebridge told CNN. 

"It'll just complement the Freedom of Navigation and overflight activities that the Australian Navy and Air Force are doing all the time, but it is making the point that it is having more Australian presence up there."
China has repeatedly challenged Australian warships, most recently in April when three Australian navy vessels were on their way to Vietnam for a goodwill visit.
China claims a great swathe of the South China Sea as its own territory, a claim that overlaps with Vietnamese and Filipino and other regional interests. 

The waters are some of the most hotly contested in the world.
Beijing held its own drills in the disputed territory in April, including a huge military parade overseen by Chinese dictator Xi Jinping.
To reinforce its claims in the region, China has constructed and militarized a series of artificial islands across the South China Sea, building airfields and radar stations. 

Last month US warships sailed past some of the disputed islands, drawing a rebuke from Beijing.
The first of the new spy drones are not expected to come into operation until 2023, Turnbull announced, adding that all six would be delivered and in operation by late 2025.
Shoebridge said that the drones could be operated from South Australia even as they are launched from Darwin, 1,900 miles north of the air force base. 

Currently Darwin is also home to 1,500 American Marines.
The Marines are on their seventh rotation where they train alongside Australian forces as part of a military alliance between the two countries that began with World War I.
Part of that alliance now serves to check China's expanding influence in the Asia-Pacific, of which those freedom of navigation exercises are key.
Australian defense minister Marise Payne announced on Monday that as part of its "long-standing commitment to regional security," facilities at a Malaysian air force base used by the Australian military would get a $16 million upgrade.
"You can't have freedom of navigation and overflight if you don't exercise it," said Shoebridge of the Australian Strategic Policy Institute.
"It's empty words unless you have physical presence," he said.

Chinese man charged with illegally exporting anti-submarine devices to China

By Joshua Berlinger

This 2017 file photographs shows the US' Ohio-class guided-missile submarine, USS Michigan, in Busan, South Korea.

A Chinese national has been charged in the United States for conspiring with an entity affiliated with the People's Liberation Army (PLA) to illegally ship devices used in anti-submarine warfare to China.
Shuren Qin, a permanent resident of the United States living in Massachusetts, was purportedly tasked in 2015 by the Xi'an-based Northwestern Polytechnical University (NWPU) -- Chinese military research institute -- to obtain items used for anti-submarine warfare from the United States.
Federal prosecutors allege that the 41-year-old Qin shipped 78 hydrophones -- devices used to detect or monitor sound underwater -- to the NWPU from July 2015 to December 2017.
Qin was arrested on Thursday last week and indicted Tuesday on one count of conspiracy to violate US export laws and regulations and two counts of visa fraud.
According to the NWPU website, the university is affiliated with the Chinese Ministry of Ministry of Industry and Information Technology. 

It claims to be "the only multidisciplinary and research-oriented in China that is simultaneously developing education and research programs in the fields of aeronautics, astronautics, and marine technology engineering."
The US Department of Commerce identified NWPU as a potential national security risk in 2001 for its close dealings with the (PLA).
Court documents show that Qin is the president of a company headquartered in Qingdao that imports underwater and marine technologies into China and then re-sells them.
CNN reached out to attorneys representing Qin late Tuesday night and NWPU Wednesday for comment.

'Industrially significant technology'
The news comes as the administration of US President Donald Trump is preparing to crack down on Chinese investment in "industrially significant technology" in the United States and bar some technologies from being exported to China.
The White House previously said that details of the investment restrictions, as well as "enhanced export controls" limiting Chinese acquisition of US technology, will be announced by June 30.
The United States has for years enjoyed a significant advantage when it comes to submarine technology. 

The development of China's own domestic submarine technology is now threatening to challenge that advantage.
Countries throughout the Indo-Pacific region are acquiring modern underwater capabilities, many for the first time. 

By 2035, about half of the world's submarines will operate in the Indo-Pacific, the Australian Defense Department estimates.

China’s Second Century of Humiliation

The conduct of Xi Jinping and the CCP will ultimately bring China a new century of shame.
By Ted S. Yoho

The “Century of Humiliation” describes a period in Chinese history from the mid-19th to mid-20th centuries, when China was diplomatically and militarily dominated by Western colonial powers. Ending at the close of the Chinese Civil War and the establishment of the People’s Republic of China, the Century remains a major component of “modern China’s founding narrative.”
Under the leadership of the Chinese Communist Party, China’s overriding national goal is setting to right the injustice of the century of humiliation by achieving “the great rejuvenation of the Chinese nation.” 

Since he entered office, China’s dictator Xi Jinping has widely promoted the “Chinese Dream” of achieving rejuvenation. 

Called fuxing in Chinese, this rejuvenation is an end state in which China has overcome the humiliating handicaps of colonial history and become strong and powerful enough to prevent its recurrence.
China’s first century of humiliation was forced upon it by colonial powers. 

Now, China is at the beginning of a second century of humiliation, albeit of a much different kind. 

This time, Xi Jinping and the CCP will bear responsibility. 

Xi’s China is a norms-busting, human rights-violating bully and thief among the community of nations. 

A poor nation that behaves as China does would be shunned, but China has become rich. 

China’s newfound wealth has bought a place at the height of global power, but the conduct of Xi Jinping and the CCP will ultimately bring China a new century of shame.
A great irony of China today is that in seeking to overcome the injustices of history, the CCP is turning China into the 21st century’s great antagonist. 

The first years of Xi’s leadership have put to rest a lively debate about how China will conduct itself in the modern world. 

Those who argued that engagement and acceptance would induce China to become a contributing member of the rules-based global order have admitted defeat.
Xi is set to rule for life, should he wish to do so, and has recommitted the PRC to hardcore Leninism, reasserting the control of the vanguard Party over every aspect of life. 

Occasionally, Xi’s CCP experiments with neo-Maoist myth building exercises, usually around significant political events. 

For example, following the March 2018 session of the puppet National People’s Congress that allowed Xi to rule for life, China’s state media granted him the title “helmsman of the nation,” an allusion to Mao Zedong’s “great helmsman.”
In terms of sheer numbers, Xi is the most accomplished human rights violator alive today. 

Xi’s CCP governs 18 percent of humankind, depriving them of freedom of speech, political rights, religious freedom, independent media, and open internet access – all of which should be fundamental components of modern society. 

Political indoctrination is being reinserted into Chinese curricula, and an Orwellian “social credit” system is being developed to more closely control individuals’ every behavior. 

Additionally, the CCP continues its efforts to wipe out the ethnic heritage of Tibetans and Uyghurs, with recent reports confirming the existence of massive internment camps in Xinjiang province.
As he turns his homeland into a dystopia, Xi is also playing the villain globally. 

This is seen most clearly in a series of huge lies Xi has attempted to sell the world — lies that have global consequences. 

These lies, and the conduct they seek to cover, will also bring shame to Xi’s leadership.
In 2015, Xi stood beside Barack Obama in the White House’s Rose Garden and pledged that “China does not intend to pursue militarization” of the South China Sea. 

By this time China’s construction of artificial islands throughout the disputed territory was already well underway. 

Though the military implications of these facilities were always obvious, it has become increasingly clear that Xi’s Rose Garden promise was a bald-faced lie.
At the 2018 Shangri-La Dialogue, U.S. Secretary of Defense James Mattis said that “[d]espite China’s claims to the contrary” the placement of weapons systems on artificial islands in the South China Sea “is tied directly to military use for the purposes of intimidation and coercion.” 

China has emerged as a modern maritime power under Xi, but instead of using this power responsibly, Xi has instead applied it to push around China’s smaller neighbors.
Xi has also lied to the world about China’s economic engagement and trade policies. 

At the World Economic Forum in January 2017, Xi delivered a speech that made headlines across the globe, portraying China as the world’s new champion of globalization and open markets. 

Casting the United States as a protectionist and isolationist force in global trade, Xi alleged that “China must have the courage to swim in the vast ocean of the global market… China took a brave step to embrace the global market.”
Our national debate over trade notwithstanding, the argument that China will become the world’s leading force for economic globalization is preposterous on its face. 

Xi presides over closed and protected markets, has instead injected greater Party control into even private business, and shamelessly promotes plans for tech dominance through protectionism, forced technology transfer, and outright theft. 

The CCP uses China’s massive consumer market to intimidate private industry in furtherance of its political goals, such as when individual companies are targeted for simply recognizing the reality that Taiwan exists as a distinct political entity. 

Xi intends not to lead the global economic order, but to leech its benefits while avoiding its obligations.
Xi has sought to portray China as a positive influence and democratizing force on the world stage, when in reality his signature foreign policy initiatives rely on the predation and abuse of less powerful countries, and seek to undermine global democracy. 

At the 19th CCP Congress in November 2017, Xi said that “China stands for democracy in international relations and the equality of all countries, big or small.”
Yet in the very same speech, Xi promoted China’s authoritarian system as a “new model” for the developing “nations who want to speed up their development while preserving their independence.” The implication is that in exchange for their loyalty, China will help the world’s petty strongmen attain the benefits of economic growth, without the need to democratize.
Xi regularly promotes the Belt and Road Initiative, a massive westward infrastructure program, as a “win-win” undertaking that will fill infrastructure gaps in less-developed countries for mutual profit. But major components of the Belt and Road have proven to be debt traps that endanger participants’ sovereignty and increase China’s political influence, while benefiting corrupt officials and bringing few opportunities to the average citizen. 

In some places, like Sri Lanka, the Maldives, and Pakistan, it’s also apparent that the Belt and Road is a cover for military expansion.
Xi Jinping’s leadership seeks to advance China’s interests not within the prevailing global order, but at its expense. 

For now, it is working. 

China has no peer competitors along its immediate periphery to be concerned about, and plenty of cash to advance its interests in other parts of the world. 

But in making himself into an emperor, Xi has ensured that the world will come to realize he has no clothes. 

Xi’s totalitarianism inside China is severe, and China’s international conduct is drastically out of step with global norms. 

Eventually, and probably quite soon, the world will refuse to accept it any longer. 

Xi’s egregious conduct will alienate China from the rest of the world, and the story of China in the 21st century will be one of humiliation.

Nation of Cheaters

How does China cheat on trade? Let us count the ways
By Steven W. Mosher 

Dr. Peter Navarro and Gordon Chang

Aside from President Trump himself, Peter Navarro arguably has the toughest job in the White House.
You see, Dr. Navarro directs the White House Office of Trade and Manufacturing Policy. 

He comes to work every day to be greeted by new evidence of China’s no-holds-barred economic war against the United States, from its cheating on trade to its theft of intellectual property.
His findings are summarized in a new report entitled, “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.”
The report itself is 36 pages long, but I can summarize it in two words: China cheats.
China cheats by protecting its home market from American imports with high tariffs, tricky non-tariff barriers, and costly, constantly changing regulations.
China cheats by subsidizing the exports of government-owned “national champions” to crush its free market competitors and dominate global markets.
China cheats by preying on weak counties, locking up their natural resources with “debt traps” in an obvious effort to gain a global stranglehold on key resources like bauxite, copper, nickel, and rare earths. 

These monopolies are not only being used to fuel China’s industrial machine, but to punish those countries who would oppose its predatory policies.
China cheats by subsidizing manufacturing with cheap loans and cheap energy, and also by turning a blind eye to environment, health and safety standards. 

Because of its cheating, it already dominates industries ranging from ship production and refrigerators, to color TV sets, air conditioners, and computers.

Above all, China cheats by stealing key technologies and intellectual property from the United States and other countries. 

These activities range from cyberespionage and forced technology transfer down to massive open-source collection and plain-old physical theft.
Suffice to say, if you can imagine a way to steal intellectual property, the Chinese Party-State already has an official government program in place to do just that.
The point of all this cheating is not hard to understand. 

China wants to capture the emerging hi-tech industries of the future with one goal in mind: to replace the United States as the world’s dominant power.
This is President-for-Life Xi Jinping’s “China Dream,” and it is revealing that he no longer hesitates to admit it.
The old rule in Communist Party circles was that China should “bide its time and hide its capabilities.” 

This rule, laid down by Paramount Leader Deng Xiaoping in the 1980s, presupposed that China’s success lay in stealth.
Deng intended that China would quietly gain ground on the reigning superpower, the United States, without alarming it. 

His rule was carefully followed by successors Jiang Zemin and Hu Jintao.
But the economic malaise of the Obama years convinced many in Beijing that America’s best days were behind it. 

Believing that China’s time has come, Xi Jinping no longer bothers to bide his time or hide China’s capabilities.
Xi’s openness about his global ambitions tells us something very important: He believes China’s future dominance is virtually a foregone conclusion.
Peter Navarro’s report tells something equally important: That China is engaging in unrestricted economic warfare—violating every agreement on patents, trade, and intellectual property it has ever signed -- in order to achieve this goal.
The China threat has become so obvious that even many Democrats support Trump’s tough policies on trade. 

Even Chuck Schumer, who seemingly never opens his mouth these days except to criticize the president, supports Trump on tariffs. 

He warns that allowing China's massive stealing to continue will cause "long-term real damage to America."
Actually, as Navarro documents, China has already done an incredible amount of damage to America.
Is there still time to stop the criminal enterprise that is China, Inc., from stealing its way to the top?
Only time will tell. 

Chinese Fifth Column

Huawei top sponsor of Australian politicians' overseas trips

Reuters

MELBOURNE/SYDNEY -- Chinese telecommunications equipment maker Huawei Technologies Co Ltd is the biggest corporate sponsor of overseas travel for Australian politicians, according to an analysis of travel disclosure registers by an Australian think-tank.
The report comes as several politicians have called for Huawei to be banned from participating in a roll-out of Australia's 5G next-generation communications network, amid fears the company is effectively controlled by the Chinese government.
It also lands amid a low in Sino-Australian relations and intense concern at Chinese influence in Australian politics.
Australia is preparing to pass laws designed to limit China's influence in domestic affairs following criticism by Australian Prime Minister Malcolm Turnbull that Beijing was interfering.
The research from the Australian Strategic Policy Institute (ASPI) found Huawei paid for 12 trips by Australian federal politicians to the company's headquarters in Shenzhen, including business class flights, local travel, accommodation and meals, between 2010 and this year, based on politicians' disclosures.
Politicians who took those trips include Foreign Minister Julie Bishop, Trade Minister Steve Ciobo and former Trade Minister Andrew Robb.
Huawei accounted for 12 out of 55 corporate-sponsored trips by federal politicians, the ASPI research found.
Iron ore miner Fortescue Metals Group was the second-largest corporate sponsor, paying for five trips, according to the research, while the biggest non corporate sponsor was the Australia/Israel and Jewish Affairs Council which paid for 44 trips.
Huawei is the world's largest maker of telecommunications network equipment and the No. 3 smartphone supplier. 

It has already been virtually shut out of the giant U.S. market because of national security concerns.
Huawei's Australian spokesman, Jeremy Mitchell, said the company was not doing anything improper.
"We openly invite media, business, think tanks and politicians to visit us and understand us better," Mitchell told the Australian Broadcasting Corp (ABC), which first reported the story.
Three of the politicians who travelled on a Huawei-sponsored trip told the ABC the trips were all-expenses paid study tours to see China's technological growth.
Australian security agencies and Huawei have clashed over worries that the firm's links to China make its hardware a data security risk.
It was blocked on security grounds from supplying equipment to Australia's new broadband network and Australia this month promised hundreds of millions of dollars to ensure Huawei did not build an internet cable between Australia and the Solomon Islands.

China walking on a tightrope as foreign investors flee

By Ambrose Evans-Pritchard

Foreign investors are fleeing Chinese markets.

THE Chinese yuan has fallen to the lowest level this year against the US dollar after the People's Bank opened the monetary spigot to avert an economic slowdown.
It raises the spectre of capital outflows and a potential currency scare akin to late 2015 if the dollar keeps rising.

The slide in the yuan exchange rate over recent days comes as global investors start to vote with their feet, no longer viewing China as a "safe haven" impervious to trouble sweeping other emerging markets.
The currency has been falling since early April but the pace has picked up sharply, weakening by almost 3 per cent to 6.55 against the dollar over the last seven trading sessions. 

It is a large move for a carefully managed currency, comparable to the sort of shift that set off trouble three years ago.
Hans Redeker, currency chief at Morgan Stanley, said the latest fund data shows that foreigners are liquidating investments in Chinese assets made in the last year through the Shanghai-Hong Kong Connect.
"A significant amount of money went in and now it is coming out again. The big currency moves we have seen recently are foreign outflows from China through 'Connect'. The scale is nothing like 2015 because the capital account is closed, but China is seeing some of the emerging market syndrome," he said.
The People's Bank cut the reserve requirement ratio (RRR) for banks by 50 basis points to 15.5 per cent over the weekend, injecting over $US100 billion ($135 billion) of liquidity into the financial system. 

It is different from an earlier reduction in April, carried out for technical reasons.

"The RRR cut is a clear sign of policy easing amid strong headwinds. We believe the Chinese economy has yet to bottom out, and the situation could worsen before getting better," said Ting Lu and Wisheng Wang from Nomura.
The Chinese authorities appear concerned that the crackdown on shadow banking and excess credit launched in 2017 may be kicking in a too hard, with a delay. 

The People's Bank (PBOC) has already been easing quietly by steering down interbank interest rates.
While the RRR cut happened to coincide with the escalating tit-for-tat trade war with US, it had far more to do with concern over rising default rates and the slump in business investment. 

"The bigger threat to China's economy this year has always been the delayed impact of last year's policy tightening," said Capital Economics.
Last week the PBOC announced the creation of a special "financial risk tracking unit" to monitor local and global conditions after a surge in corporate defaults. 

Beijing is quietly orchestrating a rescue for HNA Group, saddled with $US94 billion of debts. 

The Shanghai Composite index of equities has fallen to a two-year low of 2,859.
Simon Ward from Janus Henderson says the growth rate of the M1 money supply has plummeted to 6 per cent from a 25 per cent peak in mid-2016 when the central bank opened the floodgates. "Monetary trends are unambiguously weak," he said.
Nomura said it expects a blast of easing measures over coming months. 

These include a further 100 point cut in the RRR, higher commercial bank quotas, and a fiscal boost for local governments.
The risk for China is that the central bank is loosening just as the US Federal Reserve tightens hard to head off incipient inflation in the US economy. 

The Fed has sketched a faster pace of rate rises. 

It is also draining global dollar liquidity relentlessly, with plans to reverse quantitative easing by $US50 billion a month from September onwards. 

The hawkish US policy is pushing up the US dollar. 

This creates a toxic dilemma for the Chinese. 

If they loosen policy too much to shore up their economy they risk a rapid slide in the yuan, unsettling Chinese investors and triggering capital outflows.
The experience of 2015-2016 showed that this can get out of hand. 

The exodus reached $US100 billion a month. 

The PBOC ran through a quarter of its $US4 trillion of foreign exchange reserves. 

The trauma is seared in the memory of China's economic leadership. 

It is why Beijing is extremely unlikely to devalue the yuan as a way to retaliate against President Trump's trade tariffs.
"They will absolutely not think of doing that," said Geoffrey Yu from UBS, son of a former PBOC rate-setter.
The China currency scare two years ago ended when the Yellen Fed came to the rescue and suspended its tightening cycle, buying precious time for the Chinese authorities to restore control and launch a fresh mini-boom. 

The circumstances are entirely different today. 

The US is closer to overheating. 

The Powell Fed is more hawkish. 

The Trump Treasury will not lift a finger to help this time.
China risks finding itself caught between a rock and a hard place, or facing an "Irreconcilable Duo" in economic argot. 

While it is unlikely that the country will have to tighten "pro-cyclically" into a downturn -- as Argentina, Turkey, and several others are already having to do -- it may well find that it cannot loosen much either without risking a currency crisis. 

The PBOC is walking a tightrope.

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.