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Sri Lanka's embrace of China investment heightens regional geopolitical risk

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A worker looks on at the Colombo Port City construction site, which is backed by Chinese investment, Feb. 2.   © Reuters

TOKYO -- Sri Lanka has reversed its earlier decision and decided to allow Chinese investment in a port development project near its capital, Colombo.

     Situated off India's southern tip, Sri Lanka serves as an important stopover on the sea trade route from Asia all the way to the Middle East.    

     Early last year, Sri Lanka decided to drop its pro-China policy out of fears over Beijing's growing influence. Colombo's flip-flop, however, may have grave ramifications for Japan, the U.S. and other countries in the Asia-Pacific region.

     In recent years, Sri Lanka has drawn attention as a strategic vantage point militarily, as China plans to build a "Maritime Silk Road" trade route stretching from the South China Sea to the Indian Ocean, the Arabian Sea and finally the Mediterranean.

     This vast body of water has so far been under the watch of the U.S. Navy, which is suspicious of Beijing's motives. Thus, the Chinese government has been courting friendly nations along the planned ocean route to build port facilities as part of its efforts to secure a maritime route outside the U.S. sphere of influence.

     For China, Sri Lanka is strategically significant as it is located right in the middle of the Maritime Silk Road.

Dilemma over China

The Sri Lankan government's decision in mid-January to greenlight a stalled Chinese investment project came as a welcome surprise to China. A Chinese company plans to spend a total of about $1.5 billion to reclaim land off the coast of Colombo and build commercial, residential and sports facilities.     

     Initially, construction began in September 2014. However, the project stalled in March last year. The Sri Lankan government called for a halt and suspended the entire project, citing irregularities in the contract.

     In response, a Chinese Foreign Ministry spokesperson expressed concern, saying, "The issue should be resolved in a reasonable manner."

     Colombo's move came after a regime change in January last year. Maithripala Sirisena was elected president and replaced his pro-China predecessor Mahinda Rajapaksa. In his election campaign, Sirisena accused Rajapaksa of having a collusive relationship with Chinese companies and engaging in corruption. To realize his campaign pledge, Sirisena ordered a stop to China's much-touted project in Sri Lanka. Observers believe he made the decision out of concern over the country's heavy diplomatic and military dependence on China.

     But nearly a year later, the Sirisena administration backpedaled on the earlier decision and approved the once-stalled port project. In effect, this means he has given up his resistance and joined hands with China.

Money talks

In a story dated Feb. 10, a Sri Lankan Cabinet spokesperson was quoted as telling a Reuters reporter, "The stance on China has completely changed. Who else is going to bring us money, given the tight conditions in the West?"

     According to Reuters, Chinese businesses are seeking to invest in a special economic zone in southern Sri Lanka, where the main seaport and airport facilities are located. The U.S. and India are raising the alarm about China's intention to use Sri Lankan ports for military purposes.

     In the same Reuters story, Sri Lankan International Trade Minister Malik Samarawickrama was quoted as saying, "We will agree to that. They will invest their own money."

     Sri Lanka's tea and rubber product exports have remained sluggish, further widening the country's trade deficit. In addition, Sri Lanka's foreign currency reserves continue to shrink. In other words, Sirisena has woken up to the fact that turning down China's lucrative offer would not be wise.

     Sure enough, China has jumped at this golden opportunity.

     On Feb. 6, Chinese Foreign Minister Wang Yi took the trouble to stop over in Colombo on his way back from a tour of African nations and met with his counterpart Mangala Samaraweera at the airport. Wang reportedly said that China would like to cooperate with Sri Lanka in building a maritime Silk Road of the 21st century, in an apparent move to woo the South Asian country.

     Two days earlier, Chinese President Xi Jinping and Chinese Premier Li Keqiang sent a congratulatory message to Sri Lankan leaders, including Sirisena, commemorating Sri Lanka's Independence Day on Feb. 4. The Chinese leadership also called for building "a strategic cooperative partnership" between the two countries.

     Needless to say, this does not mean the two countries will soon have a "honeymoon" period all over again. But one thing is clear: the Sirisena administration has already had to revise its "wean itself from China" policy.

Rising China risk

Meanwhile, Beijing is aggressively building facilities on artificial islands in the South China Sea. To counter the move by China, Japan and the U.S. are bolstering their security cooperation with other Asian countries.

     But it remains unclear whether they can achieve the intended effect. This is because these Asian countries benefit from China economically while at the same time guarding against China's military build-up.

     Sri Lanka's short-lived "revolt" against China is a testament to the complex realities facing these countries.

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