By Gulbin Sultana, PhD
State Councilor and Minister of Foreign Affairs of the People’s Republic of China Wang Yi visited the Maldives and Sri Lanka from 7-9 January 2022. The visits coincided with the 50th anniversary of the establishment of China-Maldives diplomatic relations and 65 years of diplomatic relations between China and Sri Lanka. The main purpose of the visit was to capitalise on the opportunities arising out of the economic and political vulnerabilities of Sri Lanka and the Maldives and further consolidate its influence in these two countries.
Politico-Economic Situations of the Maldives and Sri Lanka
The Covid pandemic has shattered the economy of the Maldives and Sri Lanka. The tourism sector-the mainstay of the Maldivian economy was badly affected as the country was observing a complete lockdown and the border was shut from March to July 2020. Though the border is open and the tourism sector has been gradually progressing, the Maldivian economy is still in bad shape. While the government is grappling with the health and economic challenges emanating from the global pandemic, the opposition party -the Progressive Party of Maldives (PPM) is further creating issues for the government through its “India Out” Campaign. The current phase of the “India Out” campaign, which was initiated in August 2020, is targeting both India and the current Maldivian administration for undermining the sovereignty of the country.
Sri Lanka is facing the worst economic crisis in its history amidst the Covid pandemic. Lack of adequate foreign reserves has impacted the import of food, fuel, medicines, and other essential items. People are suffering due to a shortage of food, fuel, and regular power cuts in Sri Lanka. The government’s policy to ban the import of chemical fertilizer has severely affected agricultural production. On top of that the Sri Lankan Government has to settle a large amount of debt. Common people and the opposition parties are disappointed with the incumbent government for inefficiently handling the situation.
As the economic crisis is looming large in the post-pandemic period, both countries are trying to diversify their foreign policy and reaching out to more and more countries for assistance to deal with the economic hardship. This has provided China an opportunity to regain its influence in the Maldives. However, Sri Lanka’s decision to maneuver its policy with major powers particularly with India amidst the economic crisis has not gone well with the Chinese.
Chinese Influence in the Maldives and Sri Lanka
China was the major economic and development partner of the Maldives during President Abdulla Yameen’s tenure from 2013-2018. Since the Maldivian Democratic Party (MDP) led Government came into power in 2018 under the Presidentship of Ibrahim Solih, India took over China as the largest development partner of the Maldives. It has preferred India-assisted projects for developing the large infrastructures in the country. Indian loans are considered transparent and reasonable by the Solih administration. On the other hand, MDP leaders make the Chinese loans taken during President Yameen’s tenure for the development of large infrastructures, responsible for Maldives’ external debt burden. The Solih administration has also refused to implement the Free Trade Agreement (FTA) signed between the two countries in 2017. Nevertheless, keeping its announced policy of “Friendship with all countries” in mind, the Solih administration expressed its desire to maintain friendly relations with China. It welcomed Chinese assistance for small-scale projects which are beneficial for the Maldivian population. The global pandemic has also offered China an opportunity to enhance its economic ties with the Solih Government. After the outbreak of the pandemic, China provided a large number of supplies and vaccines for the Maldives population. China has also decided to provide a debt moratorium under the G-20 framework, which has been widely acknowledged and appreciated by the Maldivians. Yet, given the level of India’s involvement in large infrastructure development projects, High Impact Community Development Projects, and development of security infrastructure in the Maldives, as well as the ruling party’s affinity towards India, it is unlikely that China would be able to counter India’s influence in the Maldives under the Solih administration. In that regard, the “India Out” campaign serves a Chinese purpose. Presumably, China would try to take advantage of the “India Out” campaign to regain its influence in the country along with the use of its economic diplomacy.
China, which is known as an all-weather friend of Sri Lanka, consolidated its footprint further in the country after Gotabaya Rajapaksa became president in 2019. In order to strengthen its ties with China, the Rajapaksa administration snubbed its relations with India in the pretext of protecting national interests. The cancellation of the signed East Container Terminal (ECT) deal was a blow to India-Sri Lanka relations. The Sri Lankan Government’s decision to offer a contract to a Chinese company to develop a hybrid energy project in the northern province of Sri Lanka also annoyed India. Nonetheless, as the country is getting deeper into an economic crisis, the Sri Lankan government has felt the need to adopt a course corrective measure to diversify its foreign policy. Sri Lanka’s complete reliance on China on economic matters did not benefit the island as at the time of crisis it did not receive desired assistance from the latter. China did extend a US$1.5 billion currency swap facility which helped in the rise of the foreign reserve, but given the severity of the crisis, China alone cannot rescue Sri Lanka from this economic doldrums. In that context, Sri Lanka tried to maneuver its relations with India. As part of course correction, Sri Lanka is now making efforts to attend to India’s concerns and showing interest to address the long pending issues with India to get a favourable response to its request for economic assistance. On India’s insistence, Sri Lanka suspended a deal with a Chinese company to develop a hybrid energy project in three islands in the north. India’s Adani group has been offered to develop the West Container Terminal in order to control the damage in the bilateral relations caused due to the cancellation of the ECT. In exchange for an Economic package, the Government of Sri Lanka has signed an agreement with India to jointly develop the strategic Trincomalee oil Tank farm.
Meanwhile, tension arose between China and Sri Lanka over the cancellation of the fertilizer deal. It was alleged by the Sri Lankan authority that the Chinese company had exported contaminated fertilizer to Sri Lanka at a time when the Sri Lankan farmers were in dire need of organic fertilizer for agricultural production. As an alternative, Sri Lanka imported organic fertilizer from India. The Chinese company has denied the allegation and demanded the payment of seventy percent (US$ 5.6 million) of the initial tender agreement (US$ 8 million) and US$ 36 million as freight cost even after the cancellation of the deal. The Chinese company has also threatened to lodge a complaint with the Food and Agriculture Organisation of the United Nations (UN) if the company’s name is not cleared from such allegations against their products. The Economic and Commercial Office of the Chinese Embassy in Sri Lanka blacklisted the People’s Bank of Sri Lanka for not releasing the money for the assignment. Until now, China was considered by the Sri Lankans as a benign economic partner. But Chinese reaction over the cancellation of the fertilizer deal at this time of economic crisis has been widely criticized within Sri Lanka. Given Sri Lanka’s high indebtedness to China and reliance on Chinese investment to take off the Colombo Port City Project and the Hambantota Special Economic Zone, Sri Lankan Government did not push the matter further. An out-of-court settlement was reached by paying US$6.8 million. In return, People’s Bank was removed from the list of the Black listed enterprises. Sri Lanka has also offered a Chinese company to get involved in the civil construction work in the ECT after canceling the deal with India and Japan. While both sides claim that they settled the issue between the two countries, China is watchful of the Sri Lankan Government’s current approach towards India. China is now feeling the need for reemphasising its influence in Sri Lanka, as India seems to have regained its ground on the island. It is interesting to note that while the Chinese authority on the one hand took punitive action on the issue of cancellation of fertilizer deal, it also tried to reach out to the people of the Tamil dominated Northern Province of Sri Lanka through religious diplomacy.
Wang Yi’s Visit to Sri Lanka and the Maldives
Wang Yi during his short visit to the two Asian Island countries conveyed China’s willingness to deepen the bilateral traditional friendship by focusing on post-pandemic recovery cooperation, working together to build the Belt and Road, and elevating the future-oriented comprehensive friendly partnership. Wang Yi assured the Maldives to strengthen bilateral cooperation to a new level in digital, telecommunication, and other emerging fields, and explore how to assist the Maldives in developing the marine economy for the benefit of the two countries. Wang Yi extended China’s support to help Sri Lanka improve the ability of self-development, accelerate industrialization, and build the brand of “Made in Sri Lanka”.
Wang Yi invited both Sri Lanka and the Maldives to tap the opportunities of the enforcement of the Regional Comprehensive Economic Partnership and China’s vast market. In this context, Wang Yi proposed for resuming the talks on FTA between China and Sri Lanka to contribute to Sri Lanka’s economic recovery and development. He also requested the Maldivian Government to ratify the FTA signed between the two countries in 2017 and put it into effect as soon as possible to create favourable conditions for the Maldives’ products and services to enter into the Chinese market.
Five Agreements were signed between China and the Maldives during Wang Yi’s visit including “Agreement on Mutual Visa Exemption”, which will allow Maldivians to travel to China on a 30-day visa-free basis, once the pandemic restrictions have been lifted; the “Economic and Technical Cooperation Agreement on Grant Aid, of approx. US$ 63 million to be used for social, livelihood, and infrastructure projects as agreed by both parties.; a “Letter of Exchange on the Feasibility Study of Management and Maintenance of China-Maldives Friendship Bridge”; a “Supplementary Contract to the Implementation Contract for China Aided Micro-Grid Sea-water Desalination Project in the Maldives”; and the “agreement to extend the services of a specialist Ophthalmic Center, in the Maldives.”
Several agreements were also signed between China and Sri Lanka during the visit which includes: Agreement on Economic and Technical Cooperation; Letter of Exchange on the Project of Subsidized Housing for Low Income Category in Colombo; Handover Certificate of the Technical Cooperation Project for BMICH; Handover Certificate of the Technical Cooperation Project for the Kidney Disease Mobile Screening Ambulance Vehicles.
Acknowledging the difficulties of the island nations, Wang Yi proposes for a forum on the development of Indian Ocean Island countries to build consensus and synergy, and promote common development. Sri Lanka was invited to play an important role in this regard.
Wang Yi also expressed China’s willingness to work with the two countries in the multilateral fora. He expressed China’s desire to extend all the support to Minister Shaheed during his tenure as President of the UN General Assembly for his “Presidency of Hope”, and also on the issue of vaccine equity. He talked about China’s desire to work with Sri Lanka to jointly oppose politicizing the COVID-19 pandemic and using origins tracing as a tool, stick to the right direction of solidarity in the fight against the pandemic, and jointly safeguard international equity and justice.
Both Maldives and Sri Lanka agreed to explore new avenues of cooperation and to enhance existing ones without reacting to the Chinese call for the implementation of the FTA. No reaction was made to the proposal on the forum for the development of Indian Ocean island countries by the Sri Lankan leaders. As Sri Lanka opened up to foreign tourists under new normalization, President Gotabaya Rajapaksa requested Mr. Wang Yi to assist in attracting Chinese tourists to Sri Lanka under the “bio-bubble concept”. President Rajapaksa called for Chinese attention on Sri Lanka’s request for “restructuring the debt repayments” and “concessional trade-credit scheme for imports from China” as a solution to the economic crisis. Wang Yi did not make any commitment in these regards.
Maldivian Foreign Minister Abdulla Shaheed reiterated that the Maldives will endeavour to respect and uphold its relationship with China. It is interesting to note that, despite being critical to the Chinese loans acquired for the projects such as the Sinamale bridge in the past, the MDP leaders thanked the State Councilor and the Chinese Government during the official talk on 8 January, for the generous assistance it had provided to the Maldives for the big infrastructure projects during 2013-18. The Chinese Embassy in its statement said that the visit “achieved fruitful results”.
Wang Yi during the Joint Press Statement in the Maldives mentioned, “China has always supported the Maldives in safeguarding national sovereignty and territorial integrity, following a development path suited to its national conditions, and pursuing an independent foreign policy. Commemorating the 70 years of the signing of the Rubber-Rice agreement between China and Sri Lanka, Minister Wang said that the pact demonstrated the two countries’ national character in the fight against hegemony and power politics and agreed to carry forward the spirit of the Pact in their strategic partnership cooperation. During his meeting with Sri Lankan Prime Minister Mahinda Rajapaksa, Wang Yi said that “it does not target any third party and should not be interfered with by any third party”. The remarks made by Yi during his visits indicated China’s desire to score brownie points with the island nations which have emerged as crucial theaters of competition between India and China.
(The author is Research Analyst, Manohar Parrikar Institute for Defence Studies and Analyses. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).