Friday, July 23, 2010

Emerging Markets: the privileged relation between China & Sri Lanka

The 30 years old conflict between the government of Sri Lanka and the LTTE (Liberation Tigers of Tamil Eelam, often simply called Tamil Tigers) ended on May 2009.

Since then the country has been often in the Western newspapers due to the investigations of the alleged abuses committed during the last months of the war.
The investigations over alleged war crimes and the tones of Western diplomats during the last phase of the war have strained the relations with Western countries.
Please refer to this article from the BBC to witness the status of the relationships between the Sri Lankan government during the last phase of the war in 2009 (BBC:

As the West stepped up the amount of conditions for aid, and limited any military support, China stepped in filling the void with a much lower profile set of demands for the Sri Lankan government. With fresh support from the East the Sri Lankan government was able to hold firmer in front of the Western demands.

As a country Sri Lanka holds a strategic geographical position and it is a country that is host of good natural resources waiting for strong partners to be developed, now that the north is under direct control of the government this entire area of the country is in desperate need for basic infrastructure: roads, power plants, railways, etc.

Further, the Indian Ocean is not the largest ocean on this planet but is, by far, the busiest. Countries around the Indian Ocean produce 40% of the world's oil. Seventy percent of the world's oil shipments and 50% the world's container cargo go across this Ocean. One hundred years ago, the US Admiral Alfred Maher rightly said, 'Whoever controls the Indian Ocean, dominates Asia'

The Times said: "Sri Lanka signed a classified $37.6 million deal to buy Chinese ammunition and ordnance for its army and navy ... China gave Sri Lanka — apparently free of charge — six F7 jet fighters last year, according to the Stockholm International Peace Research Institute, after a daring raid by the Tigers' air wing destroyed ten military aircraft in 2007."

It isn't hard to see China's motivation. The Times said: "China is building a $1 billion port that it plans to use as a refueling and docking station for its navy, as it patrols the Indian Ocean and protects China's supplies of Saudi oil.
The Chinese say that Hambantota is a purely commercial venture, but many US and Indian military planners regard it as part of a “string of pearls” strategy under which China is also building or upgrading ports at Gwadar in Pakistan, Chittagong in Bangladesh and Sittwe in Burma.

The strategy was outlined in a paper by Lieutenant-Colonel Christopher J. Pehrson, of the Pentagon’s Air Staff, in 2006, and again in a report by the US Joint Forces Command in November. “For China, Hambantota is a commercial venture, but it’s also an asset for future use in a very strategic location,” Major-General (Retd) Dipankar Banerjee of the Institute of Peace and Conflict Studies in Delhi said.
"Ever since Sri Lanka agreed to the plan, in March 2007, China has given it all the aid, arms and diplomatic support it needs to defeat the Tigers, without worrying about the West."

As the influence of China grows in Asia, its sphere of influence, it is likely going to be harder for Western companies to secure government related projects and tenders unless there is a major realignment of interests in the region. It is clear that India has a much larger role to play to balance the power equation.

Supporting materials:

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