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Sri Lanka’s Election: Implications for China and the U.S.

(Image Source: Reuters/Dinuka Liyanawatte)

By Kelsey Broderick |

The results of the January 8th presidential election in Sri Lanka took many by surprise, but the biggest shock may have been felt in Beijing. Incumbent candidate Mahinda Rajapaksa, who is credited with ending the country’s 25 year long civil war in 2009 and the steep decline of poverty in the country from 2002 to 2009, lost to Maithripala Sirisena, a former member of Rajapaksa’s cabinet. Rajapaksa’s defeat, however, was due primarily to increased frustration with the cronyism and corruption endemic in his administration, with much of this frustration aimed at the increase in opaque loans and investment from China. Now China faces a new Sri Lankan president who will be responsible for addressing these concerns and answering to a population calling for greater transparency and a more balanced foreign policy.

China and Sri Lanka: Partners in Growth

In recent years, Chinese investment in Sri Lanka has grown considerably. Government lending reached $490 million in 2012 and the volume of trade between China and Sri Lanka exceeded $3 billion in 2013, with China becoming the second largest supplier of imports in Sri Lanka after India.  Two recent development projects in particular have gained both local and international attention. In 2013 China pledged $1.4 billion to build a port in Sri Lanka’s capital city, Colombo, and planned to finance 85% of a new development zone in Hambantota. Part of this zone will include a $500 million dollar port on the southern end of Sri Lanka.

Domestically, concerns have been raised over the nature of these investments and their beneficiaries. The government has been accused of handing out these multi-billion dollar projects to the Chinese without oversight, open bidding or public accounting. There have been allegations that the Rajapaksa government has been accepting commercial loans instead of low interest financing or grants in order to curry favor with Beijing and funnel money into the hands of government officials.

Internationally, China’s involvement in Sri Lanka has been viewed as an attempt by China to grow its military presence overseas. In 2014, Sri Lanka allowed China to dock both a submarine and a warship in the capital port of Colombo, which India viewed as a violation of its longstanding security treaty with Sri Lanka.  A Hong Kong newspaper also reported that as part of the investment agreement in Hambantota, a number of berths in the port would be reserved for China for 35 years. These claims have provided strong support for the idea that China’s eventual goal was not to use Sri Lanka as simply a port for refueling, but instead as a military outpost.

New Challenges for Beijing

Now that Rajapaksa has been voted out, however, any plans made by Beijing will have to go through the new government led by Maithripala Sirisena, Sri Lanka’s new President elect. This may prove to be difficult as Sirisena ran on a platform that strongly criticized continuing China’s dominant involvement in Sri Lankan affairs. In his pre-election manifesto he promised that “Equal relations will be established with India, China, Pakistan and Japan – the principal countries of Asia…” Regarding the economy, he took aim at Chinese foreign investment, writing: “…I will prevent the appropriation by foreign states or companies of strategic locations that endanger the economic security of Sri Lanka.” His new cabinet has also taken a rhetorical hard line against China. Ranil Wickremesinghe, the new prime minister, has promised to cancel the new port city in Colombo, while Harsha de Silva, the economic affairs spokesman for the United National Party, has said that the government will review all major infrastructure projects for irregularities.

Looking solely at these claims, it seems clear the new government hopes to curtail China’s role in Sri Lanka in favor of more balanced international relations and a more transparent process of investment. However, in reality it is unlikely that the new government will stop relying on China as a source of easy money. In China, large state-backed banks provide ample funds for state-owned companies to invest abroad. Unlike other sources of foreign capital, the state-owned nature of Chinese companies means that profit is not always a primary goal and thus these companies are willing to take on larger investments with more risk involved. In addition, China and Sri Lanka are set to sign a free trade agreement later this year— an agreement Sri Lanka is unlikely to turn down given their large budget deficit. While it may be easy to promise more diverse foreign investment, Sirisena may be hard pressed to find an equally available source of capital.

Another reason to be wary of the anti-Chinese rhetoric coming from Sirisena’s government is the very nature of his election. Sirisena’s electoral coalition was made up of members of the opposition party, former members of Rajapaksa’s party (the Sri Lankan Freedom Party), former revolutionaries, the country’s largest Muslim party and the principle Tamil minority party. The overlapping interests of these parties may have brought him into power, but to maintain their support he will have to balance a myriad of voices and demands. He was also elected by only 51.3% of the votes, which means Sirisena does not have a strong base of support among a large portion of the country. Given these realities, it may be difficult for Sirisena to implement the reforms he feels the country needs.

Room for Others

Sirisena’s win has, however, opened up a window of opportunity for countries worried about China’s growing influence. India and the United States both took a back seat on investment in Sri Lanka after voting in favor of the UN Commission of Inquiry set up to investigate allegations of massive and serious human rights abuses against the Tamil minority. But Sirisena has repeatedly promised to reply to the allegations of human rights violations from both the UN and Sri Lanka’s 2011 domestic inquiry, take action to promote humanitarian attitudes and investigate possible war crimes. The United States and India should push Sirisena to follow through on these promises and reward progress with increased political and economic engagement. The United States can and should also take advantage of the current opportunity to push Sri Lanka toward a more open and transparent political and social environment. With foreign support from two large democracies, Sirisena may find it easier to move away from China’s sphere of influence.