The GPM Global Forecast is a bi-weekly, members-only article series for 2017. It provides analysis and short-term forecasting on key military, political, and economic events around the globe. 

China Strings a New Pearl in Sri Lanka

Sri Lanka has signed on the dotted line with China on the Hambantota port facility, giving Beijing’s One Belt One Road initiative a boost while simultaneously raising fears of encirclement in New Delhi.

China will invest around $1.12 billion and have a 70% stake in the port, which is located on the southern coast of Sri Lanka. China’s state-owned China Merchants Port Holdings Company will preside over the day-to-day operations of the port on a 99-year lease. However, the Sri Lankan Port Authority will maintain control over ‘sensitive’ areas such as security. The deal also includes assurances that China will not dock military vessels at the facility.

There are many geopolitical factors at play here. For one, although One Belt One Road might foresee a surge in freight traffic through the Hambantota port, at this point any economic windfall is purely hypothetical. From any commercial metric, the port has been a massive failure. Built in 2010 with at least $361 million from China’s Export-Import bank, Hambantota has processed just 44 ships since 2015. The yearly bleed is too much for a Sri Lankan government that’s already struggling to pay off over $65 billion in public debt.

What Hambantota lacks in commercial viability, it more than makes up for in its strategic location. The port is remote, in deep-water, and located next to major international trade routes; in short, it’s ideal for a PLA Navy brass wanting to project Chinese military power further afield. The military restrictions in this week’s deals are unwelcome so far as China is concerned, but they don’t preclude the situation changing in the future, especially since China will continue to have serious financial leverage over the government in Colombo.

It’s also worth noting the fierce domestic opposition that the Hambantota deal faced. There were economic factors – Sri Lankan labor movements are worried of China taking control over the local bunkering business – and more importantly, there were nativist factors driving the pushback. Sri Lanka is already heavily in debt to China, and the fact that the Hambantota bailout is coming for a project that the Chinese financed in the first place looms large in the political arena. These forces combined to produce a drag on the deal, delaying its confirmation for six months and producing a draft that was watered down compared to the original which envisioned an 80% stake for China.

Over the years to come, China will undoubtedly be pushing the limits of what it can get away with in terms of security applications for the Hambantota port. For India’s part, the military exclusion is probably the best it could have hoped for in a final deal. Now New Delhi will have an excuse to keep a close eye on the facility and raise the alarm should Beijing push the boundaries.