China FM pushes BRI as India watches

Chinese Foreign Minister Wang Yi was in Sri Lanka yesterday seeking to advance Beijing's ambitious Belt and Road Initiative as the island nation tries to rescue itself from a foreign currency and debt crisis, partly due to infrastructure built with Chinese loans that don't generate revenue. 

Wang arrived in Sri Lanka on Saturday from the Maldives on the last leg of a multi-city trip that also took him to Eritrea, Kenya and Comoros in Africa.

In Sri Lanka, Wang met with President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa. Later, Wang and the prime minister were expected to speak at Colombo's Port City, a reclaimed island developed with Chinese investment.

The visit comes as Sri Lanka faces one of its worst economic crises, with foreign reserves down to around $1.6 billion, barely enough for a few weeks of imports. It also has foreign debt obligations exceeding $7 billion in 2022.

China loaned money to build a seaport and airport in the southern Hambantota district, in addition to a wide network of roads. But the projects have failed to make money. Central Bank figures show that current Chinese loans to Sri Lanka total around $3.38 billion not including loans to state-owned businesses, which are accounted for separately.

The situation has left households facing severe shortages. People wait in long lines to buy essential goods like milk powder, cooking gas and kerosene. Prices have increased sharply and the Central Bank says the inflation rate rose to 12.1% by the end of December from 9.9% in November. Food inflation increased to over 22% in the same period.

Wang's visit also has regional significance, as both China and India, Sri Lanka's closest neighbor, vie for influence in the island.

"We can see Sri Lanka being saddled between India and China for a potential bailout package," said political analyst Ranga Kalansooriya. "India is dragging its feet for some time while China is trying to manipulate the situation to the maximum."

India has been wary of China's increased investments and loans in Sri Lanka since a civil war ended in 2009. India considers Sri Lanka part of its territory of influence. China considers Sri Lanka to be a critical link in its Belt and Road global infrastructure initiative.

Kalansooriya said Wang may also be looking to iron out relations with Sri Lanka after they were recently strained over a shipment of fertilizer that allegedly contained harmful bacteria and business agreements that were inked with China's rivals, the United States and India.

But he said that China is unlikely to bail Sri Lanka out of its economic crisis. "They will look for more business opportunities, fishing in the troubled waters of economic doldrums in the country," he said.