Japan Is Trying To Catch Up With China In SriLanka, eyes deep water port of Trincomalee

Japan is getting more serious about preventing China’s dominance of the Indian Ocean.

Last week, Tokyo donated two coast guard patrol craft to Sri Lanka, according to ChannelNewsAsia. The craft cost over US$11 million to make.

The Indian Ocean has long been a strategic waterway, facilitating trade between the Middle East and Africa, as well as Africa and Asia. The ocean has become even more significant during recent years as China has continued to grow. China is the main Asian trade competitor Japan has, and is a challenge to the United States and its continued dominance of the Indian Ocean and South China Sea alike.

Japan’s move comes a year after CM Port issued a $584 million payment  to Sri Lanka, one part of a larger $1.12 billion deal to operate Hambantota deep-sea port in that Indian Ocean nation. The agreement, which was signed in July 2017, allows for CM Port to operate the $1.5 billion Chinese-built port under a 99-year lease.

The full $1.12 billion will be used to reduce the Sri Lankan debt to China.

China began its expansion in Sri Lanka in 2007 when Beijing got involved in the fight against the Tamil Tigers, offering President Rajapaksa the diplomatic and military support needed to eliminate the rebellion. That was followed by high interest loans and major construction projects that left Sri Lanka deeply in debt with China.

Sri Lankan debt stood at 77.60% of GDP in 2017, which was much higher than the 69.69% average for between 1950 and 2017 according to TradingEconomics.

Today the budget deficit of Sri Lanka stands at around 5.5% GDP for the country, which is only adding to the debt.

This is a very bad time for Sri Lanka to become more indebted. The country is already living above its means, as shown by the continued account deficits, which was around 2.60% of GDP in 2017.

Sri Lanka took steps to combat the rising debt to China by signing agreements with that country that swapped loans for equity. In doing so, it placed China in the position of being an owner of major infrastructure projects such as the major port in Sri Lanka, which serves as a key outpost for Beijing in the Indian Ocean.

However, China’s aggressive attempt to control trade in the South China Sea and Indian Ocean has begun drawn the ire of Japan and its ally India.

The two countries conducted joint naval exercises in Malabar, in the Bay of Bengal, just last year. They then came together to propose the idea of an “Asia Africa Growth Corridor” (AAGC) as an alternative to the Belt and Road (B&R) initiative China is pushing.

Now Tokyo is interested in boosting Sri Lanka’s defenses.

The gesture is more likely a symbolic one, rather than a substantial one, and may prove to be too little too late.

“Besides being late, Japan doesn’t have the economic resources to catch up with China,” says Stathis Giannikos, General Director of Pushkin Institute. “Its economy flounders in the swamp of debt and stagnation.”

The most notable aspect of Japan’s Defense Minister Itsunori Onodera’s first ever visit to Sri Lanka, from August 20 to 22, is that it took the form of a tour of the island’s three major ports, located on its western, southern, and eastern coasts.

At a time when port development has become an economic necessity for Sri Lanka, the strategic dimension of foreign investment in this type of infrastructure has started to attract much attention in the Indian Ocean region.

Much of the interest in Sri Lanka’s maritime security and port development activity shown by the United States, India, and Japan in recent times has stemmed from anxiety over China’s growing maritime influence and assertiveness in the region. The southern port of Hambantota, in particular, has been in the media spotlight since its operation was formally handed over to a Chinese firm on a 99-year lease last year. Chinese investment in Hambantota is seen as part of its mega Belt and Road Initiative (BRI), connecting Asia with Africa and Europe. Japan has repeatedly expressed concern over the possibility of Hambantota being used for military purposes, despite assurances to the contrary from both Sri Lanka and China. During his visit, Onodera again expressed this anxiety when he told NHK World: “Despite China’s long term lease, it is internationally acknowledged that the port should be free and open to the public.”

Sri Lanka’s ports have been open to all. “None of Sri Lanka’s ports should be used by anyone for military purposes,” said retired Adm. Jayanath Colombage, director of the Center for Indo-Lanka Initiatives and Law of the Sea at the Pathfinder Foundation. Pointing out that ships from no fewer than 27 countries have visited Sri Lanka between 2009 and 2018, the retired Navy commander asked, “What is meant by ‘military purposes?’ If a ship calls in a port for fuel, water etc. it’s not military but a goodwill visit. If they come to act against another country, that is military,” he said. “We welcome anyone, only they shouldn’t come with the intention of harming anyone, especially India.”

Japan’s anxiety could be seen as stemming in large part from its total dependence on imported energy supplies transported by sea. Hence its vigorous promotion of the concept of a “free and open Indo-Pacific,” endorsed by Washington. For Sri Lanka, the development of infrastructure involving strategic assets like ports and airports has now become inseparable from its defense dimension. “Everything in the Indian Ocean region has a defense dimension,” said Colombage.

While Hambantota has been the most talked about, from a strategic point of view the most valued asset is probably the eastern port of Trincomalee — considered to be one of the best deep water natural harbors in the world. During British colonial rule it housed a naval base and airbase, and since its 1956 take-over by the government of Sri Lanka (then Ceylon) it has been operated as a commercial port. During the Trincomalee leg of his tour, Onodera visited an oil tank farm built by the British, which was targeted during World War II by Japanese kamikaze pilots. The attack completely destroyed one of the 101 tanks and is said to have killed hundreds of airmen.

Sri Lankan officials have talked about plans to develop Trincomalee port and its environs with help from Japan and India, but nothing specific has been announced. During Onodera’s three-day visit the Japanese Maritime Self Defense Force’s Ikazuchi was docked in Trincomalee. The visiting minister addressed the crew on board. A week after Onodera’s departure, Japan’s State Minister for Foreign Affairs Kazuyuki Nakane arrived in Colombo for the commissioning ceremony of two patrol vessels donated by Japan to the Sri Lanka Coast Guard.

Before he arrived in Colombo, Onodera held talks with India’s Defense Minister Nirmala Sitharaman in New Delhi where, according to the Japan Times, they agreed to start talks on an Acquisition and Cross Service Agreement. Tokyo and Delhi are reportedly in the process of upgrading their defense and foreign affairs talks to ministerial level, at a time when Washington too is pursuing a similar “2 + 2” dialogue with New Delhi. The United States has stepped up its involvement in the area it now calls the “Indo-Pacific,” having announced $300 million in security assistance for the region. Of this funding, $40 million is earmarked for Sri Lanka, $39 million for Bangladesh, and $17 million for Nepal, Principal Deputy Assistant Secretary Alice Wells said at a Washington press briefing on the subject of “U.S. Policy in the Indian Ocean Region,” on August 20 — the day Onodera arrived in Sri Lanka.

All of this defense-related diplomacy happening around the same time is no coincidence. It can be explained by a single uniting factor: the desire to push back against China’s growing maritime influence in the Indian Ocean.

Investors should still keep an eye on things, as Japan’s most recent move has created another front between the two most powerful Asian nations, increasing the geopolitical risk to those considering making investments in the region.

Financial markets, however, appear to be ignoring the potential risks.

After all, markets trade on the fundamental value of investments rather than geopolitical risks.

Source: Forbes.com and others

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Categories: International, Sri Lanka

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