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Message: <blockquote data-quote="VPS09" data-source="post: 23355471" data-attributes="member: 514052">How China Got Sri Lanka to Cough Up a Port<img src="https://static01.nyt.com/images/2018/06/25/world/00chinaw-srilanka-1/merlin_138500964_2c51bb2c-c678-4efc-9d87-caa055a3a826-articleLarge.jpg?quality=75&auto=webp&disable=upscale" alt="" class="fr-fic fr-dii fr-draggable " style="" />A cargo ship navigating one of the world’s busiest shipping lanes, near Hambantota, Sri Lanka, in May.CreditAdam Dean for The New York TimesHAMBANTOTA,  Sri Lanka — Every time Sri Lanka’s president, Mahinda Rajapaksa, turned  to his Chinese allies for loans and assistance with an ambitious port  project, the answer was yes.Yes,  though feasibility studies said the port wouldn’t work. Yes, though  other frequent lenders like India had refused. Yes, though Sri Lanka’s  debt was ballooning rapidly under Mr. Rajapaksa.Over  years of construction and renegotiation with China Harbor Engineering  Company, one of Beijing’s largest state-owned enterprises, the  Hambantota Port Development Project distinguished itself mostly by  failing, as predicted. With tens of thousands of ships passing by along  one of the world’s busiest shipping lanes, the port drew only 34 ships  in 2012.And then the port became China’s.Mr.  Rajapaksa was voted out of office in 2015, but Sri Lanka’s new  government struggled to make payments on the debt he had taken on. Under  heavy pressure and after months of negotiations with the Chinese, the  government <a href="https://www.nytimes.com/2017/12/12/world/asia/sri-lanka-china-port.html" target="_blank">handed over the port and 15,000 acres of land around it for 99 years</a> in December.The  transfer gave China control of territory just a few hundred miles off  the shores of a rival, India, and a strategic foothold along a critical  commercial and military waterway.The  case is one of the most vivid examples of China’s ambitious use of  loans and aid to gain influence around the world — and of its  willingness to play hardball to collect.The  debt deal also intensified some of the harshest accusations about  President Xi Jinping’s signature Belt and Road Initiative: that the  global investment and lending program amounts to a debt trap for  vulnerable countries around the world, fueling corruption and autocratic  behavior in struggling democracies.<img src="https://static01.nyt.com/images/2018/06/25/world/chinaw-srilanka-2sub/merlin_139161717_67693f7f-443f-4b23-94fb-3203ae73605b-articleLarge.jpg?quality=75&auto=webp&disable=upscale" alt="" class="fr-fic fr-dii fr-draggable " style="" />Former President Mahinda Rajapaksa of Sri Lanka, center, holding court at a wedding in Colombo in June.CreditAdam Dean for The New York TimesMonths  of interviews with Sri Lankan, Indian, Chinese and Western officials  and analysis of documents and agreements stemming from the port project  present a stark illustration of how China and the companies under its  control ensured their interests in a small country hungry for financing. •  During the 2015 Sri Lankan elections, large payments from the Chinese  port construction fund flowed directly to campaign aides and activities  for Mr. Rajapaksa, who had agreed to Chinese terms at every turn and was  seen as an important ally in China’s efforts to tilt influence away  from India in South Asia. The payments were confirmed by documents and  cash checks detailed in a government investigation seen by The New York  Times.• Though  Chinese officials and analysts have insisted that China’s interest in  the Hambantota port is purely commercial, Sri Lankan officials said that  from the start, the intelligence and strategic possibilities of the  port’s location were part of the negotiations.• Initially  moderate terms for lending on the port project became more onerous as  Sri Lankan officials asked to renegotiate the timeline and add more  financing. And as Sri Lankan officials became desperate to get the debt  off their books in recent years, the Chinese demands centered on handing  over equity in the port rather than allowing any easing of terms.• Though  the deal erased roughly $1 billion in debt for the port project, Sri  Lanka is now in more debt to China than ever, as other loans have  continued and rates remain much higher than from other international  lenders.Mr. Rajapaksa and his aides  did not respond to multiple requests for comment, made over several  months, for this article. Officials for China Harbor also would not  comment.Estimates by the Sri Lankan  Finance Ministry paint a bleak picture: This year, the government is  expected to generate $14.8 billion in revenue, but its scheduled debt  repayments, to an array of lenders around the world, come to $12.3  billion.“John  Adams said infamously that a way to subjugate a country is through  either the sword or debt. China has chosen the latter,” said Brahma  Chellaney, an analyst who often advises the Indian government and is  affiliated with the Center for Policy Research, a think tank in New  Delhi.Indian officials, in  particular, fear that Sri Lanka is struggling so much that the Chinese  government may be able to dangle debt relief in exchange for its  military’s use of assets like the Hambantota port — though the final  lease agreement forbids military activity there without Sri Lanka’s  invitation.“The only way to justify  the investment in Hambantota is from a national security standpoint —  that they will bring the People’s Liberation Army in,” said Shivshankar  Menon, who served as India’s foreign secretary and then its national  security adviser as the Hambantota port was being built.<img src="https://static01.nyt.com/images/2018/06/22/world/00chinaw-srilanka-17/merlin_138500721_1854cc85-4f01-4e1a-82d0-8b0fd15fb94f-superJumbo.jpg?quality=75&auto=webp&disable=upscale" alt="" class="fr-fic fr-dii fr-draggable " style="" />The Hambantota Port gets only a small percentage of Sri Lanka’s port business, overshadowed by the main complex in the capital.CreditAdam Dean for The New York Times<img src="https://static01.nyt.com/images/2018/06/22/world/00chinaw-srilanka-16/merlin_138500610_67115147-6bcd-464e-a2c2-82e11bba0928-superJumbo.jpg?quality=75&auto=webp&disable=upscale" alt="" class="fr-fic fr-dii fr-draggable " style="" /> Sri Lankan workers processing cars being unloaded from a ship at Hambantota Port.CreditAdam Dean for The New York TimesAn Engaged AllyThe  relationship between China and Sri Lanka had long been amenable, with  Sri Lanka an early recognizer of Mao’s Communist government after the  Chinese Revolution. But it was during a more recent conflict — Sri  Lanka’s brutal 26-year civil war with ethnic Tamil separatists — that  China became indispensable.Mr.  Rajapaksa, who was elected in 2005, presided over the last years of the  war, when Sri Lanka became increasingly isolated by accusations of human  rights abuses. Under him, Sri Lanka relied heavily on China for  economic support, military equipment and political cover at the United  Nations to block potential sanctions.<a href="https://www.nytimes.com/2009/05/20/world/asia/20lanka.html" target="_blank">The war ended in 2009</a>,  and as the country emerged from the chaos, Mr. Rajapaksa and his family  consolidated their hold. At the height of Mr. Rajapaksa’s tenure, the  president and his three brothers controlled many government ministries  and around 80 percent of total government spending. Governments like  China negotiated directly with them.So  when the president began calling for a vast new port development  project at Hambantota, his sleepy home district, the few roadblocks in  its way proved ineffective.From the  start, officials questioned the wisdom of a second major port, in a  country a quarter the size of Britain and with a population of 22  million, when the main port in the capital was thriving and had room to  expand. Feasibility studies commissioned by the government had starkly  concluded that a port at Hambantota was not economically viable.“They  approached us for the port at the beginning, and Indian companies said  no,” said Mr. Menon, the former Indian foreign secretary. “It was an  economic dud then, and it’s an economic dud now.”But Mr. Rajapaksa greenlighted the project, then <a href="http://portcom.slpa.lk/news_events_220.asp" target="_blank">boasted in a news release that he had defied all caution</a> — and that China was on board.The  Sri Lanka Ports Authority began devising what officials believed was a  careful, economically sound plan in 2007, according to an official  involved in the project. It called for a limited opening for business in  2010, and for revenue to be coming in before any major expansion.The  first major loan it took on the project came from the Chinese  government’s Export-Import Bank, or Exim, for $307 million. But to  obtain the loan, Sri Lanka was required to accept Beijing’s preferred  company, China Harbor, as the port’s builder, according to a United  States Embassy cable from the time, leaked to WikiLeaks.That  is a typical demand of China for its projects around the world, rather  than allowing an open bidding process. Across the region, Beijing’s  government is lending out billions of dollars, being repaid at a premium  to hire Chinese companies and thousands of Chinese workers, according  to officials across the region.There  were other strings attached to the loan, as well, in a sign that China  saw strategic value in the Hambantota port from the beginning.Nihal  Rodrigo, a former Sri Lankan foreign secretary and ambassador to China,  said that discussions with Chinese officials at the time made it clear  that intelligence sharing was an integral, if not public, part of the  deal. In an interview with The Times, Mr. Rodrigo characterized the  Chinese line as, “We expect you to let us know who is coming and  stopping here.”In later years,  Chinese officials and the China Harbor company went to great lengths to  keep relations strong with Mr. Rajapaksa, who for years had faithfully  acquiesced to such terms.In the  final months of Sri Lanka’s 2015 election, China’s ambassador broke with  diplomatic norms and lobbied voters, even caddies at Colombo’s premier  golf course, to support Mr. Rajapaksa over the opposition, which was  threatening to tear up economic agreements with the Chinese government.As the January election inched closer, large payments started to flow toward the president’s circle.At  least $7.6 million was dispensed from China Harbor’s account at  Standard Chartered Bank to affiliates of Mr. Rajapaksa’s campaign,  according to a document, seen by The Times, from an active internal  government investigation. The document details China Harbor’s bank  account number — ownership of which was verified — and intelligence  gleaned from questioning of the people to whom the checks were made out.With  10 days to go before polls opened, around $3.7 million was distributed  in checks: $678,000 to print campaign T-shirts and other promotional  material and $297,000 to buy supporters gifts, including women’s saris.  Another $38,000 was paid to a popular Buddhist monk who was supporting  Mr. Rajapaksa’s electoral bid, while two checks totaling $1.7 million  were delivered by volunteers to Temple Trees, his official residence.Most  of the payments were from a subaccount controlled by China Harbor,  named “HPDP Phase 2,” shorthand for Hambantota Port Development Project.<img src="https://static01.nyt.com/images/2018/06/08/world/00chinaw-srilanka-5/merlin_138500961_680c1754-de19-45e8-b484-c67a9b43252c-superJumbo.jpg?quality=75&auto=webp&disable=upscale" alt="" class="fr-fic fr-dii fr-draggable " style="" />An expressway extension to Hambantota Port. Chinese analysts have not given up the view that the port could become profitable.CreditAdam Dean for The New York TimesChina’s NetworkAfter nearly five years of <a href="https://www.nytimes.com/2015/12/26/business/china-plans-a-new-silk-road-but-trading-partners-are-wary.html" target="_blank">helter-skelter expansion for China’s Belt and Road Initiative</a>  across the globe, Chinese officials are quietly trying to take stock of  how many deals have been done and what the country’s financial exposure  might be. There is no comprehensive picture of that yet, said one  Chinese economic policymaker, who like many other officials would speak  about Chinese policy only on the condition of anonymity.Some  Chinese officials have become concerned that the nearly institutional  graft surrounding such projects represents a liability for China, and  raises the bar needed for profitability. President Xi acknowledged the  worry in a speech last year, saying, “We will also strengthen  international cooperation on anticorruption in order to build the Belt  and Road Initiative with integrity.”In  Bangladesh, for example, officials said in January that China Harbor  would be banned from future contracts over accusations that the company  attempted to bribe an official at the ministry of roads, stuffing  $100,000 into a box of tea, government officials said in interviews. And  China Harbor’s parent company, China Communications Construction  Company, was banned for eight years in 2009 from bidding on World Bank  projects because of corrupt practices in the Philippines.Since  the port seizure in Sri Lanka, Chinese officials have started  suggesting that Belt and Road is not an open-ended government commitment  to finance development across three continents.“If  we cannot manage the risk well, the Belt and Road projects cannot go  far or well,” said Jin Qi, the chairwoman of the Silk Road Fund, a large  state-owned investment fund, during the China Development Forum in late  March.In Sri Lanka’s case, port  officials and Chinese analysts have also not given up the view that the  Hambantota port could become profitable, or at least strengthen China’s  trade capacity in the region.Ray  Ren, China Merchant Port’s representative in Sri Lanka and the head of  the Hambantota port’s operations, insisted that “the location of Sri  Lanka is ideal for international trade.” And he dismissed the negative  feasibility studies, saying they were done many years ago when  Hambantota was “a small fishing hamlet.”Hu  Shisheng, the director of South Asia studies at the China Institutes of  Contemporary International Relations, said that China clearly  recognized the strategic value of the Hambantota port. But he added:  “Once China wants to exert its geostrategic value, the strategic value  of the port will be gone. Big countries cannot fight in Sri Lanka — it  would be wiped out.”Although the  Hambantota port first opened in a limited way in 2010, before the Belt  and Road Initiative was announced, the Chinese government quickly folded  the project into the global program.Shortly after the handover ceremony in Hambantota, China’s state news agency released a <a href="https://twitter.com/XHNews/status/939753813115789312" target="_blank">boastful video on Twitter</a>, proclaiming the deal “another milestone along the path of #BeltandRoad.”<img src="https://static01.nyt.com/images/2018/06/23/world/00chinaw-srilanka-18/merlin_139390080_c76002a3-64c3-406c-a0a3-9a79844cac61-superJumbo.jpg?quality=75&auto=webp&disable=upscale" alt="" class="fr-fic fr-dii fr-draggable " style="" />The  Mahinda Rajapaksa International Cricket Stadium in Hambantota. The  stadium has more seats than the population of the area’s main town.CreditAdam Dean for The New York TimesAdvertisement<img src="https://static01.nyt.com/images/2018/06/08/world/00chinaw-srilanka-6/merlin_138500682_87d23e7a-7f99-4ee1-be90-20dfb1f8fd20-superJumbo.jpg?quality=75&auto=webp&disable=upscale" alt="" class="fr-fic fr-dii fr-draggable " style="" />Pilgrim  monks visiting the largely empty Mattala Rajapaksa International  Airport, just 150 miles southeast from the country’s main airport.CreditAdam Dean for The New York TimesA Port to NowhereThe  seaport is not the only grand project built with Chinese loans in  Hambantota, a sparsely populated area on Sri Lanka’s southeastern coast  that is still largely overrun by jungle.A  cricket stadium with more seats than the population of Hambantota’s  district capital marks the skyline, as does a large international  airport — which in June <a href="https://gulfnews.com/business/aviation/no-more-flights-from-sri-lanka-s-second-airport-1.2233641" target="_blank">lost the only daily commercial flight it had left when FlyDubai airline ended the route</a>.  A highway that cuts through the district is traversed by elephants and  used by farmers to rake out and dry the rice plucked fresh from their  paddies.Mr. Rajapaksa’s advisers had  laid out a methodical approach to how the port might expand after  opening, ensuring that some revenue would be coming in before taking on  much more debt.But in 2009, the  president had grown impatient. His 65th birthday was approaching the  following year, and to mark the occasion he wanted a grand opening at  the Hambantota port — including the beginning of an ambitious expansion  10 years ahead of the Port Authority’s original timeline.Chinese  laborers began working day and night to get the port ready, officials  said. But when workers dredged the land and then flooded it to create  the basin of the port, they had not taken into account a large boulder  that partly blocked the entrance, preventing the entry of large ships,  like oil tankers, that the port’s business model relied on.Ports  Authority officials, unwilling to cross the president, quickly moved  ahead anyway. The Hambantota port opened in an elaborate celebration on  Nov. 18, 2010, Mr. Rajapaksa’s birthday. Then it sat waiting for  business while the rock blocked it.China  Harbor blasted the boulder a year later, at a cost of $40 million, an  exorbitant price that raised concerns among diplomats and government  officials. Some openly speculated about whether the company was simply  overcharging or the price tag included kickbacks to Mr. Rajapaksa. By  2012, the port was struggling to attract ships — which preferred to  berth nearby at the Colombo port — and construction costs were rising as  the port began expanding ahead of schedule. The government decreed  later that year that ships carrying car imports bound for Colombo port  would instead offload their cargo at Hambantota to kick-start business  there. Still, only 34 ships berthed at Hambantota in 2012, compared with  3,667 ships at the Colombo port, according to a Finance Ministry annual  report.<a href="https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html" target="_blank">Read More</a></blockquote>

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