An Island Nation in Turmoil Allows India Chance to Seize Key China Partner

As the West grapples with Russia's war on Ukraine in Europe, the world's two most populous nations are mired in a bout for influence in South Asia, where India finds itself surrounded by countries forging closer ties China, its top geopolitical rival.

But in Sri Lanka, an island nation of 22 million people located less than 35 miles off the coast of the Indian subcontinent, economic unrest and political upheaval have presented an opportunity for New Delhi to move in on Beijing's ambitions.

Although Chinese investment in line with the global Belt and Road Initiative (BRI) has brought rapid development to Sri Lanka, a number of other factors, including rising energy prices, populist tax cuts and soaring inflation, have led the country to default on its growing foreign debt for the first time since it gained independence from the United Kingdom in 1948.

Rather than immediately coming to aid its partner country in distress, China has played a cautious hand, offering limited assistance without doubling down on costly deals already in default. India, on the other hand, has extended nearly $2 billion in credit to Sri Lanka, and may further extend a line of $1.5 billion more to help the island nation import badly needed goods.

"India has stepped up its game in crisis-hit Sri Lanka at a time when China has hesitated to provide debt relief to Sri Lanka," Ganeshan Wignaraja, a senior research associate at the Overseas Development Institute in London, told Newsweek.

For India, where a sizable ethnic Tamil population in the south shares cultural links with the Tamil minority in majority-Sinhalese Sri Lanka, the motives appear to be based on both domestic and foreign policy goals.

"Indian aid seems motivated by internal pressures from South India to help the Sri Lankan people suffering from food and fuel shortages, and the external need to counter a growing Chinese economic footprint in neighboring Sri Lanka," Wignaraja said. "Indian aid has been welcomed in Sri Lanka, and probably signals that India is gaining ground at the expense of China."

And when it comes to Indian Prime Minister Narendra Modi's plan to revamp ties with the region, Wignaraja said that "stabilizing the economy of Sri Lanka could be a major win for the Modi government's Neighbourhood First Policy."

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Police use water canons to disperse university students protesting to demand the resignation of Sri Lankan President Gotabaya Rajapaksa over the country's crippling economic crisis, in Colombo on May 19. ISHARA S. KODIKARA/AFP/Getty Images

The turmoil threatens to give India and Western powers that share its skepticism of Chinese lending practices new reason to cast a critical light on Chinese President Xi Jinping's Belt and Road Initiative, which has pledged estimates of more than a $1 trillion in infrastructure projects in countries across the globe. Detractors warn of alleged "debt-trap diplomacy" designed to ensnare developing countries into impossible-to-pay arrangements that grant Beijing influence.

The reality, however, is far more complex.

Wignaraja stated that "Sri Lanka's external debt problem is partially made in China," which owns about 10% of such debt per official figures. But the same figure exists for Japan, is just slightly lower for the World Bank at 9% and even higher for the Asian Development Bank at 13%.

Nearly half of the debt is rooted in market borrowings, pointing to deeper-rooted issues that plague the country's economic outlook far beyond the role of China.

Still, China's footprint on the island has been the source of controversy, even though its significant presence was welcomed for years as Chinese firms funded projects that other foreign institutions turned down. A commonly cited case of how such agreements could impact local governance was the 2017 deal in which the Hong Kong-based conglomerate China Merchants Port was granted a 99-year lease on the newly built Hambantota International Port, as it became clear Sri Lanka would be unable to pay back the debt.

Such events have proven deeply concerning for New Delhi, especially given Sri Lanka's strategic location on the Indian Ocean.

"For India, Sri Lanka is an important geostrategic nation in the east-west trade routes," Asanga Abeyagoonasekera, a senior fellow at The Millenium Project in Washington, D.C., told Newsweek. "India is concerned about its immediate periphery with growing Chinese influence, especially in its southern periphery facing the Indian Ocean where Sri Lanka is located."

Also of concern, he argued, was a recent push by the powerful Rajapaksa family, of whom Gotabaya Rajapaksa serves as president and Mahinda Rajapaksa served as prime minister before his resignation amid violent protests earlier this month, toward "autocratic maneuvers with heavy militarization supported by China."

This dynamic harks back to the days of civil war that ravaged Sri Lanka for a quarter of a century between 1983 and 2009. The conflict was largely fought between the Sri Lankan government and a powerful Tamil separatist militia known as the Liberation Tigers of Tamil Eelam (LTTE).

Tens of thousands of people were killed on both sides, while India lost some 1,100 troops in a peacekeeping group sent to quell the fighting in the late 1980s. India had initially provided aid to the Tamil rebels, but later turned on the LTTE when it refused a ceasefire, an about-face that prompted a Tamil militant to assassinate Indian Prime Minister Rajiv Gandhi in 1991.

India remained active in attempting to secure peace, but as violence remerged in the mid-2000s and Mahinda Rajapaksa became president, China took a more assertive role, backing Sri Lanka through arms sales and diplomatic support as the government pursued an onslaught toward total victory in 2009.

When the dust settled, Western countries that once backed Sri Lanka's war effort began to accuse it of widespread human rights abuses, but China blocked any international action that was proposed to address to it.

Abeyagoonasekera said India has since grown wary of a "strategic trap" deployed by China "in three dimensions in Sri Lanka: at political party-level support for Rajapaksa's, next on human rights protection at UNHRC for the Rajapaksa regime and, finally, on security and military support."

As for Sri Lanka itself, however, Pavithra Jayawardena, a senior lecturer at the University of Colombo's Department of International Relations, said Beijing's actions further fueled warmer ties with the island nation.

"Following the end of the armed conflict, the wartime allegations against Sri Lanka were framed in the country as a conspiracy coming from the West to sabotage the country," Jayawardena told Newsweek. "A counter-suggestion was to bandwagon with China. This narrative gained a lot of public support and legitimized the island's relations with China, no matter how unmonitored those relations were."

Thus, India fell somewhat by the wayside in many ways, especially as the BRI announced upon Xi's accession to power in 2013 brought otherwise inconceivable development to war-torn Sri Lanka, including new maritime terminals, highways and even cities for trade and tourism. In 2016, China surpassed India to become Sri Lanka's main source of imports.

But as relations between Beijing and New Delhi began to deteriorate over their competing influence in the region and a sometimes violent territorial feud along their own disputed border in the Himalayas, India has sought to reclaim a stake in Sri Lanka.

Jayawardena said that New Delhi saw Beijing's inroads in Sri Lanka as a challenge not only to India's influence but to regional security as well.

"From India's point of view, it has a hegemonic view towards all of South Asia, being relatively the bigger player in the sub-region," she said. "India inherited this sense of hegemonic power in South Asia through colonization. It thinks that other countries should follow India's lead if peace, security and prosperity are to be achieved in South Asia."

"Out of this sense, India seems to be interested in intervening in the affairs of other South Asian countries too," she added. "India does not only view China as a concern for India as an individual state, but also for the entire region."

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Sri Lanka President Gotabaya Rajapaksa (4L) arrives with Chinese Foreign minister Wang Yi (front R) are seen at a sailing event on the occasion of the 65th anniversary of diplomatic relations between Sri Lanka and China during their visit to the Colombo Port City project on January 9. ISHARA S. KODIKARA/AFP/Getty Images

Thus, even in its debt-ridden state, and perhaps especially so, Sri Lanka remains a key battleground in the broader bout between China and India.

"Sri Lanka's situation in the nautical corridor between the East and West is not only important from a geostrategic perspective but also from a maritime, economic, and security perspective," Belt and Road Initiative Sri Lanka (BRISL) co-founders Yasiru Ranaraja and Maya Majueran told Newsweek.

"The maritime security in the Indian Ocean Region is crucial, and safeguarding Sea Lanes of Communications in the region is of paramount importance," they added. "Even the slightest disturbance to any of the ships that transit the Southern tip of Sri Lanka could cause a major impact on the international maritime trade."

Ranaraja and Majueran said the atmosphere was such that Sri Lanka's spot in the world "can play an important role in maintaining India and China's security," and "given its geographical location, Sri Lanka is particularly important for China's strategic interests in the region as well."

China's strategic interests in the broader region — termed the "Indo-Pacific" by Australia, India, Japan and the U.S. — were a key factor in New Delhi's decision to cement its role in the Quadrilateral Security Dialogue comprising the four nations. The initiative, first given new life under then-President Donald Trump and embraced wholeheartedly by President Joe Biden, is a vital part of Washington's efforts to counter China in Asia.

With no clear end in sight to this seismic battle over spheres of influence, Ranaraja and Majueran outline two parallel visions of Sri Lanka in the eyes of China and India.

"Looking at past events, it seems that Sri Lanka could be the Ukraine to India in national security terms," the two men said, "while also in a China's prospect, Sri Lanka could be its Hong Kong to implement the successful 'Shenzhen Model' in order to enter the Indian subcontinent."

And while they argued that "India fairly managed to get Sri Lanka back to its orbit during the 2022 economic crisis," Ranaraja and Majueran also pointed out that it remains to be seen how newly-appointed Sri Lankan Prime Minister Ranil Wickremesinghe, an opposition leader who has held the post on four previous occasions, would manage his quest to balance relations with Beijing and New Delhi.

"There is no doubt that India has emerged as a critical player in the game, while the U.S. is trying to woo India through partnership and collaboration," they said. "But it will be difficult for the U.S. and India to oppress the Communist Party of China's ideology and global ambitions."

China's ambitions have found open arms in other neighbors of India, including Bangladesh, Myanmar, Nepal and Pakistan, India's other major rival and another country to have recently undergone dramatic political change with the ousting of Prime Minister Imran Khan last month.

And while Pakistan's new leadership under Prime Minister Shahbaz Sharif appears poised to continue close cooperation with China, Beijing's appetite for aggressive spending without clear return may be undergoing a transformation.

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A worker stacks cartons of essential medicines to be shipped to Sri Lanka amid the country's ongoing economic crisis, in Chennai on May 15. ARUN SANKAR/AFP/Getty Images

Two years of pandemic have brought massive changes to the global economy and have disproportionately affected smaller, more vulnerable nations already in precarious positions vis-à-vis foreign debt. The trend has prompted growing calls for assistance from the International Monetary Fund, to which Sri Lanka has appealed for urgent aid that would require restructuring of its foreign debt.

But, as University of Colombo lecturer and economist lecturer Umesh Moramudali told Newsweek, China prefers to do business bilaterally rather than through multilateral structures, especially those that are rooted in the West.

"There's a crisis looming in developing countries and China seems to be cautious going forward, because they would not prefer to be dealing too much with IMF deals along with loans and other kinds of economic relations," he said. "They prefer to have their BRI their own way."

This, along with India's ambitious campaign to demonstrate its value to Sri Lanka, mean "it's a different ballgame going forward," according to Moramudali.

"I think we are talking about a different time and there's changing dynamics," he said, "the way in which China operates and how India and China relations play out."

The impact on Sri Lanka may be profound, as he argued the "Indian presence is influenced largely by the fact that they like to have some sort of influence over the neighboring countries and they also like to have some different ways of influencing them, not only economically but also politically."

"China doesn't have as much political interest in Sri Lanka as India," he added, "whose influences go to the extent of getting involving in a domestic conflict and introducing constitutional amendments to Sri Lanka."

Ultimately, however, Moramudali said Beijing's economic footprint would likely remain an important factor, especially considering Sri Lanka's outstanding debt restructuring needs and China's capacity for offering the sort of financing Sri Lanka desperately needs to meet its obligations.

"Sri Lanka is in a vulnerable position, and this vulnerability will continue for about a few years," Moramudali said. "And in Sri Lanka, India is certainly using this crisis — and they have done well thus far, it has been helpful to Sri Lanka, but it has also been helpful to India as well — to increase their footing to counter China."

"But it's very difficult for Sri Lanka to get out of this crisis only with India's help," he added. "China is actually equally important."