Thursday, 18 February 2010

Port projects signal rise of China in South Asia

Expansion has growth rival India on tenterhooks

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Guanyu 道 said...

Port projects signal rise of China in South Asia

Expansion has growth rival India on tenterhooks

The New York Times in Hambantota, Sri Lanka
17 February 2010

For years, ships laden with oil, machinery, clothes and other cargo sped past the Sri Lankan fishing hamlet of Hambantota as part of the world’s brisk trade with China.

Now, China is investing millions to turn the town on the south coast of the island into a booming new port, furthering an ambitious trading strategy in South Asia that is reshaping the region and forcing India to rethink relations with its neighbours.

As trade in the region grows more lucrative, China has also been developing port facilities in Pakistan, Bangladesh and Myanmar, and it is planning to build railroad lines in Nepal.

These projects, analysts say, are part of a concerted effort by Chinese leaders and companies to open and expand markets for their goods and services in parts of Asia that have lagged behind the rest of the continent in trade and economic development.

But these initiatives are irking India, whose government worries that China is expanding its sphere of regional influence by surrounding India with a “string of pearls” that could eventually undermine India’s pre-eminence and potentially rise to an economic and security threat.

“There is a method in the madness in terms of where they are locating their ports and staging points,” Kanwal Sibal, a former Indian foreign secretary who is now a member of the government’s National Security Advisory Board, said of China. “This kind of effort is aimed at counterbalancing and undermining India’s natural influence in these areas.”

India and China, the world’s two fastest-growing economies, have a history of tense relations. But they also do an increasingly booming business with each other. China recently became India’s largest trading partner, and they have worked together to advance similar positions in global trade and climate change negotiations.

Chinese officials deny ulterior motives for their projects in South Asia. And Indian leaders have tried to play down talk of rivalry with China, saying there is enough room in the world for both economies to rise simultaneously.

As recently as the 1990s, China’s and India’s trade with Sri Lanka, Bangladesh, Nepal and Pakistan was roughly equal. But over the last decade, China has outpaced India in deepening ties.

For China, these countries provide both new markets and alternative routes to the Indian Ocean, which its ships now reach through the Strait of Malacca. India, for its part, needs to improve economic ties with its neighbours to broaden its growth and to help foster peace in the region.

Some of the shift in trade toward China comes from heightened tensions between India and Pakistan, which has hampered trade between the two countries. But China has also made inroads in nations that have been more friendly with India, including Sri Lanka, Bangladesh and Nepal.

Moreover, protectionist sentiments have marred India’s relationships with its neighbours. South Asia has a free-trade agreement, but countries that are part of the pact get few benefits, economists say, because India and its neighbours refuse to lower tariffs on many goods and services.

By contrast, the countries of Southeast Asia have minimal or no duties on most goods and services that they import from one another.

India has had some success in establishing closer ties with Sri Lanka, with which it has a strong bilateral trade agreement. But China has become a partner of choice for big projects like the Hambantota port.

China’s Export-Import Bank is financing 85 per cent of the cost of the US$1 billion project, and China Harbour Engineering, which is part of a state-owned company, is building it. Similar arrangements have been struck for an international airport being built nearby.

Guanyu 道 said...

Officials want to turn Hambantota, which was devastated by the 2004 tsunami and is the home constituency for President Mahinda Rajapaksa, into the second-largest urban area in the country after the capital, Colombo. (It is the ninth-biggest today.) The government is also building a convention centre, a government complex and a cricket stadium.

Sri Lanka needs foreign assistance to make those dreams a reality, because the government’s finances are stretched by a large debt it accumulated in paying for a 25-year civil war that ended in May. In 2009, the country borrowed US$2.6 billion from the International Monetary Fund.

Rajapaksa has said he offered the Hambantota port project first to India, but officials there turned it down.

Jaliya Wickramasuriya, Sri Lanka’s ambassador to the United States, said the country looked for investors in America and around the world, but China offered the best terms.

Still, Sri Lankan officials have refused to disclose information that would allow analysts to compare China’s proposals with those submitted by other bidders. The country has also kept private details about other projects that are being financed and built by China, including a power plant, an arts centre and a special economic zone.

The Sri Lankan Sunday Times, recently estimated that China was involved in projects totalling US$6 billion - more than any other country, including India and Japan, which have historically been big donors and investors in Sri Lanka.

Harsha de Silva, a prominent economist in Colombo and an adviser to the country’s main opposition party, said the Sri Lankan government appeared to prefer awarding projects to China because it did not impose “conditions for reform, transparency and competitive bidding” that would be part of contracts with countries like India and the United States or organisations like the World Bank.

Other analysts say China is winning big projects in Sri Lanka and elsewhere in the region because its companies offer lower costs.