Sri Lanka: The canary in the Belt and Road coal mine

1. A brief history of China’s investments in Sri Lanka

Yesterday, Sri Lanka’s Daily Mirror published an interview with Professor Rory Medcalf, head of the Australian National University’s National Security College, in which he explains why Sri Lanka is of vital interest to anyone following China’s rise and the rollout of the Belt and Road project:

I think Sri Lanka is strategically important. This is in part because the major economies that all of us depend on in Asia — China, India, Japan and South Korea — in turn rely on the sea-lanes in the Indian Ocean. Sri Lanka is a central point in these sea-lanes. It is a vital place for ships to stop. Sri Lanka also has potentially excellent visibility over what is happening in this region, in terms of maritime traffic. Secondly, Sri Lanka has become terrain for strategic competition as we see the rise of China and the expansion of China’s interests and its presence into the Indian Ocean.

But what exactly is China doing in Sri Lanka? And what are the consequences for Sri Lanka? It’s complicated. Here is a brief history of recent events, ending with a new item from today to bring the story up to date:

• In June 2007, Sri Lanka’s Sunday Times reported that at the port of Hambantota, the China Harbour Engineering Company was building breakwaters “to enable this fishery harbor to be used throughout the year.” The project was worth $2.1 million (Rs334 million) and was financed with a loan from the Exim Bank of China.
• By 2008, the project had expanded greatly: The Sunday Times said that the port construction site had expanded to “more than 1,000 hectares,” with financing up to US$360 million, of which 85 percent was as a loan from China’s Exim Bank.
• At around this time, the term “China’s String of Pearls” began frequently popping up in media reports to refer to an alleged Chinese strategy of building a network of naval bases around the Indian Ocean. The term has been used in academic literature and in Indian newspapers since at least 1999.
• In 2009, Sri Lanka’s 25-year-long civil war ended after the national army defeated the Tamil Tigers. By December 2009, China had “bagged the largest chunk of post-war development projects in Sri Lanka’s North and South with ongoing and projects concluded estimated at more than US$ 6.1 billion,” according to the Sunday Times.
• In 2010, Sri Lankans began to complain about the China deals in the media. The Sunday Leader editorialized: “The Sri Lankan people get little or no benefit from the large amount of monies spent on the projects. The money lent from China is going back into the pockets of Chinese construction firms and workers, completely bypassing Sri Lankans and minimizing any trickle down and/or multiple effects which could have stimulated the local economy.”
• But in the same year, “Sri Lanka gains from Indo-Chinese supremacy battle” was how the BBC saw the benefits to the island nation of an investment rivalry between China and India, while the New York Times said (paywall) that China’s investments in Sri Lankan and other South Asian ports was “irking India” and forcing it “to rethink relations with its neighbors.”
• “The White Elephant In Hambantota” is how Sri Lanka’s Sunday Leader, a consistent opponent of Chinese deals, characterized the Beijing-led port development in 2011. In the same year, the main opposition United National Party (UNP) complained after rock on the seabed delayed the development of the port. In December 2011, the UNP said that the government had continuously misled people over the Hambantota Port’s maximum depth. The UNP complained that it was 17 meters, not deep enough for unloading larger cargo vessels.
• In June 2012, the Hambantota port opened for business. Agence France-Presse reported: “Sri Lanka’s first Chinese-built port, a strong symbol of Beijing’s investment in South Asia, opened for international shipping yesterday with the handling of 1,000 cars from India.”
• “News that Sri Lanka had granted Chinese state-owned companies operating rights to four berths at the Hambantota Port once they are completed next year has caught the shipping industry unawares,” reported Sri Lanka’s Sunday Times in October 2014. The report notes that the government had essentially handed over control of the port to Chinese entities without any consultation with the Sri Lankan public.
• Promising to scrutinize Chinese activities in Sri Lanka, and pursue better relations with India, opposition leader Maithripala Sirisena won the 2015 Sri Lankan presidential elections. The Washington Post asked if his new government could really break free from China.
• It soon became clear that Sri Lanka could not break free from China as the government worked to finalize a 99-year lease of the Hambantota Port to a Chinese company, China Merchants Port Holdings.
• In January 2017, “hundreds of Sri Lankans clashed with police” at the opening of an industrial zone at the port, according to Reuters, which said it “was the first time opposition to Chinese investments in Sri Lanka turned violent.” Interestingly, the man leading the protests was the former president Mahinda Rajapaksa, who had first encouraged Chinese investment in Sri Lanka during his time in office, from 2005 to 2015.
• After the protests, Sri Lanka negotiated with China Merchants Port Holdings to “cut its stake in a strategic port project by up to a quarter.” However, China’s stake remained a majority, leading Sri Lankan opposition politicians to characterize the plan as wanting “to give permanently the Hambantota Port” to China.
• In July 2017, the Sri Lankan government approved a new $1.5 billion deal for commercial operations at a Chinese-built shipping port in the southern city of Hambantota, Reuters reported. The new deal “sought to limit China’s role to running commercial operations at the port,” while leaving Sri Lanka in charge of “broader security.”
• In December 2017, Reuters reported that Sri Lanka’s parliament last week approved a  deal that leases the Hambantota Port to China Merchants Port Holdings for 99 years and offers tax concessions for up to 32 years. The deal was now valued at $1.1 billion.
• “Debt-trap diplomacy” was how Indian author and commentator Brahma Chellaney characterized the news on Twitter. He explained, “In a reminder of how Chinese loans are collateralized by strategically important physical assets, Sri Lanka today formally handed over the Hambantota port to China on a 99-year lease because it is simply not in a position to repay its onerous debt to Beijing.” If you prefer an article to a tweet, here is Chellaney’s article on the same subject, titled “China’s creditor imperialism.”
• But China continues to invest. In January this year, Reuters reported that a consortium led by state-run China Harbour Engineering Company Ltd had signed a deal to invest $1 billion “to build three 60-storey office towers on reclaimed land of the Port City development in Sri Lanka’s capital.” You can see artist renderings of the planned flashy development here.

That brings us to today: Reuters reports (via Sri Lanka’s Daily Mirror) that “talks between China and Sri Lanka for a free trade agreement have hit major hurdles, mainly because Beijing doesn’t agree to Colombo’s demand for a review of the deal after 10 years.” Reuters says that concerns about Beijing-led investments have recently prompted “greater scrutiny of deals with China.”

Also today: Press Trust of India reports:  “Amid the global concern over China’s ‘debt trap diplomacy’, a bipartisan group of influential US lawmakers has visited Sri Lanka to gauge the ground-level situation.”

2. Will Liu Xia ever be free?

Liao Yiwu 廖亦武, a Chinese writer and dissident exiled in Germany, is a close friend of Liu Xia’s 刘霞, the widow of the Nobel Peace Prize-winning Liu Xiaobo 刘晓波, who died in state captivity on July 13 last year.

Today, Liao published on China Change an audio excerpt of a recent phone call he had with Liu, whose effective house arrest has now stretched to nearly eight years, since her late husband first received the recognition from Norway that so upset Beijing. She has never been charged with a crime.

• “Loving Liu Xiaobo is a crime, for which I’ve received a life sentence,” Liu cried out during the phone call. “They’re going to keep me here to serve out Xiaobo’s sentence,” she continued.
• Police have reportedly promised Liu that in July, after the politically sensitive month of June — particularly for the remembrance of a June 4, 1989, protest leader like Liu Xiaobo — and after the first-year anniversary of her husband’s death, she would finally be free to leave the country.
• “I’ve lost count of how many times this promise has been made,” Liao writes in a letter accompanying the recording. He explains, “In early April this year, in response to numerous apparently optimistic signals, Liu Xia packed, and packed again, getting ready to travel — but her dreams dimmed and went dark. The Chinese official who had made promises to her had disappeared, and in despair Liu Xia declared that she would ‘use death to defy.’”

Meanwhile, while the Chinese Communist Party goes to extreme lengths to snuff out the memory of one of its most prominent dissidents, Taiwan plans to commemorate him on the anniversary of his death with a sculpture in the heart of Taipei, right by the city’s iconic Taipei 101 skyscraper. The New York Times notes (paywall) that the Taipei 101 plaza, of course, is “one of the most popular areas in the city for Chinese tourists to visit and take photographs.” The South China Morning Post reports that a group of activists in Hong Kong has already erected a statue commemorating Liu Xiaobo, in advance of that city’s annual candlelight vigil to remember the 1989 Tiananmen crackdown.

—Lucas Niewenhuis

—–

Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact me anytime at jeremy@thechinaproject.com.

—Jeremy Goldkorn, Editor-in-Chief

Here are the stories that caught our eye this week:

• The trade war drumbeat resumed, as the U.S. threatened a 25 percent tariff on $50 billion in goods to be announced on June 15. The statement last week by U.S. Treasury Secretary Steve Mnuchin, in which he said the trade war was “on hold,” was slammed as an “unfortunate soundbite” by trade advisor Peter “Death by China” Navarro in an NPR interview this week.
• The Trump administration proposed visa restrictions on Chinese students in the U.S. as part of the broader fight over intellectual property theft. This led to highly polarized reactions: We recommend a Twitter thread by Wall Street Journal reporter Te-Ping Chen and a piece in MacroPolo for context and analysis.
• Google continued to make moves in China, this week partnering with Tencent, Huawei, Xiaomi, and Baidu to distribute a file-organizing app called Files Go (文件极客 wénjiàn jíkè; literally “file geek”). Meanwhile, Google Translate has become a top reference app in the Chinese App Store, surpassing even Baidu Translate.
• Biotech, industrial agriculture, and batteries are three areas where Chinese companies are making big moves toward becoming market leaders. We highlighted news from each industry this week.
• South China Sea waters became even choppier than usual, as Philippine president Rodrigo Duterte threatened military action if China crossed a “red line” by claiming contested natural resources, and the usually mild-mannered U.S. Defense Secretary Jim Mattis called out China’s island developments as “out of step with international law.”
• A Greenpeace analysis showed China’s carbon emissions accelerating, putting the country on track to make 2018 potentially its most polluting year since 2011.

• Behemoth Chinese tech companies
  China has 9 of the world’s 20 biggest tech companies / MarketWatch
  Another highlight taken from the annual report from Mary Meeker, one of the most respected analysts of the internet. The world’s biggest five tech companies by market valuation are Apple, Amazon, Microsoft, Alphabet (Google), and Facebook. But Alibaba is number six and Tencent ranks seventh. The other Chinese companies in the top 20 are Ant Financial (9), Baidu (13), Xiaomi (14), Didi Chuxing (16), JD.com (17), Meituan Dianping (19), and Bytedance/Toutiao (20).
  More from Meeker’s report:
  The trends driving Chinese tech: Highlights from Mary Meeker’s 2018 internet trends report / TechNode
  A Bloomberg article on another theme from Meeker’s presentation: “a sharp uptick in time spent watching short-form videos — those under five minutes — seemingly at the expense of long-form and well ahead of live and game stream.”
• Chinese student visas in the U.S.
  Who loses from restricting Chinese student visas? / MacroPolo
  “Rubio’s reaction reflected a highly politicized DC climate, while Guarjado’s take channeled the Silicon Valley orthodoxy that openness is always better for innovation. Neither of these is quite on the mark.”
  See also: Some quick notes on news re: Tightened U.S. visas for Chinese students on Twitter by Wall Street Journal correspondent Te-Ping Chen.
• Beijing continues to put the squeeze on Taiwan
  Beijing is upping the pressure on Taiwan: ‘Expectation of reunification is certainly increasing’ / CNBC
  Taiwan to loan Haiti US$150 million for infrastructure projects amid Beijing onslaught / SCMP
  China angles for Swaziland to ditch Taiwan before major African summit / Reuters
• Gung ho in the South China Sea
  Pentagon official says U.S. can ‘take down’ man-made islands like those in the South China Sea / TIME
  “‘I would just tell you that the United States military has had a lot of experience in the Western Pacific, taking down small islands,’ Marine Corps Lt. Gen. Kenneth McKenzie said in response to a reporter asking about whether the U.S. has the ability to ‘blow apart’ China’s controversial man-made islands.”
  He added, “We have a lot of experience, in the Second World War, taking down small islands that are isolated… That’s a core competency of the U.S. military that we’ve done before. You shouldn’t read anything more into that than a simple statement of historical fact.”
• Civil rights in Hong Kong
  Hong Kong court overturns ruling granting spousal benefits to husband of gay civil servant / Hong Kong Free Press
  “Court of Appeal Chief Judge Andrew Cheung said Friday that Hong Kong’s de facto constitution favours heterosexual marriage and therefore it is not discriminatory for gay people to be excluded from marrying.”
• Be careful what you do with your old phone
  Secondhand mobile phone user data is being sold in China for as little as RMB 10 / TechNode
  “Secondhand mobile phones have become a target for illicit data brokers, who recover deleted user data and sell it on the black market for as little as RMB 10 ($1.56). Even phones that have been formatted to prevent incidents like this are not immune to exploitation.”
• International Children’s Day
  Wǒ Men podcast: Children’s Day Special / Radii China
  “What’s your fondest childhood memory? What was your favorite entertainment as a kid? Do you still remember your first toy? If you ask these questions to Chinese kids born in the 1980s, ’90s or 2000s, you will receive very different responses.”
  How millennials hijacked Children’s Day in China / Sixth Tone
  “Zhou, a 22-year-old college student waiting at KFC, told Sixth Tone that she and her friends often celebrated Children’s Day by ordering kids’ meals at restaurants.” Then, unsurprisingly, some KFCs ran out of kids’ meals.
• Camp culture in the P.R.C.
  Meet China’s latest unlikely gay icon / Sixth Tone
  “Shaped largely by its neighbors, Japan and South Korea, China’s idol culture is dominated by pretty, fresh-faced ingenues. But Wang swaggered in with a distinctive fashion sense and heavy makeup reminiscent of divas in Western countries — which has led to fans calling her ‘Juyonce,’ ‘Juhanna,’ and ‘Nicki Minaju’ after other gutsy songstresses with huge LGBTQ followings.”
• Chinese bike companies abroad
  Bike theft puts the brakes on China’s Mobike in Mexico City / CNBC
  “Now it has run into a problem increasingly plaguing the country: street crime. Theft has been so widespread that in the past few days, dozens of the app’s customers have complained on social media about the lack of available bicycles.”
  From The China Project’s coverage last year: Bike sharing done right: A real Chinese innovation and Has China reached peak bike sharing, or will the cycle continue?
• Southeast Asian leaders dancing awkwardly with Beijing
  Anwar backs Mahathir’s review of Chinese deals – but not to annoy Beijing / SCMP
  “Malaysia’s reformist icon Anwar Ibrahim has lent his support to Prime Minister Mahathir Mohamad’s post-election drive to scrutinize Chinese investment deals signed during the era of scandal-tainted ex-leader Najib Razak. But like Mahathir, his mentor-turned-rival-turned-ally, Anwar maintains that the effort is solely aimed at weeding out substandard deals signed by Najib’s government and is not meant to antagonise Beijing.”
• Trade war twists
  Trump has officially put more tariffs on US allies than on China / Washington Post
  “President Trump campaigned on going hard after China for ripping off the United States on trade…. Yet a year and a half into his presidency, Trump has put more tariffs on longtime U.S. allies than he has on China, his supposed ‘bad guy’ on trade.”
  China’s huge online retail market opens up to American Express / Seeking Alpha
  “In April, the New York financial services company best known for its credit cards and travel-related services, succeeded after many years of effort to become the first U.S. card network to receive permission to offer services in China. The People’s Bank of China said American Express would be allowed to clear and settle domestic bank card transactions.”
  Japan wants to work with the US to stop China’s ‘market-distorting’ practices / CNBC
• MSCI Emerging Markets Index
  Chinese stocks make symbolic debut on widely followed index / CNBC
  “Close to 230 China A shares debuted on index provider MSCI’s emerging markets benchmark on Friday, a move investors expect will attract billions of dollars in inflows to the mainland market.”
  Chinese stock addition to indexes will ‘change the face’ of emerging markets investing on Thursday / CNBC
  Read more on The China Project: Money to follow MSCI into Chinese stock markets.
  Earlier this week, Reuters reported: MSCI drops ZTE, four other companies from MSCI China A Inclusion Index.
• Censorship
  Comedian’s jokes trigger probe of popular Chinese app / WSJ (paywall)
  “China’s hugely popular Jinri Toutiao news and content aggregation platform has come under investigation for allegedly slandering a Chinese war hero in violation of the country’s new ‘Heroes and Martyrs Protection Law.’ The content, which has since been taken down, featured a famous satirical comic known as Baozou Comic portraying Dong Cunrui, a Communist soldier who blew himself up during the Chinese Civil War to destroy a Kuomintang bunker.”
  We noted the initial censorship of Baozou Comic in the Access email on May 18.
• Travel frog mobile game to become theme park
  Camsing to build ‘Travel Frog’ theme park in China / Variety
  “Camsing International, the Hong Kong company that is currently sparring with Stan Lee, has licensed the rights to build a mainland China theme park based on the free-to-play mobile ‘Travel Frog’ game.” Here is some background on the Japanese mobile game also known as Journey Frog or 旅かえる (Tabikaeru).
• Chinese student deported after sexual assault of six-year-old girl
  Chinese exchange student convicted of sexually assaulting 6-year-old girl is deported from U.S. on plea deal / AP via SCMP
  “Yulong Li, 17, had ‘forcible sexual contact’ with the girl, who was a member of his host family, police said. He left for China immediately following his sentencing on Thursday.” There does not seem to have been any Chinese-language reporting on the case yet.

VIDEO OF THE DAY

Viral on Weibo: ‘Flying’ wedding veils become new fad

In videos that have gone viral, a bride stands in the middle of an aisle while her veil is “flown” toward her before it gently drops on her head.

ON SUPCHINA

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Sinica Podcast: Janet Yang — a Chinese-American woman in a Harvey Weinstein world

Janet Yang produced The Joy Luck Club, The People vs. Larry Flynt, and many other films, and is a key player in the evolving relationship between Hollywood and China. In this episode, Janet talks to Jeremy and Kaiser about Chinese film, her experiences as an Asian-American woman in Hollywood, and her current projects.

• Subscribe to the Sinica Podcast via Apple Podcasts, Overcast, or Stitcher, or plug the RSS feed into your favorite podcast app.

China Sports Column: Ping pong champ wants his eight-year-old daughter to be a gold pro

Chinese state media has tried to elevate sprinter Su Bingtian in a desperate attempt to find a marketable sports star. Meanwhile, former world and Olympic table tennis champion Liu Guoliang is trying to turn his eight-year-old daughter into a golfing champion…and other news from the China sports world.

The China Project Quiz: Mao’s China, 1949–1976

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TechBuzz China: Live Streaming in China: How to Win Fans and Influence Losers

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• Subscribe to TechBuzz China on Apple Podcasts, Overcast, or Stitcher, or click here for the RSS feed.

Vocational school in Hunan tells students to ‘say no to homosexuality’

May 17 was International Day Against Homophobia, Transphobia, and Biphobia. In China, groups of college and high school students organized a series of activities to raise awareness of LGBT rights violations. Their message apparently did not reach the Xiangtan Technical Secondary School of Industry and Commerce in Hunan province.

China Unsolved: The Black Dahlia of Nanjing

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Democracy-bashing Chinese writer enrolls her kid at American school

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Why did ‘Solo: A Star Wars Story’ flop at the Chinese box office?

Solo: A Star Wars Story was a domestic box office flop, and it hasn’t done much better in the world’s second-largest film market. Last weekend, the Han Solo spin-off grossed only $9.6 million in China, putting it on pace to earn $19 million total, which would be the franchise’s lowest-performing installment in China yet.

Why did Tencent just invest in a self-media account with a history of ‘article laundering’?

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The Caixin-Sinica Business Brief, episode 49

This week on the Business Brief: Sina’s plan to launch a secondary listing in Hong Kong, Tesla’s tentative approval from the Shanghai government to manufacture cars in the city, controversial proposals to ban the online sale of prescription medicines, a man who was wrongfully imprisoned for 25 years and is seeking compensation, and more.

• Subscribe to the Business Brief on Apple Podcasts, Overcast, or Stitcher.

Video:

• A French band staged a musical performance on slacklines across a 1,400-meter-high cliff in Zhangjiajie, Hunan Province.
• Some fearless bungee jump enthusiasts leaped from the world’s highest platform — 260 meters above the ground — in Zhangjiajie, Hunan Province, on May 26.
• A 50-meter-tall vertical parking lot in Taiyuan, Shanxi Province, grabbed attention online in China.

PHOTO FROM MICHAEL YAMASHITA

Singing sand dunes

Tourists explore the Singing Sand Dunes on camels at sunset in the Gobi Desert at Dunhuang, Gansu Province. When a breeze blows over the dunes, the movement of the sand produces a sound akin to singing.

—Jia Guo