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Sino-Sri Lanka relations

Why a Chinese port operator is a key player in Indian cargo

PUBLISHED : Sunday, 08 November, 2015, 11:35pm
UPDATED : Sunday, 08 November, 2015, 11:50pm

A Chinese port operator in Sri Lanka has become a major conduit of Indian trade, despite the strategic tensions over China’s growing reach in the Indian Ocean.

A US$500 million investment by China Merchants Holdings International (CMHI) in Colombo’s first deepwater terminal that is part of China’s  “One Belt, One Road” strategy of trade integration now makes it possible for the port to attract ultra-large vessels. This is transforming Colombo into a hub for South Asia container traffic, especially the prized India market, where ports are ill-equipped for such cargo.

READ MORE: Chinese-built port terminal in Sri Lanka makes waves

Colombo steered the largest share, at 48 per cent, of India’s foreign transshipment volume in the latest fiscal year to March, according to Indian government statistics, followed by Singapore and Port Klang in Malaysia. Transshipment for India’s major public ports through Colombo has nearly doubled to 1.2 million 20-foot equivalent units (teu) from the previous fiscal year.

India has been worried about a Chinese presence in Sri Lanka, which, it feels, endangers its relatively less guarded southern flank. Its security concerns deepened after two Chinese submarines visited Colombo last year. Chinese firms are also barred by India from investing in its “strategic assets” such as ports, adding to the irony of China Merchants’ pivotal role in Indian cargo.

“Seventy per cent of the transshipment of Colombo is India traffic and our terminal has 32 per cent of Colombo’s market after being in operation for just over a year,” said Tissa Wickramasinghe, general manager, commercial and marketing, at Colombo International Container Terminals (CICT), which runs the deepwater South Terminal. CICT is 85 per cent owned by CMHI, with the rest held by the Sri Lanka Ports Authority.

South Terminal was commissioned by China-friendly former president Mahinda Rajapaksa. But it is a rare Chinese-invested infrastructure project not rubbished  by Rajapaksa’s successors as a graft-tainted white elephant.

READ MORE: Passive investor to partner in crime: How China lost the plot in Sri Lanka

Many Chinese projects have been put on review by the new unity government that took power after Rajapaksa’s ouster in January. A proposed real estate reclamation project called Colombo Port City right next to the South Terminal has, in particular, become a political hot potato between China and Sri Lanka since it was pulled in March.

CMHI’s handling of South Terminal, in contrast, has been praised by the new government, which has said the company’s sterling performance makes it a frontrunner for another deepwater terminal being planned.

The Indian envoy to Sri Lanka also recently indicated New Delhi’s interest in the planned terminal, asking Indian companies to “become stakeholders in Colombo port’s expansion” given the amount of Indian cargo that goes through it.  

Colombo and ports in Malaysia, Dubai and Singapore handle most of Indian transshipments. As Indian ports are mostly shallow and lack the infrastructure for large ships, they handle the boxes carried by feeder ships to and from these hubs, where bigger vessels call. Colombo’s new capacity to handle large ships allows it to tap the bulk of the India cargo as it is closest to the giant market. The nearest Indian port is just 175 nautical miles away.

“CICT is a blessing for Indian ports, many of which are congested and simply unable to handle the massive discharges from large ships. Many are also poorly connected to the hinterland. Besides, Indian ports are often subject to labour disruptions,” said Mark Szakonyi, maritime expert and an executive editor at the Journal of Commerce.

“By attracting bigger vessels, CICT is providing greater feeder vessel traffic to Indian ports, giving them more business.”

Sri Lanka is now trying to leverage Colombo port’s access to India to attract Chinese investment, which has cooled since the Port City saga.

In a recent interview with the South China Morning Post, Deputy Minister of Foreign Affairs Harsha de Silva said: “We enjoy a geographical advantage in the Indian market. If China wants to tap that market, Sri Lanka is the place to set up shop.”