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

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.

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.