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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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The Latest Battlefield In Asia’s Energy War

Last week, Chinese President Xi Jinping reportedly offered Sri Lanka a new grant of 2 billion yuan ($295 million). According to media reports, Sri Lankan President Maithripala Sirisena made the announcement on Saturday at a ceremony marking the construction of a Chinese-funded hospital.

China offering cash loans and other incentives to Sri Lanka isn’t anything new, but this grant comes with the provision that it can be used for whatever project Sri Lanka wants.

“When the Chinese ambassador visited my house to fix the date for this ceremony, he said that Chinese President Xi Jinping sent me another gift,” Sirisena said.

“He has gifted 2 billion yuan to be utilized for any project of my wish. I’m going to hand over a proposal to the Chinese ambassador to build houses in all the electorates in the country,” he added.

Latest drop in the bucket

China’s near-quarter of a billion dollar grant is the latest in a long line that Beijing has bestowed upon the 22 million person island nation.

In May, Sri Lanka approved a $500 million liquefied natural gas (LNG) plant by China Machinery Engineering Corp. near a Chinese-controlled port and industrial zone, the development strategies minister said at the time. The port deal, worth some $1.2 billion, in Hambantota comes with a 99-year lease. It’s also near the main shipping route from Asia to Europe and will likely play a major role in China’s push to gain more access for its navy and maritime fleet.

China has also invested in an international airport and a proposed economic zone in Sri Lanka. These investments are part of China’s ambitious One Belt, One Road (OBOR) initiative, launched by Chinese President Xi Jinping in 2013. Related: Iranian President Threatens U.S. With “Mother Of All Wars”

China’s OBOR began as a plan for infrastructure projects intended to boost trade along two already determined routes, the first one following the ancient Silk Road stretching from China to Central Asia and the Middle East and Europe. The second route links China to southeast Asia, Oceana and Africa by sea through several contiguous bodies of water - the South China Sea, South Pacific Ocean and the Indian Ocean.

“With $900bn of planned investment ranging from ports in Pakistan and Sri Lanka to high-speed railways in east Africa to gas pipelines crossing central Asia, China’s OBOR is arguably the largest overseas investment drive ever launched by a single country,” the London-based Financial Times said last year.

While China still insists that its investments in Sri Lank have no ulterior motives, regional rivals India and Japan think otherwise and see Beijing’s moves as a power play to assert more influence in the increasingly competitive Indian Ocean.

A Brookings Institute report in April said that the primary driver of Indo-Japan ties is the shared concern about the implications of China’s rise. “Tokyo has become an indispensable partner in the region’s security architecture as per New Delhi’s calculations. The confluence of these two strategies shows great promise,” the report said.

Japan and India have already tried to counter China's moves within Sri Lanka by offering their own LNG import terminal plans, in essence setting up shop within mere kilometers of China’s already established infrastructure projects. Related: Rosneft Sees Oil At $80 By Christmas

LNG as a geopolitical tool

In February, Petronet, India’s largest gas importer and Japanese investment partners announced it would invest $300 million for Sri Lanka’s first gas terminal near Colombo. The consortium will build a 2.6-2.7 million tonnes per annum (MTPA) floating LNG receipt facility off the island's western coast, bigger than the previously envisaged 1.5-2 million tonnes a year facility. Petronet will hold a 47.5 percent stake in the project, while Japan's Mitsubishi and Sojitz Corp. will hold a combined 37.5 percent stake. The remaining 15 percent share will be held by a Sri Lankan company.

Though Beijing continually claims that its massive initiative is purely economic, a growing number of critics, particularly within the U.S., Australia and others, argue that the country has less than stellar motives: to encroach on, and eventually supplant U.S. global hegemony, both economically and in time militarily as China develops its blue-water navy to protect its overseas assets and its trading routes.

At the least, the OBOR initiative is a text-book example of mercantilism at its finest and will give Chinese companies, particularly state-owned enterprises, a growing global market and a likely advantage for their products and services.

Sri Lanka for its part, is delighted to have three Asian power-houses jockey for position within its borders and seems to be playing these interests off against each other for its own economic and geopolitical advantage - a strategy, that could backfire, given Sri Lanka’s growing indebtedness to Beijing.

By Tim Daiss for Oilprice.com

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  • IG on July 25 2018 said:
    2 for the price of 1 in Columbo for Sri Lanka and China - more LNG through the road, more development for Sri Lanka.

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