In the afterglow of a cordial and highly productive visit by India’s charismatic Prime Minister Narendra Modi, Sri Lanka’s new leaders and international affairs experts need to focus attention on the evolving crisis with China on the controversial Colombo port city and other multi-billion dollar projects.

Last week, amid confusion and uncertainty, the Cabinet decided to suspend the highly explosive Colombo port city project until the hastily-signed agreement is renegotiated with China’s leaders. When President Maithripala Sirisena greeted Mr. Modi with a 19-gun salute outside the Presidential Secretariat in the Galle Face area last Friday, many analysts noted the temporarily abandoned port city project with its heavy machinery remaining idle.  This project funded by a Chinese government-backed company and other areas of Chinese influence or control in Sri Lanka is known to be causing concern in India.

But the bigger issue is the raging sea or the blazing fire that Sri Lanka has been dragged into largely because the former authoritarian Rajapaksa regime apparently took arbitrary decisions without consulting Parliament or top professionals here. Early this month, China reminded Sri Lanka to keep its promise to stay in touch and consult with it while the US$1.5 billion Colombo Port City project was being reviewed.

Chinese Foreign Ministry spokeswoman Hua Chunying said in Beijing on March 6 that China would closely follow developments. “The Sri Lankan side promised to keep in contact and consultation with China regarding follow-up arrangements,” Ms Hua told a regular media briefing. She said Sri Lanka should “properly resolve the issue in a way that helps Sri Lanka’s development and maintains the confidence of Chinese firms investing in Sri Lanka.” The signal or warning was obvious. If Sri Lanka does not honour the agreement fully there may be question marks over future investments from China.  Worse still if China complains to an international trade group such as the World Trade Organisation (WTO) which has sweeping mandatory powers, Sri Lanka may even face sanctions on investments or trade.

Significantly, China has sent to Colombo a new ambassador known to be an expert in international law relating to investments. The project involving reclamation of land from Colombo’s sea front, multi-year tax holidays granted through gazette notices and outright land leases to the Chinese company, has become a controversial undertaking for lack of transparency in the deal, inadequate information, as well as for its sheer scale and the luxury real estate including high-rise apartments, hotels, luxury marinas, malls, and golf facilities.

Sri Lankans are questioning the necessity for luxury, ocean-front real estate in a country where thousands of schoolchildren do not have toilets. A survey has shown that 1,300 primary and secondary schools in the country do not have proper sanitation.

Senior lawmakers have also expressed reservations publicly about the project and have alleged irregularities in the deal. Last Friday, former President Mahinda Rajapaksa hit out strongly at the new administration headed by President Sirisena and Prime Minister Ranil Wickremesinghe over its attitude and policy relating to the relationship and agreement with China. In an interview with the South China Morning Post, Hong Kong’s most prestigious English language daily newspaper, Mr. Rajapaksa rejected condemnation that he was China’s bosom pal and said he believed that Sri Lanka’s new government  should be beholden to Asia’s if not the world’s economic giant. In the interview from his home base of Tangalle, Mr. Rajapaksa said the Srisena-Wickremesinghe administration wanted to hold him responsible for alleged wrongdoings and thus the new government leaders were criticising China.

“They should be thankful to China for the help it extended; instead these people are treating China like a criminal” Mr. Rajapaksa claimed.

Countering Mr. Rajapaksa’s claims, Finance Minster Ravi Karunanayake told the same newspaper that the new Sri Lanka government’s scrutiny of Chinese companies over corrupt deals during the previous government’s rule should not be seen as an attempt to single out China for criticism. In the interview last Tuesday, Mr. Karunanayake appeared to draw a distinction between financing and investments from China and said Sri Lanka aimed to renegotiate the loans. Sri Lanka has said financing from China has been arranged at high interest rates. He said the government was not against China but against the Chinese companies manipulated by the Mahinda Rajapaksa regime into corrupt deals that were bleeding Sri Lanka dry.