/ AFP / ARUN SANKAR (Photo credit should read ARUN SANKAR/AFP/Getty Images)
After claiming South China Sea to be its own sea, telling America to stay off its islands, China is reaching for the Indian Ocean, telling India to stay off its own colony, Sri Lanka.
That’s something investors in Southeast Asian markets should keep a wary eye on, as it opens yet another front between the two Asian giants, raising the geopolitical risk of investing in the region.
Markets, for the time being, seem to be ignoring these risks.
China’s And India’s Equities
Index/Fund
12-month Performance
5-year Performance
iShares India (INDY)
27.95%
16.56%
IShares China (FXI)
30.75
-5.59
Source: Finance.yahoo.com 2/10/17 
Sri Lanka’s colonization began back in 2007, when China supplied President Rajapaksaboth military and diplomatic support to crush the Tamil Tigers.Then came high profile construction projects and high interest loans that eventually were swapped for equity, transforming China into an owner of Sri Lanka’s major port— and a key outpost in the Indian Ocean for Beijing.
That’s bad news for India, which is becoming encircled by China.
“China’s growing involvement in sensitive ports so close to India’s shores fed New Delhi’s long-standing concerns about Chinese encirclement,” writes Jeff M. Smith in Foreign Affairs.
For its part, China has repeatedly asserted that it doesn’t plan to use the port for military purposes, this assertion coming as recently as last week.
But history proves otherwise. In the past three years, Chinese submarines  have begun suddenly and repeatedly showing up in the Chinese-operated South Container Terminal in the port of Colombo.
And that’s in spite of India’s high profile protests.
“For India, the sudden appearance of a Chinese submarine in Sri Lanka was too much to bear,” continues Smith.“Seventy percent of Colombo’s transshipment traffic comes from India, and New Delhi has long been concerned over China’s efforts to expand its presence in the island nation.”
When Indian Prime Minister Narendra Modi met Rajapaksa a few weeks later, he reminded him that Colombo ‘was obliged to inform its neighbors about such port calls under a maritime pact.’ But the same submarine surfaced again in November 2014, catching New Delhi by surprise once more.
Apparently, what China says it plans to do with its colony and what it actually intends to do are two different things. And India must either devise a plan to contain China or be prepared to put up with it.