Chinese investments in Sri Lanka under the ‘Belt and Road Initiative’ (BRI) are a perfect example of how large investments can go wrong for a host country. They have converted Sri Lanka into a debt-ridden economy, saddled with a host of unviable projects and no political will in the country to take on the Chinese malevolence.



Sri Lanka is uniquely situated in an important strategic location, straddling the busiest trade route in the world, which handles 64% of global trade passing through the Indian Ocean. Emerging victorious from a brutal civil war with one the fiercest separatist organisation, Liberation Tigers of Tamil Elam (LTTE) in 2009, Sri Lanka was keen to resurrect its economy. China which had already provided the country with critical military equipment during the civil war, quickly moved in to offer economic assistance. Between 2005 and 2017, China provided Sri Lanka economic assistance worth $ 15 billion, which included a host of infrastructure projects such as a power plant in Moneragala district, airport in Mattala, construction of Colombo Port City Project (CPCP) and a new port in Hambantota. Financing for most of these projects came with typical characteristics of Chinese investment: high interest loans, Chinese contractors, Chinese labour and Chinese technology. As a result, China emerged as a top source of Sri Lanka’s imports with Chinese debt and equity funding more than 50 projects. In 2017, Chinese FDI to Sri Lanka was expected to total US $ 136 billion.

 

But just as all good things come to an end, Sri Lanka’s honeymoon with China too has shown signs of a bitter break-up. China’s commercial loans with high interest rates have caused a debt trap for the Sri Lankan economy. Its foreign debt rose from 36% of GDP in 2010 to 94% in 2017. Debt repayment is causing a great stress on its economy, with 83% of its revenues being spent on debt repayment- a quarter for foreign borrowings. Consequently, Sri Lanka recently had to resort to a US $ 1.5 billion International Monetary Fund (IMF) bailout. 

 

And certainly all this infrastructure development has come at a cost of national sovereignty and independence for Sri Lanka. This is most evident in the case of Hambantota Port - a flagship project of Chinese investments in Sri Lanka under the BRI, yet with almost no container traffic and no commercial success. Sri Lanka borrowed heavily for the construction of this project, but as the expected with the project failing to generate revenue , the country found it difficult to repay the loans. This ultimately forced Sri Lanka in December 2017 to restructure the debt. The trade off was leasing the Hambantota port for 99 years to China Merchants Port Holdings, in an ironic reminder of the 99 year lease of Hong Kong to Great Britain by China in 1898. And who knows better than China, the colonial contours of such a move! Yet the 99 years leasing business does not stop at Hambantota. In the Colombo Port City Project too, a large part is also subject to a 99-years old lease, held by the China Communication Construction Company.

 All this makes one wonder on China’s ulterior motives. Beijing may project all its investments as a grandiose intention to connect Asia with Europe, but the nature of these investments makes clear Beijing’s intentions to turn the host countries into debt economies, to make them amenable to an even more enlarged Chinese influence. Further, the economic unavailability of investments such as Hambantota in Sri Lanka or Gwadar in Pakistan suggests that these investments have an in-built military use component.

 

As expected, China has dismissed these assertions claiming that Hambantota port is part of Beijing’s pragmatic cooperation with Colombo for economic development and that it does not interfere in any country’s internal affairs. But these claims are dubious precisely because Beijing has previously tried to get closer to the ruling regimes, with an intention to bolster their standing in face of the domestic opposition to Chinese investments- the sort of thing that it did in the Maldives by backing the Abdulla Yameen regime. In any case, 99 years is a long period, and Chinese promise can change in this period.

 

The Sri Lankan government may now want to expedite its economic and infrastructure development, but it would be better if it pays attention to China’s role in Maldives’ political crisis, the resistance that Chinese investments have generated in Pakistan and the cautious attitude adopted by Bangladesh in accepting Chinese investments. In any case, domestic sentiment in Sri Lanka too has become hostile to Chinese money bags attitude, particularly as stories of Chinese nationals’ arrogance in dealing with the locals come out of Pakistan.