Sri Lanka and China’s One Belt, One Road

On January 7th, China formally completed a special economic zone in southern Sri Lanka. This event reflects the development of economic relations between the two nations under the presidency of Maithripala Sirisena.

China’s first infrastructural investment in Sri Lanka commenced under former Sri Lankan President Mahinda Rajapaksa. According to The Diplomat, between 2005 and 2012, China provided Sri Lanka $4.8 billion. The majority of this was in the form of soft loans, allowing the  island nation flexibility with repayment dates and sub-market rates of interest. More recently, China committed $2.18 billion between 2012 and 2014 to develop Sri Lanka’s roads, airports, irrigation, and other vital infrastructure.

The most significant economic collaboration between the nations is the $1.4 billion Colombo Port City Project, a central part of China’s “One Belt, One Road” initiative. This project aims to create a modern day “Silk Road” across Asia. The port and industrial zone are a joint venture between the state-run China Merchants Port Holding Company and China Harbour Engineering Company. Sirisena’s administration granted the state owned company access to port holdings equal to an 80% stake in addition to a 99-year lease on the port.

The Rajapaksa presidency endured heavy criticism for weak transparency regarding deals with China. Resultantly, in March 2015, newly elected President Sirisena suspended the project. However, after considerable appraisal of the initial agreement the new government reinstated the project in March 2016.

Nonetheless, China’s growing influence in the country has faced extensive backlash.  The opening ceremony of the industrial zone ensued in a violent clash between police and protesters, many of whom were farmers fearing loss of agricultural land, leaving over 10 people hospitalized.  

At the forefront of the campaign against Sri Lanka’s latest deal with China is former president Mahinda Rajapaksa, who had initially negotiated a 40-year lease and a 6000-acre industrial zone. Despite his pivotal role in encouraging relations between the two nations, The Diplomat reported that Rajapaksa criticized the deal, saying that “a 99-year lease impinges on Sri Lanka’s sovereign rights because a foreign company will enjoy the rights of the landlord over the free port and the main harbour.”

Western nations have avoided investment in Sri Lanka due to its alleged human rights abuses during the 1983-2009 civil war , subsequently making China and India the primary providers of financial support for the nation. Nevertheless, a third of India’s $1.6 billion provided Sri Lanka with outright grants, whereas only 2% of the initial Chinese $4.8 billion was in the form of grants. As a result, Rajapaksa and his allies fear that the Sri Lankan government will default on paying back the loans, thereby allowing China to turn the debt into equity and thus giving them ownership rights over consequential projects.

Sri Lanka's national debt stands at around $64 billion, or 76% of GDP. Therefore, in spite of the reverberations, the significance of China’s investments with regards to job creation and their capacity to promote economic growth are undeniable.