Chinese Investment and the BRI in Sri Lanka
China’s Belt and Road Initiative (BRI) is having profound impacts on recipient countries. This paper examines the benefits and costs of the BRI and its projects to Sri Lanka and the lessons that may improve future BRI projects in Sri Lanka and elsewhere.
Workers unload cargo from the first vessel to enter the newly built Chinese-funded port in Hambantota, 18 November 2010. Photo: Ishara S. Kodikara/AFP/Getty Images
- China’s expansive Belt and Road Initiative (BRI) has led to greater Chinese outbound investment in Asia, including in Sri Lanka. This investment has recently come under scrutiny, due to intensifying geopolitical rivalries in the Indian Ocean as well as Sri Lanka’s prime location and ports in the region.
- There are claims that by accepting Chinese outbound investment, Sri Lanka risks being stuck in a ‘debt trap’ and the displacement of its local workers by both legal and illegal Chinese labour. There are also concerns that Chinese investment has led to environmental damage and increased security risks for Sri Lanka and the neighbourhood. Furthermore, there is criticism that institutional weaknesses in Sri Lanka, including a lack of policy planning and transparency, are resulting in nonperforming infrastructure projects funded by Chinese investment.
- The pattern of Chinese investment in Sri Lanka reveals a nuanced picture of benefits and costs. Similarly, it shows that a matrix of Sri Lankan, Chinese and multilateral policies are required to maximize the benefits and minimize any risks of Chinese investment. Sri Lanka is not in a Chinese debt trap. Its debt to China amounts to about 6 per cent of its GDP. However, Sri Lanka’s generally high debt levels show the country needs to improve its debt management systems. This step would also reduce any risk of a Chinese debt trap in the future.
- Specific projects have contributed positively to Sri Lanka’s economy. Some have brought greater benefits than others, such as the Colombo International Container Terminal (CICT), which has allowed the Colombo port to grow at a rapid pace. However, imports from China for projects in Sri Lanka have widened the trade deficit between the two countries. In addition, there have been only limited economic spillovers for Sri Lanka, including knowledge transfer in the local labour force.
- The number of Chinese workers in Sri Lanka is rising but remains a very small percentage of the total labour force. While illegal migration is a concern, there are significantly fewer illegal residents from China than from neighbouring countries. Sri Lanka has relatively strong rules on outward migration but can better regulate inward migration based on labour market demands and economic priorities.
- The environmental implications of Chinese investment projects in Sri Lanka are mixed. While earlier projects were more harmful, recent projects such as the CICT and Port City in Colombo have adapted to stricter environmental standards. To ensure consistently high environmental standards, Sri Lanka should strengthen its domestic regulations and seek more investments from green-friendly partners.
- Concerns that China will use ports and other projects for military purposes are, in part, driven by geopolitical anxieties. In response, Sri Lanka has strengthened its naval presence at the Hambantota port. Continual oversight by technical experts is required to guard against securityrelated concerns and ensure public trust in the projects. Such trust will also grow by improving transparency and by pursuing a long-term, national infrastructure development plan.
Latest News from
International Donors Can End Lebanon's Corruption12/08/2020 12:20:00
Change must come from within Lebanon, but Emmanuel Macron and others can help by ending their patronage of a disastrous regime.
Why the Corrupt President of Belarus Deserves Sanctions11/08/2020 15:10:00
Sanctions would be a wake-up call for those who oversaw this brutal and dirty election campaign.
COVID-19 Teaches Resilience and the ‘Vulnerability Paradox’10/08/2020 15:10:00
Humility from decision-makers, building trust in leaders and institutions, and learning from international experience are critical if countries are to better prepare for the next global crisis.
Elections in Côte d’Ivoire: President Ouattara’s Dilemma30/07/2020 09:20:00
After the sudden death of Côte d’Ivoire’s Prime Minister Amadou Gon Coulibaly, President Ouattara is now deciding whether to stand for a third term. However, such a move would face challenges internationally, and particularly in West Africa.
Russia’s Behaviour Risks Weaponizing Outer Space28/07/2020 14:20:00
With negotiations in Vienna between the US and Russia hoping to prevent the weaponization of space, how much do Russia’s satellites pose a threat to the peaceful use of outer space, ask Beyza Unal and Mathieu Boulègue?
The UK’s Huawei Decision: Why the West is Losing the Tech Race21/07/2020 12:20:00
On 5G and the technological race, the answer is a visionary rather than a reactive approach and, so far, the West has opted for the latter.
EU Budget Battle Could Undermine its International Ambitions20/07/2020 15:48:00
EU’s heated budget negotiations risk producing a compromise at the expense of its longer-term international agenda.
Emerging Economies: Where is the Debt Problem?20/07/2020 09:20:00
Just two months ago it appeared self-evident that emerging economies faced a devastating inability to service their foreign debt, mostly denominated in dollars. That has turned out to be wrong, for now at least.