查塔姆学会中国在斯里兰卡的投资与-一带一路-战略(英文).zip

Research Paper

Ganeshan Wignaraja, Dinusha Panditaratne, Pabasara Kannangara

and Divya Hundlani

Asia-Pacific Programme | March 2020

Chinese Investment

and the BRI in Sri Lanka

1 | Chatham House

Contents

Summary 2

About the Authors 35

Chinese Investment and the BRI in Sri Lanka

2 | Chatham House

Summary

• 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

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

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 security-

related 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.

Chinese Investment and the BRI in Sri Lanka

3 | Chatham House

1. Introduction

China’s Belt and Road Initiative (BRI) – the largest transcontinental infrastructure scheme in

the history of economic development – is having profound impacts on recipient countries. There is

growing media and policy interest in the experience of Sri Lanka because of its strategic geographical

location along East–West sea lanes, India’s security concerns regarding Chinese military presence in

the Hambantota port, and claims that Sri Lanka has fallen into a Chinese ‘debt trap’ due to commercial

financing of BRI projects. Yet there is an absence of research based on local primary sources

of information.

To fill this research gap, Chatham House commissioned a study of Chinese outbound investment

The study reports that the cumulative value of Chinese infrastructure investment to Sri Lanka

amounted to $12.1 billion between 2006 and July 2019. The crucial development challenge for

Sri Lanka is how best to maximize the benefits from Chinese infrastructure investments while

minimizing any potential costs to ensure net benefits across the project portfolio. Meanwhile, China’s

challenge is how to further its reputation as a responsible global economic partner. It has begun to

address this challenge through growing public diplomacy initiatives and nascent regulatory changes.

The Sri Lankan experience of Chinese infrastructure investment offers useful lessons for other

developing country recipients of Chinese investment. But as countries differ in their institutional and

policy conditions, insights from the Sri Lankan experience are also valuable to individual national

circumstances elsewhere in the developing world.

Chinese Investment and the BRI in Sri Lanka

4 | Chatham House

2. Economy

China’s first infrastructure investments in Sri Lanka took place in the 1970s in the form of

outright grants, which included the construction of a convention centre.

In the early 2000s,

grant-based relations were upgraded to a commercial model that utilized interest-bearing loans and

infrastructure-related foreign direct investment (FDI). As a result, the administration of President

Mahinda Rajapaksa (2005–15) initiated important transport, energy and telecommunications projects

with Chinese support – including the coal-fired Norocholai power station in 2006, the Hambantota

port in 2007, the Mattala International Airport in 2010, the Colombo International Container Terminal

China announced the BRI in 2013. In Sri Lanka, projects that could conceivably come under the

BRI umbrella began with the Colombo Port City development (located near the Colombo port, but

otherwise unrelated to it) in 2014, which was followed by several road and expressway projects, water

and sanitation projects, and further investments in existing projects such as the revised Hambantota

port deal in 2017.

For instance, the iconic Bandaranaike Memorial International Conference Hall (BMICH), inaugurated in Colombo in 1973, was a Chinese gift

to Sri Lanka emulating the design of the Great Hall of the People in Beijing. The two countries had enjoyed a warm relationship since Sri Lanka

recognized the People’s Republic of China (PRC) in January 1950 and supported China’s accession to the UN. These developments and the

historic barter trade deal – the Ceylon–PRC Rubber-Rice Pact of 1952 – led to China gifting the BMICH to Sri Lanka. See Asirwathan, G. (2018),