Even before President Anura Kumara Dissanayake concluded his official visit to China, the BBC published a critical report revisiting past comments made by the President about Chinese investments and loans in Sri Lanka. The report highlights prior statements without modification, painting a contentious picture of Sri Lanka-China relations.
The article critically examines the historical context of Chinese loans and projects in Sri Lanka, many of which have been the subject of public and political debate. Below is the content of the full article as published by the BBC.
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Two major countries sent congratulatory messages immediately after the new President of Sri Lanka was sworn in.
One of them is our neighbor India, and the other is China, which holds more than 50% of our external debt.
When Sri Lanka obtained the Extended Fund Facility from the International Monetary Fund in 2023, Sri Lanka’s external debt was US$46.9 billion, of which China held 52%.
After Sri Lanka defaulted, negotiations were held with creditors to restructure its external debt, and China agreed to the debt restructuring only after a considerable period of time compared to other creditors.
Against this backdrop, President Anura Kumara Dissanayake, who assumed office as the new President in September 2024, is currently on an official visit to China for the sake of Sri Lanka-China diplomatic relations.
China has invested in a large number of large-scale projects in Sri Lanka, and projects have spread throughout the country.
These Chinese projects have been the subject of much discussion in the past.
This is an investigation conducted by BBC Sinhala in this regard.
- History of China-Sri Lanka Economic Relations
Sri Lanka has had state-level relations with China since ancient times.
A unique landmark in the relations between Sri Lanka and the People’s Republic of China in the recent past is the Rubber-Rice Agreement reached in 1952 through the mediation of the two countries.
In that case, rubber was sent from Sri Lanka to China and rice was obtained from China.
Diplomatic relations between China and Sri Lanka were established in 1957.
Chinese assistance for Sri Lanka’s economic development began in the early 1970s.
Chinese aid and loans that began then now account for the majority of Sri Lanka’s debt.
- What are the sectors in which Chinese loans have been used?
The projects implemented with Chinese loans can be mainly divided into 5 sectors.
Highways and Transportation
Electricity and Energy
Ports
Irrigation and Water Supply
Airports
- Special Projects and Recent Protests
As a result of the long-standing relations between the Sri Lankan government and China, the country has received Chinese aid on many occasions since the Bandaranaike administration.
Among them, the Bandaranaike Memorial International Conference Hall (BMICH), the Supreme Court Complex, the 9-storey building of the Lady Ridgeway Children’s Hospital, the Bandaranaike International Study Centre, the Outpatient Department of the Colombo National Hospital, etc. are notable.
Meanwhile, China also received assistance for the modernization of Sri Lanka’s railway system.
While there was no significant opposition in the country regarding these projects, there was opposition from the opposition as well as the public towards many projects carried out with loans from China, especially during the Mahinda Rajapaksa regime.
Among these projects, the Southern Expressway, the Colombo Port City, the Hambantota Dockyard, the Nelum Pokuna Theatre, the Nelum Tower, and the Hambantota Port were hotly debated.
The then opposition Janatha Vimukthi Peramuna (JVP) strongly criticized the various issues such as illegal transactions and financial irregularities that occurred through these projects.
19 petitions were filed in the Supreme Court challenging the Colombo Port City Economic Commission Bill, and the current Trade Minister Wasantha Samarasinghe, who represented the JVP, had also filed a petition.
Overall, many projects have been implemented or are being implemented across Sri Lanka with Chinese loans or aid.
- China’s global activities
According to the latest evidence, China distributes at least twice as much money for development activities around the world as the United States and other powerful countries.
Most of it has been provided as loans from Chinese state-owned banks at high interest rates.
Although China was once dependent on foreign aid, now everything has been turned upside down.
China has financed or lent $843 billion worth of infrastructure projects in 165 countries over an 18-year period, according to data from the AidData Research Lab at the University of William and Mary in Virginia, USA.
Meanwhile, some analysts have also expressed suspicion that China’s ‘One Belt, One Road’ initiative is an attempt to trap countries including Sri Lanka in a “debt trap”.
- ‘One Belt, One Road’
Since coming to power in 2012, President Xi Jinping has promoted the ‘One Belt, One Road’ initiative to expand markets for Chinese products and enhance the country’s global influence.
Chinese state-owned enterprises have collaborated to invest funds raised by China through exports. They have also jointly approved the implementation of various projects in the Global South.
The ‘One Belt, One Road’ initiative has expanded its scope beyond infrastructure to include digital technology, security and sustainable development.
- Is China’s ‘One Belt, One Road’ initiative trapping countries including Sri Lanka in a “debt trap”?
According to official data, China has invested in more than 3,000 projects as part of the ‘One Belt, One Road’ initiative.
The American Enterprise Institute says the top 15 countries receiving funding are Indonesia, Pakistan, Singapore, Russia, Saudi Arabia, Malaysia, the United Arab Emirates, Bangladesh, Peru, Laos, Italy, Nigeria, Iraq, Argentina, and Chile.
The global economic slowdown, rising interest rates and high inflation have exacerbated the difficulties of some countries in repaying Chinese loans. Debt payments worth billions of dollars have been defaulted on and development projects have been stalled.
One example is Sri Lanka’s Hambantota Port, which declared bankruptcy in 2022. Since Sri Lanka was unable to repay its Chinese debt, the port was handed over to China on a 99-year lease.
Many of Sri Lanka’s Chinese-backed projects have been criticized for this, and many of them do not generate enough revenue to cover their costs.
Moreover, the construction of these projects is also being carried out by Chinese companies. In 2023 when BBC Sinhala asked Professor Aminda Methsila Perera of the Faculty of Management and Finance of the Northwestern University of Colombo about the US$1.2 billion investment made by the China Harbor Engineering Cooperation in the Colombo Port City in 2023, the professor expressed his views on the matter as follows:
(Consider the below article was on 3rd of July 2023)
- What is the ‘China Harbor Company’ that is investing 1.2 billion USD in the port?
Sri Lanka’s Minister of Foreign Affairs, Attorney-at-Law Ali Sabri, stated at a press conference held on last July 3r that the China Harbor Engineering Cooperation is expected to invest US$1.2 billion in the Colombo Port City.
He said this while participating in a media briefing held at the Presidential Media Division under the theme ‘One Road for a Stable Country’.
- What is ‘China Harbor Engineering Cooperation’?
Founded in 1980, China Harbour Engineering Cooperation is a subsidiary of China Communication Construction Cooperation (CCCC).
Today, the company is a leading contractor in the fields of ports, construction, roads and bridges, railways, urban development, environmental protection, pipelines, and green energy.
The company has more than 90 branches worldwide, and its investments have spread across 100 countries and regions, according to the company’s official website.
Its current projects are valued at over US$40 billion and it employs more than 20,000 people worldwide.
CHEC Port City Colombo (Private) Limited, which was established under the approval of the Sri Lanka Board of Investment to obtain direct foreign exchange for the Port City project in Sri Lanka, is a subsidiary of China Harbour Engineering Company. The official website of the port city states that the company is 100% owned by China Harbor Engineering Company.
- Why is the $1.2 billion being given?
The Foreign Minister, who was on a visit to China last week, had a discussion with the chairman and senior management of the China Harbor Engineering Cooperation on June 26.
The Minister said in an interview with BBC Sinhala that he hopes to start these investments as soon as possible.
“Currently, they have a branch in the Port City of Sri Lanka. All necessary arrangements have been made with them to start these works soon,” he said.
When asked in which areas these investments will be used, the Minister stated, “These investments will be allocated for the financial city that is expected to be built in the port city. We hope to use this for the activities required to establish the financial city. We will inform you about those areas in the future.”
This is a leading construction company in China and has made investments in many countries of the world. The Minister said that such a company investing so much in the port city of Sri Lanka will be good for the Sri Lankan economy.
- Other projects
During the Minister’s visit to China, discussions were also held regarding the hope of China’s Sinopec Company to start a fuel refinery in the country.
The Foreign Minister stated that the relevant ministries will work with the company to start those activities soon.
The parent company of China Harbour Company (CCCC) has been carrying out various construction activities in Sri Lanka since 1998. There are.
Among them, the Southern Expressway, Hambantota Port, Mattala International Airport, the Southern Terminal and Eastern Terminal of the Colombo Port stand out.
- China is exclusively implementing a black market loan system
Professor Aminda Metsila Perera of the Faculty of Management and Finance at Wayamba University told BBC Sinhala that more attention should be paid to the transfer of freehold rights when considering Chinese investments.
“When dealing with governments when borrowing, there is diplomacy. One problem that countries that have dealt with China have had is that so-called diplomacy. They usually make investments looking 50 years ahead. They always have a strategic decision. They make investments, expecting a very big return, just like they did with that investment. That is what other countries in the world have done. It is like taking a loan from a black market and taking a loan from a bank. The black market moneylender does not want to take a loan by giving a loan. He wants to default on the loan and take over the land. The bank has a different objective. China is exclusively implementing a black market loan system. That is what shows that those people have no diplomatic skills. They gave loans, paid as much commission as possible, and used those loans for nothing, without any investigation. Their only hope is to put the country in a place where they do not pay the loan,” the professor said.
“In that port city, China initially invested and the freehold rights of a large area of land went to China. Then the government that came to power in 2015, the current President, opposed it. Then the project was stopped. The project was not implemented for a long time. Then we had to pay compensation for it. The good thing we did there was that we abolished the freehold rights. We abolished them and gave only a part of it on a 99-year lease. When you give freehold rights, the problem is that from owning a piece of land, the sea rights also go to that country. That is a big threat to India and Sri Lanka.”
He pointed out, “Once again, this 1.2 billion investment means that if they want to get the freehold of this land, they are trying to take it back to 2015. Under the Prime Minister then and the President today. That will have a very negative impact on regional cooperation and the regional peace situation. We should be more concerned about Indian intervention at this time, not China. Because during this time, we saw that India helped Sri Lanka the most. They gave us a loan of about 3 billion. They always came forward. But China always did the same thing, dragging its feet. It doesn’t even come to our negotiation rounds. The idea of doing a loan deal with such a state, this government should think not once or twice, but six or seven times. Will it fall into the same pit again? Otherwise, will we restructure the debt and get rid of them?”
Professor Aminda Methsila Perera pointed out, “China has already invested 1.4 billion. Anything that is not legally binding is fine. But if it affects the country’s rights and sovereignty, it should be rejected unconditionally.”
He pointed out, “We do not have any indirect benefits from Chinese investment. We saw this when China came. Those people bring vehicles. They bring workers. They even bring cigarettes and toilet paper. There is no leakage of money into the country’s economy in any way due to Chinese investment. If we think that a country can develop from this, I am not complaining. We must remember that we have reached this point because of Chinese investment. We should take examples from other countries in the world. Especially from African countries.”
“We have no indirect benefits from Chinese investment. That is something we saw when China came. Those people bring vehicles. They bring workers. They even bring cigarettes and toilet paper. There is no leakage of money into the country’s economy in any way through Chinese investment. If we think that something like that can develop a country, I am not complaining. We must remember that we have come to this point because of Chinese investment. We must take examples from other countries in the world. Especially from African countries.”
(End of the Article)
- What did the current President say about Chinese investment before?
The Janatha Vimukthi Peramuna, a major party in the National People’s Party that currently holds power, directly expressed its opposition to projects being carried out with Chinese investment, including the port city, a few years ago.
Current President Anura Kumara Dissanayake also expressed his views on the matter at a public rally held in Tangalle on February 8, 2015.
“For the first time in Sri Lanka, 575 acres of land in front of the Colombo Golf Course was reclaimed by China and a Chinese island was built. There is a law in our country to reclaim a paddy field. There is a law in our country to reclaim a swamp. There is no law in our country to reclaim the sea,” he said.
“First of all, if we want to reclaim the sea in the country, a law should be made. No research report was prepared. To reclaim 575 acres, there should be at least 1,000 acres of land. 120 million cubic meters of rock alone is needed. Rajitha Senaratne said that this project will continue. That is not why the Rajapaksa family was defeated. The reclamation of the vast sea must be stopped. We, as the Janatha Vimukthi Peramuna, will exert pressure to stop it,” the current President said at a public rally held in Tangalle in 2015.
The current President also expressed his opposition to Chinese investment at a press conference held on April 16, 2021.
“The establishment of an economic commission is being done at the request and insistence of the China Harbour Company. It is not being established in line with the economic development strategy of this government. The economic commission is being proposed as a rallying cry for China’s international, economic and political interests,” he said.
“China is trying to push this project for its own geopolitical strategy,” he added.
However, fatefully, projects such as the Colombo Port City and Hambantota Port, which were opposed a few years ago under the ‘One Road, One Belt’ initiative, will continue, according to a joint statement issued by the Chinese and Sri Lankan governments during President Anura Kumara Dissanayake’s visit to China.
