The Chinese debt trap and Sri Lanka in bated breath: Jest or Reality?
View(s):Sri Lanka, a country acclaimed for its distinguished location in the East-West trade route has ample potential and the quintessential geopolitical advantage for becoming the key logistics hub in South Asia.
In reference to the past decades, the Indian Ocean has been an emerging growth pole for trading over two thirds of global oil shipments and one third of bulk cargo across the East-West corridors. Hence, the Government of Sri Lanka took the opportunity to further extend the maritime networks and to enhance infrastructure development, on a seemingly far-sighted pretext.
Initially, Sri Lanka had three main seaports: Galle Port, Trincomalee Port and the largest cargo handler, the Colombo Port. However, former President Mahinda Rajapaksa had welcomed Chinese investments with open arms to build a new port in Hambantota.
To build the port, the Sri Lankan Government had obtained several loans from China EXIM Bank (2007-2016) with the grace period of around five years and a payback period of 15-plus years. The total amount of loan borrowed was $1bn (£770m).
Currently, Sri Lanka is struggling to repay the hefty sum and the Government has signed an agreement to give a Chinese firm a stake in the port to cover the debt owed. This eventually raised several controversial concerns in Sri Lanka.
“We don’t like our land being given away to China,” says fisherman Aruna Roshantha. “Not just China, if any country comes and takes land from Sri Lanka, we don’t like it. The government should protect our land, not sell it.”
However, the bilateral relationship between Sri Lanka and China did not end after these large borrowings. Soon, the Chinese Government invested in Colombo Port City project which is said to be the “biggest foreign direct investment in Sri Lankan history”.
To build the Colombo Port City, Sri Lanka has borrowed a total sum of US$1.4 billion from the ‘China Communication Construction Company’, a mammoth state-owned engineering firm.
Although Chinese funded infrastructure projects multiplied by the day, the Hambantota Port determines itself by its failure as predicted, which it essentially became. In 2012, only 34 ships reportedly docked the port, despite possessing one of the world’s busiest shipping lanes.
“It was an economic dud then, and it’s an economic dud now”, stated Mr. Shivshankar Menon, the former Indian foreign secretary.
The Port attracted resentment as the Sri Lankan Government scrambled to repay its debt, only to lease the port and 15,000 acres of surrounding land to China for 99 years. Statistically, 85% of the port is owned by China Merchants Port and the remaining 15% is controlled by Sri Lanka’s Government, dismantling the pride and the name of prosperity and self-sufficiency Sri Lanka holds dear, as the country faltered in debt.
In terms of attractive loan offers with low interest rates and reasonable grace periods, Chinese demands seemed to pioneer on handing over equity rather than relaxation of terms and conditions. Within this deception of ownership, despite its commercial pretexts, “intelligence and strategic location of the port was part of the negotiation”, confirmed Sri Lankan officials. Concerns regarding military intervention and sovereignty infringement, in reference to China’s doings around the South China Sea aroused more fear of a possible “trap”.
“The only way to justify the investment in Hambantota is from a national security standpoint — that they will bring the People’s Liberation Army in,” (Menon). Rightfully, Chinese Submarines were docking the harbor in considerably early stages.
Hence began the gradual animosity of the international community. The shared distaste of the rest of the world against China took a definite toll on Sri Lanka’s diplomatic relations globally, specifically with neighboring India. With China gaining control of territory suspiciously close to rival, India, and a strategic foothold along a critical commercial and military waterway, Lanka is en-route of crippling politically.
The anxiety surrounding the concept, “Neo – colonialism” and China’s “String of Pearls” – and attempts to “colonize” through financial means, adds fodder to the fire. To the world, Sri Lanka is now a country that has fallen face first into China’s rumored “Debt Trap Diplomacy.”
Many believe that a debt trap cannot be a blessing in disguise in whatever shape or form it manifests. This is why this “debt trap diplomacy” Sri Lanka is allegedly throttled by, is assured to end fatally.
It’s inexpedient to affirm the case of a legitimate “debt trap” in regards to the facts and figures. The case of the Hambantota Port is a prime example of not only how world superpowers make haste to attain any and available opportunity to fulfil its own ulterior motives via politically wavering nations but also the drastic repercussions of poor political judgement.
Sri Lanka’s colossal debt vexation runs far beyond China. As a nation ridden with debt, we have essentially bargained our future.
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- Yakuta Dawood & Dinithi Gunasekara