Following the publication of their report on the impact of Chinese investment and the BRI (Belt and Road Initiative) in Sri Lanka, Chatham House held a wide reaching and informative discussion on the economic, political, and geopolitical role of China in Sri Lanka.

Whilst questioning conventional narratives such as “China’s debt trap”, the speakers also touched upon key issues such as human rights, corruption, and geopolitical alliances. The report notes that the question is not whether or not Sri Lanka should adopt Chinese investment but rather how best to utilise this investment.

A history of Chinese investment in Sri Lanka

China’s investment in Sri Lanka’s infrastructure began in the 1970s and has grown steadily ever since.

Dinusha Panditaratne, Fellow and former Executive Director of the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI), notes that whilst Sri Lanka has historically been “non-aligned”, “in practice it has swung between Western and non-Western partners depending on the political party in power”.

However, she notes that Chinese investments have broken from this tradition, especially after 2015.

“This was quite apparent after 2015, when Chinese investment was expected to take a back seat, it did so only very briefly and temporarily before returning to quite high levels in 2016” and continuing a high level after that”, Panditaratne notes.

Support for Chinese investment has been divided in Sri Lanka. The report notes some of the support for Chinese investment can be aligned with the assistance China provided to Sri Lanka during the final phases of the war.

Whilst the United States had ended direct military aid to Sri Lanka in 2008 due to the deteriorating human rights, China stepped in providing a large del of arms and boosting its aid fivefold. China became Sri Lanka’s largest donor and provided fighter jets, antiaircraft guns, JY-11 3D air surveillance radars and other supplied weapons have played a central role in the Sri Lankan military successes and the genocidal violence during those final stages.

China’s initial response to criticism was to insist that it did not mix business with politics. Lee Jones, reader in international politics at Queen Mary University, notes however that the Chinese government has been responsive to criticism and has worked to improve environment regulations, but these still stand well below international standards.

Chinese investment in recent years

Panditaratne also acknowledges issues in the geographical spread of Chinese investments which are largely limited to the Southern and Western provinces and to some extent the central provinces. This has lead to a relative dearth of Chinese investment in the North and East which to some extent has been compensated by Indian investment, such as the development of Jaffna’s airport. She encourages investors to look at the whole of Sri Lanka as an opportunity for investment.

Jones, however, notes that part of the issue with investment lies in issues of political leadership.

“What we see in the Sri Lankan case is the Mahinda Rajapaksa regime using Chinese investment as a part of a broader strategy of pumping big prestige projects into politically important areas and deriving benefits from that for the regime and the Rajapaksa’s clan more generally”, Jones states.

Whilst he applauds the recommendations made by the Chatham House report, he also highlights internal issues within Sri Lanka.

“Some of these suggestions about rational development planning are great but the truth is that you can’t take politics out of development planning […] in the end they are political problems in the host country”.

These issues are particularly acute in construction, which he describes as “probably the most corrupt sector of the economy globally”.

A notable construction project which has been mired in issues of corruption is the Lotus Tower, the tallest tower in South Asia standing at 356-meter.

The Lotus Tower is a state-owned project which has been beset with accusations of corruption as one of the Chinese construction companies, Aerospace Long March International Trade Co. Ltd (ALIT), had reportedly disappeared along with Rs. 2 billion - worth more than $11 million. For a long period the Tower remained under the control of Sri Lanka’s military and inaccessible to the public.

Commenting on issues of corruption, Jones notes that China is reforming and recognises that;

“They can’t just work with a few elites, some of who may well be crooked, and then be ousted from power, they need to develop a relationship with other actors in society”.

A tilt to China?

Responding to a question whether Sri Lanka’s reluctance to uphold human rights would lead to a shift in geopolitical alliances, Alyssa Ayres, Senior Fellow for South Asia at Council on Foreign Relations, responded maintain that a reason Sri Lanka turn towards China is its disregards for human rights.

On this matter she stated:

“We saw this pattern earlier in the 2000s, in the period from 2009 to 2015, I think there was a real sense that the earlier Rajapaksa government had definitively decided to put its eggs in China’s basket, not only because China was a terrific infrastructure investing partner, as we all know, ask and you shall receive everything you want. But it also was a partner that didn’t ask questions about the very important human rights issues still at play in Sri Lanka and that have been, one component but an important component focus of a lot of the West. And that has been Sri Lanka’s lack of serious progress on reconciliation and accountability for what took place at the end of the conflict.

We certainly don’t see China playing a human rights role anywhere in the world and that is one reason that it is a palatable partner for investment because they will not ask questions about well what’s happening on the commitment made to the UN human rights council about reconciliation. Those questions just won’t come up.

I would see this issue of whether Sri Lanka tips towards China more or less as intimately related to the way other countries push Sri Lanka on the questions of making good on its promises to its own citizens and whether progress has been made on that front or not”. 

Panditaratne also acknowledged that after coronavirus situation, Sri Lanka is more likely to receive relatively more assistance from China than Western powers.

Is Sri Lanka in a debt trap?

On the question of whether or not Sri Lanka is caught in a debt trap, Ganeshan Wignaraja, Executive Director, LKI maintained that there is strong evidence to the contrary. Instead he suggests that Sri Lanka’s larger issue is a general foreign debt issue. In 2018, Sri Lanka’s total external public debt rose to $34.7 billion and its debt service ratio increased to 15 per cent.

Wignaraja notes that in terms of total external public debt, only 6 billion dollars out of 37.4 billion was owed to China whilst greater amounts were owed to financial markets, Asian development bank and other bilateral institutions. In comparison, countries such as Pakistan, Lao, Cambodia are at a far greater risk of falling to a China debt, he notes.

The report notes that Sri Lanka large issue in infrastructure and may need as much as $36 billion to close its infrastructure gap. China has been vital in closing this gap providing as much as $23.9 billion but not fully closing this gap.

Read the full report here.