Chinese Infrastructure Investments in Sri Lanka: A Pearl or a Teardrop on the Belt and Road?

By: Meg Rithmire and Yihao Li

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Synopsis: In 2015, a surprise presidential election result seemed to imperil Chinese investments in Sri Lanka, which were associated with China's Belt and Road Initiative to build global infrastructure. In the previous decade, China had undertaken two major projects in the country: the construction of a port in the poor district of Hambantota (also the previous president's hometown), for which Sri Lanka borrowed 1.2 bn USD from the China Ex-Im bank, and a major real estate project outside of Colombo. The new administration pursued renegotiation of both contracts. In 2016, a Chinese state-owned company purchased the asset of the Hambantota port, generating concerns about sovereignty in Sri Lanka and Chinese naval ambitions in Delhi and Washington, DC. This case explores the dynamics of Chinas ambitious Belt and Road Initiative, a large-scale infrastructure and connectivity project launched under its powerful leader, Xi Jinping, as well as the politics and economics of sovereign borrowing in the age of Chinese lending. Did Sri Lanka fall victim to a sort of "debt diplomacy," or did the Chinese side fail to understand Sri Lanka's domestic political landscape? Was the sale of the asset the right choice for Sri Lanka? The right investment for China Merchants Group, which bought the 99-year lease?