Economy /

China’s extensive Belt and Road Initiative (BRI) has led to greater Chinese outbound investment in Asia, including Sri Lanka.  A recently published analysis by the London-based independent policy institute Chatham House provides a closer look at Chinese investment and the BRI in Sri Lanka.

Background of China’s BRI

The BRI, or the One Belt, One Road (OBOR) initiative – also sometimes referred to as the New Silk Road – was announced in the fall of 2013 by the General Secretary of the Communist Party and Chinese leader Xi Jinping of the People’s Republic of China. Xi delineated a vision for enhanced economic integration in two speeches delivered in late 2013: remarks in Kazakhstan announced the Silk Road Economic Belt (SREB), while a speech in Indonesia announced the Maritime Silk Road (MSR). The “belt” refers to a belt of overland corridors in the case of SREB, and the “road” refers to the 21st Century shipping lanes in the case of the MSR. Together, these constitute the main components of the BRI.

Central to the BRI is a web of six economic corridors linking China with each of its neighboring sub-regions: the China-Mongolia-Russia Economic Corridor, the New Eurasian Land Bridge, the China-Central Asia-Western Asia Corridor, the China-Indochina Peninsula Corridor, the China-Pakistan Corridor, and the Bangladesh-China-India-Myanmar Corridor. The project involves building a large network of roadways, railways, maritime ports, power grids, oil and gas pipelines and related infrastructure projects in order to realize the vision.

BRI: Xi’s Signature Foreign Policy Overture

The BRI has five major priorities: policy co-ordination, facilitating connectivity, unimpeded trade, financial integration, and the establishment of new bonds between people. To date, more than sixty countries have signed on to projects or indicated an interest in doing so. The BRI has been characterized as Xi’s signature foreign policy initiative.

Optimists see new business and trading opportunities from the BRI and have praised its potential for growth and development. Detractors, on the other hand, have voiced concerns that developing countries may not be able to service BRI-related debt, that they might be left with stranded infrastructure, and that harm could be caused to local communities and the environment. Worries have also been expressed that BRI’s “debt overhangs” will impede sound public investment and economic growth more broadly, and that debt problems could create a disadvantageous degree of dependency on China as a powerful creditor.

The Case of Sri Lanka

The BRI has not been met without opposition, and debate over it in the case of Sri Lanka serves as an ideal example of its mixed reception. Criticisms have been expressed that by accepting Chinese outbound investment, Sri Lanka risks being caught in a debt trap, with the example often being made of Hambantota port, which sustained losses and was ultimately leased to China Merchant Port Holdings Company Limited for 99 years for US$ 1.12 billion in 2017. There is also the apprehension that institutional weaknesses in Sri Lanka, including a lack of policy planning, are resulting in non-performing infrastructure projects, as well as concerns that Chinese investment has resulted in environmental damage.

A recently published report by Chatham House, however, reveals a nuanced context of benefits and costs. It also argues for a matrix of Sri Lankan, Chinese and multilateral policies in order to maximize the benefits and minimize any risks of Chinese investment. The report argues that Sri Lanka is not in a Chinese debt trap. Sri Lanka’s debt to China amounts to about 6% of its GDP. However, the report argues that Sri Lanka’s generally high debt levels demonstrate that the country needs to improve its debt management systems, which would also decrease any risk of a Chinese debt trap in the future.

The report argues that specific projects have contributed positively to Sri Lanka’s economy. Some have resulted in greater benefits than others, such as the Colombo International Container Terminal (CICT), which has allowed the Colombo port to grow at a fast pace. The CICT terminal has also been argued to prioritize green technology, having switched to using electric cranes and pledging to reduce overall carbon dioxide emission levels by 45% and diesel consumption levels by 95%.  Over 80% of the electricity used in the operations of the CICT terminal is purportedly generated using solar technology.

Assessing Some of the Concerns

However, various Chinese investment projects in Sri Lanka have encountered several environmental challenges in their design, implementation and operation. Previous infrastructure projects have caused considerable pollution and affected the biodiversity as well as the ecological landscape of Sri Lanka. The Norochcholai power station, for example, has been criticized for being in breach of domestic environmental norms, and its construction and ongoing operation have resulted in considerable carbon emissions. Fine ash particles emitted from the power station, which are linked to chronic illness in both humans and animals, have been found in Colombo, 145 kilometers away.

Imports from China for projects in Sri Lanka have also widened the trade deficit between the two countries. The growth of Chinese infrastructure is associated with increasing Chinese imports, whilst Sri Lankan exports to China have seen a poor performance. According to the report, Sri Lankan firms routinely experience difficulties exporting to China due to tariffs, non-tariff measures, poor market information and the Chinese language.

Concerns were also raised in relation to the displacement of local labor by Chinese labor. There are around 7,500 Chinese migrant workers in Sri Lanka at present. While local workers are recruited, Chinese construction firms tend to recruit labor from China to work on infrastructure projects in Sri Lanka. Still, the report argues that although the number of Chinese workers in Sri Lanka is rising, it remains a very small percentage of the total labor force. It is estimated that Chinese workers accounted for roughly only 0.1 % of Sri Lanka’s labor force in 2019. Illegal migrants were also composed of a small percentage of Chinese nationals. An investigation in late 2019 indicated that of the 7,900 foreigners who overstayed their visas in Sri Lanka, only 9% were Chinese.