After taking power in early 2015, current Sri Lanka president Maithripala Sirisena and his cabinet were keen to reassess all the big infrastructure projects involving Chinese companies. The UNP formed a coalition government with the Sri Lanka Freedom Party, and the new administration put on hold for reexamination the majority of the accords that had been signed with China.

The administration halted work at Colombo Port City by citing the need for a proper environmental impact assessment. (CCCC complained about hefty losses as its machinery and laborers remained idle.) One issue Sirisena and his team sought to address: a generous freehold given to China on 50 hectares of land in the Colombo port area. The new administration negotiated that down to a more limited arrangement, but one Beijing probably still didn’t mind: a 99-year lease on 110 hectares of reclaimed land.

As the new administration quickly discovered, the debt Sri Lanka contracted with China was already too big to work around. It now amounts to $8 billion; meanwhile, 95.4% of all government revenue is currently going towards debt repayment.

The world’s emptiest airport

Not all of the China-fueled infrastructure in Sri Lanka (and other countries) is a white elephant: The Colombo International Container Terminal, also financed through Chinese loans and built by Chinese companies, is already profitable

But many of the projects are indeed of questionable use. Some of the most striking examples are found around the southern city of Hambantota, the hometown and power base of former president Rajapaksa. One of them, the Mattala International Airport, has been dubbed “the world’s emptiest international airport.” A cricket field and real estate developments nearby look little used, as well. 

The main terminal building of Sri Lanka?s second and first newly constructed Mattala Mahinda Rajapaksa International Airport at Mattala in Hambantota 238kms south of Colombo, Sri Lanka 18 March 2013. The Mattala Mahinda Rajapaksa International Airport at Mattala constructed within three years and 51 days becomes Sri Lanka?s newest international airport and the first to be newly constructed. China provided monetary assistance while technical expertise was from both countries to turn this once wildlife infested scrub jungle into this modern edifice. This eco-airport will enhance the development of the island nation with its close proximity to class tourist attractions and also the so far neglected southern regions.
Not much use for it.
Image: EPA/M.A.Pushpa Kumara

And then there’s the local port project in Hambantota. The first phase of Magampura Mahinda Rajapaksa Port—yes, it’s named after the former president—opened for business in 2010. Costing over $1 billion, the port has proven to be a money-loser.

A President Media Davison handout picture shows Sri Lankan President preparing to fire a flare while special representative from China, Sang Guowei watches from behind welcoming the first ship, Sri Lanka Navy vessel Jetliner into the newly built Magampura Mahinda Rajapaksa Port which was ceremonial commissioned in Hambantota 238kms south of Colombo 18 November 2010. The first stage of the Hambantota or Magampura Mahinda Rajapaksa Port in Hambantota, build with Chinese assistance was commissioned today amidst much grandeur. Today also marks President Percy Mahendra ?Mahinda? Rajapaksa?s 65th birthday. He is to take oaths for a second term as president of the island nation tomorrow (Nov. 19) and several events are being held in commemoration.
Rajapaksa celebrates the opening of a port named after himself, in 2010.
Image: EPA/President Media Division

But here, too, the Sirisena administration, faced with maturing debt, had to agree to an “equity swap” with China. Last October China Merchants Port Holdings secured a 99-year lease of the port with an 80% stake, along with 15,000 acres of land around it for a projected industrial zone for Chinese investors. In exchange China forgave most of the debt Sri Lanka acquired to develop the port in the first place. Beijing ended up with a strategically located outpost on the Indian Ocean, a nice piece of the OBOR puzzle.

For Sirisena, the choice was to either make a huge default or essentially turn the port over to China. Of course not everybody was happy with the deal—as evidenced by this month’s local protests against Chinese “colonization.”

“The government is quite desperate,” said Anantha Perera, a researcher at Columbia University’s Dart Center. “They came into power in 2015, and one of the hopes was that—based on their policies—they would be able to attract investment from other sources. That has not materialized, leaving Sri Lanka with a huge debt issue that was created by the previous administration, but has come to maturity now.”

No other country has been quite so interested in investing in Sri Lanka as China. That’s as true today as it was during Sri Lanka’s brutal 26-year civil war, which pitted the minority Tamil population in the northeast against the majority Sinhalese. 

From 2005 to 2009, as the war was at its worst, China seemed to be the most reliable friend Sri Lankan leaders had, even shielding them from condemnation at the UN Security Council. “China sold a lot of weapons and lent a lot of money to Sri Lanka and remained a useful ally even in the Human Rights Council, all through the end of the war,” said Alan Keenan, a Sri Lanka project director at International Crisis Group.  

But what seemed to be pure political logic at the time led to economic arrangements, too—mostly beneficial to China. After the Rajapaksa regime put an end to the ethnic insurgency in the north—killing an estimated 40,000 civilians in the process—it embarked on a foreign-funded construction spree. While risk-averse international investors kept Sri Lanka at arm’s length, China was ready and willing to help.

A considerable gap

Today, as Sri Lanka scrambles to service its debt and attract other foreign investors, China’s assistance looks less positive than it used to.

Last year Sri Lankan finance minister Ravi Karunanayake complained that the interest rates on the loans from China were too high, resulting in a public spat with China’s ambassador, who defended the rates.

Mr. Chen, a Chinese laborer in Sri Lanka
Mr. Chen is certain about one thing.
Image: Ilaria Maria Sala

“There seems to be a considerable gap between the perception of how beneficial Chinese investments abroad are, and the reality,” said Juan Pablo Cardenal, author of various books on Chinese investments in the world. In many cases these investments come with environmental, labor, or social issues that “should make us revisit how beneficial to the country they may truly be.”

“It will be interesting to see how other countries deal with China now that they know how China plays these things,” said Balding, referring to both the high interest rates and Beijing’s increasing assertiveness in Sri Lanka. 

The Philippines, for instance, is eagerly accepting Chinese infrastructure investments, notably for Davao City, the home town and power base of mercurial president Rodrigo Duterte, and Mindanao, the island it’s on.

Meanwhile, thousands of Chinese workers have been brought in to Sri Lanka to work on projects like Colombo Port City. The exact number is contested, but in a country with high unemployment, their presence is a political hot potato.

Mr. Chen, a manual laborer from Chongqing in southwest China, has spent more than two years at the project. “We work long days,” he said, asking to be identified by his last name only. “About 10 hours, sometimes more. In the evening we go back to the dorms, and start again the day after.”

Chen, who’s never had a Lankan meal while on the project, doesn’t know how long CHEC will keep him in the country. But he does know one thing: “This port will be controlled by China for decades.”

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