China’s Belt and Road Initiative (BRI) – the largest transcontinental infrastructure scheme in the history of economic development – is having profound impacts on recipient countries. There is growing media and policy interest in the experience of Sri Lanka because of its strategic geographical location along East–West sea lanes, India’s security concerns regarding Chinese military presence in the Hambantota port, and claims that Sri Lanka has fallen into a Chinese ‘debt trap’ due to commercial financing of BRI projects. Yet there is an absence of research based on local primary sources of information.
To fill this research gap, Chatham House commissioned a study of Chinese outbound investment and the BRI in Sri Lanka. The study, which is the basis for this paper, focused on several issues concerning Chinese infrastructure investment in 2006–19 including economic aspects and implications for labour, the environment and institutions. This paper examines the broad benefits and costs of the BRI and its projects to Sri Lanka and the lessons that may improve future BRI projects in Sri Lanka and elsewhere. It adopts an evidence-based approach, carefully reviewing the available data and perceptions of stakeholders, to discern salient facts and trends from popular misconceptions. A novel feature of the study was the extensive collection of original information through field visits to project sites and interviews with a range of stakeholders in Sri Lanka.
The study reports that the cumulative value of Chinese infrastructure investment to Sri Lanka amounted to $12.1 billion between 2006 and July 2019. The crucial development challenge for Sri Lanka is how best to maximize the benefits from Chinese infrastructure investments while minimizing any potential costs to ensure net benefits across the project portfolio. Meanwhile, China’s challenge is how to further its reputation as a responsible global economic partner. It has begun to address this challenge through growing public diplomacy initiatives and nascent regulatory changes.
The Sri Lankan experience of Chinese infrastructure investment offers useful lessons for other developing country recipients of Chinese investment. But as countries differ in their institutional and policy conditions, insights from the Sri Lankan experience are also valuable to individual national circumstances elsewhere in the developing world.