Chinese infrastructure projects and related concerns
As detailed in Chapter 1, large Chinese infrastructure projects in Sri Lanka include the Hambantota port development project, Colombo Port City, the CICT terminal of the Colombo port; the Mattala International Airport and International Convention Centre in Hambantota; several expressways; the Norocholai power station; and the newly completed Lotus Tower.
The concerns expressed by commentators and interviewees about these projects include: (i) inadequate policy planning of national infrastructure to ensure feasible, high-value and apolitical projects; (ii) ramifications for national security and sovereignty; (iii) a lack of transparency, stakeholder input and anti-corruption measures to ensure public trust in the projects; (iv) their impact on labour and the environment; and (v) potential implications for legal services and dispute resolution methods – including the possibility of Chinese law firms in Sri Lanka and of the maritime ‘Belt and Road Court’ resolving disputes about Chinese investments in Sri Lanka. The labour and environmental concerns have been explored earlier in this paper. As concerns about the implications of Chinese investments on the local legal system appear too preliminary to evaluate, this chapter will assess the first three concerns.
Addressing institutional concerns around Chinese investment
Policy planning concerns: developing critical and high-value infrastructure
A common concern raised in interviews for this paper was that of inadequate, ad hoc planning of national infrastructure, which increases the risks of ‘white elephants’ and politically-driven decisions about national infrastructure. Commentators have cited Chinese projects in Hambantota, including the port and an under-utilized new airport, as examples of these risks.
There is some indication that the concerns about poor infrastructure planning are overstated with respect to Chinese investments in Sri Lanka. This is partly due to critical narratives that are driven more by geopolitical anxiety about China’s remarkable rise than facts about Chinese investments. Data provided to the authors on the Hambantota port, for example, demonstrate that arrivals increased from eight vessels in 2017 (when the 99-year lease was announced) to over 290 vessels in 2018. The now apparent success of Colombo port’s CICT terminal indicates that, in any event, a port development project can only be assessed after years of operation. In addition, interviewees noted that domestic political factors may encourage the disuse of infrastructure projects, particularly those started by previous governments, even if the projects were planned according to global best practices.
Notwithstanding the possible overstatement of concerns, there is clear value in devising a detailed, long-term plan for national infrastructure that is empirically driven and publicly available. Such plans limit the scope for inefficiency, including by individual leaders starting or halting a project in ways contrary to the plan. Successive governments of Sri Lanka have released short-to-medium-term plans for infrastructure development, which identify the type (e.g. roads) and sometimes location of planned projects. Recent examples include the Vision 2025 plan launched in 2017, the Public Investment Programme (2017–20), and Ten Year Horizon Development Framework (2006–16) (known as Mahinda Chintana).
There is clear value in devising a detailed, long-term plan for national infrastructure that is empirically driven and publicly available.
These plans have been criticized for lacking detail, coherence and stakeholder input. Moreover, they are linked to a particular administration, and therefore tend to be discarded by later governments. By contrast, Indonesia, the Netherlands, and New Zealand are among the group of countries with infrastructure plans for at least 20 years. New Zealand’s Treasury devised and launched the country’s Thirty-Year Infrastructure Plan 2015. The plan covers population density and demographic shifts, climate change and other environmental factors, asset management and maintenance projections, technological developments, community and other stakeholder views, rural needs, and international factors. The plan lists major projects until 2045, noting their type (e.g. roads, internet access, hospitals, water supply, housing, schools, and sports facilities), location and budget.
Sri Lanka could likewise develop a long-term, empirically based, and less politicized infrastructure plan. It could be formulated by relevant ministries and the Central Bank of Sri Lanka (CBSL), with public and other stakeholder input, and the input of Sectoral Oversight Committees (SOCs) in Parliament, whose members represent diverse political parties. Relevant SOCs for infrastructure development include those overseeing energy; sustainable development and environment and natural resources; transport and communication; economic development; and reconciliation and north and east reconstruction.
Sovereignty concerns: Preserving national security
A common critique of Chinese investment projects in Sri Lanka, particularly by foreign commentators, is that they are ‘dual-use’ (for both commercial and military use) and thereby threaten national security. The Hambantota port is often cited as an example of such a potential dual-use facility, due to its 99-year lease by China Merchants Port Holdings Company. Similar concerns have been raised about the potential surveillance and cyber risks of the Lotus Tower in Colombo. Local commentators have generally couched these concerns in the language of ‘sovereignty’ rather than security. In brief, however, the concern is that Chinese investments may affect Sri Lanka’s control of its own security interests.
There is insufficient information available to assess the security risks of the Lotus Tower, which need to be analysed by experts in light of rapid technological developments. This is also advisable in respect to China’s long-term use of the Hambantota port. However, three points should be considered in the assessment of concerns over a dual-use port.
First, the Hambantota lease agreements explicitly prohibit the port operating companies from conducting or allowing military activities, within the port or on any other Sri Lankan territory, whether on land, in air or at sea. Likewise, it confirms that the Sri Lankan government has sole authority and power over such activities. Second, as an indication of how Sri Lanka is exercising its sovereign control of the port in practice, it has permitted a number of naval ships to visit Hambantota since 2016. While none of these was a Chinese ship, in 2019 alone, both Japanese and US ships docked at the port. In addition, several hundred personnel are stationed at the Sri Lankan Navy (SLN) base in Hambantota, and three units of four officers each patrol the port premises. Third, Sri Lanka’s authority and power over its ports is externally recognized. Specifically, International Port Security officers of the US Coast Guard audit Sri Lanka’s fulfilment of the International Ship and Port Facility Security Code.
These points demonstrate Sri Lanka’s de jure and de facto authority over the Hambantota port. Nevertheless, Sri Lanka must maintain vigilant control over its ports if it is to meet its security objectives, while continuing to permit ships to visit from various countries. Security issues are tied to other institutional concerns, especially those relating to the planning of infrastructure. In an indication of inadequate planning, a decision to move the SLN’s Southern Command from Galle to Hambantota was announced in 2016, then re-announced in June 2018 (following controversy about the Hambantota port lease signed in 2017), yet the move had still not taken place by 2019.
Of central importance for future projects is a functional online portal for approvals of foreign investments, akin to the Australian Foreign Investment Review Board (FIRB). Notably, the FIRB is explicitly mandated to consider national security in its review process, a factor that should be incorporated into the inception of Sri Lanka’s approval process, especially for investments in ports or airports, land, telecommunications, or projects involving foreign defence-related companies.
Trust-building measures: Transparency and stakeholder input, and anti-corruption norms
A third set of institutional concerns regarding Chinese investments in Sri Lanka include transparency of investment projects, the adequacy of stakeholder consultations to improve the utility and reduce any adverse impact of the projects, and alleged corruption in regard to the projects. Addressing these is vital to building public trust in infrastructure development projects.
Some national and transnational norms already exist to address these concerns. For example, Sri Lanka has a Right to Information (RTI) Act, which facilitates access to public documents. The Asian Infrastructure and Investment Bank (AIIB), the Chinese-led but multilateral development bank headquartered in Beijing, which approved its first loans to Sri Lanka in 2019, gathers stakeholder input through its Environmental and Social Framework, a set of consultative standards modelled on those of the World Bank and ADB. In addition, there is a plethora of anti-corruption laws and institutions in Sri Lanka, including the Commission to Investigate Allegations of Bribery or Corruption.
Notwithstanding these laws and institutions, there are major challenges to achieving a high degree of transparency and stakeholder engagement, and avoiding corruption, which are necessary for public confidence in large infrastructure projects. For example, the RTI Act limits the need for disclosure when it ‘would undermine … national security’ or is ‘likely to be seriously prejudicial to Sri Lanka’s relations with any State’ or when the information relates to international obligations provided in confidence. Moreover, despite multiple laws and institutions to curb corruption in Sri Lanka, they are frequently circumvented and lack any real enforcement.
Transparency and stakeholder consultations can be strengthened in several ways. First, Sri Lanka’s Board of Investment could hold regular (e.g. quarterly) media briefings, to facilitate transparency by releasing information about foreign investment projects. Freedom of the press is naturally indispensable for transparency. Second, there should be a routine, national process of stakeholder engagement for major development projects (including those funded by the China Development Bank and EXIM Bank China, the two main sources of Chinese loans to Sri Lanka), instead of being an externally driven process by the AIIB, World Bank and ADB.
To help counter corruption in foreign investment projects, and indeed in all official decisions with an international angle, Sri Lanka should prohibit political donations from foreign sources.
Finally, to help counter corruption in foreign investment projects, and indeed in all official decisions with an international angle, Sri Lanka should prohibit political donations from foreign sources (a move that could be embedded in a comprehensive law on political donations, which Sri Lanka also lacks). There is a critical need to end the recurrent inefficacy and politicization of national institutions on corruption. President Gotabaya Rajapaksa has expressed commitment to achieving this objective in his national policy framework.
While this research paper focuses on Sri Lankan reforms to maximize the benefits of Chinese investment, the Chinese government also appears to be taking steps to tackle corruption relating to its investments overseas, in line with anti-corruption pledges in the Joint Communique issued after the 2019 Belt and Road Forum. For example, the Chinese Communist Party’s main anti-corruption body, the Central Commission for Discipline Inspection, will reportedly install anti-graft inspectors at project sites.
Role of Chinese public diplomacy
Despite the above concerns, there remains strong political, academic, and public support in Sri Lanka for Chinese investment. One reason for this is China’s assistance to the Sri Lankan government during the years of civil war, which it helped to end militarily in 2009.
Another reason, of more recent origin but increasingly significant, is China’s growing public diplomacy in Sri Lanka, via multiple intersecting strategies. These strategies include Chinese cultural and language centres in Sri Lanka; enabling members of parliament, journalists, academics, and business leaders to visit China; funding student scholarships to China; the local presence of Chinese media like China Radio International (CRI) and China Global Television Network (CGTN) in Sri Lanka; promoting cross-country Buddhist links; and supporting local think-tanks and universities – including forums to discuss Chinese projects. These strategies largely resemble the public diplomacy methods of Western nations.
A key trend in Chinese public diplomacy in Sri Lanka is an emergence of corporate social responsibility (CSR) activities by Chinese companies. For example, CHEC Port City Colombo (CPCC), a local subsidiary of China Communications Construction Company, which is developing the Colombo Port City, spent roughly $3 million from 2016 to 2019 to support around 9,000 fishing families that were potentially affected by the project. To achieve this, it worked with local fishing associations, the Fisheries Ministry and other relevant ministries to disburse funds to bolster the industry, including an upgrade of coastal environments for fishing. In addition, CPCC has engaged in broader public diplomacy by inviting public officials, professionals, students, academics and journalists to visit its modern sales gallery to visualize and learn about the project. Such measures, alongside public advertising and active social media, appear to be effective in building broader support for the project.
The combined effect of the above-mentioned measures is to increase public appreciation of Chinese investment projects and to soften concerns about institutional decision-making outlined in this chapter. While Chinese public diplomacy is beneficial in increasing broad public support for (and use of) investment projects, public institutions must nevertheless be firmly rooted in empirical decision-making when initiating and developing such projects.
Local commentary and interviews in Sri Lanka confirm that the recent growth of Chinese investment is generally welcomed. At the same time, the scale of investment, entailing the significant involvement of local resources and stakeholders, has generated concerns that show there is a need for national institutions to plan projects according to empirical and fiscally sound criteria, to consider their security dimensions, and to ensure public trust in investment projects by disseminating accurate information, engaging the public, and combating any signs of corruption. These outcomes are in the interests of both Sri Lanka and China, which are deeply invested in the success of the projects, though in different ways.