String of debts: Sri Lanka's cautionary tale of doing business with China

By Salaam Times and AFP

Thousands of anti-government protesters stormed into Sri Lankan Prime Minister Ranil Wickremesinghe's office on July 13, hours after he was named as acting president. [AFP]

Thousands of anti-government protesters stormed into Sri Lankan Prime Minister Ranil Wickremesinghe's office on July 13, hours after he was named as acting president. [AFP]

HAMBANTOTA, Sri Lanka -- The risks of doing business with Beijing are laid out plainly in Sri Lanka, which is undergoing a major political and economic crisis due in part to Chinese loans and infrastructure projects gone awry, analysts warn.

The lessons learned in Sri Lanka provide a cautionary tale for borrowers of Chinese loans and recipients of Chinese infrastructure projects -- particularly those associated with the Belt and Road Initiative (BRI), also known as One Belt, One Road (OBOR), they say.

China's debt trap blueprint is straightforward, Maj. (ret.) Amit Bansal, a defence strategist and international affairs analyst, said at an online conference last Friday (July 15) hosted by Red Lantern Analytica (RLA), an independent think-tank based in India.

"The country must be strategically located, it must be poor and should have corrupt politicians in administration. Once the 3 conditions are met; China offers generous loans & gradually takes its sovereignty," RLA tweeted, quoting Bansal.

The Lotus Tower, a floral-shaped skyscraper bankrolled by Chinese funds, is pictured in Colombo, Sri Lanka, on May 5. The tower's colourful glass facade dominates the capital's skyline, but its interior has never been opened to the public. [Ishara S. Kodikara/AFP]

The Lotus Tower, a floral-shaped skyscraper bankrolled by Chinese funds, is pictured in Colombo, Sri Lanka, on May 5. The tower's colourful glass facade dominates the capital's skyline, but its interior has never been opened to the public. [Ishara S. Kodikara/AFP]

Chinese President Xi Jinping (centre) signs a visitor's book as then-Sri Lankan President Mahinda Rajapaksa (right) looks on during a welcome ceremony at the Bandaranaike International Airport in Katunayake on September 16, 2014. [Lakruwan Wanniarachchi/AFP]

Chinese President Xi Jinping (centre) signs a visitor's book as then-Sri Lankan President Mahinda Rajapaksa (right) looks on during a welcome ceremony at the Bandaranaike International Airport in Katunayake on September 16, 2014. [Lakruwan Wanniarachchi/AFP]

China's pattern of offering loans to countries in the name of BRI is the same, said J. Jeganaathan, an assistant professor of national security studies at Central University of Jammu.

"They have always chosen authoritarian regimes lacking accountability and public transparency," he said, according to RLA. "They offer loans and wait for the debt to trap the country."

Many countries in the Middle East and Central Asia, including Iraq, Egypt, Iran, Kazakhstan, Tajikistan, Uzbekistan and Kyrgyzstan, all of whom owe billions to China, fit this pattern.

String of pearls

In Sri Lanka, examples of white elephant projects that helped fuel the crisis abound: the world's "emptiest" airport, a revolving restaurant without diners, the 350-metre-high Colombo Lotus Tower, a massive cricket stadium, the hardly used International Conference Hall, dozens of unused roads and bridges, and a debt-laden seaport, among others.

Despite assurances from Sri Lankan and Chinese officials that Beijing's investments in the country are "purely economic", observers see ulterior motives.

"Indeed, Sri Lanka is the 'crown jewel' of China's multibillion dollar BRI across the Indo-Pacific region, which connects the Hambantota Port, the Colombo Port City, the Colombo Lotus Tower and many other overwhelming infrastructure projects," said Patrick Mendis, a former American diplomat and a military professor in the NATO and Indo-Pacific Commands of the US Department of Defence.

"These ports could easily be converted into dual-purpose military and civilian use compounds," he wrote July 11 in the Harvard International Review.

"Moreover, the nearby Mattala Rajapaksa International Airport was built with the possible intention of a dual civil-and-military installation for future use."

China opened its first overseas military base in 2017 in Djibouti, reportedly to facilitate maritime operations around the Indian Ocean and East Africa. Beijing used the threat of piracy in the Gulf of Aden and its desire to secure critical international sea lanes as justification.

Authorities in Beijing have used that same line of reasoning to make the case for a military base in western Africa as well.

When news broke late last year that China was secretly building a military base in the United Arab Emirates (UAE), alarm bells rang throughout the region and beyond.

In recent years, in addition to the massive infrastructure drive in Sri Lanka, China has built commercial port facilities in Pakistan, Iran and other key areas that could be used by its rapidly expanding navy.

These are all part of Beijing's "string of pearls" strategy to link mainland China to the Horn of Africa via a network of military and commercial facilities.

In mid-January, Tehran announced it was beginning the implementation of a 25-year Comprehensive Strategic Co-operation Agreement with China, signed last year.

Under the terms of the agreement, Iran would be involved in the BRI through the launch of investment projects worth $400 billion.

Though the deal is ostensibly commercial in nature, Chinese investment in the Iranian ports of Jask and Chabahar would allow its rapidly growing navy to expand its reach.

In another example, China entered into a secret agreement with Cambodia to allow its navy to use a base in that country, the WSJ reported in 2019, citing US and allied officials.

Both Chinese and Cambodian officials denied the reports, calling them "fake news" and "rumours".

But now China is secretly building a naval facility in Cambodia for the exclusive use of its military, the Washington Post reported June 6, citing Western officials.

"All these projects were initially promoted within the BRI as development assistance," according to Mendis. "In fact, the BRI has been the ambitious foreign policy strategy of China to bring developing countries under its realm of influence as shown in the 'cautionary tale' of Sri Lanka."

Crisis in Sri Lanka

After months of blackouts and acute shortages of food and fuel in Sri Lanka, weeks of largely peaceful protests demanding the government resign over its economic mismanagement turned violent in May, leaving five people dead and at least 225 wounded.

President Gotabaya Rajapaksa fled the country in July.

The crisis has been exacerbated by Chinese-funded projects that stand as neglected monuments to government extravagance.

The centrepiece of the infrastructure drive was a deep seaport on the world's busiest east-west shipping lane that was meant to spur industrial activity.

Instead, it has haemorrhaged money from the moment it began operations.

"We were very hopeful when the projects were announced, and this area did get better," Dinuka, a long-time resident of Hambantota, told AFP.

"But now it means nothing. That port is not ours, and we are struggling to live."

The Hambantota port was unable to service the $1.4 billion in Chinese loans rung up to finance its construction, losing $300 million in six years.

In 2017, a Chinese state-owned company was handed a 99-year lease for the seaport -- a deal that sparked concerns across the region that Beijing had secured a strategic toehold in the Indian Ocean.

Overlooking the port is another Chinese-backed extravagance: a $15.5 million conference centre that has been largely unused since it opened.

Nearby is the Rajapaksa Airport, built with a $200 million loan from China, which is so sparingly used that at one point it was unable to cover its electricity bill.

In the capital, Colombo, there is the Chinese-funded Port City project -- an artificial 665-acre island set up with the aim of becoming a financial hub rivalling Dubai.

But critics have already sounded off on the project becoming a "hidden debt trap".

Mired in debt

China is Colombo's biggest bilateral lender and owns at least 10% of its $51 billion external debt.

The true number is substantially higher if loans to state-owned firms and Sri Lanka's central bank are taken into account, say analysts.

Unable to service its growing debt burden, and with credit rating downgrades drying up sources of fresh loans on the international money market, Sri Lanka's government in April announced a default on its foreign loan obligations.

It had sought to renegotiate its repayment schedule with China, but Beijing instead offered more loans to repay existing borrowings.

That proposal was scuttled by Sri Lanka's appeal for help to the International Monetary Fund (IMF).

"China has done its best to help Sri Lanka not to default, but sadly they went to the IMF and decided to default," Chinese Ambassador Qi Zhenhong told reporters at the time.

For many Sri Lankans, the largely unused infrastructure projects have become potent symbols of the risks of doing business with China.

"We are neck-deep in loans already," said Krishantha Kulatunga, owner of a small stationery store in Colombo.

Kulatunga's business sits near the entrance to the Lotus Tower, a floral-shaped skyscraper bankrolled by Chinese funds.

The tower's colourful glass facade dominates the capital's skyline, but its interior -- and a planned revolving restaurant with panoramic views of the city -- has never been opened to the public.

"What is the point of being proud of this tower if we are left begging for food?" asked Kulatunga.

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China starts issuing visas to Afghans. China's Ministry of Foreign Affairs has said that in addition to granting visas to Afghans, 98 percent of Afghanistan's commercial goods will be imported to the country tax-free. Experts say China's economic interest in Afghanistan has increased more than ever, but why? The Ministry of Foreign Affairs of the Taliban has also said in a statement that Acting Minister of Foreign Affairs Amir Khan Muttaqi discussed the economic and humanitarian situation in Afghanistan with the Chinese Foreign Minister in a bilateral meeting. The announcement states: "In this regard, the Chinese Foreign Minister promised that after August 1, visas will be issued to Afghans." The announcement adds that China has shown its readiness to help Afghan farmers in alternative cultivation after the cessation of poppy cultivation in Afghanistan. At the same time, the Ministry of Foreign Affairs of China quoted Foreign Minister Wang Yi saying: "98 percent of Afghan imports will be allowed to be imported tax-free." The Chinese Foreign Minister has said that his country also supports the extension of the China-Pakistan Economic Corridor to Afghanistan. My opinion: O people! O government! O Afghans! Don't trust these dirty Chinese at all. They have never helped Afghanistan. They never help Afghanistan. These people expect one million dollars if they help Afghans with one afghani. Please do not let these dirty Chinese come to Afghanistan. Death to China and Pakistan


Sri Lanka has reached that situation. God willing, Pakistan may also suffer the same fate in the near future. We Afghans will pray for Pakistan to be destroyed because they have not shown any sympathy toward us. May God bring on them a day like that of Sri Lanka. Now the point is that, whoever makes friends with China, will face the same fate as that of Sri Lanka; therefore, the new Afghan authorities to be cautious in making relations with China, else, neither their chief minister will be seen in the presidential palace nor will their emir of faithfuls' messages be published. Again, they will be running like rats in the mountains. Therefore, they may better be careful in making relations.


The situation in Sri Lanka mentioned above is a good and clear mirror for Afghanistan. Before the collapse of the Afghan republic system, a leader of the Taliban said in Qatar that China would help the Taliban government to build Afghanistan. The Taliban should see the betrayals that China has done to other countries before making any deal with China. The situation in Sri Lanka is very well portrayed in your report. I have heard that the Chinese have done the same thing in Africa. For China, these are called economic benefits and achievements, but for the host countries, they are called betrayals and oppression of their people. Death to China and Chinese terrorists who kill and torture minorities. Death to China and Pakistan as a protector of terrorists who kill Afghans and Pakhtunkhwa Pashtuns. Long live Afghanistan. Long live the peaceful world.


In addition to this, I would like to explain further the causes of Sri Lanka's downfall and China's involvement in it: International Group: The Sri Lankan government is on the puss of bankruptcy due to the economic crisis caused by Corona-Virus and the usance of paying off billions of dollars of its debt to China. The decrease in tourist revenues, and the due time of repaying the huge amount of debts of this country of 30 million population to China and other countries, put pressure on the government to rebate taxes and support the domestic markets which have been damaged by Corona-Various, have led the government to face a severe lack of financial resources and at a high extent the possibility of the bankruptcy of the country during the current year. With an economy of $80 billion, this country owes $5 billion to China and also had to borrow another $1 billion from China last year. Many experts say that by giving loans to states, and industrial and commercial projects, China is holding countries detained, something that happened before in Sri Lanka, due to the inability to repay a loan of $361 million to the Exim Bank of China for the development of the Hambanthota harbor the government was forced to lease this port to China for 99 years in 2017. This received worldwide attention and became known as China's "loan trap" policy. According to the World Bank, since the outbreak of Corona-Virus, 500,000 people have fallen below the poverty line in Sri Lanka. Sri Lanka's state and


In my opinion, the Sri Lankan leaders already knew that these loans were just a trap and wouldn’t bring them any benefit. Sri Lankan leader accepted the risk of borrowing from China because they were all corrupt and were more concerned about their personal interests rather than Sri Lanka's national interests. Meanwhile, Sri Lanka is not the only country in the world whose economy is on the verge of collapsing due to China's loans. I read an article on the BBC that several Asian countries are facing the same risk, I am quoting part of this report here. Laos: Laos is a landlocked country in East Asia with a population of over 7.5 million and has been facing the risk of defaulting on its foreign loans for several months. In the recent years, China has provided Laos with huge loans to finance mega projects such as hydroelectric power and railways. Pakistan: After the government ended fuel subsidies in Pakistan, the price of fuel in the country has increased by nearly 90% since the end of May. The country is currently negotiating with the International Monetary Fund to resume the financial assistance program. China's role can also be seen in Pakistan. According to reports, Pakistan owes more than a quarter of its debt to Beijing. Maldives: The Maldives has seen its public debt increase in recent years and is now well above 100% of its total GDP. Bangladesh: In Bangladesh, inflation in May reached its highest rate in the last 8 years, which was announced at 42.7%. It should


Indeed, a bad friend makes a person wretched. If Sri Lanka had thought about China when coming closer to it and had a proper understanding of China, it would have never made friendship with this thieving and disloyal country. As long as China had interests in Sri Lanka, it was making promises to Sri Lanka’s corrupt leaders, but when China had achieved its interests, it left behind this country in the most difficult days of its history. This is the true color of China and this is the outcome of friendship with China.