Even before India articulated its response to the Belt and Road Initiative (BRI) in a strongly-worded statement ahead of the Beijing summit, saying connectivity projects must follow principles of financial responsibility to avoid unsustainable debts, the signs of Chinese investment bringing unserviceable debt burden were visible in Sri Lanka.
The island nation had started the construction of a port in Hambantota in 2008 with China funding 85 per cent of the project. Having failed to operate the facility profitably, something that had been predicted pending construction of the port, Sri Lanka is struggling to repay that money. It has now signed an agreement to give a Chinese firm a 70 per cent stake in the port to be able to pay that debt.
The situation at the international airport barely 30km from Hambantota, which too was built with Chinese assistance of $190 million (over 90 per cent of the total cost), is not different. Not more than five flights take off every week serving just a few hundred passengers, making it economically unviable. Sri Lanka has now decided to hand over the airport to India so that it can repay the Chinese loan.
Sri Lanka’s estimated national debt today stands at $64.9 billion, of which $8 billion is owed to China. This serves as a warning to countries, which are not yet ensnared in China’s debt trap, against dependency created by Chinese loans which often have an interest rate of 6 to 7 per cent.
The region that houses these projects – although close to sea lines of communication – is fairly isolated. To assess that these projects would be economically unviable should not have been difficult, given that there is no industrial hub nearby. China, still, chose to finance them for reasons not beyond geopolitics.
The trend, now clearly visible in Chinese investments which are a part of the BRI, is worrying for India. Many BRI projects in India’s periphery, like Pakistan’s Gwadar Port, are expected to fail economically, creating debt burdens. To resolve their crises, countries would convert debt into equity, ultimately leading to Chinese ownership of the projects, as seen in Sri Lanka’s case.
Fears that China may use the port for military purposes have been alleviated, at least for now, with Colombo being in-charge of security matters at the port. However, the same may not be true for other projects, including those being financed by China in Pakistan and Myanmar as part of the BRI initiative.
An appeal from Swarajya
At Swarajya, we rely on our readers' support through subscriptions to sustain our media platform. Unlike larger conglomerates, we are unable to relentlessly chase advertising money — our model is largely built on your patronage.
Your support has never been more crucial. We work tirelessly to deliver 10-15 high-quality articles daily, ensuring you receive insightful content from 7 AM to 10 PM.
If you believe India's story has to be articulated in a way it has never been done before without shrugging it off, become a patron (or) subscribe now for ₹̶2̶4̶0̶0̶ ₹1999 and get 12 print issues, unlimited digital access for 1 year, a special India that is Bharat T-shirt (Offer ends soon).
We are counting on you!