China and Sri Lanka's Hambantota port

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Sri Lanka: A country trapped in debt
By Yogita Limaye
BBC News, Sri Lanka
 25 May 2017 Business

https://www.bbc.com/news/business-40044113

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Hambantota port in southern Sri Lanka . . .

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Unaffordable'

Hambantota was built by a Chinese company and funded by Chinese loans.

But now Sri Lanka is struggling to repay that money, and so has signed an agreement to give a Chinese firm a stake in the port as a way of paying down some of that debt.

The terms of the deal are still being debated in Sri Lanka's parliament, but the share it gives could be as high as 80%.

"It is unaffordable for an activity that doesn't bring any economic returns," says Sri Lankan Foreign Minister Ravi Karunanayake. "So that's compelling us to look at options."
The vision for Hambantota was that it would bring more ships to Sri Lanka, and ease pressure on the Colombo port, one of Asia's most important container terminals.

Sri Lanka is located on the sea route that sees oil shipments travel from the Middle East, making energy security a key reason China was keen to invest.

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Local fury

Hambantota has struggled to make money, partly because it is fairy isolated. With no industrial hub nearby, there are no natural customers on its doorstep.

But now that China looks set to take control of the port, that is a problem it wants to fix and is talking to the government about plans to create a large economic zone - buying 15,000 acres of land to build factories and offices.

But many who live in the area don't want to give up their homes and farms.

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China Tells Sri Lanka: We Want Our Money, Not Your Empty Airport
Wade Shepard , CONTRIBUTOR
 
Opinions expressed by Forbes Contributors are their own.

https://www.forbes.com/sites/wadeshepard/2016/07/31/china-to-sri-lanka-we-want-our-money-not-your-empty-airport/#796227831beb

Sri Lanka has a debt problem. After more than a decade of taking out huge loans to build large-scale infrastructure -- most of which hasn't yet produced adequate returns -- the country is now struggling to make payments, and is looking for another way out.

A potential exit strategy was to offer China debt for equity swaps, which Sri Lanka's Prime Minister Ranil Wickremesinghe recently proposed to China’s Ambassador Yi Xianliang. China was offered varying degrees of control over some of Sri Lanka's biggest infrastructure projects, including Mattala International Airport and portions of the Hambantota deep sea port, and Sri Lanka would receive some debt relief.

China's response to this offer was publicized earlier today in Colombo's Sunday Times: We're not interested. The Chinese ambassador replied that "it was not possible according to China’s laws."

However, China was clear that it extends its "fullest cooperation" and that such deals should be conducted via investors on proper commercial terms.

This point is key: while China's government will not swap debt for equity they will help clear the road for Chinese companies to take over key projects in Sri Lanka. IZP, a Chinese informational technology company, has been put forward as a potential purchaser of Mattala International Airport, while COSCO is looking into expanding operations at the Hambantota deep sea port.

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China Is Doing The Same Things To Sri Lanka That Great Britain Did To China After The Opium Wars
Panos Mourdoukoutas
Jun 28, 2018, 08:17pm 23,802 views  #ForeignAffairs
 
https://www.forbes.com/sites/panosmourdoukoutas/2018/06/28/china-is-doing-the-same-things-to-sri-lanka-great-britain-did-to-china-after-the-opium-wars/#a60d88c7446a

China is turning Sri Lanka into a modern day “semi-colony,” the same way Great Britain and Portugal turned south China into their own semi-colonies back in the mid of 19th century.

Sri Lanka didn’t lose a war to China. It never ceded any of its territory officially to China. But it handed over economic control of its deep sea Hambantota port to China Merchants Port Holdings (CM Port).

Last week, CM Port made a $584 million payment as part of a $1.12 billion deal to operate Sri Lanka’s deep-sea Hambantota port, according to a Reuters report. Under the agreement, signed in July 2017, CM Port will run the $1.5 billion Chinese-built port on a 99-year lease.

The $1.12 billion total price is to be used to reduce the Sri Lankan government’s debt to China.

In economic terms, this agreement is similar to that China signed back in the aftermath of Opium Wars with the British and the Portuguese, ceding control of its Southern ports to the British and the Portuguese.

China's growing presence in Sri Lanka began back in 2007, when Beijing provided President Rajapaksa both military and diplomatic support to crush the Tamil Tigers. Then followed high profile construction projects and high interest loans that left Sri Lanka heavily indebted to China.

Sri Lanka government debt was standing 77.60% of the country's GDP in 2017, well above the 69.69% average for the 1950-2017 period, according to Tradingeconomics.

Meanwhile, Sri Lanka’s Government Budget deficit stands at 5.5% of the country’s GDP, adding to its indebtedness.

Rising indebtedness comes at a time when Sri Lanka is already living beyond its means, as evidenced by persistent current account deficits, which stand at 2.60% of the country's GDP in 2017.

To cope with a rising debt to China, Sri Lanka has signed agreements with China that swap loans  for equity, transforming China into an owner to major infrastructure projects like Sri Lanka’s major port— and a key outpost in the Indian Ocean for Beijing.

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https://www.bloomberg.com/news/features/2020-03-02/a-china-belt-and-road-project-becomes-a-corridor-to-nowhere

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And in Sri Lanka, new leaders said they want to regain control of a port in Hambantota that was leased to a Chinese company for 99 years when the previous government couldn’t pay back a loan. That takeover sparked concern in many Belt and Road countries that China’s largesse comes with the risk of ceding critical infrastructure.

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