China’s Investment in Sri Lanka: Trap of Debt

Rahul Nath Choudhury ()
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Rahul Nath Choudhury: Indian Council of World Affairs

Chapter Chapter 8 in Mapping Chinese Investment in South Asia, 2023, pp 175-207 from Springer

Abstract: Abstract Over the last decade, China emerged as the primary source of foreign investment and loans for Sri Lanka, surpassing traditional sources, such as Japan and India. China also emerged as the largest overseas development assistance provider in Sri Lanka in the recent past. The bilateral relationship between these economies reached to a new high with Sri Lanka joining the mega Chinese initiative BRI wherein Sri Lanka availed huge volume of Chinese funds under BRI, charged at much higher interest rates than the multilateral agencies and the amount was more than the repayment capacity of the tiny island nation. The Chinese project and the loan extended for the infrastructure development were the target of intense debate and criticism all over the world after Sri Lanka had to transfer the ownership of the flagship BRI project Hambantota to China as it could not repay the loan. Perhaps all the criticism against BRI surfaced after this incidence took place in 2018. Accessing high volume of loans without assessing the repayment capacity and the commercial viability of the projects created a mounting pressure on Sri Lanka’s debt burden. With this background, this chapter explores the relationship between China and Sri Lanka from economic perspective and systematically investigates the role of Chinese loan in primarily contributing to the financial crisis in Sri Lanka.

Keywords: BRI; Debt trap; Hambantota port; Chinese loan; SOE (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/978-981-99-1385-5_8

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