A study initiated by Chatham House into Chinese investments and how best it could be utilisesd to rejuvenate the economy reports that the cumulative value of Chinese infrastructure investment to Sri Lanka amounted to $12.1 billion between 2006 and July 2019.
In view of the present Chinese Belt and Road Initiative (BRI) it is of crucial importance to understand the effects of such investments and how best Sri Lanka could maximize the benefits from Chinese infrastructure investments while minimizing any potential costs to ensure net benefits across the project portfolio.
It will also serves as a key instrument to gauge individual national circumstances elsewhere in the developing world.
China’s challenge appears to be the definitivemeans of expanding its reputation as a responsible global economic partner. China has already begun to address the issue through enhanced public diplomacy initiatives and nascent regulatory changes, the study states.
The research study had been undertaken byGaneshan Wignaraja, Dinusha Panditaratne, Pabasara Kannangara and Divya Hundlani. They all represent various academic disciplines but their stand point relating to Chinese investments through expansive BRI initiative.
The study further states “the Sri Lankan experience of Chinese infrastructure investment offers useful lessons for other developing country recipients of Chinese investment. But as countries differ in their institutional and policy conditions, insights from the Sri Lankan experience are also valuable to individual national circumstances elsewhere in the developing world.”
A summary of the study gives a helicopter view of the characteristics of Chinese investments encompassing a variety of investments from road networks to ports airports and Special Economic Zones undertaken by China hitherto worldwide.
It is of vital importance to study the purpose and objectives behind Chinese Investments especially in view of the Colombo Port City and infrastructure investment. The present imbroglio is about its nature and character which would pose questions politically and legally.
The summary study will provide some answers to most critical questions on Chinese investments.
• China’s expansive Belt and Road Initiative (BRI) has led to greater Chinese outbound investment in Asia, including in Sri Lanka. This investment has recently come under scrutiny, due to intensifying geopolitical rivalries in the Indian Ocean as well as Sri Lanka’s prime location and ports in the region.
• There are claims that by accepting Chinese outbound investment, Sri Lanka risks being stuck in a ‘debt trap’ and the displacement of its local workers by both legal and illegal Chinese labour. There are also concerns that Chinese investment has led to environmental damage and increased security risks for Sri Lanka and the neighbourhood. Furthermore, there is criticism that institutional weaknesses in Sri Lanka, including a lack of policy planning and transparency, are resulting in nonperforming infrastructure projects funded by Chinese investment.
• The pattern of Chinese investment in Sri Lanka reveals a nuanced picture of benefits and costs. Similarly, it shows that a matrix of Sri Lankan, Chinese and multilateral policies are required to maximize the benefits and minimize any risks of Chinese investment. Sri Lanka is not in a Chinese debt trap. Its debt to China amounts to about 6 per cent of its GDP. However, Sri Lanka’s generally high debt levels show the country needs to improve its debt management systems. This step would also reduce any risk of a Chinese debt trap in the future.
• Specific projects have contributed positively to Sri Lanka’s economy. Some have brought greater benefits than others, such as the Colombo International Container Terminal (CICT), which has allowed the Colombo port to grow at a rapid pace. However, imports from China for projects in Sri Lanka have widened the trade deficit between the two countries. In addition, there have been only limited economic spillovers for Sri Lanka, including knowledge transfer in the local labour force.
• The number of Chinese workers in Sri Lanka is rising but remains a very small percentage of the total labour force. While illegal migration is a concern, there are significantly fewer illegal residents from China than from neighbouringcountries. Sri Lanka has relatively strong rules on outward migration but can better regulate inward migration based on labour market demands and economic priorities.
• The environmental implications of Chinese investment projects in Sri Lanka are mixed. While earlier projects were more harmful, recent projects such as the CICT and Port City in Colombo have adapted to stricter environmental standards. To ensure consistently high environmental standards, Sri Lanka should strengthen its domestic regulations and seek more investments from green-friendly partners.
• Concerns that China will use ports and other projects for military purposes are, in part, driven by geopolitical anxieties. In response, Sri Lanka has strengthened its naval presence at the Hambantota port. Continual oversight by technical experts is required to guard against securityrelated concerns and ensure public trust in the projects. Such trust will also grow by improving transparency and by pursuing a long-term, national infrastructure development plan.
