Sri Lanka–China Economic Engagement

Context

China and Sri Lanka signed two MoUs during the 8th China–Sri Lanka Joint Trade and Economic Commission to deepen bilateral cooperation in trade facilitation and supply chain development, advancing China's Belt and Road Initiative (BRI) in the region.

China–Sri Lanka Ties

1. China as Largest Bilateral Creditor to Sri Lanka

China holds ~52% of Sri Lanka’s bilateral external debt (as of 2024).
Loans are largely non-concessional and directed at strategic infrastructure (e.g., ports, expressways).

2. Infrastructure Investment

China invested over USD 12 billion in Sri Lanka during this period.
Major projects:
- Hambantota Port (leased to China for 99 years in 2017).
- Colombo Port City
Highways, airports, coal power plants.
Raises concerns over sovereignty, transparency, and Chinese political leverage.

3. China’s Strategic Interests in Indian Ocean

Indian Ocean Region (IOR): Key to China’s Maritime Silk Road.
China seeks to counter US–India naval presence and secure sea lines of communication (SLOCs).
Builds dual-use infrastructure to support military logistics and civilian trade.

4. Shifting Alignment of Smaller Nations

Countries facing economic distress (like Sri Lanka) may gravitate toward Chinese investment.
This risks undermining India’s traditional sphere of influence.
Lack of viable alternatives makes Chinese funding attractive despite geopolitical trade-offs.

5. India’s Concerns

Opposition to SAGAR Initiative
- China’s “Forum for Indian Ocean Island Countries” runs counter to India's SAGAR Doctrine.
- Undermines India’s vision of inclusive and cooperative maritime governance.
Strategic Encirclement – Strings of Pearls Strategy
- Network of Chinese-funded ports and bases around India (Gwadar, Hambantota, Kyaukpyu).
- Aims to project Chinese naval power and encircle India geopolitically.
Dual-Use Ports: Security Concerns
- Hambantota Port and Colombo Port City may support Chinese military docking, surveillance, and intelligence gathering.
- Potential for a permanent Chinese naval presence in the IOR.
Influence in India’s Neighbourhood
- Nepal, Bangladesh, Maldives increasingly engaging China for:
  - Infrastructure funding.
  - Connectivity (railways, roads, bridges).
  - Digital and power sector projects.
- Raises the need for India to counterbalance via Neighbourhood First Policy and Project Mausam/SAGAR.

Belt and Road Initiative (BRI)

1. Overview of BRI

Launched by Chinese President Xi Jinping in 2013 as One Belt One Road (OBOR), later renamed BRI.
Aims to enhance regional connectivity, trade expansion, and economic integration.
Focuses on infrastructure development across Asia, Africa, and Europe.

2. Key Components

Silk Road Economic Belt:
- Overland trade corridor connecting China to Europe through Central Asia and West Asia.
21st Century Maritime Silk Road:
- Sea route linking China with Southeast Asia, South Asia, East Africa, and Europe.

3. India’s Concerns Regarding BRI

Violation of Sovereignty: China-Pakistan Economic Corridor (CPEC), a flagship BRI project, passes through Pakistan-occupied Kashmir (PoK).
Strategic Encirclement: BRI promotes Chinese presence in the Indian Ocean Region (IOR), reinforcing the String of Pearls strategy.
Debt Trap Diplomacy: Countries like Sri Lanka, Laos, and Djibouti have faced debt stress due to unsustainable BRI loans.
Undermining Indian Influence: BRI offers cheaper loans and faster project execution, reducing India’s leverage in South Asia and the neighbourhood first policy.

4. India’s Countermeasures

India-Middle East-Europe Economic Corridor (IMEC): Announced at G20 Summit 2023, alternative to BRI connecting India to Europe via UAE, Saudi Arabia, and Israel.
International North-South Transport Corridor (INSTC): Links India with Russia and Europe through Iran and Central Asia.
Global Partnerships: India supports Partnership for Global Infrastructure and Investment (PGII) and Build Back Better World (B3W) by G7.