S21: Belt and Road

• 2013: Xi Jinping announced the Belt and Road Initiative
• 2007: China Ex‑Im Bank provided a commercial loan to finance Hambantota Phase I
• 2010: New port opened in limited form

• 2001: China joins WTO
• 2008: Global Financial Crisis
• 2012: Xi Jinping becomes leader
• 2013: Belt and Road Initiative announced
• 2016: Brexit; Trump 1.0; Trade war with China
• 2019: Covid-19
• 2025: Trump 2.0; USAid canceled

• Port of Hambantota: Was it a good investment? For whom? At what cost?
• Belt and Road Initiative: What is it? How is it introduced and implemented?
• How did China become a global lender and investor? Specifically, how Does party-state capitalism in China interact with international development and global capitalism?

• What is the history between China and Sri Lanka before BRI?
• What about China’s relationship with the rest of South Asia?
• How does history shape the BRI relationship?

• Relationship between China and India – between the two nuclear powers and major economic players – remains strained by ongoing tensions along their shared border and a competitive security posture.
• The two countries are vying for leadership of the Global South, with both countries using infrastructure investments and diplomacy to lure in partners, including Sri Lanka.

• New roads are being built, runways extended, and rivers altered.
• Key infrastructures: Chengdu-Lhasa railway, China-Nepal railway, Medog Hydropower Station on Yarlung Tsangpo River (1 trillion RMB, world’s largest)
• Remote Himalayan regions are reconfigured for better movement and accessibility.
• Both India and China are building dual-use infrastructure with strategic functions for territorial claims.

• Nepal: Trans-Himalayan Railway
• China-Pakistan Economic Corridor (CPEC): 15-year, $62 billion investment; BRI flagship
• Bangladesh, China, India and Myanmar Economic Corridor (BCIM): proposed road, rail, water and air link connecting India and China through Myanmar and Bangladesh as a corridor.

• How strategic is Sri Lanka’s location?
• What are SL’s main ports?
• Why invest in ports? What makes them good/bad investments?

• China is a major manufacturing nation, with over 80% of imports and exports rely on sea transport.
• The First Island Chain – a line of islands stretching from the Kuril Islands in the north through Japan, Taiwan, and the Philippines to Borneo in the south – handles 30% of global oil transport, over 40% of global container ships and over 30% of bulk cargo (like iron ore, coal, grain).
• Key bottleneck: 80% of East Asia’s oil imports pass through the Strait of Malacca.
• The region’s safety and stability are vital for China – and the entire world.

India

• India relies on the ocean for 95% of its international trade and 80% of its energy.
• 40% of the world’s offshore petroleum is found in the Indian Ocean.
• Four of the world’s six most important maritime chokepoints are in the Indian Ocean.

China

• Food and energy reliant on foreign imports.
• The first island chain – a lifeline for import and export – controlled by the US and its allies.

• 2017: China establishes its first overseas military base in Djibouti, on the coast of the Horn of Africa.
• 2025: China funds a “joint logistics and training center” at Cambodia’s main naval base, Ream Naval Base.
• New flashpoints: Mauritius, Coast of Africa, and beyond

• What is the Hambantota Port project?
• What did the feasibility studies say?
• What are the two phases?
• What makes a port a commercially viable project?

• Phase I built infrastructure for bulk shipping, not containerized cargo.
• Original plans aimed for Phase I profit before Phase II.
• President Mahinda Rajapaksa accelerated Phase II, possibly for political gain during the presidential campaign, and potentially harming the country.

Three roles:

• China Export-Import Bank
• China Harbor Group
• Sri Lanka Ports Authority (SLPA)
• Mahinda Rajapaska (Sixth President of Sri Lanka from 2005 to 2015)

Questions

• Was developing a port at Hambantota a good idea?
• Would you invest in this project? Why or why not?

China

• China Export-Import bank does the financing, China Harbor Group (an SOE) does the construction, Sri Lanka pays.
• Secure way to transport oil from the Middle East and North Africa and refuel if access to the Malacca Strait is threatened
• Feasibility studies cannot account for growth projections in East Africa, India, Myanmar, Bangladesh, etc.
  
• Port of Colombo reaching capacity, even when it expands, hits capacity
  

Sri Lanka

• Gets a guarantee for southern development.
• Sped up phase II of container port because Rajapaksa knew he would / could lose and no one would do it

China

• Don’t trust Rajapaksa: The project was motivated by
• Sri Lanka’s civil war, still in its bloody final phase in 2007.
• Don’t believe that SL can come through with the ancillary investments that make a port viable

Sri Lanka:

• International financial institutions, US, and India said no; discredited SLPA and Sri Lanka in general
• Feasibility studies were pretty negative – or at least the port would aid world development in a direction that wouldn’t benefit the west.
• No development in Southern region to warrant container port; Can’t compete with Singapore

• Who got the better deal from the renegotiation?
• What are the benefits? What are the costs? And for whom?
• Is this “debt trap diplomacy”? Did the new Sri Lanka government have a choice?

• China loaned Sri Lanka $757 million for a port at 2% interest in 2012.
• This rate was lower than the 6.3% rate for the port’s Phase I in 2007.
• Both loan rates were considered good deals for Sri Lanka compared to the LIBOR rates on the international markets.
• China’s equity investment went to the Sri Lankan government, which used it to pay off other debts.

• Democratic elections as leverage: The new president Maithripala Sirisena ran on a platform against Chinese investment and debt.
• He suspended the Port City project to renegotiate the deal.
• Sri Lanka was under fiscal pressure from its bond obligations to Western lenders.
• The renegotiated deal allowed China to invest equity in the port at its original price.
• China needs the Hambantota port project to prove BRI a success.

• What is it?
• How to pay for it?
• Can it work?
• What does it have to do with the development of the Hambantota Port?

• China Harbor was awarded the project in 2009 and invested $1.4 billion to reclaim 2.69 sq km near Port of Colombo for a new city district called Port City, which aims to be a regional business and financial center with residences, offices, and resorts.
• By August 2016, the project was re-approved after an environmental study, and China Harbor received additional land on a 99-year lease.
• By fall 2018, master planning was complete and land reclamation was nearly finished.

• Would you invest in this project? With what kind of time frame?
• Was it a good deal for China Harbor?
• What did China learn about Sri Lanka politics? What did they not understand?

• In 2018, President Sirisena unexpectedly fired PM Wickremesinghe and appointed Mahinda Rajapaksa as the new PM.
• Wickremesinghe argued the President lacked the constitutional power to dismiss him.
• A court stayed the appointment, and Rajapaksa lost a parliamentary vote.
• The President and Rajapaksa refused to accept the vote, leading to a potential crisis.

• 2020–2021: COVID‑19; SLPP won a large parliamentary majority in August 2020; subsequent constitutional changes strengthened the presidency
• March–July 2022: Severe economic collapse, fuel/food shortages, mass protests

• May 2022: Mahinda Rajapaksa resigned as PM
• July 2022: President Gotabaya fled and Ranil Wickremesinghe became acting president.
  
• Sep 23, 2024: Anura Kumara Dissanayake of the National People’s Power Party won presidential election and sworn in

• The port’s structure – at least for now – has only one way in and out, making it unsuitable for military purposes.
• While the port presents potential strategic values, does overt militarization benefit the Belt and Road initiative?
• The world will be watching China’s actions: The port can also be seen as a strategy to gain global trust.

Entrepot

• Chinese companies are moving to Sri Lanka because of cheaper labor, lower environmental standards, etc.
• Trade headwinds push companies to do final export processing there: SL’s Free Trade Agreements (FTAs), such as with the EU, allow for tariff hopping.

Ghost town?

• Similar to China’s infrastructure projects at home: “if you build it, they will come”
• This seems possible only if SL domestic politics prevent the kinds of investments it would take.
• So far, Sri Lanka also wants it to succeed.

• What are the risks and benefits of BRI?
• Which parts of the Chinese state are in charge of BRI? How is the project conceived and implemented?
• Is there a masterplan / blueprint? If so, what does it look like?
• Will political centralization under Xi help or hurt BRI?

What can we learn from Sri Lanka project moving forward? Discuss:

• BRI countries
• China
• the West

• China now wields significant financial power and influence over other countries; Developing nations are no longer solely dependent on the West for financing.
• What are the means and consequences of this financing transition, especially when China’s lending and developmental projects are less transparent than those of international financial institutions?

• A deal is not final; they can always renegotiate.
• Democracy provides leverage: Need to make good election promises.
• Political conflict helps extract better deals.

• Why and how did economic interdependence generate economic coercion and political conflict, rather than cooperation and convergence on norms and behaviors?
• Are we in a new era in which economic interdependence is replacing “organized globalization” managed by multilateral institutions and the rules they generate? If so, what are the consequences?