Sri Lanka declared bankruptcy on July 5. The country once called the “Pearl of the Indian Ocean” is facing inflation exceeding 50%, foreign exchange reserves are dwindling, and people are lacking food, electricity, and fuel.
This country of 22 million people is saddled with a debt of $51 billion. Among them, China’s debt accounts for about 10%.
Over the years, the Belt and Roads Initiative (BRI) has been accused of being a huge debt trap that China Communist Party (CCP) has put in place to control, seize resources, and privileged military and economic locations in the countries participating in this initiative.
One of the main reasons for Sri Lanka’s bankruptcy is that the country has fallen into the CCP’s BRI debt trap.
Sri Lanka is strategically located on a crucial oil shipping route from the Indian Ocean to East Asia.
The country owns the port of Hambantota, which is only about 6 to 10 nautical miles from the main route connecting Asia and Europe. This is an essential node in the CCP’s Belt and Road seaway.
In 2007, Sri Lanka received a $1.5 billion investment from China to rebuild the Hambantota port. This port started operating in June 2012.
But, Hambantota did not have many ships coming in and out. So, not reaping many benefits caused Sri Lanka to be in debt to China.
To deduct part of the debt, in July 2017, Sri Lanka had to agree to hand over the Hambantota port to China for 99 years. China could have assisted Sri Lanka by rerouting ships to Hambantota port to facilitate a positive income stream. Now that China has rerouted some of its vessels to the port, it has become profitable for China.
In addition to Hambantota, Sri Lanka has received many loans from the BRI to develop infrastructure projects. However, while these projects have not benefited them, they have been plagued with huge debts from China.
According to ET, most analyses from the Chinese media are not worried about Beijing not collecting its debt from Sri Lanka.
An analysis published by the Chinese portal NetEase on July 10 stated that if Sri Lanka fails to repay its debt to China, it will exchange land or infrastructure projects with China’s regime—precisely what happened with the Hambantota Port.
The article also said that Sri Lanka has geographical advantages. Therefore, investing in ports such as Hambantota and Colombo in this country is an investment with a “long-term strategic vision.” Thereby implying that Beijing can collect a debt by long-term ownership of these critical ports.
Another article published by NetEase on July 13 states that Sri Lanka must repay its debt to China. Otherwise, Sri Lanka must use its products, such as agricultural products and the sale of infrastructure, to pay off its debt.