Sri Lanka's new govt struggles with structural dependency on Chinese capital: Report
New Delhi, June 12
Sri Lanka's new government confronts structural dependency on Chinese capital that shackled its predecessors but feels handtied due to fragility of its economic recovery, a new report has said.
It faces the hard task of renegotiating economic and political ties with China without derailing an already fragile recovery, the report from The Asian said.
The National People's Power (NPP) administration was elected on a backdrop of public criticism of opaque foreign deals and foreign-funded infrastructure becoming threats to national sovereignty.
"Due to their scale and visibility, Chinese-backed projects became the lightning rod for this discontent," the report said.
However, Beijing remains one of the few partners able and willing to finance Srilanka's large‑scale projects, and Colombo urgently requires foreign capital and only has dismal foreign exchange reserves.
Sri Lanka's new government that campaigned on reviewing old deals moved swiftly in January 2025 to fast-track an agreement with China's Sinopec for a proposed $3.7 billion oil refinery in Hambantota, due to this structural dependency, the report argued.
The analysis highlighted Hambantota Port handed to a Chinese state firm on a 99‑year lease in 2017 "as a permanent symbol of compromised sovereignty and strategic dependency."
Locals are becoming vocal for stricter oversight of Chinese-controlled strategic assets and revising tax concessions for the Colombo Port City.
"Under post-IMF restructuring, Colombo has attempted to tighten incentive structures and claw back certain tax exemptions within the Port City framework. However, rolling back sweeteners risks discouraging the very investors Sri Lanka needs," the report noted.
Further, Beijing has little structural incentive to fundamentally alter agreements that already work in favour of its long-term commercial and strategic interests.
The media house argued that China's leverage in Sri Lanka is structural rather than purely military, embedded across logistics, energy and long‑term development finance.
"Chinese firms remain actively engaged in expanding industrial zones and emerging energy projects," the report added.
— IANS
Reader Comments
The Hambantota port lease for 99 years still hurts as an Indian. 🥲 But look at the reality - Sri Lanka's forex reserves were so low even before COVID, they desperately needed someone. China stepped in when no one else did. The real issue is why India's development partnership projects take so long to begin while Chinese ones break ground in months.
Structural dependency indeed - once you sign 99-year leases and give tax exemptions for decades, you're stuck. The new government campaigned on transparency but immediately fast-tracked Sinopec's $3.7B refinery. Shows how hard it is to break free. India should offer alternative financing with fewer strings attached.
As a Sri Lankan Tamil, I've seen this cycle repeat. Political parties blame each other for Chinese deals but when in power, they all sign similar agreements. The IMF restructuring might help, but rolling back tax concessions for Port City investors could backfire. Strategic balance between India and China is not easy for small nations.
Interesting how China's leverage is described as "structural" - embedded in logistics, energy, and finance, not just military bases. That's harder to reverse than a naval port. Sri Lanka's economic fragility means they can't simply walk away. India needs a more pragmatic neighbourhood policy that offers competitive alternatives.
I don't blame China for playing smart geopolitics. Every country looks after its interests. The fault lies with Sri Lankan governments that signed bad deals without proper due diligence. If India wants to counter Chinese influence, we need faster project execution and more generous development finance
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