Atul Loke/Bloomberg
A port city that, more than ten years after the start of the project, is nothing more than a wasteland, or an airport with almost no flights: in many places on the road in the economically ailing island state, one encounters dashed hopes.
The air hangs heavy and muggy over Colombo Port City, a 270-hectare sand-filled expanse just outside the Sri Lankan capital. A graphic from the South China Morning Post, a Hong Kong newspaper, shows a futuristic Manhattan in the subtropics. The project started in 2011. But for years there has been nothing but a pile of sand and a few construction cranes. A golf shooting range and a quad park, i.e. a course for small all-terrain vehicles, have been set up for temporary use.
“The Chinese play here on the weekends,” says a small, somewhat plump man who lends golf clubs. Almost half of the land heaped up already belongs to a Chinese company that wants to set up a special economic zone for international companies here. The Colombo Port City is an oversized Chinese project that aims to give the city of 500,000 people a hyper-modern look. In 2017, the estimated construction cost was $15 billion.
Sri Lanka, the island at the southern tip of India, is more than 5000 kilometers as the crow flies from mainland China. However, the island is strategically located halfway between East Asia and resource-rich Africa and the Persian Gulf – on one of the most important trade routes in the world. From Beijing’s point of view, it makes sense to pay special attention to the 22-million nation. This is exactly what the new Silk Road is for, the project with which China wants to expand its influence in Asia, among other things.
Colombo Port City, a new city, was actually supposed to be created here with Chinese investments. For the time being, however, there is not much more than a course for quad vehicles.
Since 2014, the Communist Party has been trying to create new sales markets with loans and development projects. In recent years, Beijing has invested almost a trillion in infrastructure projects in Asia, Africa and Europe: Chinese railway lines and highways run through Central Asia. A corridor through the Xinjiang region, inhabited by Uyghurs, leads via Pakistan to the Persian Gulf. Ports and train routes in Africa should secure the supply of raw materials.
The principle: Beijing offers emerging markets in its own strategic orbit cheap loans for infrastructure projects. On the one hand, the Communist Party wants to secure access to raw materials and, on the other hand, open up sales markets for its own export economy. Last but not least, it is about geostrategic influence and creating dependencies.
Sri Lanka is a prime example and a cautionary tale for this strategy. Prior to 2000, there was no significant Beijing investment in Sri Lanka. According to a study by the Verité Research Group from Sri Lanka, no more than 2 million dollars flowed from Beijing to Colombo between 2005 and 2009. But then the millions suddenly become billions. For a long time, not even the exact amount of the debt was known: once there was talk of 3, then again of 12 billion dollars that Sri Lanka owed Beijing.
In August 2022, the Treasury Department in Colombo spoke of a total of $10 billion in bilateral debt, half of which is with China. Sri Lanka is not an isolated case: from Kenya to Laos, Beijing has invested billions in recent years, and many of these countries are currently experiencing payment difficulties. According to a study by the Rhodium Group, 52 billion of these loans had to be renegotiated between 2020 and 2021.
The greengrocer Kanareh.
Sri Lanka is currently going through one of the worst economic crises in its history. The mood at a market in central Colombo is bad: the greengrocer Kanareh is chopping up heads of cabbage with a small machete. Each swipe sits, slicing off the outer leaves of the cabbage until all that’s left is a shiny, clean head. He points to the heap of chopped off leaves in front of him: “Bugs, vermin, rot,” he says. “I have to cut away almost half of every cabbage.”
Tourism has collapsed as a result of the pandemic measures. In the summer of last year, the President issued a ban on fertilizers in order to convert all agriculture to organic farming. As a result, products from Sri Lanka should fetch higher prices and bring more foreign currency into the country. The opposite was the case: the harvest collapsed. As a result, the country no longer had enough money to import fuel. This in turn led to riots. The images of protesters bathing in the pool at the Presidential Palace went around the world.
After the president’s escape, curious people and protesters from the population invaded his property and advanced to his swimming pool.
In the meantime, the situation has calmed down somewhat: petrol has been rationed, a car driver gets 20 liters a week. But that’s not enough, says greengrocer Kanareh. As a result, many farmers can no longer bring their goods to market. Inflation is at 80 percent. The country is effectively insolvent.
You don’t have to go far back in history to know what this means for Beijing-funded projects. The port of Hambantota in the south of the country is now in Chinese hands. Beijing lured the Sri Lankan government with generous loans to build a deep sea port. Chinese companies received the order for this. The project was initially to cost around 1.3 billion dollars, by 2012 the costs had grown to 1.5 billion and finally 1.8 billion. The money should be paid back by 2036. However, the port only made losses.
At the same time, the government had to both pay off the loan and pay high interest rates on it. In December 2016 it became clear that the port would probably never be as profitable as the studies had initially suggested. The government was unable to meet its payment obligations and agreed on a restructuring with the Chinese creditor. It was leased to Chinese state-owned companies for the next 99 years. No wonder that the controversial Chinese research and spy ship “Yuan Wang 5” stopped here in the summer. In Hambantota, it stocked up on oil, diesel and food – despite massive protests from India.
You are no longer allowed to go to the port. But you can visit the airport of Hambantota, which is only a few kilometers away – the Mattala International Airport was also built with a Chinese loan of 190 million dollars and is only served by a few planes. In China, the principle applies: build first, the people will come later. But Hambantota Airport is still empty six years after it opened. People are coming, but it’s visitors and tourists taking a Sunday trip to an empty airport. The security guards at the entrance search the bags as if someone could actually smuggle in explosives to blow up a plane. Inside, however, an employee explains that there are no flights today. Not this week either. And otherwise not really either.
The absence of tourists during the corona pandemic is one of the reasons why Sri Lanka (the beach near the capital Colombo in the picture) has been badly hit economically.
There are several such projects in Sri Lanka: the only coal-fired power plant in the country, which is said to be far too expensive, a gigantic cricket stadium and the 350 meter high Lotus Tower in Colombo. And the question arises as to why the responsible politicians got involved.
Patali Ranawaka, the country’s Minister of Energy between 2015 and 2019.
Not everything can be blamed on Beijing. “We are responsible for the current problems ourselves,” says Patali Ranawaka, who was the country’s energy minister between 2015 and 2019. “We don’t need to blame the Chinese for corruption and mismanagement.” He sees the country in a “sandwich position” and finds it natural to accept investment from all partners.
Andreas Hergenroether was chairman of the German Chamber of Commerce Abroad in Taiwan and Sri Lanka for a long time and knows Beijing’s strategic approach well. Today he has his own consulting firm in Colombo. “One cannot blame China for this strategic thinking. What is more problematic is the lack of plans on the part of the West.”
However, dealings with corrupt politicians are also a feature of Chinese Silk Road diplomacy. From Kazakhstan to Zimbabwe and Iran, the Communist Party has expanded its influence in recent years. Human rights or democratic structures are not a criterion. On the contrary, wherever Western states are withdrawing, Beijing steps in and takes advantage of the receptivity of local politicians to new investments.
“Corruption plays a role in all these projects. Investments are good in principle, but the projects often don’t pay off,” says Imran Furkan from the think tank Verité Research. Projects like the Hambantota airport only make sense politically, not economically. “The Chinese think and act in the long term,” emphasizes Furkan. There is also ecological damage. The airport is in a bird breeding area, and elephants keep breaking into the site. Western countries are more responsible about lending than the Chinese, says Furkan.
The country’s current debt and economic crisis is only adding to the Chinese pressure. The high credit rates to China accelerated all of this. “The entire economy is currently shrinking here. We need debt relief and hope that China will agree,” said former energy minister Ranawak. “So far, China only wants to grant new loans.”
And if not? Then what is unofficially already in China’s hands could also be officially “confiscated”. “A lease, as in the case of the port, is also conceivable for other projects,” says Furkan from the think tank Verité Research.
