Four years ago, Sri Lanka built Mattala Rajapaksa International Airport (MRIA) in Hambantota, 250 km south from Colombo, with Chinese assistance of $190 million, more than 90 per cent of the total cost. Today, MRIA is running into losses and Sri Lanka is unable to pay back dues to China’s EXIM Bank.
Ironically, Sri Lanka has now decided to hand over the airport to India so that it can repay the Chinese loan.
Expect this scenario to unfold in dozens of small countries in Asia and Africa if China’s ambitious On Belt One Road (OBOR) project becomes a reality. Touted as a global partnership by China, OBOR is actually an exploitative, colonial stratagem to gain vital assets in small countries.
The OBOR project will be a vast network of sea and land routes across dozens of countries. It will impact 4.4 billion people. China is said to be spending $1 trillion on it. It is not one project but six major routes which will include several railways line, roads, ports and other infrastructure. China claims these economic corridors will not only build infrastructure in countries that cannot afford to do it themselves but also boost global trade. Most of the countries in Asia and all of India’s neighbours, except Bhutan, are willing to take part in the project.
The participating countries will benefit in terms of infrastructure and trade. OBOR can be an easy and fast way for many small countries to acquire important infrastructure projects which they cannot afford otherwise. But all this will come at a huge hidden cost.
China will lend money for OBOR projects to host countries at high rates of interest which the countries may not be able to repay. This can lead to China acquiring equity and then controlling stakes in these projects, getting a permanent footprint in several small countries which is nearly impossible for it to achieve otherwise.
What has happened in Sri Lanka is a dire warning for small countries against China’s colonial advances wrapped in benign global treaties.
Not far from the loss-making airport built with Chinese loan is a vital link in the OBOR project—the deep-sea port of Hambantota. China recently got a 99-year lease for running the Hambantota Port.
But a wary Sri Lanka has made it clear to China that the port would not be used for any military activities.
The small country is running up huge financial losses owing to high interest rates charged by Chinese lenders for the mega infrastructure projects which will now be part of OBOR. China has provided Sri Lanka with over $5 billion between 1971 and 2012, and most of this has gone into infrastructure development.
Sri Lanka’s estimated national debt is $64.9 billion, of which $8 billion is owed to China—this can be attributed to the high interest rate on Chinese loans. For the Hambantota port project, Sri Lanka borrowed $301 million from China with an interest rate of 6.3%, while the interest rates on soft loans from the World Bank and the Asian Development Bank are only 0.25–3
Interest rates of India’s line of credit to the neighbouring countries are as low as 1%, or even less in some cases. Sri Lanka is facing debt crisis or a ‘debt trap’, as some scholars describe it.
Sri Lanka is currently unable to pay off its debt to China because of its slow economic growth. To resolve its debt crisis, the Sri Lankan government has agreed to convert its debt into equity. This may lead to Chinese ownership of the projects finally.
Sri Lanka’s decision to hand over the loss-making airport to India is a move against China’s tightening noose of debt. (Economic Times)