China turns its back on Sri Lanka economic crisis: Report

People stand in a queue to buy kerosene oil for home use at a petrol station in Colombo on March 22, 2022. Pic/AFP

China refused to assist Sri Lanka which appealed to reschedule its huge Chinese debt burden in the face of the Covid-19 outbreak that has adversely affected the tourism sector, said a media report.

Colombo appealed if a restructuring of the debt could be arranged to mitigate the economic crisis that had arisen in the face of the Covid-19 outbreak.

President of Sri Lanka GotabayaRajapaksa in a meeting with Foreign Minister of China Wang Yi sought the assistance of Beijing in the face of the deepening foreign exchange crisis of Sri Lanka and spiralling external debt.

"Replying to a question on the pending request from Sri Lanka for a debt relief, Foreign Ministry spokesman of China Zhao Lijian said in a news conference this month,that China had been providing assistance for the socio-economic development of Sri Lanka to the best of its ability and would continue to do so. In concrete terms, this meant nothing," the hong Kong post reported.

China has shed some crocodile tears over the economy of Sri Lanka getting caught in a quagmire after hobnobbing with the BRI projects of China: record inflation, soaring food prices and the sufferings of the people said a media report.

"The key concern, however, is how such a negative situation would impact the attitude of Colombo towards borrowings from China,and what it would mean for the ultimate relation between China and Sri Lanka. There is concern that the experience of Sri Lanka is prompting countries like Myanmar, Malaysia and Nepal to suspend Chinese investment projects, it added.

Though the crisis in Sri Lanka was apparent after the pandemic that dried up the international tourist traffic to the island nation, one of its main foreign exchange-earners, the country's debts spiralled and foreign exchange reserves shrunk as the end result of reckless borrowings from China to finance infrastructure projects, reported The Hong Kong Post.

With tourism hit by the pandemic, the economic structure of Sri Lanka, which was already tottering under the heavy burden of loans, crumbled. A major part of this debt was owed to China, which accounts for nearly USD 8 billion.This debt burden was a result of China's Belt and Road Initiative (BRI) projects like Hambantota Port and Colombo Port City for which Chinese agencies lent large amounts to Sri Lanka under stiff terms of repayment.

Notably, in 2021-22, Colombo's debt repayment to Beijing amounted to nearly USD 2 billion. Further, Hambantota port has already been leased out to China for 99 years against USD 1.2 billion.

In the face of the deepening foreign exchange crisis, Sri Lanka President Gotabaya Rajapaksa sought China's help in December 2021 as he requested a debt restructuring in a meeting with China Foreign Minister Wang Yi. However, Beijing has reportedly shown Colombo the door, according to the media outlet.

Ironically, the deeply pro-China Rajapaksa government dug its own grave as it had booted out the Millennium Challenge Corporation (MCC) of the USA with its offer to extend developmental assistance grant to Colombo as the Board of Directors of MCC discontinued its USD 480 million contract with Sri Lanka in December 2020 "due to lack of partner country engagement," the publication reported citing the US embassy.

Further, China-assisted projects in Sri Lanka are likely to deepen the indebtedness of the island nation. Moreover, locals of Sri Lanka are protesting against some of these projects which will affect their livelihood.

One of these projects is an industrial park attached to the Hambantota International Port which has incited violent protests by local people as they fear that the area would become a Chinese colony, reported the media outlet.

Given the current crisis coupled with the absence of any assurances from China for concrete support, Sri Lanka seems to be reassessing the extent to which it can bank on China.

However, it is nearly impossible for Rajapaksas to deny China its committed space in Sri Lanka due to arbitration threats and likely obligations. It is an economic annexation of a sovereign country and not a debt trap alone.

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