8/23/2019 Opinion | The truth about Sri Lanka’s Hambantota port, Chinese ‘debt traps’ and ‘asset seizures’

set seizures’ | South China Morning Post

SCMP.COM

Opinion

The truth about Sri Lanka’s

Hambantota port, Chinese ‘debt
traps’ and ‘asset seizures’
Interviews, including with Sri Lankan o cials, debunk claims
the port was signed away to service Chinese debt
Chinese infrastructure loans have not led to the forfeiture of a
single valuable asset abroad
Topic |   Belt and Road Initiative

Barry Sautman  
Yan Hairong  
Published: 1:30pm, 6 May, 2019

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8/23/2019 Opinion | The truth about Sri Lanka’s Hambantota port, Chinese ‘debt traps’ and ‘asset seizures’ | South China Morning Post

When critics of Beijing accuse the government of debt traps and other predatory
policies, the example that crops up is almost always that of the Chinese-built
Hambantota International Port in Sri Lanka.

The government of Sri Lanka, a country where Chinese rms have also nanced
and constructed [1] railways, roads and power stations, allegedly failed to repay
Chinese loans to build the port and was then forced to lease it [2] to China, which
covets the port as a naval base.

It is part of an oft-told tale that China provides infrastructure loans to developing

countries, often as part of the Belt and Road Initiative [3], knowing they cannot be
repaid, allowing China to seize borrowing states’ valuable assets.

US consultants the Rhodium Group recently released a study [4] into Chinese asset
seizures and found just one instance: the above-mentioned Hambantota port.

However, interviews we have done in Sri Lanka show that even this lone instance
is not remotely true.

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8/23/2019 Opinion | The truth about Sri Lanka’s Hambantota port, Chinese ‘debt traps’ and ‘asset seizures’ | South China Morning Post

Villagers travel in a tractor on a newly built road in Hambantota, Sri Lanka, on March 24. Photo: Reuters

The Hambantota port lease, held jointly by the Hong Kong-based China Merchants
Port and the Sri Lanka Ports Authority, was negotiated over 2016-2017. Payments
of the principal and interest for the port loans comprised only about 1.5 per cent of
Sri Lanka’s external debt repayment obligations due then. The Sri Lanka Ports
Authority paid on time, using revenues from Colombo port, which includes a
successful container terminal run by China Merchants Port.

China holds an estimated 9-15 per cent of Sri Lanka’s external debt. [5] Some of
the rest is high-interest loans from (mainly Western) commercial banks.
International sovereign bonds account for about half of the external debt, with
Americans holding two-thirds of their value and Asians only about 8 per cent.

Sri Lanka must pay interest averaging 6.3 per cent on international sovereign
bonds and the principal must be fully repaid, on average, within seven years. In
contrast, more than two-thirds of the value of Chinese state funds lent to Sri
Lanka from 2001-2017 (including two-thirds of the Hambantota port loans) were
at 2 per cent interest, and mostly repayable over 20 years.

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8/23/2019 Opinion | The truth about Sri Lanka’s Hambantota port, Chinese ‘debt traps’ and ‘asset seizures’ | South China Morning Post

Thus, the recent reports, including one in a leading UK newspaper, that Sri
Lanka’s government was forced to sign the port away on a 99-year lease after
failing to repay Chinese loans that were racking up 6.3 per cent, are erroneous.

Ironically then, if Sri Lanka is debt distressed, it owes more to American and other
Western entities than to its Chinese counterparts. Yet, as both a past and a present
governor of Sri Lanka’s central bank stressed to us in interviews, Sri Lanka has
never defaulted on any loan payment and has not sought to have any external debt
rescheduled.

The Hambantota port lease was not a result of any inability to service the loans,
nor was it a debt-for-equity swap — the Sri Lankan government still owns the
port. And funds received for the lease were not used to repay port-related debt, but
to pay o more expensive loans, generally to Western entities.

Sri Lanka rejects fears of China’s ‘debt-trap diplomacy’

[6]

Also, there is no Chinese military base at Hambantota port. The port’s security
remains in the hands of Sri Lanka, which has its southern naval command [7] in
Hambantota.

In fact, the US — which has 800 overseas bases, versus China’s single base in
Djibouti [8] in the Horn of Africa — has a much more elaborate military
relationship with Sri Lanka than does China. Indeed, the Easter Sunday terrorist
explosions [9] in Sri Lanka coincided with a US-Sri Lanka naval exercise o
Hambantota port.

Claims of China’s debt trap and other predatory policies are simply the latest
iteration of the “Yellow Peril” [10] ideology, a set of racist views that avers that the
Chinese conspire to upend Western global dominance and take over the world. The
means allegedly involve in ltration, corruption, infection and pollution, but most
of all, addiction.

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The “Yellow Peril” discourse from 150 to 50 years ago spread lurid stories of
Chinese providing opium that debased Western societies, even as British and
American merchants, backed by gunboats, sold opium to fuel the addiction of
millions of Chinese people.

Today, US politicians accuse China of feeding Americans’ addiction to the opioid

fentanyl [11] and refer to Chinese loans as addictive to developing countries. Grant
Harris, the top Africa diplomat in former US president Barack Obama’s
administration, described Chinese loans as “the methamphetamines of
infrastructure nance: highly addictive, readily available, and with long-term
negative e ects that far outweigh any temporary high”.

Why doubts about China’s Belt and Road Initiative persist

[12]

Now, Chinese rms abroad may well be accused of exploitation of labour and
natural resources, as well as of instances of dispossession and environmental
damage. Yet such malpractices are also common among foreign and local investors
alike, especially in developing countries.

Moreover, most Chinese loans are for a useful purpose: the resulting
infrastructure has generally been shown to lower costs of industrialisation and
trade.

In fact, Chinese infrastructure loans have not led to the forfeiture of a single
valuable asset abroad and have not impinged on the sovereignty of any country.
There is no Chinese plot to take over the world. Let us stop giving space to the
politically-driven “Yellow Peril” conspiracy theory.

Barry Sautman is a professor in the Division of Social Science at Hong Kong

University of Science & Technology. Yan Hairong is an associate professor in the
Department of Applied Social Science at Hong Kong Polytechnic University

Source URL: https://scmp.com/comment/insight-opinion/article/3008799/truth-

about-sri-lankas-hambantota-port-chinese-debt-traps

Links
[1] https://www.scmp.com/news/asia/south-asia/article/2182461/chinese- rm-
completes-14-billion-land-reclamation-works-sri
[2] https://www.scmp.com/news/china/diplomacy-defence/article/2123658/sri-
lanka-hands-over-major-port-chinese-company
[3] https://www.scmp.com/topics/belt-and-road-initiative
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8/23/2019 Opinion | The truth about Sri Lanka’s Hambantota port, Chinese ‘debt traps’ and ‘asset seizures’ | South China Morning Post

[4] https://www.scmp.com/news/china/diplomacy/article/3008326/why-chinas-
belt-and-road-loans-may-not-be-debt-trap-other
[5] https://www.channelnewsasia.com/news/commentary/sri-lanka-debt-port-
borrowing-problem-not-made-in-china-11309738
[6] https://www.scmp.com/news/china/diplomacy/article/3007175/sri-lanka-
rejects-fears-chinas-debt-trap-diplomacy-belt-and
[7] https://www.scmp.com/news/china/diplomacy-defence/article/2153246/sri-
lanka-base-navys-southern-command-chinese-run
[8] https://www.scmp.com/news/china/diplomacy/article/3007924/how-tiny-
african-nation-djibouti-became-linchpin-chinas-belt
[9] https://www.scmp.com/news/asia/south-asia/article/3007105/sri-lanka-pm-
admits-information-about-bombing-threat-was-there
[10] https://www.scmp.com/comment/insight-opinion/article/1230705/fear-
yellow-peril-lives
[11] https://www.scmp.com/news/china/diplomacy/article/3004136/china-
agrees-tighten-curbs-fentanyl-after-us-calls-action-over
[12] https://www.scmp.com/news/china/diplomacy/article/3007352/why-
doubts-about-chinas-belt-and-road-initiative-persist-among

This article appeared in the South China Morning Post print edition as: Truth about ‘debt
traps’

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