Sri Lanka, China and Debt Trap Diplomacy
Photo courtesy of DW
The issue explored in this article is the extent to which the narrative of debt trap diplomacy accurately explains the relationship between China’s Belt and Road Initiative (BRI) and Sri Lanka’s foreign policy autonomy.
The BRI, launched in 2013, is China’s global development strategy aimed at enhancing trade and economic growth by connecting Asia, Europe and Africa through investments in infrastructure projects, including ports, highways and energy facilities. Through this initiative, China has invested over $1 trillion in over 150 countries, emerging as the world’s largest creditor. During my conversation with Han Tongwen from Fudan University in China, he emphasized that the BRI is not a unilateral project but a collective effort to enhance global connectivity and mutual development.
However, Western critics often counter this view by labeling the initiative as debt trap diplomacy, suggesting it deliberately burdens vulnerable developing countries with unsustainable debt to gain strategic leverage and compromise their sovereignty. This view was first introduced by Brahma Chellaney of the New Delhi-based Centre for Policy Research in Project Syndicate where he argued that China lured poorer nations into such loans. Sri Lanka’s Hambantota Port, leased to China on a 99-year agreement, is frequently cited as the poster child for China’s debt trap diplomacy with New York Times journalist Kai Schultzdescribing it as a deal that “threatens the country’s sovereignty”. Understanding the extent to which this example qualifies as debttrap diplomacy provides critical insights into how the BRI operates globally and whether it challenges the liberal international order or has been misunderstood through oversimplified frameworks. This contrast between the Chinese perspective and the Western critique resonates with my firsthand experiences as a Sri Lankan where I have experienced both the benefits of BRI infrastructure projects, such as the advanced developments of Colombo Port City, and the harsh realities of the country’s economic crisis marked by inflation, gas shortages and power cuts. This inherent contradiction motivated me to explore the complex realities behind the narrative of debt trap diplomacy and its implications for Sri Lanka’s sovereignty.
I interviewed economists, journalists and political analysts such as Ishan Ajwad, a World Bank economist who offers unique insights as a Sri Lankan. I also engaged with officials from China and Sri Lanka who have direct knowledge of the BRI and its impact. I participated in an internship with the UN mission to Sri Lanka, which allowed me to understand the geopolitical implications of the BRI on small states like Sri Lanka. My participation in a high level meeting co-organized by the UN and the China International Development Cooperation Agency also provided valuable insights into how China utilizes the rebranded Global Development Initiative to project soft power.
My findings indicate that while the debt trap diplomacy narrative highlights legitimate concerns about Chinese influence, it oversimplifies Sri Lanka’s economic challenges and foreign policy dynamics. Sri Lanka’s debt crisis is shaped by multiple factors, including International Sovereign bonds (ISB) debt and their governance failures. Moreover, the country continues to exercise significant agency in managing relationships with competing powers such as China and India, demonstrating its ability to maintain sovereignty despite Chinese influence. By analyzing the validity of this narrative, I seek to provide a nuanced understanding of how smaller states manage to retain sovereignty and autonomy in the context of China vying for greater power.
The debt trap diplomacy narrative claims that Chinese loans under the BRI undermine Sri Lanka’s sovereignty and foreign policy autonomy. From a neo-Marxist perspective, this narrative aligns with André Gunder Frank’s theories of structural inequality in the global capitalist system, which perpetuates economic dependency. This dependency theory frames global economic relations as inherently exploitative with wealthier core nations maintaining dominance over less-developed periphery nations. According to this view, China uses the BRI to entrench economic dependency in countries like Sri Lanka. While compelling, this explanation oversimplifies the complexities of Sri Lanka’s debt crisis by attributing its challenges primarily to Chinese loans. My engagement with economists, including Vagesha Gunasekera and Ishan Ajwad from the World Bank, highlighted the diverse nature of Sri Lanka’s debt obligations, revealing that Chinese loans account for only a fraction of the total debt. Ajwad emphasized the significant role of ISBs, which comprise 35% of Sri Lanka’s total foreign debt and are a key driver of its crisis due to high interest rates and short repayment periods. In contrast, loans from China often come with longer repayment schedules and lower interest rates, albeit with concerns about transparency. Gunasekera noted, “China didn’t actually take advantage of Sri Lanka; they were already in a bad situation because of ISBs.” This insight challenges the notion that Sri Lanka’s debt dependency is predominantly driven by China’s influence. Secondary sources further support this perspective as The Diplomat reported an overreliance on ISBs and global financial market fluctuations as key contributors to Sri Lanka’s debt crisis.
In addition, the applicability of the dependency theory can be countered as intergovernmental organizations such as the UN treat China as a developing rather than a core state. This can be seen as weakening the neo-Marxist argument of deliberate exploitation as it actually reflects a shift in global power dynamics where periphery states are exerting greater influence in traditionally core-dominated spaces. Chinese government officials emphasized that China’s BRI positions itself as a model of South-South cooperation, aiming to foster mutual development and potentially empower post-colonial peripheral states like Sri Lanka through infrastructure and economic projects. By challenging the classical dependency model, China’s actions may represent a new form of global engagement that diverges from traditional theories of exploitation.
While Chinese loans account for only a fraction of Sri Lanka’s debt, the debt trap diplomacy narrative remains relevant in highlighting the negative effects of China’s lending practices on sovereignty. Unilateral BRI agreements, such as the 99-year lease of Hambantota Port to a Chinese company, give China disproportionate control over strategic assets. The lease was agreed upon in 2017 after Sri Lanka struggled to repay the loans used to fund the port’s construction. Brahma Chellaney notes that China’s loans are often tied to high value assets with strategic importance such as Hambantota’s location on key Indian Ocean trade routes ensuring that failure to repay grants China control over these assets. This reinforces concerns that China deliberately structures such loans to target countries with limited repayment capacity, creating opportunities to secure long term economic and strategic advantages. Moreover, from a liberal perspective, China’s preference for bilateral over multilateral agreements challenges the principles of transparency, accountability and cooperation that underpin the liberal world order. By bypassing institutions like the IMF and World Bank, China isolates borrowers and undermines collective problem solving, tilting the power balance in its favor. This isolationist strategy strengthens China’s influence while limiting Sri Lanka’s foreign policy autonomy.
Furthermore China’s unilateral agreements under the BRI, while deviating from multilateral norms and enhancing its control, also highlight the complexities of Sri Lanka’s agency in navigating these arrangements. Rather than being passive victims of debt trap diplomacy, Sri Lanka willingly entered into BRI projects amid broader economic challenges, prioritizing post-war infrastructure needs despite the risk of the Chinese model. For example, political analyst Dr. Paikiasothy Saravanamuttu explains how China’s investments such as the Southern Expressway were seen by many Sri Lankans as “opportunities to address critical post-war infrastructure needs, which other international lenders did not prioritize, providing tangible benefits without the conditionalities associated with traditional loans”. However, the lack of conditionalities enabled mismanagement and corruption exemplified by poor governance surrounding the Hambantota Port project. Neo-liberal scholars such as Dani Rodrik argue that large scale international development initiatives often lack transparency and fiscal accountability as seen in the Hambantota Port project where feasibility studies overestimated its economic potential. For instance, a 2024 analysis by Invest Bangladesh highlights that the feasibility study failed to account for the Port of Colombo’s planned expansion, which was projected to handle 35 million TEUs by 2040, raising concerns about Hambantota’s ability to compete effectively as a transshipment hub. These governance mismanagements placed financial strain on Sri Lanka and exacerbated its debt crisis rather than delivering the anticipated economic growth. Additionally, my engagement with officials from the UN mission to Sri Lanka revealed that the Hambantota Port lease agreement includes explicit safeguards against military use, contradicting claims that it was part of China’s maritime dominance strategy. Instead, the lease was a commercial decision aimed at managing debt, reflecting Sri Lanka’s practical choices rather than coercion by China. This illustrates how the debt trap diplomacy narrative overstates China’s control and ignores the complexities of local decision making, internal governance failures and the structural inefficiencies inherent in large scale development projects like the BRI.
Sri Lanka’s strategic location in the Indian Ocean positions it as a key geostrategic focal point for regional and global powers, fueling concerns about China’s influence through the BRI in impeding Sri Lanka’s sovereignty. However, despite these concerns, Sri Lanka has actively balanced competing interests and maintained their foreign policy autonomy, challenging the idea that it is bound to China’s demands. For example, the 2022 docking of China’s Yuan Wang 5 vessel at Hambantota Port sparked security concerns in India over potential surveillance. While India pressured Sri Lanka to deny entry to the vessel, Sri Lanka instead declared a year-long moratorium on research vessels to preserve neutrality. Sri Lanka’s strategic non-alignment amidst geopolitical competition highlights its agency even as it navigates China’s growing influence through the BRI. During my time at the UN mission to Sri Lanka, I observed this strategic approach firsthand while working on securing a seat at the international seabed authority – an effort aimed at countering India’s influence in Sri Lanka’s maritime space. Additionally, concerns that Chinese BRI projects impede Sri Lanka’s sovereignty stem from the perception that economically weaker states like Sri Lanka may lack the bargaining power to resist potential exploitation. Dr. Saravanamuttu explains this dynamic by describing sovereignty as a condition shaped by power relationships rather than an absolute state. More powerful states like China naturally exert greater influence over smaller states such as Sri Lanka yet this does not inherently violate their sovereignty. This nuanced understanding of sovereignty, as dependent on a country’s relative power, challenges the narrative that China has wholly undermined Sri Lanka’s autonomy. Furthermore, from a realist perspective, this behavior reflects the principles of survival and self-interest in an anarchic international system. While economically constrained by Chinese debt, Sri Lanka maximizes its geopolitical significance to retain sovereignty and independence in decision making, demonstrating that its sovereignty and foreign policy autonomy extend beyond the constraints of economic dependency under the BRI.
Evaluating the debt trap diplomacy narrative in the context of China’s BRI and Sri Lanka’s foreign policy autonomy reveals that this narrative oversimplifies a far more nuanced reality. While Chinese loans, particularly for projects like the Hambantota Port, have introduced economic pressures and a degree of influence, they do not wholly dictate Sri Lanka’s foreign policy or sovereignty. The claim that China uses the BRI to deliberately undermine smaller states’ autonomy overlooks Sri Lanka’s agency in navigating these relationships as well as broader factors shaping its decisions such as governance failures, reliance on ISBs and geopolitical competition. Moreover, China’s role in the global system is more complex than the debt trap diplomacy narrative suggests. While its bilateral approach through the BRI deviates from multilateral norms, its participation in debt restructuring negotiations and global financial stability efforts highlights its calculated engagement with the international system. Sri Lanka’s ability to balance competing global powers through a non-aligned stance further challenges the framing of its relationship with China as a binary loss of sovereignty. Ultimately, the debt trap diplomacy narrative fails to capture the complexity of factors influencing Sri Lanka’s foreign policy and sovereignty. Examining these dynamics through a broader lens reveals a nuanced interplay of external pressures, internal governance and strategic agency, challenging simplistic notions of unilateral dependency on China.
The post Sri Lanka, China and Debt Trap Diplomacy first appeared on Groundviews.
