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China signed a $500 million loan agreement with Sri Lanka, in a move that Colombo hopes would boost its foreign reserves that are under severe strain since the pandemic struck last year.


GS-II: International Relations (India’s Neighbors, Foreign Policies affecting India’s Interests)

Dimensions of the Article:

  1. About recent extension of loan by China and Sri Lanka’s Position
  2. China’s Debt-trap Diplomacy
  3. Chinese presence in Sri Lanka
  4. Recently in News: China’s New Project in Sri Lanka

About recent extension of loan by China and Sri Lanka’s Position

  • The recent $500 million loan agreement is the second instalment of the $1 billion loan sought by Sri Lanka in 2020.
  • The approval comes after Sri Lanka obtained a currency swap facility from China for $1.5 billion.
  • Meanwhile, the Beijing-based Asian Infrastructure Investment Bank (AIIB) also sanctioned Sri Lanka’s request for a $180 million loan earlier in 2020.
  • Sri Lanka already owes more than $ 5 billion to China from past loans.
  • Sri Lanka is due to repay some $ 4.5 billion of its outstanding debt in 2021 and the Sri Lankan government has said it is “exploring all options”.

China’s Debt-trap Diplomacy

  • Research shows developing countries owe much larger debts to China than was earlier believe.
  • They allege many loans to build infrastructure projects using Chinese contractors in strategically located developing nations are a form of debt-trap diplomacy.
  • China is accused of extending excessive credit with the intention of extracting economic or political concessions when countries cannot honour their debts. This raises fears that China’s credit to countries such as Pakistan, Sri Lanka and Nepal could be a strategic disadvantage for India.

Chinese presence in Sri Lanka

  • Besides the huge financial help, there is the presence of Chinese officials and military officers in Sri Lanka along with Chinese workers.
  • Over a period of 12 years (2005- 17), Beijing has poured over 15 billion dollars into projects in Sri Lanka.
  • For India, this is a discomforting situation and bad development as Indian foreign policy has heavily dependent on time-tested and historical links and now, over the period of time, there is a sense of thinking among Sri Lankans that India failed to see and respond to various demands and began to compare with the scale and speed of help Beijing is offering.

Chinese acquisition of Hambantota Port

  • Over the years, Sri Lanka has been lost its financial strength. China’s acquisition of the strategic Hambantota port from Sri Lanka has given it “control of a territory” is one such example.
  • This port is just a few hundred miles off the shores of India, highlighting its “debt trap” the country is facing.
  • Besides, Sri Lanka’s failure has resulted in China strategic advantage over the position.
  • It should be noted that Hambantota port would not work and “frequent lenders” like India had refused to provide loans or assistance for the port, developed during Sri Lanka’s president Mahinda Rajapaksa’s rule.

Recently in News: China’s New Project in Sri Lanka

  • In 2021, a Chinese company has won a contract to set up hybrid wind and solar energy projects on three Sri Lankan islands off the northern Jaffna peninsula 45 km from Rameswaram in Tamil Nadu.
  • Asian Development Bank (ADB) is set to fund the project, which will come up on Delft, Nainativu and Analativu, three islands in the Palk Strait off Jaffna peninsula.
  • India’s concern is the project site’s proximity to the Indian coastline.
  • India had lodged a strong protest with the Sri Lankan government on the contract to the Chinese company.

-Source: The Hindu

April 2024