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Sri Lanka
This Week in AsiaEconomics

A Chinese debt trap? Sri Lanka’s Hambantota port set to debunk narrative with its success

  • The port has become a thriving transshipment hub in the Indian Ocean particularly for vehicles, with a turnover of 700,000 units a month
  • Hambantota is also expected to play a bigger role in supporting the bunkering and oil refining business and has the potential to be a cruise hub

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A Cosco Shipping vessel at Hambantota port, Sri Lanka. Photo: Kalinga Seneviratne
Kalinga Seneviratne
When Sri Lanka announced in July 2017 that the underperforming Chinese-built Hambantota port was to be leased for 99 years to a Chinese government-linked company, Western and Indian media outlets went into overdrive by labelling the deal a classic example of Beijing’s “debt trap”.
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Washington was quick to spread the narrative, with members of the Trump administration pointing to Hambantota as a warning against China’s strategic use of debt. In 2018, then US vice-president Mike Pence called it “debt-trap diplomacy” – a phrase he used through to the last days of the administration.

Because of its strategic location, Hambantota was perceived by some Indian and American commentators as a gateway exploited by China for military purposes.

Sri Lankan supporters of Hambantota, however, say the port has become a thriving transshipment hub in the Indian Ocean.

The Western narrative, according to the supporters, conveniently ignores a key aspect of the deal between Sri Lanka and China. The transaction was not contingent on default by Sri Lanka on its external debt to China’s Exim bank; rather it was a lease arrangement for 99 years at a fee of US$1.12 billion.

The harbour at Hambantota port, Sri Lanka. Photo: Hambantota International Port Group
The harbour at Hambantota port, Sri Lanka. Photo: Hambantota International Port Group

The money was used to strengthen Sri Lanka’s foreign reserves as the country was facing a balance of payments crisis due to huge borrowings from the International Bond Markets (ISBs) that are mainly controlled by US-based financial agencies.

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