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

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 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.

Priyanga Dunusinghe, a lecturer at the economics department at Colombo University, told This Week in Asia that the debt-trap narrative was allowed to spread because when the port was established “Sri Lanka had not created a business plan, but China had one”.

Cautioning against calling the deal an example of a debt trap, Dunusinghe noted that China had inadvertently contributed to this narrative because it loaned money “excessively” for infrastructure development to Sri Lanka “without asking for feasibility studies or economic evaluation about the projects’ profitability”.

“China… did not display responsible behaviour when lending to smaller countries governed by corrupt politicians,” Dunusinghe said. “So in this case of Hambantota, giving the port away on the 99-year lease, Sri Lanka got something like US$1.2 billion, but not to pay off Chinese debts.”

Tissa Wickramasinghe, Sri Lankan Chief Operating Officer of