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Chinese Debt-trap diplomacy Over Sri Lanka Raises Many Questions, What’s next?

Girvi padi hai sone ki Lanka, understanding Chinese Debt-trap diplomacy?


  • Lanka’s massive foreign debt
  • Chinese Debt-trap diplomacy
  • How Chinese debt-trap diplomacy engulfed Lanka?


Chinese Debt-trap diplomacy: Sri Lanka declares an emergency amid violent protests. The angry protesters attacked President Rajapaksa’s residence as the nation suffers from a severe economic crisis.

Sri Lankan president Gotabaya Rajapaksa declared a nationwide state of emergency on April 1, 2022. The move came after an angry mob tried to storm the President’s house over the country’s worst economic crisis in decades.

Not only this, Rajapaksa’s ruling coalition lost its majority in parliament on April 5 after at least 41 lawmakers walked out of the alliance.

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Lanka’s massive foreign debt

An estimated $5 billion in foreign debt with China alone is contributing to this crisis. Sri Lanka is repaying a $1billion loan it acquired in 2021 from Beijing. It also owes a large sum of money to India and Japan.

The country’s foreign currency reserves were approximately $1.58 billion as of November 2021, down from $7.5 billion when Gotabaya Rajapaksa took office in 2019.

China withdrew itself as economic crisis deepens in Sri Lanka

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The nation collapsed due to heavy debt, especially from China. Lanka has received billions of dollars of soft loans from China but now Sri Lanka is engulfed in a debt trap. The island nation with 22 million people is a prime example of the Chinese debt trap. Expansionist China left Sri Lanka struggling by burying Lanka under debt. After Lanka’s tourism and tea economy deteriorated, the country’s repayment to China was estimated at about $400-$500 million.

Chinese Debt-trap diplomacy

American statesman John Adams quotes,’ There are two ways to conquer and enslave a country: One is by the sword; the other is by debt’.

Several studies, researchers, and experts have talked about Chinese debt-trap diplomacy. The term simply refers to offering projects and loans on conditions that end up being too difficult for nations to repay, and eventually compelling them to accept political or economic concessions.

A feature of debt-trap diplomacy is that it is often kept off government balance sheets, directed to state-owned banks and companies, private institutions or joint ventures, rather than directly from the government to the government.

Experts have noted that China is using this strategy widely across Asia and several countries now owe China huge amounts of money through President Xi Jinping’s Belt and Road Initiative.

How Chinese debt-trap diplomacy engulfed Lanka?

As per a report of CNBCTV18, the country accrued a foreign debt of $35 billion in 2021. China accounts for nearly 10% of Sri Lanka’s total foreign debt in the form of concessionary loans. One of the prime examples of this debt-trap diplomacy in Sri Lanka is the Hambantota port in South Sri Lanka. Hambantota is the home of Gotabaya Rajapaksa, the President of the Rajapaksa family, and Mahinda Rajapaksa, the Prime Minister.

Chinese lenders provided loans for the billion-dollar project. However, it became submerged in controversy and struggled to prove feasible, leaving Sri Lanka saddled with growing debts.

The BBC reported that Sri Lanka agreed to give state-owned China Merchants a controlling 70 percent stake in the port in exchange for further Chinese investment in 2017. Hong Kong media report that China has refused to offer any concessions in debt repayment. Hong Kong media has also put Pakistan and Bangladesh under the spotlight for inking a financial agreement with China.

The report added that the result of reckless borrowing from China to finance unprofitable infrastructure projects was what had contributed to putting Sri Lanka in this unenviable position, to begin with.

However, Sri Lanka has asked China and India for help. India has stepped in to aid its neighbour and on 17 March, India extended a $1 billion credit facility to Sri Lanka.

China is reportedly considering a $2.5 billion loan request from Sri Lanka.

Here the question also lies:

Does Sri Lanka have any plans to revive the economy?

How are Lankans going to repay the loan?

Will Rajapaksa resign on protesters’ demand?

Where do Sri Lankans take refuge?

Your opinions are always welcomed.

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Ayushi Mittal

In her journey to become a journalist, Ayushi can inculcate your tale through her news writings. You may find her with a mike in protests, rallies, or in museums. So what's your story?
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