BEIJING — On Wednesday, Sri Lanka and China formalized a suite of cooperation agreements during talks between their respective leaders. This development comes just one month after Sri Lankan President Anura Kumara Dissanayake undertook his first foreign trip to India since assuming office last September.
The backing of both China and India is essential for Sri Lanka as it seeks to recover from a significant economic downturn, which has triggered considerable political change and facilitated Dissanayake’s rise to presidency. Historically, China has played a pivotal role in Sri Lanka through substantial loans and investments in infrastructure projects. Although it remains Sri Lanka’s largest bilateral lender, the country’s financial crisis has provided India an opportunity to offer extensive financial assistance including essential goods like food, fuel, and medical supplies.
In his opening remarks, Chinese President Xi Jinping emphasized that the current relationship between China and Sri Lanka is at a critical point. “I am ready to collaborate with you, Mr. President, in forming a new direction for our bilateral relations and achieving new milestones in our friendly cooperation,” he stated.
Over the past decade, Sri Lanka has accrued considerable debt from China for various infrastructures such as a shipping port and an airport, along with the construction of a city on reclaimed land. Unfortunately, these projects struggled to generate sufficient revenue for loan repayment, leading to the leasing of the Hambantota port to a Chinese state-owned firm in 2017.
President Dissanayake acknowledged China’s ongoing role as a vital partner, noting its contributions to significant development projects under the Belt and Road Initiative—a flagship program of Xi aimed at enhancing infrastructure through the construction of roads, ports, and power plants across the globe. This initiative has allowed China to strengthen its presence in many developing regions.
For years, China has pursued increased influence in Sri Lanka, which is strategically located off the southeast coast of India. This geopolitical positioning has raised concerns for New Delhi, prompting the Indian navy to launch new military vessels in response, further reinforcing its interests in the Indian Ocean amid rising Chinese activity.
Dissanayake’s trip to China reflects an attempt to balance the ongoing rivalry between these two Asian powers, especially given his party’s historical leanings towards India. During a previous meeting in New Delhi with Prime Minister Narendra Modi, Dissanayake asserted his commitment to ensuring that Sri Lanka would not be used in ways that could harm India’s interests.
The new agreements between Sri Lanka and China encompass various sectors, notably focusing on economic and technological growth, health protocols for food imports, and cooperation in television broadcasting and media.
Sri Lanka declared bankruptcy in April 2022 and halted repayments on an $83 billion loan portfolio as a foreign exchange crisis severely affected the availability of essential goods like food, fuel, and cooking gas, leading to extensive power outages. Chinese assistance proves crucial for Sri Lanka to navigate the restructuring of its external debts, with China representing approximately 10% of Sri Lanka’s borrowed funds—surpassing contributions from Japan and the Asian Development Bank.
This crisis has largely stemmed from a mixture of poor economic governance and the impact of the COVID-19 pandemic, which notably devastated the tourism sector, compounded by terrorist attacks in 2019. The pandemic also hindered remittances from Sri Lankans working abroad, further straining the economy.
