Sri Lanka and China have signed a series of cooperation agreements following discussions between their leaders, reinforcing economic and strategic ties between the two nations. This development comes just a month after Sri Lankan President Anura Kumara Dissanayake made India his first official visit since taking office in September last year.
The agreements were finalized on Wednesday in Beijing, where Chinese President Xi Jinping met with Dissanayake. The partnership between Sri Lanka and China remains crucial as the island nation continues its struggle to recover from one of its worst economic crises in decades—a crisis that led to widespread political upheaval and ultimately brought Dissanayake to power.
Sri Lanka’s Balancing Act Between China and India
For years, China has been a dominant player in Sri Lanka’s economic landscape, largely due to its extensive infrastructure investments and financial loans. However, the South Asian nation’s economic collapse in recent years provided an opportunity for India to step in as a major benefactor. During the crisis, India extended substantial financial and material aid, including food, fuel, and medicines, helping to stabilize Sri Lanka’s dire situation.
During their meeting, Xi Jinping emphasized the historical significance of China-Sri Lanka relations, stating: “I am willing to work with you, Mr. President, to chart a new vision for the development of bilateral relations and promote new and greater achievements in China-Sri Lanka friendly cooperation.” Dissanayake reciprocated by acknowledging China’s ongoing support and its role in Sri Lanka’s development, particularly under the Belt and Road Initiative (BRI).
China’s Economic Influence in Sri Lanka
Over the past decade, Sri Lanka has borrowed heavily from China to fund various infrastructure projects, including ports, an airport, and a planned city on reclaimed land. However, many of these ventures have struggled to generate enough revenue to meet debt obligations. As a result, Sri Lanka was forced to lease the strategically significant Hambantota Port to a Chinese state-owned company in 2017.
The new agreements signed between China and Sri Lanka cover a broad range of sectors, including economic and technological collaboration, food safety regulations, and media cooperation. These pacts aim to further deepen economic ties and boost trade between the two nations.
Sri Lanka’s Commitment to India’s Strategic Interests
Despite reaffirming ties with China, Dissanayake has assured India that Sri Lanka will not be used in a manner detrimental to Indian interests. His recent visit to New Delhi underscored his government’s intent to maintain a balanced foreign policy amid growing regional rivalries. This commitment comes at a time when India has been closely monitoring China’s increasing presence in the Indian Ocean, launching new naval assets to counter potential threats.
Sri Lanka’s Economic Crisis and Debt Restructuring Efforts
Sri Lanka declared bankruptcy in April 2022, suspending payments on $83 billion in domestic and external debt. The financial turmoil, fueled by years of economic mismanagement and exacerbated by the COVID-19 pandemic, led to severe shortages of essential goods and widespread power outages. The collapse of tourism and a decline in remittances from Sri Lankan workers abroad further compounded the crisis.
China’s role in Sri Lanka’s debt restructuring remains pivotal, as the country owes about 10% of its external debt to Beijing—more than its obligations to Japan or the Asian Development Bank. Sri Lanka’s ability to navigate its financial recovery will largely depend on securing favorable terms from its international creditors, including China.
Looking Ahead
As Sri Lanka attempts to rebuild its economy, its balancing act between regional powerhouses India and China will remain a key aspect of its foreign policy. With economic restructuring efforts underway, the success of the newly signed agreements with China will be closely watched by both domestic stakeholders and the international community.
For Sri Lanka, the road to recovery hinges on securing sustainable financial solutions while maintaining diplomatic equilibrium in an increasingly competitive geopolitical environment.
