The Pulse | Economy | South Asia

The Belt and Road in Sri Lanka: Beyond the Debt Trap Discussion

More than an overstated “debt trap,” Sri Lanka should consider the environmental and labor impacts of Chinese investment.

By Divya Hundlani & Pabasara Kannangara for
The Belt and Road in Sri Lanka: Beyond the Debt Trap Discussion

In this Jan. 2, 2018, file photo, a Chinese construction worker stands on land that was reclaimed from the Indian Ocean for the Colombo Port City project, initiated as part of China’s ambitious One Belt One Road initiative, in Colombo, Sri Lanka.

Credit: AP Photo/Eranga Jayawardena, File

China’s investment in Sri Lanka is often portrayed as “debt trap diplomacy.” While it’s true that China invested almost $12 billion between 2006 to 2019, a recent Chatham House report paints a more complex and nuanced picture. According to available data, Sri Lanka is not in a Chinese debt trap — Sri Lanka’s debt to China amounts to only 6 percent of GDP. Rather, Sri Lanka has a general debt problem, owing about 27 percent of GDP to international financial markets and multilateral lenders like the World Bank. 

This false debt trap narrative has dominated discussion of the Belt and Road Initiative in Sri Lanka, at the expense of important questions about the wider impact of Chinese investment. In particular, Sri Lanka should consider the environmental and labor impacts of Chinese investment to ensure they get the most out of the Belt and Road Initiative (BRI). We found there to be significant environmental and labor implications of Chinese investment in Sri Lanka, which reveal benefits and costs for the local environment and labor force. These impacts should be prudently managed to ensure that Sri Lanka maximizes the gains and minimizes the risks of the BRI. 

Environmental Aspects 

While China’s “Green Belt and Road” has received considerable attention, the environmental impact of Chinese investment projects in Sri Lanka has been mixed. According to environmental advocates, early infrastructure projects, including the construction of Hambantota Port and Norochcholai Power Plant did not meet international environmental standards with respect to feasibility studies and domestic legislation processes. Similarly, some sources reported that construction of Colombo Port City (a commercial and residential project on reclaimed land near the Colombo port) resulted in a decrease of fish stocks, severely impacting the livelihoods of local fishermen.

Sri Lanka has comprehensive domestic environmental legislation, encompassing a wide range of regulations and standards. The detail and implementation of such legislation, however, is wanting. For example, although Environmental Impact Assessments (EIA) are legally required for development projects, the Colombo Port City appears to have been initiated without a comprehensive study and subsequent EIAs for the project were criticized for lacking specificity, transparency, and due consideration of project alternatives.

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More recently, however, Chinese investments have shown positive environmental signs. Colombo Port City has committed to a long-term Sustainability Master Plan, setting standards and protection measures for pollution, waste control, and biodiversity. The Colombo International Container Terminal (CICT), a Chinese-built and operated terminal of the Colombo port, has prioritized green technology, becoming the first terminal of the port to convert its regular cranes to zero-emission electric cranes, minimizing air pollution and carbon emissions.The CICT terminal is the most profitable terminal of the Colombo port, demonstrating that Chinese investments can simultaneously pursue commercial success and environmental responsibility. 

Chinese investors have also shown agility in adapting and responding to public concerns. In particular, the CHEC Port City Colombo (CPCC), a local subsidiary of China Communications Construction Company, which is developing Colombo Port City, spent about $3 million from 2016 to 2019 to support around 9,000 fishing families as part of their corporate social responsibility measures. Yet while progress has been made in all these areas, Sri Lanka must still improve its domestic environmental laws and regulatory powers to ensure consistent environmental standards.

Labor Issues

Two common perceptions about Chinese investment projects in Sri Lanka are that they rely on Chinese labor, displacing local workers, and that among this labor force there are many illegal migrants.

Sri Lanka lacks a publicly available database on inbound migration and has limited ability to monitor illegal migrants due to the absence of a central data collection system. Estimates indicate that there are approximately 7,500 Chinese workers in Sri Lanka, accounting for just 0.1 percent of the total labor force. Chinese projects recruit substantial numbers of local workers, although the figures tend to vary by stage of the project. For instance, Colombo Port City, which is still being constructed, has roughly 1,637 workers, of which about 22 percent are Chinese. On the other hand, the now completed and operational Hambantota Port employs about 900 workers, of which less than 4 percent are Chinese.

The concern about large numbers of illegal Chinese migrants appears to be unfounded. While there are a few reported cases of Chinese workers not possessing valid work permits, available data indicates that illegal workers in Sri Lanka come mostly from neighboring countries like India and Pakistan and only a small (single digit) percentage from China. 

Chinese migrant labor is beneficial and indeed necessary for the Sri Lankan construction sector, which is valued at roughly $8 billion (2018). Industry experts observe that Sri Lanka has a high rate of external migration to foreign countries, and those workers that remain see little appeal to working in the industry or lack relevant qualifications. As such, it has been estimated by the Chamber of Construction Industry of Sri Lanka that the country needs 400,000 workers to meet the shortfall of labor in the construction sector and the influx of Chinese workers has helped to fill this gap in the labor market.

Notwithstanding these benefits, two key areas require attention; limited data availability and the need for inward migration regulation. To address the significant data gap, a centralized data-gathering mechanism should be introduced across relevant government agencies. Better coordination and monitoring would allow for more current data to continually feed into the policymaking process. With this mechanism in place, Sri Lanka could look to regulate inward migration by identifying priority sectors. While the National Human Resources Development Council does research on the inflow of migrant labor based on market demands, it lacks the requisite capacity to act on policies. In addition, foreign investment companies should be mandated to train and upskill local workers. Some Chinese companies in Sri Lanka have initiated programs to transfer know-how and best practices, although these programs are ad hoc initiatives rather than mandated by law. 

Conclusion  

Chinese investment in Sri Lanka has not led to a debt trap, as such, but concerns around its impact on the local environment and labor force in Sri Lanka reveal areas for improvement. These include improving the availability of data about investment projects, ensuring the clarity and implementation of existing legislation (for example, on environmental protection), and adopting new legislation (such as on inward migration).

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While there are important areas for improvement to protect the environment and the local labor force, the BRI offers Sri Lanka benefits and opportunities for the future. The post-construction plans for Colombo Port City appear positive, including the adoption of an ecological plan to enhance biodiversity and a Sustainability Master Plan to ensure the overall design is consistent with international best practices and concepts like “smart cities.” Likewise, Chinese investments have helped to ease labor shortages in key domestic industries, but Sri Lanka’s task is to concentrate on ensuring the transfer of skills and know-how to local workers. Colombo should look to maximize these advantages by strengthening domestic laws, setting overarching policies and guidelines, and improving interagency coordination to monitor, tackle and evaluate the apparent challenges. 

Divya Hundlani is an independent researcher and Pabasara Kannangara is a research associate at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI). 

The opinions expressed in this article are their own views and any errors or omissions should be treated as such. The authors wish to thank Dr. Dinusha Panditaratne and Chatham House for their support.