Sri Lankan President Anura Kumara Dissanayake recently visited Beijing to engage in talks with Chinese President Xi Jinping, resulting in a historic agreement. The two nations signed a refinery deal worth US$3.7 billion, marking Colombo's largest-ever foreign investment. This significant step forward is part of 15 additional agreements designed to enhance bilateral and maritime cooperation between Sri Lanka and China.
In 2022, Sri Lanka declared bankruptcy, suspending the repayment of approximately US$83 billion in domestic and foreign loans. As part of its recovery efforts, Sri Lanka has sought economic partnerships, leading to this new collaboration with China. However, the investment has sparked security concerns in India, which perceives China's growing presence near its borders as a strategic threat.
The new refinery will be constructed by Sinopec at Hambantota, a location that already holds strategic importance. The port of Hambantota had previously been leased to China Merchants Port Holdings Company Limited for 99 years at US$1.12 billion after Sri Lanka failed to repay a substantial Chinese loan intended to revitalize its economy. This arrangement has raised alarms about the potential for a debt trap, and India's concerns are further amplified by the new refinery deal.
Sri Lanka recently reassured India during a visit to Delhi that its territory would not be used in any manner detrimental to India's interests. Nonetheless, India's apprehensions persist as it views the new Chinese-backed refinery as part of China's broader strategy to expand its influence in the Indian Ocean, an area where both India and China are vying for dominance.
In November 2023, Sri Lanka reached an agreement with China to restructure US$4.2 billion of its debt, signaling a deepening financial relationship between the two countries. The latest refinery deal underscores China's continuous efforts to solidify its strategic foothold in the region, potentially impacting the balance of power.
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