COLOMBO, Sri Lanka – On Wednesday, the United States unveiled a $553 million initiative to establish a new, deep-water shipping container terminal at the Port of Colombo, as it vies with China in international development financing.Thank you for reading this post, don't forget to subscribe!
The project, funded through private debt, is touted as providing essential infrastructure for the South Asian country with the potential to “revolutionize Colombo into a first-rate logistics hub at the intersection of major shipping routes and emerging markets,” according to US International Development Finance Corporation (DFC).
DFC’s commitment of $553 million in private debt for the West Container Terminal “will expand its shipping capacity, generate increased prosperity for Sri Lanka – without escalating national debt – and enhance the position of our partners across the region,” said Scott Nathan, CEO of DFC.
The US-backed financing comes at a time when Sri Lanka is grappling with a severe financial and economic crisis.
DFC stated that the Colombo Port has been operating near full capacity since 2021, and the new terminal will cater to the growing economies in the Bay of Bengal. Local partners will include John Keells Holdings in Sri Lanka and Adani Ports and Special Economic Zone Ltd in India, which holds a 51% stake in the West Container Terminal.
Established five years ago in response to China’s all-encompassing global infrastructure-building campaign known as the Belt and Road Initiative, DFC faces fierce competition from Beijing. Through this initiative, China has invested billions of dollars annually to construct roads, railways, ports, and airports, especially in developing nations, to promote trade and goodwill towards China.
Some of these projects have sparked controversy, such as the Hambantota port on Sri Lanka’s southeast coast. Sri Lanka borrowed significantly from China for other infrastructure projects, including a port, an airport, and a city on reclaimed land. However, these projects have failed to generate sufficient revenue to repay the loans, and in 2017, Sri Lanka leased the Hambantota port to China.
Sri Lanka’s substantial debt to Beijing has hindered efforts to resolve its financial crises and is commonly cited as evidence by critics of the Belt and Road Initiative, who assert that China engages in debt-trap diplomacy.
The Chinese government denies such allegations. Chinese Foreign Ministry spokesman Wang Wenbin stated during a regular briefing on Tuesday that the debt trap argument was “fabricated to impede and weaken China’s cooperation with developing countries.”
India and China are both competing for influence in neighboring Sri Lanka and have already made investments to expand facilities at the Colombo port. India is concerned about the increasing Chinese presence on the island, which lies on one of the world’s busiest shipping routes and is an area that India considers part of its strategic sphere of influence.
Colombo Port also hosts a terminal operated by China Merchants Port Holdings. Another Chinese project, a luxurious seaside development spanning 269 hectares of reclaimed land called Port City, is being constructed by CHEC Port City Colombo Company, a subsidiary of China Communications Construction Company. The project involves an investment of $1.4 billion to create an integrated resort and casino, a conference center area, a marina, apartments, a business district, and green space.
This project has raised concerns in Sri Lanka and India that the development could become a de facto Chinese outpost or colony.
In terms of development financing, the US faces tough competition from Beijing, which has restructured its Belt and Road Initiative to make it more environmentally friendly, secure, and sustainable, according to AidData, a research lab at William & Mary, a public university in Virginia.
A recent report by AidData indicated that the US is catching up with China in terms of development finance after surpassing Beijing in total official financial flows to the developing world in 2007.
China’s lead has since grown, but the gap has recently narrowed as China has reduced its lending while the US has rapidly increased lending through its newly launched DFC.
The United States now provides approximately $60 billion in development finance to low- and middle-income countries annually. Nonetheless, AidData reports that China remains the largest official source of international development finance with $80 billion per year in aid and loan commitments.
Over the past two decades, China has dominated global infrastructure finance with faster and larger projects. Now, it has relaunched with more stringent environmental, social, and governance safeguards, according to Bradley Parks, executive director of AidData.
“This finding is significant because China’s rivals in the global infrastructure market offer security but not speed,” he said.
“Beijing, in contrast, strikes a balance between security and speed. It is several steps ahead of its competitors in the global infrastructure market. It is focused on giving the leaders of the developing world exactly what they desire: swift delivery of large-scale infrastructure projects without unreasonably high levels of risk,” he added. “Will the US be able to do the same? It remains uncertain.”
Didi Tang reported from Washington, DC