Sri Lanka gets US$300 million Chinese factory but it’s no free lunch

Sri Lanka announced on Tuesday the first large-scale Chinese investment in manufacturing in the country: a US$300-million tyre factory near a strategic deep-sea port.

Western nations, as well as neighbour and regional power India, have long been concerned about Chinese influence in Sri Lanka with Beijing splashing money around under its enormous Belt and Road initiative.

The tyre factory will be adjacent to the port of Hambantota, which was leased to a Chinese company in 2017 after Sri Lanka failed to keep up payments on the US$1.4 billion loan from Beijing used to build it.

Sri Lanka’s cabinet has approved the setting up of the tyre plant under legislation that allows generous tax concessions, Media Minister Keheliya Rambukwella told reporters in the capital Colombo.

He said Shandong Haohua Tire Co Ltd will export at least 80% of Sri Lankan production, with the option of selling the rest on the local market.

The announcement has come just weeks after Prime Minister Mahinda Rajapaksa unveiled the 2021 budget which is banking on a huge Chinese real-estate development in the country’s largest port, Colombo, to attract more investment and revive the island’s economy.

When Rajapaksa was president between 2005-15, Colombo borrowed billions from China, accumulating a mountain of debt for a string of infrastructure projects including an international airport dubbed “the world’s emptiest” by media for its lack of flights.

Rajapaksa and his brother Gotabaya, the current president, have rejected accusations that many such projects are white elephants, and have denied falling victim to a Chinese debt trap.

The country’s economy is struggling with both the coronavirus pandemic and the devastating effects of the Easter Sunday bombings last year.

With credit agencies cutting Sri Lanka’s ratings, the country is expecting more Chinese loans, which some describe as unfavorably weighted bail outs, in the new year.