May 22, 2020 Reading Time: 6 minutes
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China’s investment in Sri Lanka is vast. Between 2006 to 2019, Chinese entities invested almost US$12 billion in this island nation of the Indian Ocean.1 China’s investment in Sri Lanka is often portrayed in a negative light, implying that the country has been led into a debt trap. The evidence, however, 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. Instead, Sri Lanka has a general debt problem, owing about 27 percent of GDP to international financial markets and multilateral lenders like the World Bank.
In addition to being misconceived, the debt trap narrative has also obscured vital discussion about the wider implications of Chinese investment, including its effects on the local environment and labour force. According to a recent report released by Chatham House,2 there are significant environmental and labour implications of Chinese investment in Sri Lanka, and more broadly of China’s Belt and Road Initiative (BRI) in the country. These reveal a mixed bag of benefits and costs for the local environment and labour force. They should be addressed to ensure that Sri Lanka maximizes the benefits and minimizes the risks of the BRI.
While Sri Lanka has the potential to benefit from China’s “green Belt and Road”, the environmental impact of Chinese investment projects in Sri Lanka to date has been mixed. According to environmental advocates, early infrastructure projects, including the construction of Hambantota Port and Norochcholai Power Plant3 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,4 with implications for 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. Some commentators argue that although Environmental Impact Assessments (EIA) are legally required for development projects, the Colombo Port City appears to have been initiated without sufficient study5 including EIAs for the project being criticized for lacking specificity, transparency,6 and due consideration of project alternatives.7 Further in-depth research is needed to verify these claims.
Nevertheless, there have been positive environmental outcomes of Chinese investment in Sri Lanka, which indicate that it can improve its environmental standards using external resources. The Colombo International Container Terminal (CICT), a Chinese built and operated terminal of the Colombo port, has prioritised green technology.8 It was the first terminal of the Colombo port to convert its regular cranes to zero-emission electric cranes, thereby minimizing air pollution and carbon emissions.9 The CICT terminal is also the most profitable of the four terminals of the Colombo port, demonstrating that Chinese investments can simultaneously pursue commercial success and environmental responsibility.
Environmental issues around Chinese investment have also shown the agility of Chinese investors to adapt and respond to public concerns. In particular, CHEC Port City Colombo (CPCC), a local subsidiary of China Communications Construction Company, which is developing the Colombo Port City, spent about US$3 million from 2016 to 2019 to support around 9,00010 fishing families that were potentially affected by the project. In addition, the CPCC has engaged in broader public diplomacy by inviting officials, journalists, students, and others to visit the onsite sales gallery to visualize and learn about the project. These corporate social responsibility and public relations measures have helped to negate concerns about environmental harm and build public support for the project.
Two common perceptions about Chinese investment projects in Sri Lanka are that they mainly hire Chinese workers (rather than local labour) and that among these Chinese workers, many are illegal migrants. Sri Lanka lacks a database on inbound migration and has limited ability to monitor illegal migrants due to the absence of a central data collection system. However, available data doesn’t support the notion that large numbers of illegal Chinese migrants exist. While there are few reported cases of Chinese workers overstaying their visa or not possessing valid work permits, available data from government investigations indicates that illegal workers in Sri Lanka come mostly from neighbouring countries like India and Pakistan and only a small (single digit) percentage from China.
In regard to the concern about extensive reliance on Chinese labour, the available data suggests otherwise. While the number of Chinese workers in Sri Lanka has increased over time, there are currently only about 7,50011 workers in Sri Lanka, accounting for just 0.1% of the total labour force. Chinese projects recruit substantial numbers of local workers, although the figures tend to vary by stage of the project. For instance, the now completed and operational Hambantota port employs about 900 workers, of which less than 4% are Chinese. On the other hand, the Port City Colombo, which is still being constructed, has roughly 1,637 workers, of which about 22% are Chinese.
Chinese migrant labour can be seen as beneficial and indeed necessary for the Sri Lankan construction sector, which is valued at roughly $8 billion (2018).12 Industry experts observe that Sri Lanka has a high rate of external migration to foreign countries,13 and those that remain see limited appeal to working in the industry.14 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 in the construction sector. The influx of Chinese workers and other migrant workers have helped to fill this major gap in the labour market.
Notwithstanding these benefits, the regulatory framework of inward migration in Sri Lanka requires attention.15 The 2008 National Labour Migration Policy is Sri Lanka’s national strategy on migration, but it is orientated towards outward migration – focussing on protecting and empowering Sri Lankans working abroad. There is no clear policy document that regulates inward migration of workers to Sri Lanka, including identifying priority industries and requiring foreign investment companies to train and upskill local workers. While some Chinese companies in Sri Lanka have initiated programs to transfer know-how and best practices, these are ad hoc initiatives rather than mandated by law.16 The National Human Resources Development Council conducts research on inward migration and helps to regulate the inflow of migrant labour based on market demands. However, they lack the requisite resources and authority to act on policies.
Chinese investment in Sri Lanka has not led to a debt trap, but the concerns around its impact on the local environment and labour 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).
Despite the many concerns, there are several benefits and opportunities that BRI projects can offer Sri Lanka. The post-construction plans for the Colombo Port City appear positive, including the adoption of an ecological plan17 to enhance biodiversity and a Sustainability Master Plan18 to ensure the overall design for construction and operations are in line with international best practices and concepts like ‘Smart Cities’. Likewise, Chinese investments have helped to ease labour shortages in key industries and resulted in the transfer of skills and training of local workers. Sri Lanka 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.
1Until July 2019.
2Wignaraja, G., Panditaratne, D., Kannangara, P., & Hundlani, D. (2020). Chinese Investment and the BRI in Sri Lanka. Chatham House. [Online] Available at: https://www.chathamhouse.org/publication/chinese-investment-and-bri-sri-lanka [Accessed 20 April 2020].
3Energy Central. (2018). Norochcholai Power Plant. [Online] Available at: https://energycentral.com/news/explosive-report-hazards-norochcholai-coal-power-plant
[Accessed 20 April 2020].
4Prasso, S. (2018). A Chinese Company Reshaping the World Leaves a Troubled Trail. Bloomberg Businessweek. [Online] Available at: https://www.bloomberg.com/news/features/2018-09-19/a-chinese-company-reshaping-the-world-leaves-a-troubled-trail [Accessed 20 April 2020].
5Gunwansa, A. (2018). 4: Creation of New Urban Land by Reclaiming the Sea in Colombo Port City, Sri Lanka. Strengthening Environment Reviews in Urban Development- Urban Legal Cases; Volume 6, Report by UN Habitat. [Online] Available at: https://unhabitat.org/sites/default/files/download-manager-files/Strengthening%20Environmental%20Reviews_fulltext%20.pdf [Accessed 20 April 2020].
6Fernando, N. (2019). Top academic claims fundamental flaws in Port City’s EIA process. [Online] Daily Mirror. Available at: http://www.dailymirror.lk/business__main/Top-academic-claims-fundamental-flaws-in-Port-Citys-EIA-process/245-174545 [Accessed 20 April 2020].
7Colombo International Container Terminals. (2018). CICT invests over $10 m towards green infrastructure at Colombo Port. [Online] Available at: http://www.cict.lk/read/news/3 [Accessed 3 February 2020].
9CHEC Port City Colombo. (2019). Port City completes Rs. 500 m livelihood support program. [Online] Available at: https://www.portcitycolombo.lk/press/2019/07/09/port-city-completes-rs-500-m-livelihood-support-program.html [Accessed 20 February 2020].
10Calculation made using data on the number of visas issued by the Immigration Department and an estimate of illegal Chinese migrants from a news article. Department of Immigration Sri Lanka. (2019). Database on Chinese Resident Visa Holders. unpublished; Kamalendran, C. (2019). Plan to deport more than 8,000 visa overstayers. [Online] The Sunday Times. Available at: http://www.sundaytimes.lk/190623/news/plan-to-deport-more-than-8000-visa-overstayers-355098.html [Accessed 3 February 2020]. A similar figure was verified by the Chinese Embassy in Sri Lanka. There may be slightly higher unofficial figures.
11Daily FT. (2018). RIU Report 2018: Construction sector challenged by continued labour shortage. [Online] Available at: http://www.ft.lk/propertyconstruction/RIU-Report-2018-Construction-sector-challenged-by-continued-labour-shortage/10516-649511 [Accessed 17 April 2020].
13Verité Research. (2019). Youth Labour Market Assessment. [Online] Available at: https://www.veriteresearch.org/wp-content/uploads/2019/02/Youth-Labour-Market-Assessment-26.12.2018.pdf [Accessed 3 February 2020].
14Oxford Business Group. (2019). Sri Lanka’s construction sector struggles with securing enough local talent. [Online] Available at: https://oxfordbusinessgroup.com/analysis/labour-shortage-contending-outward-migration-young-local-talent [Accessed 17 April 2020].
15Perera, Q. (2018). Foreign construction workers outshine local counterparts. [Online] The Sunday Times. Available at: http://www.sundaytimes.lk/180225/business-times/foreign-construction-workers-outshine-local-counterparts-283024.html [Accessed 3 February 2020].
16Hambantota International Port Group. (2019). Introduction to HIPG. Hambantota: Hambantota International Port Group. [Online] Available at: http://www.hipg.lk/ [Accessed 3 February 2020].
17CHEC Port City Colombo. (2019). Sustainability. [Online] Available at: http://www.portcitycolombo.lk/sustainability/ [Accessed 20 February 2020].
*Divya Hundlani is an independent researcher and a former Research Fellow at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies and Pabasara Kannangara is a Research Associate LKI. The opinions expressed in this piece are the authors own and not the institutional views of LKI, and do not necessarily reflect the position of any other institution or individual with which the authors are affiliated. The authors wish to thank Dr. Ganeshan Wignaraja, Dr. Dinusha Panditaratne, and Dr. Champa Patel for their guidance and Chatham House for its support. This article was originally published in The Diplomat.