A new Dubai or a Chinese enclave?

Officials say the city built in sand will rival other financial hubs such as Dubai, Singapore or Hong Kong

“An economic game-changer” is how officials describe the port city of Colombo, a gleaming metropolis rising out of the water along the Sri Lankan capital’s waterfront.

Next to Colombo’s leafy business district, the huge expanse of sand reclaimed from the sea is being transformed into a high-tech city that will host an international offshore financial center, residential areas and a marina – prompting comparisons with Dubai, Monaco or Hong Kong.

“This reclaimed land gives Sri Lanka a chance to redraw the map and build a city of world-class proportions and functionality – and rival Dubai or Singapore,” Economic Commission member Saliya Wickramasuriya told the BBC. the port city of Colombo.

But critics wonder how much of an economic game-changer it will be for Sri Lanka.

To start, in order to reclaim the 665 acres (2.6 km2) of new land, the country needed the China Harbor Engineering Company (CHEC) to invest $1.4 billion. In return, the company received 43% on a 99-year lease.

After several years of dredging, construction activity is gaining momentum and the new town is taking shape.

Huge cranes supervised by Chinese engineers move concrete slabs, while earth-moving machinery fills trucks with tons of sand. A river running through the reclaimed land has already been dredged, allowing access for small boats and yachts.

Officials estimate it will take about 25 years to complete the project, the first of its kind in South Asia.

Sri Lanka says the land under its control and the area given to the Chinese will be leased to multinationals, banks and other companies. The government may also levy a tax on their income.

About 80,000 people are expected to live in the new city, which will offer tax exemptions to those who invest and do business there. All transactions in the special economic zone, including salaries, will be in US dollars.

The Port City project was officially unveiled during Chinese President Xi Jinping’s visit to Colombo in 2014, a year after he launched his Belt and Road Initiative, an ambitious plan to build road, rail and shipping across Asia and Europe to boost trade.

Sri Lanka has turned to China for financial help to rebuild after a long war with Tamil separatists ended in 2009. Western nations had raised concerns about human rights abuses. man.

At the time of Xi Jinping’s visit, Mahinda Rajapaksa was president of Sri Lanka, but he lost elections later that year, concerned about Chinese loans – particularly for a vast southern port at Hambantota – the one of the issues of concern to voters.

Eight years later, Mr. Rajapaksa is back in power, as prime minister, with his younger brother Gotabaya as president.

But the port of Hambantota is no longer in the hands of Sri Lanka. Under the last government in 2017, Sri Lanka handed it back to Chinese control after struggling to repay debt to Chinese companies, some of the money earned was reportedly used to repay other debts.

It is therefore perhaps unsurprising that not everyone in Sri Lanka shares the port city officials’ enthusiasm for the project.

Concerns about the program are numerous and include the environmental impact of a project of this size.

Others worry that the benefits of such a development will not flow to the country as much as proponents suggest.

“A potential negative around the port city is the fact that there are very significant tax holidays that are built into its law. There is a possibility of tax holidays of up to 40 years for some investors,” said Deshal de Mel, economist at Verite. ‘ Research, said.

“Having this significant tax relief does not improve Sri Lanka’s overall revenue proposition.”

The tax system raised other concerns. The United States warned that the relaxed trading environment could become a haven for money launderers.

Mohamed Ali Sabry, Minister of Justice of Sri Lanka, disagrees.

“There’s no way that can happen because normal criminal law applies here. We have our money laundering law and we have our financial intelligence unit. So with all those things, it there’s no way anyone can get away with it,” he said. the BBC.

As China increasingly asserts itself on the world stage, its long-term strategic ambitions also raise concerns.

The growing Chinese footprint in Sri Lanka is a concern for India in what is traditionally considered its backyard.

The port city aims to attract multinational companies and investors already based in India, which could reduce investment and job opportunities there.

Corn some say Sri Lanka also has a lot to fear of the port city of Colombo.

In 2020, Laos only avoided bankruptcy by selling part of its energy network to China to help finance a railway linking the two countries.

Like Hambantota, could Colombo Port City end up becoming a long-term Chinese outpost?

“The moment this government accepted the Chinese, China took control of everything in the port city, the whole thing,” opposition MP Rajitha Senaratne told the BBC.

“One day, in fact, Sri Lanka will have no more say in this project.”

Chinese academic Zhou Bo disagrees, saying the goal is for both countries to benefit.

“China’s Belt and Road Initiative is not a charity. We also want to be mutually beneficial. That means we also want our investments to have economic returns,” said Zhou, a former senior colonel in the People’s Liberation Army who is now at Tsinghua University in Beijing. told the BBC.

“China has no intention of trapping a country in debt.”

Sri Lankan officials take the same line.

“The whole area is under Sri Lankan sovereign control. The right to patrol, police, immigration and other national security tasks rest with the Sri Lankan government,” said Saliya Wickramasuriya, of the Commission. economy of the port city.

But Sri Lanka, currently going through an unprecedented economic crisis, has limited options.

The Covid pandemic has devastated its lucrative tourism sector and shaken overseas employment, sending foreign exchange reserves plummeting.

The country’s external debts have soared to more than $45 billion and it owes about $8 billion to China alone.

Amid calls for financial assistance, Sri Lanka asked visiting Chinese Foreign Minister Wang Yi last week to restructure its debt repayments in Beijing.

But with repeated downgrades from international rating agencies, Colombo’s chances of turning to international investors for new loans look slim.

Only China has long-term ambitions – and deep pockets.

But there could be strings attached – some believe a city like Hong Kong in Sri Lanka would help China tighten its grip on this part of Asia in years to come.

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