Sri Lanka’s new government is facing challenges due to its reliance on Chinese capital, which constrained previous administrations. Despite this, the government is finding it difficult to renegotiate ties with China while also managing its fragile economic recovery, as per a report from The Asian. The National People’s Power (NPP) administration, elected amidst public discontent over opaque foreign deals, is under pressure to address the issue of Chinese-backed projects that are seen as threats to national sovereignty.
The report highlighted that Chinese-funded projects have become a focal point of criticism due to their size and visibility, reflecting public dissatisfaction with foreign influence. While there is a need to reevaluate economic and political relations with China, Sri Lanka is in urgent need of foreign capital and has limited foreign exchange reserves, making it challenging to reduce dependency on Chinese investments.
The new government, which promised to review existing agreements, expedited a deal with China’s Sinopec for a $3.7 billion oil refinery in Hambantota in January 2025. This move underscores the country’s structural reliance on Chinese investments. The analysis also pointed out the controversial handover of the Hambantota Port to a Chinese state firm on a 99-year lease in 2017, which is viewed as a symbol of compromised sovereignty and strategic dependence.
Local voices are calling for increased oversight of Chinese-controlled assets and revisions to tax benefits related to the Colombo Port City. While Colombo has attempted to tighten regulations and revoke certain tax exemptions within the Port City framework following post-IMF restructuring, there are concerns that such actions may deter much-needed investors. The report emphasized that China’s influence in Sri Lanka extends beyond military aspects, encompassing logistics, energy projects, and long-term financial investments.
