New Delhi: China’s decision to withdraw from a proposed logistics hub at Sri Lanka’s Port of Colombo highlights the commercial and domestic political challenges confronting several projects under the Belt and Road Initiative (BRI), according to a new report.
Maldives Insight reported that China Merchants Port Holdings and its Sri Lankan partners had agreed to abandon the proposed logistics and warehousing project, which was announced in 2023 with an estimated investment of $392 million. Disagreements over tax concessions, commercial viability and operational conditions reportedly led to the decision.
The report noted that several Chinese-backed projects, from Hambantota Port to Colombo Port City, have faced difficulties arising from local political priorities, fiscal constraints and commercial realities. The setback is particularly significant for Beijing, as Sri Lanka has been one of the most prominent destinations for its BRI investments.
The disagreement over the Colombo project emerged as Sri Lanka adopted a more cautious approach towards large foreign-backed investments following its 2022 economic crisis and subsequent debt restructuring.
The proposed investment framework raised concerns over tax arrangements and their compatibility with Sri Lanka’s commitments under its International Monetary Fund (IMF) programme. The project partners eventually failed to reach an agreement on the terms they considered essential for its commercial viability.
The report said Sri Lanka’s efforts to ensure that tax incentives, exclusive operating rights and long-term concessions serve the public interest also contributed to the impasse. It attributed the failure to reach an agreement partly to weaknesses in the project’s original planning.
The report drew a parallel with Hambantota Port, which failed to generate sufficient commercial returns under Sri Lankan management. The country subsequently transferred long-term operational control of the strategically located port to a Chinese state-owned company.
“The wider lesson is that Beijing’s regional influence cannot be measured simply by the number of projects announced or the billions attached to them. A port concession, refinery or logistics hub becomes strategically and economically meaningful only when it operates successfully, generates sustainable returns and meets the needs of the host country,” the publication said.
“Beijing may bring capital and construction expertise, but it cannot guarantee that every project will proceed on its preferred terms,” it added.
-IANS