Financial Aid Project in Sri Lanka – Rather Than Give Money, US Secured Financing With Private Loans

COLOMBO, Sri Lanka (AP) — The U.S. announced a $553-million project Wednesday to build a new, deep-water shipping container terminal in the Port of Colombo as it competes with China in international development financing.

The project, financed with private loans, is billed as providing critical infrastructure for the South Asian nation with the potential to “transform Colombo into a world-class logistics hub at the intersection of major shipping routes and emerging markets,” according to the U.S. International Development Finance Corp.

The DFC’s commitment of $553 million in private loans for the West Container Terminal will “expand its shipping capacity, creating greater prosperity for Sri Lanka — without adding to sovereign debt — while at the same strengthening the position of our allies across the region,” said DFC Chief Executive Officer Scott Nathan.

Chinese financial institutions lent $1.34 trillion to developing countries from 2000 to 2021, U.S. researchers at AidData said in a report that showed the world’s biggest bilateral lender switching from infrastructure to rescue lending.

While lending commitments peaked at almost $136 billion in 2016, China still committed to almost $80 billion of loans and grants in 2021 according to the data, which captures almost 21,000 projects in 165 low and middle-income countries as probably the most comprehensive dataset of its type.

In 2021, the lion’s share of lending, more than half, came from the People’s Bank of China and the State Administration of Foreign Exchange (SAFE), primarily directed toward bailout funding. AidData’s report from the research lab at William and Mary University aptly described Beijing’s evolving role as “the world’s largest official debt collector,” a role that has been both unfamiliar and uncomfortable for the Chinese government.

China’s overseas financial endeavors have not only garnered allies in the developing world but have also drawn criticism from Western nations and some recipient countries like Sri Lanka and Zambia. These criticisms often revolve around infrastructure projects funded by China, which, despite their initial promise, left these nations burdened with debt they struggled to repay.

The data further reveals a shift in both the sources and focus of China’s overseas financing. In 2013, when President Xi Jinping launched the Belt and Road Initiative aimed at constructing infrastructure in developing regions, China’s policy banks were responsible for over half of the lending. However, their share in this endeavor has steadily declined since 2015, reaching just 22% by 2021. This transformation underscores China’s changing approach to its international financial engagements.