Sri Lanka’s key to Development:China-Wall Street Journal

In Sri Lanka’s Post-Tsunami Rise, China Is Key

Town’s $1 Billion Port, Empty Airport Raise Questions of What Strings Are Attached

A multibillion-dollar port in Hambantota, Sri Lanka, is being built with Chinese money.ENLARGE
A multibillion-dollar port in Hambantota, Sri Lanka, is being built with Chinese money. PATRICK BARTA/THE WALL STREET JOURNAL

HAMBANTOTA, Sri Lanka—When the Indian Ocean tsunami pulverized much of this town 10 years ago, locals wondered if it would ever recover.

A decade later, a $1 billion port is being built and a $209 million airport has opened, along with a convention center and a cricket stadium for 25,000. A 10-story hospital is under construction near signs warning of wild peacocks.

ENLARGE

Much of Sri Lanka’s resurgence since the tsunami that killed 35,000 people here has been with help from China.

Phase one of the Hambantota port, for instance, is 85% financed by the Export-Import Bank of China. A joint venture of Chinese companies will handle further expansion.

Hambantota’s airport also relied on Chinese assistance, as do a $500 million Colombo port expansion, new highways and rail links, a $1.4 billion landfill development near Colombo’s financial district and a $1.3 billion power plant.

The infusion of Chinese money reflects how Beijing has replaced Western-backed financial institutions in many projects in developing countries over the past decade. Chinese President Xi Jinping has upped the ante recently, pushing a $50 billion Asian Infrastructure Investment Bank and a $40 billion Chinese “Silk Road Fund.”

A Coastline Revives

A Decade After Tsunami’s Devastation, Sri Lankan Towns Have Healed

Galle November 2014<br>

Today Galle is mainly restored - including its bus station.
Peraliya early 2005<br>

Peraliya was among the hardest-hit towns on Sri Lanka's southern coastline. Of about 1,500 residents, almost one in seven was killed. It was here that the giant waves derailed a packed passenger train.
Peraliya early 2005<br>

Peraliya was among the hardest-hit towns on Sri Lanka's southern coastline. Of about 1,500 residents, almost one in seven was killed. It was here that the giant waves derailed a packed passenger train and ripped some tracks from the ground.
Peraliya November 2014<br>

Today, the train tracks are fully rebuilt around Peraliya.
A temple in Peraliya early 2005<br>

The temple at the back of Peraliya’s village survived the tsunami and remained a site of peace, even though much of the surrounding area was damaged.
A temple in Peraliya November 2014<br>

Today the temple at the back of Peraliya's village is largely restored.
Near Peraliya early 2005<br>

Communities near Peraliya were obliterated by the waves.
Peraliya November 2014<br>

Today Peraliya has been mostly rebuilt.
Hambantota 2005<br>

Hambantota, further along Sri Lanka's southern coast, was badly damaged in the tsunami.
Hambantota November 2014<br>

Today, the same area in Hambantota along the beachfront is largely deserted, except for birds and stray dogs.
A mosque in Hambantota December 2004<br>

People walk through debris from the tsunami in Hambantota Dec. 29, 2004. One of Hambantota’s main mosques is visible in the background.
A mosque in Hambantota November 2014<br>

Today that mosque is rebuilt and expanded.
Hambantota December 2004<br>

A woman sits among the debris of her destroyed home in the ravaged town of Hambantota, Sri Lanka, some 200 kilometers south of Colombo.
Hambantota November 2014<br>

Now hundreds of millions of dollars are pouring into the town as part of a plan to turn it into one of South Asia's biggest port and trade hubs, with much of the work financed by China. This is the city’s new administrative center.
Galle International Stadium December 2004<br>

An aerial image taken from a helicopter shows the cricket stadium in the southern city of Galle destroyed by the tsunami.
Galle International Stadium November 2014<br>

Today Galle is mainly restored - including its cricket grounds.
Galle December 2004<br>

Damaged buses are piled up in a town square in Galle on Dec. 27, 2004.
Galle November 2014<br>

Today Galle is mainly restored - including its bus station.
Peraliya early 2005<br>

Peraliya was among the hardest-hit towns on Sri Lanka's southern coastline. Of about 1,500 residents, almost one in seven was killed. It was here that the giant waves derailed a packed passenger train.

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Peraliya early 2005
Peraliya was among …
Peraliya early 2005
Peraliya was among the hardest-hit towns on Sri Lanka’s southern coastline. Of about 1,500 residents, almost one in seven was killed. It was here that the giant waves derailed a packed passenger train and ripped some tracks from the ground. PATRICK BARTA/THE WALL STREET JOURNAL
Peraliya November 2014
Today, the train tracks are fully rebuilt around Peraliya. PATRICK BARTA/THE WALL STREET JOURNAL
A temple in Peraliya early 2005
The temple at the back of Peraliya’s village survived the tsunami and remained a site of peace, even though much of the surrounding area was damaged.PATRICK BARTA/THE WALL STREET JOURNAL
A temple in Peraliya November 2014
Today the temple at the back of Peraliya’s village is largely restored. PATRICK BARTA/THE WALL STREET JOURNAL
Near Peraliya early 2005
Communities near Peraliya were obliterated by the waves. PATRICK BARTA/THE WALL STREET JOURNAL
Peraliya November 2014
Today Peraliya has been mostly rebuilt. PATRICK BARTA/THE WALL STREET JOURNAL
Hambantota 2005
Hambantota, further along Sri Lanka’s southern coast, was badly damaged in the tsunami. PATRICK BARTA/THE WALL STREET JOURNAL
Hambantota November 2014
Today, the same area in Hambantota along the beachfront is largely deserted, except for birds and stray dogs. PATRICK BARTA/THE WALL STREET JOURNAL
A mosque in Hambantota December 2004
People walk through debris from the tsunami in Hambantota Dec. 29, 2004. One of Hambantota’s main mosques is visible in the background. THOMAS WHITE/REUTERS
A mosque in Hambantota November 2014
Today that mosque is rebuilt and expanded. PATRICK BARTA/THE WALL STREET JOURNAL
Hambantota December 2004
A woman sits among the debris of her destroyed home in the ravaged town of Hambantota, Sri Lanka, some 200 kilometers south of Colombo. DENNIS M. SABANGAN/EUROPEAN PRESSPHOTO AGENCY
Hambantota November 2014
Now hundreds of millions of dollars are pouring into the town as part of a plan to turn it into one of South Asia’s biggest port and trade hubs, with much of the work financed by China. This is the city’s new administrative center.PATRICK BARTA/THE WALL STREET JOURNAL
Galle International Stadium December 2004
An aerial image taken from a helicopter shows the cricket stadium in the southern city of Galle destroyed by the tsunami.VINCENT THIAN/ASSOCIATED PRESS
Galle International Stadium November 2014
Today Galle is mainly restored – including its cricket grounds.PATRICK BARTA/THE WALL STREET JOURNAL
Galle December 2004
Damaged buses are piled up in a town square in Galle on Dec. 27, 2004. REUTERS
Galle November 2014
Today Galle is mainly restored – including its bus station. PATRICK BARTA/THE WALL STREET JOURNAL

Many Sri Lankans say the cash is exactly what the country needs after decades of war drained its coffers.

Even though the economy has grown by more than 6% a year since the war with the Tamil Tigers ended, businesspeople say it is still sometimes hard to get cash from Western lenders, who demand highly detailed feasibility and environmental studies. Officials say some of China’s loans come with discounted interest rates.

“China just came and said, ‘Let’s get it done.’ And [things] got done,” said Ajit Gunewardene, deputy chairman of John Keells Holdings, a tourism and services conglomerate. He cited a highway from Sri Lanka’s main airport to central Colombo cutting travel times by half. It was envisioned in 1969 but languished until China offered financing after the tsunami, he said.

To others, China’s money is a potential curse, making Sri Lanka overly dependent on a rising power that could demand payback in unexpected ways. Some worry Beijing could force Sri Lanka to welcome Chinese military vessels at facilities China is helping build in Hambantota and Colombo.

ENLARGE

Others are concerned over what they say is a lack of transparency in the loans and over what happens if Sri Lanka can’t repay them. They worry President Mahinda Rajapaksa is pushing some projects that don’t make economic sense to bolster his support ahead of elections next year, which Sri Lankan officials deny.

“It’s a very dangerous game we’re playing,” said Harsha de Silva, an opposition politician. “At the end of the day you give your pound of flesh.”

China’s support is also alarming India, which views greater Beijing involvement in Sri Lanka as a security risk, especially after a Chinese submarine surfaced at Colombo’s port this year.

“If these sorts of activities become more frequent, the Indian Ocean will become a familiar operating area for the Chinese Navy, bringing them much closer to the Indian peninsula,” said C. Uday Bhaskar, a retired Indian Navy commodore and director of the New Delhi-based Society for Policy Studies.

A China Foreign Ministry spokesman said its support for Sri Lanka is aimed at boosting commercial ties for “mutual benefit” and that speculation over military or other objectives is “groundless.”

In the first state visit to Sri Lanka by a Chinese head of state in 28 years, Mr. Xi in September visited the Colombo Port City Project being built by China Harbour Engineering Co. on landfill, with plans for a Formula One track and a 100-story skyscraper.

David Brewster, a researcher at Australian National University, said China probably sees a number of upsides to its Sri Lanka investments, even if some projects underperform. Sri Lanka could become a new base for Chinese manufacturing as costs in China rise, he said, while big projects there yields contracts for its state companies.

Military considerations can’t be ignored, he said. “There probably is some element of truth that they’re trying to leverage their investments into some broader strategic advantage,” he said.

A new international airport in Hambantota receives only a half-dozen flights a day.ENLARGE
A new international airport in Hambantota receives only a half-dozen flights a day. PATRICK BARTA/THE WALL STREET JOURNAL

Chinese money is certainly changing Hambantota, a sleepy outpost of about 25,000 people, which lost more than 1,500 in the tsunami. survivors were moved to concrete and corrugated-metal homes a few kilometers inland.

The money really started flowing after Mr. Rajapaksa, a local politician, became president in 2005 and Sri Lanka’s war ended. In addition to China, South Korea helped pay for the convention center; European donors also helped.

For now, many of the big, new projects appear to be underused. Stray dogs sleep in the road leading to the airport, which opened in 2013 and handles a half-dozen flights daily. It had only one car in the parking lot during a recent afternoon visit.

But it is central to ambitions of turning Hambantota into a tourist hub, as arrivals surge nationwide.

Hong Kong-based Shangri-La Hotels and Resorts is planning a resort with more than 300 rooms. Signs advertise a Hyatt Regency opening in 2016.

The cricket stadium, opened in 2011, hosted some matches in the Cricket World Cup that year.

But it is the sprawling port complex that is Hambantota’s centerpiece. Designed to be one of the biggest ports in Asia when fully built, it attracts 45 to 50 ships a month, said Sri Lanka Ports Authority engineer Chaminda Bandara, compared with about 350 at Colombo’s port.

The goal is to better leverage Sri Lanka’s location north of one of the world’s busiest shipping lanes. Officials want more traffic to stop in Hambantota to refuel or transfer goods for distribution across South Asia.

Chinese factories could also take advantage of local labor in an industrial zone being set up nearby.

The port doesn’t generate enough revenue to pay its debt obligations, Mr. Bandara said. Sri Lanka’s government is responsible for the difference.

That is not a problem, said Eraj Ravindra Fernando, the local mayor. There will be new jobs and “significant profits, massive profits,” he said.

Many families relocated after the tsunami still live in poverty in this village, a few kilometers inland. Parts of the beach that were once their home are now being redeveloped for luxury hotels.ENLARGE
Many families relocated after the tsunami still live in poverty in this village, a few kilometers inland. Parts of the beach that were once their home are now being redeveloped for luxury hotels. PATRICK BARTA/THE WALL STREET JOURNAL

For some families, the upsides remain to be seen. Locals displaced by the tsunami say they are grateful for the houses and land they got from the government and aid groups. But conditions are grim, with standing water in dirt roads and trash piles, and they now have to travel far to fish or work.

Benefits from Hambantota’s big developments “may not come to us,” said 42-year-old N.M. Salahuddin, a laborer, inside his house of concrete blocks painted aqua blue.

“But we hope it will come to our children.”

—Uditha Jayasinghe in Colombo, Niharika Mandhana in New Delhi and Lilian Lin in Beijing contributed to this article.

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