China’s Belt and Road Initiative (BRI), referred to as “Yi dai yi lu” in Chinese, has reshaped global infrastructure financing and investment. It promotes a “China-centred model” of development, which often does not set terms with regard to human rights, transparency or Western legal and market-based principles. BRI emphasises flexible, voluntary cooperation without the stringent legal frameworks and infrastructure financing that host governments might find beneficial in the short term to start projects. Such a model comes with risks for participating countries. As we navigate this landscape, the US must offer a compelling alternative that prioritises transparency, rule of law and sustainable economic models.
Projects associated with BRI have frequently led to substantial financial obligations for participating countries. These arrangements typically involve long-term repayment commitments to Beijing, creating financial dependence on the People’s Republic of China (PRC or China) and giving the PRC significant leverage over host nations. This influence extends beyond loan terms and project implementation to broader political pressures China may exert on these countries.
China frequently prefers to extend or renegotiate loans rather than offer debt forgiveness, thereby maintaining or even increasing its economic and political sway over host governments. In contrast, institutions like the World Bank and IMF have shown greater willingness to forgive debt, particularly for highly indebted poor countries.
The Hambantota Port in Sri Lanka has become a focal point in discussions about China’s lending practices and the stress they place on recipient countries. Here’s what happened: In 2017, Sri Lanka leased a 70 per cent stake in the Hambantota Port to China Merchants Port Holdings Company Limited for 99 years in exchange for $1.12 billion. This deal was not a debt-equity swap or debt cancellation, but a separate transaction from the original loans used to construct the port. Facing a dire financial situation, the Sri Lankan government used the $1.12 billion to strengthen its foreign reserves and make short-term foreign debt repayments, rather than pay off PRC loans for the port’s construction. This decision reflected Sri Lanka’s broader economic problems, stemming from persistent trade and budget deficits, low foreign direct investment, and sluggish export growth. While the PRC monies for the lease provided immediate financial relief, they did not address Sri Lanka’s underlying economic challenges and did not provide a sustainable solution to its debt problems. Instead, the loans contributed to the transfer of a strategic Sri Lankan asset to a PRC entity, raising concerns about Sri Lanka’s sovereignty and the effectiveness of such PRC deals in addressing underlying economic challenges.
The Hambantota Port, strategically located in the Indian Ocean, is part of China’s broader geopolitical strategy to secure essential trade and energy supply routes. It is one of many PRC port projects in the Indian Ocean Region including Pakistan, Bangladesh, the Maldives and Burma.
According to estimates by the Council on Foreign Relations (CFR), as of September 2023, China had active investments in 101 port projects globally. Among these, 10 are strategically located around the Indo-Pacific and can potentially be used for naval purposes. The Hambantota port is one of them. The development of these ports not only enhances China’s economic interests — it also extends its geopolitical influence.
To counter China’s influence, the US International Development Finance Corporation (DFC) has emerged as a vital player. Last year, it committed half a billion dollars toward the development of the West Container Terminal in the Port of Colombo, which is the largest and busiest transhipment port in the Indian Ocean. Unlike China-based lenders, the DFC supports projects led by the private sector that are strategically and economically sound. Shipping and logistics are expected to contribute significantly to Sri Lanka’s GDP, sustaining more than 40,000 jobs and bolstering the country’s status as a global logistics centre.
The US-backed terminal will not serve as a panacea to Sri Lanka’s economic and development issues. However, it is emblematic of how the US does business in countries looking to develop their infrastructure and other critical sectors — advancing America’s strategic interests, as well as theirs, and promoting stability and prosperity. US investments prioritise transparency, high standards, and strategic interests, contrasting with the often opaque terms and potential long-term dependencies associated with some China-backed projects. Sri Lankan leaders didn’t need to appeal to Washington for support or worry about falling into debt traps. Instead, the DFC offers high-quality, transparent projects and assurances of continued partnership.
But America’s ability to continue countering the harmful effects of China’s international lending practices is not guaranteed. Five years after it was formed, Congress needs to reauthorise the DFC next year to continue its work. This process serves as an opportunity to strengthen and expand DFC’s tools, which I believe — and many of my colleagues from across the political spectrum agree — have been highly effective in promoting sustainable investments that adhere to high standards for environmental protection, human rights, and worker rights. DFC’s mission is to mobilise private capital to address development challenges, advance US foreign policy, and catalyse economic growth in emerging markets. This commitment sets it apart from other development finance models. We also must send an essential message to our partners around the world: America remains committed to transparent, sustainable, and mutually beneficial development.
As we navigate the complex landscape of global infrastructure investment, the US must continue to offer a viable alternative that upholds our values, promotes economic growth, and ensures stability. By doing so, we can strengthen our strategic partnerships and contribute to a more prosperous and secure world.
The writer is a Democratic Member of the US House of Representative
