Chinese Infrastructure Investments in Sri Lanka: A Pearl or a Teardrop on the Belt and Road?

Meg  Rithmire; Yihao  Li

Case | HBS Case Collection | January 2019 (Revised July 2019)

Chinese Infrastructure Investments in Sri Lanka: A Pearl or a Teardrop on the Belt and Road?

Abstract

In 2015, a surprise presidential election result seemed to imperil Chinese investments in Sri Lanka, which were associated with China’s Belt and Road Initiative to build global infrastructure. In the previous decade, China had undertaken two major projects in the country: the construction of a port in the poor district of Hambantota (also the previous president’s hometown), for which Sri Lanka borrowed 1.2 USD billion dollars from the China Ex-Im bank, and a major real estate project outside of Colombo. The new administration pursued renegotiation of both contracts. In 2016, a Chinese state-owned company purchased the asset of the Hambantota port, generating concerns about sovereignty in Sri Lanka and Chinese naval ambitions in Delhi and Washington, DC. This case explores the dynamics of China's ambitious Belt and Road Initiative, a large-scale infrastructure and connectivity project launched under its powerful leader, Xi Jinping, as well as the politics and economics of sovereign borrowing in the age of Chinese lending. Did Sri Lanka fall victim to a sort of “debt diplomacy,” or did the Chinese side fail to understand Sri Lanka’s domestic political landscape? Was the sale of the asset the right choice for Sri Lanka? The right investment for China Merchants Group, which bought the 99-year lease?

Keywords: Belt and Road Initiative; Investment; Infrastructure; China; Sri Lanka;

Language: English

Format: Print

34 pages

Educators Purchase

Citation:

Rithmire, Meg, and Yihao Li. "Chinese Infrastructure Investments in Sri Lanka: A Pearl or a Teardrop on the Belt and Road?" Harvard Business School Case 719-046, January 2019. (Revised July 2019.)

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Working Paper | HBS Working Paper Series | 2019

Varieties of Outward Chinese Capital: Domestic Politics Status and Globalization of Chinese Firms

Meg Rithmire

Recent focus on China’s surging outward investment has overlooked a puzzling fact about China’s policy regime governing outward investment: rather than increasing liberalization and enhancing domestic “push” factors, China’s policy toward outward investment has been ambivalent and vacillating, pushing large-scale internationalization while also embracing strict capital controls. This paper accounts for China’s ambivalent policy moves by focusing on the domestic coalitions that sustain capital openness. I show how three types of domestic Chinese capital—state capital (SOEs), private capital (SMEs and large competitive firms), and crony capital (firms who enjoy access to profits based non-market rather than market advantages)—differ in political vulnerability and therefore pursue globalization in different ways. While all prefer capital openness, they do so for different reasons: state capital uses preferential access to domestic credit to expand internationally for political power and prestige in addition to profits; private capital, in keeping with the theoretical expectations of the international business literature, seeks markets and/or efficiency; and crony capital seeks to transform domestic access into international safety as quickly as possible. China’s policy ambivalence can largely be explained as the party-state’s attempts to discipline or empower these groups.

Keywords: outward investment; capital controls; Investment; Global Range; Capital; Globalization; Policy; Government and Politics; China;

Citation:

Rithmire, Meg. "Varieties of Outward Chinese Capital: Domestic Politics Status and Globalization of Chinese Firms." Harvard Business School Working Paper, No. 20-009, June 2019. View Details

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