4 - Chinese Financing and Domestic Politics in Sri Lanka – Parallel Evolution across mid-20th vs 21st century episodes of bilateral interactions

Presentation Abstract
This paper studies the parallel evolution of Sri Lanka’s domestic politics and China’s foreign financing in Sri Lanka’s post-independence era through four lenses namely, political opposition, political gains, economic structure and institutions. We focus on the bilateral relationship prior Sri Lanka’s economic liberalization and aftermath middle-income transition and adds three major findings to the literature. Firstly, Chinese economic engagements continue to have substantial political opposition in Sri Lanka. But the nature of such opposition evolved from ideology-based to sovereignty-based anti-China sentiments, which heavily correlate with elections. The economic relations with China have continued to evolve as political gains, which helped to maintain government popularity in the short-to medium term, exceeded costs inflicted by political opposition. Secondly, nature of bilateral economic relationship has become more complex moving from being purely government-to-government to involving multiple actors: Chinese policy banks, SOEs and private sector. Thirdly, despite differences, economic relations with China have been utilized by Sri Lanka's governments for short-term political gains and to avoid structural reforms, especially in the run-up to Sri Lanka’s sovereign default and unprecedented economic crisis in 2022. We conclude that China’s approach to ongoing debt restructuring will affect domestic politics around China's engagements and affect how the bilateral economic relationship evolves.

Co-Author 1
Thilina Panduwawala, University of Queensland