India is transforming into a comprehensive development partner and re-establishing its strategic and economic presence in Sri Lanka. China has cautiously recalibrated the BRI, focusing on direct FDI projects as well as existing and small-scale projects.

India’s acquisition of a 51 per cent controlling stake in Colombo Dockyard in April 2026, through its state-owned enterprise (SOE), Mazagaon Dock Shipbuilders Ltd (MDL), which is India’s very first international acquisition in the shipbuilding sector, reflects a strategic deepening of economic engagement in Sri Lanka. India has proactively scaled up engagement through the roll-out of the United Payments Interface (UPI), the Trincomalee oil tank, and increased Foreign Direct Investment (FDI). China has also consolidated existing projects and invested in new ones, such as the Hambantota oil refinery. The brief analyses India’s and China’s economic engagement with Sri Lanka, specifically in the post-2022 crisis period.

China’s Economic Engagement

The end of the three-decade-long civil war (1983–2000) in Sri Lanka saw China’s mega infrastructure-led development viz. the Hambantota Port, Mattala Rajapaksa Airport, Colombo Port City, Nelum Pokuna Theatre, the South Container Terminal of the Colombo Port, and several highways. China’s Exim Bank lent US$ 307 million in 2007 for the construction of the Hambantota Port at 6.3 per cent, higher than ADB’s 3 per cent, to CM Ports, a Chinese SOE. By 2020, China’s total financial assistance amounted to US$ 20 billion,[1] with infrastructure projects alone accounting for US$ 12 billion[2]

In 2017, the Sri Lankan government spent 83 per cent of its revenue on debt repayments, of which a quarter was allocated to repaying foreign borrowings alone, with the remainder allocated to domestic borrowings. This affected Sri Lanka’s ability to repay its Chinese debt, particularly the Hambantota port debt, which led the Sirisena Wickremsinghe government to lease the port in a debt-for-equity swap.  The port lease (US$ 1.12 billion) in 2017 to a Chinese firm for 99 years, wherein CM Ports holds 69.55 per cent shares, and Sri Lanka Ports Authority (SLPA) holds the remaining 30.45 per cent, with a buy-back arrangement of 20 per cent of shares in 10 years,[3] was highly controversial.[4]

Hambantota International Port Services Company (HIPS) and Hambantota International Port Group (HIPG) were created. CM Ports and SLPA were to have a 70–30 per cent split, respectively. In HIPS, SLPA has a 50.7 per cent share and CM Ports has a 49.3 per cent share, while in HIPG, CM Ports has a majority stake of 85 per cent and SLPA has 15 per cent. However, financial experts have stated that CM Ports holds majority stakes in both HIPG and HIPS.[5]

In 2022, Sri Lanka became the first-ever country in Asia-Pacific to declare a sovereign default. Foreign exchange reserves fell from US$ 7.6 billion (2019) to US$ 250 million (2022), and the debt-to-GDP ratio exceeded 110 per cent of GDP. China, the largest bilateral debtor, accounted for 13 per cent of Sri Lanka’s external debt. Sri Lanka’s commercial debt, that is, the debt it accrued by borrowing from the private international financial market, accounted for 42 per cent of the country’s external debt, with 85 per cent of this commercial debt being from International Sovereign Bonds (ISBs). About debt servicing, which refers to the periodic repayment of a loan’s principal and interest, Chinese debt repayments accounted for 20 per cent of Sri Lanka’s total debt servicing. In comparison, ISB’s accounted for 50 per cent.

China’s BRI, excessive debt and financial mismanagement all contributed to Sri Lanka’s debt troubles. China offered a paltry sum of US$ 75 million of emergency aid, 10,000 tons of rice and medical supplies in June 2022. China restructured its bilateral debt of US$ 4.2 billion, but was reluctant to join the official creditors group and co-operate with the IMF process, which it did only in late 2023.

Post-crisis, China suffered severe losses (US$ 7 billion) due to debt restructuring, in which it had to forgive portions of the original loan amounts and extend loan repayment timelines, all of which led to China losing 7 billion. Post-restructuring, Sri Lanka’s outstanding debt to China fell from US$ 8 billion in 2022 to US$ 4.9 billion in 2025. China’s share of........

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