Hong Kong redux? The Sri Lankan port controlled by China

Hambantota is a port in Southern Sri Lanka of which control was ceded to China in a 99 year lease.

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Hambantota is a port in Southern Sri Lanka of which control was ceded to China in a 99 year lease. The port was built as part of China’s One Belt One Road policy and was financed with $1.5 billion in loans from state run Chinese firms. China Merchants Port Holdings Company is paying $1.1 billion for a 70% stake in the port.

The deal illuminates some of the complex issues facing zones. First, the issue of zones and autonomy. A reversal of fortune from Hong Kong, it is reminiscent of Romer’s charter cities TED talk, the port, which includes a special economic zone, is effectively being controlled by a different country. This is a strong commitment to a distinct governing body. However, the incentives facing the governing body are unclear. China Merchants Port Holdings Company is controlled by the Chinese state. As such, while it is certainly incentivized to improve the port, there are additional geopolitical implications.

Second, the challenge of attracting businesses to zones. Next City reports that Hambantota is under capacity, with the promised jobs not materializing. Perhaps this will follow China’s ghost cities which seem to have attracted populations. Or perhaps the planners simply overestimated the demand for a port.

Third, the political challenges of creating zones. Hambantota was chosen largely because Sri Lanka’s president hails from the town. When deals are made to curry political favor, they aren’t always based on the soundest business logic.

Lastly, the geopolitical issues. India, traditionally closer to Sri Lanka than China, is considering buying the world’s emptiest airport which serves Hambantota. India is worried about China’s influence in the area and views buying the airport as a way to counter that influence.