SOEs to SOEs: Unpacking the role of China’s SOEs as contractors and financiers for Sri Lanka’s SOE projects
- Team Arutha
- Feb 28
- 2 min read
Over the last two decades, China has become a major financing source for Sri Lanka's infrastructure development. China’s state-owned enterprises (SOEs) and policy banks started working closely with Sri Lanka in the early 2000s, initially with post-tsunami reconstruction, and later in the construction of the Puttalam coal power plant and the Hambantota Port. Both these large-scale projects were financed by loans provided by the China EXIM Bank. Although two Sri Lankan state-owned enterprises were involved in the projects, the Ceylon Electricity Board (CEB) and the Sri Lanka Ports Authority (SLPA), the loans were obtained by the government.
However, from 2010 onwards, the economic relationship between Chinese SOEs and their Sri Lankan counterparts evolved, as they began increasingly interacting directly with each other in financing and implementing infrastructure projects. These interactions include working together on infrastructure projects and, in at least one case, directly financing a project. The findings of this report shed light on how China’s involvement in Sri Lanka’s public debt goes beyond just official government-to-government loans and the well-known Chinese policy banks like the China EXIM Bank and China Development Bank (CDB).
The study analyses five selected infrastructure projects implemented by Sri Lanka SOEs and financed by Chinese creditors under five loans to understand why these relationships emerged, their consequences, and their impact on governance and transparency in Sri Lanka. The study reviews how such infrastructure projects were implemented, the problems they faced during implementation, and the various financing arrangements used.
The report identified several key findings related to the activities of China’s SOEs in Sri Lanka, and the Sri Lankan government’s policy of allowing its SOEs to borrow to invest in infrastructure projects directly.
In terms of China’s SOEs in Sri Lanka and how their relationship with Sri Lanka’s SOEs has evolved, this report argues that these SOE-led projects were not implemented explicitly as part of China’s Belt and Road Initiative (BRI). Rather they reflected the profit-driven goals and the complex, fragmented nature of China’s SOEs. Such fragmentation is also seen within China’s SOEs, with subsidiaries of large entities operating in unrelated sectors.
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