New Delhi, Oct 30 — China’s withdrawal from a proposed logistics hub at Sri Lanka’s Port of Colombo underlines the commercial and domestic political hurdles facing some Belt and Road Initiative (BRI) projects, a new report has said.
The report from Maldives Insight said China Merchants Port Holdings and its Sri Lankan partners have agreed to abandon the planned logistics and warehousing project at Colombo Port, originally announced in 2023, valued at about $392 million, due to disagreements over tax concessions, the project’s commercial viability and operational conditions.
Many Chinese-backed projects from Hambantota to Colombo Port City have repeatedly collided with local political priorities, fiscal constraints and commercial realities, the report said, highlighting that failure is severe as Sri Lanka has been one of the most visible destinations for the Belt and Road Initiative (BRI).
The major disagreement came after Sri Lanka took a more cautious approach to large foreign-backed investments following its 2022 economic crisis and debt restructuring.
The investment framework of the project raised concerns over the tax arrangements and their compatibility with the country’s commitments under its International Monetary Fund programme. The project partners subsequently failed to secure the terms they considered necessary for commercial viability.
Sri Lanka’s interest in ensuring that tax incentives, exclusive operating rights and long-term concessions are legitimate in the interests of its public. The report attributed the failure in agreement to weakness in the original planning.
Similarly, Hambantota Port also failed to generate sufficient commercial returns under Sri Lankan management following which the country transferred long-term operational control of its strategically located port to a Chinese state-owned company.
“The wider lesson is that Beijing’s regional influence cannot be measured simply by the number of projects announced or the billions attached to them. A port concession, refinery or logistics hub becomes strategically and economically meaningful only when it operates successfully, generates sustainable returns and meets the needs of the host country,” the publication said.
“Beijing may bring capital and construction expertise, but it cannot guarantee that every project will proceed on its preferred terms,” it added.