Faced with an overseas debt crisis, will China change its ways?

Few moments better encapsulate the hope and hubris of China’s Belt and Road Initiative, a global infrastructure binge, than the inauguration of Sri Lanka’s Colombo Port City in 2014. Xi Jinping, China’s president, attended in person, nodding approvingly as a project manager introduced the $15bn plan to build a high-tech offshore financial centre with a marina, hotels and luxury homes on 665 acres (269 hectares) of land reclaimed from the sea off Sri Lanka’s capital. Local officials likened the project to Dubai and Singapore. Mr Xi (pictured on his visit to Sri Lanka) called it a “major hub” of the 21st Century Maritime Silk Road—the part of Belt and Road that aimed to reshape ocean trade by financing ports and related infrastructure without the pesky conditions that Western and multilateral lenders demand.

Flash forward to August 2022 and the future of Sri Lanka—let alone Colombo Port City—hangs in the balance. Crippled by fuel and food shortages, the country is seeking a bail-out from the International Monetary Fund after defaulting on its debt in May. Pakistan, another big borrower, is also in the midst of an imf bail-out and dozens more Belt and Road countries are facing debt distress. The extent to which China, the world’s biggest official creditor, bears responsibility is hotly debated. But what matters now is how it responds. Sri Lanka will be a critical test of Chinese willingness to co-ordinate with other lenders, potentially at the expense of Mr Xi’s original geostrategic goals.