China’s role in Sri Lanka’s Hambantota port is often cited as a classic example in the debate over “debt‑trap diplomacy”. But more than anything, the port’s location—just off India’s southern coast—was one of the wake-up calls India needed to double down on its maritime ambitions.
However, the newly planned Chinese-funded oil refinery at Hambantota adds to further concerns, as it is again seen as Beijing increasing its economic and strategic footprint in the island nation. This is why the upgraded Sagarmala 2.0 initiative is more relevant than ever.
How Hambantota became a ‘debt‑trap’ symbol
Between 2007 and 2012, then President Mahinda Rajapaksa’s government borrowed over $1 billion from China’s Exim Bank to build the Hambantota port, after lenders like India and the Asian Development Bank (ADB) declined due to doubts over the project’s viability.
Much of this funding came at commercial interest rates of a little over 6 per cent, much higher than the roughly 3 per cent that multilateral lenders might have charged. When the Magampura Mahinda Rajapaksa Port (or Hambantota port) opened in 2010, it struggled to attract traffic and failed to earn enough to service its loans, confirming earlier concerns over profitability.
By December 2017, the Sri Lankan government handed over Hambantota port to two joint venture companies, Hambantota International Port Group (HIPG) and Hambantota International Port Services (HIPS). Here is where it got murky. PRC‑owned China Merchants Ports Holding Company (CMPort) has an 85 per cent stake in HIPG. And HIPG has a 58 per cent stake in HIPS.
In effect, Sri Lanka handed operational control of Hambantota to Chinese state‑owned China Merchants Port Holdings on a 99‑year lease, in return for $1.12 billion in equity investment. Critics and researchers alike called this a textbook case of China deliberately lending on tough terms, knowing Sri Lanka could default, and then gaining control over a strategically located deep‑sea port along vital Indian Ocean shipping lanes.
Back in India, the Parliament saw V.K. Singh, who was then the Minister of State for External Affairs, answer at the Rajya Sabha, “The [lease] agreement provided for transfer of all movable property and lease of immovable property in the Port to HIPG and HIPS. CMPort has a majority stake of 85 per cent and Sri Lanka Port Authority (SLPA) has remaining 15 per cent stake in HIPG. In HIPS, SLPA has 42 per cent stake and HIPG has the remaining 58 per cent stake. The lease of the Port is valid for a period of 99 years.” This confirmed the holding pattern.
Despite the numbers, others say that China’s role in debt is “grossly exaggerated“. Reports state that Colombo remains responsible for servicing them, and it retains formal sovereignty over Hambantota even though a Chinese firm runs operations and controls surrounding land for the lease period. But the early 2025 refinery deal added to concerns.
A $3.7 billion refinery deal
In January 2025, President Anura Kumara Dissanayake’s government signed a $3.7 billion agreement with Chinese oil major Sinopec to build a large refinery at Hambantota, with a planned capacity of 200,000 barrels per day.
Colombo says most output will be exported and that the project will create jobs and boost incomes in the relatively poor Hambantota region.
However, this is yet another big Chinese asset at Hambantota, so close to India’s southern coastline and key sea lanes. And many experts say that it strengthens the so‑called “string of pearls”—a network of Chinese‑linked ports across the Indian Ocean that could have military or strategic uses in future.
However, this came just two years after Sri Lanka scrapped a previous $3.85 billion Indian‑Omani refinery proposal. It did not take too long for Delhi to respond.
The entry of Sagarmala
India’s push for a wider maritime initiative is not a 2025 phenomenon. In fact, it began a decade ago in 2015, when the Ministry of Ports, Shipping and Waterways decided to leverage the country’s 7,500 km coastline and 14,500 km of navigable waterways. An effective counterweight to the string of pearls.
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Fast forward to 2025, the initiative has identified 839 projects worth Rs 5.79 lakh crore, with Sagarmala 2.0 targeting Rs 12 lakh crore investments by 2047 in line with the current Union government’s Viksit Bharat narrative.
Sagarmala is vital for the Indian Ocean Region (IOR), securing 90 per cent of India’s trade passing through IOR chokepoints like the Strait of Malacca. Projects like Chabahar Port (Iran), Sittwe (Myanmar) and new coastal Economic Zones strengthen maritime security, reduce dependence on land routes, and position India as a net security provider amid IOR rivalries.