The Paradox of Chinese Investments in Sri Lanka: Between Investment Treaty Protection and Commercial Diplomacy

Abstract

The politically sensitive nature of Chinese investments in Sri Lanka has made investment protection by the China-Sri Lanka BIT highly relevant. However, the treaty has a pro-state orientation, with limited protection for investors. This gives rise to a modern paradox in which China has become the top investor in Sri Lanka, despite the absence of an international protective framework for their activities. Chinese investors are apparently managing this paradox mainly through commercial diplomacy. As an alternative to a rights-based approach, this may signal a return to a power-based approach to settling investment disputes, with the Chinese government a leading actor therein. This will be particularly prominent in the context of the Belt and Road Initiative. While win-win co-operation is a stated principle of Chinese investment policy, whether mutually beneficial outcomes can be sustained with the asymmetrical power dynamics between China and BRI states remains to be seen.