Small State Capabilities in Managing Regional Power Rivalries: Case Study of Sri Lanka

Regional Expert: George I.H. Cooke Lead Researcher: Umilinda Pereira Research Team: T.S.P. Maheshi, Sayuri Mohotti, Nayani Melegoda

This paper is part of a series of analyses of small-state strategies in navigating large-power competition. Experts were commissioned in Bangladesh, Bhutan, the Maldives, Nepal, and Sri Lanka to produce papers examining how those countries have managed relations between large powers such as China, India, and the United States, which are increasingly vying for political and economic influence across Asia.

The papers each examine three case studies that illuminate the strategies small states use to pursue their interests vis-à-vis large powers. In particular, the papers examine the domestic political considerations that shape the countries’ actions, an underexplored dynamic in international relations research. A summary paper synthesizes the findings of the country papers and advances macro analysis and findings about the options and limitations for small states to maximize their positions relative to competing large powers.

Introduction

Conventionally, in International Relations (hereafter IR), the concept of “small states” is characterized by low population, land area, production levels, wealth and economy, and military capabilities.1 A small state cannot be defined only by geographic size or population, but by the ability to project power externally or shape regional and global outcomes independently, often relying on diplomacy, strategic partnerships, and multilateral frameworks to protect its interests. Additionally, a most interesting feature of a small state is its vulnerability and susceptibility to external influences, which provides it with little opportunity to ensure its autonomy and survival.2 As such, small states are often forced to choose sides and ally with more influential actors to survive in the anarchic international system. This shows the reality of the asymmetry between these small states and greater powers in navigating world affairs.

In an increasingly multipolar world, small states often find themselves navigating complex geopolitical landscapes shaped by the interests of regional and global powers.4 For small states, managing these external pressures is essential for maintaining sovereignty, economic stability, and diplomatic independence.5 Sri Lanka, located in the heart of the Indian Ocean region, presents an important case for understanding how small states respond to regional power rivalries. Its geographic location and its strategic importance for trade routes and sea lines of communication have made it a focal point as an example of wasteful spending, with the airport remaining largely non-operational due to a lack of demand. Analysts contend that the project was primarily aimed at bolstering the political influence of the Rajapaksa family within their constituency, rather than addressing a genuine national need, placing an undue debt burden on Sri Lanka.

The Lotus Tower, a telecommunications and entertainment hub in Colombo, similarly exemplifies misplaced priorities.10 While the tower stands as a symbol of modernization, its utility has been questioned given Sri Lanka’s more urgent socioeconomic challenges. Both projects highlight small states’ vulnerabilities when engaging with major powers, where domestic political agendas and external investments can intertwine, leading to suboptimal outcomes.

The Eastern Container Terminal (ECT) at Colombo Port illustrates Sri Lanka’s ongoing challenges in navigating competing external interests.11 Initially, Sri Lanka entered into a tripartite agreement with India and Japan to develop this strategically significant terminal jointly.12 However, under pressure from local trade unions and nationalist groups, the government withdrew from the agreement in 2021, opting to pursue independent development of the terminal.13 This decision strained diplomatic relations with India and Japan, raising concerns about Sri Lanka’s reliability in fulfilling international agreements.14 The ECT case highlights the complexities of managing external partnerships, particularly when domestic political considerations intersect with foreign policy commitments.

A similar challenge arose with the Trincomalee Oil Tank Farm, a colonial-era facility of considerable strategic significance due to its proximity to Trincomalee Harbour.

Following prolonged negotiations, Sri Lanka agreed to lease part of the complex to the Indian Oil Corporation. However, the agreement sparked opposition from segments of the public and political actors, raising concerns about potential compromises to Sri

Methodology

This research employs a qualitative methodology, drawing on neoclassical realism, constructivism, and political economy analysis as theoretical frameworks. It examines three case studies with contextual analysis, approached from a critical perspective to evaluate the country’s geopolitical strategies. Primary data is collected through interviews with four experts: These qualitative insights are integrated to offer a comprehensive analysis of Sri Lanka’s diplomatic, political, and economic strategies in managing great power rivalries in the South Asian region. The research was conducted through a neoclassical realism lens, incorporating constructivist aspects to elaborate on the evolving presence of major powers in the region and Sri Lanka over the years.

Case Study 1

Belt and Road Initiative Projects of Mattala Rajapaksa International Airport and Lotus Tower Rival Power Interests in the Project

Sri Lanka’s involvement in the BRI has drawn heightened geopolitical attention, primarily from regional rival India, which views China’s increasing influence in South Asia with suspicion.19 China’s strategic presence in Sri Lanka, particularly in infrastructure projects with potential dual-use applications, civil and military, has intensified competition in the region.20 The Mattala Rajapaksa International Airport (MRIA), located near the key Hambantota port leased to China for 99 years, exemplifies how infrastructure investments can provoke geopolitical anxieties.21 Indian officials have raised concerns that China’s activities in Sri Lanka could threaten regional security by granting Beijing leverage over critical maritime chokepoints. Several interviews revealed that India perceives projects like MRIA and the Lotus Tower as nodes in a broader strategy to encircle it through the “String of Pearls.” In response, India has actively pursued its own regional partnerships, including infrastructure projects in Sri Lanka, to counterbalance China’s influence.

On the other hand, China frames its involvement as purely economic, emphasizing the India, viewing China’s growing presence as a challenge to its strategic influence in the Indian Ocean, responded with its own set of development projects. These included investments in railways, energy, and housing reconstruction, particularly in the northern and eastern provinces with significant Tamil populations, reflecting India’s soft power strategy. India also promoted educational and cultural exchanges, highlighting shared historical ties and civilizational links to position itself as a more familiar and trustworthy partner. Furthermore, India provided humanitarian aid and capacity-building support for Sri Lankan institutions, distinguishing itself from China’s focus on large infrastructure. India’s engagement aimed to counterbalance Chinese influence by addressing local needs and reinforcing people-to-people ties, framing itself as Sri Lanka’s natural regional ally.

Tactics Employed by Rival Powers to Apply Pressure on Sri Lanka

Both China and India have employed various pressure tactics to influence Sri Lanka’s political and economic decisions. Chinese investments in Sri Lanka often come with financial incentives, such as low-interest loans and technical assistance, but these projects also carry certain risks, including concerns over debt dependency. A prominent example is the 2017 leasing of the Hambantota Port to China Merchants Port Holdings, a Chinese state-owned company, for 99 years. This followed the port’s financial underperformance and Sri Lanka’s broader struggle to service its external debt. Some analysts and Western officials allege that China used debt restructuring as leverage to secure this strategic asset, an argument often cited in discussions of “debt-trap diplomacy.” However, this claim is contested. Scholars like Deborah Brautigam argue that the decision to lease the port was initiated by Sri Lanka itself and not imposed by China, pointing out that Sri Lanka’s debt to China constituted only a portion of its total external debt. Nevertheless, the case is widely interpreted as an instance where China’s financial influence translated into a strategic foothold in the Indian Ocean, raising concerns in India and among Western powers.

On the other hand, India has consistently applied diplomatic pressure to dissuade Sri Lanka from aligning too closely with Beijing, especially in areas with strategic sensitivity. Sri Lankan officials have reported instances where Indian diplomats intervened directly to discourage the government from approving Chinese-backed initiatives. A notable case occurred in 2021 when India strongly opposed awarding renewable energy projects in the Northern Province (specifically in the Delft, Nainativu, and Analaitivu islands) to a Chinese firm. Following India’s protests and concerns over potential security threats near its maritime border, Sri Lanka cancelled the Chinese contract and later signed a memorandum of understanding with India for the same projects (The Hindu, 2021).

India has also raised objections to Chinese involvement in the Eastern Province’s infrastructure, particularly in the Trincomalee region, which New Delhi considers strategically important due to its proximity to Indian shipping lanes. Moreover, during Sri Lanka’s 2022 economic crisis, Indian officials reportedly linked further financial aid to Colombo’s willingness to limit Chinese influence, including delaying certain port and logistics deals with Beijing (Reuters, 2022). At that time, India extended a credit line and fuel assistance package worth more than USD 4 billion. However, Sri Lankan sources claimed the support was also a means of ensuring geopolitical alignment with Indian interests.

These episodes highlight how India uses both carrots (financial support) and sticks (diplomatic pushback) to shape Sri Lanka’s external alignments, particularly when it perceives its regional influence to be at stake.

Sri Lanka’s Response to External Pressure: Balancing, Hedging, and Strategic Pragmatism

In response to the competing pressures from China and India, Sri Lankan leaders have adopted a pragmatic and multifaceted balancing strategy. Recognizing its geopolitical vulnerabilities, Sri Lanka has sought to maintain favorable relations with both regional powers while minimizing dependency risks. This has involved strategically diversifying economic partnerships by engaging countries such as Japan and the United States and pursuing a non-aligned foreign policy posture emphasizing development cooperation without exclusive allegiance.

A key feature of Sri Lanka’s approach has been hedging, leveraging the interests of rival powers to extract economic and political benefits. Under the Rajapaksa administration, Sri Lanka actively pursued Chinese infrastructure financing, including major projects like the Hambantota Port. However, subsequent governments sought to recalibrate this alignment by endorsing Indian- backed initiatives, particularly community-level development projects and energy cooperation in the Northern Province.

This balancing act reflects an awareness of the strategic costs associated with overreliance on any single partner. For example, the 99-year lease of Hambantota Port to a Chinese firm was seen by some domestic actors as a necessary step to address mounting debt pressures, while others criticized it as compromising sovereignty. These internal divisions underscore broader tensions within Sri Lankan political discourse, where factions alternately frame Chinese investment as a pathway to development or a source of strategic vulnerability.

To manage its external debt burden, the government has also reviewed loan agreements and emphasized cultural diplomacy to shape a narrative of neutrality. By cultivating a position as a neutral and strategic actor in the Indian Ocean, Sri Lanka has been able to negotiate more favorable terms with both China and India. This calibrated diplomacy has allowed the country to extract targeted benefits, even amid rising regional competition and scrutiny over foreign influence.

Conclusion

The Mattala Rajapaksa International Airport, initially envisioned as a regional hub to complement the Hambantota Port, remains one of the most controversial Chinesebacked projects in Sri Lanka. Despite significant investment, the airport has been largely underutilized and continues to operate far below capacity, leading to criticism that it symbolizes wasteful spending and poor planning. Similarly, the Colombo Lotus Tower, intended to showcase Sri Lanka’s economic ambitions, has struggled to generate significant economic returns. These projects have drawn widespread criticism as “white elephant” investments that have burdened Sri Lanka with debt without delivering substantial economic benefits.

These projects offer valuable insights into small states’ challenges in pursuing development amid regional rivalries. They reflect Sri Lanka’s struggles to balance shortterm development needs with long-term strategic interests, highlighting the complex interplay between national priorities and external influences. Moreover, the outcomes of these projects underscore the limited capacity of small states to influence regional dynamics, as they are often constrained by both internal governance challenges and external geopolitical pressures.

Case Study 2

The East Container Terminal

In 2005, the Sri Lanka Ports Authority (SLPA) introduced the “Colombo Port Expansion Project” to address the rising demand for cargo traffic. The project involved constructing a 5.14 km main breakwater, a 1.65 km secondary breakwater, and essential infrastructure. The proposed harbor would span 600 hectares and reach a depth of 18 meters, incorporating three terminals: the South Container Terminal, East Container Terminal, and West Container Terminal.25 The ECT includes a 1,200-metre quay wall and an 18-metre-deep berth, enabling it to accommodate three mega ships simultaneously.

Additionally, the terminal features a 57-hectare container yard constructed from reclaimed sea sand. The Colombo Port Expansion Project is designed to handle an annual throughput of approximately 7.2 million twenty-foot equivalent units.27 Its projected revenue contribution is significant, with estimates suggesting it could generate more than USD 200 million annually in direct revenue, while indirectly contributing to wider economic growth through enhanced trade, logistics, and employment opportunities.

India, seeking to counter China’s growing influence in Sri Lanka, has expressed strategic interest in the Colombo port. Securing control or participation in the ECT’s development would give India a crucial strategic presence, allowing it to monitor key shipping lanes and safeguard its regional interests. This move is viewed as essential for India in managing China’s expanding role in Sri Lanka’s maritime infrastructure, which India perceives as a potential security threat.

Rival Power Interests in the Project

The Colombo Port Expansion Project has become a focal point in the strategic competition between China and India. For China, the expansion of the Colombo Port represents an opportunity to enhance its Maritime Silk Road initiative and secure a foothold in a region crucial for trade and energy supply routes. Chinese investments in Sri Lankan infrastructure, including the Hambantota Port, have raised concerns in New Delhi about China’s intentions and ability to exert influence over Sri Lanka’s strategic assets. As part of the Colombo Port Expansion, China Merchants Port Holdings Company invested approximately USD 500 million to develop the Colombo International Container Terminal, a joint venture with the SLPA, which holds a 15 percent stake.

Conversely, India views the Colombo Port Expansion Project as a vital project that could either bolster or undermine its regional security interests. India’s strategic interest in the ECT is particularly pronounced; securing control or active participation in the terminal’s development would enable India to monitor critical shipping lanes and safeguard its maritime interests against the backdrop of China’s expanding role in Sri Lanka’s infrastructure. In 2021, Sri Lanka approved a tripartite deal involving India’s Adani Group, Japan, and SLPA to develop the East Container Terminal, with Adani committing USD 700 million in investment.30 However, this deal was later modified, and India was offered involvement in the West Container Terminal instead, also with an expected investment of USD 700–750 million. Meanwhile, the Sri Lankan government has contributed significantly to breakwater construction and marine infrastructure, with SLPA spending an estimated USD 800 million on the broader port expansion.31 The total projected cost of the entire Colombo Port Expansion Project, including marine and landside development, has been estimated at over USD 1.5 billion.

As one Indian naval officer articulated in an interview, “Control over key maritime assets is essential to maintain regional stability and counteract external influences that could jeopardize our national security.”

Influence and Strategic Tactics of China and India in the Colombo Port Expansion Project

Both China and India have been deeply engaged in Sri Lanka’s infrastructure development, asserting influence through a combination of economic investments, diplomatic engagement, and strategic pressure, particularly regarding the Colombo Port Expansion Project.

China has primarily exerted its influence through large-scale investments and construction expertise. The China Harbour Engineering Company served as the main contractor for the Colombo International Container Terminal’s marine works, valued at approximately USD 500 million, and has also invested USD 1.4 billion in the adjacent Alongside economic aid, India also leverages its cultural and historical ties, emphasizing shared civilizational values, regional security cooperation, and mutual interests. As a Sri Lankan Ministry of Foreign Affairs official explained, “India’s long-standing partnership is not just about economics; it’s also about our shared values and mutual security interests.”

Together, these developments highlight how Sri Lanka’s strategic location has made it a site of intensifying regional competition, with both Beijing and New Delhi seeking influence through a complex interplay of infrastructure, diplomacy, and geopolitical strategy.

Sri Lanka’s Strategic Response to External Pressure

Sri Lanka’s response to the competing pressures from China and India has been defined by a strategic hedging approach. Aiming to avoid over-dependence on any single power, successive governments have sought to balance relations by engaging both countries selectively to maximize economic benefits while safeguarding national sovereignty. This has included diversifying control over key infrastructure, such as allowing China Merchants Port Holdings to operate the Colombo International Container Terminal, while involving India and Japan in the proposed development of the ECT to provide India a strategic foothold in the port.

This balancing act has sparked mixed reactions within Sri Lanka. While some political factions and business groups welcome the investments and economic opportunities generated by Chinese engagement, others, particularly civil society organizations, have raised concerns about sovereignty, external influence, and environmental degradation. For instance, proposed expansions of the ECT have been met with local resistance due to fears of ecological harm and a lack of transparency in project governance.

By adopting this dual-engagement model, Sri Lanka continues to attract foreign investment, preserve strategic autonomy, and manage its delicate geopolitical position in the Indian Ocean. This hedging strategy not only helps maintain cordial ties with both China and India but also reinforces Sri Lanka’s identity as a non-aligned actor pursuing pragmatic development partnerships.

Conclusion

The ECT project has yielded several outcomes for Sri Lanka, both positive and negative. Economically, the project is expected to significantly enhance the country’s port capacity, thereby boosting trade and attracting foreign investments. The increased cargo handling capabilities will position Sri Lanka as a critical maritime hub in the Indian Ocean.

However, the project has also sparked domestic controversy and raised concerns. Labor unions and port workers have protested foreign involvement, particularly India’s role, arguing that it compromises national sovereignty and undermines local control over strategic assets. Additionally, civil society groups and environmental advocates have raised alarms about potential ecological damage stemming from construction activities and increased port traffic, especially due to limited environmental oversight. Politically, the project has contributed to divisions within government coalitions, with some factions opposing foreign partnerships in port infrastructure as a matter of principle. These tensions underscore the complex trade-offs in balancing economic development with sovereignty, environmental protection, and public accountability.

Case Study 3

The Trincomalee Oil Farm Lease

India’s renewed initiative to develop the Trincomalee Oil Tank Farm marks a significant step toward integrating Sri Lanka into its national energy framework.34 Constructed by the British in the 1930s, the oil farm has a storage capacity of 1.2 million tons and originally comprised 100 oil tanks, 99 of which remain largely intact with minimal functional damage.35 The farm remained unused after the British left the island, and decades of neglect and political complications that followed have left only a fraction of the tanks operational. However, the farm gained the attention of several external actors. Since the 1987 Indo-Lanka Accord, India has expressed ongoing interest in developing the facility, and in 2004, the Indian Oil Corporation (IOC) acquired several of the tanks. Recently, India expanded its control over the facility through a bilateral agreement granting the IOC a 50-year site lease. Given the strategic value of Trincomalee Harbor and its potential to dominate the northeast Indian Ocean, this oil farm serves as a major interest of India in securing its presence in the South Asian region as well as in ensuring India’s domination in the hydrocarbon sector.

Rival Power Interests in the Project

The power rivalry between India and China in Sri Lanka has been most visible in the infrastructure development sector; however, recently, this competition has intensified within the energy sector. India has long been cautious about allowing a Chinese presence in its immediate neighborhood. Given the strategic significance of the oil farm and its proximity to Trincomalee Harbor, the remnants of this British-era facility have consistently attracted interest, particularly from India. As India established a strategic presence in the country’s energy sector and the development of projects in northeast Sri Lanka, Chinese interests have focused on southern Sri Lanka, particularly through the maintenance of a bunkering facility and tank farm at Hambantota.

Given that the New Delhi-run Indian Oil Corporation is Sri Lanka’s second-largest fuel supplier after the Sri Lankan government-owned Ceylon Petroleum Corporation, China, through its Sinopec Group, has endeavored to increase its energy-sector presence in the country.

The Trincomalee Oil Tank Farm: Strategic Influence and Constraints

In January 2022, Sri Lanka and India formalized a joint development agreement for the long-neglected Trincomalee Oil Tank Farm, a strategically located facility comprising 99 storage tanks built by the British during World War II. The agreement led to the creation of a joint venture, Trinco Petroleum Terminal Ltd, in which the Ceylon Petroleum Corporation holds a 51 percent controlling stake, while the Lanka Indian Oil Corporation (LIOC), a subsidiary of India’s state-owned IOC, holds 49 percent. Although the Ceylon Petroleum Corporation retains majority ownership, the agreement gives LIOC substantial operational influence, particularly through clauses requiring mutual consent for key decisions regarding usage, development, or third-party involvement.

This arrangement means Sri Lanka cannot unilaterally lease or develop the unused tanks without Indian approval, effectively restricting its ability to diversify energy partnerships or attract investment from other interested actors such as China, which has expressed growing interest in the island’s energy and logistics sectors. Indian officials have emphasized the agreement as a vital move to cement India’s strategic footprint in Sri Lanka’s northeastern region, which sits close to India’s southern coast and near vital shipping routes in the Bay of Bengal.

The project has been valued at approximately USD 45 million in the initial phase, focused on refurbishing 61 tanks in the Upper Tank Farm, with infrastructure upgrades funded by both parties. During the island’s severe economic crisis, India has extended additional grants and credit lines for fuel and energy sector stabilization in Sri Lanka, amounting to over USD 500 million in 2022 alone.

While Chinese influence on this particular project remains minimal, China has played a broader role in Sri Lanka’s energy sector, notably by funding power generation infrastructure (e.g., the Norochcholai coal power plant) and proposing renewable energy projects in the Northern Province. One such Chinese proposal in 2021 was cancelled after Indian objections, and India was later awarded the project.

Although the 2022 Trinco agreement builds on the provisions of the 1987 Indo-Lanka Accord, which originally proposed joint development of the oil tanks, the recent deal has renewed domestic debates over sovereignty and strategic autonomy. Critics argue that while the joint venture secures Indian investment and long-overdue modernization of the tank farm, it may also limit Sri Lanka’s future energy policy flexibility and reinforce external dependencies.

Sri Lanka has adopted a strategic balancing approach in managing the interests of both India and China within its energy sector. While India has sustained long-standing influence, particularly in Trincomalee, Sri Lanka has concurrently supported Chinese engagement in various developmental projects in the energy sector. Notable examples include China’s involvement in maintaining a bunkering facility and tank farm in Hambantota and developing the Norochcholai Coal Power Plant.

Conclusion

In the short term, the Trincomalee oil tank project positions Sri Lanka in a dependent relationship with India, requiring Indian consent for key decisions regarding the oil tank facility. This dependence may limit Sri Lanka’s ability to independently manage its energy resources or secure favorable terms in future agreements, especially given its ongoing economic difficulties. Additionally, substantial investment is needed to refurbish and develop the underutilized oil tanks. While LIOC has invested approximately USD 40 million over nearly two decades, Sri Lanka’s economic crisis complicates its ability to contribute financially to further development. This financial strain, compounded by the lack of immediate returns from the tank farm, poses a short-term economic burden to the country.

Long-term outcomes present further challenges and opportunities. Sri Lanka’s economic dependency on Indian investment and expertise could restrict its ability to develop energy resources autonomously, potentially limiting future economic growth and diminishing energy security. Strategically, India’s control over Trincomalee risks converting the tank farm into a reserve that primarily serves Indian interests, which could weaken Sri Lanka’s bargaining power in regional energy markets. This dynamic raises sovereignty concerns, as India’s strategic interests could influence Sri Lanka’s policy options, affecting regional security and autonomy. Moreover, Sri Lanka’s failure to capitalize on Trincomalee as a petroleum hub represents missed economic opportunities. Public opposition and political sensitivities regarding foreign control over national assets may further constrain the government’s capacity to navigate these challenges, highlighting a complex balance between regional alliances and domestic priorities.

The tank farm also holds the potential to bolster Sri Lanka’s energy security, particularly with the construction of bidirectional underwater cables linking India and Sri Lanka. Such an initiative could establish the tank farm as a strategic hydrocarbon reserve for both India and the broader South Asian region. This increased energy interdependence between the two countries could position Sri Lanka as a key producer and exporter of renewable energy.

This paper has examined Sri Lanka’s complex navigation of competing influences from China and India, focusing on the country’s strategic responses to external pressures through infrastructure investments, diplomatic agreements, and economic partnerships. The findings illustrate how Sri Lanka, a small state in a strategically vital region, employs nuanced hedging strategies to manage great power competition while pursuing national development goals.

A central insight is the pivotal role of Sri Lanka’s leadership—both political figures and broader elites—in orchestrating this balancing act. Rather than aligning exclusively with either China or India, Sri Lanka has sought to diversify its partnerships and maintain a position of non-alignment. This pragmatic approach enables the country to leverage rival powers’ investments and financial assistance to stimulate economic growth, particularly in key sectors such as ports, energy, and transportation. At the same time, this strategy reflects an acute awareness of the risks posed by overreliance on a single actor, including threats to sovereignty and domestic political stability.

However, the study also highlights the inherent tensions and contradictions small states face in such a position. Sri Lanka’s efforts to benefit from multiple external actors have sparked internal debates among political factions, civil society, and interest groups regarding the long-term consequences of foreign investments. Concerns over environmental degradation, sovereignty, and strategic autonomy are frequently voiced, illustrating that balancing great power interests is not merely a geopolitical challenge but also a domestic political one.

From a broader theoretical perspective, Sri Lanka’s case offers important lessons on small state behavior in international relations. It exemplifies how small states exercise agency by actively engaging and managing great powers, rather than passively succumbing to external pressures. Sri Lanka’s hedging demonstrates a sophisticated understanding of its geopolitical environment and the use of economic diversification and diplomatic balancing as tools to maximize national benefits. Nevertheless, it also reveals the limits of such strategies, as small states must continuously negotiate internal consensus and address vulnerabilities arising from global power rivalries.

In sum, Sri Lanka’s experience underscores the complexity of small state diplomacy in the contemporary international system, where economic imperatives intersect with security concerns and domestic politics. For policymakers and scholars alike, the case of Sri Lanka illustrates that small states are neither helpless nor uniformly aligned; instead, they navigate a dynamic and contested landscape with calculated pragmatism, adaptability, and cautious engagement.

Dr. George Cooke Dr. George Cooke is a senior lecturer at the University of Kelaniya and the former Executive Director of the Regional Centre for Strategic Studies (RCSS). A Diplomatic Historian, with a Doctorate in International Relations, Master of Arts degree, and Bachelor’s degree in Social Sciences, he is an alumnus of the Netherlands Institute of International Relations, Clingendael, and is a Non-Resident Fellow of the India Studies Centre of the Ubon Ratchathani University, Thailand. He founded the Awarelogue Initiative, and teaches International Relations at several seats of higher education in Sri Lanka. He has also taught internationally at universities in India, Thailand and Bangladesh. He has presented academic papers in Sri Lanka, and overseas, and is Chief Editor of the Journal of Defence Services Command & Staff College in Sri Lanka.

Mr. Umilinda Pereira Umilinda Pereira is a PhD candidate in Commercial Law, with extensive expertise in regulatory and compliance matters. He currently serves as Manager of Regulatory Policy at the Colombo Stock Exchange. He holds an LLM in International Commercial Law from the University of West London, UK, and an LLB from Staffordshire University, UK. In addition, he is a Senior Researcher at the Regional Centre for Strategic Studies in Colombo. His current research interests focus on Chinese investments in Sri Lanka.

Notes

6. This study explores Sri Lanka’s capabilities in managing these rivalries while balancing its development needs and political interests.Sri Lanka, with its population of nearly 22 million and a GNI per capita of around USD 3,540, presents a compelling case of how small states manage great or large-power rivalries. On one hand, Chinese investments have contributed to vital infrastructure development in Sri Lanka; on the other, they have burdened the country with significant debt and heightened concerns over economic dependence.
7. Simultaneously, maintaining strong relations with India is essential, given the geographic proximity and deep cultural connections.
8. Navigating these power rivalries is further complicated by Sri Lanka’s economic and governance vulnerabilities, including political instability, corruption, and weak institutional frameworks. These issues undermine the country’s capacity to exercise strategic autonomy, making it difficult to balance competing interests, safeguard sovereignty, and foster sustainable economic partnerships. Sri Lanka’s approach to balancing these complex relationships offers important insights into the broader challenges that small states encounter when managing competing interests from larger powers.Sri Lanka’s engagement with China’s Belt and Road Initiative (BRI) reflects the complexities of managing such rivalries. As part of the BRI, two highly controversial projects, the Mattala Rajapaksa International Airport and the Lotus Tower, were launched. The Mattala Rajapaksa International Airport (MRIA), located in the southern Hambantota district, was built with a Chinese loan. However, it has since been criticized 75 Lanka’s national sovereignty.
16. The Trincomalee Oil Farm case highlights the delicate balancing act small states often need to perform. While external partnerships can provide economic advantages, they often invite heightened public scrutiny and risk exacerbating geopolitical tensions.17 The study of Sri Lanka’s management of regional power rivalries contributes to the broader scholarship on small state diplomacy and strategic decision-making.
18. It highlights the complex interplay between domestic and international factors that influence policy choices. Sri Lanka’s experience underscores that for small states, economic partnerships with larger powers can provide opportunities, but they also come with significant risks. As such, small states must develop capabilities to manage these relationships effectively, ensuring that foreign investments align with long-term national interests and do not undermine the sovereignty or economic sustainability of the state. This research aims to provide a nuanced understanding of Sri Lanka’s strategic choices and draw lessons relevant to other small states facing similar geopolitical challenges.76 development potential of the BRI.
23. Influential Chinese actors, including state-owned enterprises and high-level diplomats, have been heavily involved in shaping the scope of these projects, ensuring that Chinese firms receive lucrative contracts.
24. Chinese loans to Sri Lanka have been tied to concessional terms with conditions that secure longterm Chinese involvement, such as operational control over strategic assets like MRIA. Interviews suggest that China has used diplomacy and economic incentives to solidify Sri Lanka’s participation in the BRI, with visits by Chinese officials closely aligned with project launches and loan agreements.Influential Actors from China and India China’s influence in Sri Lanka has been driven by economic incentives, primarily through concessionary loans targeting large-scale infrastructure projects. The Export-Import Bank of China played a pivotal role in financing key ventures, such as the MRIA and the Colombo Lotus Tower. Beyond financing, Chinese companies, most notably the China Harbour Engineering Company and China Merchants Port Holdings, were responsible for project execution, ensuring Chinese control over operations and standards. China framed these investments as win-win opportunities, promising economic development and enhanced connectivity for Sri Lanka. However, the non-transparent terms of some loans and projects, combined with the heavy reliance on Chinese contractors, have raised concerns about debt dependency and loss of sovereignty.78 Port City Colombo.
32. As one expert noted in an interview, “China has provided not only funding but also technology and expertise that are crucial for such large-scale projects.” Chinese officials often frame this cooperation as a “win-win” scenario, emphasizing economic development, though critics argue that these investments also serve geopolitical ambitions.33 However, China’s model of infrastructure financing, often labeled “debt-trap diplomacy” by Western analysts, has drawn international scrutiny. The 99-year lease of Hambantota Port to a Chinese firm after Sri Lanka’s loan default is often cited as an example, raising alarm in New Delhi over China’s expanding footprint in the Indian Ocean.India has intensified its development diplomacy in response, particularly in Northern and Eastern Sri Lanka. It has pledged over USD 350 million for housing reconstruction and more than USD 1 billion in concessional credit for railway and transport infrastructure. In total, India has committed over USD 3.5 billion in development assistance since 2005, aimed at both economic development and strategic balancing (MEA India, 2022; Exim Bank of India; High Commission of India in Colombo). An Indian diplomat emphasized, “Our aim is to reinforce our historical ties with Sri Lanka, ensuring that we remain a key partner in their development journey.” 83