By P.K.Balachandran/Daily News
Colombo March 25 – Chinese enterprises have built the Hambantota International Port (HIP) in Sri Lanka with a unique public-private management model. Called the “Shekou model” it comprises: (1) a vast scope for local initiatives (2) consensus building (3) giving the last word to the Central government and the Communist Party.
The “Shekou” model involves private businesses, local governments, the Central government, and the Chinese Communist Party (CCP). This Public-Private Sector (PPS) management model accommodates local variations while aligning with the authority of the Central government and the CCP.
Tabita Rosendal, in her paper entitled “Promoting China’s Development Model for the Hambantota International Port: Selling Shekou to Sri Lanka,” calls it “fragmented authoritarianism” (https://www.tandfonline.com/doi/full/10.1080/00472336.2025.2471523#abstract).
Under the Shekou model, private businesses and local governments participate in planning and executing investment decisions. However, advancing these projects requires the cooperation and backing of high-level authorities, namely, the Central government and the CCP. If a local initiative proves successful, the model is replicated in other SOEs and regions provided local conditions are comparable. China tries to apply this model in its Belt and Road Initiative (BRI) projects abroad also.
Decentralization and Policy Experimentation
Tabita Rosendal highlights that even under Xi Jinping’s centralized political regime, local policymakers are encouraged to experiment with different solutions with minimal supervision. This approach follows the principle of “crossing the river by feeling the stones,” meaning policy reforms are implemented through trial and error, first at local levels.
However, top-level decision-makers retain control over “confirming, revising, terminating, and expanding” these models. SOEs do not define overarching policies but provide “flexible, risk-minimizing methods of policy innovation.”
This is particularly relevant for Chinese SOEs in BRI projects abroad where economic, social and political conditions wary, and where, if adjustments are not made for local conditions and sentiments, the SOEs may fail. As per the Shekou model, local managers should have a large role in making decisions. Their advice should be heard by the hierarchy.
Origin of the Shekou Model
The Shekou model originated in the Shekou Industrial Zone in Shenzhen in China’s Guangdong Province. It was pioneered by the China Merchants Shekou Company, which was granted autonomy by the Central government to develop an export-oriented, reform-driven industrial zone starting on January 31, 1979. This model played a pivotal role in transforming Shenzhen into a leading Special Economic Zone (SEZ) in China.
The China Merchants Group (CMG), a well-known SOE, has implemented the Shekou model abroad, including in Sri Lanka’s Hambantota International Port (HIP), which it operates on a 99-year lease in partnership with the Sri Lanka Ports Authority (SLPA) after investing US$ 1.2 billion.
The Port-Industrial Park-City (PPC) Model
Also known as the “Port-Industrial Park-City model”, the Shekou model emphasizes step-by-step infrastructure development to mitigate economic and political risks. The China Merchant Group has used this model to promote China’s development approach internationally.
The model has four stages or Versions, Rosendal says:
Version 1.0 – Port construction (establishing freight terminals, mainly for bulk goods).
Version 2.0 – Establishing an industrial zone with income-generating land areas, water and power supplies and complementary industrial services.
Version 3.0 – Setting up manufacturing and processing industries with support from local governments.
Version 4.0 – Promotion of the Shekou model by the CCP and the SOEs on a national and international scale.
CMG’s Hambantota Port Project
According to Chinese accounts, the US$ 1.2 billion Hambantota International Port (HIP) was built using the Shekou model. While this is true, there is doubt as to whether China succeeded in “selling” the model to Sri Lanka for replication in that country’s own development plans. Rosendal notes that Sri Lankan leaders have appreciated the Shekou model but rarely ever mention it in their evaluation of the HIP project. They look at the HIP only as a very useful facility for Sri Lanka.
Clearly, China’s aim to “sell” the Shekou model to Sri Lanka as a replicable tool has not had an impact. Be that as it may, the Shekou model has served HIP well.
Brief History of HIP
The HIP, constructed by the Chinese, was inaugurated in 2010. But in 2016, the Maithripala Sirisena government in Sri Lanka sought to privatise a majority stake in the port to raise foreign exchange and make sovereign debt repayments.
The China Harbour Engineering Company (CHEC) and China Merchants Port Holdings (CMPort), a subsidiary of China Merchants Ports (CMP), bid for the port. CMPort won the bid on HIP in 2017, and signed a 99-year concession agreement for US$ 1.12 billion.
The HIP is operated by China Merchants Port Holdings Company Limited (CMPort) through a joint venture. In 2017, Sri Lanka signed a concession agreement with CMPort, granting the company a 99-year lease to develop and manage the port. Under this agreement, CMPort holds an 85% stake in the Hambantota International Port Group (HIPG), a joint venture with the Sri Lanka Ports Authority (SLPA), which retains a 15% stake.
The HIPG is responsible for the port’s commercial operations, while security aspects remain under Sri Lankan control, managed by the SLPA and the Sri Lankan Navy.
This arrangement was part of a $1.12 billion deal aimed at revitalizing the port and easing Sri Lanka’s financial burdens, though it has sparked debates about sovereignty and economic implications. While CMPort doesn’t “run” the port single-handedly, it plays a dominant role in its operations through HIPG.
Rapid Growth
Under CMPort-SLPA management, the HIP has experienced rapid growth. It has been upgrading infrastructure, including introducing gantry and yard cranes.
Bulk and Break-Bulk cargo growth saw a 134% increase in volume in the first half of 2024 (from 236,012 metric tons to 552,297 metric tons). LPG volumes rose by 46% in the first half of 2024 (from 127,232 metric tons to 185,214 metric tons), with a 100% increase in LPG throughput in Q2 compared to 2023.
The Container Trans-shipment Service, launched in April 2024 by the Mediterranean Shipping Company (MSC), resulted in a 99,300% increase in container handling from 44 TEUs in 2023 to 43,777 TEUs by mid-2024.
The HIP expanded its services to include LPG vessel gas-ups, direct bunker supplies, and Liquid Bulk Ship-to-Ship operations.
The Hambantota Industrial Park
The port’s industrial park spans over two square km. designated for business and industrial activities. It is classified into three industry clusters: Heavy Industries, Light Industries, and Food Processing.
Recent investments in the HIP Industrial Park include: Comfort Mattress Lanka (Pvt) Ltd. It is a US$ 25 million investment targeting export markets in the US, Europe, and Canada. Shandong Haohua Tires is a US$ 300 million tire factory utilizing local rubber resources for global exports.
The Sri Lankan Melwa Group plans to set up a 1.3 million metric-ton cement factory. The Shenzhen Xinji Group is to set up a US$ 16 million “plug-and-play” Park-in-Park manufacturing facility for household appliances. Sea Horse Yachts (Maldives), a US$ 58 million yacht assembly and export project has been in operation. Sinopec Oil Refinery a US$ 3.7 billion oil refinery project signed in January 2025, marks one of Sri Lanka’s largest foreign direct investments.
Warehousing and Logistics Expansion has also been taking place. The completed facilities include the INSEE warehouse by Siam City Cement and a bonded warehousing facility by Hambantota Port & Logistics Services. Sri Lanka’s Foreign Minister has invited Saudi Arabia to invest in a pharmaceutical zone in Hambantota in September 2024.
In sum, the Shekou model exemplifies China’s strategy of decentralized policy experimentation within an overarching central control framework. Its application in projects like the Hambantota International Port showcases its potential for international expansion under the BRI.
By integrating port development, industrial parks, and urban infrastructure, the Shekou model positions SOEs as vehicles for economic transformation both within China and abroad.
END
