KAMALIKA PIERIS

China values its relationship with Sri Lanka and takes China-Sri Lanka activities very seriously. Bandaranaike Centre for International Studies had a seminar on ‘Contemporary China- Sri Lanka relations: current trends, future projections’ in May 2017. For this half day seminar, China sent the President of the China Institute of International Studies (CIIS) and the Director, Department of Developing country Studies of the CIIS. The CIIS is China’s leading think tank. The Director, CIIS opened the conference,  stayed through the whole seminar, contributed  to the general  discussion from  his seat in the audience and signed an MOU with the BCIS.

Sri Lanka’s Pathfinder Foundation has a China-Sri Lanka Cooperation Studies Centre. This Pathfinder Centre signed an MOU with China Center for Contemporary World Studies (CCCWS) which is   affiliated to the Chinese Communist Party. China’s CCCWS conducts exchanges and academic discussions with foreign political party think tanks and research institutes. It has a global network of academic exchanges and cooperation with foreign research institutes in the USA, UK, Germany, Russia, Japan, Brazil, India, South Africa, Israel etc. Sri Lanka became the latest country to be to be added to their extensive network of cooperation. Signing of the MOU was preceded by a round table discussion between the two institutions on several broad subjects.

China is aware of Yahapalana’s tilt towards US and does not hesitate to keep Yahapalana in its place.  The media said that Prime Minister Ranil Wickremesinghe   had a low key presence at the high-profile Belt and Road Forum in Beijing in May 2017. Nawaz Sharif then Prime Minister   of Pakistan, Russia’s Putin and many other leaders spoke at the inaugural ceremony.  The Sri Lankan leader reportedly only took part in the discussions at the Round table meeting later on.

Ambassador Xian Liang strongly disputed   Finance minister Karunanayake’s assertion that the previous government had obtained ‘expensive loans’ from China. Xinxiang responded, in November 2016, ‘some Sri Lankan ministers and the media had talked about ‘expensive loans’ from China. I talked with Ravi [Karunanayake], the Minister of Finance. I asked him, if you don’t like this one [loans from China] why have you spoken to me about getting another one? Analysts observed that  the Chinese envoy wouldn’t have chided Karunanayake without consulting Beijing.

Public relations have not been ignored. China has started student exchange links with Sri Lanka. Sri Lanka‘s National School of Business Management has started an exchange programme with Beijing Foreign Studies University. The first group of students came in May 2017. A group of NSBM students will visit China in return. Sri Lankan artist Anoma Wijewardene was invited to exhibit at the One Belt One Road   art exhibition  organized by the Hong Kong Federation of Women  and    presented by Sotheby in Hong Kong  in April 2017. Sri Lanka was the only country from South Asia at the exhibition.

Chinese tourists are the second largest group to come into Sri Lanka. Chinese tourist arrivals have risen by 300% between 2013   and 2016. Chinese tourists may surpass those from India by 2019. Travel agencies are responding to this. The tourist magazine, Explore Sri Lanka February 2017 issue carried an advertisement by Premadasa Jewelers which included information in Chinese.

The Chinese Navy’s hospital ship ‘Ark Peace’ visited Sri Lanka in August 2017 and provided medical assistance to Sri Lankans free of charge. Ark Peace has been engaged in providing medical service, spreading friendship and love in many countries. In 2010 Ark Peace visited Djibouti, Kenya, Tanzania, Seychelles and Bangladesh. In 2011 Cuba  Jamaica, Trinidad and Tobago, and Costa Rica, in 2013 Brunei, Maldives, Pakistan, India, Bangladesh, Myanmar Indonesia and Cambodia in 2014, Tonga, Fiji, Vanuatu, and Papua New Guinea 2015 Australia, French Polynesia, America, Mexico, Barbados, Grenada and Peru.

‘Ark Peace’ is a 4,000 square metre floating hospital, divided into five main areas designated as casualty transfer, triage, outpatient, inpatient and evacuation. It treats and evacuates casualties at sea during wartime, provides medical service to inhabitants and servicemen on islands during peacetime, participates in international humanitarian assistance, provides emergency medical aid in the event of major disasters and conducts medical exchanges and cooperation with other countries.

China is currently the largest provider of financial assistance to Sri Lanka.  It is Sri Lanka’s biggest lender. China has given loans on concessional and commercial terms. In 2016 Chinese government has given an outright loan of USD 77.2 million. In 2017, China gave 400 million Renminbi for development projects. China was giving 2 billion yuan to Sri Lanka for the period 2018 – 2020, reported Sri Lanka’s Ambassador to China Dr.Karunasena Kodituwakku. When the Bank of China sets up operation in Sri Lanka, the yuan will have the same status as US dollar and will be changeable in Sri Lanka.

China has   emerged as Sri Lanka’s main source for imports as well, replacing India. China became the export leader in 2016, accounting for 21.7 per cent of total expenditure on imports, according to Central Bank statistics. India has been pushed to second place, accounting for 19.7 per cent of total imports.

Yahapalana says that thanks to the Rajapaksa government Sri Lanka has a huge debt with China.  Yahapalana has to get into a bigger debt now, to pay China off. Isn’t there any other way to repay the Chinese loan, observers asked. Yes, said critics. We can renegotiate the terms of  the loans and reduce the interest rates. We can also ask for more time to repay loans and then look at what we can sell fast and earn money from. We can repay the loans in 2-3 years. Right now we have to pay back USD 2 billion.  Further, China had offered USD 1000 million at 2% interest, therefore Yahapalana  government need not have taken an IMF loan of USSD 15,000 million at 6%, said critics.

At a time when Western investments are few in coming, China is willing and able to take up economic opportunities in Sri Lanka that may not be economically attractive to privately owned commercial enterprises but are viable to China’s state enterprises. China is quick to offer complete packages on concessional terms. It is also quick to implement and disburse big amounts, noted analysts. If China supports the development of Sri Lanka, then there is little motivation for Sri Lanka to refuse economic support from China.

All Chinese funded projects are back on track, the media reported in May 2016. There is a total of 28 projects amounting to USD 7.6. Billion. They are spread among power and energy road, transport, telecommunication, airport and aviation, port irrigation and water sectors. They include Puttalam coal power project, Moragahakanda project and greater Kurunegala water supply project. Ratnapura expressway will start with Chinese assistance  in 2016. The media also announced that the government has granted a project in Katunayake airport to a Chinese company.   China Development Bank has     given USD 500 million for a priority roads project.

Sri Lanka and China have signed a Memorandum of Understanding in 2017 to construct a hospital for kidney patients in North Central Sri Lanka. China will also fund the new OPD complex in Colombo National Hospital. Chinese company Tidelion installed rainwater treatment technology services in the local primary school and three households at Kahatagasdigiliya There is the Gampaha-Attanagalla-Minuwangoda integrated water supply project funded by China Development Bank. This plant will benefit more than 600,000 people. Parliament received a consignment of computers from the Chinese embassy in Colombo. There were 225 computers for the MPs and40 more computers for the use of parliamentary staff. This was in response to a request made by Speaker Karu Jayasuriya.

A 70-member high profile delegation, led by Peng Qinghua, Secretary, Communist Party of Guangxi Zhuang Autonomous Region came in May 2017, to attend the Guangxi, China-Sri Lanka Economic & Trade Cooperation Forum. The purpose was to promote economic and trade cooperation between Sri Lanka and Guangxi autonomous region of the Peoples Republic of China.

Zhong Tian Construction Company  of China plans to invest over US$ one billion in real estate and leisure sectors in Sri Lanka. It will invest over US$ 70 million in the Millennium Park to develop it into an international entertainment hub, with Browns Leisure. This will  comprise a 200 room four star hotel, apartments, shopping mall and a mini amusement park. Zhong Tian will invest over US$ 250 million for the Horton Place twin tower project,  expected to be one of the biggest twin towers in the region. Zhong Tian   also taken Palm Beach Hotel, Mount Lavinia on a 10 year lease, as well as Palms Colombo in Kolluptiya and has purchased land in Sooriyaweva Kanda  for  villa type luxury bungalows.They are now looking in  Galle and Kandy, they want to invest in  two hotels under 80 rooms. .

China arouses both positive and negative attitudes in Sri Lanka. China is seen by some citizens of this country as a good friend and a centuries-old trading partner, who poses no threat to Sri Lanka’s  sovereignty and proved its unstinting support during the critical phase of  Eelam War IV, said China supporters. Hambantota Port construction commenced in January, 2008,  while  the Sri Lanka army was at the Vanni liberating LTTE- held Kilinochchi.

China steadfastly backed Sri Lanka throughout the  Eelam war. The  Rajapakse government received continued Chinese backing at the Geneva-based United Nations Human Rights Council (UNHRC) as the US-led coalition, including India, vigorously pursued Sri Lanka at the UNHRC. China and Russia have been our friends in Security Council, China  has not made any unseemly  demands from Sri Lanka, they added. Yahapalana  government seems have finally  realized that even at the risk of antagonizing India, the dominant position of China as an emerging world power cannot be ignored. She is a superpower in the region, said Don Manu.

However, many view Chinese involvement in Sri Lanka with unease. They point out that when China acquires control over critical  assets in Sri Lanka for long periods, it  will result  in the erosion of Sri Lanka’s sovereignty.  Also, transferring a lot of property to China would incense India and India will want to counterbalance it . Strong negative attitudes towards China are now emerging , together with a tendency to demonize China. The  demonizing of China, which started with the Hambantota issue,  could be considered a part of the anti -China strategy  in Sri Lanka.

Here are four negative assessments of China’s  assistance to Sri Lanka .   When told that China would set up 2,500 industries to make Sri Lanka an industrialised country,  critics wanted to know, what are the  industries they are going to set up? Are they  the dirty industries that have polluted  cities China and therefore need to be shifted elsewhere?

Several multimillion dollar development projects in Polonnaruwa district are to be given on a single bid to China without tender procedure, complained observers. The  projects are drinking water supply, agri based industries, Maduru oya right bank development,   road network extensions and  railway extensions from  Kurunegala to Habarana.  These were included in the  MOU signed between China and Sri Lanka in April 2016. China Harbor Engineering Co is now conducting  a feasibility study  in towns east of Polonnaruwa  for the water supply project, and China State Construction Engineering Corporation is doing a  feasibility study on rail track and railway stations from Maho to Batticaloa, Gal oya to Trincomalee  free of charge, they reported.

China National Machinery Import and Export Corporation  (CMC)  was given the contract to extend the railway line from Matara to Beliatta . Central Engineering Consultancy Bureau (CECB) was appointed as project consultant. This project was an unsolicited proposal approved under the previous administration CECB charged.  The choice of CMC for the project was questionable from the start,  they said. Exim Bank of China told the Sri Lankan Government In 2012 that  CMC did not have the relevant experience to execute the project.  The contract was overpriced at USD  278.2m and the estimates given by CMC for both materials and manpower were highly inflated.

CECB  repeatedly found serious shortcomings in  CMC’s work. CMC   had used substandard materials and construction methods. Concrete was diluted beyond acceptable levels. The company had tampered with a concrete beam to be used in a bridge, even shearing off iron rods that were essential to guarantee the strength of the beam. When cracks appeared in the Wewurukannala Bridge, the contractor tried to cover them up with a cement mix. The contractor on several occasions disregarded CECB instructions to maintain acceptable standards in the construction of stone walls. However, the CECB team forced the company to rectify the faults. CMC practices and standards would seriously endanger the lives of those who will travel on that track, said  CECB engineers.

As the contractor did not use suitable methods and machinery, certain works had to be performed over and again, leading to prolonged delays. The Government should have claimed substantial compensation for these delays. Instead, the Transport Ministry extended the deadline for handing over the track, even against CECB recommendations. Chinese workers on several occasions threatened the CECB team, even prompting fears over their physical safety, the union said. This sort of thing  gives the Chinese Government a bad name the CECB added. CMC rejected the allegations. They said  that they have constructed railway lines all over the world, they know what they are doing and they will not compromise on quality or safety.  It is the CECB that is responsible for approving materials, methods and monitor every step of the work.

Transport Ministry is now set to award another USD 15 million project to CMC to install signals at four stations on the extended line,  a job the company has no experience to carry out, complained engineers. Tenders have not been called for this contract.  An offer by the Railway Department’s own engineers to execute the project at Rs 250m has been ignored in favour of the Chinese offer of USD 15 billion.  Priyalal de Silva, former GM  Railways said The colour light system at railwassy was always done by the local engineers. They ensure compatibility of new lights and do the maintnenace as well.  It is not necessary to give this to  China.

A China – Sri Lanka Free Trade Agreement, first mooted in 2015  will, it is hoped, be finalized by the end of 2017. Industrialists have strongly opposed this FTA. They particulalyr object to two clauses, reducing the Sri Lanka Negative list to 10% and  phasing out the import Cess to zero within five years after implementation of the proposed FTA.

Phasing out the Cess ‘will sound the death knell for local industry’,  they said. At a time where the world’s most developed countries are considering to impose tariff/tax for imports from China, it is imprudent for our country to relax safeguards for our industries. It is  also essential to enact legislations on anti-dumping and protective measures to safeguard local industries against unfair trading practices and a surge in cheaper Chinese imports they added.

Association of Laminated Flexible Packaging Manufacturers, a body of local entrepreneurs representing the packaging industry, stated in a media release, that if implemented, the proposed agreement will have an adverse impact on the domestic industrialists leading to the collapse of a large number of industries.

A statement issued by the Ceylon National Chamber of Commerce (CNCI)  opposing the China-Sri Lanka  FTA was reproduced in full in Daily News Business supplement of 11.8.17. Daily News did not run a similar supplement on ECTA. The CNCI said in their statement, that it was the consensus amongst all present that they were ‘not in agreement to this FTA at all.’ Sri Lanka will face serious consequences if this FTA is signed.  The end objective of any FTA should be the growth of Sri Lanka’s economy.

CNCI pointed out that Sri Lankan industries find it  difficult to compete with countries doing mass scale production due to the  high cost of production, high interest rates, low productivity and other factors, such as  rupee depreciation.  The majority of the local industrialists have funded their investments, with borrowed funds,  using their personal assets as security.  Their indebtedness on loans and overdrafts run into millions, depending on the size of the company. If they are not safeguarded sufficiently, it will lead to disastrous economic consequences.

We understand that under Multilateral Trading Rules it is possible for small developing countries like Sri Lanka to negotiate under Enabling Clause that offer more flexibilities, said CNCI. Negotiations of FTA between China and Sri Lanka are not conducted under this clause, whereas Sri Lanka’s FTAs with India and Pakistan were concluded under this clause. China too concluded its FTA with ASEAN under Enabling Clause. Aren’t the Sri Lankan negotiators aware of this basic principal? Sri Lanka has also  failed to include a time bound review clause as done in n the China- Pakistan FTA-This review clause was ‘put to the Chinese negotiators again and again during the past negotiations,’ CNCI said.

Why  is China  asking for 90% trade liberalization at this early stage with an unequal comparatively small trading partner as Sri Lanka, CNCI asked. Sri Lanka has agreed to 10% negative list as requested by the Chinese, but there is no hard and fast rule that Sri Lanka should go in for a 10% negative list. The WTO has not defined substantial coverage under Article 24 of the GATT to mean 10%. It is left for the countries to adopt a comfortable percentage as befits their economic and development level. It is pity that Sri Lankan negotiators have accepted the Chinese stance at the loss of Sri Lanka’s economic interest.

The CNCI also  strongly opposed the removal of the import  Cess. The only ‘safety net’ that local industrialists have is the Cess levy, CNCI said. The Sri Lankan industrial sector is dominated by SMEs which accounts for 52% of the total GDP and is also accountable for 45% of total employment and accountable for 75% of enterprises.Removal of tariff protection such as Cess will adversely affect these SMEs, both directly and indirectly which will lead to their non-competitiveness and closing down, creating unemployment and adversely affecting the economy.

Further, removal of CESS against imports will deprive the nation of valuable funding for local industries. Cess levy nurtured local industry and helped it  to advance further after serving the local market successfully. Many local industries reached great heights due to the CESS levy.

It is a common knowledge that Chinese systems are not transparent in its rules and regulations and business practices. Also, the competitiveness of Chinese goods internationally is largely due to their vast economies of scale, political and labor structure. Sri Lanka  does not have mechanisms that could overcome dumping of inferior quality and substandard goods and unethical business practices.    Unlike in Sri Lanka in China there is no strict adherence to ILO labor conventions. This gives China a huge advantage over Sri Lankan products.

The CNCI gave specific examples of the difficulties of doing trade with China. In other countries, exports of shrimp requires an antibiotic test report only for one pond in the farm but in case of China antibiotic reports have to be provided for every pond in a farm. Obtaining quarantine requirements for fruits and vegetables are also extremely cumbersome and time consuming. It was  subject to a long approval process. In the case of textiles, apparels exporters complain of the stringent testing and specific requirements in China. These require more detailed test reports compared to other export destinations and Sri Lanka lacks sufficient facilities to undertake such testing. The Pakistan-China FTA of 2006 was more beneficial for China than Pakistan, declared CNCI.