YAHAPALANA AND THE REPUBLIC OF CHINA Part 10
Posted on August 20th, 2019

KAMALIKA PIERIS

DIPLOMATIC RELATIONS

China is continuing to maintain good diplomatic relations with Sri Lanka. In January 2019 Ambassador Cheng Xueyuan called on President Sirisena and handed over a New Year greetings card from Chinese President Xi Jinping. Ambassador Cheng also called on Prime Minister Ranil Wickremasinghe and Speaker Karu Jayasuriya.

China continues to maintain a very close relationship with former President Rajapaksa as well.  Chinese President Xi Jinping had sent New Year greetings to former President Mahinda Rajapaksa. Ambassador Cheng Xueyuan of China paid a courtesy call and he presented me with the New Year greetings of President Xi Jinping,” Rajapaksa tweeted. China also recognized Gotabhaya   Rajapaksa. Gota had attended a defense seminar in China in October 2016.

CULTURAL ACTIVITIES

China continues to have a presence in Sri Lanka. Tianjin Symphony Orchestra played at Nelum Pokuna, Colombo, in November 2017, to a packed audience. Shaolin Kung Fu from Henan province was presented in December 2017. There were performances in Kandy, Polonnaruwa, Hambantota, and Colombo. This was organized by the Association for Sri Lanka-China Social and Cultural Cooperation, Sri Lanka – China Friendship Association, Sri Lanka – China Society and the Chinese Embassy.

A study Center promoting the Chinese language and degrees from Zhengzhou University, the second-largest university in China, was launched in July 2019, in Colombo. In February 2019, the Sri Lanka China Trade and Investment Promotion Chamber and Sichuan Provincial People’s Government of China announced the establishment of a Sri Lankan Training Center of Chengdu SINCIO Training School of China to promote Chinese language proficiency in Sri Lanka.

This Centre plans initially to teach the Chinese language to 25,000 Sri Lankan youth.  Phase one of the programs will cover five districts, Colombo, Kandy, Polonnaruwa, Galle, and Hambantota and will have 25 centers. Phase two will cover the remaining districts with fifty centers. They will provide Chinese language training to unemployed youth, public and private sector workers and tour guides.

DONATIONS

The government of China gifted an office and auditorium complex to Sri Lanka Military Academy in Diyatalawa, in December 2018. The auditorium has a seating capacity of 785 with sound and optoelectronic facilities, and an intelligent power supply and distribution control system,” The total floor area is 7,200 square meters. The building was constructed in the shape of a lotus, which is the national flower of Sri Lanka. The project started in October 2014 and was designed, constructed and supervised by the Academy of Military Science of the Chinese People’s Liberation Army.

The Chinese ambassador hoped that this building would become another symbol of the friendship between the two armies and two countries. China and Sri Lanka were good neighbors, good friends and good partners said the Ambassador. Whatever changes might take place in the international situation, the two countries always stood with and supported each other. Both China and Sri Lanka were peace-loving countries.

China’s assistance also included a donation of 2750 metric tons of rice for distribution among disaster-affected families in 2017.  Donation of 90 water browsers in 2018. Lanka Hospitals partnered with  China’s AIDI eye hospital to provide 100 free cataract surgeries in December 2018.

BUSINESS

In 2017 BOI hosted a delegation of 30 senior government officials from China, to see the potential of Sri Lanka as an economic partner for trade, tourism, and investment. A delegation from Jilin province in northeast China had visited the BOI earlier.  They were interested in the construction sector, manufacturing and light industries.

Chinese telecom and IT giant ZTE held its first “Civilized China” Business & Investment Conference at the Shangri-La, Colombo in January 2019. Over 300 Chinese business delegates attended. This was the first of many conferences that ZTE will be hosting across the South Asian region in a concerted effort to strengthen opportunities for trade and economic cooperation with ZTE.

The conference was organized in partnership with the Overseas Chinese Association, Chinese Tourist Board and Chinese Cultural Centre together with local government agencies including Sri Lanka Tourism and the Export Development Board of Sri Lanka. The Conference received extensive foreign media coverage with several Chinese reporters broadcasting globally throughout the conference.

The first “Chinese Enterprise Job Fair” in Sri Lanka, organised by the Chinese Chamber of Commerce in Sri Lanka and Sri Lankan Ministry of Skills Development and Vocational Training was held in 2017. China said that Chinese companies, who had opened branches in Sri Lanka would provide job opportunities to over 400 Sri Lankans. The companies were in search of both skilled and unskilled workers and there were many job categories available.

BILATERAL RELATIONS

China wishes to maintain strong relations with Sri Lanka. China is not that far away, said the Chinese ambassador at the Sujata Jayawardene Memorial Talk, 2017.  It is only 4 hrs by plane From Yunnan province to Colombo.

Memorandum of Understanding between Sri Lanka China Journalists’ Forum (SLCJF) and Chongqing Normal University (CNU) in China was signed for enhancing the bilateral relations between two countries n 2018.

Pathfinder Foundation’s ‘China-Sri Lanka Cooperation Studies Centre’  signed an MOU with  China Center for Contemporary World Studies (CCCWS) in 2017. In  2018 the South West University of Political Science and Law of China agreed to station a Chinese scholar in the ‘China – Sri Lanka Cooperation Studies Center’. Dr. Zhao Ying of SWUPS was appointed to this position. She will provide valuable insight into the Chinese perspective for the activities of the Studies Centre.

China’s role in Sri Lanka is discussed openly. China welcomes this.  Pathfinder Foundation had a seminar on China’s BRI in April 2019 in Colombo. China sent a high-level expert panel from the China Institute of Contemporary International Relations. This institute was a huge one with eleven research institutes, two research divisions, and eight research centers. It has around 400 staff including 150 senior fellows.

At this seminar, the  Chinese speaker  Dr. Hu Shisheng, referred bluntly to the competition in the Indian Ocean today. There were competing regional combines,  such as BIMSTEC,  USA’s Bay of Bengal, India’s AAIC and also the ‘China and Pakistan vs. USA and India’ issue. Economist Srimal Abeyratne said it would be beneficial for Sri Lanka to be in the BRI. Sri Lanka should have had stronger relations with India but that did not happen. Sri Lanka now needs to get into the global network and for this, the short cut is Belt and Road. Sri Lanka is strategically located for B&R.

Lynn Ockersz commenting on this seminar observed that this was an example of China’s track 2 diplomacy. Sri Lanka witnessed an engagement of this kind when a senior delegation from the China Institutes of Contemporary International Relations (CICIR) met the Sri Lankan think tank, the Pathfinder Foundation, for wide-ranging talks recently, he said. The parties were primarily looking at establishing a joint study group ‘to identify critical success factors that would have to be put in place to take the economic, investment and trade relations between the two countries to the next level.’

Besides, state-level talks between China and Sri Lanka, which exemplify track 1 diplomacy, aimed at furthering the legitimate interests of the states through cooperation and collaboration, track 2 diplomacy, involving non-state entities and personalities, is a means of achieving the same aims at a level below that of state-to-state talks. Track 2 complements track 1 diplomacy, besides strengthening people-to-people contact. This exercise in track 2 diplomacy is one among numerous such demonstrations of soft power by China that are instrumental in consolidating ties between it and those states, which in China’s thinking, are of the greatest importance to it in the economic, material and political spheres, concluded Ockersz.

China’s Debt trap”.

Yahapalana has continuously criticized the loans given by China to Sri Lanka during the Rajapaksa government. Yahapalana says Sri Lanka economy is in a mess because of China.

China has contested this. The proportion of Chinese loans in Sri Lanka’s loan portfolio was quite low. Other countries had a much greater share of Sri Lanka’s external debt, China said.  The interest on 61.5% of China’s loans to Sri Lanka is far below the international market rate,  said Prof. Huang Yunsong, Associate Dean at the China Center for South Asian Studies in Sichuan University, speaking at Colombo Shangri-La Colloquium of 2018.

In December 2017, Sri Lanka owed China US$ 5.5 billion which was about 10.6% of the nation’s total foreign debt of US$ 51.8 billion. Of this 5.5 billion,  3.8 billion (61.5 % of the total loan) was provided at a rate far below the international market rate. Thus, the major part of China’s loan was taken at a concessionary rate,” Huang Yunsong, said. More importantly, US$ 1 billion had been taken at a concessionary rate of 2% which means that the interest in the major part of the loan was not excessive at all,” He added that  the commercial loan interest rate  for the borrowings was based on a mutual agreement between Sri Lanka and China as per established principles of the international market.

We have come to the conclusion that the idea that China is trying to reduce Sri Lanka into a colony is fanciful, said Barry Gautman and Yan Hairong when interviewed in Sri Lanka. We cannot find any evidence to say that China has proceeded in that manner.

Barry Gautman is a Professor in the Division of Social Science, Hong Kong University of Science & Technology. Yan Hairong teaches in the Department of Applied Social Sciences, Hong Kong Polytechnic University.

The policy of China With regard to debt relating to developing countries has been that they would be amenable to working out some compromise such as rescheduling or loan forgiveness. Sri Lanka also has never defaulted on repayment and therefore there is no crisis that we can detect, they said.

Originally it was not so much the debt trap but the ‘excessive involvement of China’ in Sri Lanka that was at issue. The term ‘Chinese debt trap’ was coined by an Indian named Brahma Chellaney who works for the Institute of Policy Studies in Delhi and has close relations with RAW. When these loans were first taken around 2006, nobody was talking about a Chinese debt trap. It was after the war and around 2014 that this talk of a Chinese debt trap emerged in Sri Lanka. 

China holds approximately 9% of Sri Lanka’s total outstanding debt as of 2017, explained the media. Sri Lanka has gone on to amass USD 15.3 billion during 2007-2018 from subsequent ISB issues and foreign currency term financing facilities (FTFFs). In the same period, Sri Lanka tapped China for a total of USD 9.2 billion as development loans, and an additional USD 1 billion as an FTFF in 2018. ISBs and FTFFs together account for 33% of Sri Lanka’s outstanding foreign debt in 2017, against a 9% share held by China.

Local economists also strongly disagreed with Yahapalana. Economist Nimal Sanderatne said there has been much international publicity that Sri Lanka is in a debt trap owing to its large debt to China. This is factually incorrect. Sri Lanka’s debt to China is around 10 percent of the total debt and has been obtained on relatively more favorable terms than other commercial borrowings.

The loans from China, of which 40% have been obtained on commercial terms, account for only 20 percent of the country’s large and rising non-concessional share of foreign debt (at 55 percent of total outstanding debt in 2017). The vast bulk (80 percent) is made up of ISBs, FTFFs, and foreign holdings of Treasury bills and bonds. This shift in composition has been the main driver of Sri Lanka’s rising debt service ratios. Chinese development loans have played a very secondary role, said Sanderatne.

The Institute of Policy Studies (IPS) and the Verite Research have also rebutted this forcefully and factually, observed Sanderatne. The government is crying wolf at the Chinese debt trap when real worry is hidden elsewhere, said  Subhashini Abeysinghe of Verite. The bigger threat is from international financial markets.  The pressure is from international sovereign bonds, these are now maturing and they make up the most debt, not   China, she said.

Speaking at the Sri Lanka Economic Association annual sessions on January 19, IPS Executive Director Dr Dushni Weerakoon pointed out that Chinese loans amounted to only about 9 percent of Sri Lanka’s total outstanding debt in 2017, while China’s share as a bilateral lender was about 14 percent, an amount equivalent to India’s share.

When considering the total US$ 9.2 billion Chinese development loans to Sri Lanka, 61 percent has been obtained on concessional terms. Concessional terms on Chinese loans are typically fixed rates at 2%, with other fees of 0.5% and maturity periods of 15-20 years she said.. Dr. Weerakoon concluded that the terms compare less favourably to Sri Lanka’s other major bilateral donors, India, but most specifically, Japan.

Dr. Weerakoon concluded that Chinese loans are clearly not the primary cause of Sri Lanka’s debt imbroglio but have contributed to, and, possibly, aggravated the problem. Loans from China are attractive to governments for multiple reasons. They are free of conditions and lengthy negotiating processes, and provide access to large volumes more quickly, to be disbursed according to presumed needs. In the event, they also carry heavy risks in the presence of poor analysis of investment projects, incentive problems, and interest groups influenced investment choices.

Further, China usually reduces the amount of money that debtors have to repay if they cannot. Centre for Global Development, a think tank in Washington has counted more than 80 cases between 2000-2017 in which China provided relief to its debtors overseas.

It was argued that China deliberately lends countries more than they can repay in order to seize strategic assets when they default. Critics point to Hambantota as an example. But Deborah Brautigam at Johns Hopkins University argues that Hambantota is an exception. She looked at more than 3000 projects overseas financed by China and found that Hambantota was the only example of such an asset being seized to cover a debt.

HAMBANTOTA

Analysts observed that most of these projects that were built with Chinese funding were on offer to other potential financiers as well but there were no takers. The Hambantota port was first offered to India. With China taking it,  India’s security is affected. All the shipping to the East coast of India has to go past the Hambantota port.

The former President has said publicly on several occasions that China never once asked him for the port  When the Rajapaksa government was in power, there was no talk of ever giving the port to China and the Chinese had never asked President Mahinda Rajapaksa for that port on a lease, observed Gautman and Hairong. It appears that China never asked the present government for the port either. It appears to be the present government that went to China and prevailed upon them to take the port on lease.

China was reluctant to involve itself further with Hambantota, after the regime change of 2015. When Prime Minister Ranil Wickremesinghe raised the matter of Hambantota on his visit to Beijing, the Chinese government was reluctant at first. There had to be some kind of persuasion, said, analysts.

Referring to the   view that China’s taking over the Sri Lankan port at Hambantota as ‘neo-colonialism’, analysts said that if one were to Google ‘port 99 year lease’, the first result one would get is a 99-year lease on the Port of Darwin in Australia’s Northern Territory, a deal worth Australian Dollar 506 million with a Chinese company., port terminals in New York and Long Beach are  also managed by Chinese companies”.

Yahapalana government had selected China Merchant Co in preference to China Harbor because China Merchant has a good reputation in running ports whereas China Harbour has been mostly building ports, not running them, said analysts. China Merchants stated that they considered the Hambantota port to have a very bright future and that they would not have entered into this deal if they had not thought so.

China Merchant Holdings now holds a 70% stake in the Hambantota port for 99 years, with the remaining shares in the hands of Sri Lanka. But the lease agreement provides for the purchase of shares held by China if Sri Lanka so decides at a future date, observed analysts. Furthermore, the agreement between China and Sri Lanka on the Hambantota port contains a clause that strictly prohibits,” the Chinese from using the port for military purposes. It also states that the security of the port shall be with the Sri Lankan navy.   

Sri Lankan Ambassador to China, Karunasena Kodituwakku, speaking to the Beijing Review in 2019, said that if Sri Lanka wants to get 100% ownership of the Hambantota Harbour, Sri Lanka could renegotiate with the China Merchant Company and pay back their investment. He said that this could be done in a ‘very friendly manner,’

COMPLAINTS

Sri Lanka’s contractors have expressed concern over Chinese dominance in construction projects here. One example they pointed to was an initiative to rehabilitate high priority roads and bridges in the Northern and Eastern Provinces, advertised in January 2018 by the Ministry of National Integration & Reconciliation.

The roads were divided into six packages ranging from 85 km to 1,146 km. The project is under Prime Minister Ranil Wickremesinghe.These packages have all ‘C’ and ‘D’ roads,” They are provincial roads. But they have taken 5 or 10 km here, 8 or 6 or 4 km there and packaged them. After that, pre-qualification is given for billions of rupees.”Then, which Sri Lankan company can qualify?” asked Chief Executive Officer of Major Constructors of Sri Lanka and of the National Construction Association of Sri Lanka. These are roads that even our village contractors—regional small or medium contractors—can make. But because of this, they can’t benefit.”

Proposals were invited through international competitive bidding. Forty-four applications were received for six packages to rehabilitate roads in the Northern and Eastern provinces. A Cabinet appointed negotiating committee and a project committee evaluated the proposals. Two packages (1 in the North and 1 in the East) were awarded to Sinohydro Corporation Ltd. The others went to CEC-NEM Joint Venture, KDA Weerasinghe & Co Pvt Ltd, Consulting Engineers & Contractors Pvt Ltd, and Nawaloka Construction Co. Pvt Ltd. Sinohydro Corporation’s package in the North was later withdrawn in favour of an Indian party, on a request conveyed to the Government through the Indian High Commission in Colombo.

Contractors have also complained about the infiltration” of Chinese companies into the local trade, saying they initially crept in” via International Competitive Bidding (ICB). They soon ousted the Japanese and Koreans in that area. Whilst doing ICB jobs, they saw a golden opportunity during the second innings of the Rajapaksa Government and started bringing in negotiated jobs or unsolicited proposals. Then they observed that we were having fairly sizeable jobs in the private sector and got in there through projects such as Pearl Hotel, Havelock City and Odel.

Chinese contractors had a 40% advantage over the local trade because they did not pay taxes and their workers were only paid an allowance, with their salaries being settled abroad. If we say Rs 100, they can do it for Rs 60,” said the National Construction  Organization. We are not on equal terms. These are all our jobs. They’re eating into our pie.

They are now trying to come into the housing sector. If they get into that, companies that have been building homes are finished, because they will undercut the prices.” There is a further problem. Small teams of Chinese workers are going door-to-door offering services. They come on holiday as tourists, with a few tools, and they don’t go back. Five or six of them come in a set and they live in Chinese dormitories or homes, the Organization said.

A landed proprietor in Wellawatte, who said he had hired a Chinese worker only that morning for a daily wage of Rs 2,500 for all manner of jobs around the property, including plumbing, masonry, and cutting of branches. He came sharp at 7 a.m. and works till 6 p.m.,” he said, adding that he was very happy with the level of service.

There was also a  complaint about the Coal Power Project at Norochcholai. Here is my experience in service at the Ministry of Power and Energy at the project to construct the Coal Power Project at Norochcholai, said an engineer.

The total cost of the project was around USD 1,500 million, inclusive of local funding as well. The Sri Lanka government was facing a severe energy crisis, mainly due to a lack of political will and frivolous objections. The usual practice of calling for worldwide tenders was not possible as the process of calling tenders, evaluation, takes a few years. At this juncture, China offered the loan and also to undertake the construction of the project, inclusive of the plant.

China used its own labor and machinery, thus providing employment for its own men from labourers to engineers and consultants. The machinery required, from concrete mixers, cranes, etc were brought from China, thus providing funds for their manufacturing industry. No expenditure was incurred on local labour and materials. Thus, the entire loan, plus the local financial contribution went back to China.

What of the quality of work? The first plant of 300 Mw was said to be refurbished and gave us enough trouble. The Chinese, I believe, kept technical knowhow under wraps and our engineers found it difficult as the manuals were in Chinese. When the plant was constantly giving trouble, the Chinese offered to run the plant. If worldwide tenders had been called we would have had a modern plant, perhaps from Japan, who would have engaged only top engineers and consultants and employed local labour and material, and on-the-job training of local staff to run the plant efficiently concluded the critic. ( Continued)

One Response to “YAHAPALANA AND THE REPUBLIC OF CHINA Part 10”

  1. Randeniyage Says:

    Kiriella recruited consultants and public liaison officers without interviews
    August 20, 2019, 9:26 pm

    by Rathindra Kuruwita

    Former Minister of Highways Lakshman Kiriella recruited a large number of UNP members as public liaison officers and consultants without holding interviews, checking their qualifications and without assigning any duties, the Presidential Commission (PCoI) investigating frauds under the current administration was informed yesterday.

    Ranjith Edirisinghe, former deputy director of administration at the Road Development Authority (RDA), who handled the recruitment, told the PCoI that appointing a large number of such persons was customary at the RDA since 2006.

    “Over a 100 of them left after the government changed in 2015. However Kabir Hashim who held the portfolio before Kiriella during the 100 day government, only appointed five persons as public liaison officers. Things changed after Kiriella took over in September 2015,” Edirisinghe said.

    After his appointment Kiriella introduced Edirisinghe to Waruna Liyanage, a coordinating secretary to the Minister. The witness was told that Liyanage would help him with recruitment to the RDA. At that time Liyanage was a Kandy Municipal Council member of the UNP.

    “The Minister said they want to recruit some public relation officers and Waruna will work with me on that. I was given a list of people to be given employment. I informed him that I at least want a CV of these individuals. From that point Waruna used to hand me CVs from time to time. The appointment letters too were given to Waruna. We usually post appointment letters but Waruna took these letters and I think he handed them the letters.”

    Edirisinghe added that the decision to appoint these individuals were taken by the Minister and was approved by the Director General of the RDA. “I just followed orders.”

    Earlier it was revealed that Kiriella had created a new job category and recruited 45 UNP members to the Road Development Authority (RDA) in October 2015 as public liaison officers. A large number of consultants too were recruited at the same time.

    In June an official from the Ministry, who chose to remain anonymous, said that in late 2015, Chamindrani Kiriella, the personal secretary to the Minister, had sent a list of names to the head of the RDA asking him to recruit them as public liaison officers.

    The list comprised the names of UNP members from Kiriella’s electorate and some were UNP local government councilors in Kandy.

    The position of public liaison officer did not exist in the approved cadre of the RDA, she said, adding, “However, the title in Sinhala is ‘mahajana sambandatha niladari,’ which makes people believe that these positions are for public relations, a job that exists in the cadre list.”

    She added that according to procedures the Minister couldn’t make such appointments without any approval from the board of directors. The Minister had sought board approval nine months after making the appointments.

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