It is, more or less, a win-win deal. According to Christopher Balding, associate professor at the HSBC School of Business at Peking University in Shenzhen, this gives China’s allies infrastructure and more and more debts to Beijing.
“The debt, in turn, can result in Beijing getting something rather useful in nations with resources it covets: negotiating leverage to gain access to those resources, including land,” He said, in a recent article in Quartz.
This was seen in countries like Venezuela and Cameroon heavily relied on Chinese-funded infrastructure development projects. By the end of 2016, Chinese companies had initiated USD 2.5 billion worth investments in Venezuela.
Sri Lanka too could not escape the Chinese economic influence over the past several years. China initiated several large-scale infrastructure development projects in Sri Lanka, under the previous government but the Rajapaksa administration did not have a clear strategy to turn them into financially viable projects.
It is against this backdrop that the current government had to explore the option of debt-to-equity swaps in relation to some Chinese-funded infrastructure projects in Sri Lanka.
The government initiated discussions with the Chinese government to develop the Hambantota harbour, the Mattala International Airport and a special industrial zone in the Hambantota district.
The agreement over the Hambantota harbour and the setting up of the industrial park has met with resistance from some residents in the area. The government, on many occasions, stated that political elements with ‘vested interests’ had fuelled the public resistance.
The government, however, is determined to proceed with the plan. This week, Chinese Foreign Ministry Spokesperson Hua Chunying told the media in Beijing that China was open to have investors from other countries in the Hambantota industrial zone.
China open to investors from other countries
“Let me be very clear, China has never asked Sri Lanka to allow only Chinese enterprises to operate in the Hambantota industrial zone,” she said.
She also claimed that China did not force Sri Lanka, which owes China a massive amount of money, to offer any concessions over the port project.
“As the two countries are traditionally friendly neighbours, China is willing to provide the best assistance it can to help Sri Lanka with its economic development so as to achieve common development. This is in the interests of both countries,”
“The Chinese enterprises always discuss the Hambantota Port project with the Sri Lankan side on a voluntary basis, in the spirit of equality and mutual benefit, and following market rules. Relevant cooperation projects are expected to play a constructive role in the long-term development of Hambantota Port and other parts of Sri Lanka,” she said.
Hambantota harbour project
However, it is now believed that China’s development project at the Hambantota harbour would be delayed due to some issues relating to the Development Zones – especially, the acquisition of lands.
According to media reports, the Chinese have stated that they would only sign the deal if the 15,000 acre industrial zone comes with it. China plans to invest US$ 5 billion to develop the area within 3-5 years.
It is important to examine where China’s request for the port and the development zone stems from.
As reported in this column two weeks ago, at the World Economic Forum (WEF) in Davos, Switzerland, China Merchant Group President Li Xiaopeng revealed a PPC model China hoped to share with local partners for a ‘win-win’ situation: “First a port, then an industrial park, and beyond the park, a modern city,” he said, describing the concept as ‘PPC’ model.
Chinese President Xi Jinping stoutly defended China’s policy of globalization and revealed Chinese plans to invest a further USD 700 billion in outward direct investments over the next 5 years.
The PPC model is what China is adopting in relation to Sri Lanka.
From an economic standpoint, the China Merchant Group has substantially invested in Sri Lanka – two of Sri Lanka’s five ports are in Chinese hands – Colombo and Hambantota.
The Sri Lankan government has secured with China to run the Hambantota deep sea port and Mattala International Airport as public-private-partnerships (PPP) that will be driven by monumental debt-for-equity swaps.
Colombo’s South Container Terminal is a 35-year Build-Operate-Transfer (BOT) arrangement with China Merchants Holdings, the same company that’s taking over the Hambantota port.
Plans are also underway for China to be given a long-term lease on 15,000 acres of land in Hambantota for an industrial zone, a $1.4 billion development project.
In Colombo, China is constructing the Colombo Port City, a massive investment project for a 269-hectare financial district. It is designed to be a financial centre of skyscrapers, luxury hotels, shopping malls, and a marina that was destined to shake up Sri Lanka’s economic and geopolitical landscape.
Therefore, the project to develop the Hambantota harbour without the industrial park will disrupt China’s business model for Sri Lanka.
At the same time, China cannot ignore Sri Lanka as the island-nation is located at a highly important location on the ‘Silk Road Economic Belt.’
The ‘One Belt One Road’ initiative, as it has evolved today, is a two-pronged plan for greater land and sea connectivity: The ‘Silk Road Economic Belt’ and the ‘21st Century Maritime Silk Road’ are expected to enhance relations between China and the Continents of Asia, Europe and Africa.
The Silk Road Economic Belt is the land route China will take to access larger markets in Asian, European and African markets.
It is in this context that the Chinese Ambassador’s recent remarks on Sri Lanka should be understood.
Chinese Ambassador
Chinese Ambassador to Sri Lanka Yi Xianling, delivering the 13th Sujatha Jayawardena Memorial Oration organized by the Colombo University Alumni Association held at the BMICH, expressed his concerns that the protests in Hambantota may turn away the investors who have already agreed to invest in the proposed industrial zone down south.
“I already persuaded 10 CEOs of big companies to invest USD 3-5 billion in the next two to three years. Most of them belong to the 500 Fortune companies. However, if protests continue how can I persuade them? When they approached me I asked them to get the answers from the Sri Lankan leaders, not from me. However, I encourage them to invest here and I am confident that the cooporation between Sri Lanka and China will be a success in the future” he said.
“When I addressed more than 2,000 locals in Hambantota during a Chinese cultural performance at the International Convention Centre I promised them that we will not take their lands without their own permission. I talked to the District Secretary and explained that we would just use the BOI lands and lands already available at the port for the first phase of the project,” he said, adding that China was not interested in meddling with Sri Lanka’s internal political issues.
“The port belongs to Sri Lanka. The Chinese investment of USD 1.1 billion is to operate 80 percent of it. No contract or agreement is made yet. Only the framework agreement has been signed. Whatever the share we get, we will fully respect the Government procedure and consensus of the people. We have no intention to intervene in the internal differences between politicians or political groups or former, current and future leaders,” he stated.
He also went on to highlight the importance of industrial zones, observing many developed countries such as Singapore, Japan and the US, and achieved fast development through special zones.
“This is also the way to protect your land and environment. Otherwise, you cannot have industries anywhere” he pointed out.
The Ambassador said, the advice of the Chinese President to him during the delay of Colombo port city project was to be ‘patient’ and work cordially with the Sri Lankan Government and its people. “I have time and I have patience, but I am worried about the patience of the business community,” he said.
“China and Sri Lanka have no disputes or differences generally. Of course, I have some differences with some Ministers, but this is not a difference between the two states. China is already the number one financial supporter to Sri Lanka. Last year, our grants, donations and commercial and concessionary loans to Sri Lanka amounted to RMB 10 billion.”
Buy-back clause?
While China was busy convincing Sri Lanka of the importance of linking the industrial zone with the Hambantota port, the Sirisena-Wickremesinghe administration was trying to amend the agreement with the Chinese government to allay the fears of some parties in the local political domain.
Finance Minister, Ravi Karunanayake said, the government had included a ‘buy-back’ clause in the Hambantota Port agreement between the government and China Merchants Port Holdings to give the former some flexibility within the agreement.
“The perception is that we had outright sold 15,000 acres of the country, which is not the case. It was the investment that came in, that requires such. Though we have said we would offer an 80 percent stake, we will also retain the option to buy back some when the opportunity arises”, said Karunanayake, speaking to journalists, at his Ministry.
He further explained that the government did not have the capital required for complete public investment at the Port and hence, they had no choice but to go for a public-private partnership. “The Port will start as soon as the go ahead is given. We are at the concluding phases of the negotiations.”
However, the exact date of the commencement of the project is still not clear as eleventh hour negotiations are still underway. However, the government had reiterated that it would iron out the differences and proceed with the plan, as early as possible.
JO’s withdrawal
The Joint Opposition group supporting former President Mahinda Rajapaksa this week made a tactical move by withdrawing from the sub-committees to make recommendations for the new constitution.
UPFA MP Bandula Gunawardena, addressing media in Colombo, said, the JO had decided to withdraw from the sub-committees, because they didn’t want to compromise on the unitary nature of the state.
He said, there was evidence to prove that the reports of the committees favoured federalism and separatism – which the JO condemned and opposed.
At almost every rally conducted by the Rajapaksa camp, the speakers of the Joint Opposition said the government was attempting to ‘divide’ the country by introducing a new constitution.
Gunawardena also raised a concern that the voice of the Joint Opposition did not get ‘heard’ at the sub-committee sessions.
Gunawardena said, the Joint Opposition rejected the reports compiled by the six sub-committees, set up through the Constitutional Assembly.
The six sub-committees were set up on May 5, 2016 to develop constitutional principles on Fundamental Rights, the Judiciary, Law and Order, Public Finance, Public Service and Centre-Periphery Relations, for the consideration of the Constitutional Assembly’s Steering Committee.
The Joint Oppositon’s move did not come as a surprise to other parties involved in the process. They were aware that the JO’s involvement in the sub-committee was an eyewash as the Rajapaksa camp was fundamentally opposed to the formulation of a new constitution.
They were aware that the JO’s withdrawal from the sub-committee was only a matter of time.
Hakeem’s attack
The strongest attack on the Joint Opposition after its withdrawal from the constitutional assembly came from Minister Rauf Hakeem, leader of the Sri Lanka Muslim Congress.
Hakeem launched a scathing attack on the Joint Opposition at the launching ceremony of the book in relation to the Kandy and suburban water supply project to be implemented with financial aid from Japan International Cooperation Agency (JICA) at Tourmaline Hotel in Kandy, on Friday.
He said Gunawardena’s statement of disregarding JO’s views and opinions in the Constitutional Reforms procedure was no more than a blatant lie.
The SLMC Leader said, the Joint Opposition was deliberately disrupting the Constitutional Reforms process.
Highly placed government sources said, the constitutional reform process would continue with or without the Joint Opposition’s support.
“We have a mandate to abolish the Executive Presidency and introduce other political reforms. All the main parties in Parliament are now engaging with the process. So, the JO’s withdrawal will not cause any damage to the reform process,” a senior government spokesman told the Sunday Observer, on Friday.