Asian and African countries, beneficiaries of Chinese investments : China’s Asian model of development to benefit Sri Lanka | Sunday Observer

Asian and African countries, beneficiaries of Chinese investments : China’s Asian model of development to benefit Sri Lanka

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Already many countries in the Asian region and the countries in the African continent are reaping the benefits of Chinese investments. Similarly, if judicious enough Sri Lanka too would benefit enormously from these investments and could entice other countries to compete with China for investments in the island, former Permanent Representative to the United Nations and Currently Managing Director, Hairong Investments International (Pvt) Limited in Sri Lanka, Dr. Palitha Kohona, said in an interview with the Sunday Observer.

He refuted firmly scepticism and allegations that China’s interest and lavish extension of loans to developing countries is a means of putting these countries into a ‘Debt Trap’ to own strategic assets. Kohona’s company Hairong Investments promotes and facilitates foreign direct investments from China.

Excerpts:

Q. How do you see the current role played by China in the region, particularly, in developing countries?

A. It has been said that an increasingly prosperous China’s BRI (Belt and Road Initiative) investment ambitions, focused on cooperative infrastructure and connectivity enhancement, has the potential to make a greater impact than the post World War US Marshall Plan and introduce a new era of shared prosperity.


Dr. Palitha Kohona

The Marshall Plan provided financial assistance to the war devastated economic giants of Europe and was a major factor in their quick recovery. But the funds available under the BRI make the Marshall Plan pale in to insignificance. The Marshall Plan provided over $140 billion, at 2017 dollar values, to assist Western European economies recover. The BRI intends to make available a stunning $ 4 – 8 trillion.

BRI funds are expected to achieve substantially much more by creating a vast region of shared prosperity stretching from Africa to East Asia, the clear beneficiaries being a large number of developing countries. Prudently used, the BRI funding could create a win-win situation for China and for other developing countries. Sri Lanka, if it is judicious enough, could benefit enormously, including the exploitation of the obvious tendency of other donor/investor countries to compete with China for influence.

Adding strength to the BRI, the Chinese yuan has now been recognised as a reserve currency by the IMF and China appears to be increasingly moving towards international payments in yuan. The yuan joins the U.S. dollar, the euro, the yen and the British pound in the IMF’s special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans.

It is not only the vast accumulation of foreign reserves in China that makes the Chinese outreach tempting. China is also gradually becoming a force to reckon with in Information Technology, which coupled with its massive financial clout, makes it a formidable proposition as the world moves further in to the 21st century. IT is likely to form the basis of the next industrial revolution. Live streaming which has caught on rapidly in China, now has an audience which is about the entire US population.

China has 700 million internet users and web development has become a cottage industry. It has become the biggest e-commerce market in the world. Over half of the most valuable companies in the world are now Chinese. China started the electronic bike exchange and has rapidly progressed with electronic payments. Other countries are simply playing catch up. Baidu is the largest search engine and China’s Alibaba is bigger than Amazon and Ebay combined. Tempted by the huge Chinese market, Google is hankering to return to China.

China is the main source of tourists in the world, supplying 137 million in 2017. Much has been written about the massive progress made by China in the transport industry, with over 18,000 miles of high speed trains already in use delivering over 1.7 billion passengers in 2017. China is the biggest global market for motor cars and its production reached 23.7 million units in 2017 which exceeds that of the US and Japan combined. China’s construction industry has also climbed dizzying peaks with some city sky lines looking as if they were plucked out of science fiction movies.

Cooperating with China opens massive doors of potential development to other developing countries and Sri Lanka should position itself to benefit from this opportunity. While China continues to expand its own economic model, creating increasingly more space for the private sector while retaining the dominant role of state owned enterprises, Sri Lanka and other developing countries can benefit hugely from this evolving Asian model of development.

Q. Many are of the view that China’s interests in Sri Lanka go beyond being a development partner to increasing its stake in the country. Do you agree? Could you elaborate?

A. The BRI will be a closely related factor as Sri Lanka seeks to realise its own Vision 2025. Vision 2025 (or is it Vision 2030) provides the development blueprint for the country for the next seven years and infrastructure development and IT will play a central role in it. Sri Lanka must manage its international political and economic relations prudently. While benefiting from China’s BRI, it becomes Sri Lanka’s responsibility to protect its vital interests. Sri Lanka can do it. We just need leaders with imagination and skill.

Sri Lanka’s drift towards China began towards the closing stages of the war. The West began to curtail military and economic assistance as a means of exerting pressure on the Government to stop its forces advancing on the Tamil Tiger terrorists. When the Government refused to oblige and military and economic assistance dried up, Sri Lanka turned to its historically close friend, China, for assistance.

Subsequently, as the country sought desperately to recover and reconstruct and Western assistance continued to be frugal and loaded with conditionality, an economically resurgent China, contributed magnificently to Sri Lanka’s recovery efforts. China did not force itself on Sri Lanka. When its other friends played coy, China stepped on to the plate magnificently at Sri Lanka’s invitation.

In Sri Lanka, funds provided by China have had a distinct impact on development and its economy. The sums provided have been estimated at $ 8 billion. About 8% of Sri Lanka’s debt is owed to China. The Kandy/Kurunegala Highway, the Northern Expressway and the extension of the Southern Highway from Matara to Kataragama are examples.

In addition, external connectivity has been improved through China’s support for the construction of the Hambantota Port which ‘The Economist’ suggested would become the leading port in South Asia, the Colombo South Harbour and the Mattala International Airport. The rapidly, emerging Colombo Port City, expected to rival Dubai in the years to come, is being built mainly with Chinese investments and others have been invited to join. The Norochcholai power plant, built by the Chinese, is now a major contributor to the national power grid. The Lotus Tower, Colombo, the tallest telecom tower in South Asia is expected to be opened soon, again built with Chinese funds. It will be a significant boost to our communication capabilities. The 350-metre-high Lotus Tower, draws inspiration from the Buddhist Lotus Sutra, provides encouragement for China to formulate a sustainable and peaceful ‘soft power’ strategy that would appeal globally.

One’s imagination and xenophobia must have reached wild extremes to suggest that China’s economic assistance to Sri Lanka could produce a sudden tilt in the Indian Ocean power equation when it is patently obvious that, India’s expanding power and the US’S clout in the region are likely to remain unchallenged for many years to come.

Q. Economists and analysts say China’s generosity in extending loans to developing nations is a strategy of its ‘Debt Traps Diplomacy’. Is there any truth in this?

A. Despite muttered reservations and orchestrated criticisms of the BRI, mostly about the Chinese debt trap, already the countries of the region, especially in Africa, are reaping substantial benefits from China’s investments. Economists, including those at the World Bank, agree that the recent rapid upward movement of the economies of a number of African countries has been the result of significant Chinese investments. Many African economies are prospering for the first time in years and analysts ascribe this development to Chinese investments in infrastructure in Africa. The Zambian copper industry has been revived largely due to Chinese investments.

By 2014, investments in Africa had risen more than 20-fold to $220 billion according to the China Africa Research Initiative at Johns Hopkins School of Advanced International Studies in Washington. It is likely that this trend will accelerate as China also learns from experience, irons out irritations and responds more to the aspirations of the people of the region. This has been publicly acknowledged by the President of the African Union.

Since 2000, Ethiopia has been the second-biggest recipient of Chinese loans to Africa, with financing for dams, roads, rail and manufacturing plants worth more than $12.3bn, more than twice the amount loaned to oil-rich Sudan and mineral-rich Congo. The BRI while raising some concerns, especially among the former colonial powers that ruthlessly ravaged and exploited Africa, can be used by countries of the Indian Ocean region and beyond, to enhance their mutual prosperity without being constrained by fears and suspicions inculcated by the colonial past and more importantly, without territorial occupation, racial discrimination, enforced slavery and forced alteration of cultures. Those who ravaged the colonies mercilessly now taunt China’s assistance. And, in fact, China has written off the debts of the poorest countries recently, following the recent CHINA--AFRICA SUMMIT.

Pakistan, described as an all weather friend by President Xi Jinping, has been promised USD 62 billion in investments for infrastructure projects. The China-Pakistan Economic Corridor is the flagship project under this initiative. The Bangladesh-India- China-Myanmar corridor links China with the Bay of Bengal.

Further East, Australia has received AUD 15.4 billion in Chinese investments involving 103 transactions. The port of Melbourne is now controlled by a Hong Kong-Chinese concern. Darwin is also now controlled by a Chinese company.

Foreign borrowings can be a debt trap if incurred injudiciously. But it is a fact that China has not pushed any country to the wall. Sri Lanka need not have handed over its Hambantota Harbour to Chinese companies on a 99 year lease if it had managed its FDI inflows better and organised its debt repayments more judiciously. Many would argue that handing over of Hambantota on a 99 year lease was wrong.

Q. India is concerned about China’s inroads to the Indian Ocean. Is there any truth in this?

A. India’s sensitivities regarding China’s outreach must as of necessity be taken into account. The fact that the two countries fought a border war in 1962 and have occasionally skirmished along a long disputed colonial border cannot be forgotten easily. India’s deep seated concerns and sensitivities have impacted on the thinking of the smaller countries of the Indian Ocean region. India which was so close to the Soviet Union and continues to source much of its military hardware from Russia has consciously developed a close relationship with the U.S. with clear military implications.

The U.S. has recently agreed to sell Guardian drones to India for maritime surveillance. India, while strengthening its naval capabilities in the Andaman and Nicobar Islands, has also quietly developed strategic military relations with Australia and Japan, participating through regular joint naval exercises.

India maintains a base in the Seychelles and has concluded an agreement to build an airstrip and a sophisticated “monitoring station” at a cost of US$45 million.

It has also signed a Bilateral Agreement for Naval Cooperation with Singapore that provides Indian Navy ships temporary deployment facilities and logistics support at Singapore’s Changi naval base, which is near the disputed South China Sea. Indian military strength in Indian Ocean region is formidable.

It seems unlikely that China, even if it wished, and the alleged string of pearls (strategic harbours?) is real, would be rash enough to challenge nuclear-armed India in the Indian Ocean for decades to come. India enjoys overwhelming military superiority in the Indian Ocean and is likely to consolidate this position even further in the future.

Additionally, the U.S. maintains a mammoth base in Diego Garcia to the south of Sri Lanka. The power of the US in the Indian Ocean is simply awe inspiring. It is highly improbable that Chinese policy makers would consider challenging the existing power arrangements in the Indian Ocean any time soon, if ever. They have not done so since Admiral Zheng.

His flotilla entered the Indian Ocean in 1405 and dominated the region till 1433. To over extend to meet a possible challenge from China would only result in expending scarce resources for a scenario that is unlikely to eventuate. The facts on the ground simply do not support the hawkish assertion that China has strategic/military ambitions in the Indian Ocean.

Sri Lanka’s diplomatic comfort level with India has always been considerable. India has been a major source of investments and tourists. The big neighbour must be made to feel the reassurance that the small island to the south will not pose a strategic threat, and will not collude with any other country. It should never become someone else’s large aircraft carrier. 

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