China’s President Xi Jinping arrives next week and unlike the hurried arrangements for the Japanese Prime Minister over the long weekend just past, the Mahinda Rajapaksa Government will spare no pains to make President Xi feel ‘at home’. China’s role in modern Sri Lanka is not without controversy. The secrecy, the swiftness and the economy [...]


How indebted is Sri Lanka to China?


China’s President Xi Jinping arrives next week and unlike the hurried arrangements for the Japanese Prime Minister over the long weekend just past, the Mahinda Rajapaksa Government will spare no pains to make President Xi feel ‘at home’.

China’s role in modern Sri Lanka is not without controversy. The secrecy, the swiftness and the economy with facts and figures in its financial dealings with the Rajapaksa Government fuel conspiracy theories and genuine fears alike, that, to put it mildly, Sri Lanka is in China’s pocket.

The fact remains that China has been a long-standing friend of Sri Lanka. Ancient trade routes to the West via the port of Mannar and the exchange of spices for ceramics date back hundreds of years. Fa-Hien, the Buddhist pilgrim who chronicled his stay on the island told of how when he visited Anuradhapura he saw a Chinese merchant offering a silk fan to a Buddha image. Historians record that in 1411, relations turned sour when the Chinese Emperor sent a General to Lanka to bring the Tooth and Bowl relics of the Buddha but he brought the Royal family instead, only for them to be freed by the Emperor later.

In modern times, the Rubber-Rice Pact of 1952 cemented ties, and relations flourished during the Sirima Bandaranaike-Mao Zedong/Zhou Enlai era. The northern insurgency in Sri Lanka made Sri Lanka rely heavily on Chinese weaponry, especially guns and endless supplies of ammunition, artillery guns, shells, naval craft and fighter jets to squash the rebels when Western nations were reluctant to come forward with help. Credit lines were opened so that we could get supplies from the People’s Liberation Army ‘on tick’.

In return, China extracted two promises; not to recognise the Republic of China (Taiwan), and not to grant the Dalai Lama of Tibet a visa to visit Sri Lanka. Today, an emerging China has set her eyes on Sri Lanka as a geographically strategic location enrolling this country as a ‘Dialogue Partner’ into the Shanghai Cooperation Organisation. The SCO is seen by diplomatic analysts as a counter to the Western military alliance NATO. China has also secured Colombo’s eager support for its ‘Maritime Silk Route’ known to her detractors as China’s ‘String of Pearls’ encompassing ports (which it helped build) in Bangladesh, Sri Lanka, Pakistan and some African nations. The high point of President Xi’s visit will be the signing of a yet-unspecified but a large number of agreements between the two sides, including the China-Sri Lanka Free Trade Agreement on which considerable background work has been done.
The balance of trade has always been strongly in China’s favour. The 2013 Central Bank (CB) Annual Report places China at a poor 18th on the list of countries that Sri Lanka exports goods and services to but it is second on the list of countries (after India) that Sri Lanka imports from. It is hoped the FTA will help bridge the gap, and the Sri Lankan side has assiduously studied the small print of the agreement.

Unlike the FTA, however, where discussions were long drawn out, Sri Lankan officials were taken aback by the volume of deals sprung on them by Chinese authorities in the past few weeks. With President Xi’s arrival nearing, the External Affairs Ministry’s Legal Division is struggling to clear them all. They were not even halfway through this week.
The Chinese response has been to insist that their own Government has approved them. But Sri Lanka expects, surely, a process to be followed before agreements are finalised, leaving room for proper study and last-minute changes.

The Export and Import (Exim) Bank of China has already announced that 21 agreements worth US$ 1.6 billion in loans will be signed during President Xi’s visit. Officials here described this attitude of China as “typical”. With Sri Lanka growing more and more indebted, China is becoming increasingly demanding and far less flexible.

An official who helped evaluate the Norochcholai coal power plant proposal said that even then, the Sri Lankan Government was under considerable Chinese pressure to close the deal. Some engineers had been worried that China Machinery Engineering Corporation (CMEC), the sole bidder, was placing only “half the information on the table”. Despite these reservations, Sri Lanka signed up, under questionable financial circumstances and massive kick-backs, and is paying the price.

Opaqueness is a hallmark of Chinese activities in Sri Lanka. Local private sector firms subcontracting for Chinese companies say they are not told the “full story”. A perennial complaint is that many of these are “unsolicited projects” and the terms and conditions of agreements signed between the two countries are not presented to Parliament. The people are clueless. Both governments seem to operate on the principle that what the people do not know will not hurt them. Either that, or there is too much to hide. The citizenry hears of most projects only through the media, if at all, and that too, after the Cabinet Ministers have rubber-stamped the Cabinet papers, which they dare not query.

There are also questions about who selects and prioritises projects behind those infamous closed doors. For instance, it was suddenly announced that China Communications Construction Co. Ltd had been awarded a multi-billion dollar deal to reclaim land from the sea and build a 233-hectare island off Galle Face Green. Who asked for it?
It is vitally important that there is transparency in these dealings. The country’s gleaming new infrastructure comes at a cost and the public must know what it is. To place things in perspective, Sri Lanka’s outstanding debt to China (in disbursed loans) was nearly Rs. 196 billion at the end of December 2013, the bulk after 2005. A worrying statistic.

The trajectory of future financial dealings is also clear. Sri Lanka will take more debt from China, despite critics warning ever more shrilly about “putting all your eggs in one basket”.
But the million yuan question is this: Had Sri Lanka a choice? Post-war, the country needed massive cash injections to rebuild (or, indeed, build from scratch) its infrastructure. Graduating to a lower middle income country, concessional loans were harder to get. China was “first and fast” with the money.
As traditional donors dragged their feet, an endless stream of Chinese companies turned up on Sri Lanka’s doorstep with deals aplenty. The extent of their contribution is now well known — roads, highways, ports, power stations, railways, airports, oil tanks and a communication tower.
China doesn’t do things small. This matches well with President Rajapaksa’s showy populism. Without China, only a fraction of our modern infrastructure (whatever the cost or quality) would have been in place today. Beijing’s “no questions asked” policy has also suited the Government’s requirements. There is nothing nuanced about China’s political relationship with Sri Lanka — China simply does not care about Western discourses on human, political and civil rights. It is contemptuous of them, much as the Sri Lankan Government is.
The more Western nations and their allies have cornered Sri Lanka on uncomfortable issues, the more the country has gravitated towards China. This is well and good. But Sri Lanka needs to take some control of its relationship with Beijing and show that though straining under the weight of Chinese debt, this country is no pushover.
One of the ways in which to do this is to balance the equation by resurrecting or strengthening ties with other nations, by starting similar cooperation initiatives; by distributing those eggs even among countries that are not first or fast.

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