Dealing with two Asian superpowers:

President Sirisenas visit to China

by Sam Samarasinghe - on 03/25/2015

Sri Lanka stands to benefit enormously

by dealing positively with the two Asian super powers, India and China. The
two countries are potential rivals. The two Asian whales may not fight but a
small fish can get crushed when whales dance. Sri Lanka has to be mindful
of that when dealing with the two countries.
President Maithripala Sirisena will be in China this week on an official visit
to hold bilateral talks with Chinese leaders and attend the Boao Forum for
Asia (BFA) Annual Conference. The single major bilateral issue of immediate
concern for the President is the Colombo Port City Project.
BFA Conference
BFA was established in 2001 under Chinese leadership as a nongovernmental and non-profit organization to facilitate Asian poltical,
business, academic and civil society leaders to meet and discuss common
problems and challenges that the region and the world face. It is Chinas

answer to the better-known annual meeting in Devos, Switzerland that

western powers dominate. Boao is a town in South China that is about
2,800 km south of Beijing. The secretariat of BFA is located there. The late
Mr. Kingsley T Wickramaratna, Minister of Trade in the Chandrika
Kumaratunga administration, participated in the first conference as a
founder-member of the BFA.
China, the permanent host country, hopes that the annual meeting would
develop solidarity and cooperation among Asian countries and promote
economic integration in the (Asian) region (and) help accelerate the
building of the Silk Road Economic Belt and the 21st Century Maritime Silk
Road to increase communication and cooperation between Asia and the
rest of the world. China has been very open about its intention to push for
the Asian Silk Road and the Maritime Silk Road. China considers the
development of the Hambantota Port as a part of the Maritime Silk Road.
The controversial $1.5b Colombo Port City Project also is viewed as a
further step in the same direction.
This years BFA conference theme will be Asias New Future: Towards a
Community of Common Destiny. The Chinese President Xi Jinping will
deliver the keynote speech.
Some Asian, African and European leaders including the president of
Indonesia Joko Widodo and the Malaysian Prime Minister Najib Razak are
expected to attend conference this week. For Sri Lanka what is more
important is the context in which Mr. Sirisena is making his first visit to
China as President and, given the strong links that Beijing developed with
Colombo during the Rajapaksa administration, how he would handle Sri
Lanka-China bilateral relations.
Economic Relations
Chinas trade relations with Sri Lanka are lop-sided. In 2013 Sri Lanka
exported a total of $131m worth of goods 1.3% of Sri Lankas total
exports to China. In the same year China was only second to India as a

source of our imports, accounting for $2,953m (16.4%). India accounted for
$3,171 (17.6%). A significant share of imports from China was capital goods
financed with Chinese loans.
During the Rajapaksa administration China became the principal funder for
Sri Lankas infrastructure projects, mostly through loans. In 2013 Chinese
project loans net of repayments totaled Rs 59.5b or about 85% of all project
loans (net) that the government received from foreign sources. Given Sri
Lankas need for infrastructure development, the country will need
significant resources in the future as well.
New Asian Bank
In addition to bilateral assistance from China, Sri Lanka is likely to rely on
the Asian Infrastructure Investment Bank (AIIB) that is to be set up in the
course of the next twelve months. AIIB is a Chinese initiative announced in
2013 that will have around $50b or more as starting capital. In 2014 Sri
Lanka signed on as a founding member. All the SAARC countries with the
exception of Afghanistan and Bhutan have already agreed to join the Bank.
China, in keeping with its status as a growing major global economic power,
has been keen to play a greater role in existing global multilateral financial
institutions such as the IMF and the World Bank. However, USA has been
reluctant to let that happen. AIIB is one way that China is answering back
Americas intransigence.
USA has lobbied hard to persuade western countries not to join AIIB on the
grounds that the latter would not maintain what it believes are the high
standards in respect of good governance and environment. It also asserts
that the World Bank (WB) and the Asian Development Bank (ADB) can meet
the funding needs of Asia and, if needed, should be provided with additional
resources. For a while Americas western allies went along with the
American stand. But this month, UK, Germany, France, and Italy, broke
ranks and signed on as founder members of AIIB, a significant set back for
USA. Japan that has its own geo-poltical issues with China is unlikely to join.

It may even provide additional funds to the ADB that is headed by a

Japanese national to reduce the impact of its new competitor. However,
both Australia and South Korea may reconsider their position and join.
Many believe that USA is shortsighted not to join the new bank. AIIB is
certain to play a major role in Asia. The ADB in a report prepared in 2010
estimated that over the period 2010-20 Asia would require $8,000b. about
$800 million per year for investment in infrastructure. The ADB that had a
total capital of $164b in 2013, provided $21b for projects in that year. The
new AIIB will have plenty of opportunity to lend to countries such as Sri
Lanka that are short of capital.
Colombo Port City
The Immediate issue with China that we have to handle with diplomatic
finesse is the Colombo Port City Project. There are environmental, economic
and diplomatic dimensions to it. We do not wish to comment on the
environmental issue. On the economic side, for several reasons, the case
for going ahead with project is weak. First, Colombos existing physical
infrastructure to provide utilities such as water, sewerage and electricity for
a large satellite city is simply not adequate. Second, Colombo city is not
short of land per se. Much of the available land is grossly underutilized.
What is required is better planning in the use of existing land together with
parallel infrastructure development. Third, an isolated luxury satellite city
makes very little economic or social sense when there is a crying need to
improve the living conditions of Colombos lower income citizens that
require improved facilities from housing to community amenities to schools.
Fourth, a vast gap in income and living standards exists between Colombos
rich minority of about 10% of the population and the rest of the Colombo
community and, for that matter, the rest of Sri Lanka. The Port City that will
widen that gap is not helpful for equity and social stability in a democracy.
Fifth, the districts outside Colombo, perhaps with the exception of
Hambantota, are starved of investment. Spending more on Colombo city is

not a priority in an equitable development strategy.

The Rajapaksa administration appears to have signed the Port City deal in
an opaque manner. There was no transparency, parliamentary consultation
and public debate when the stakes are so high. The deal as signed allows
China to literally own a part of the country in one of the most strategic
locations on the Indian Ocean. This raises an important issue about national
sovereignty. China has one aircraft career in operation and a second is
under construction. A part of Colombo Port city under permanent ownership
can be a valuable asset for Chinas ambition to become a global naval
power. Delhi is likely to view this matter with some concern.
President Sirisena will have to use all his diplomatic skills to resolve this
issue in the national interest. Mid-level Chinese officials have made several
statements in the last few weeks insisting that Sri Lanka must honour the
written agreements and contracts and go ahead with the project. In theory
this sounds very reasonable. But there is a small tip that Mr. Sirisena could
take from Singapores Lee Kuan Yew who died this week. In 1994 Mr. Yew,
who was a great friend of China while being a strong ally of USA, signed an
agreement for $3.0b with China to open an Industrial Park in the city of
Suzhou to showcase Singapores industrial prowess. The Chinese did not
keep their part of the deal. Many years later in a reference to this failed
project Mr. Yew is said to have remarked, The Chinese have not accepted
that when you sign an agreement, it is final.
Sri Lanka has good precedence to follow!
Posted by Thavam