The Impact of Chinese Investments in Sri Lanka
Chinese investments in the post conflict period contributed tangibly to Sri Lanka’s impressive economic performance in those years when Sri Lankan economy became one of the most admired in Asia.
“Funds also poured into the Sri Lankan stock market,” said Former Ambassador of Sri Lanka to China, Dr Palitha Kohona.
A number of critical infrastructure projects were launched and completed. The impact of these on the long term economic stability and development of Sri Lanka as a modern state with a dynamic economy would be crucial. Investments in public goods have resulted in long term substantial benefits in many countries.
The highways linking Colombo with the Bandaranaike International Airport and distant Hambantota Port have considerably improved the speed of transportation of people and goods between those cities, not to mention the savings on fuel and the convenience. Today people drive from Colombo to Galle for Sunday lunch. A modern state needs effective and efficient transportation links.
The entry of Sinopec into the petroleum retail business, petroleum refining and bunkering and the Chinese solar and wind power generation companies into the renewable energy market of Sri Lanka will be a game changer.
Of course, criticisms largely based on political convenience and prejudice have sprouted on occasion, mainly in the Western media. The costs of borrowing and the borrowings themselves have come in for negative comment. This cannot be avoided in the fractious democracy that prevails in Sri Lanka and the Western Media which relishes opportunities for pouring scorn on China.
Chinese funding for development projects has come mainly from loans, some of it on concessional terms. The long term sustainability and viability of these developments, especially the CPC and the Hambantota Port, will depend on our ability to generate adequate confidence in the investor community that Sri Lanka is a trustworthy long term partner and encourage them to invest in Sri Lanka. We need to be more proactive in this area considering that investors have other options and competing States are also seeking to woo the same investors.
“We need a multifaceted approach to create a better investor friendly environment which provides assurances of predictability and transparency of our laws and policies, the strength and certainty of our politics, the sympathy of our political and social environment, and the security provided by our investment regime.”
The media has an important role to play in this respect. The legal and regulatory structures governing both the CPC and Hambantota Port are rapidly falling in to place. Once a critical number of major investments are attracted, it is likely that they will be a catalyst for many other investors from around the world to exploit the opportunities that Sri Lanka provides, including our excellent relations with the West and India, our literate and flexible workforce and our welcoming nature.
Sri Lankan Businesses in China
Sri Lankan businesses operating in China can do much better. To begin with, the efforts of the Embassy have generated considerable political goodwill for Sri Lanka in China.
These have been very important enabling factors in facilitating the success of our businesses in China and these need to be exploited more by the business community. Unfortunately, compared with other competing countries, we have not been sufficiently active in leveraging our natural advantages, especially our warm political relationship.
China is considered to be the most lucrative consumer market in the world with the Chinese government actively promoting consumption as a key part of its economic strategy, both of domestically produced and imported goods. Imports of consumables exceed USD 750 billion annually and are growing. The Chinese Government promotes import expos designed to encourage importers of foreign goods to access the domestic market.
These expos create significant opportunities to showcase our products and enable foreign businesses to interact with and develop local business contacts, if necessary, with government assistance.
While some Sri Lankan businesses operate in China, they are by no means a major factor in the marketplace. While branding is considered important in attracting Chinese consumers, our brands have a long way to go. More effort needs to be made by Sri Lankan brands, especially on social media to popularise themselves.
“Our tea exporters have made a significant impact on the Chinese market place. Sri Lankan rubber products and coconut products are beginning to compete well. While Sri Lankan gems are sought after, it is doubtful whether they are making a sufficient contribution to Sri Lanka’s national income.”
While the massive Chinese market can absorb more than what our nascent businesses can supply, there is a disappointing and perceptible reluctance among Sri Lankan businesses to adopt a cooperative approach. They could also benefit from targeted government assistance.
China also applies stringent border controls for products entering the domestic market, including phyto sanitary, labeling and packaging and coding requirements. Many would consider these to be unreasonable barriers. Rich developed countries have opened up the Chinese market for their products through concerted lobbying and even legal action at the WTO. Poor developing countries, with limited diplomatic and legal resources, do not enjoy such luxuries. China itself could assist developing countries which are seeking to access the Chinese market.
While the Sri Lankan Embassy has proactively sought to raise the awareness of Sri Lankan exporters to these challenges, the message is seeping through only slowly. The Embassy has consistently sought to encourage the Chinese authorities to adopt a more sympathetic approach to Sri Lanka.
“It is also important to recognise that Sri Lankan black tea, our gems, especially the blue sapphires, coconut products, some marine products, rubber products and enjoy considerable consumer acceptance and sell very well in China.”
Sri Lankan authorities need to recognise the vast opportunities presented by the Chinese market place and proactively assist exporters to access the almost limitless possibilities available, including by assisting businesses to participate in the export-import fairs, providing training on entry requirements and using every prospect to improve and promote Sri Lankan products. A comprehensive well thought out plan needs to be formulated.
The Chinese consumer is more attuned to social media promotions and on- line buying. The former Ambassador achieved celebrity status in China through his participation in live streaming sessions and celebrity cooking events. There are lessons to be learned from the way countries like Australia, New Zealand, France, Germany, Japan, Indonesia, Thailand and promote their products in China.
In addition to the factors discussed above, there appears to be a reluctance among our business community, in general, to engage with the Chinese business community. This psychology, influenced by a history of dealing with the West, appears to condition our business mindset. In China, like in most of East Asia, building personal relations is essential to develop business relations. (Referred to as guanshi).
Developing of trust and confidence takes time and effort. As one highly respected Australian diplomat once observed, you have to drink copiously and eat prodigiously, at considerable risk to your health before you begin to make an impact in the East. In the East, personal relations play much greater role in nurturing business relations than in the West.
The language is also a critical factor. The Chinese tend to shy away from foreign languages in general, including English. Being familiar with the Chinese language or obtaining professional assistance readily opens many doors.
Many countries which have concluded bilateral free trade agreements with China have done marvelously in accessing the Chinese market. Among them are New Zealand, Australia, the ASEAN countries and even geographically distant countries such as Chile and Cyprus.
The exports of these countries have expanded dramatically in range and value. China is Australia’s largest export destination and biggest source of foreign students despite ongoing political tensions. Australia has an effective bilateral free trade agreement, an investment promotion and protection agreement and a double taxation agreement in place with China.
Chinese Strategic Planning
This assertion needs to be stripped of its polemical outer layer to appreciate its essential shallowness. To begin with, it is mainly raised by commentators from countries which had rapaciously exploited vast swathes of the non white world through conquest and colonialism for centuries and continuing economic domination, conveniently ignoring their ongoing depredations.
China has risen in a very short period to the position of an economic super power and to become the second largest economy in the world. This is causing serious discomfort to those countries in the West which were so used to dominating the world unchallenged.
There could even be racist undertones to the criticisms being directed at China, a poor Asian country formerly dominated and exploited willy nilly by the West and to the reluctance to accept its new status and its own model of development. (One recalls that in the 1980s, a resurgent Japan experienced a similar process of vicious containment).
China, for its part, has not articulated any desire to dominate or influence its economic partners and others or impose its political and economic model on anyone else. On the contrary, it has consistently expressed a desire to achieve a common future and a goal of common prosperity, without domination. To judge Chinese intentions through the prism of the West’s own experience is patently wrong.
Sri Lanka, which desperately needs development funding, has welcomed China’s Belt and Road Initiative (BRI) at the highest levels. It has not sought to exclude anyone else from participating in our development process.
China has already invested around USD one trillion in the countries that joined the BRI and more is forthcoming. Sri Lanka needs to develop fast and investment funding is welcomed from all sources. As a sovereign and independent state, Sri Lanka must be free to select its own development partners and its own development model and in the process, it has not sought to exclude anyone nor posed a threat to anyone, directly or indirectly. Sri Lanka has welcomed all friendly countries to participate in its development process.
It is wrong to characterise Sri Lanka’s approach to development as a balancing act. It is not, Sri Lanka must work with all countries to achieve its own development objectives which should not be held hostage to the unfounded concerns of any other party.
The Environmental Impact of the BRI
It is inevitable that any interference with the natural environment in the process of development will have wider environmental implications. This has been the case throughout human history. For example, when our kings built massive reservoirs in the dry zone of the country to promote agriculture two thousand years ago, there were inevitable impacts on the natural environment. Even today these reservoirs are being used to provide massive quantities of water for agriculture.
Thousands continue to benefit from them. The important thing is to strike a balance between the possible damage to the environment and the common good. Highways and ports will have significant medium and long term economic benefits.
The common good is more likely to be served by these infrastructure projects and the country’s economic development is better facilitated. Investments in advancing the common good have always attracted negative attention from certain economists and their followers.
China’s Belt and Road Initiative came in for early criticism for the lack of sensitivity to environmental, social, labour, minority and other concerns. This is nothing new in financing development projects. Even the World Bank came in for similar adverse comments in its early development efforts, but learned its lessons over time.
For example, its dam building and hydro power projects were the subject of serious criticism once. China has quickly responded to such concerns and now actively seeks to comply with global standards. For example, China will not fund coal powered power generation in the future.
For a country that has achieved amazing success with greening the countryside, planting millions of trees and reclaiming hundreds of thousands of hectares of desert and converting them into lush forests and agricultural land, China is a model for other countries. I have witnessed firsthand the success achieved in Ningxia, where extensive grape orchards flourish now where only scorching dessert sands existed previously.
China launches GDI
China has also launched its Global Development Initiative (GDI) which will complement the UN SDGs which seek to improve the lives of all people. One recalls with dismay that as we pass the halfway mark of our SDG target year of 2030, only 12% of the goals have been realised.
Together, the BRI and the GDI are likely to meet most of the concerns expressed and also result in considerable economic benefit to the countries concerned. Humanity will benefit in the long run.
Sri Lanka has its own environmental standards with which investors and developers, including those from China, must comply. Its labour standards, especially those relating to women and children, are some of the most elaborate in the developing world. In fact the detailed nature of Lanka’s environmental and labour compliance requirements has at times irked foreign investors.
Chinese funded projects, like other foreign funded projects in Sri Lanka which have been selected with care and implemented consistent with our standards and requirements will benefit our people in the short, medium and long term.
“Sri Lanka’s own standards, environmental, labour and social, have been praised by international agencies such as the ILO and UNEP. In fact Sri Lanka markets its garment exports to the EU and the USA under the slogan, ‘Garments Without Guilt’.
Bilateral Trade and Investments
Naturally, there are continuing discussions between China and Sri Lanka to enhance bilateral trade and investments. The declaration of bankruptcy by Sri Lanka in 2022 has caused a sense of uncertainty in Chinese corporations and financial institutions and we will need to work hard to restore our credibility. While China is the biggest importer of consumer goods in the world it is also the premier source of FDI in the globe. Over USD 148 billion flowed out of China in FDI in 2022.
The Chinese government continues to advocate for an open global trading system and further globalisation. China’s BRI is expected to result in the flow of between USD 4-8 trillion from China to the wider region and beyond and usher in a future of common prosperity. Sri Lanka, as a long standing friend of China, must position itself to benefit from the reality that China is. Our distinct priority must be our own interest.
The protection and security provided by the bilateral investment promotion and protection agreement and the double taxation agreement should provide reassurance to prospective investors not to mention our mature legal system of which Sri Lanka is rightly proud.
We need to talk up these positives to reassure our business partners. The legal framework governing the Colombo Port City is designed to provide prospective investors with predictability and reassurance. However more needs to be done at policy level to highlight what we have to offer.
Sri Lanka and the One China Policy
Sri Lanka has consistently adopted the view that Taiwan is part of China. The One China Policy has never been diluted by us. Interestingly, at one time, even the authorities in Taiwan took the view that they were the legitimate rulers of the whole of China.
Just that theirs was a dream while the reality was that Beijing held sway over all of China except Taiwan which owes its continued separate existence to the military and political support provided by the USA. Sri Lanka is also acutely conscious that China has consistently supported, both politically and materially, the territorial integrity and sovereignty of Sri Lanka.
As the Sri Lanka Permanent Representative to the United Nations, I was in constant touch with the Chinese Ambassador. As elsewhere in Asia, we remember the good done by our friends with feelings of warmth and gratitude.
While Sri Lanka as a committed member of the Non Aligned Movement, along with the overwhelming majority of its membership, unconditionally supported the NAM’s position on One China, it is also a fact that it is only a rapidly diminishing group of countries that continues to recognise Taiwan. For Sri Lanka, it was also a moral position to pursue.
Furthermore, to us, it was unacceptable that the government of China which represented a significant portion of humanity should not be accorded its due position in international fora. Sri Lanka, which played a leading role in the NAM at the time, continued to advocate the restoration of its seat at the UN to the People’s Republic of China. It was a satisfying victory for the NAM when China restored its rights at the UN in 1971.
Although Taiwan commanded the economic heights of Asia for some time, even being recognised as an Asian Tiger by the OECD, today it is only a shadow when compared to China. China has also become the major trading partner of the majority of the countries of the world, sucking up their exports to satisfy the almost insatiable appetite for consumables of its citizens and for raw materials for its industry.
It is only natural that China, like any other country in a similar situation, would expect to maintain reciprocal friendly relations with its partners.