From left: Sri Lanka China Business Council President Navindra Abeysekera, Board of Investment Chairman Upul Jayasuriya, International Trade State Minister Sujeewa Senasinghe, China Council for Promotion of International Trade Chairman Jiang Zengwei, Ceylon Chamber of Commerce Chairman Samantha Ranatunga and Chinese Ambassador Yi Xianliang

By Devin Jayasundera

Chinese Ambassador Yi Xianliang recently revealed that Sri Lanka’s current legal framework is not sufficiently conducive to attracting investment from China, especially for its mega-infrastructure projects. 

In light of the resolved port-city fiasco and the pending free trade agreement (FTA), the ambassador opined that the current laws and regulations in regard to customs, land, taxation and labour are not investor friendly and should be reformed to certify the requirements for large scale investments. 

It is being pointed out that China’s dissatisfaction with the current legal framework is tied with government’s decision to repudiate tax holidays which was implemented under the pressure of the International Monetary Fund. This has also drastically reduced the amount of applications coming in to the Board of Investment (BOI). Countries like India and Pakistan who have much more favourable tax incentive schemes for foreign investors would divert potential investment away Sri Lanka, warn industry sources. 

Xianliang was appointed as the Ambassador of China to Sri Lanka in early 2015 and has been aggressively pursuing and facilitating China’s investment thrust in the country. “In the discussion with the Prime Minister and government officials we try to understand what kinds of projects are suitable for Chinese investments and what supporting policies the Sri Lankan government could provide. This is my 10th round of discussions with the prime minister focusing on this topic” he said.

 In reference to the potential benefit from the mega-infrastructure projects China has invested in, Xianliang said “If the projects progress smoothly in the next 3 to 5 years, I think it will bring a return of $5 billion to the country”.

If the FTA succeeds Sri Lanka’s key exports to China -apparel, tea and tropical fruits- would also have the possibility of gaining zero taxation for the respective products, assured Xianliang.

China is Sri Lanka’s second biggest trading partner contributing almost 16% of the total imports to the country. In the period of January to July in 2016 Chinese investment to Sri Lanka rocketed up to 130% compared to same period last year according to the China Council for the promotion of international trade.

Three rounds of discussion of the FTA have already completed and the fourth is to be conducted in Beijing.”I have suggested the Chinese working team to somehow conclude this FTA within this year” said Xianliang.

Sri Lankan manufacturers fear that the horde of FTA’s that are set to be finalised in the next few months will lead to a possible extinction of some local industries. As the country is inadequately armed to combat cheap import substitutes due to a lack of a proper anti-dumping framework the concern is warranted. “The anti-dumping bill will definitely be passed before the signing of FTAs” Ceylon Chamber of Commerce Chairman Samantha Ranatunga told Daily FT.

He noted that the anti-dumping bill will not deter the enthusiasm of foreign investors but would help to draw quality investments. “It will attract the right type of investments and not the wrong type. When we align ourselves with global legislation it makes us also a ‘good boy in the class’. They will perceive our governance structures in accordance with the world standard and as a result the better quality players come to us”. Ranatunga cautioned that Sri Lanka should be extra-selective in allowing investments to avoid a negative effect on local industries.

 “Sri Lanka must open its borders for international trade. It is the only way forward” stated International Trade state minister Sujeewa Senasinghe. With Sri Lanka reaching middle income status banking on concessions for low cost advantage may wane in the future. “Sri Lanka is no more a poor country and we don’t get many concessions from the international community. By March next year the GSP plus will also be gained. But with the development that we are creating in the country we might lose it in the next five years”.

Sri Lanka’s ease of doing business drastically dropped by 22 notches from being ranked 85th in 2013 to 107th in 2015. Senasinghe assured that in the next three to four years the country will boost up its ranking to be among the top 50 countries. He also reflected that by establishing companies in Sri Lanka, Chinese manufacturers will be at a particular advantage to export their products to the highly populated nations of the South Asian region.

The coalition government’s early stance on the port city project backfired as Chinese investments slumped from $400 million in 2014 to $250 million in 2015 which also was a devastating blow on the country foreign reserves. BOI Chairman Upul Jayasuriya defended the governments’ actions in the temporary halting of the project. “With the new government coming in we had to put the house in order. The port city is back on track” he said. 

 “The stage is set and the drama will begin” said Jayasuriya assuring the emerging state of normalcy of Chinese investments after lifting the hold on the Colombo Port city. 

Sri Lankan traders laments stringent visa mechanism to China

Sri Lankan exporters and importers are facing an iron wrath when it comes to obtaining a visa to travel to China. The usual multiple entry visas which were given for one year, two year or five years were changed under strange circumstances to a single entry visa from March 2016 onwards, Daily FT learns. 

“They have made it extremely difficult for us” says Sri Lanka China Business Council President Navindra Abeysekera. Under the new criteria Sri Lankan businesses cannot directly apply for a visa from the Chinese embassy. Instead the business partner from China should apply on behalf of the Sri Lankan company to get the authorisation from the Chinese government. This new additional process is said to take two to three weeks. Only after obtaining the approval from the Chinese government can Sri Lankan companies request the visa from the Chinese embassy. It is estimated to take around one month to complete the entire process.

The most disadvantaged party because of this bureaucratic bungle are the Sri Lankan companies who are interested in doing business with China for the first time. This has lead to a vicious cycle according to Abeysekera. “Lots of Sri Lankan small time companies would previously visit various exhibitions because then only you can find a Chinese business partner. Now you cannot visit Chinese exhibitions because you don’t have a partner to get the government authorisation thus you cannot request a visa”

Even well established companies are given a hard time from the Chinese government to obtain a visa. “Some of our other members have imported machinery from China amounting to a couple of million dollars. But even for those companies only a single entry visa is given”.

The Sri Lanka China Business Council has raised this issue with the commercial council of the Chinese embassy but it was revealed that the commercial section has no power to exert pressure on the visa section of the embassy to implement a more lenient process. 

“What is the use of having a free trade agreement and getting Chinese delegation’s visit Sri Lanka if our companies are not able to visit them or visit their exhibitions, see their factories and import their products or machinery?” questioned Abeysekera. 

Non-tariff barriers are also an important part of the equation in liberalising trade and are intrinsically tied up with the effectiveness of FTAs. ”The moment you sign a free trade agreement you cannot start a business that day itself .They must visit factories, find out details, import samples, and check their quality. This process takes around six months and only then can you start doing business with the company” said Abeysekera.