China power

Thursday, 28 May 2015 00:48 -     - {{hitsCtrl.values.hits}}

DOING business with China has become a global imperative. Despite growth slowing down in the “workshop of the world,” more and more countries are opening themselves to Chinese investment. However, Sri Lanka’s vacillating stance on its relations with the world’s second fastest growing economy could result in missed opportunities.

Just the number of trade deals signed around the world in the last few weeks shows how bullish everyone is on engagement. China has wrapped up at least $88 billion in deals, including agreements signed with jet makers, solar cell manufacturers and film studios, during recent visits by its leaders to Russia and Latin America plus a visit by Indian Prime Minister Narendra Modi to China.

Russia and China signed 32 agreements including a $25 billion deal to boost Chinese lending to Russian firms, rail contracts and an agreement to cooperate on international information security.

Brazilian President Dilma Rousseff signed a series of deals including a $1.1 billion sale of passenger jets made by Embraer to China’s Tianjin Airlines and $10 billion in finance agreements between Petrobras and Chinese banks. The mind boggling list also includes Chile, Peru, Columbia and former President Rajapaksa’s buddy Belarus.

Even India, which has border issues with China, signed 26 business deals worth more than $22 billion in areas ranging from ports to renewable energy to financing. Top Indian companies such as Bharti Airtel secured financing commitments of $2 billion from the China Development Bank and a $500 million credit line from the Industrial and Commercial Bank of China, while the Adani Power Group signed a framework agreement with China’s Golden Concord Group to explore investments in the natural gas industry. Even films are planned between the two countries. 

India, which expressed its displeasure at Sri Lanka obtaining Chinese investment for the Hambantota projects and later the controversial $1.5 billion port city venture, has little hesitation in deepening its economic relations with the country that is arguably its biggest rival in the international arena. In such an environment it is vital for Sri Lanka to reset its relations with China by promoting a strategic and professional partnership.

Corruption is perhaps the biggest hurdle to open relations between the two countries. The clear involvement of former President Mahinda Rajapaksa’s Government in projects mired in corruption allegations makes it a hypersensitive topic.  But the Government has to shake off these issues fast to steer a careful path in making sure projects and future investment does not have negative consequences.  Already China has lent Sri Lanka an estimated $ 5 billion for massive infrastructure projects over the last seven years, making it the main development partner.

With many of the Rajapaksa regime’s projects such as the Mattala Airport failing to earn their keep, the Government is faced with the challenge of tough fiscal consolidation to manage its medium-term debt repayment obligations. But this has to be balanced against, engagement with China that is also crucial for Sri Lanka to expand its exports and grow economically in the long-term.

The Government clearly understands this as it chose to accept a $500 million loan to construct the third phase of the Colombo Outer Circular Highway this month despite a decision to reduce its cost by $181 million. The savings will be funnelled to alternative road projects, the Highways Ministry has decided, to prevent denting relations with China. Sri Lanka has to join the world in doing smart business with China.