China banks on Sri Lanka peace dividend

China is showing every sign of making itself at home at the new deep-water port and the island more widely.

It is now banking on sharing with him [President Rajapaksa] the benefits of victory over separatism, states The Times of UK in a report published on 23 November.

Chinese banks are enthusiastic buyers of Sri Lankan government bonds — the last sale was more than 13 times oversubscribed — as they too take positions that Rajapaksa’s rhetoric about a peace dividend will prosper into reality, the report adds.

‘Both the Intercontinental and Four Seasons companies were set to make significant investments in the island’s presently under-developed tourism industry. While the target of expanding its current room-stock five-fold is almost certainly not achievable, it seems clear that there are huge opportunities’.

Following is the full text:

The special envoy to President Hu of China could hardly have laid it on any more thickly than if he were deploying a trowel. “Sri Lanka,” Sang Guowei declared at the ceremonial opening of the Hambantota port in the south of the island built and funded by the Chinese, “Is the shining pearl of the Indian Ocean.

“Hambantota Port is the new symbol of friendship between China and Sri Lanka. This project has received strong commitment and personal attention from the leaders of the two countries”.

While Europe still worries about human rights and democracy and India remains ambivalent, China is showing every sign of making itself at home at the new deep-water port and the island more widely. It helped to fund Mahinda Rajapaska’s military drive against the Tamil separatists last year and is now banking on sharing with him the benefits of that victory.

The port is only one of the projects where Chinese soft loans and engineers are hard at work. There is the road network, including the vital new route up to Jaffna, which will be a showpiece of Rajapaksa’s claim to be developing the Tamil-dominated North.

Then there is a long-delayed coal power station finally getting under way with Chinese help. There is even talk — although it really is only just talk at this stage — of a civil nuclear programme.

Chinese banks are enthusiastic buyers of Sri Lankan government bonds — the last sale was more than 13 times oversubscribed — as they too take positions that Rajapaksa’s rhetoric about a peace dividend will prosper into reality.

But if Sang appeared almost an over-ardent suitor that is because there are signs that some in the Sri Lankan Government are beginning to worry that the regime needs more than just Chinese cash if it is to meet its pledge to double per capita income.

In an interview with The Times, Ajith Cabraal, the Governor of the Central Bank of Sri Lanka, was less than enthusiastic about China’s proposal that it takes an equity stake in the port.

He suggested that Beijing — which has identified control of ports as a key strategic concern — will have to pay a hefty premium if it wants a stake in Hambantota, which should dramatically cut refuelling times for shipping using one of the main Indian Ocean lanes which passes only a 10 nautical miles south when it becomes operational in 2018.

He also insisted the higher visibility of Chinese-led projects like the port had led the world to underestimate the scale of investment from other countries, particularly the US.

A number of the world’s major hotel chains are sniffing around for opportunities, he said. Both the Intercontinental and Four Seasons companies were set to make significant investments in the island’s presently under-developed tourism industry.

While the target of expanding its current room-stock five-fold is almost certainly not achievable, it seems clear that there are huge opportunities. Much of the growth in Sri Lanka’s tourist sector came from India as its holidaying elite supplement the traditional European market.

There is even a proposal from Seafish UK to provide boats and crews from Britain’s declining fleet to help Sri Lanka, which has some of the world’s best tuna, to properly exploit its stocks, although that opportunity might be lost to Thailand, he suggested.

Sri Lanka’s budget on Monday will have pleased the International Monetary Fund in as far as it made foreign investment easier, reformed a complex and widely evaded tax system and loosened currency controls. Senior figures in the IMF say it is broadly happy with the steps Sri Lanka is taking to start to repair public finances ravaged by 30 years of civil war.

A growth rate of between 7 and 8 per cent this year looks like lending the claims of a peace dividend a little more credibility. But while the IMF may not be concerned about an inflation rate of around 6 per cent, ordinary Sri Lankans complain bitterly about the rising cost of living.

Rajapaksa won a second six-year term on the back of his success in ending the conflict. China has helped his Government to produce some obvious signs of development. Winning the peace may need more friends.