China FTA should be handled with care: Expert

Friday, 30 August 2013 03:03 - - {{hitsCtrl.values.hits}}

Manufacturers could land in hot water
Technology transfer low in China-funded projects
$ 4.8 b given in loans since 2005

By Uditha Jayasinghe A Free Trade Agreement (FTA) between Sri Lanka and China, which is in the pipeline, will be a massive disadvantage to local manufacturers, a top local economist warned yesterday. Institute of Policy Studies (IPS) Executive Director Dr. Saman Kelegama told a gathering of businessmen at the Sri Lanka-Italy Business Council organised by the Ceylon Chamber of Commerce that while Sri Lanka’s exports would benefit from access to China’s emerging middle classes, imports would decimate the fledgling local manufacturers. Referring to a statement made by Finance Ministry Dr. P.B. Jayasundera recently that the Sri Lankan Government is in talks to formulate at FTA with China Dr. Kelegama called for a strong negative list to protect local manufacturers.

“Chinese imports are far more competitive and would decimate the local manufacturing market. Companies that are now engaged in import substitution products, even those as basic as pens and knickknacks, would find themselves in extremely difficult times. Even India, which as a much stronger manufacturing base than Sri Lanka, has found their toy industry all but destroyed by Chinese imports,” he cautioned. Unless special provisions are incorporated into the FTA to provide significant protection Sri Lanka’s local businesses would face strong negative impacts. Dr. Kelegama also pointed out that since 2005 the Chinese Government has given Colombo US$ 4.8 billion in loans for massive infrastructure projects including harbours, airports and highways. The interest costs of these loans, which are mostly given by the Chinese Exim Bank and China Development Bank, have high levels of interest and a relatively short payback period of 15-20 years that makes them a significant challenge to the Sri Lankan economy. In addition, the Chinese labour component has also been correspondingly high with 26,000 Chinese being given work visa since 2005. “Such a high number of people mean that there is little technology transfer taking place. The detriment of this was seen when the Chinese-funded coal power plant in Norochcholai broke down and none of the local engineers could fix it.” This weakness of technology transfer impinges the Sri Lankan economy, Dr. Kelegama insisted, pointing out that similar cooperation projects with India have shown knowledge flow to be over 75%. “In 1983 India’s Ashok Leyland began a joint operation in Sri Lanka, as a result we have Lanka Ashok Leyland, Kelani Ceat was developed with the Indian Ceat tyre company and we will see no such inflows of technology from the current projects with China.” Moreover, he observed that while Sri Lankans would protest losing jobs to Indians, no public outcry is made when the same thing happens with the Chinese. In terms of Foreign Direct Investment (FDI), China’s foray into Sri Lanka has been negligible, posting only US$ 11.25 million. With the contribution of FDI from Hong Kong this number jumps to US$ 149.25. China is Sri Lanka’s second largest trading partner after India but within the last dozen years it grew from 0.1% to only 1.2%, which Dr. Kelegama highlighted as a sphere that could be improved on. Once trade with Hong Kong is added the numbers become rosier increasing from 1.3% in 2000 to 2.3% in 2012. In contrast India’s trade with Sri Lanka tops US$ 6 billion and the FTA between the two nationals has existed for over a decade. He also stressed that geopolitical concerns need to be balanced with India in relation to China’s ‘String of Pearls’ strategy.