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Sri Lanka seeks investment, but China

questions linger

Author Arthur Sullivan-Date 26.09.2018

A decade after the Sri Lankan Civil War, the country’s economy is growing
fast. The government has big plans, but high debt levels — and high levels of
Chinese influence — cast a cloud as the country seeks investors.

You don't need to be an expert on international trade routes to look at a map
and understand that Sri Lanka's location is one of potentially serious
economic advantage.
The island nation — population 22 million — sits at the southern tip of India,
almost as close to the Middle East and the Horn of Africa as it is to South East
The value of this location has not been lost on its northern neighbor
China. Under Xi Jinping's so-called 'Belt and Road Initiative,' the Chinese
government has pumped billions into Sri Lanka in the form of both foreign
investment and loans in recent years.
This reliance on Chinese money is part of a long-standing Sri Lankan
problem. With a major trade deficit, as well as crippling levels of debt, the
country needs foreign money. China has rushed to fill the gap more
enthusiastically than anyone else.
The current Sri Lankan government came to power in 2015, when it replaced
former President Mahinda Rajapaksa's administration. His government had
been unabashedly eager to seek Chinese money, regardless of the costs, and it
left the incoming government with a major web of deals — and debt — to

The need to diversify Sri Lanka's export base, and indeed to woo other
sources of foreign investment, has been a clear platform of the current
government's strategy.
It's part of the reason why a high-powered business and government
delegation, led by the country's minister of development strategies and
international trade, Malik Samarawickrama, has been visiting Germany this
Expanding exports, attracting investment
"We have just launched a national export strategy in Sri Lanka," Indira
Malwatte, chairperson of the Sri Lanka Export Development Board, told DW
during her visit to Berlin.
"We have identified electronic and electrical components, food processing,
ship building and information and communications technology as areas where
we could attract German companies to come and invest in the country."
Close to 50 percent of Sri Lankan exports are from the clothes and textiles
sector, while tea alone accounts for 10 percent. The need to expand and
diversify that base is clear.
As well as expanding its export base, the Sri Lankan economic strategy also
includes cultivating a reputation as a regional hub for start-ups in the IT
Sri Lankan President Maithripala Sirisena with German Chancellor Angela
Sameera Nilupul, the fresh-faced founder of a human digitalization and
computer graphics company in the capital Colombo, told DW that since he
founded the company in 2015 with two other people, it has grown to have a
staff of 32 and is thriving. He says that the Colombo start-up environment has
blossomed rapidly over the last few years and that the potential for further
expansion and innovation is obvious.
Sri Lanka's contentious port projects
But it is impossible to avoid the China questions. The signature selling point
on this trade mission is "Port City," an ambitious project which seeks to
reclaim 269 hectares of land from a section of Colombo's port and turn it into
a special financial zone and international financial center.
"A financial hub where south Asians could come and experience a standard of
living and services that they cannot experience anywhere else in the region at
the moment," Liang Thow Ming, chief sales and marketing officer for the
project, told DW.
Given that the land reclamation stage is not yet completed, and that the
official plans say Port City may not be fully operational for at least 25 years,
the project is in its extremely early days.
Read more: Violence breaks out in Sri Lanka as villagers protest China
investment deal
Yet whether these ambitious plans say more about China's intentions or Sri
Lanka's is an important question. The project is powered by Chinese money
and is being driven by the China Harbor Engineering Company, a subsidiary
of the massive state-owned China Communications Construction Company.
China's level of involvement in Sri Lanka's business strategy has led to
accusations that it has wider motives, particularly in the context of its
continuing involvement in several territorial disputes in the South China Sea.

The Hambantota port (pictured) project has attracted extensive criticism
"I think we understand those concerns," Liang, a native of Singapore, told
DW. "Whether we endorse those concerns is a separate issue altogether. What
we have, in real estate terms, is a willing seller, willing buyer situation.
"You have a country, Sri Lanka, which is in need of investments. They can't
find investments anywhere else. They try to get investments from China, and
China, coincidentally, is looking to invest. Therefore, there is a match."
Yet while the Port City project has attracted plenty of criticism, it pales in
comparison to that which another Chinese-backed scheme has attracted: that
of the Hambantota port, on Sri Lanka's southern coastline.
Pursued by the Rajapaksa government and backed by vast sums of Chinese
money from the start, the port has so far proven not to be economically
successful, with critics saying this is because the area is far too
underpopulated and has inadequate industry and infrastructure to sustain an
international port.
The criticism has intensified since China took ownership of the port as a result
of the fact that Sri Lanka could not service its debt on it.
International trade minister optimistic about Hambantota's future
A recent article in The New York Times laid out in extensive detail how the
acquisition of the port unfolded, as well as highlighting concerns that China's
intentions went beyond mere economics.
Malik Samarawickrama, the Sri Lankan International Trade Minister, told
DW in Berlin that the accusations in the article were "baseless and unfair"
and said that the new government had developed a new plan to make the port
Read more: Sieren's China: Beijing steers steady course with overseas
"Earlier there was no plan," Samarawickrama said. "They [the previous
government] built it and were just waiting for things to happen. But now we
have set up a business plan and we are sure that in four or five years' time, we
can achieve it. We want to develop that port. We believe that Hambantota is
in the right place."

Watch video01:14
One Belt One Road financing: blessing and a curse?
Liang fully agrees, and says that the port has "huge potential." He sees the
planned completion of a new highway between Colombo and Hambantota,
expected to be finished by October 2019, as a key "success factor" for the
future viability of the port.
According to Samarawickrama, not just in his political role but also as a Sri
Lankan citizen, he has no concerns about China's wider role in his country at
"I don't think that that we need to worry too much," he told DW. "Our
relations with China are based on purely commercial viabilities and we
believe that will continue to be the case and that we will not have any political
pressure as such."
He says his government's focus has been on economic matters, and on those,
they remain optimistic.
"I think we are ready, the economy has stabilized and now we are looking at
bringing in investment and increasing our exports.
"We believe that is the only way to go forward — to move from a debt-filled,
inward-looking economy to a private sector-led, auto-oriented economy. We
have laid the foundations. The results won't be seen in the next couple of
months but the foundations have been laid so in the next five or six years, we
will get the result that we need."

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