By Shihar Aneez | COLOMBO Wed Feb 15, 2017 | 6:10pm EST
China will delay a planned $1.1 billion investment in a port on its modern-day “Silk Road” until Sri Lanka clears legal and political obstacles to a related project, sources familiar with the talks said, piling more pressure on the island nation.
Heavily indebted Sri Lanka needs the money, but payment for China’s interests in Hambantota port could be delayed by several weeks or months, the sources added.
After signing an agreement last December, state-run China Merchants Port Holdings had been expected to buy an 80 percent stake in the southern port before an initial target date of Jan. 7.
Beijing also has a separate understanding with Colombo to develop a 15,000-acre industrial zone in the same area, a deal that Sri Lanka was hoping to finalize later.
But Colombo’s plans to sell the stake and acquire land for the industrial zone have run into stiff domestic opposition, backed by trade unions and former President Mahinda Rajapaksa.
A legislator close to Rajapaksa is also challenging the government’s plans in court.
Now Beijing has linked the signing of the port deal with an agreement to develop the industrial zone, saying it would hold off on both until Colombo resolved domestic issues, officials on both sides of the talks said.
“China has said that when they start the port, they want the land also,” Sri Lankan Finance Minister Ravi Karunanayake said, although he added that China had not made it a precondition.
Yi Xianliang, Chinese ambassador to Sri Lanka, said the two deals were related.
“If we just have the port and no industrial zone, what is the use of the port? So you must have the port and you must have the industrial zone,” he said.
A source familiar with China’s thinking said it may wait until May, when Sri Lankan Prime Minister Ranil Wickremesinghe visits Beijing, to sign both deals.
The Chinese foreign ministry did not respond to a request for comment.
The previously unreported setback for Sri Lanka suggests Beijing is digging in its heels as it negotiates its global “One Belt, One Road” initiative to open up new land and sea routes for Chinese goods.
SPEED BUMPS, MOUNTING DEBTS
President Maithripala Sirisena is struggling to contain popular opposition to land acquisition for the huge Chinese industrial zone, including from Rajapaksa, who remains an influential opposition legislator.
The deal for the port development and industrial zone has also been challenged in court, which means it is stuck at least until the next hearing on March 3.
Asked whether the agreement would be delayed until the court had ruled, Yi, the Chinese ambassador, said: “Oh yes. We will follow the rule of law. We have the patience to wait.”
Rajapaksa’s role, the court case and violent protests by people afraid they could be evicted from their land underlined how Beijing does not always get its own way even in countries that badly need investment. Sri Lanka wants Chinese money to help alleviate its debt burden; the government had expected to have the proceeds from the stake sale within six months of signing the agreement before Jan. 7.
Sri Lanka has been under pressure from the International Monetary Fund to cut its deficit, shore up foreign exchange reserves and increase tax revenues as part of a $1.5 billion loan agreement struck in 2016. At least part of the money from the port deal would have gone toward paying down some of the more expensive loans on the government’s books, some of which are from China, a senior Sri Lankan government official said.
Hambantota port and a nearby airport were built from 2008 by the Rajapaksa government with the help of $1.7 billion in Chinese loans.
When Sirisena unseated Rajapaksa in an upset victory in 2015, he froze all Chinese investments, alleging unfair dealings by his predecessor.
Sirisena eventually negotiated a new deal with the Chinese government that involved the stake sale and further plans for the Chinese to develop an industrial zone.
The Chinese government expects to invest about $5 billion to develop the area within 3-5 years. Sirisena also agreed to give land to the Chinese on a 99-year lease. The terms did not go down well with port trade unions, which have asked the government to reduce the Chinese stake to 65 percent and lease period to 50 years.
Hundreds of protesters clashed with police in January when a demonstration against the planned industrial zone turned violent.
(Additional reporting by Ranga Sirilal; Editing by Mike Collett-White and Paritosh Bansal)
Source: Reuters “Exclusive: China ‘Silk Road’ project in Sri Lanka delayed as Beijing toughens stance”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
By Shihar Aneez | HAMBANTOTA, Sri Lanka Thu Feb 2, 2017 | 5:06am EST
China signed a deal with Sri Lanka late last year to further develop the strategic port of Hambantota and build a huge industrial zone nearby, a key part of Beijing’s ambitions to create a modern-day “Silk Road” across Asia.
The agreement was welcome relief for the island nation of 20 million people. As they try to reduce the country’s debts, officials in Colombo see China’s plans to include Sri Lanka on its “One Belt, One Road” initiative as an economic lifeline.
China has spent almost $2 billion so far on Hambantota and a new airport and wants to spend much more.
But Beijing now faces a new and unpredictable challenge to its presence in Sri Lanka and broader Silk Road project.
Hundreds of Sri Lankans clashed with police at the opening last month of the industrial zone in the south, saying they would not be moved from their land. It was the first time opposition to Chinese investments in Sri Lanka turned violent.
Leading the campaign against the latest deal, which he says is too generous to China, is former President Mahinda Rajapaksa, an influential opposition politician who first allowed Chinese investment in Sri Lanka when he was leader from 2005-15.
The clashes, in which demonstrators threw stones and police used tear gas and water cannon, underlined the depth of resentment at China’s expansion felt by some local people, who feared they would be forced from their homes.
The Chinese foreign ministry said Beijing was doing what was best for both countries. The Chinese embassy in Colombo did not respond to a request for comment on investments in Sri Lanka.
The Sri Lankan protests are not the first sign of opposition to China’s One Belt plans to build land corridors across Southeast Asia, Pakistan and Central Asia and maritime routes opening up trade with the Middle East and Europe.
Rail links from China through Laos and Thailand have hit the buffers over resistance to what they say are Beijing’s excessive demands and unfavorable financing.
“IMPINGES ON SOVEREIGNTY”
Under the original deal negotiated by Rajapaksa during his tenure, the container terminal at Hambantota was to be operated by a joint venture between China Harbor Engineering Co. and state-run China Merchants Port Holdings for 40 years.
The Port Authority of Sri Lanka would retain control of all other terminals in the harbor, as well as a 6,000 acre industrial zone.
But last month, the administration of Rajapaksa’s successor President Maithripala Sirisena, who came to office threatening to cancel high-value Chinese contracts on the grounds they were unfair, approved a deal to lease 80 percent of the port to China Merchants Port Holdings for $1.12 billion.
The company also got the lease for 99 years.
Officials said Sirisena’s hand was forced by the country’s high debt burden and the fact that inflows from countries including India and the United States were less than expected, despite a $1.5 billion, three-year IMF loan program agreed last year.
“A 99-year lease impinges on Sri Lanka’s sovereign rights, because a foreign company will enjoy the rights of the landlord over the free port and the main harbor,” said Rajapaksa.
“This is not an issue with China or with foreign investors. It is about getting the best deal for Sri Lanka,” he told Reuters in an interview.
The government also announced the lease of a much bigger 15,000 acres of land around the port for an industrial zone controlled by China Merchants Port Holdings, which has become a lightning rod for protests.
The demonstrators said they feared eviction from their land to make way for the site, a concern that China put down to a misunderstanding.
“Chinese companies have from the very start upheld the holding of talks and consultations with Sri Lanka on the basis of one’s own free will, equality and mutual respect according to market principles,” said Chinese foreign ministry spokeswoman Hua Chunying.
China Merchants Port Holdings declined to comment on the protests.
“WE ARE NOT LEAVING”
China has spent $1.7 billion building Hambantota port and the adjacent Mattala Rajapaksa airport, named after the former president, both of which are under-utilized and losing money.
Losses at the port added up to around $230 million in the five years to the end of 2016, according to the Sri Lankan finance ministry.
China’s ambassador to Sri Lanka, Yi Xianliang, said the country would invest $5 billion more in the next three to five years and create 100,000 jobs “if everything goes well.”
Last week, a policeman stood guard at the foundation stone of the proposed new zone in a forest clearing in Hambantota to prevent protesters from marching on the area.
“We are firmly against this project. We don’t want our land to be given to the Chinese. We are not leaving the area,” said Upul Dhammika, a farmer whose land is located where the government has tried to survey for the industrial zone.
Rajapaksa questioned the need for the Chinese to be given 15,000 acres, which he said was more than three times the area of all other economic zones in the country combined.
Isolated from the West over allegations of human rights abuses during the country’s civil war, Rajapaksa struck major deals with the Chinese when he was in power, including Hambantota and the nearby airport.
Sirisena, elected two years ago, vowed to review some of those agreements, including a $1.4 billion “port city” in the capital Colombo which was put on hold in 2015.
That, said a Chinese source with knowledge of the recent negotiations, upset Beijing, and so it pushed for the best possible deal on Hambantota.
“They (China) were really angry with the new government, until it agreed (to) an 80 percent port deal,” the source said, speaking on condition of anonymity because of the sensitivity of the talks.
The Chinese embassy in Colombo did not respond when asked about that aspect of the negotiations.
Beijing also threatened lawsuits when the new administration sought to review some of the old agreements, an official in the international trade ministry said.
China’s position was that it won the contracts on merit and a change of government should not have a bearing on these deals.
Sri Lankan Port Minister Arjuna Ranatunga said Hambantota port was losing money and the government had to go for a debt-for-equity deal to reduce the financial burden on the country.
Sri Lanka’s national debt stands at around $64 billion, or 76 percent of gross domestic product, one of the highest among emerging economies. It owes China over $8 billion.
For now, Hambantota remains a sleepy outpost. Four years after the port and airport were completed, there is one flight a day and barely five to six ships docking each week.
The highway leading to the town is largely deserted, a new conference hall is unused and even a large cricket stadium built by the Chinese is used mainly for wedding receptions.
(Additional reporting by Ranga Sirilal, Ben Blanchard in Beijing and Brenda Goh in SHANGHAI; Writing by Sanjeev Miglani; Editing by Mike Collett-White)
Source: Reuters “China’s ‘Silk Road’ push stirs resentment and protest in Sri Lanka”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
There will be quite a few advantages for Chinese President Xi Jinping’s Silk Road economic belt and 21-century maritime Silk Road (One Belt, One Road) initiative.
The most important is trade security by establishment of land trade route to Europe through Russia and Central Asia and safer maritime route through Indian Ocean with ports in Bangladesh, Sri Lanka and Pakistan.
The other also very important advantages include:
Finding an outlet for China’s overcapacity in its industries of construction, construction material, energy, transport, etc.;
Exploiting investment opportunities for China’s surplus capital; and
Moving China’s labor-intensive industries through development of infrastructures in the belt to the countries in the Belt where labor and other resources are much cheaper.
Reuters says in its report “Sri Lanka launches China-led investment zone amid protests” that the zone will create 100,000 jobs, which undoubtedly will mostly be jobs in labor-intensive enterprises moved from China.
According to Reuters, China’s port, airport and investment zone make “some countries, including India and the United States, nervous with Sri Lanka’s proximity to shipping lanes through which much of the world’s trade passes en route to China and Japan.
Those are trade passes to China and Japan not US or India, why shall they be nervous?
Anyway, we see from the developments Xi’s wisdom and vision. US president-elect Trump’s threat of a trade war may create difficulties for the export of China’s labor-intensive industrial goods, but Xi has taken a step earlier in building infrastructures abroad for China to move such industries to poor countries for export to the US. Xi has been subduing the US with his wise One Belt One Road strategy before the US starts the trade war.
The best way in military conflict is to subdue the enemy with strategy, the next, with diplomacy, the next, with fighting… Sun Tzu
Comment by Chan Kai Yee on Reuters’ report, full text of which can be found at http://www.reuters.com/article/us-sri-lanka-china-investment-idUSKBN14R0JG.
Sri Lanka will sell to a Chinese company 80 percent of a $1.5-billion port in its south, where China has also been offered an investment zone, in a bid to cut the country’s debt burden, Finance Minister Ravi Karunanayake said.
The move follows an offer made by Prime Minister Ranil Wickremesinghe during a visit to China in April, to swap equity in Sri Lankan infrastructure projects against some of the $8 billion in debt the Indian Ocean island owes to China.
The Hambantota port was built with the help of Chinese loans and contractors in 2010 under former leader Mahinda Rajapaksa, as part of efforts to boost development of infrastructure after the conclusion of a 26-year-long civil war in 2009.
But the port, and a nearby airport, also Chinese-financed, had been seen as a white elephant because it was not financially viable, the current government has said.
“For somebody like the Chinese, it is the silk route transit point,” Karunanayake told a meeting of the country’s Foreign Correspondents Association late on Thursday.
China’s interest in the port is seen as part of its ambitions to build a “Maritime Silk Route” to the oil-rich Middle East and onwards to Europe.
That makes some countries, including India and the United States, nervous, with Sri Lanka sitting near shipping lanes through which much of the world’s trade passes en route to China and Japan.
“The value will be more than $1 billion and the deal will be signed around the second week of November,” Karunanayake said, adding that a Chinese port operator would get 80 percent of the port stake. He declined to identify the company involved.
“The money from the deal will be used to repay expensive foreign loans,” Karunanayake said, adding that the government was also in final talks over a 15,000-acre (6,100-hectare) investment zone near the port.
The investment zone deal would be signed as “soon as possible”, Karunanayake said.
President Maithripala Sirisena suspended most of the Chinese infrastructure projects in Sri Lanka, including a $1.4-billion luxury property deal, allegedly because the proper procedure had not been followed, or costs had been inflated under his predecessor.
However, faced with a debt and balance-of-payments crisis, the new government eventually allowed all the projects to go ahead.
(Reporting by Shihar Aneez; Editing by Clarence Fernandez)
Source: Reuters “Sri Lanka to sell 80 percent of southern Hambantota port to Chinese firm”
Due to US and Indian influence, in 2015, the newly-elected Sri Lankan president put on hold the Colombo port project that his predecessor awarded to a Chinese company, but now due to the country’s economic difficulties and the lack of alternative from India or the US, the Chinese company has been told to resume construction of the project.
It proves that verbal strength has to be supported by financial strength.
Comments by Chan Kai Yee on Reuters report titled “China, Sri Lanka keen to push Colombo port project: Chinese diplomat”, full text of which can be viewed at http://www.reuters.com/article/us-china-sri-lanka-idUSKCN0X41SH.
China has already had Gwadar port near Iran in Pakistan for its Maritime Silk Road to ensure the Road will not be cut by US navy as the Iranian and Pakistani air forces will protect Iranian, Pakistani and Chinese ships on the Road. What China lacks is a port in Sri Lanka in the middle of the Indian Ocean and a canal through Kra Isthmus.
China had good relations with Sri Lanka until last year when the pro-China president lost in election to Maithripala Sirisena supported by the US and India who want to cut Sri Lanka’s close ties with China.
Now according to Reuters’ report today, President Sirisena has tried for a year to satisfy the US and India but failed as Sri Lanka needs Chinese investment for its economy while the US and India are unable to provide it what it needs. It seems that China will get more from Sri Lanka under President Sirisena’s rule than before.
Reuters quotes Sri Lanka cabinet spokesman Rajitha Senaratne as saying “The stance on China has completely changed. Who else is going to bring us money, given tight conditions in the West?”
What left for Chinese President Xi Jinping’s Maritime Silk Road initiative is the Kra Isthmus canal, for which China has been discussing with Thailand. However, if the canal project fails to realize, China can build a railway through Myanmar to use its ports as China has close ties with Myanmar.
Therefore, as Sri Lanka has turned back to China, Xi’s Maritime Silk Road initiative has been quite hopeful so far.
The following is the full text of Reuters’ report titled “Short of options, Sri Lanka turns back to Beijing’s embrace”
Just over a year after a new leader was elected and Sri Lanka’s business ties with China came under close scrutiny, Colombo is reversing course by resuming a stalled port project and naming Beijing as the front runner for a new special economic zone.
India is nervous about losing influence over the island nation off its southern tip, while China’s push into the Indian Ocean, and the possibility of dual purpose civilian-military facilities in Sri Lanka, are raising alarm further afield.
The ouster of President Mahinda Rajapaksa, who steered Sri Lanka toward China until 2015, was a setback for ties, as his successor reviewed projects to check if they were fair and legal.
Now Maithripala Sirisena’s government, faced with falling foreign reserves, a balance of payments crunch and few, if any, alternative investors, is heading back into Beijing’s embrace, albeit on better terms than before.
“The stance on China has completely changed,” cabinet spokesman Rajitha Senaratne told Reuters. “Who else is going to bring us money, given tight conditions in the West?”
Most of the focus has been on the $1.4 billion port city China wants to build in the commercial capital, Colombo, where cranes and diggers have sat idle for months.
But according to International Trade Minister Malik Samarawickrama, Chinese investors have also expressed interest in a special economic zone (SEZ) in Hambantota, southern Sri Lanka, where a $1.7 billion seaport and airport built by the Chinese are operating at a fraction of capacity.
“We will agree to that. They will invest their own money. That’s the way to go forward,” Samarawickrama told Reuters.
INDIA “NOT CONCERNED”
Beijing’s rehabilitation does not mean the door is closed to other potential investors in Sri Lanka’s $79 billion economy.
Indian Foreign Minister Sushma Swaraj held talks with Sri Lankan Prime Minister Ranil Wickremesinghe for an SEZ in Trincomalee last week, according to an Indian official.
And New Delhi said it was not unduly worried by China’s return to pole position in talks with Colombo.
“The relationship between India and Sri Lanka is robust, is getting stronger,” said Renu Pall, joint secretary in the Indian foreign ministry in charge of the Indian Ocean region.
But so far, only Beijing had come up with specific proposals for a trade zone, an official at Sri Lanka’s Board of Investment said.
Beijing has already pumped hundreds of millions of dollars into roads and ports since the end of Sri Lanka’s civil war in 2009, when Colombo was largely shunned by Western investors over its human rights record.
China’s interest is seen as part of its ambitions to build a “Maritime Silk Route” to the oil-rich Middle East and on to Europe.
That makes some countries, including India and the United States, nervous, with Sri Lanka sitting near shipping lanes through which much of the world’s trade passes on its way to China and Japan.
Western diplomats have expressed particular concern over Hambantota, located in Rajapaksa’s stronghold on the southern tip of the country, because they say it could have both civil and military use.
Sri Lanka’s government says such fears are misplaced and that it plays host to a far higher number of ship visits by other foreign navies, including India’s.
IMPROVING TERMS OF DEALS
The SEZ in Hambantota is the biggest of four proposals made by the Chinese to Sri Lanka’s Board of Investment, the official there said. He did not provide details about others.
The SEZ is one of 45 projects the government plans to help lift growth at a time when public finances have deteriorated and Colombo is seeking an emergency IMF loan to avert a balance-of-payments problem.
Trade Minister Samarawickrama said the government decided to go ahead with the Colombo port city project after proposing to the Chinese to reduce the land area and limit the environmental impact.
Already, the suspension of work has cost $380,000 a day overall, according to state-owned China Communications Construction Co Ltd (CCCC), which is financing the project.
“During negotiations, the new Sri Lankan government understood the reality and also the fact that they were legally bound by the contract,” said an official at CHEC Port City Colombo (Pvt) Ltd, the local company handling the project.
Sri Lanka and the Chinese government also discussed loan terms, which critics said were too onerous on the host country, Finance Minister Ravi Karunanayake told Reuters.
“Everything is going well. If there were 7 percent (interest) loans, we have reduced to lower-regime loans,” he said, without detailing which loans were being renegotiated.
China said it looked forward to working closely with Sri Lanka.
“We believe Sri Lanka … will continue to deepen practical cooperation with China,” said foreign ministry spokeswoman Hua Chunying.
(Additional reporting by Ranga Sirilal in Colombo and Michael Martina in Beijing; Writing by Sanjeev Miglani; Editing by Mike Collett-White)
Some people regard the territorial disputes between India and China as a major issue to exploit in pitting India against China. In fact, the disputed areas give neither China nor India advantage to attack the other as their geological layout facilitates defense. The two countries deploy heavily armed troops there for defense instead of attack.
When China had improved ties with Russia, Russia used its influence to ease the tension at Chinese-Indian borders.
Former US Defense Secretary Leon Panetta tried in vain to ask India to join the US in encircling China.
US President Obama seems to have had some diplomatic experience after working as the president for more than six years. He knows that now he has the opportunity to pit India against China.
China’s establishment of maritime Silk Road aims at safeguarding its trade lifelines through the India Ocean. For that it shall have some supply bases and even military bases along the Silk Road. That was why it got Sri Lanka’s permission for its warships and submarines to use Sri Lankan ports.
China’s rise has long since worried India due to the uncertainly whether China will become an aggressor to dominate the world when it becomes world number one. India regards China’s activities in Sri Lanka as a threat to its national security. It has tried hard to sabotage the economic cooperation between Sri Lanka and China, but as China is willing to offer Sri Lanka very preferential terms, India fails to succeed in severing the ties between China and Sri Lanka.
India urgently needs US help to contain China. Seeing the opportunity to have India as an ally in containing China, Obama promised to provide US aircraft carrier technology for India to contain China in the Indian Ocean. That is something exceptional as no other country has ever been able to obtain such technology from the US.
To please the US, India has begun to challenge China. Its Prime Minister Modi visited disputed border region and promised to make substantial investment to develop the region. Reuters published a report yesterday on China’s response. The following is the full text of the report:
China protests at Indian PM’s visit to disputed border region
China has lodged an official protest against Indian Prime Minister Narendra Modi’s visit to a border region claimed by both countries.
China disputes the entire territory of the northeast Indian state of Arunachal Pradesh, calling it south Tibet. Its historic town Tawang, a key site for Tibetan Buddhism, was briefly occupied by Chinese forces during a 1962 war.
“The Chinese government has never recognized the so-called ‘Arunachal Pradesh’,” a statement on the Chinese Foreign Ministry’s website said on Friday, adding that Modi’s visit was “not conducive” to developing bilateral relations.
Vice Foreign Minister Liu Zhenmin told India’s Ambassador to China Ashok Kantha on Saturday that China was firmly opposed to the visit.
“The Indian side’s insistence on arranging activities by leaders in the disputed region infringes on China’s territorial sovereignty and interests, magnifies the dispute on the border issue, and violates the consensus to appropriately handle the border issue,” a separate ministry statement cited Liu as saying.
Modi visited Arunachal Pradesh on Friday to inaugurate the opening of a train line and power station. He did not mention China but pledged billions of dollars of investment to develop infrastructure in the region.
“I assure you that you will witness more development in the state in the next five years than it has seen in the last 28 years,” Modi said, addressing a huge crowd.
Faster transport links and exploitation of Arunachal Pradesh’s hydro-electric potential are the keys to fighting poverty and bringing about rapid development in the frontier state, he said.
In January, China objected to statements by Japan’s Foreign Ministry supporting India’s claim to the region.
A visit by U.S. President Barack Obama to India in January was widely seen as a sign Modi is moving closer to the United States, to offset rising Chinese influence in Asia and, in particular, intensifying activity by the Chinese navy in the Indian Ocean.
Source: Reuters “China protests at Indian PM’s visit to disputed border region”