A number of big ticket Chinese investments are likely to come to Sri Lanka following the visit of the Chinese Foreign Minister Wang Yi to Sri Lanka in early January, Dr.Palitha Kohana, SriLanka’s Ambassador to China, said on Saturday.
Wang is likely to be in Colombo on January 8 or 9, he said. Wang would also be visiting the Maldives.
Asked if there will be investments in the Chinese built US$ 1.4 billion Colombo Port City (CPC), Dr. Kohona said that two or three big ticket Chinese financial companies have expressed an interest in investing in the CPC.The CPC is to come up over land which has been reclaimed from the sea, south of the Colombo harbor. The land is ready, but investments and buildings are yet to come up.
Earlier in the week, the Sri Lankan Foreign minister Prof.G.L.Peiris, had toured the CPC at the invitation of the Chinese authorities.Recently, the Sri Lankan government had set up a governing structure for the CPC which accords with Sri Lankan laws and regulations.But investments from local and international companies are yet to come. CPC will be a financial center and not an industrial hub.
To give confidence to international investors, Chinese companies will have to invest first. This is what is expected to happen in the initial phase of the development of the CPC and Wang Yi’s visit may be the trigger.
Ambassador Kohona hinted that if there is no settlement of the controversy over the selling of government’ s stakes in the Kerawelapitiyapower plant to the US company “New Fortress Energy” (NFE), Chinese power producers may make a bid. In September 2021, the Sri Lankan cabinet approved a share transfer relating to the 300 MW Yugadanavi Power Plant in Kerawelapitya to the NFE. The the Finance Ministry agreed to transfer a 40% stake of the power plant owned by the Treasury to the NFE together with the right to supply natural gas to Sri Lanka. Through this transaction, the Treasury would net nearly US$ 300 million.
But since the agreement was controversial and was also not presented to parliament for a debate, many, including three cabinet ministers, filed petitions in the Supreme Court for the cancellation of the deal.
Be that as it may, Sri Lanka badly needs foreign investment to get dollars which are in terrible short supply as a result of the suspension or disruption of economic activity during the year and a half long COVID-19 pandemic. Sri Lanka has been appealing to all major countries to invest, render financial assistance and give loan waivers. Finance Minister Basil Rajapaksa had recently visited India and the Indians are working out a comprehensive package. But India expects Sri Lanka to facilitate Indian investments and help implement projects many of which have been dormant for years.
China’s help is critical mainly because the Chinese have deep pockets and are willing to loosen their purse strings in pursuit of their economic and geopolitical interests. On their part, Sri Lankan governments have been receptive to Chinese offers of help because of an absence of opposition from the Sri Lankan nationalist lobby which view investments from some other countries with suspicion. This has resulted in China’s becoming the top most investor in Sri Lanka.
Writing in The Diplomat on May 1, 2021, Lankan economist Umesh Moramudali says that the blooming China-Sri Lanka economic relationship is taking place through three main avenues: debt, investment, and trade. In terms of public debt, over the last decade and a half China has been the second-largest foreign lender to Sri Lanka. By the end of 2019, China accounted for a little over 10% of Sri Lanka’s outstanding foreign debt stock.
Sri Lanka had also obtained Chinese loans for budgetary and Balance of Payments (BOP) support. On top of that, in early 2021, Sri Lanka obtained a 10 billion Renminbi or US$ 1.57 billion currency swap facility from China to tackle the ongoing foreign currency shortage. In 2018, Sri Lanka obtained a Foreign Currency Term Financing Facility (FTFF) of US$ 1 billion from the China Development Bank (CDB). Another US$ 500 million was secured in March 2020. In early April 2021, Sri Lanka signed another agreement with the CDB to obtain US$ 500 million as an FTFF.
These loan facilities, along with the currency swap provided in March 2021, indicate that Sri Lanka is heavily relying on China to avoid external sector vulnerabilities, Moramudalipoints out.
During the decade of 2010-2020, China was the largest foreign investor in Sri Lanka. But these investments include two controversial projectsviz: Colombo Port City Project, the Hambantota Port. China continues to be the largest goods exporter to Sri Lanka despite the pandemic. Over the years, China has become the major source from which Sri Lanka obtains raw material for textiles and garments. In this area, China has replaced India and Pakistan. Moramudali says.
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