Chinese Ambassador to Sri Lanka, Qi Zhenhong, who met senior journalists in Colombo last week, expressed China’s concerns about the Sri Lankan Government’s approach to the International Monetary Fund (IMF), as well as inconsistencies in the policy framework that affect not only Chinese investors, but all other international players visiting Sri Lanka. He went on to clarify that the Hambantota Port is not a debt trap, but is open to international players and belongs to Sri Lankans.
Excerpts of the Q & A between the Chinese Envoy and senior journalists:
Sri Lanka has halted debt payments and potential credit deals with China as the Government has approached the IMF. We’d like to know if it will have an impact on future investments in Port City, for example?
A: We know that the Sri Lanka’s Financial Minister Ali Sabry and his delegation are having negotiations with the IMF officials at this moment. The bailout will always be based on terms and conditions and we have no idea what they would be. We will be closely watching but according to past experiences, all the countries that decided to receive IMF bailout have to follow very strict restrictions on financial structures. It’s too early now. I cannot give what impact it would have on China-Sri Lanka ties. But we are sure that under the current difficulties Sri Lanka has the urgent need for assistance and China will continue its support including investments and get
Sri Lanka out of the crisis and Sri Lanka at the same time should be self-sustainable.
What is your reaction on the ongoing islandwide protests over the economic crisis in the country? We also see that only India and China are leading their way in supporting Sri Lanka compared to others. Do you see that we need to look towards other countries and there are many other options for Sri Lanka?
A: In my perspective, the protest is a direct response to the scarcity of fuel, power, gas, and food commodities, among other things. It expresses the dissatisfaction of people who are enraged by the shortages. However, I am sceptical that the demonstrations can be the final answer to Sri Lanka’s crisis. China is a sincere friend of Sri Lanka and it makes no difference to us which political party, religious groups, or other groups exist in Sri Lanka. We truly hope that all political parties and communities can work together to overcome the current problem. It is a collaborative effort.
According to our media friends, the most pressing issue for Sri Lanka is the current crisis following independence. We also believe that all countries, particularly those in the West that colonised Sri Lanka, have a greater need to come out in favour of the country. Sri Lanka also has many friends in the international community who should support at a time of economic crisis.
The IMF wants assurance in the debt sustainably. What is China’s take on becoming a part of a debt guarantee programme for Sri Lanka? Is Sri Lanka’s default payment having an impact on Chinese investors?
A: I repeat that China is not only a lender to Sri Lanka, nor the largest. However the foreign debt, including domestic debt, must be sustainable. Otherwise, your country will be unable to achieve long-term development goals. I read in the newspaper where the Finance Minister stated that the country has been relying on “credit cards” since independence. I share a similar opinion. The current situation did not occur overnight. It has a long history. China’s financing and financial assistance to Sri Lanka have nearly been used up in infrastructure development. According to China’s experience over the previous 40 years, in order to attract foreign investment and fulfill development goals, infrastructure projects must be extensively funded. China would do everything possible to help Sri Lanka not only overcome the current crisis, but also accomplish future development goals.
When will the China-Sri Lanka Free Trade Agreement (FTA) be signed? Is it on the cards?
A: We are now conducting negotiations and our core goal is that the host country should finalise the FTA under mutual agreement principles as soon as possible. We want both sides to address the negotiation since it does not rely on one side. We had six rounds of talks in the last decade.
We recall that China’s Foreign Minister visited in January 2022 and pressed on signing the FTA with Sri Lanka. What are the challenges China faces in implementing the FTA?
A: In general, the situation in Sri Lanka keeps changing and the impact on internal processes is inescapable. However, we have witnessed a positive response from the Sri Lankan side in recent weeks. We have learned that the Prime Minister’s Secretary has been appointed as the Chief Negotiator and he has made multiple internal meetings with government departments, which we believe will allow them to resume their work on the FTA.
During an interview with a Ports Authority official last year, we raised the issue of Hambantota Port not being open to international investors, despite the fact that some operations are taking place there. We’d like to know if the port is open to international investors. We heard that the Government was concerned as well.
A: This information needs to be updated. If you travel to the Hambantota Port and Industrial Park, you can witness the progress being made. Prime Minister Rajapaksa and other senior officials saw the Port and the Industrial Park in December last year and were impressed by the port’s rapid development progress. I’d like to emphasise that the Hambantota International Port Group (HIPG) is a
Sri Lankan company and the port is a Sri Lankan port. It is only the Chinese company – China Merchants, who are part of operations according to the commercial contract.
As a Sri Lankan port, it is unquestionably open to the rest of the globe, and we welcome investors from all around the world. Despite the pandemic, HIPG has conducted extensive advertising calling for investments that can be made at the port. What I’ve learned is that all of the projects in the port are still in progress, with the tyre production factory being the largest investment project. They want to invest more, but because foreign currency policies are constantly changing, they will have to wait. They will wait till the administration has finalised all foreign currency policies.
A Maldivian yacht builder has agreed to invest USD 60 million in the port. If the media has the opportunity to visit the port, I am confident that you will be quite impressed. Despite Covid-19, the port’s total capacity doubled last year. When the Sri Lankan Government issued an import ban on vehicles, 500,000 units of RoR vehicles have been transferred.
The Port City Commission was established in May last year, but no investment has yet begun. The Central Bank of Sri Lanka (CBSL) was anticipating tax collection of USD 300 million in the first quarter of current year. Nothing appears to be going on there. You also mention that policies must be consistent. Do you have any concerns?
A: No one in the outside would be aware of what was going on inside Port City. However, there has been a lot of progress in the recent few years. The construction work inside Port City has never stopped, especially during this trying period. During the peak of the Covid-19 season, they hired 1,000 Sri Lankans as labourers. There is also a lot of work to be done before the city can construct buildings. I visited the marina and promenade for the first time after they were opened to the public and found it to be beautiful. There were a lot of local and international visitors there. It is positive.
As I previously stated, regulations must be consistent, and if Sri Lanka can provide a business environment which is fair and transparent, it will be extremely beneficial for foreign investment.
It is not only a need for Chinese investors; it is a necessity for all investors from any country.
The claim of currency depreciation will undoubtedly have a detrimental impact on overseas investors. Some people have enormous funds even before they start a business. As a result, when Sri Lanka makes decisions, it should be more
self-reliant, and economic problems should not be politicised. That is the crux of our issues.
According to most media accounts, the country’s debt default is the result of unneeded investment projects, with China funding the majority of those megaprojects. Will you assess the current projects, such as the International Cricket Ground, Mattala Airport and Lotus Tower. Can China re-evaluate those projects that are and whether you would fulfil those objectives by running those projects ?
A: This information, I believe, originates from people who either don’t grasp reality or purposefully manufacture these narratives. I’d want to emphasise that China is not Sri Lanka’s largest lender. China’s foreign debt accounts for only 10 per cent of the total foreign debt. The loan from China is then used to fund a development project that is both important and beneficial. Loans from China are up to the Sri Lankan side because Chinese firms are just contractors who follow the regulations and contracts put in place by Sri Lanka.
The borrower must follow an international principle when deciding how much they should borrow and how they should use the money they get from foreign countries. It is not the lenders’ responsibility, and if it is, other countries will not take any steps to attract international investors to his country. There are a few initiatives by China that are frequently mentioned in the media, but there are hundreds of joint ventures and projects by China. And, if you look at them, you’ll see how much Sri Lanka has profited from Chinese loans. I’m not going to list them all.
I can’t offer you an answer, but all of the projects between China and Sri Lanka, as well as the projects funded by Chinese loans are flawless. I also believe that no single country is capable of doing so. It’s impossible for all initiatives to be 100 per cent perfect. And no one can effectively oversee the projects. I have never visited the Lotus Tower. I’ve been here for nearly a year. It is a tourist attraction. Sri Lanka can collect funds by charging a small fee to view the tower.
And we should consider the Lotus Tower not only from the standpoint of economic gain or perspective, but also from the standpoint of a comprehensive assessment of many projects. When the Eiffel Tower was built, it caused a great deal of controversy in France, but it has since become a symbol of the country. This is my personal opinion, and I make no claim on behalf of the Chinese or Sri Lankans.
What are your thoughts on Sri Lanka’s political status?
A: It’s complicated. I feel that the people of Sri Lanka are hardworking, intelligent and capable of overcoming challenges. I am certain that all parties will reach an agreement and find a solution to ensure the country’s stability. Have discussions for the sake of social and economic stability.
A large number of the public is looking at China thinking they would basically assist some groups and recently the independent group of Parliamentarians met you. Have they requested financial assistance if they take over the power? We ask because the President has stated that anyone who can prove 113 legislative seats will be given power. What did the independent group pose to China?
A: When all of the parties, including the independents, government parties, and opposition parties, met me recently, they all made the same request. All of them want China to help the country and its people. Most people believe that the relationship between China and Sri Lanka is a consensus. When we met with Samagi Jana Balawegaya leader Sajith Premadasa, he said that he has different opinions about the President and the Government and that he wants to change the opposition party’s mindset and political culture. He also said that he wants to be a very constructive opposition leader, and that in the current situation, he encouraged China to give the country more support.
The Tourist Board is concerned about the lack of Chinese visitors, which has had an impact on the tourism industry. We also know that there is a fresh outbreak of Covid-19 in China. We’d like to know when China’s borders would be opened to allow tourists to visit Sri Lanka.
A: I wish Chinese tourists can come to Sri Lanka as soon as possible. But the Covid-19 policy and restrictions are ongoing. We have the dynamic zero Covid-19 policy in China; not only in favour of China but to the world. This pandemic situation in China is quite a challenge for all of us.
On the Kandy Expressway project, there is a USD 800 million difference between a local bid and a Chinese bid by China’s Metallurgical Corporation of China’s offer (MCC). Have you made a strong objection to it?
A: It is up to Sri Lanka to make a decision. The Chinese’s only concern and request is that the Government of Sri Lanka be independent when it comes to business and provide a transparent and fair business environment for all foreign companies. Sri Lanka needs to improve its image and investor trust in order to attract more foreign direct investment.
Can’t China award the USD 4 billion that we requested from the IMF and reap the benefits when the country’s economy recovers? The IMF would take a long time to accept such loan due to the lengthy discussions with Sri Lanka. What are your thoughts on the matter?
A: You bring up the debt trap that China has created in Sri Lanka. As an example, we can look at Hambantota. China did not initiate the port project. The Sri Lankan Government did not approach China first. After all of those countries showed no interest, China agreed to build the port. When Sri Lanka Ports Authority (SLPA) was unable to run it independently, resulting in significant losses, and Sri Lanka was indebted to the foreign bond market, the port became a major burden. The Sri Lankan Government agreed to lease the port to the Chinese operator for these two reasons.
The money from the lease was used to increase Sri Lanka’s foreign reserve rather than repay the Chinese debt. And to repay the ISB loans with their hefty interest rates. It’s unfair to label it a debt trap. China was not handed the leased funds.
The organic fertiliser shipment from China was returned due to tests that revealed it was not suited for Sri Lanka. The Ministry of Agriculture stated that a replacement cargo will be sent for the amount we had paid (USD 6.7 million). We haven’t seen a shipping container here, have we? We also know that the restrictions on organic fertiliser will prevent that type of fertiliser from entering Sri Lanka. Could you clarify how this might be resolved?
A: We really believe in the administration of this country. Can you believe?
Port city developers claim that their 116 hectares of land, which they own, has already been marketed internationally and promoted through events such as those held in Singapore. Have you gotten any results or investors as a result of your efforts?
A: The Port City developers responded in the same way. They’ve done promotions in many countries, and the response has been overwhelmingly good. I’m not aware of the specifics.
By Sulochana Ramiah Mohan