No paradise for the dragon

In Sri Lanka’s political folklore, no two countries can be friendlier than China and Sri Lanka. Indeed, for six decades from 1952 to 2014, Sino-Lankan relations could not have been warmer. But in the last two years, the two countries have drifted apart, with hot words exchanged between Chinese Ambassador Yi Xianliang and Sri Lankan Finance Minister Ravi Karunanayake recently.

The contentious issues have their roots in the extraordinary influence China enjoyed in Sri Lanka in the second phase of President Mahinda Rajapaksa’s regime, an influence which in the view of the present government, casts a heavy financial burden on Sri Lanka. The Rajapaksa government, which fought the Tamil militants with Chinese weapons, and got USD 15.5 billion from China for post-war development projects when the West was hounding it for human rights violations, returned Beijing’s favour by allegedly allowing Chinese companies to overinvoice the cost of their projects, and took loans from Chinese banks at very high rates of interest.

SAAI

But a significant section of the Sri Lankan polity began to ask inconvenient questions about Rajapaksa’s China-funded projects. The post-war anti- Rajapaksa movement, which initially focused on his authoritarianism, nepotism and corruption, grew into an anti-China movement with opposition leaders and media exposing serious financial flaws in Sino- Lankan deals. Projects worth millions of dollars had been given without competitive bidding.

Matters came to a head when, in the January 8, 2015 presidential election, Rajapaksa lost to the joint opposition candidate Maithripala Sirisena. The pro- Sirisena United National Party (UNP) then won the July 2015 parliamentary elections.

Among the first post-election steps taken by Sirisena and Prime Minister Ranil Wickremesinghe, was the suspension of projects funded and executed by China. This shook Beijing particularly because the iconic USD 1.4 billion Colombo Port City had been inaugurated only a few months earlier by President Xi Jinping. In its defense, China said that every project was cleared by the concerned Sri Lankan government agencies, the Cabinet and Parliament.

It denied charges of corruption, overinvoicing and rapaciousness. It pointed out that going back on the agreements would only give Colombo a bad name among foreign investors. But Colombo would not budge. Writing in the Sunday Times, transport and highways expert Prof. Amal S Kumarage of Moratuwa University said costs of China-funded highway projects were 55% higher than the global norm. Internationally, the cost should be between USD 7 million to 10 million per km. But in the case of Chinese projects in Lanka, they were 55% to 135%, and five–to–ten times higher than in India.

Economist and Deputy Foreign Minister Dr Harsha de Silva pointed out that the Outer Circular Highway (OCH) costs USD 56 million per km. The China-built Kaduwela-Kadawatha section of the OCH costs USD 43 million per km, but the Japanese/ADB funded Kottawa- Kaduwela section had cost a third of it, he said. The interest on Chinese loans are also higher. Chinese ambassador Yi Xianliang claims that the majority of Chinese loans are at 2% but the Sri Lankans put it at 6%. According to Dr Silva, even 2% is “very high” given the fact that Japanese and ADB loans are available at 0.1 to 1%. The USD 342.8 million loan for the Kelani bridge was taken from Japan at 0.1%. It is to be repaid in 40 years with a 10-year grace period.