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Chinas OBOR and Sri Lankas economic development programme

These developments prompted India to express its strong objections to the BRI. Hence the Indian
decision against taking part in the BRI summit held in China last May.

However, despite Indias serious concerns, six of the eight South Asian countries viz. Afghanistan,
Bangladesh, Maldives, Nepal, Pakistan, and Sri Lanka took part in the summit attended by 29 heads
of state or government. Nepal, Pakistan and Sri Lanka were represented at prime ministerial level,
indicating their strong support for the Chinas initiative. These south Asian countries had good reason
for their support for BRI. For example, in addition to 46 billion dollars worth of projects in Pakistan,
Nepal and Bangladesh have projects valued at 8.3 billion and 34.45 billion dollars respectively. While
the proposed Bangladesh, China, India Myanmar (BCIM) Economic Corridor spanning 2400 km from
Kunming in China to Bangladesh and eventually reaching Kolkata via Myanmar, would initially
connect the three out of four countries, Nepal has a railway project that would connect Lhasa in Tibet
with Kathmandu and eventually Lumbini, the birth place of Buddha, located next door to the Indian
state of Bihar!

I have given a snapshot of the response of the south Asian countries bordering India to the grand
Chinese economic project of the 21st century, which would eclipse any other development project
launched by the global community in the past. I thought it was important to focus on the response of
these south Asian countries, to set the stage for discussing Sri Lankas response to and its experience
with BRI.

Rationale for BRI

Let us now briefly look at the underlying reasons behind President Xis proposal. In October 2013,
Beijing convened an important conference termed as the Peripheral Diplomacy Work Conference,
billed as the major foreign policy gathering aimed at developing policy towards neighbouring
countries. At that meeting, he emphasized the need to "build the Silk Road Economic Belt and 21st
Century Maritime Silk Road, creating a new regional economic order" and follow the principles of
helping, stabilizing and enriching neighbors.

That new regional economic order would cover 65 countries representing one third of the countries
in the world, 65 per cent of the world population and 40 per cent of the global trade.
Looking at the sheer scale and the reach of the BRI and the grand global design of China, it appears
that 2013 was the year of coming of age for China - politically, economically as well as militarily.

With the abandoning of President Obamas Pivot to Asia, withdrawing from President Trumps Trans-
Pacific Partnership which was the largest regional trade accord in history - as well as walking out of
the 2015 Paris Climate Agreement, it appears that the US is on retreat, and China is reaching out to
claim mantle of global leadership. One-step in that direction would be achieved by overtaking the US
economy by 2030.

There are several other compulsions for China to embark on the BRI. China faces several challenges
to achieve its quest for global economic leadership, when its double-digit economic growth has
reduced to 6.5 per cent in 2017. A source of acute concern has been continuing inequality between
the inland western regions described as barren, remote and poor, such as Xingjian, Tibet, Qinghai
etc., and the prosperous and extravagant regions along the eastern seaboard, such as Jiangsu,
Zhejiang and Shanghai. To address this wide disparity, China adopted Western Development
Strategy in 1999, which failed to produce the desired results. President Xi believes that BRI would
boost economic development within the country, including Chinas western regions, which would
positively impact on the neighbouring countries.

The second challenge is the increasing cost of production and wages, and the chronic excess
industrial capacity, whether it is cement, steel and similar industrial productions. Consequently, China
has reached a stage, where it must relocate production capacities by arranging for migration of
surplus factories. The persistent demand for 15,000 acres of land in Hambantota for a Chinese
industrial park should be understood in this context. The 10 s. q. km 2500-acre industrial free zone at
Gwadar port in Pakistan with planned 300 factories, and the 4000-acre Special Economic Zone in
Kypuk Phyu deep sea port developed by a consortium of 5 Chinese and a Thai company will be
another destination for surplus Chinese industries.

The third challenge is to find new markets for its technological products, so that the country could
move on to the next stage of technology driven economy. One example of Chinese drive for new
technology is the development of the Chinese version of Japanese bullet trains that currently cruise at
300 km per hour, and Chinas ability to outbid Japan to develop tracks, and provide rolling stock for
the Jakarta - Bandung connection by providing a 4.5-billion-dollar loan covering app. 75% of projects
total cost. Other clients targeted by China include Malaysia, Thailand and surprisingly India! Chinas
largest high-speed train manufacturer has already signed an agreement with India to establish a
63.4-million-dollar joint venture plant to manufacture and repair railway locomotive engines.
Agreements to undertake two feasibility studies for Delhi-Nagpur and Delhi-Chennai high-speed
railway connections were also signed last October.

Sri Lankas experience

This brings me to Sri Lankas experience with the BRI, which is rather a complicated story.

The former President Mahinda Rajapaksa announced Sri Lankas support for the BRI during his visit to
Shanghai in May 2014 and the Asian Infrastructure Investment Bank (AIIB) during the historic visit of
President Xi to Sri Lanka in September that year. Sri Lanka continued its support for the Chinese Belt
& Road initiative even after the change of government in 2015, and this policy continues to date, as
demonstrated by the participation in the BRI Summit by Prime Minister Wickremesinghe last May.

Both SLFP and UNP had good reasons to support the opportunity for infrastructure development
presented by the Silk Road initiative. President Rajapaksa recognized China as an unwavering friend
as demonstrated during the armed conflict. Chinese economic, political and military support helped
Sri Lanka to meet security challenges during the conflict years. Following the end of the conflict,
President Rajapaksa had no access to funds for urgently needed reconstruction work. To make the
situation worse, Sri Lanka had to face a hostile group of western countries that accused the country
of violating human rights, and dragged Sri Lanka to the Human Rights Council within weeks of
successfully ending hostilities. Thus, relying on China for development needs was the only choice Sri
Lanka had, immediately after the conflict period.

The change of government in 2015 came as a heavy blow for China-Sri Lanka relations, as the new
administration, due to narrow political expediency and external pressure, decided to suspend
implementation of 1.4 billion dollar Colombo Port City project and several other Chinese funded
projects. Repudiation of an international agreement signed by two heads of state, sent shockwaves
among not only the potential Chinese investors, but also others as well. Much to the embarrassment
of the new administration, other than laudatory statements and unsolicited advice, no investments
came from the Western countries, and Sri Lanka had no choice but to kowtow to the Chinese one
year later.

Unlike the land route that went in to disuse in the 15th century, the maritime route continued to
function up to the modern era. Consequently, what is expected to happen under the Maritime Silk
Road initiative is, building of new infrastructure along the route in South East and South Asia, East
Africa, the Red Sea and the Persian Gulf. Such projects would include ports, airports, highways,
railroads, power plants, oil storage facilities etc., which would stimulate economies of the target

As far as Sri Lanka is concerned, Chinese investment started to flow in to the country long before
launching of the Belt & Road Initiative in 2013. Such projects include, phase 1 of the Hambantota
port completed in August 2010 at a cost of 470 million dollars, phase 1 of the 1.3 billion dollars
worth, 900 MW Lakvijaya (Norochcholai) coal power plant completed in March 2011, and the 741-
million-dollar Southern Expressway to Galle, inaugurated in November 2011. However, one could fold
these in to the Maritime Silk Road, as the remaining phases of those projects came in to operation in
the post 2013 period. Although there is no clear list of projects under the Silk road in Sri Lanka, the
27 agreements and MOUs signed during President Xis visit provide an insight, as they cover the
Colombo Port City project, Hambantota Port Development project, extension of the Southern
Expressway, operation and maintenance of Lakvjaya power station etc.
There are two types of projects that come under the Silk Road Initiative. One is government, and the
other, private sector projects. In the case of Sri Lanka, major projects such as ports, airports and
expressways were government projects on long-term credit. Such projects were initiated without
going through an international bidding process, thereby leaving room for allegation of corrupt
practices. Examples of such projects are too numerous to list, but we have considerable knowledge of
the antecedents relating to the Hambantota Port and the Mattala International Airport, the latter
termed as the loneliest international airport in the world!

There are also private sector projects such as the Colombo International Container Terminals Ltd.,
(CICT) a 500 million dollar joint venture, involving the Hong Kong Stock Exchange listed China
Merchants Port Holdings Company Limited (CMPH), a Sri Lanka blue chip company, which later
divested its 15% shares to the Chinese company, and the Sri Lanka Ports Authority (SLPA), under a
35-year Build Operate and Transfer agreement.