More reports of early virus justify fair probe of origin free of scapegoating

More Reports of Early Virus Justify Fair Probe of Origin Free of Scapegoating

Ong Tee Keat — Published in China Daily Hong Kong June 28, 2020

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Reform and Opening-Up: China’s Second Revolution

Reform and Opening-Up: China’s Second Revolution

Koh King Kee — Published in China Focus January 4, 2019

Over four decades, China has repeatedly proved the predictions of naysayers to be wrong and weathered one international crisis after another!

President Xi Jinping described China’s Reform and Opening-Up as the country’s second revolution in his keynote address at the 2018 Boao Forum for Asia on April 10, 2018.

It is indeed a revolution!

Without a drop of blood, Reform and Opening-Up has not only profoundly transformed China socially and economically, as well as changed its destiny, but also reshaped the global order of the 21st century in a far-reaching way.

The Evolutionary Process of the Revolution

It is a revolution in its impact, yet its process is evolutionary.

When Reform and Opening-Up was initiated at the Third Plenum of the Eleventh Central Committee in 1978, it had neither a blueprint on how it should be carried out, nor a clear strategy on its implementation.

It had only one simple objective: to grow the economy so as to give the Chinese people a better life!

“Cross the river by feeling the stones,” explained Deng Xiaoping, the architect of China’s Reform and Opening-Up.

Today, after 40 years of “feeling the stones”, China has proudly and successfully “crossed the river”!

China’s economic powerhouse of Shenzhen. (Photo/VCG)

It has become the world’s second largest economy and lifted 740 million people out of poverty. Reform and Opening-Up has turned China into an industrial powerhouse which now accounts for 15 percent of world GDP and contributes 30 percent of total global growth.

Reform and Opening-Up is a socio-economic experiment unprecedented in the history of mankind; never has a country with a population so huge grown at a consistent rate of more than 9 percent per year over such a prolonged period.

Over four decades, China has repeatedly proved the predictions of naysayers to be wrong and weathered one international crisis after another!

Source: World Bank

China’s economy was 81 times larger in 2017 than it was in 1978, growing in GDP terms from $149.5 billion to $12,240 billion. Over the same period, the country’s per capita GDP grew 55-fold, from $156 to $8,826. During that same span of time, the GDP of the United States increased only seven-fold and its per capita GDP 4.6-fold. As of 2017, China’s GDP is 63 percent of that of the United States, up from a mere 6.3 percent in 1978.

International Praise for China’s Reform and Opening-Up

China’s Reform and Opening-Up has earned international praise and admiration. Its alternative growth path, as compared to a conventional economic development strategy, has become the subject of extensive academic research and study. Economists around the world have described such achievements as simply miraculous!

However, miracle did not befall on China, nor was China’s success story the largess of the West. In fact, the country’s remarkable story was made possible by the farsightedness, perseverance and determination of the Chinese leadership and the hard work and sacrifices of its people.

Trade protectionism is undermining the global value chain, while China has been resolutely opposing trade barriers and keeping with the times to support WTO reform. (Photo/VCG)

Undeniably, China’s Reform and Opening-Up has benefited from globalization and free trade. By capitalizing on its abundance of low-cost labor, China quickly became the hub of the global supply chain. Meanwhile, free trade has opened up the global market to Made-in-China goods. By 2013, China had become the world’s largest trading nation, and the largest trading partner of more than 100 countries. Its foreign reserves rose to $3.14 trillion in 2017, up from a meager $.017 billion when Reform and Opening-Up began.

China’s demand for raw materials and goods for its expanding economy has provided the world with much needed impetus for growth. Similarly, its export of value-for-money consumer goods has enabled consumers around the world to achieve a higher standard of living than ever before.

Trade protectionism is undermining the global value chain, while China has been resolutely opposing trade barriers and keeping with the times to support WTO reform. (Photo/VCG)

According to research conducted by the Institute of Global Economics and Finance at the Chinese University of Hong Kong, Chinese imports have cut United States consumer goods prices by an estimated 27 percent, and have resulted in estimated average annual savings of $623 billion for United States consumers between 1994 and 2017.

Meanwhile, China-held United States Treasury Bonds, which have consistently exceeded $1 trillion in value every year since 2010, have helped the United States government cover federal spending that has sustained its economic growth.

In Africa, it was Chinese investments that kick-started the industrialization of the continent long overlooked by the West. China built massive transportation infrastructure projects which connect landlocked cities to major markets, spurring long-awaited economic growth and reducing spatial income inequality.

Belt and Road Further Deepens Reform and Opening-Up

To deepen its Reform and Opening-Up and further integrate China with the rest of the world, President Xi Jinping launched the Belt and Road Initiative in 2013. The Belt and Road Initiative is an ambitious transnational development project that stands to positively affect the destiny of two-thirds of mankind through five different types of connectivity: infrastructure, trade, finance, government-to-government exchange and people-to-people exchange.

Malaysia welcomes Chinese companies to bring in expertise and investment as the Southeast Asian country seeks to become a regional railway manufacturing hub, Malaysian Transport Minister Anthony Loke Siew Fook said on Thursday during a site visit to the rolling stock center of Chinese locomotives manufacturer CRRC in Malaysia, Loke said he hoped the close cooperation between the two countries would help Malaysia realize this aim. (Photo/Xinhua)

The Belt and Road Initiative is in fact China’s blue ocean strategy for globalization and represents its continuous efforts to reform its economy. This grand initiative also envisages extensive cooperation among vast number of developing economies for common prosperity and a shared future. Through the Initiative, it stands to achieve this by moving up the global value chain and rebalancing its regional economy.

“China’s reform will never stop, and its doors will only open ever wider,” President Xi Jinping explained in his 2019 New Year Speech, reiterating China’s commitment to Reform and Opening-Up as an ongoing evolution process.

In fact, this statement was underscored in a report published by the McKinsey Global Institute in December 2018, which concluded that, “China’s growth story is far from over.”

 

Mr. Koh King Kee is President of the Centre for New Inclusive Asia and an Associate Fellow of the University of Malaya’s Institute of China Studies. He is currently Director of the China Belt and Road Desk, Baker Tilly MH Advisory Malaysia.

Editor: Cai Hairuo

Opinion articles reflect the views of their authors, not necessarily those of China Focus

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Can the U.S. BUILD Act Counter China’s Belt and Road Initiative?

Can the U.S. BUILD Act Counter China’s Belt and Road Initiative?

Koh King Kee — Published in China Focus October 30, 2018

As China-proposed Belt and Road Initiative (BRI) extended its footprint, launching investment projects along both the ancient Silk Road as well as across the entirety of Eurasia and Africa, Washington saw an urgent need to counter China’s projection of influence. The BUILD Act is America’s belated response to BRI.

On October 5, 2018, the U.S. Senste passed the The Better Utilization of Investments Leading to Development Act (BUILD Act) which will transfer the functions, personnel, assets and liabilities of the Overseas Private Investment Corporation (OPIC) into a new development finance corporation known as the U.S. International Development Finance Corporation (USIDFC). Other existing federal programs will also be consolidated into the new institution.

Δ As an alternative to the BRI, the US Congress passed the Better Utilization of Investment Leading to Development Act (BUILD) Act on October 5, 2018.

Trump administration was expressly elated at the passing of this bipartisan bill. A Washington think tank, the Center for Strategic and International Studies (CSIS), proclaimed the Act to be the “most important piece of U.S. soft power legislation in more than a decade”.

“The new U.S. development finance institution (DFI) will help developing countries prosper while advancing U.S. foreign policy goals and enhancing U.S. national security interests,” CSIS asserted.

OPIC, the U.S. DFI created in 1971, was restrictive in its lending policies. It is out of tune with its European and Japanese peers. The BUILD Act represents the U.S. government’s effort to streamline and strengthen its development finance tools, “designed to jumpstart private sector investment in low and lower-middle income countries where private banks might be restricted from operating, where return on investing is riskier, or profitability has a much longer time frame.”

Δ Chinese workers build the new African Union Buildings in Addis Ababa, Ethiopia. October 17, 2010. (Photo/VCG)

As China’s Belt and Road Initiative (BRI) extended its footprint, launching investment projects along both the ancient Silk Road as well as across the entirety of Eurasia and Africa, Washington saw an urgent need to counter China’s projection of influence. The BUILD Act is America’s belated response to BRI.

Nevertheless, even with an increased investment spending cap of $60 billion, USIDFC funding appears minuscule in comparison with BRI — the trillion-dollar Project of the Century. China’s total investments in the China Pakistan Economic Corridor, the flagship project of BRI, are reported to exceed $60 billion. At the opening ceremony of the Forum on China-Africa Cooperation held in Beijing last September, President Xi pledged a further $60 billion of financial aid to Africa, on top of the $60 billion announced at the same summit held three years ago.

Δ A truck runs along the Karakoram Highway before the Karakorum Mountain range near Tashkurgan, Northwest China’s Xinjiang Uygur autonomous region, June 27, 2017. The highway stretches over 1,200 kilometers through the Karakoram Mountain, connecting Pakistan and Kashgar in Xinjiang. It’s also known as China-Pakistan Friendship Highway. (Photo/VCG)

BRI’s primary drivers are economic. Nonetheless, the consequential geostrategic impact favors China. This invariably invites discomfort from Washington. In particular, China’s extensive investments in seaports along the Maritime Silk Road, aimed at supporting its burgeoning international trade, are seen by US as a threat to its seapower, the foundation of America’s national security strategy.

Δ In a letter to the Washington Post, Ray W. Washburne, President and Chief Executive of OPIC and strong advocate of the BUILD Act, claimed that “the U.S.  can counter China’s Belt and Road Initiative.”

“The United States needs to be actively promoting a ‘real alternative’ to the state directed model that can leave developing countries worse off,” Washburne wrote, adding that USIDFC “would do just that.”

The BUILD Act empowers USIDFC with greater authority and increased funding. Apart from making loans or loan guarantees and providing technical assistance to special projects, the new institution is now allowed to take minority equity interests in entities, an move that was previously prohibited under OPIC. Its investment spending cap has been more than doubled, from $29 billion to $60 billion.

The BUILD Act, which has strong geopolitical overtones, is a significant reversal of Trump’s anti foreign aid stand from the days of his presidential campaign. In fact, OPIC was one of 62 agencies listed on the chopping block in Trump’s first budget as president.

Viewed in the wider context of intensified global US-China rivalry, USIDFC is unequivocally yet another tool employed by Trump designed to stymie China’s rise, in line with the paramount objectives of America’s National Security Strategy.

Δ “The president’s shift has less to do with a sudden embrace of foreign aid than a desire to block Beijing’s plan for economic, technological and political dominance,” the New York Times rightly pointed out.

“I’ve changed, and I think he’s changed, and it is all about China,” said Republican Representative Ted Yoho, chairman of the House Foreign Affairs Subcommittee on Asia and the Pacific. Yoho was one of the main supporters of the BUILD Act.

BRI has just turned five and as of this year, cumulative Chinese investment in this colossal project has totaled more than $50 billion, building over 80  economic and trade cooperation zones in 20 participating countries, generating some 200,000  jobs and $ 3.08 billion in tax revenue for partner countries.

Δ MV Cosco Netherlands, a giant container ship carrying Chinese-made commodities, arrives at Piraeus Port in Greece in August. (Photo/ China Daily)

With an enlarged $60 billion investment spending cap, can the BUILD Act counter China’s BRI, or dent China’s rising global influence? Is USIDFC a better model for development financing compared to China’s BRI?

Mr. Derek M. Scissors, a resident scholar at the American Enterprise Institute who studies the Chinese and Indian economies may have the answer: “I’m pretty skeptical,” he said. “The whole concept is that we give more money to big players who make investments in places where they don’t lose money. We’ve finessed the public relations problem. But we aren’t really competing with the Chinese.”

 

Mr. Koh King Kee is President of the Centre for New Inclusive Asia and an Associate Fellow of the Institute of China Studies, University of Malaya.

Editor: Cai Hairuo

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Chinese Firm to Continue Building Malaysia East Cost Rail Link

Chinese Firm to Continue Building Malaysia East Cost Rail Link

Koh King Kee — Published in China Focus July 5, 2018

Malaysia’s market previously was abuzz with talk that the project would be ditched by the newly elected Pakatan Harapan government as the cost was deemed too high and not viable.

Malaysias Finance Minister Lim Guan Eng, in an interview on June 23 2018 with online portal The Malaysian Insight, announced that the country will continue with the construction of the East Coast Rail Link (ECRL). We have already spent RM20 billion on the ECRL. So it doesn’t really make sense to just scrap it,” he said.

The new government now intends to renegotiate with China to reduce the project cost and terms of the loan. Prior to this, the market was abuzz with talk that the project would be ditched by the newly elected Pakatan Harapan government as the cost was deemed too high and not viable.

The East Coast Rail Link

ECRL is a 688km railway line that connects the east and west coasts of Peninsular Malaysia. It links Port Klang on the Straits of Malacca to Pengkalan Kubor in the northeast via Kuantan, the east coast seaport facing the South China Sea. On completion, ECRL will be Malaysia’s longest railway, passing through 45 tunnels totalling 39.1km, with 80 bridges, the longest of which is over 300m long.

ECRL, at a contract cost of 55 billion Malaysian Ringgit, is China’s biggest project under the Belt and Road Initiative in Malaysia. It is 85% funded by the Export-Import Bank of China with a soft loan at an interest rate of 3.25% and a seven-year moratorium for repayment. Construction work by China Communications Construction Co Ltd (CCCC) began in August 2017. As of May 2018, approximately 14% of the work had been done.

New Government to Review ECRL

In an electoral upset on May 9, the Pakatan Harapan alliance led by the nonagenarian former Prime Minister Tun Dr Mahathir Mohamad ended 61 years of Barisan Nasional rule. The rising cost of living, introduction of GST and Najib’s alleged corruption in the 1MDB scandal triggered a widespread voters’ revolt that led to the defeat of Najib Tun Razak. The new government has vowed to investigate mega infrastructure projects signed by the previous government which were considered suspect. ECRL was on top of the list.

“China might have been misled by our fellows,” said Tun Daim Zainuddin, a former Finance Minister who is now Chairman of the Council of Eminent Persons, a five-man council consisting of prominent businessman, academics, and retired high ranking civil servants formed by Tun Dr Mahathir Mohamad to advise the new government.

Tun Daim Zainuddin asserted that “China is very important to us. We enjoy very close relations, but unfortunately under the previous administration, a lot of Chinese contracts are tainted, difficult to understand and the terms are one-sided.” However he emphasized that business contracts with China will be dealt with in a diplomatic way as the Middle Kingdom is an important friend.

Continuation of ECRL Welcomed

Many welcome the new government’s decision to proceed with ECRL as the government will incur huge compensation costs if the project is terminated. To China, abandoning the iconic ECRL project would deal a serious blow to the credibility of the Belt and Road initiative.

Upon completion in 2024, ECRL will cut average travel time from Kota Bahru to Kuala Lumpur by half, from 8 hours to 4 hours. The new railway will bolster business activities, enhance the value of real estate in townships around the 23 stations it winds through, and accelerate economic growth in the east coast states of Pahang, Trengganu and Kelantan. With fast and convenient transport links, ECRL will also provide a much needed boost to the largely untapped tourism industry in this region.

Critics of ECRL

Some critics of ECRL are of the view that the east coast states are the economic backwaters of Peninsula Malaysia, and will be unable to generate sufficient passengers and freight to justify its construction. Moreover, the maintenance costs of the railway will be high and return on the investment will be marginal or negative.  Others have even ventured to argue that China’s interest in ECRL is primarily strategic, i.e. ERCL would serve as a land bridge across the Malay Peninsula for shipment of Chinese goods in the event of a blockade at the Straits of Malacca by China’s adversaries.

But these critics fail to take into account that mega transport infrastructure projects should not be evaluated solely based on commercial profits, as they are built to serve the economic needs of the country – all the more so for railways. Even in India where rail is a favored mode of transport, Indian Railways incurs losses on passenger operations every year.

Under the Belt and Road Initiative, there are now direct rail links between 35 cities in China and 34 European cities, as well as multiple highway networks connecting China and Eurasia. The China Pakistan Economic Corridor further opens up overland passage between Kashgar of Xinjiang and Gwadar Port in Pakistan, thus providing China a backdoor with easy access to the Indian Ocean. ECRL, therefore, has little strategic importance to China.

ECRL to Spur Economic Growth of East Coast

China has learned from its 30 over years of rapid economic growth that transportation infrastructure should be built moderately in advance of need. This tested experience is best described in the popular Chinese saying: “To become rich, first build roads” (要致富, 先修路). Transport infrastructure serves as a catalyst of economic growth; it is not a passive response to market demand. According to Malaysia Rail Link Sdn Bhd, owner-operator of ECRL, the project is expected to generate additional economic growth of 1.5% per year for the four states it covers, over the next 50 years.

Peninsular Malaysia’s East Coast is cut off from the economically more advanced West by the Main Range and has remained relatively underdeveloped since Independence. This is evidenced by the fact that the median household income of Kelantan in 2016 was only one third that of Kuala Lumpur. Lack of efficient transport infrastructure connecting the two regions appears to be the main handicap. The ECRL is expected to bring greater economic parity between the East and the West of the Peninsula, thus integrating the Malay hinterland with the national mainstream, both politically and socially.

China-Malaysia Economic Ties in the New Era

China and Malaysia trade ties date back to the days of the ancient Maritime Silk Road. Since 2009, China has been Malaysia’s largest trading partner, with bilateral trade reaching a high of RM290 billion in 2017.

 

▲ Due to its strategic location, Malaysia has benefited greatly from the Belt and Road Initiative. In fact, according to The Economist Intelligence Unit’s 2017 China Going Global Investment Index, Malaysia ranked 4th as the most attractive destination for Chinese ODI.

In a recent interview with South China Morning Post, Prime Minister Tun Dr Mahathir Mohamad said Malaysia wants to strengthen its relationship with China and reiterated his support for President Xi’s Belt and Road Initiative. He welcomes investment from China that will create jobs, transfer technology, and broaden global markets for Malaysian products.

Meanwhile, during a panel discussion at a Belt and Road Initiative Summit in HongKong on June 28 2018, the Chairman of CCCC, Liu Qitao said he is “not overly concerned” about risks related to the change in the Malaysian government and its pledged review of ECRL.  “This project is based on business principles — it is very open and transparent,” he said.

Tun Dr Mahathir Mohamad has announced that he will soon make an official visit to China to clear the clouds over mega infrastructure projects signed by the previous administration. As a seasoned politician and an old friend of China, most Malaysians are confident that he will be able to reach a win-win solution, driving China-Malaysia economic ties to a new height.

 

 

Koh King Kee is the Director of China Belt and Road Desk, Baker Tilly MH Advisory Sdn Bhd, Malaysia.

Editor: Cai Hairuo

Opinion articles reflect the views of their authors, not necessarily those of China Focus

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Did China Get Sri Lanka to Cough Up a Port?

Did China Get Sri Lanka to Cough Up a Port?

Koh King Kee — Published in China Focus July 30, 2018

“China got Sri Lanka to cough up a port,” said the New York Times in a widely quoted article published on June 25, 2018.The article claimed, “Every time Sri Lanka’s President Mahinda Rajapaksa turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes.

“China got Sri Lanka to cough up a port,” said the New York Times in a widely quoted article published on June 25, 2018.

Δ The article claimed, “Every time Sri Lanka’s President Mahinda Rajapaksa turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes.

“Yes, though feasibility studies said the port wouldn’t work. Yes, though other frequent lenders like India had refused. Yes, though Sri Lanka’s debt was ballooning rapidly under Mr. Rajapaksa,” the paper asserted.

Are the allegations true and fair?

Feasibility Studies on Hambantota Port

The Sri Lankan government has long wanted to build a seaport in Hambantota. Two feasibility studies were conducted before the Sri Lankan government embarked on the ambitious Hambantota port project.

Δ Container ships are pictured docked at the Colombo South Harbor, funded by China, in Colombo, Sri Lanka, July 26, 2016. (Image Credit: REUTERS/Dinuka Liyanawatt)

The first feasibility study was completed in 2003 by a Canadian engineering firm, SNC-Lavalin. However, it was rejected by the ministerial task force on the grounds that it was not bankable and was incomplete since the study overlooked the port’s potential impact on Colombo Port.

Three years later, Ramboll, a Danish consulting firm undertook a second feasibility study and adopted a more optimistic view of the potential of Hambantota Port. It projected that dry and bulk cargo would constitute the main traffic for the port until 2030. Hambantota Port was expected to handle approximately 20 million twenty-foot equivalent units by 2040.

Tsunami Devastates Hambantota

On December 26, 2004, a magnitude 9.1 earthquake with its epicenter off the west coast of Indonesia’s Sumatra island triggered a series of deadly tsunamis across the Indian Ocean, killing an estimated 230,000 people in 14 countries.

 

Δ The 2004 Indian Ocean earthquake occurred at 00:58:53 UTC on 26 December with the epicentre off the west coast of Sumatra, Indonesia. The shock had a moment magnitude of 9.1–9.3 and a maximum Mercalli intensity of IX (Violent). Indonesia was the hardest-hit country, followed by Sri Lanka, India, and Thailand.

Sri Lanka was the second hardest hit. The strong waves wiped out entire villages and townships in the south and east coast of the island nation, caused 30,000 reported deaths, damaged highways and railways, destroyed schools and hospitals and left 900,000 people homeless.

Hambantota, a bustling southeastern coastal town known for its salt production, was completely devastated.

Hambantota Port Project not Initiated by China

Hambantota is home to Mahinda Rajapaksa, the sixth president of Sri Lanka, and his electoral district. When coming to power in November 2005, he wasted no time in launching several big-ticket infrastructure projects to revitalize the economy of his hometown. Hambantota Port, a project first mooted by his father, was one of them.

In a brief published in April 2018, the Center for Strategic and International Studies, an influential U.S. think tank, affirmed that Hambantota Port was not a China-initiated project. In fact, Hambantota Port was constructed long before the Belt and Road Initiative (BRI) was launched in 2013.

China’s Loan to Finance Development of Hambantota Port

India was the first country Rajapaksa turned to for financial help to build Hambantota Port. However, his request was rejected as India deemed the project economically unviable. The multilateral development banks, or MDBs, were also unwilling to lend their support to the project.

China saw the potential of Hambantota Port, which strategically lies a mere 10 nautical miles north of the busy Indian Ocean international shipping route. It not only meets the logistical needs of China’s burgeoning global trade, but also serves as a transshipment hub and a supply base providing bunkering facilities to the large number of vessels plying one of the busiest shipping routes in the world. India’s relaxation of its cabotage rules in May greatly enhanced Hambantota’s status as the transshipment port for goods destined for the subcontinent.

Δ Hambantota Port holds the expectation of Sri Lanka’s development.

Exim Bank of China eventually agreed to fund 85 percent of Hambantota Port’s Phase 1 construction costs after much negotiations. The 15-year commercial loan of $306 million carried an interest rate of 6.3 percent with a four-year moratorium.

“The Sri Lankan team did try to seek a preferential loan from China, but the quota of China’s preferential loans then to Sri Lanka had been used for the Norochcholai Coal Power Plant and other projects,” China explained in a Xinhua News Agency report in 2015.

Sri Lanka was given two options for the interest rate: A 6.3 percent fixed rate or a floating rate pegged to the London Interbank Offered Rate, which was over 5 percent then and trending higher. In October 2007, Sri Lanka issued a Fitch BB-rated, 5-year sovereign bond at 8.25 percent, not surprising for the island nation that was still mired in a prolonged civil conflict with the Tamil Tigers.

Exim Bank of China later provided additional loans totaling $900 million to finance Phase 2 of the Hambantota Port project at 2 percent, a preferential rate enjoyed by 77 percent of Chinese loans to Sri Lanka.

Hambantota Port Suffered Losses After Opening

Construction work for Phase 1 of Hambantota Port, undertaken jointly by China Harbour Engineering Company (CHEC) and Sinohydro Corporation, commenced in January 2008. The port became operational on November 18, 2010, five months ahead of schedule.

However, Hambantota Port was unable to generate sufficient revenue to meet its loan obligations due to inadequate governance, lack of commercial and industrial activities, as well as its inability to attract passerby vessels to dock at the port. By the end of 2016, it suffered a total loss of $304 million.

Majority Control of Hambantota Port Goes to CMPH

Amid mounting pressure to meet the International Monetary Fund’s bailout terms and loan repayment obligations, the Sri Lankan government struck a public-private partnership (PPP) deal with China in July 2017, giving majority control of Hambantota Port to CMPH, which is listed on the Hong Kong Stock Exchange (HKSE).

According to the filing made by CMPH to the HKSE, the terms of the concession agreement related to Hambantota Port were as follows:

  1. CMPH would make an investment of $1.12 billion in Sri Lanka, out of which $974 million would be used for the acquisition of 85 percent shares in the Hambantota International Port Group (HIPG), a company which was granted a 99-year term by the Sri Lankan government to develop, manage and operate Hambantota Port valued at $1.4 billion.
  2. HIPG would acquire 58 percent of Hambantota International Port Services (HIPS), which had been given the exclusive rights to develop, manage and operate the Common User Facility of Hambantota Port.
  3. The Sri Lanka Port Authority (SLPA) would hold 15 percent and 42 percent equity interest in HIPG and HIPS, respectively.
  4. The remaining $146 million would be deposited in CMPH’s Sri Lanka bank account for the purpose of future development of the port and marine-related activities.
  5. Within 10 years from the effective date of the concession agreement, SLPA has the right to buy back 20 percent shares of HIPG on terms mutually agreed upon.
  6. After 70 years, SLPA could acquire CMPH’s entire shareholdings in HIPG at a fair value to be determined by the valuers appointed by both parties.
  7. On expiry of 80 years, SLPA could buy up CMPH’s shareholdings in HIPG for $1, leaving CMPH with 40 percent shareholdings in HIPH.
  8. After 99 years, CMPH would transfer all its shareholdings in HIPG and HIPS to the Sri Lanka government and SLPA at a token price of $1 upon termination of the agreement.

The concession agreement went into effect on December 9, 2017.

To increase industrial and commercial activities at the port, China further undertook to develop a 50 sq. km economic zone and build a liquefied natural gas plant and a tourist dockyard. China will also invest between $400 million to $600 million to develop phase 3 of Hambantota Port which is expected to be completed by 2021.

The PPP thus is not a debt-equity swap but a fresh investment by CMPH amounting to $1.12 billion. The loan taken by SLPA for the construction of Hambantota Port was transferred to Sri Lanka’s treasury. CMPH’s investment in HIPG will be disbursed in three tranches of $292 million, $97 million and $584 million, with the balance of $146 million to be deposited in CMPH’s Sri Lanka bank account for future use.

Δ Photo taken on July 5, 2018 shows the scene of a media briefing held at the Chinese Embassy in Colombo, Sri Lanka. China is full of confidence in the future development of Sri Lanka and dismisses allegations that the island country faces a “debt trap,” the Chinese Embassy in Colombo said here Thursday. (Xinhua)

Hambantota Port: A Lesson China Learned

Sri Lanka had a dream; its government had a vision: To turn strategically-located Hambantota into one of the busiest ports in the world.

When its neighbor turned its back, when the MDBs were cold to the project, China provided the funding and built Hambantota Port with good intentions.

However, as the dream went sour, China got the blame. The storyline was twisted. Hambantota became the oft-cited case of “debt trap” under the BRI. China was accused of twisting Sri Lanka’s arm “to cough up a port.”

Hambantota is a lesson China should learn: BRI projects must be transparent. World perception is as important as the intention.

According to a recent report by the Financial Times, “China’s development banks—the biggest lenders in the sector worldwide—are ramping up co-operation with overseas financial institutions after problems with international investment projects.”

China’s Development Bank is now “considering combining its lending efforts with western financial institutions that require adherence to ‘international standards’—including open, competitive tenders for project contracts as well as public studies on environmental and social impacts,” the paper highlighted.

Perhaps China has learnt a lesson from Hambantota Port.

 

Koh King Kee is the Director of China Belt and Road Desk, Baker Tilly MH Advisory Sdn Bhd, Malaysia. The views expressed in this article are strictly personal.

Editor: Cai Hairuo

Intern Editor: Shou Pan

Opinion articles reflect the views of their authors, not necessarily those of China Focus