Chinese scholars calls on SL to play proactive role in BRI

Sri Lanka should be more proactive in grasping the opportunities that have been provided through the Belt and Road Initiative (BRI), insisting greater bilateral economic cooperation is critical, a group of top Chinese scholars said recently.

During a brief visit to Sri Lanka, a group of Chinese academics shared insights on BRI at Five Years: Regional and Global Dimension, while also highlighting the significance of Sri Lanka’s role and the benefits for the country. 

China Institute of International Studies (CIIS) Vice President and Senior Research Fellow Dr. Rong Ying, Centre for South Asia Studies, National Institute of International Strategy, Chinese Academy of Social Sciences (NIIS, CASS) Director Prof. Ye Hailin and Institute of International Trade Studies, Chinese Academy of International Trade and Economic Cooperation Deputy Director Prof. Zhu Caihua took time off to speak to the Daily FT in an exclusive interview. Below are excerpts from the interview.

By Charumini de Silva

Q: What can you say about the progress made by BRI so far? And what are the immediate and potential business and economic opportunities across partner countries? 

Prof. Zhu: BRI is an open initiative for international cooperation. Personally, I think we attach too much attention to infrastructure in the BRI because establishing infrastructure is a crucial factor for development. Development of infrastructure should be the first step, and when we reviewed the five-year anniversary of the BRI, we observed that we have already built a lot of projects. If we call the next five years as the second phase of BRI-building, we need to give more attention to other cooperation areas, such as connectivity in trade, people, policy coordination in finance, so on and so forth. Therefore, I think for Sri Lanka and for many other developing countries who are involved in many projects that are being built under the BRI frame work with China, we need to work together to make these projects economically viable to create jobs for the local people, to increase exports to the world, and particularly to China. 

China is still sticking to its open development strategy, which is quite different from the past open development strategy of the country. One of the most outstanding characteristics is that China is now opening up in two-ways, but in the past, we were only open for investments and technology for international markets; to develop ourselves. Right now, China can also provide capital, technology and market access to the rest of the world. We are working or partnering the countries with BRI. 

However, in opening up and giving market access, the key issue still remains on the partnering countries’ readiness to harness this opportunity, especially to export more to China. It is important to explore opportunities on how to make this floor of goods, service and people be liberal and facilitated. This means we have to prepare a very good business environment in the partner courtiers for Chinese investors to invest more and facilitate their goods through better Custom procedures and so on. I believe that is what we can do in the next stage of BRI-building to truly boost our investments and trade.

Q: The BRI will require more than just building physical infrastructure. What are your thoughts on soft infrastructure, such as facilitating the movement of people, goods and services across borders? 

Prof. Zhu: I think, maybe as a first step, China and Sri Lanka can launch negotiations on a bilateral trade agreement to help build soft infrastructure for goods, services, and investment flow between the two countries. For Sri Lanka, human capital development is very important. Actually, in the framework of BRI, China has also launched a lot of programs in training people in the BRI countries – especially training our diplomats in Southeast Asia as well as skilled Chinese workers. I believe programs of this nature, where engineers train local people will also help Sri Lanka on human capital development. Human capital development is quite an essential issue for both countries and we need to have further cooperation because without people, we cannot do anything. 

Q: You mentioned a bilateral trade agreement. What is the latest update on the China-Sri Lanka free trade agreement (FTA)?

Prof. Zhu: We have already concluded five rounds of negotiations. In the China and Sri Lanka FTA, the focus will be on letting Sri Lanka have more access to the Chinese market. China will open more to Sri Lanka and also an investment chapter will be included in this FTA negotiation. 

Q: Attracting more FDI can be a big gain, which remains a priority for Sri Lanka. As part of the BRI, there have been significant Chinese investments in Sri Lanka already. What are the future investments that are in the pipeline?

Prof. Zhu: I took part in a meeting of our country’s National Development and Reform Commission (NDRC), and they are planning such projects overseas around the BRI. In my view, this is open for all the countries to apply for potential projects. This pipeline of projects cannot be done only by the Chinese side; we need very good mechanisms to organise and screen out the most commercially viable projects. In the BRI project, China is not a donor. We just want to cooperate with countries which are willing to cooperate with China, especially in areas where China has advantages. Almost all the projects in Sri Lanka are initiatives proposed by the Government of Sri Lanka, such as the Port City. It’s a joint venture. In the first half of this year, Chinese investments in Sri Lanka has accumulated to over $ 1 billion, while under the BRI project, Sri Lanka has currently secured up to $ 8 billion of financing from China. 

Q: How concerned are you about the economic viability of these infrastructure projects?

Prof. Zhu: It depends on the type of loans given to Sri Lanka. If it is given totally by the Chinese Government, it is a Government-to-Government transfer. I think much of China’s loans to Sri Lanka comprise of bank loans through China Development Bank or the EXIM Bank of China. Therefore, the principle guideline for banks to grant loans is to at least get the rate of return on investment (RoI). In terms of infrastructure projects, the RoI is long-term, and the direct economic benefits are the only consideration for both parties, because this is the first step of economic development. Only when roads, railways, airports, and ports are established can you think of how to develop your economy. Therefore, these kinds of infrastructure projects are public goods. In some sense, commercial viability is important, but not the most important. It’s better to teach you how to fish than just give you fish. 

Q: Currently, Sri Lanka is walking a tight rope, seeking economic benefits from China under the BRI, while maintaining close relations with the US, Japan and India. How does China feel about the mistrust in the Indian Ocean region? 

Prof.Ye: China would like to see regional cooperation. We won’t compromise our partner’s interest. I sincerely hope India, as the biggest country in the Indian Ocean, would have the biggest heart to hold an open mind for the trans-regional cooperation. Many thought (experts) India is the priority in the Indian Ocean, but in my understanding, India is not a dominating player in the Indian Ocean. The whole speculation whether China will be a threat for India’s dominancy in the Indian Ocean is when there is actually no Indian dominance at all; we need to think broadly. The Indian Ocean needs Asia joining to maintain the regional stability instead of the Western powers trying to dominate this region. China’s economic progress has caused some threat to the Indian dominance in this region. However, I think Indian dominance is far away and a long-term goal in this region. 

Q: How has the trade war between the US and China impacted the expectations and confidence of BRI partner countries? 

Prof. Zhu: I think it is a very difficult time for both China and the US because no one can win between trade wars. This kind of tariff trade war can hurt both parties, especially in this era of globalisation. The tariff retaliation between the two major economies in the world would impact entire global value chains and will cause damage. One of the key reasons for this situation was that both countries were not prepared for the fast change which happened between China and the US. The US scholars even said they had no time to be astonished let alone speak of China’s growth in so many dimensions. Frankly speaking, from the Chinese side, we were also not so prepared to meet these challenges. However, in terms of addressing this issue, we still think that both countries need to sit down, negotiate and find out solutions to let both countries benefit from each other’s economic interactions. China will not cease its pursuit of scaling up industries from low technology to high-end industries — that is the critical point. The Chinese companies and prices are more competitive with US companies and prices. China has industrial policies to support the strategic industries. I think, this cannot be avoided. China cannot give up in this regard because we have no advantage in low cost, low technology industries. If we don’t scale up in our industries, we will be stuck in the middle income trap, which I believe no economy would like. The only way to escape this trap is to scale up its industries. I don’t think China will give up in this regard. Nevertheless, both countries still have room to cooperate. Globalisation directly creates a huge global market for the companies both in China and the US and this globalisation creates many opportunities for Chinese and US companies. For example, for Huawei, we import our silicon chips from the US. This purchase supports the US company’s growth and by cutting off this linkage, both companies will be damaged. I don’t think enterprises want it happen. From China’s side, we will open deeper and will do more reforms in our domestic policies and regulations. For example, in terms of the State-owned enterprises (SOEs), we need to let the market play a decisive role in allocating resources; that’s what we are planning to reform in the future. I think this reform will help alleviate the kind of pressure from the US. We will also lower tariffs on imports of cars and vehicles from the US and will open up our financial sector, including banks, securities, and the insurance sector. The financial sector is the US’s advantage, so China’s opening up will benefit the US. To some extent, this will meet demands of the US, but I don’t think China will meet all the demands of the US.

Q: Would the trade war between China and the US have an impact on BRI partner countries investments? 

Prof. Zhu: I think the facts and figures will answer to that because China has been the largest investor in the world this year. Despite the fact that global investments overall declined in the first half of this year, China’s investments abroad is still rising — that is the truth. The trade war between the US and China will not affect China’s investments abroad, especially in the BRI partner countries. 

Q: Any final remarks? 

Dr. Yong: I think China and Sri Lanka are enjoying a healthy relationship politically and economically. Personally, I think bringing this relationship to a higher level will reap more benefits to the people through new areas, such as trade, where Sri Lanka has very good potential. You were and you are the most strategically developed country in South Asia. I believe if I was an investor, I would be very satisfied with the potential Sri Lanka has. I believe this is one key factor as to why the Chinese Government is promoting the potential of Sri Lanka and working closely to expand and deepen the trade economically, particularly with the dawn of peace. With the launch of BRI, it opened up new avenues, opportunities for many partnering countries to be better integrated in a regional and global context. The point I would like to make is that as far as the Chinese are concerned, Sri Lanka is not only country in the BRI and there is a sense of competition. I think Sri Lanka should be more proactive in grasping the opportunities that have been provided through the BRI. The Government of China is doing this out of sincerity. All this cooperation is based on mutual benefit, respect and sovereignty. We are not pursuing a kind of interest at your expense. I believe this is just the beginning, and Sri Lanka and China will continue to prosper from this relationship.

Pix by Ruwan Walpola