Is China the friend and US the enemy?

Sri Lanka should be seen as a smart player in the global economy, utilising its strategic assets to benefit from major global economies such as China and USA without favouring any particular country – Pic by Shehan Gunasekara

During the twists and turns that took place in the political sphere in November, one could also see how the political factions seemed to interpret the reactions of the international community. 

One faction was quick to accuse the Western powers of being partial and trying to destabilise the country. The other faction seemed happy to be seen as the “friend” of the Western powers although recent history clearly shows that absolutely no additional support was received in terms of economic development. For an independent observer, both factions seem to be faulting on foreign policy.

Is the US our enemy?

It is a fact that the “weak” despises the “powerful”. Sometimes it’s justified as well. For law doesn’t seem to apply evenly, with the “powerful” being allowed to do just about anything while the “weak” are harassed for the slightest wrong doing. The political mess in many countries in the Middle East subsequent to military intervention by USA is powerful ammunition for anti US sentiments.

However let’s look at the facts. For Sri Lanka, USA provides the highest external trade surplus (of $ 2.4 b in 2017). For a country that has a chronic external trade deficit, this substantial trade surplus is priceless. What it means is, USA is Sri Lanka’s number one customer. If “Customer is King,” the USA is King for Sri Lanka. 

To put it differently, without firing a single bullet, the USA could bring the Sri Lankan economy to its knees. If President Trump wakes up tomorrow morning and tweets a 25% tariff on Sri Lankan apparel imports to USA, that’s exactly what would happen. No other country has that much of an influence over the Sri Lankan economy. Such a measure is not impossible by any means considering the aggressive way in which he has dealt with China, imposing tariffs on billions of dollars of Chinese imports. Further, unlike countries such as UK and Canada where their own political fortunes to some extent depend on the policy towards Sri Lanka, USA does not have such prejudices. Even the comments made by the new US Ambassador to Sri Lanka, were probably not partial although some factions interpreted it otherwise. Simply put, the US bashing community should seriously think twice as facts and logic don’t justify it.

Is China our friend?

Irrespective of who’s in power in Sri Lanka, China seems to be the reliable friend who would always be there. This “friendship” is via its financial or investment strength and capability. Whether it’s highways, ports or any other infrastructure development, it’s China who’s ready to invest. 

However, let’s check the facts. Sri Lanka’s trade deficit with China in 2017 was $ 3.7 b. China’s annual investments in Sri Lanka are significantly less in comparison. It wouldn’t be too wrong to interpret that what China invests in Sri Lanka is actually only a portion of what Sri Lanka provides by buying Chinese goods. Further, what China invests are in the form of loans which needs to be repaid over time. The experience with Hambantota Port shows that with improper economic management, China would convert these loans to acquire strategic Sri Lankan assets. This is (rightly) the exact concern of US, India and the Western world.

Sri Lanka should look after itself

Sri Lanka cannot find fault with any country for its own incompetence. The global economy is quite competitive and every single country has its own set of problems which they need to focus on. No country could be bothered to seriously evaluate another country and form a strong economic plan for that country. What’s best for Sri Lanka should be formulated by Sri Lankans and not by anyone else.

A starting point for Sri Lankan policy makers would be to understand what real, long lasting foreign assistance is. More often than not, we come across cases of building some houses or donating some vehicles as aid by foreign countries. However in the global economy, the real, lasting assistance would be in terms of helping to develop industries and get connected to the global economy. That would provide employment, boost household income and develop the economy in a sustainable manner.

“Give and take” – how world economy works

There is no free lunch in the world economy. We cannot expect favours from any country. If we expect something, it would be in return of something that we could offer which is important to the other country.

Arguably, Sri Lanka’s most strategic asset is its location. With China aspiring to become a superpower, Sri Lanka would be a crucial frontier for China in the Indian Ocean. Therefore Sri Lanka has something valuable which could be offered carefully in exchange of lasting benefits for Sri Lanka. Thus in exchange of increasing presence in Sri Lanka, we could and should insist that Chinese companies invest in Sri Lanka to develop industries. 

This could be the large Chinese companies such as Huawei and Lenovo or small-medium enterprises in industries such as Toys, Light Electronics, who could set up production bases in Sri Lanka. The objective should be to boost exports and/or reduce value added imports. The Government should assist the process by offering subsidies and tax incentives to such industries but ensure that local investors also benefit while providing employment to locals. Training institutes would have to be set up to ensure the availability of skilled labour.

On the other hand, Sri Lanka should ease the fears of USA that Sri Lanka is falling to a Chinese debt trap. Revisiting the Hambantota Port sale and making it more favourable to Sri Lanka should be a good starting point. USA is increasingly concerned about the challenge posed by China for economic supremacy, and assurance of not setting up a Chinese frontier in the Indian Ocean would be comforting for the USA. In return, Sri Lanka could and should expect economic benefits from USA. 

Almost all the recently developed countries, developed by penetrating the US market (including China) and USA provided preferred status to at least some of those countries by providing trade concessions. Hence, negotiations should commence with USA regarding such trade concessions. It is the ideal time as well, with USA trying to reduce exposure to imports from China.

Basically, Sri Lanka should be seen as a smart player in the global economy, utilising its strategic assets to benefit from major global economies such as China and USA without favouring any particular country. That’s how business works best at any scale. Both the major political factions in Sri Lanka would do well to realise that.

(The writers can be contacted via [email protected])