Japanese expert on Chinese development assistance shares key insights

Says China now has to face debt sustainability issues of low income countries which have received a large number of Chinese loans Reveals China will reconsider its investment models Highlights Sri Lanka’s roads need to be further improved Says Japanese-funded Sri Lanka’s first light rail system will boost transportation capacity

At a time when most countries are casting doubts over China’s financial support to developing countries, terming the support as a debt trap, Prof. Naohiro Kitano said that host countries need to use external resources wisely to give the benefit to their people.

“The ownership and balanced approach of host countries is of foremost importance in wisely utilising the external resources to benefit their own people,” he said.

However, he said that China, which had heavily invested in infrastructure development in developing countries spending a large amount of external financing, was reconsidering the sustainability of its infrastructure investment model. 

Prof. Kitano is the professor at the Global Centre for Science and Engineering Faculty of the Waseda University, Japan and also a former member of the China-OECD ADA study group.

He delivered a lecture on ‘Key features of Japanese Official Development Assistance (ODA) in the 21st Century’ at the Bandaranaike Centre for International Studies recently.

He express hope that China may give some concessions to developing countries like Ethiopia, which had a debt repayment crisis, by means of extension of period for repayment. 

Prof. Kitano also discussed China’s plans to introduce the Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative. 

Following are excerpts of the interview:

By Shanika Sriyananda 

Q: What are your views on Japan’s ODA to Sri Lanka’s development, especially for infrastructure development?

We have a long history of cooperation. In 1954 Japan joined the Colombo Plan and in the same year, the first batch of six Sri Lankans participated in a technical training program in Japan. Technical cooperation programs in Sri Lanka started in 1962 while the first Japanese ODA loan was extended in 1976. In 1981 the first batch of 11 Japanese volunteers arrived in Sri Lanka. 

Currently, Japan has three priority areas for cooperation: first, infrastructure development for economic growth; second, social and economic improvement in rural areas; and third, social infrastructure development to mitigate vulnerability. You can see that infrastructure development is the top priority in our cooperation program

Currently, Japan has three priority areas for cooperation: first, infrastructure development for economic growth; second, social and economic improvement in rural areas; and third, social infrastructure development to mitigate vulnerability. 

You can see that infrastructure development is the top priority in our cooperation program. We have provided ODA loans for many important infrastructure projects, such as development of the container terminal in the Port of Colombo, Bandaranaike International Airport, Mahaweli Development Project, Upper Kotmale Hydropower Project, Southern Expressway, and New Bridge Construction Project over the Kelani River. These projects have contributed to the social and economic development and improvement of people’s welfare in Sri Lanka.

Q: How do you view the present condition of the roads and highways in Sri Lanka and what more do you believe should be done to improve conditions and to ease traffic in major cities?

 In Sri Lanka, according to some reports, road density and coverage is relatively better compared with other developing countries.

However, there is a growing demand for transport nation-wide and the provincial and local roads need to be further improved. Japan has been working with the Sri Lanka by providing a series of ODA loans. In Colombo metropolitan areas, I have realised that many highways are operating at near or over capacity, especially during peak periods. An environment-friendly and safe transport system such as LRT, expansion of the road network and introduction of ICT to improve traffic management is essential to solve road congestion.

Q: How effective do you think the proposed Light Rail Transit System in Colombo will be in transport management in the capital?

 During my visit to Colombo this time, I had a chance to travel along the new LRT route, which will connect Colombo’s commercial hub with the administrative capital. The traffic congestion is serious. The new LRT system, which is the first LRT for Sri Lanka, will boost the transportation capacity and improve safety and comfort of public transportation and significantly reduce travel time in the most congested transport corridor in the country. This project will also improve the urban environment through a reduction in air pollution and other traffic pollution. I hope that the project will be completed in 2026 on time and bring about an impact in the capital city.

At the same time, we could also study the possibility of introducing an integrated approach of land and transportation planning and the smart city concept to Colombo. In Japan, there is a medium-sized city called Utsunomiya which will introduce new LRT in 2022 in order to create a compact city to deal with the decrease in population. Although the size and situation are different, simultaneous experience sharing on the new LRT might be beneficial for both cities.

Q: What are your thoughts on JICA projects that have contributed to inclusive growth in the country and also how does this funding help mitigate climate change and disaster management?

 Aside from large-scale projects, we have also worked together for improvement of rural infrastructure, water supply and sewerage system, and power distribution system. These projects have been contributing to inclusive growth in the country.

Regarding the impact of infrastructure project on poverty reduction, JICA conducted a scientific study on the impact of the Walawe Left Bank Irrigation Project in Sri Lanka funded by JICA. The study found that the irrigation project contributes to an increase in per capita income and per capita consumption expenditure of rural farmers.

There is a very interesting project. A Japanese company, Kawashima Co., Ltd., produces the screw type composting plant Kawashima composting machine. Using JICA’s private sector scheme, SME Verification Survey, Kawashima Co. conducted a pilot recycling project by introducing its composting plant for recycling organic garbage and agricultural waste in the Kandy District. The plant was put into operation in 2016 and has produced good quality organic fertiliser. The Sri Lankan Government decided to install Kawashima composting machines in all nine provinces by appropriating funds for this in the Budget. This project could contribute to reducing a large portion of garbage at dumping sites, reducing the Local Government’s expense for garbage disposal, making garbage collection and treatment sustainable, reducing methane emissions from garbage disposal sites, and positively addressing climate change issues.

Q: How do South Asian countries like Sri Lanka benefit from the vision for ‘Free and Open Indo-Pacific’?

 In 2016, Prime Minister Abe announced his vision for ‘Free and Open Indo-Pacific’. The basic idea of this concept is that a key for stability and prosperity of the international community is the dynamism that is created by combining ‘Two Continents’ (Asia and Africa) and ‘Two Oceans’ (free and open Pacific Ocean and Indian Ocean), which could contribute to develop a free and open Indo-Pacific region as ‘international public goods’. There are three principles of this concept: first, promotion and establishment of the rule of law, freedom of navigation, and free trade; second, pursuit of economic prosperity; and third, commitment for peace and stability. 

During my visit to Colombo this time, I had a chance to travel along the new LRT route, which will connect Colombo’s commercial hub with the administrative capital. The traffic congestion is serious. The new LRT system, which is the first LRT for Sri Lanka, will boost the transportation capacity and improve safety and comfort of public transportation and significantly reduce travel time in the most congested transport corridor in the country. This project will also improve the urban environment through a reduction in air pollution and other traffic pollution. I hope that the project will be completed in 2026 on time and bring about an impact in the capital city

Improving three connectivities are important elements of the second principle: first, physical connectivity enhancing quality infrastructure such as ports, railways, roads, energy and ICT; second, people-to-people connectivity – education, training and friendship; and third, institutional connectivity – harmonisation and common rules including through EPA/FTA.

I think many of our ongoing and planned cooperation is in line with the vision for ‘Free and Open Indo-Pacific’.

Q: How is this different from the Chinese Belt and Road Initiative?

 The original idea of vision for ‘Free and Open Indo-Pacific’ was in fact announced much earlier than BRI. PM Abe has stressed on the importance of Indo-Pacific since he first served as PM back in 2007, when he made a speech about the ‘Confluence of the Two Seas’ at the Indian Parliament, while BRI was proposed in 2013. 

Q: As a former member of the China-OECD ADA study group, what are your views on China’s foreign aid policy and the future of South Asian countries like Sri Lanka, which are indebted to China?

 I think that the ownership and balanced approach of host countries is of foremost importance in wisely utilising the external resources to benefit their own people.

China’s foreign aid amounts to $ 6.6 billion as a proxy of definition of Official Development Assistance (ODA) and it has increased significantly since 2004. China has initiated to establish the Asia Infrastructure Investment Bank (AIIB), and since 2015, it started to pay paid-in capital for AIIB which is around $ 1 billion for five consecutive years. Because of that, China’s foreign aid amount has increased significantly in 2015.

Now China has to face debt sustainability issues of low income countries which have received a large number of Chinese loans.

We can observe the changing trend of outstanding amounts of China Development Bank and China Exim Bank, the two main policy-based financial institutions, which are playing a significant role in developing countries.

In the case of China Development Bank, the major role is to provide domestic finance for infrastructure development within China, but it also provides foreign currency loans to developing countries. But the outstanding amount of foreign currency loans has decreased from 2016 to 2017. It implies that its policy of extending its loans did not continue to increase for developing countries. 

In Colombo metropolitan areas, I have realised that many highways are operating at near or over capacity, especially during peak periods. An environment-friendly and safe transport system such as LRT, expansion of the road network and introduction of ICT to improve traffic management is essential to solve road congestion

China Exim Bank, which also has an outstanding amount, has been increasing quite rapidly. However, between 2016 and 2017, the increased gross rate has also decreased compared to the previous years.

China has provided a large number of loans to Ethiopia with a very short repayment period of 10 years. After having negotiations between Ethiopia’s new Prime Minister and the Chinese Government, China has agreed to extend the repayment period by another 10 years, giving them a total of 30 years.

Debt sustainability is an issue in the G20. Some of the African countries’ debt sustainability is in the warning stage due to high borrowing rate. The IMF has a very detailed analysis on this issue. Those African countries are in need of avoiding debt crisis and need to take preventive action soon to manage their debts.

China has already recognised this issue and in several of its official documents, it has stated that China is ready to support African countries to improve debt sustainability. 

Meanwhile, China has invested in heavy infrastructure development in developing countries, spending a large amount of external financing. China is reconsidering whether this kind of model is sustainable or not. China may give some concessions to developing countries like Ethiopia by means of extension of period for repayment. 

During the second Belt and Road International Cooperation Forum Summit in April 2019, China’s Finance Ministry has announced the introduction of the Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative. IMF valued China’s policy adjustment.

Q: How do you assess the development in Sri Lanka now compared to the days you worked at the Port as a young officer?

 I worked for the Colombo Port project 35 years ago and first visited your country in 2006. There is a family in Colombo with whom I have been friends for a long time. We met in 2006 and again this time. The scenery of the city has changed so significantly, but our friendship does not change. I hope that Sri Lanka will become a prosperous country while maintaining stability and peace.