Identifier
Created
Classification
Origin
09COLOMBO745
2009-07-29 11:29:00
CONFIDENTIAL
Embassy Colombo
Cable title:
SRI LANKA: CHINESE INFLUENCE ON THE RISE
how-toVZCZCXRO9132 PP RUEHBI RUEHCI DE RUEHLM #0745/01 2101129 ZNY CCCCC ZZH P 291129Z JUL 09 FM AMEMBASSY COLOMBO TO RUEHC/SECSTATE WASHDC PRIORITY 0292 INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 1243 RUEHKA/AMEMBASSY DHAKA PRIORITY 1809 RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 8825 RUEHKT/AMEMBASSY KATHMANDU PRIORITY 7064 RUEHNE/AMEMBASSY NEW DELHI PRIORITY 3196 RUEHKP/AMCONSUL KARACHI PRIORITY 2502 RUEHCG/AMCONSUL CHENNAI PRIORITY 9417 RUEHBI/AMCONSUL MUMBAI PRIORITY 6718 RUEHCI/AMCONSUL KOLKATA PRIORITY 0393
C O N F I D E N T I A L SECTION 01 OF 03 COLOMBO 000745
SIPDIS
DEPARTMENT FOR SCA/INSB, EEB/IFD/OIA, EAP/CM, EAP/EP
E.O. 12958: DECL: 07/29/2019
TAGS: EFIN EAID EINV PREL CE
SUBJECT: SRI LANKA: CHINESE INFLUENCE ON THE RISE
Classified By: Charge d'Affaires James R. Moore for reasons 1.4 b) and
d)
C O N F I D E N T I A L SECTION 01 OF 03 COLOMBO 000745
SIPDIS
DEPARTMENT FOR SCA/INSB, EEB/IFD/OIA, EAP/CM, EAP/EP
E.O. 12958: DECL: 07/29/2019
TAGS: EFIN EAID EINV PREL CE
SUBJECT: SRI LANKA: CHINESE INFLUENCE ON THE RISE
Classified By: Charge d'Affaires James R. Moore for reasons 1.4 b) and
d)
1. (C) Summary. China has emerged as Sri Lanka,s strongest
supporter in the post-war reconstruction era, providing
funding for projects ranging from power plants to weapons.
China has a long-standing goal of increasing its influence in
the region, especially at the expense of India, the other
regional power in the area. Chinese Commercial Counselor,
Zhu Jinfu, said that China will continue increasing aid and
investment to Sri Lanka. Zhu also noted that the extent of
Chinese investments in Sri Lanka may be exaggerated by local
media. Chinese direct investment and economic support in Sri
Lanka, particularly in infrastructure development, could
bring significant economic growth and rapid post-war recovery
to the island. However, this growth and development could
come at the cost of U.S. influence. End summary.
2. (SBU) China has emerged as Sri Lanka,s strongest
supporter in the post-war reconstruction era, providing
funding for projects ranging from power plants to weapons.
International media report that China increased its aid to
Sri Lanka fivefold to $1 billion per year. Local businessmen
claim that, in the last two years, China has committed $2.5
billion dollars to various projects in Sri Lanka with another
$1 billion in the pipeline.
3. (SBU) China has a long-standing goal of increasing its
influence in the region, especially at the expense of India,
the other regional power in the area. Sri Lanka presents an
especially attractive ally to China because of its strategic
location overlooking the shipping lanes that carry much of
the world,s oil trade. Chinese military ordnance was crucial
in the final months of the conflict. Even before the end of
the civil war, China was generous in offering money and aid
to the government.
4. (SBU) China has been a generous partner to Sri Lanka,
offering funding and labor to the government whenever needed.
The Bandaranaike Memorial International Hall, built by the
Chinese in 1972, is regarded as a symbol of the friendship
between the two countries. The Cultural Complex under
construction in Colombo is a continuation of that friendship.
China also funded and built the Sri Lanka Supreme Court
complex.
-------------- --------------
China Investment Increasing but True Extent Exaggerated
-------------- --------------
5. (SBU) In a meeting with the Economic Officer, Chinese
Commercial Counselor, Zhu Jinfu, said that China plans to
continue increasing aid and investment to Sri Lanka. He
noted that the government of Sri Lanka has asked China for
help with large infrastructure projects, and Chinese firms
are very willing to bid on the projects. Zhu also said that
the Sri Lankan media, he believed, at the behest of the Sri
Lankan government, is widely publicizing major Chinese
investments in order to get other countries to increase their
direct investment in Sri Lanka. He mentioned two recently
announced projects - a special economic zone and a housing
development loan; Zhu said that neither had been approved by
the Chinese government and that it was unlikely either
project would be completed.
6. (SBU) According to the investment promotions office of
the Sri Lankan Board of Investment, China is often the sole
bidder on projects. A Chinese/Sri Lankan consortium was the
only bidder on a project to redesign and build a new
container terminal at the Colombo Port even though the
government extended the bid deadlines and relaxed some of the
technical criteria in order to attract additional bidders.
Chinese companies, usually state-owned enterprises, have a
significant advantage over private firms and consortiums
because they have the financial backing of the Chinese
Export-Import Bank (Exim Bank). Also, in many cases, the
Chinese companies can bring their own cheap labor, providing
additional savings.
7. (SBU) Outside of the many investments and projects being
funded by Chinese companies and government, there have been
several instances where China simply gives Sri Lanka money.
COLOMBO 00000745 002 OF 003
On July 25, the China Development Bank and the Central Bank
announced an Investment Facilitation Agreement under which
the Chinese bank would place a US dollar deposit of $25
million with the Central Bank of Sri Lanka. The deposit,
being referred to as a grant by the local media, is seen as a
sign of the strong economic ties between the two countries.
--------------
Americans Wary of Sri Lanka
--------------
8. (SBU) The Sri Lanka Board of Investment (BOI) noted in a
meeting with EconOff that it accepts bids from whichever
countries and firms are willing to supply capital. The BOI
said it would be pleased to partner with the United States on
upcoming development projects. The Minister of Enterprise
Development and Investment Promotion, Anura Priyadarshana
Yapa, and three other BOI personnel were recently in the
United States as part of an effort to encourage investment in
Sri Lanka. Upon his return, the BOI announced that (begin
quote) As much as $25 million as foreign investment is
expected to Sri Lanka from the USA (end quote). Unlike
similar announcements of new Chinese investments, no mention
was made of any company or tender or agreement that had been
signed.
9. (SBU) Many U.S. companies are wary of putting money into
Sri Lanka. The government bureaucracy is inefficient,
difficult to navigate, and corrupt. Infrastructure is
inadequate and poorly maintained. U.S. companies don,t have
the financial resources to compete with Chinese state-owned
enterprises or consortiums that are supported by the Chinese
government. According to the American Chamber of Commerce in
Sri Lanka Director Chullante Jayasuriya, U.S. companies are
still waiting for financial conditions to normalize in Sri
Lanka and in the world economy before contemplating new
investments. He said that he was worried that American
companies were falling behind China in the bid for new
business opportunities.
--------------
Ports, Power Plants, and Economic Zones
--------------
10. (SBU) It is difficult to estimate the true extent of
Chinese business involvement in Sri Lanka. Almost every day
brings mention of new projects and investments being made by
Chinese companies and banks. Following is a sampling of some
of the larger projects being supported by Chinese capital and
labor. If all were to be completed, they would represent
over $2 billion in Chinese capital. Counselor Zhu told the
EconOff that some of these projects have not yet been
approved by the Chinese government. However, the Embassy has
not made any public statements disclaiming responsibility for
the projects.
11. (U) Hambantota Port project: In 2007, the Sri Lanka Port
Authority (SLPA) signed an agreement with two Chinese firms,
China Harbour Engineering Company Ltd and Syno Hydro
Corporation Ltd, to finance the development of a deep-water
port in Hambantota, located on the Southern coast.
Hambantota is the home constituency of President Mahinda
Rajapaksa. The award of the project to China was widely seen
as a move to cement good relations between the two countries.
The total cost of phase one alone is estimated to be $360
million. The port is designed for possible future expansion,
should Colombo Port not be able to meet expansionary demands.
According to local media, in addition to the port
development, China's ExIm Bank extended to Sri Lanka a $65
million loan to build an oil storage facility with a capacity
of 82,000 cubic meters of fuel storage in Hambantota.
12. (U) Energy sector development: The Norochcholai
coal-fired power plant in Puttalam is another large
Chinese-financed project. The first phase of the project, a
300MW plant for the Ceylon Electricity Board state power
utility, is being built by China's CMEC construction company,
and it is scheduled to be completed by the end of 2010.
China's ExIm Bank recently awarded Sri Lanka a soft loan of
$891 million--repayable over 20 years with a 2% interest
rate--for completion of the plant. The second phase of the
project will consist of two power plants, each with a
COLOMBO 00000745 003 OF 003
capacity of 300MW, to bring the Norochcholai plant's total
capacity to 900MW, roughly half of the country's 2,000MW
energy needs. According to local media, China also has
expressed interest in offshore oil exploration, and one block
of Sri Lanka's offshore fields has been awarded to China for
future exploration.
13. (SBU) Exclusive economic zone for Chinese investors:
The Sri Lankan Board of Investment (BOI) signed a deal worth
$28 million with Hong Kong-based Huichen Investment Holdings
Ltd to manage a 161 acre special economic zone, located just
north of Colombo in Mirigama, that will cater to Chinese
investors. This deal represents the first time the BOI has
handed over land for development by a foreign company.
Counselor Zhu said that all special economic zones must be
approved by the Chinese government, and that the proposal for
the special economic zone in Sri Lanka had been denied by
Beijing. There has been no mention of this in the media or
by the GSL.
14. (U) Housing development: According to local media, the
Chinese government extended a concessionary loan of Rs. 120
billion (roughly $1.04 billion) to build over 130,000 housing
units country wide. Zhu said that the project, which he said
was signed with a very small company, was exaggerated. He
believed it was impossible for such a small company to take
on such a large, over $1 billion project. The agreement was
signed between the Ministry of Construction and Engineering
Services and the International Economic and Technology
Cooperation of China on July 15.
--------------
Comment
--------------
15. (C) China,s economic and diplomatic clout in Sri Lanka
continues to increase. The economic crisis, recent
controversy over the IMF loan to Sri Lanka, and continued
Western criticism of human rights abuses and humanitarian
conditions in the North and the East during and after the war
with the Tamil Tigers have brought the two countries closer
together. China,s willingness to provide aid without
strings attached is seen as a welcome alternative to a
government chafing under the criticism of western countries.
The draft 2010 Senate Appropriations Bill (S.1434) that
contains language suspending foreign military funding and
loans to Sri Lanka unless the Secretary of State certifies
that the Sri Lankan government has met certain conditions
will likely, if passed, further push Sri Lanka towards China.
Chinese direct investment and economic support in Sri Lanka,
particularly in infrastructure development, could bring
significant economic growth and rapid post-war recovery to
the island. However, this growth and development could come
at the cost of U.S. influence.
MOORE
SIPDIS
DEPARTMENT FOR SCA/INSB, EEB/IFD/OIA, EAP/CM, EAP/EP
E.O. 12958: DECL: 07/29/2019
TAGS: EFIN EAID EINV PREL CE
SUBJECT: SRI LANKA: CHINESE INFLUENCE ON THE RISE
Classified By: Charge d'Affaires James R. Moore for reasons 1.4 b) and
d)
1. (C) Summary. China has emerged as Sri Lanka,s strongest
supporter in the post-war reconstruction era, providing
funding for projects ranging from power plants to weapons.
China has a long-standing goal of increasing its influence in
the region, especially at the expense of India, the other
regional power in the area. Chinese Commercial Counselor,
Zhu Jinfu, said that China will continue increasing aid and
investment to Sri Lanka. Zhu also noted that the extent of
Chinese investments in Sri Lanka may be exaggerated by local
media. Chinese direct investment and economic support in Sri
Lanka, particularly in infrastructure development, could
bring significant economic growth and rapid post-war recovery
to the island. However, this growth and development could
come at the cost of U.S. influence. End summary.
2. (SBU) China has emerged as Sri Lanka,s strongest
supporter in the post-war reconstruction era, providing
funding for projects ranging from power plants to weapons.
International media report that China increased its aid to
Sri Lanka fivefold to $1 billion per year. Local businessmen
claim that, in the last two years, China has committed $2.5
billion dollars to various projects in Sri Lanka with another
$1 billion in the pipeline.
3. (SBU) China has a long-standing goal of increasing its
influence in the region, especially at the expense of India,
the other regional power in the area. Sri Lanka presents an
especially attractive ally to China because of its strategic
location overlooking the shipping lanes that carry much of
the world,s oil trade. Chinese military ordnance was crucial
in the final months of the conflict. Even before the end of
the civil war, China was generous in offering money and aid
to the government.
4. (SBU) China has been a generous partner to Sri Lanka,
offering funding and labor to the government whenever needed.
The Bandaranaike Memorial International Hall, built by the
Chinese in 1972, is regarded as a symbol of the friendship
between the two countries. The Cultural Complex under
construction in Colombo is a continuation of that friendship.
China also funded and built the Sri Lanka Supreme Court
complex.
-------------- --------------
China Investment Increasing but True Extent Exaggerated
-------------- --------------
5. (SBU) In a meeting with the Economic Officer, Chinese
Commercial Counselor, Zhu Jinfu, said that China plans to
continue increasing aid and investment to Sri Lanka. He
noted that the government of Sri Lanka has asked China for
help with large infrastructure projects, and Chinese firms
are very willing to bid on the projects. Zhu also said that
the Sri Lankan media, he believed, at the behest of the Sri
Lankan government, is widely publicizing major Chinese
investments in order to get other countries to increase their
direct investment in Sri Lanka. He mentioned two recently
announced projects - a special economic zone and a housing
development loan; Zhu said that neither had been approved by
the Chinese government and that it was unlikely either
project would be completed.
6. (SBU) According to the investment promotions office of
the Sri Lankan Board of Investment, China is often the sole
bidder on projects. A Chinese/Sri Lankan consortium was the
only bidder on a project to redesign and build a new
container terminal at the Colombo Port even though the
government extended the bid deadlines and relaxed some of the
technical criteria in order to attract additional bidders.
Chinese companies, usually state-owned enterprises, have a
significant advantage over private firms and consortiums
because they have the financial backing of the Chinese
Export-Import Bank (Exim Bank). Also, in many cases, the
Chinese companies can bring their own cheap labor, providing
additional savings.
7. (SBU) Outside of the many investments and projects being
funded by Chinese companies and government, there have been
several instances where China simply gives Sri Lanka money.
COLOMBO 00000745 002 OF 003
On July 25, the China Development Bank and the Central Bank
announced an Investment Facilitation Agreement under which
the Chinese bank would place a US dollar deposit of $25
million with the Central Bank of Sri Lanka. The deposit,
being referred to as a grant by the local media, is seen as a
sign of the strong economic ties between the two countries.
--------------
Americans Wary of Sri Lanka
--------------
8. (SBU) The Sri Lanka Board of Investment (BOI) noted in a
meeting with EconOff that it accepts bids from whichever
countries and firms are willing to supply capital. The BOI
said it would be pleased to partner with the United States on
upcoming development projects. The Minister of Enterprise
Development and Investment Promotion, Anura Priyadarshana
Yapa, and three other BOI personnel were recently in the
United States as part of an effort to encourage investment in
Sri Lanka. Upon his return, the BOI announced that (begin
quote) As much as $25 million as foreign investment is
expected to Sri Lanka from the USA (end quote). Unlike
similar announcements of new Chinese investments, no mention
was made of any company or tender or agreement that had been
signed.
9. (SBU) Many U.S. companies are wary of putting money into
Sri Lanka. The government bureaucracy is inefficient,
difficult to navigate, and corrupt. Infrastructure is
inadequate and poorly maintained. U.S. companies don,t have
the financial resources to compete with Chinese state-owned
enterprises or consortiums that are supported by the Chinese
government. According to the American Chamber of Commerce in
Sri Lanka Director Chullante Jayasuriya, U.S. companies are
still waiting for financial conditions to normalize in Sri
Lanka and in the world economy before contemplating new
investments. He said that he was worried that American
companies were falling behind China in the bid for new
business opportunities.
--------------
Ports, Power Plants, and Economic Zones
--------------
10. (SBU) It is difficult to estimate the true extent of
Chinese business involvement in Sri Lanka. Almost every day
brings mention of new projects and investments being made by
Chinese companies and banks. Following is a sampling of some
of the larger projects being supported by Chinese capital and
labor. If all were to be completed, they would represent
over $2 billion in Chinese capital. Counselor Zhu told the
EconOff that some of these projects have not yet been
approved by the Chinese government. However, the Embassy has
not made any public statements disclaiming responsibility for
the projects.
11. (U) Hambantota Port project: In 2007, the Sri Lanka Port
Authority (SLPA) signed an agreement with two Chinese firms,
China Harbour Engineering Company Ltd and Syno Hydro
Corporation Ltd, to finance the development of a deep-water
port in Hambantota, located on the Southern coast.
Hambantota is the home constituency of President Mahinda
Rajapaksa. The award of the project to China was widely seen
as a move to cement good relations between the two countries.
The total cost of phase one alone is estimated to be $360
million. The port is designed for possible future expansion,
should Colombo Port not be able to meet expansionary demands.
According to local media, in addition to the port
development, China's ExIm Bank extended to Sri Lanka a $65
million loan to build an oil storage facility with a capacity
of 82,000 cubic meters of fuel storage in Hambantota.
12. (U) Energy sector development: The Norochcholai
coal-fired power plant in Puttalam is another large
Chinese-financed project. The first phase of the project, a
300MW plant for the Ceylon Electricity Board state power
utility, is being built by China's CMEC construction company,
and it is scheduled to be completed by the end of 2010.
China's ExIm Bank recently awarded Sri Lanka a soft loan of
$891 million--repayable over 20 years with a 2% interest
rate--for completion of the plant. The second phase of the
project will consist of two power plants, each with a
COLOMBO 00000745 003 OF 003
capacity of 300MW, to bring the Norochcholai plant's total
capacity to 900MW, roughly half of the country's 2,000MW
energy needs. According to local media, China also has
expressed interest in offshore oil exploration, and one block
of Sri Lanka's offshore fields has been awarded to China for
future exploration.
13. (SBU) Exclusive economic zone for Chinese investors:
The Sri Lankan Board of Investment (BOI) signed a deal worth
$28 million with Hong Kong-based Huichen Investment Holdings
Ltd to manage a 161 acre special economic zone, located just
north of Colombo in Mirigama, that will cater to Chinese
investors. This deal represents the first time the BOI has
handed over land for development by a foreign company.
Counselor Zhu said that all special economic zones must be
approved by the Chinese government, and that the proposal for
the special economic zone in Sri Lanka had been denied by
Beijing. There has been no mention of this in the media or
by the GSL.
14. (U) Housing development: According to local media, the
Chinese government extended a concessionary loan of Rs. 120
billion (roughly $1.04 billion) to build over 130,000 housing
units country wide. Zhu said that the project, which he said
was signed with a very small company, was exaggerated. He
believed it was impossible for such a small company to take
on such a large, over $1 billion project. The agreement was
signed between the Ministry of Construction and Engineering
Services and the International Economic and Technology
Cooperation of China on July 15.
--------------
Comment
--------------
15. (C) China,s economic and diplomatic clout in Sri Lanka
continues to increase. The economic crisis, recent
controversy over the IMF loan to Sri Lanka, and continued
Western criticism of human rights abuses and humanitarian
conditions in the North and the East during and after the war
with the Tamil Tigers have brought the two countries closer
together. China,s willingness to provide aid without
strings attached is seen as a welcome alternative to a
government chafing under the criticism of western countries.
The draft 2010 Senate Appropriations Bill (S.1434) that
contains language suspending foreign military funding and
loans to Sri Lanka unless the Secretary of State certifies
that the Sri Lankan government has met certain conditions
will likely, if passed, further push Sri Lanka towards China.
Chinese direct investment and economic support in Sri Lanka,
particularly in infrastructure development, could bring
significant economic growth and rapid post-war recovery to
the island. However, this growth and development could come
at the cost of U.S. influence.
MOORE