21 September, 2020

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Chinese Chasm (a`la Dutch Disease) In Sri Lanka

By Muttukrishna Sarvananthan

Dr. Muttukrishna Sarvananthan

It has become a ritual of certain politicians of the ruling coalition and senior government bureaucrats (including members of the Rajapaksa family) to browbeat Western countries (at times India as well) citing the Chinese alternative. But Sri Lanka’s international economic reality is such that there is no way China or even India could displace or replace UK and USA (the Western World in general) as the premier international development partners of Sri Lanka.    

Sri Lanka’s external economic relations (especially international trade and foreign investments) are dichotomous. That is, the largest destinations of Sri Lanka’s exports are the Western countries (top two are the USA and UK) and the largest sources of imports are the Asian countries (top three are India, Singapore, and China). Similarly, while the USA is the single largest source of foreign portfolio investments in the stocks and shares of the private companies in Sri Lanka and in the government securities (rupee and foreign-currency denominated Treasury Bills and Bonds and Sovereign Bonds), foreign direct investments (FDI) are largely from Asian countries (especially, India and Malaysia). The flow of tourists to the country is dominated by Europeans (particularly, British, French, and German), North Americans, and Australasians combined (more than 50%) in spite of the single largest source of tourist arrivals from India. Besides, Western tourists in general spend much more than Eastern tourists.

Trade

In the past five years (2007-2011), the share of Sri Lanka’s exports to the top two destinations, viz. USA and UK, has declined in terms of share of the total exports. In 2007, the USA accounted for almost 26% of the total exports of Sri Lanka, which declined to around 20% in 2010 and 2011. Similarly, in 2007 and 2008, the UK accounted for little more than 13% of the total exports of Sri Lanka which declined to 11.5% in 2010 and 10.5% in 2011. However, in terms of absolute monetary value (US$), exports to the UK remained more or less unchanged in the past five years at around one billion dollars annually; exports to the USA also remained more or less unchanged at around two billion dollars (annually) in 2007 and 2011, despite declining during the in-between years.   

In the past five years, while Sri Lanka’s imports from the UK had marginally increased from 230 million dollars in 2007 to 304 million dollars in 2011, Sri Lanka’s imports from USA significantly decreased from 412 million dollars in 2007 to 266 million dollars in 2011. However, UK’s share in the total imports of Sri Lanka (in terms of share of the total) declined from 2.0% in 2007 to 1.5% in 2011. Similarly, the share of the USA in the total imports of Sri Lanka declined significantly from 3.6% in 2007 to just 1.3% in 2011.

The foregoing figures indicate that, in terms of international trade, Sri Lanka’s export and import trade (in total) with the UK and USA has stagnated (at best) in terms of absolute value but declined in relative terms as a share of the total export and import trade of Sri Lanka. Besides, exports are more beneficial for the country in economic terms than imports because of creation of employment and foreign currency earnings.

Sri Lanka’s exports to China are paltry. Sri Lanka’s exports to China were worth only 34 million dollars in 2007 (mere 0.4% of the total exports of SL in that year) which has increased to just 103 million dollars in 2011 (1.0% of the total exports of SL in 2011). Hong Kong accounted for additional 1.0% of the total exports by Sri Lanka in 2011.

Investment

In terms of portfolio investments (in the stocks and shares of Sri Lankan companies and in government securities), private investments from the USA has increased in Sri Lanka in recent years because of very low returns on such investments in their home (USA) markets due to the economic recession there and significantly higher returns in Sri Lanka. The USA is the single largest source of private foreign investments in rupee and foreign-currency denominated Treasury Bills and Bonds and Sovereign Bonds in Sri Lanka though the data is not publicly available. However, there is very limited (if at all) Foreign Direct Investments (FDI) from the USA, UK or any other Western country, which is much more enduring than foreign portfolio investments.

There is no notable portfolio or direct investment by China in Sri Lanka, except the proposed foreign direct investment in a five-star hotel by Shangri-La Group from Hong Kong.

Foreign Loans

More strikingly, in 2005 out of the total outstanding foreign debt of Sri Lanka 48% was accounted for by multilateral donors (ADB, IMF, World Bank, et al) and 45% by bilateral donors (DfID, GIZ, JICA, USAID, et al), and only less than 7% by private international financial markets. In contrast, in 2011 the total outstanding foreign debt of Sri Lanka to multilateral donors declined to 31%, to bilateral donors declined to 36%, but the foreign debt owed to private international financial markets increased to 33%. Whereas bilateral and multilateral foreign debt incurs very low interest rate (0.0 – 2.0%), borrowings from private international financial markets incurs 6.0 – 8.0% interest rate. Therefore, the former is much more beneficial to the country than the latter. Besides, almost all the private international financial market borrowings are from the Western countries.

Only in terms of foreign aid China has emerged as the single largest bilateral donor in the last few years (2010-2012), which are handful of project-based and may not last beyond the completion of those projects. Moreover, China’s loans to Sri Lanka incur considerably higher interest rate than the interest rate on traditional concessionary loans by bilateral and multilateral Western donors, but lower than the interest rate on private international financial market borrowings.

Tourism

While over 50% of the tourists to Sri Lanka are from Western countries, the annual tourist arrivals from Hong Kong were a mere 186 in 2007 but increased to just 2,199 in 2011 (mere 0.3% of the total arrivals of tourists in SL in 2011). Tourist arrivals from mainland China is even less than that from Hong Kong.

In summary, Sri Lanka’s international economic relationship (trade – especially exports, investment, tourism, and foreign loans) is overwhelmingly dependent on the USA, UK (and other Western countries), and India is the only notable Eastern country. China accounts for less than one percent of Sri Lanka’s total exports, total foreign portfolio and foreign direct investments, and total tourist arrivals in Sri Lanka.

I hope and wish economic sanity prevails over political haranguing in the international relations of Sri Lanka.

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Latest comments

  • 0
    0

    Good Stuff Sarvi! Keep it coming!
    The comparison of Chinese “aid” meaning loans with Dutch disease is apt. Indeed, the Lankan economy suffers a certain form of China induced “Dutch disease”, since there is an over reliance on Chinese loans that is promoting corrupt governance and massive overspending on WHITE ELEPHANT infrastructure, while destroying Lanka’s REAL ECONOMY i.e. industrial and other PRODUCTIVE SECTORS which generate jobs, by flooding the Lankan market with all sorts of cheap Chinese goods. Does Lanka have a Free trade agreement with China (like SAFTA)or an open door policy for China since it gives massive funds with no questions asked to the Rajapassa Dictatorships that is modelling itself on Burma?
    The Rajpakse regime has a fetish for white elephant infrastructure and technology, which enable massive kick backs for the corrupt politicians and administrators. Chinese aid in Africa has encouraged Dutch Disease, i.e. corrupt governance and attenuation rather than diversification of PRODUCTION in that continent and is now doing so in Lanka..

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      Quite right the Sinhala nationalists (JVP, JHU) who love to beat up on the Indian clowns across the Palk Straits should first take on the Chinese flooding of Lankan markets with cheap goods that is killing local industry and production on the one hand, while Chinese high interest loans which are completely UN-TRANSPARENT and go into Rajapassa brothers’ and sons’ and associated cronies’ deep pockets (Partucularly the corrupt clown Nivard Cabraal at CB and Jayasundara at the Treasurey) generating MASSIVE CORRUPTION

      DUE TO CHINA SRI LANKAN PEOPLE ARE IN DOUBLE JEOPARDY – not only is the economy in massive debt but Chinese “aid” has compounded the curse of Rajapassa greed and bad governance!

  • 0
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    Sri lanka is becoming AN another Tibet to Main land China.
    and we can get any thing from china with love.

    FORGET ABOUT 2500 MILLIONS $$$$$$ WORTH TRADING WITH USA.
    expect any thing;;;;; FROM CHINA WITH LOVE. [ BUT BE CAREFUL FOR INTEREST RATES]

  • 0
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    Thanks for pointing out the realities with numbers. However, I wish to point out the government is well aware of this reality, but seeds and propagates the Chinese myth to hoodwink us and make us blind to their poor conduct of our international affairs. The GSP story and the recent IMF loan episode are manifestations of this. It can called the sour grape syndrome in English or more aptly , ‘ Vilunthaalum Meesayila Munn Padavillai ( refusing to acknowledge that soil had dirtied the moustache after a fall) story!

    The Chinese government is the modern day Scrooge . It does things that will bring it profit, if not now, but in the future. The Chinese are right. They are investing in the future of their country and its people. The governor of the Chinese Central Bank advised the EU that sought its financial help that they should first dismantle their welfare system first. This was a communist country, at least nominally, advising a Laisser-faire capitalist entity! The Indians are also following in the Chinese footsteps.

    We should know what is good for us and our people. The government should not try to play games that it thinks are very clever, in our foreign affairs, to garner cheap popularity locally. Our size , economy and the complexity in world affairs and trade, do not permit us to resort to such foolish games. We will never be the winners in such games and will inevitably fall on our face. This is beginning to happen.

    Dr.Rajasingham Narendran
    .

  • 0
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    Does PB Jayasundera not do this kind of analysis or the government is putting on a brave face? His Exc is wearing the Emperor’s new clothes and spewing nonsense all the time. In reality the relationship with India is almost over with RAW giving a final warning on cleaning up our act on Human Rigts and LLRC. So what next?

  • 0
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    Clarification requested:

    1. QUOTE “Only in terms of foreign AID China has emerged as the single largest bilateral donor in the last few years”. ENDQUOTE. Presumably the word AID here includes both inteest bearing loans and outright grants. What is the ratio?

    2. Table 2 shows 2011 imports from China at about $2 billion; in sharp contrast to, say $0.5 from US and UK combined. What are the goods imported – consumer durables? Or is this a reference to machinery and construction material for the large infrastructure projects?

    Thanks in advance.

  • 0
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    Looks like the Chinese are drowning Sri Lanka economically. Politically also the country is getting isolated due to the regime’s affinity to China. The Chinese are going around the world raping the resources of poor countries ruled by dictators and the same thing is happening to Sri Lanka.

    The Rajapaksa regime is mouthing off the West but it can’t do without the economic benefits it gains from the West. Rajapaksa is fooling the people of Sri lanka that SL can do without western assistance knowing full well the opposite. The whole sand castle being built by Rajapaksa is soon going to get washed away.

  • 0
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    So this talk of the Chinese contributing to the tourist industry in large numbers, where Basil R, put the mal-maaley on a Chinese girl as the “millionth visitor” – are all for the consumption of the Marines.
    Even the yakkos who do not know the rudiments of arithmetics will have a chance of learning their “ganang” soon when they will be forced to hit the street. Their gurus will be the many economic ganang-karayas the regime has roped in.

    Eventually our economic salvation will come from Booruwansa – the Balaya King. After his great research on the harms to our nation from Google, Amerikan-piti, the NGOs and India he has, of late, learnt we can make a killing from exporting Balaya to the fish-loving Japanese. He also tells us it is eating Balaya that has made the Japanese a great educated and industrial nation. The man is, therefore,
    planning to corner the Balaya market for our benefit. He may have read from somewhere the Japanese recently paid over a million US$ for a 300lb Tuna. But little did this brilliant Minister know that the expensive blue-fin Tuna has not been fished in our waters for a long time. It is more a Pacific Ocean find – and usually fished by the highly developed Aussie fish industry. If Wansa cares to have a chat with that other great JVP socialist Mahinda W, who started with bata slippers and ended up as one of the largest trawler owners and fish-mudalalis in the country, he will know that our well-developed fishing industry is struggling. The entire rich Japanese market is controlled by the fearsome Yakuza, the Japanese mobsters.

    Senguttuvan

    Senguttuvan

    • 0
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      Senguttuvan,

      You missed something? Ain’t you? What happened to your mud-basket against Ranil which you are used to carry whereever you go?

  • 0
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    Great stuff Sarvi, Yet will it not be safer done from elsewhere as no one is going to ask you of your often quoted quote as to “Where you where when your country needed you most” etc as neither you nor your parents chose the place or country of your birth.

  • 0
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    Trying to connect, trade vs countries right to govern as it fit is a old colonial trick and people that propagate this myth should be ashamed .

    If you take major foreign powers and why they propagate war is a classic example.. They might say democracy but these same powers bank roll ugly dictators every where..

    Sl need to balance its activities according to countries well being and not according to diktat by some self interest parties.

    Chinese are clever race and they have long term planning and US have 3 months reporting cycle for public listed companies but chinese and japanese have non of it. They mostly work on 10 yr cycles.

    US problem is imperial over reach and this may be the downfall of a good country since few powerful minorities have hijack the constitution as well.

    Chinese will not go to war and if war is thrust upon on them and they will fight dirty.. SARS’s outbreak few yrs ago is a example.. I was in Beijing that time and out break came from Army camp deep south and chinese have given germ war fare as a priority since it is cheap and easier to kill on mass scale.

    Sri Lanka’s mega projects are easy to guess.. Sons of the ruler take percentage of every project and good presidents down fall will be these idiotic sons.

    • 0
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      Saddam Hussein Abd al-Majid al-Tikriti’s down fall =
      brothers,sons, sons in laws, daughters.

      Muammar Muhammad Abu Minyar al-Gaddafi’s down fall =
      sons, sons in laws, daughters.

      Hosni Mubarak’s down fall = sons and daughter in laws..

  • 0
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    If either US, UK, EU or India decide to pull out then Sri Lanka will face a very problematic situation. The Govt and its torch bearers, Weerawansa, Ranwaka et al should realise that they cannot attack those counries and expect their support at Geneva etc. Their friendship is with the Sri Lankan people not the Govt which has lied to them.

  • 0
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    Silva, dear chap. Are you confusing me with someone else. Mud-basket???
    I have criticised Ranil wherever it warranted and praised him in the right places. What is the exception you take objection to in my comments in this page.

    Senguttuvan

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