China’s Port In Sri Lanka’s Is Good Business – The NYT’s Report On It Is Propaganda

June 27, 2018

'China's financial imperialism' is a relatively new genre in western journalism. China is providing loans to other countries to build infrastructure. If those countries can not pay back the loans, China offers to lease and manage the infrastructure built with its money. That somehow is supposed to create a "debt trap for vulnerable countries".

Yesterday the New York Times lamented about Sri Lanka's Hambantota Port Development Project:

Over years of construction and renegotiation with China Harbor Engineering Company, one of Beijing’s largest state-owned enterprises, the Hambantota Port Development Project distinguished itself mostly by failing, as predicted. With tens of thousands of ships passing by along one of the world’s busiest shipping lanes, the port drew only 34 ships in 2012.

And then the port became China’s.

Mr. Rajapaksa was voted out of office in 2015, but Sri Lanka’s new government struggled to make payments on the debt he had taken on. Under heavy pressure and after months of negotiations with the Chinese, the government handed over the port and 15,000 acres of land around it for 99 years in December.

The port is in a strategic location right alongside the shipping lines between Asia and the Middle East and Africa.

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The U.S. does not like it that China is building infrastructure in such a strategic position. Instead of competing with it in the same field it is betting on propaganda and a more militaristic approach.

The first warning flag that the NYT piece is part of such propaganda is the quoted statistic. Why is it using a 2012 number of 34 ship arrivals for a port that only opened in late 2010? Ocean ports do not develop in just two years. It takes decades to develop their hinterland and businesses. Unlike Sri Lanka's main port Colombo, which is specialized in container traffic and already congested, Hambantota was build to handle other goods:

In the first nine months of 2014, the number of vehicles handled at Hambantota crossed the 100,000 mark, up more than 300% compared to the same period in 2013, with the number of ship calls more than doubling to 161.

Currently about one ship per day, mostly large car carriers, arrive at Hambantota. Unlike container ships which stay only for hours, car carriers take a few days and to load and unload. Handling them requires a lot of personal. It is good business.

To show how "bad" the Chinese investment is the Times points to only 34 ships in 2012. But the 2017/18 number is at least ten times as big. Why wasn't the new number used?

The propaganda continues:

The case is one of the most vivid examples of China’s ambitious use of loans and aid to gain influence around the world — and of its willingness to play hardball to collect.

Surely no other countries do such? Other countries do not use loans to gain influence? Other countries do not play hardball to collect?

The new government in Sri Lanka is less China oriented and more willing to listen to its big neighbor India. India does not like that its small neighbors develop with Chinese help. But it does not make the investments to compete with it. The Indian Center of Policy Research, also quoted by the NYT, is the loudest lamenter about "China’s debt-trap diplomacy". It sets the tone of 'western' reporting. While it is partly financed by the Indian government its List of Granting Organisations (PDF, pg 47) also include the:

Bill and Melinda Gates Foundation, USA; William & Flora Hewlett Foundation, USA; Ford Foundation, USA; Oak Foundation; the Asia Foundation, USA, NAMATI Inc. USA; Omidyar Network Foundation, USA;

The NYT gives more scary numbers:

The Central Bank estimated that Sri Lanka owed China about $3 billion last year. But Nishan de Mel, an economist at Verité Research, said some of the debts were off government books and instead registered as part of individual projects. He estimated that debt owed to China could be as much as $5 billion and was growing every year. In May, Sri Lanka took a new $1 billion loan from China Development Bank to help make its coming debt payment.

Are $5 billion big money for a country with some 22 million inhabitants? Not in this case.

Sri Lanka's net external debt to foreign countries is some $52 billion. The debt-to-GDP ratio is about 77%, lower than for most European countries. Over the last twelve years Sri Lanka received about $8 billion in loans from China some of which are already paid back. Its current obligations to China of about $5 billion are only 10% of its total obligations. All of the Chinese loans were bound to infrastructure development: power plants, ports, highways and airports. IMF loans Sri Lanka received come with political demands like increases of value added taxes. China does not set such conditions.

The whole NYT piece is based on old or partial numbers, cited without context, that do not reflect Sri Lanka's real economic position. The country may have a long term debt problem, but China is not the cause of it.

One may be critical of China's Belt and Road initiative which develops trade routes with the help of loans for infrastructure and long term leases. It is a form of commercial imperialism and many of its projects have some problems. But unlike 'western' financing it is neither bound to military allegiance nor does it come with overly political demands. The loans it provides are collateralized with the projects it is building. They create local employment and productivity. To call such loans 'predatory' or 'debt traps' is highly misleading.

Posted by b on June 27, 2018 at 11:12 UTC | Permalink

Comments

If a country uses borrowed money from a foreign country to build a useful infrastructure project and then has to pay it off – then what is the problem if it creates its own money to finance it – and pays itself off. The problems come from corruption and mismanagement or from dumb projects – not from creating the money needed. The problem is even worse if the project has to be paid back with foreign currency like the US dollar or Euro or in the case we are talking about Chinese rem nimbi. Look at the difference in how Iceland with its own currency has recovered after it let its bankers turn the country into a giant private equity fund making bad decisions compared to Greece with its politicians making bad decisions.(yes the problem Greece had stemmed from a different source but it would have been much better off with its own currency to deal with the debt problem). it doesn’t matter who creates the money – as all money these days is created – except as who controls it. Your country or someone else’s country – which would you prefer as a citizen? A sovereign country’s budget is different than our household budget. Useful infrastructure projects create wealth. It’s not about how the money is created but whether the people who run the country are making good decisions.

Posted by: gepay | Jun 29 2018 13:11 utc | 101

Grieved@56:
“…Let us take a moment to reflect on this greed and madness…”
Here’s my reflection. The anomaly you describe — it began when President Johnson switched from the program he’d described as the ‘War on Poverty’ (which had been a carryover from the Kennedy ‘would have been’ second term) to greatly enhanced involvement in Vietnam. The anomaly loomed large and clear as an either/or situation for Martin Luther King in his famous speech in the New York church calling our government to task for that critical change in policy. Robert Kennedy tried to turn the focus back onto redressing the anomaly during his aborted campaign, but after his assassination as well, this country has lived with the open wound those three terrible events had opened in the memories of all who lived through them.
Yesterday in Annapolis we had a terrible, violent event that somehow is the fruit of the anomaly – in that ancient capital city, five journalists at the Capital Gazette horrifically slain. It’s not to say this country wasn’t gun-lenient even before the Vietnam era, but not to the extent that somehow those triggers have escalated that mania. It’s like a suppurating scab on the wound that now reaches generationally from presidential assassination far into ordinary citizens’ social media. And indeed, guns and butter can’t exist together, not in the financial world the US has become.
Somebody @ 27 linked to an article about China’s view of Crimea:
“…China has signaled understanding for Russia’s position, saying what is happening “has historical reasons”. Chinese state media has also expressed sympathy for Moscow…”
The US has ‘historical reasons’ for where it is today. The world also has sympathy for us. Thank you, world.

Posted by: juliania | Jun 29 2018 14:22 utc | 102

Saddest part is said harbor was sold for just $1.2 billion. How can any one sell a harbor at a critical location for that kind of money? I am sure who ever sold the port might have bagged good bit of money for themselves….. utter ignorance.

Posted by: Wineger | Jun 29 2018 14:26 utc | 103

@Charles MIchael & Guerrero
Charles Michael has gotten it quite a bit wrong in his version of events in Sri Lanka. Let me clarify actualities and mend the timeline. The communal riots were in July 1983 which is today known as Black July here in Sri Lanka. The LTTE (Tigers)were formed prior to that in 1976 and funded and trained alongside five other Tamil liberation organisations by Indian RAW agents in Tamil Nadu, South India. these groups found ready support in right wing South Indian political parties who actively supported the creation of a Tamil state in Northern Sri Lanka. Why did the Indian government fund them? In hindsight it was blunder that India regretted later.They believed they could destabilise Sri Lanka and prevent the country from growing at the rate it was projected to at the time. India couldn’t have it’s southern country cousin outperforming them could they? In supporting the separatists, the Central Government believed they could win the support of their South Indian political allies.
The war would have ended in 1987 when the Sri Lankan armed forced laid siege to Jaffna following ‘Operation Liberation’, and were poised to defeat the LTTE. However, were forced to pull back their forces upon threats of military intervention, and supply drops to the LTTE by the Indians.
This led to the Indians sending a force ironically called the “Indian Peace Keeping Forces”, that faced widespread allegations of rape, looting, and other human rights abuses. This went on to a point where the Sri Lankan government threatened to fight them to the last bullet.
In your query with regards to China’s position throughout the conflict, they played the waiting game until the Indians refused to aid SL’s operations during Mahinda Rajapaksa’s regime as they weren’t too happy with his threats to go elsewhere for material and intelligence support to defeat the Tigers. He found the Chinese and the Pakistanis more than willing to step in to the role left vacant by India’s animosity with Rajapaksa. The Hambantota Port and Airport are the results of the assistance given by China that eventually helped end the war in 2009 after almost thirty years.
As an journalist that lived and worked in Sri Lankan throughout those times, and having toured the Hambantota Port during construction and seen the scale of secrecy and inland excavation, my belief is that the port project was meant to be something bigger than just a simple car carrier port. The Chinese hold their cards very close and they have the sight to see years ahead of anyone. Was the port meant to fail, or is it really failing at all? Depends on the point of view.

Posted by: JordanE | Jun 30 2018 7:32 utc | 104

Thing is, the Chinese so-called ‘Mixed’ Economy works pretty well. Or, more prudently, has done so for China itself. They will NOT give it up.
The Gvmt. provides infrastructure and necessary services (ex. education) at a ‘loss’ – if one can talk of loss in such conditions, maybe better ‘some cost.’ It applies essential elements of the same model abroad, but makes the customer pay!
…. In interest / business and fees / trade / goods, commodities that China wants or needs — How surprising! The deals are usually spelt out as straightfoward ‘biz’, WTO compliant, etc. (same point as b makes.)
sidebar. Ha ha, I’m reminded of the Chinese buying up vineyards in France (link).. partly come to bad end.. anecdotal in the grand sweep of things but does point to some problems..which concern the distinction between state / private entities. (link)
It drives Trump crazy. He is trying to strangle China by setting up Monopolies of Control – principally MIC (here there is the competitor Russia in the front row, with China lurking behind, no doubt => one reason for the pro-Putin Trump stance, though it has other origins, rationales..) and in TECH (communications, analysis, system control and robotics.) Too late for the latter as this exists in a complex web that can’t be determined, predicted / parcelled out in smart analysis / thus capted at least in part, etc. (I have left Finance out.)
So it is ostensibly a trade war. See somebody @ 2, good summary of ‘already lost’. But … not JUST a trade quarrel, the fight is to control key sectors. For Trump (guessing here) transport and its infrastr. and trade routes etc. is not one of them, as there is an imagined hierachy of tools, in a primitive power point chart, with FORCE at the top.
http://en.rfi.fr/20180629-chinese-owned-bordeaux-vineyards-seized-fraud-inquiry

Posted by: Noirette | Jul 1 2018 13:02 utc | 105

A second port in SL makes sense only if used to tranship to India. South India has already two ports Cochin and Chennai operating with two more in the works. If the Chicoms want to waste money and Sri Lanka antagonise India further, they are welcome to try but it would be losing proposition for them.

Posted by: Ivan | Jul 2 2018 6:44 utc | 106

I did some checking and it seems that at ca. 400 million dollars invested the port was not profitable, and Chinese generously overpaid for 99 lease to get a better foothold in Sri Lanka. On the other hand, without some generosity, such a lease could be politically toxic. Lastly, this is the best natural port in Sri Lanka and it is very well positioned to intercept the traffic on one of the busiest global maritime routes. As the deepest port in Sri Lanka it can accommodate larger ships and thus decrease the shipping costs, and plentiful “flat storage space” is already the key for car+truck trans-shipment, because these goods cannot be stacked in pyramids like container boxes. In the longer run, it removes a potential bottleneck in the growth of Sri Lankan industries. Infrastructure investments have longer time horizon, not 5-10 years but 30-50 years, if not more.
China has a lot of money and comparatively, not that much influence, compare what USA does to get influence. Sri Lanka is culturally close to India but that relationship is often testy and that makes Sri Lanka eager to collect other friends too, and if they can pocket a billion dollars in the process, they probably feel smart.
And for China, this is a petty change. If any country can be in the core zone of Chinese influence it is Laos. Government is ideologically close to China and Vietnam, “marker Communism”, and with the position between Thailand and Vietnam, China is an attractive patron. And thus they agreed to invest ca. 5 billion for a bullet train line to China, and of course, they cannot afford it, so like with Humbantota, they will practically pay with land concessions. Yet, Laos has plenty of land and insufficient infrastructure, while China offers good prices. Fast connections to Yunnan and Chungjing moves Laos from the middle of nowhere to the main China-Indochina corridor, bullet train will eventually continue to Thailand. American readers like me can envy Asian train standards. I talked with an Asian visitor who took ersatz bullet train called Acela. It has it all: big ticket price, mediocre speed and shaky, noisy ride.

Posted by: Piotr Berman | Jul 3 2018 1:44 utc | 107

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