China, Sri Lanka join hands to take on IFC

Competition to India’s international financial centre in Gandhinagar has become magnified with Sri Lanka deciding to collaborate with China to develop a rival financial centre.

At the end of October, Sri Lanka President Maithripala Sirisena handed over the deeds for the transfer of 116 hectares in Colombo Port City to China Harbour Engineering Company (CHEC) on a 99 -year lease to build the financial centre.

China is present in a big way in Sri Lanka despite earning criticism for the unviable cost of signature projects like the proposed Hambantota port, for which it captured, again, a 99-year lease. It is also building power projects and an airport in the country.

Colombo has for some time been planning to use reclaimed land from its port, the largest in South Asia, to develop an international financial centre, which, it says, will be located midway between Dubai and Singapore. It is a project steered by Prime Minister Ranil Wickremasinghe with the expectation of “realising financial assets worth 10 per cent of GDP within the next five years”.

The GDP of the nation, according the World Bank data, is $88.9 billion (2018).

The agreement reached between the Sri Lankan government and CHEC Port City Colombo notes of the 269 hectares of reclaimed land in the port owned by the Sri Lankan government through its urban development authority, 116 hectares will be on a 99-year lease for “further development”. The rest would be for public and commercial use as part of the financial centre.

India’s GIFT city, at 359 hectares, is bigger than the Colombo centre.

CHEC is a subsidiary of China Communications Construction Company. The parent company was incorporated in 2006 and is listed on the Hong Kong and Shanghai Stock Exchanges, with over 120,000 employees and a presence in 145 countries, its website says. The agreement for the transfer of the land was signed in the presence of Sirisena and the Chinese ambassador to Sri Lanka, Cheng Xueyuan.

Chinese news agency Xinhua quoted Sirisena as saying “the project was a valuable long-term investment for the Sri Lankan economy and expressed hope that the Port City would attract higher volumes of foreign direct investment”. However, other details of the plan are not yet public. For instance, it is not clear on what terms Chinese financial entities can set up shop in the CHEC project.

While major economies of the world have tried to develop international financial centres, success has been elusive. Rajesh Chakrabarti, professor and dean of Jindal Global Business School, says scale is necessary to develop such a centre. “An expanding economy needs more avenues to source finance, but unless there is adequate depth in the hinterland, an IFC is difficult to build up.” As an example, he says both Dubai and Singapore depend on easy access to the rest of Asia.

About Sri Lanka’s proposed IFC, experts said China was clearly exploring ways to provide finance to its wave of infrastructure businesses from an offshore base. Since many of its neighbours run trade deficits with Beijing, those countries are reluctant to be financed from markets like Shanghai or even Hong Kong, one of them said.

The expert who has been involved with GIFT in India said there will be competition. “The Indian government should move faster with the development of GIFT, to keep this competition at bay. We had factored in Singapore and Dubai but this is a new one.”