China views Lanka debt implosion with an anti-west dig

China, one of Sri Lanka’s largest creditors, is putting a different spin on the country’s debt implosion by pinning the blame on monetary and fiscal policies of developed economies, and sanctions.

The Chinese Foreign Ministry's director of Asian affairs, Liu Jinsong, is cited by the South China Morning Post, as saying in a meeting with Palitha Kohona, the envoy in Beijing, the reasons developing countries such as Sri Lanka had fallen into debt difficulties were "very complicated”.

The meeting was on Thursday. "One of the background [issues] is that some developed countries have implemented quantitative easing policies for a long time," he said, according to a ministry statement, the Post reported Friday. The SCMP is owned by the Alibaba Group co-founded by Jack Ma Yun.

Liu is cited as saying: “The interest rate hikes and [ shrinking] balance sheets have caused drastic change to the international financial situation, and shock waves to developing nations."

Liu said global supply and industrial chains had been further affected by the "unilateral sanctions and tariff barriers of some big nations, and the build up of small circle blocs".

"This has exacerbated the soaring prices of commodities such as energy and food, and caused economic and financial problems in developing countries including Sri Lanka," he said.

The Chinese Foreign Ministry statement says in full: “Liu Jinsong said, the reasons for Sri Lanka and other developing countries to fall into debt difficulties are very complex. One of the backgrounds is that certain developed countries have long implemented quantitative easing policies, irresponsibly unleash a deluge of strong stimulus policies, and recently raised interest rates and shrunk the balance sheet abruptly, leading to drastic changes in the international financial environment, with developing countries particularly impacted. Some countries imposed unilateral sanctions and tariff barriers and built various small cliques, which have undermined the security of global supply and industrial chains, and fueled the soaring prices of energy, food and other commodities, worsening the economic and financial situations of developing countries including Sri Lanka.’’

The remarks appear to target the United States with which China’s relationships has severely soured, in particular over its aggression and coercion in the South China Sea.

The United States continues to consolidate its alliances in the Indo- Pacific to counter Beijing’s hostile behaviour.

Speaking in Singapore today, US Defense Secretary Lloyd Austin said: “We seek a region free of aggression and bullying. And we seek a world that respects territorial integrity and political independence, a world that expands human rights and human dignity, and a world in which all countries—large and small—are free to thrive and to lawfully pursue their interests, free from coercion and intimidation.’’

Austin said the Indo-Pacific, “is our priority theater of operations’’, and that it “is at the heart of American grand strategy’’. He said more than 300,000 US military men and women are in the Indo-Pacific.

Liu’s comments in Beijing may, in some ways, also be directed at the European Union, which has punished China repeatedly on various issues including human rights violations. The bloc has mounted a strong, united front against Beijing’s assertiveness.

For the first time, the UK sent a carrier, the HMS Queen Elizabeth, as part of a multinational carrier strike group, to sail in the South China Sea enforcing the right to free navigation.

Austin said that “in the East China Sea, the PRC’s expanding fishing fleet is sparking tensions with its neighbours. In the South China Sea, the PRC is using outposts on man-made islands bristling with advanced weaponry to advance its illegal maritime claims. We’re seeing PRC vessels plunder the region’s provisions, operating illegally within the territorial waters of other Indo- Pacific countries. And further to the west, we see Beijing continue to harden its position along the border that it shares with India.

“You know, Indo-Pacific countries shouldn’t face political intimidation, economic coercion, or harassment by maritime militias.’’

The Chinese statement notes how the “Buddhist Association of China and temples in different places voluntarily raised funds for the Sri Lankan people, and teachers and students from Caihe No. 3 Primary School in Hangzhou also sent love to children from low- income families in Sri Lanka thousands of miles away’’.

Mr Kohona is quoted as saying in the statement, that “China’s Belt and Road Initiative and Chinese-funded projects have made important contributions to Sri Lanka's economic development.

“Sri Lanka thanks China for mobilising all resources possible to provide emergency humanitarian assistance at the most difficult time in Sri Lanka, and hopes to continue to work with Chinese friends to tide over the difficulties.’’

China itself has undertaken largescale stimulus in 2020 in particular in the wake of the deadly new coronavirus disease that first emerged in Wuhan late 2019. In May 2020, China unveiled 4 trillion yuan (US$559 billion) worth of measures.

In contrast to Beijing’s claims, US Federal Reserve’s measures helped the global economy, wracked by the virus. It was only this year the US Federal Reserve began raising the benchmark interest rate, when it revised it up by a quarter- point in March. Then, in May, the Fed raised rates again by half-a-percentage point.

By that time Sri Lanka was ready to implode and in April declared a default.

The price of essential commodities such as wheat had been rising long before Russia invaded Ukraine. Crude oil and LPG prices had also risen.

Sri Lanka continues to seek financial and other assistance from China, while in debt to the tune of about US$ 3.5 billion, or about 10%. Mahinda Rajapaksa borrowed regularly from China for vanity infrastructure projects, which gutted the economy.

In January, when Chinese Foreign Minister Wang Yi visited, President Gotabaya Rajapaksa’s office said in a statement, “that it would be a great relief if debt payments could be rescheduled in view of the economic crisis following the pandemic.’’

China has been silent, while offering other forms of assistance.