HAMBANTOTA PORT TO BE LINKED TO CHINA’S ONE BELT ONE ROAD


WITH RAVI LADDUWAHETTY

The signing up of the Concessionary Agreement between Sri Lanka and China for the development of the Hambantota Port last Saturday was a epoch making moment for Sri Lanka. New trade and maritime links would be opening up which includes China's meat and other exports to Africa and also  imports.

ONE BELT – ONE ROAD

The Silk Road was formerly a network of trade routes, established during the Han Dynasty in ancient China. The road originated from Chang'an (now Xian) in the East and ended in the Mediterranean in the West, linking China with the Roman Empire. It was not just one road, but rather a series of major trade routes that helped build trade and cultural ties between China, India, Persia, Arabia, Greece, Rome and Mediterranean countries.

As Chinese-made silk was the major trade product during that era, German geographer Ferdinand von Richthofen named it the 'Silk Road' in 1877. It reached its height during the Tang Dynasty, but declined in the Yuan Dynasty, as political powers along the route became more fragmented and weak. The Silk Road ceased to be a shipping route for silk around 1453 with the rise of the Ottoman Empire, whose rulers opposed the West.

During the inauguration of the project, the Chinese Government had said: "The Belt and Road Initiative aims to promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road, set up all-dimensional, multi-tier and composite connectivity networks, and realize diversified, independent, balanced and sustainable development in these countries. The connectivity projects of the initiative will help align and coordinate the development strategies of the countries along the Belt and Road, tap market potential in this region, promote investment and consumption, create demands and job opportunities, enhance people-to-people and cultural exchanges, and mutual learning among the peoples of the relevant countries, and enable them to understand, trust and respect each other and live in harmony, peace and prosperity" (Source: www.english.gov.cn).

In 2015, nearly 30.3 per cent of global freight was being handled by sea vessels whilst only 5.9 per cent relied on air freight. Cost of logistics is a decisive factor to any supplier living in any part of the world. 'One Belt - One Road' project aims at developing a sophisticated network of highways, rail roads, naval routes and air routes to make China closer to the world. This is a new dimension to the regional economy thus the partnering countries can expect heavy returns due to the volume of China's international trade. In 2015, China was the leading exporter in the world with a strength of total exports of US$ 2.27 trillion and a 14 per cent share of global exports and the second largest importer with over US$ 1.68 trillion worth of imports volume which accounts to 10 per cent of global imports (Source: www.wto.org).

China has experienced uninterrupted trade surpluses since 1993. Total trade multiplied by nearly 100 to USD 4.2 trillion in only three decades. China surpassed the United States as the world's biggest trading nation.

CHINESE FACTOR

China is a prominent power house in the world economy. Its aggressive nature of capitalizing investments in strategic locations has boosted its logistic capabilities to a greater degree. If we look at the China–Pakistan Economic Corridor (CPEC), it's an economic corridor comprising a collection of projects currently under construction at a cost of $ 54 billion.

CPEC aims to facilitate trade along an overland route that connects Kashgar in China and Gwadar in Pakistan, through the construction of a network of highways, railways, optical fibre and pipelines. Logistic plays a vital role in international trade. Swift and safe delivery is the dream of any logistics provider. Therefore, new routes and modes of transportation developments are taking place rapidly, around the world. As per current plans, the CPEC is to absorb $46 billion of Chinese investment – $11 billion from the Chinese Government and the remaining $35 billion from private companies in China. Pakistan expects its GDP to rise because of the CPEC and for 700,000 jobs to be created for Pakistanis.

On 13 November 2016, the under-construction CPEC became operational when the first convoy of trucks laden with Chinese goods traversed the CPEC's 3,000-kilometre journey. Pakistani Prime Minister Nawaz Sharif was quoted by International Business wire Bloomberg that Pakistan will provide the best possible security to foreign investors to enable them to use Gwadar for international trade

The time taken to transport between China and Pakistan will be significantly shortened once the CPEC project comes to life. Then it would open up a brand new situation in Asia where the countries who foresee the new political and economic power dynamics will be benefited to a greater degree..

As the government of Pakistan states "CPEC will not only benefit China and Pakistan, but will have a positive impact on Iran, Afghanistan, India, Central Asian Republic, and the region. The enhancement of geographical linkages having an improved road, rail and air transportation system with frequent and free exchanges of growth and people to people contact, enhancing understanding through academic, cultural and regional knowledge and culture, activity of higher volume of flow of trade and businesses, producing and moving energy to have more optimal businesses and enhancement of co-operation by win-win model will result in a well connected, integrated region of shared destiny, harmony and development."

EXPECTATIONS OF SEZ

Chinese financiers are ready to invest US$ 5 billion in development of Special Economic Zones, probably with many plans in the mind. One may be the idea of extending the 'Maritime Silk Route' to Hambantota expanding the reach in the Indian Ocean. The government had allotted a 55-sq-km expanse of land on long term lease to China, to construct a Special Economic Zone (SEZ), to transform Sri Lanka into an international logistics hub and improve people's livelihoods. It was envisaged that new opportunities at the manufacturing facilities that are coming up in the area as planned.

The government's plan is to leverage the country's geo-strategic position to maximize Sri Lanka's relationships with both existing and new trading partners to reach the goal of repositioning Sri Lanka as a hub of the Indian Ocean as well as a transshipment port for the Bay of Bengal trade.

That Sri Lanka supports the 'One Belt - One Road' economic initiative in line with its historical role played in the Maritime Silk Route, which will consolidate the country's position to become the hub of the Indian Ocean while further integrating it with Asian markets.

Sri Lanka has entered into, eight Free Trade Agreements (FTA) so far, with a number of countries. In the meantime there are free trade agreements between the United States of America, China, India, Turkey, Singapore and Bangladesh that are under discussion.

Sri Lanka may get the advantage of looking at these agreements in a new angle under changed dynamics that has come into play.

The Economic Policy Statement made by Prime Minister Ranil Wickremesinghe in Parliament on 5 November, 2015, includes the government's willingness to expand markets by capitalizing on new free trade agreements between countries. New markets are opening up in various parts in the region. The country needs to identify opportunities at the same time it concentrates on enhancing domestic manufacturing. If we look at the top ten countries in Asia that have the most number of FTA's signed are the countries that are the first ten largest economies in Asia.

THE WAY FORWARD

China's efforts to limit its excess production capacity under the new five year plan will create a window of opportunity for developing nations such as Sri Lanka to obtain vital Foreign Direct Investment (FDI) needed to enlarge their domestic economies.


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