【Text/Observer Network Columnist Sri Lankan Chick】
Recently, the Western media have continuously reported on Sri Lanka's heavy debt burden, and forced the concept of Linking Sri Lanka's economic difficulties with Chinese loans, and then speculating on the cold rice of the "Chinese Debt Trap".
For example, the Wall Street Journal reported on January 18: "As Sri Lanka's debt crisis intensifies, China's loans come under fire."
In fact, the Indian media has hyped up the most on this topic, of course, they are not regarded as "Western media"
It is a foreign exchange crisis
It is true that Sri Lanka is currently under great debt-servicing pressure, but the main reason is that foreign exchange reserves are seriously insufficient, and at the end of last year, there was only $1.6 billion left in available foreign exchange reserves, so there was news a few weeks ago that "Sri Lanka plans to pay oil import fees to Iran with tea".
The reason why Sri Lanka is in the predicament of foreign exchange depletion is actually more due to its weak economic foundation and insufficient hematopoietic capacity, while the government has long-term excessive debt, improper debt structure arrangement, coupled with a series of "violent" blows by gray rhinos and black swans such as the terrorist attacks in 2019 and the epidemic since 2020, which have made "a life that is not rich even worse".
Specifically, Sri Lanka has traditionally been a tourist country with no complete industrial base, imperfect supply chains, imports of many everyday goods, and a strong reliance on dollars in international settlements, while its foreign exchange earnings have long relied on tourism, export trade and overseas labor earnings. Since the outbreak of the new crown epidemic, the global economies have faced downward pressure, and Sri Lanka's several sources of foreign exchange earnings that are highly dependent on foreign economic cooperation and population movements have naturally suffered a huge impact, resulting in a sharp decline in foreign exchange reserves and a surge in debt servicing pressures.
As far as the garment industry is concerned, the garment industry is one of the pillar industries of Sri Lanka's economy, with garment exports accounting for nearly half of Sri Lanka's total export revenue, and about one million people served the garment export industry before the epidemic. Affected by the epidemic in 2020, Sri Lanka's textile and apparel exports amounted to US$4.423 billion, down 21% year-on-year. Among them, the export volume of clothing was 3.939 billion US dollars, down 24.3% year-on-year. Clothing exports have increased in 2021, but they have not yet returned to pre-pandemic levels.
To make matters worse, since 2020, some international credit rating agencies have taken turns to downgrade Sri Lanka's sovereign credit rating, further hitting Sri Lanka's financing capacity. For example, on October 29, 2021, Moody's downgraded its sovereign credit rating from Caa1 to Caa2 – a poor student in the "Non-investment grade" poor student group.
To put it bluntly, it is like the family income and expenditure can not make ends meet for a long time, and they have no other skills to make money in the short term; and the people around them see that the possibility of returning money is getting smaller and smaller, even if they do not continue to borrow money, they constantly persuade others not to lend him money... On this day, nature is difficult, difficult, difficult.
Reviewing the emergence of the foreign exchange crisis, it is not difficult to find that there is a "fatal" shortcoming in Sri Lanka's economic system, that is, it is highly dependent on the US dollar.
For example, according to the Central Bank of Sri Lanka, 60% of Sri Lanka's repayments need to be in US dollars. A KPMG research report also pointed out that a single dollar settlement makes Sri Lanka's import costs more expensive, whether it is grain, sugar, milk powder, or gas and essential medicines that people need to live.
I have a Sri Lankan friend named Sanjayeh, 52 years old, who has a tea shop in Colombo, the capital of Sri Lanka. This type of tea shop is very common in the streets and alleys of Sri Lanka, similar to China's food stalls, dealing in daily diets such as fried rice and fried cakes, as well as milk tea that Sri Lankans cannot do without.
Sanjayer has been having a headache lately – not being able to buy flour. After a long day of queuing at the wholesale market, he only bought a bag of flour. He complained to the author: "I asked when the flour I ordered would be available, and the response was that it would be available next week." ”
He also observed that the shelves in the front powder warehouse were full and were now largely empty. Not only flour, but also the price of eggs, carrots, etc. has also risen a lot; and because milk powder cannot be bought, Sanjayer's restaurant has not sold milk tea for a long time.
Sanjayer revealed: "Traders who know each other are also anxious. Imported materials can only be paid in US dollars, but because the government is short of US dollars, traders can not issue letters of credit, and imported materials have to be stranded in the port and cannot be cleared. It is reported that the maximum number of containers filled with grain, sugar, flour, milk powder and other basic daily necessities can be 1500.
Sri Lanka's gas supply is insufficient, and locals who can't buy gas tanks take to the streets to buy kerosene stoves (courtesy of the author)
With few foreign exchange reserves, and mainly relying on the US dollar to settle accounts, and then encountering the increased pressure of US output inflation and the depreciation of the US dollar, sri Lanka's life from the government to the people is naturally "more difficult than difficult".
Thus, sri Lanka's foreign exchange crisis has also provided a warning to other countries , especially those whose economies rely heavily on external factors — that the more tightly tied the country's economy is to the dollar, the more vulnerable it is.
When the United States continues to export inflation, the risks to the economies of other countries will continue to increase; and when the United States considers tightening monetary policy, it is not a good thing to be embarrassed – the International Monetary Fund (IMF) warned on January 10 that the Fed's faster tightening of monetary policy may cause capital outflows and currency depreciation in emerging economies, and the outlook for economic growth is more uncertain, and emerging economies should be prepared for policies in advance. In short, it is a problem to turn over and over.
So, to some extent, it can even be said that for this wave of foreign exchange crisis in Sri Lanka, it is precisely the United States that should reflect on its influence in it than blame China.
Fortunately, Sri Lanka has begun to consider the diversity of foreign exchange reserves and trading currencies.
In an interview with this writer in September last year, Ajith Nivard Cabraal, former Sri Lanka's Minister of State for Finance and State-Owned Enterprise Reform, said: "I am optimistic about the prospects of the renminbi ... It will be helpful to provide more options for everyone when trading. I have a hunch that this is going to be an ongoing trend. This means that we can add the renminbi as a new reserve currency to our basket of currencies. ”
Mr. Cabral, the current governor of Sri Lanka's central bank, was interviewed by this author in September last year
It's not too late to make amends.
The Fictional "China Debt Trap"
Some Western media disregarded the facts and forcibly bound Sri Lanka's economic difficulties to the "Chinese debt", generating the conclusion of the "China debt trap" and hyping it up.
The impact of this kind of operation is not only limited to image smear, but also the actual business of China's foreign investment will be deeply disturbed - groups influenced by western media and lack of judgment can easily disregard the truth of the data, form stereotypes, and link "Chinese investment" with "debt crisis", and the overseas investment projects of Chinese enterprises may have to spend time and energy to explain from time to time, and the difficulty of market development will further increase. Considering that Europe and the United States are planning to build their own version of the "Belt and Road", it is not excluded that these reports now have the possibility of "stepping on one and holding one".
Uppur Wiklamasingha, a veteran Sri Lankan media personality and reporter of the Viklia Newspaper Group, noted the recent "China debt trap" hyped up by foreign media and bluntly said that "such media reports lack factual basis."
Commenting on the crisis Sri Lanka is now facing, he candidly noted: "Sri Lanka has not done enough to attract foreign direct investment over the years. After the 2019 Easter terrorist attacks and the COVID-19 pandemic that continues to this day, sri Lanka's major sources of foreign exchange – remittances for foreign workers, tourism – have seen their incomes fall. I think these are the main causes of our current foreign exchange crisis. ”
Since we insist on pulling on debts, let's talk about "debts" and "debts."
In fact, in terms of total external debt, 54% of Sri Lanka's external loans come from the international capital market, and although the proportion of loans from China rose from 2% in 2008 to 9% in 2017, the overall proportion is not high. China is Sri Lanka's fourth-largest creditor after international financial markets, the Asian Development Bank and Japan.
By the end of 2021, debt to China will account for about 10% of Sri Lanka's total dollar external debt. According to the Central Bank of Sri Lanka, the share of loans from China in Sri Lanka's total sovereign debt has declined, to about 3% by the end of 2021, far lower than Japan and india among bilateral loans.
As for China's "Belt and Road" project in Sri Lanka, the Sri Lankan government and people are also clear in their hearts.
Not long ago, Sanjayer took his family to see the New Year's Eve fireworks show held in Colombo Port City, and he was deeply impressed by this, and he was also very happy to chat with this author: "China's investment project is very good, and the appearance of Sri Lanka has undergone a surprising change." ”
His nephew, a college graduate majoring in architecture, submitted his resume to Port City Colombo at the previous Sri Lanka Housing and Construction Expo – China Business Job Fair. He said: "Who wouldn't want to work at Port City Colombo? ”
Covering an area of 269 hectares, Colombo Port City is invested and developed by China Harbor, is one of the key projects of the "Belt and Road" construction and the flagship project of Sri Lanka's "Great Western Province" strategic plan; the project has started in September 2014, the development cycle is expected to be about 25 years, and after completion, it will become a business and commercial center in South Asia and a tourism and leisure center attracting global attention.
Panoramic renderings of the Port City project (Infographic/Official website of the Ministry of Commerce of the People's Republic of China)
In late 2021, the world's top accounting firm PricewaterhouseCoopers released a report discussing the economic impact of Port City Colombo, which noted that Port City is expected to attract more than $12.7 billion in investment over the next 20 years and contribute more than $13.8 billion to Sri Lanka's GDP annually when completed.
In addition to Port City, the Colombo International Container Terminal, jointly operated by China Merchants Group and Sri Lanka, has also greatly contributed to the sustained and rapid growth of the port's container capacity, improving the status of Colombo Port in the world port and shipping community – the global ranking of Colombo Port jumped from 34th in 2012 to 22nd in 2020.
Another port invested and operated by China Merchants Group and Sri Lanka, Hambantota International Port (Han Port), will exceed 2 million tons of cargo throughput in 2021, and the port park has attracted more than 35 enterprises from the United Kingdom, Singapore, Japan, China, Maldives and other countries.
In addition, China's "Belt and Road" project in Sri Lanka has also created a large number of local jobs. Take, for example, the CEYLON tire factory project, which was founded by Chinese companies with an investment of US$300 million in the Hangang Port Park, can create 2,000 jobs in Sri Lanka alone. It is also understood that the localization rate of employees at Colombo International Container Terminal and Han Port has reached 98%.
According to the author's contacts and observations in Sri Lanka for many years, Sri Lankans are very grateful for China's assistance and have a relatively high degree of trust.
For example, in Sri Lanka, the first two doses of the new crown vaccine mainly use the Chinese national medicine vaccine, and the complete vaccination rate of people over 16 years old is more than 85%; while the use of other brands of reinforced needles, many Sri Lankans do not trust and are reluctant to play, so the progress of the third injection is currently slow. Many of Sri Lanka's middle class, including civil servants, military police, etc., are also full of yearning for China and are willing to study in China.
The first two doses of the Sri Lankan covid-19 vaccine mainly use the Chinese national medicine vaccine (photo provided by the author)
While recalling, "Who wouldn't want to work in Port City Colombo?" These words, while flipping through the Reports of the Sri Lanka Debt Crisis in the Western Media, I remembered the famous words of the Supreme Treasure -
This article is the exclusive manuscript of the observer network, the content of the article is purely the author's personal views, does not represent the platform views, unauthorized, may not be reproduced, otherwise will be investigated for legal responsibility. Pay attention to the observer network WeChat guanchacn, read interesting articles every day.