Sri Lanka-China relations in recent months appeared to be in troubled waters after Sri Lanka objected to the use of organic fertilizer imported from China owing to environmental concerns. This led to a diplomatic tussle between the two countries, as China blacklisted the People’s Bank of Sri Lanka for the first time for non-payment of dues. At the same time, the procurement committee appointed by the Sri Lankan cabinet recommended that China Harbour Engineering Company Ltd will develop Phase II of the Eastern Container Terminal (ECT) at the Colombo Port. The ECT at present is operated by Sri Lanka Ports Authority. These developments indicated somewhat mixed responses by Sri Lanka in its dealing with China. The viewpoint will briefly touch upon issues and engagement between Sri Lanka and China in recent months.
Fertilizer issue
The rejection by Sri Lanka to pay for the organic fertilizer imported from Chinese fertilizer enterprise Qingdao Seawin Biotech Group Co., Ltd in October this year has led to differences between the two countries. The National Plant Quarantine Service (NPQS) of Sri Lanka issued a test report stating that consignment of organic fertilizer from China was found to be highly contaminated with bacteria such as Bacillus spp. and Erwinia spp, which can be pathogenic to plants.[i] Sri Lankan agricultural experts also supported the view by saying, ‘fertilizer imported from China will have long term consequences on the soil once used’.[ii] In this scenario, on 19th November 2021, the Colombo Commercial Court extended an interim order preventing payment of $4.9 million to the Chinese company till 30th November 2021 by People’s Bank of Sri Lanka. Sri Lanka also rejected China’s suggestion of testing the sample by a third party. In response to the order by the Sri Lankan court regarding suspension of payment, the Economic and Commercial Counsel of Embassy of China in Sri Lanka, blacklisted the People’s Bank of Sri Lanka and advised its companies to avoid doing business with it since it had defaulted.[iii] The ship carrying the contaminated fertilizer imported from China is said to be in Sri Lankan waters awaiting port entry.
Investments by China: Business as usual?
While the fertilizer issue is still unsettled, the Sri Lankan cabinet has approved the contract to develop phase II of the ECT to China. The ECT at present is operated by Sri Lanka Ports Authority. China is already involved in building the Colombo Port City as well as a highway near Colombo costing more than $2 billion. Another important investment by China is Hambantota Port costing $1.2 billion in the South of the country. Sri Lanka’s exports to China are also up by 112.1 percent in 2021. Chinese Ambassador to Sri Lanka Qi Zhenhong recently described the engagement between Sri Lanka and China as “pragmatic bilateral cooperation”.[iv] This statement was seen as shifting the focus away from the diplomatic tussle between the two countries on the fertilizer issue as well as indicating China’s continuing interest in engagement with Sri Lanka as part of Belt and Road Initiative (BRI).
The Context
Sri Lanka, at present, is going through economic hardships, as a consequence of many years of internal armed conflict and the pandemic. For instance, Sri Lanka needs to pay nearly $600 million foreign debt by mid-next year.[v] The aforementioned differences with China have surfaced at a time when the country is in dire need of finances to run the economy and pay foreign debts. The present government in Sri Lanka is trying to overhaul the economy in accordance with the policy document “Vistas of Prosperity and Splendour” promised during the presidential (2019) and parliamentary elections (2020). The policy document’s emphasis on promoting domestic resource based exports, reducing import taxes on raw materials and intermediate goods to promote domestic production is driving various decisions of the government. Decision taken in April 2021, such as banning of chemical fertilizer imports and complete shift to organic agriculture, are part of government’s attempts to overhaul the agriculture sector. These decisions were, however reviewed later in view of the adverse impact on products such as tea and rubber. The issue of the import of organic fertilizer from China is also getting inter-twined with the domestic debate on organic agriculture.
The President of Sri Lanka has strongly expressed this view when he emphasised that his government is for ‘green agriculture and will only provide subsidies for organic farming’.[vi] The stated policy can explain the present government’s somewhat firm posture when it comes to the possible impact fertilizer import from China can have on the domestic environment and on agriculture in general. Amid these developments with China, India provided 3.1 million litres of non-harmful Nano Nitrogen liquid fertilizer for maize and paddy cultivation in November 2021 to Sri Lanka.
Sri Lanka’s insistence on “no exclusivity in foreign relations” is a stand that caters to general public consciousness in safeguarding country’s sovereignty and unity. The stand taken with regard to fertilizers imported from China fits into the island state’s assertiveness when it comes to engaging with external players on issues that have a direct bearing on the economy. Nevertheless, given the internal economic and political conditions, it remains to be seen how firm Sri Lanka will be in dealing with the fertilizer import[1] issue with China in coming months. Both the countries may work out a solution for mutual benefit given the long standing economic ties. Meanwhile, it seems Sri Lanka will try to engage with other external players such as India for the benefit of its economy as well as to leverage its strategic presence in the Indian Ocean.
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* Dr. Samatha Mallempati is a research fellow at the Indian Council of World Affairs.
Disclaimer: Views are personal
End Notes
[i]Easwaran Rutnam, “Chinese company demands USD 8 million from Sri Lankan official”, Colombogazette, 7 November 2012, https://colombogazette.com/2021/11/07/chinese-company-demands-usd-8-million-from-sri-lankan-official/. Accessed on November 16, 2021.
[ii]Agriculture Ministry insists Chinese fertilizer samples will not be retested, Colombo gazette, 15 November 2021, https://colombogazette.com/2021/11/15/agriculture-ministry-insists-chinese-fertilizer-samples-will-not-be-retested/. Accessed on November 20, 2021.
[iii] “People’s Bank of Sri Lanka blacklisted by China”, 29 October 2021, Dailymirror, https://www.dailymirror.lk/breaking_news/People%E2%80%99s-Bank-of-Sri-Lanka-blacklisted-by-China/108-223582
[iv]Embassy of the People’s Republic of China in Sri Lanka, “China’s Development, World’s Opportunity”, 10 November 2021, http://lk.china-embassy.org/eng/xwdt/202111/t20211110_10446401.htm. Accessed on November 15, 2021. Accessed on November 16, 2021.
[v]“Sri Lanka assures will not default in repaying foreign deb”t, 13 November 2021, https://colombogazette.com/2021/11/13/sri-lanka-assures-will-not-default-in-repaying-foreign-debt/Accessed on November 21, 2021.
[vi]Presidential Secretariat, Government of Sri Lanka, “No change in government policy – Only green agriculture -President emphasizes”, 22 November 2021, https://www.presidentsoffice.gov.lk/index.php/2021/11/22/no-change-in-government-policy-only-green-agriculture-president-emphasizes/. Accessed on November 24, 2021.