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Cablegate: Sri Lanka: President's State Visit to China Focuses On Port

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PP RUEHBI RUEHLMC
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P 280704Z MAR 07
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UNCLAS SECTION 01 OF 03 COLOMBO 000502

SIPDIS

SENSITIVE

SIPDIS

STATE FOR SCA/INS, EAP/CM, AND EEB/IFD/ODF

MCC FOR S GROFF, D NASSIRY AND E BURKE

PACOM FOR POLAD

E.O 12958: N/A
TAGS: EAID ECON EINV ETRD PREL CE
SUBJECT: SRI LANKA: PRESIDENT'S STATE VISIT TO CHINA FOCUSES ON PORT
PROJECT AND OTHER INFRASTRUCTURE AID

REF: A) COLOMBO 250
B) 05 COLOMBO 2116
C) 06 COLOMBO 2086
D) 06 COLOMBO 431

1. (SBU) Summary and comment: Sri Lankan President Rajapaksa
visited China February 26 - March 4 to commemorate the 50th
anniversary of diplomatic relations between Sri Lanka and China.
For Sri Lanka, key deliverables from the visit were economic, in the
form of a Chinese government commitment to finance a major new port
to be built by Chinese firms, plus agreements between Chinese and
Sri Lankan firms for joint venture investments in Sri Lanka. The
Rajapaksa government, the Sri Lanka Board of Investment, and the
media portrayed the visit and the agreements it produced as an
important success, but Sri Lanka actually got few new Chinese
promises for big-ticket infrastructure. A notably missing outcome
of the visit was any reference to the offshore oil exploration block
that Sri Lanka has reserved for China. China's investment in the
port project is part of its slow, patient strategy to gain strategic
footholds in the Indian Ocean, a development India will monitor
closely. End summary and comment.

COURTING AN INCREASINGLY IMPORTANT DONOR
----------------------------------------

2. (SBU) Sri Lankan President Mahinda Rajapaksa paid a state visit
to China February 26 - March 4, during which he met with Chinese
President Hu, Premier Wen, Foreign Minister Li, and other senior
Chinese officials. The visit commemorated the 50th anniversary of
diplomatic relations between Sri Lanka and China. Rajapaksa's
delegation included at least sixteen ministers, Board of Investment
and Tourism Board officials, and 72 private business people.

3. (SBU) For Sri Lanka, aside from the diplomatic anniversary, the
visit was an effort to drum up increased Chinese investment and
development assistance. Since Sri Lanka's last head of state visit
to China, in 2005, China had announced commitments to finance
infrastructure projects in Sri Lanka worth over $1 billion, making
China potentially one of the largest development donors to Sri Lanka
(Ref A). Not all of those commitments had come to fruition,
however, so one of the goals of the Rajapaksa visit was to lock in
some of promised help.

FOREIGN MINISTRY: VISIT DELIVERED INFRASTRUCTURE PROJECTS
--------------------------------------------- ----------

4. (SBU) The Sri Lankan Ministry of Foreign Affairs considered the
visit to be a diplomatic and economic success. Additional Secretary
for Economic Affairs K. Amunagama told Econoff that President
Rajapaksa's primary goal was to get Chinese support for his "Mahinda
Chintana" vision of equal distribution of wealth around Sri Lanka
(Ref B). President Hu had endorsed that vision, according to
Amunagama, and had backed up his endorsement with a final commitment
on a long-promised concessionary loan to finance a $385 million
container port and oil terminal in Rajapaksa's home district,
Hambantota. Amunagama also noted that the four highest ranking
officials in China had met with the Sri Lankan delegation and that
the two countries had signed eight cooperative agreements in areas
such as cultural, scientific, and educational exchanges. Paragraphs
12 and 13 list the MFA's goals for the visit and noteworthy passages
of the communiqu from the visit.

5. (SBU) China also said it would explore funding for one other
major infrastructure project. In 2005, China agreed to finance a
300 megawatt coal power plant at Norochcholai, in Puttalam District
north of Colombo. During the recent visit, the two sides discussed

COLOMBO 00000502 002 OF 003


possible Chinese government funding for second and third phases of
the Norochcholai project, each of which would add an additional 300
megawatts of output.

BOARD OF INVESTMENT: PRIVATE INVESTMENTS ALSO PLANNED
--------------------------------------------- --------

6. (SBU) Board of Investment Chairman Lakshman Watawala told Econoff
that the visit had produced a number of MOUs for private Chinese
investments in Sri Lankan firms. He said that the China Council for
the Promotion of International Trade (CCPIT) had organized
investment seminars in Beijing, Shanghai, and Guangzhou that had
enabled Chinese and Sri Lankan companies to explore business
opportunities.

7. (SBU) Watawala listed the following agreements as the most
significant to come out of the visit:

-The Guangdong Bus Company will invest $5 million in Micro Cars of
Sri Lanka to manufacture 200-250 aluminum body buses per year,
creating 200-300 new jobs.

- Chinese car manufacturer Chery will invest $200 million in Sri
Lankan importer David Peiris Motor Company to produce 500 Chery
vehicles annually in Sri Lanka. Peiris already imports Chery cars.

- Dong Guan Ta Tun Electric Wire Co, a Taiwanese company with
operations in mainland China, will invest $200 million to produce
electrical cables in Sri Lanka for export to India. Sri Lanka
garment manufacturer Brandix Lanka will be a passive investor,
adding 25% equity to the venture.

8. (SBU) A Brandix director, Aslam Omar, who participated in the
official delegation to China, told Econoff that the electric cable
venture had not in fact arisen from the visit. Omar described the
trade seminars as "a total waste of time." He said the Chinese
participants seemed to have no interest in the events, aside from
the food. According to Omar, even President Rajapaksa had noticed
this, and had commented to Omar, "no way are we getting what we
want." A representative of Micro likewise confirmed that the bus
deal had been sealed some time earlier and then announced again in
the context of the visit.

COMMENT: ASIDE FROM SIGNATURE PORT, FEW NEW PROMISES
--------------------------------------------- -------

9. (SBU) The government has portrayed the state visit and the
agreements it produced as an important success. Rajapaksa surely is
pleased to have gotten a firm Chinese commitment on his signature
infrastructure project, the Hambantota port development worth nearly
$400 million dollars (Ref C and note in paragraph 10). Beyond that,
Sri Lanka actually got few new Chinese promises for big-ticket
infrastructure. Notable in its absence from the outcomes of the
visit was any reference to the offshore oil exploration block that
Sri Lanka has reserved for China (Ref D). China undoubtedly remains
interested in the block, but the Sri Lankan Petroleum Minister's
recent move to request a deposit of $100 million from China to
secure the block may have somewhat diminished China's enthusiasm.

10. (SBU) Note: The Hambantota project is controversial, as it
involves creating a port and other related infrastructure in a
corner of the country that currently has little economic activity.
But that corner is Rajapaksa's home district, and he has been
pushing various infrastructure projects -- a refinery, an
international airport, a convention center, improved roads, etc. --
to turn Hambantota into a production center. The former Minister of

COLOMBO 00000502 003 OF 003


Ports and Aviation has accused Rajapaksa's brothers of interfering
in Cabinet affairs as they separately lobbied on behalf of different
Chinese companies pursuing the port contract. The President
resolved the split by getting all to agree that both Chinese
companies would have a role in the project. Indeed, ten days after
the visit, the two Chinese construction firms signed a contract with
the Sri Lanka Ports Authority on the deal. End note.

11. (SBU) China's focus on the Hambantota port is part of its
ongoing strategy to build strategic footholds in South Asia.
China's long term goal appears to be to lay the groundwork for
potential access by Chinese naval vessels so China can better
project power into the Indian Ocean and safeguard the growing
volumes of energy supplies and other trade passing through or near
Sri Lankan waters. End comment.

MFA GOALS AND COMMUNIQUE
------------------------

12. (U) A Sri Lankan Foreign Ministry briefing book for members of
the state visit's business delegation described Sri Lanka's
objectives as follows:

-Celebration of 50 years of Diplomatic Relations

-Increase political, economic, cultural, educational, and technical
cooperation

-Attract new investment

-Promote Sri Lanka as a tourist destination

-Promote Sri Lanka's exports - especially the non-traditional
exports i.e. tea, gems and jewelry

13. (U) A joint communiqu released by China and Sri Lanka included
the following notable points:

-Sri Lanka affirmed that the "Government of the People's Republic of
China is the sole legal government representing the whole China and
that Taiwan is an inalienable part of the Chinese territory."

-China would "continue to support Sri Lanka in its efforts to
safeguard the country's sovereignty, national unity and territorial
integrity against terrorist forces."

-China and Sri Lanka would fight "the three evil forces of
terrorism, separatism and extremism and will step up consultation
and coordinating on regional international counter terrorism
action."

- The China-Sri Lanka Joint Committee on Trade and Economic
Cooperation would encourage "Chinese trading companies to be more
involved in the purchase of Sri Lankan items."

-China acknowledged "the desire and request of the Sri Lanka
Government for infrastructure improvement and economic development"
and "expressed readiness to give positive consideration to
facilitating the financing of relevant projects."

-The two sides would increase Buddhist exchanges, and China would
consider "the proposal of the Sri Lankan side on establishing an
International Buddhist Zone in Sri Lanka..."

BLAKE

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