China urges Sri Lanka secure further Chinese investment

China urged Sri Lanka to provide a "sound legal environment" to secure further Chinese investment while proposing to explore a trilateral cooperative mechanism among Beijing, New Dehli and Colombo.

"China would integrate its development strategy with its neighbors and jointly build a community of common development and shared interests," Chinese Premier Li Keqiang told visiting Sri Lankan Foreign Minister Mangala Samaraweera last week.

As the first Sri Lankan minister to visit China since the country ushered in a new administration in January, the top diplomat has vowed to improve convenience and create a better environment to woo more Chinese investors.

The two countries will stay committed to enhancing self-development capability by co-constructing the 21st Century Maritime Silk Road, and have identified "three major pillars" of bilateral relations: negotiation over a free trade agreement, infrastructure improvement and industrial cooperation.

"The FTA will provide preferential access for Sri Lankan products to the vast Chinese market and thereby progress towards a more balanced and equitable bilateral trade," Samaraweera said.

The envoy's visit sought to dispel "clouds of uncertainty" over the two neighbors since the new Sri Lankan government has threatened to cancel a China-funded Colombo port city project, a deal signed in September during Chinese President Xi Jinping's state visit to the South Asian country.

The $1.5-billion arrangement, which involved transferring 108 hectares of land next to the main commercial port of Colombo to China Communications Construction Co Ltd for luxury real estate development, was brought under re-examination last month in terms of cost appraisals and environmental impacts.

Led by President Maithripala Sirisena, the new Sri Lankan government has set a 100-day deadline to complete constitutional reforms and probe corruption in large-scale projects such as the Colombo port city.

"The investigation does not overshadow the generally close China-Sri Lanka economic ties, even in the context of power transition to a more neutral leadership," said Wang Weihua, a researcher on South Asian studies at the Shanghai Institutes for International Studies.

"After many years of conflicts, there is vast need for development in Sri Lanka, and China is one of the few countries that can inject capital and personnel to tap into the opportunities," Wang said.

Describing the re-examination "a good thing" for foreign, including Chinese, investors, Samaraweera said the new administration wants to "create a rule-based investor climate because some of the investments that were decided upon by the previous government were not totally given on merit".

"The Chinese government would be kept informed of the process and outcome of the review," Samaraweera said, adding that both of Sri Lanka's political parties, the Freedom Party and the United National Party, had friendly China policies.

However, Fu Xiaoqiang, an expert on South Asian studies at the China Institutes of Contemporary International Relations, said the review shows Colombo is more likely to follow a more cautious attitude to accepting Chinese investment from now on, especially in the security area, so as not to upset India.

"Both countries will still advance cooperative agreements signed previously, but it will not be a surprise to see the implementation shrinking or slowing down," Fu said.

Changes in the new administration's foreign policy are evident, which the diplomat described as a more balanced "middle path", with the goal of engaging with the world.

Last month, speculation arose over whether Sri Lanka will steer away from its previous pro-China policy to re-warming ties with India as Sirisena picked India as his first oversea trip. Sirisena will visit China late this month and attend the Boao Forum for Asia in Southeastern Hainan province.

China is keen to ensure its investment safety in Sri Lanka, which is an important stop on Beijing's ambitious regional development initiative of the 21st Century Maritime Silk Road. Sri Lanka was among the first countries to endorse China's proposal since it was raised in 2013.

However, analysts said India, which lags behind China in infrastructure development in Sri Lanka, stays vigilant to China's expansion of its influence across the Indian Ocean, one of world's busiest shipping lanes.

Last year, the docking of a Chinese submarine in Colombo aggravated New Delhi's concern, although Beijing repeatedly said it was a "technical docking for supplies and rest", practiced by navies all over the world.

"India remains distant to China's Maritime Silk Road blueprint because it does not want China to replace its leading role in boosting connectivity in the Indian Ocean region," Fu said.

During talks with his Sri Lankan counterpart, Chinese Foreign Minister Wang Yi said Beijing holds an open attitude towards China-Sri Lanka-India trilateral cooperation and stands ready to discuss possible fields and feasible approaches.

"The three countries, all boasting abundant Buddhist tourism resources, can consider cooperation in developing tourist routes," Wang said.

Samaraweera hailed a tri-party agreement between India, China and Sri Lanka as "the most welcome", saying the Indian government is "not at all concerned" about Sri Lanka's relations with China.

Wang, the researcher, said the success of this cooperative model requires both China and India to ditch zero-sum competition and coordinate investment efforts in the region to achieve common development.

"It depends on how the three countries see differences, from a cooperative perspective or a confrontational one," he added.

China is the largest investor in the war-battered South Asian country, accounting for 24 percent of its total FDI in 2013. Chinese companies have also been involved in major projects such as the Hambantota port and railways in southern Sri Lanka.

China is also Sri Lanka's third-largest source of tourists. More than 275,000 Chinese visitors are expected to travel to Sri Lanka this year.