Table.Briefing: China

Sri Lanka’s debt + Japan’s pacifism

  • China’s ‘debt trap’ in Sri Lanka
  • Possible constitutional change in Japan
  • Covid ankle monitors in Hong Kong
  • Protest at Henan bank
  • Slower growth on car market
  • IMF urges debt relief
  • Wang Yi warns about US influence
  • Heads: Wolfgang Ehmann, Head of the AHK in Hong Kong
Dear reader,

The situation in Sri Lanka is dramatic. The country is suffering the deepest economic crisis in its history. Unemployment and rising prices are driving people onto the streets, while a huge mountain of debt is crushing the national budget. On the weekend, insurgents even stormed the President’s palace.

But who is to blame for this state of affairs? Many point to China. In their opinion, it is a prime example of China’s alleged debt trap. Frank Sieren has taken a closer look at the complicated mix of loan agreements, fixed interest rates, and feasibility studies for the port project and comes to the conclusion that it was not China’s alleged debt trap that snapped shut in Sri Lanka. Instead, the reasons can also be found in Europe and the USA.

In our second analysis today, we look at Japan. There, the former party of assassinated Ex-Prime Minister Shinzō Abe won the election to the upper house of parliament on the weekend. Now, unexpectedly, the ruling Liberal Democratic Party and their coalition partners have an opportunity to implement a decades-old concern: Japan’s conservatives could finally amend the pacifist constitution. For China, that would probably be an unacceptable act. Finn Mayer-Kuckuk has analyzed the new post-election situation. He shows why Japan’s incumbent Prime Minister Kishida is unlikely to seek a constitutional amendment after all, despite his election victory.

Your
Michael Radunski
Image of Michael  Radunski

Feature

Sri Lanka and China’s alleged debt trap

Construction work around the Hambantota port
(archive photo from 2021)

Sri Lanka is in the midst of the biggest economic crisis in its history. The island nation has more than $50 billion in foreign debt. Inflation is around 60 percent. Over the weekend, insurgents stormed the presidential palace. This Tuesday, President Gotabaya Rajapaksa and Prime Minister Ranil Wickremesinghe and his government team plan to resign unanimously.

Many people immediately think of China when it comes to Sri Lanka’s debt. More specifically, of the alleged Chinese debt trap into which Beijing is driving the countries of the Belt and Road Initiative – “Chinese neocolonialism,” as it is called in Washington. President Rajapaksa and Prime Minister Wickremesinghe did indeed maintain close relations with China for a long time. Now they have to face the accusation of having been cheated by China.

Hambantota is considered a prime example of Beijing’s debt trap, Sri Lanka’s second-largest but newest deep-sea port. The port is located on the most important shipping route between Europe and Asia and is also of military interest. So far, so true.

The port of Hambantota: a geopolitical myth

But taking a closer look at the accusation of the debt trap, it quickly turns out to be a geopolitical myth. It reads as follows: Beijing has lent Sri Lanka money at high-interest rates for a new port, which basically cannot be profitable, only to force Sri Lanka to give China the strategically important port on India’s doorstep for 99 years – because that was the guarantee for the original loan.

However, the story of China as a loan shark has a fundamental problem: it is not true. This is proven by the latest research conducted by the top US university Johns Hopkins in the context of the economic crisis: “It’s a lie, a powerful one at that,” says Professor Deborah Bräutigam, summarizing the results as succinctly as they are provocative. They were even recently published as a major piece in “The Atlantic” magazine, one of the most renowned American journals.

The feasibility study on which the expansion of the port is based was not financed by Beijing. 75 percent was paid by the Canadian government for $1.5 million, prepared by SNC-Lavalin, one of Canada’s leading construction companies. The result: The port is economically viable if an international consortium builds, operates, and later hands over the port in a joint venture. Accordingly, Colombo will not have to shoulder the investment costs of $1.7 billion on its own. A second study by the renowned Danish consulting firm Ramboll, which implements many EU projects, comes to the same conclusion.

With these studies, the government of Sri Lanka advertised the project in Canada, the USA, and India – but no one was interested. Nor was anyone from the EU. For the investors, the political situation after 30 years of civil war and a tsunami was (and still is) simply too risky.

China’s role

The only ones who did not shy away from entrepreneurial risk were the Chinese. China Exim Bank offered Sri Lanka a $307 million, 15-year loan, including a choice between fixed interest rates of 6.3 percent or flexible rates. The government chose the latter, riskier option. That Beijing’s interest rates are reasonable, has been evidenced by an international bond that Colombo issued simultaneously. Sri Lanka must offer 8.3 percent interest to borrow money on the international market.

However, the Sri Lankan government decided to operate the port itself. It was ceremoniously opened in 2010. But it quickly became clear that this would not work. What’s more, instead of waiting for the first phase to become profitable, as the Western consultants had suggested, Colombo also built the second expansion phase in 2012 – with a new $757 million loan at now only two percent. This was because interest rates had dropped in the aftermath of the global financial crisis.

In 2016, when the port was still not making enough profit, Colombo asked China Harbor and Merchants Group to operate the port for 35 years, as it was already successfully managing the capital’s port. But before the Chinese operators could get a foothold, Sri Lanka was so over-indebted that growth eventually collapsed entirely.

However, with a share of 10 percent, the Chinese play only a marginal role in this debt. “Sri Lanka owed more to Japan, the World Bank, or the Asian Development Bank ADB than to China,” Bräutigam notes in her study. In any case, she says, Sri Lanka owes most of its debt to the private international capital market, where it was unable to repay around $4.3 billion in 2017.

Sri Lanka’s economy has completely collapsed

Following the advice of the IMF, Colombo then attempted to privatize the port internationally to obtain US dollars. But only two Chinese companies were interested in the global bidding process. For $1.12 billion, China Merchants will get 70 percent of the port for 99 years.

However, this feat of strength was also wasted. An attack in 2019 that killed more than 200 people and the COVID pandemic in the following two years ultimately wiped out Sri Lanka’s economy. “Our economy has completely collapsed,” Prime Minister Ranil Wickremesinghe recently had to admit to Parliament. Inflation in Sri Lanka is over 60 percent. Food prices have risen by more than 80 percent. And because of a shortage of foreign currency, the country is unable to import enough fuel.

Sri Lanka’s debt trap was…mostly generated by internal policy decisions, aided by Western financiers,” the South China Morning Post newspaper also summarized.

China has become cautious

But in the meantime, China has also become cautious. So cautious that Sri Lanka’s President Gotabaya Rajapaksa complained to Bloomberg that Beijing was denying his country substantial aid. Moreover, Sri Lanka could not access promised China loans of $1.5 billion. And the request for an aid package of $1 billion received no response at all.

Rajapaksa, of course, knows which narrative works well internationally: First eviscerated by China, then abandoned in the worst crisis. But this has not helped him. Because Beijing knows that the President will not remain in power, it is now limiting its aid to humanitarian measures. 10,000 tons of rice are being sent to Sri Lanka, as well as medicine. And two new port cranes were delivered as planned at the end of June.

But negotiations on the long-pending free trade agreement between China and Sri Lanka have stalled. Above all, Beijing hopes that Sri Lanka can make it without the US-dominated IMF.

And while Beijing has become cautious, India is trying to improve its position in Sri Lanka. This year alone, Delhi has extended loans totaling $376 million – making it the largest lender of the year. This compares with only $13 million last year. At the recent Quad Summit – the meeting of the major Asian democracies India, Japan, and Australia with the US – Delhi lobbied for the IMF to agree to bail out Sri Lanka. But with a new government in Colombo, the power game between India and China over Sri Lanka is open again.

  • Finance
  • Geopolitics
  • Sri Lanka
  • Trade

Japan’s government could change peace constitution

Japan’s Prime Minister Fumio Kishida after winning the election. Will he now change Japan’s constitution?

In a parliamentary election on Sunday, the ruling Liberal Democratic Party (LDP) in Japan was able to gain votes. This brings within reach a political project that has failed several times in recent decades: The amendment of a constitutional article that commits Japan to peacefulness. To this day, the country’s army is not officially designated as such. Prime Minister Fumio Kishida could now bring the legal framework into line with reality.

Even if there is still a long way to go before a concrete vote is held, the public debate about Peace Article 9 of the constitution is already relevant for China. The amendment of a constitutional article that obligates Japan to remain peaceful. Even though Japan has highly armed forces in practice, pacifism is part of its self-image. A departure from this stance would show that advocates of military solutions are gaining influence.

Conversely, the constitutional amendment would also be a pretext for China’s leadership to portray Japan as militaristic and to stir up sentiment against its neighbor. All these are among the reasons why Japan’s governments have so far been reluctant to put the constitutional amendment to a vote.

Officially Japan is still demilitarized

Japan has been in a curious situation since World War II. The US dictated a constitution that prohibited the defeated nation from rearming. But then came the Cold War, and the US suddenly insisted that Japan do its part in defending the region against the Soviet Union, North Korea, and China.

The country then established the “Self-Defense Forces” in 1954. Officially, not an army, but in practice, it looks just like one. This way, Japan was even faster than the other defeated nation, Germany. The Bundeswehr was not established until a year later. For both countries, this marked the end of the short phase of demilitarization.

But while the Bundeswehr was founded on a clear legal basis, Japan never adapted its constitution to reality. New generations of Japanese who had broken with the wartime generation’s way of thinking liked their peaceful constitution. They liked the idea of a more harmless, better Japan. In opinion polls, they traditionally opposed the amendment of Article 9. This was one of the reasons why a corresponding majority was never achieved in parliament.

Since Sunday, the LDP and three other parties leaning in favor of the amendment hold a two-thirds majority in parliament. This makes it possible, at least in theory, to amend Article 9.

Japan is armed with the most modern equipment

However, the peace article should not obscure the fact that the self-defense forces are excellently equipped. Japan has 260,000 soldiers under arms, compared with only 185,000 in Germany. The navy has sophisticated equipment such as helicopter carriers, which are currently being converted into aircraft carriers. A fleet of silent submarines that can also fire missiles constantly patrols the Japanese islands.

Prime Minister Shinzō Abe, who was gunned down on Friday, had worked hard to reconcile the constitution with the fact that Japan is actually heavily armed. He predicted that his country would continue to arm itself. Japan’s neighbors include North Korea, Russia, and China. Tensions are to be expected there in the long term. In the meantime, even a full-blown conflict seems possible.

Whether Abe’s death favors or hinders constitutional change is currently the subject of debate. After all, he was an advocate of the amendment. Kishida could now feel obligated to push the project forward for this very reason.

Kishida more concerned about inflation – and seeks dialogue

However, Prime Minister Kishida currently has quite different problems and priorities. In his press conference after the polls closed on Sunday, he cited inflation and debt as Japan’s main problems. He said he wanted to “let people discuss” the constitutional amendment. It is questionable whether he will now devote his political capital and energy to the entirely theoretical constitutional issue, or whether he will not rather stick to economic policy.

Kishida himself is not an agitator. Instead, he repeats his view that more dialogue would do the region well. At the same time, he warns against increasing Chinese military activity. He is referring in particular to the constant intrusions of Chinese fighter jets near Taiwan. Against this background, he is massively increasing defense spending. Which, of course, can be done without amending the constitution.

The amendment of Article 9 would be of little use to Kishida in his attempt to rely on dialogue on the one hand and inconspicuously upgrade the army on the other. A likely scenario, therefore, would be that he works toward this pro forma but lets the initiative fade away in quiet. Like so many governments did before him.

  • Geopolitics
  • Japan
  • Military

News

Hong Kong: Ankle monitor for COVID patients?

The city of Hong Kong plans to electronically monitor citizens in quarantine who have tested positive for COVID. Patients will be able to serve their isolation time at home. But they could wear an ankle monitor while doing so, Health Secretary Lo Chung-Mau announced Monday. At the same time, the COVID app, modeled on mainland China, will display a health code in traffic light colors in the future to “better manage” contact restrictions.

Unlike the rest of China, Hong Kong does not yet use health codes that can be used to quickly prove its own vulnerability status. Recently, however, the number of new cases detected daily in Hong Kong has been on the rise to more than 2,500, after dropping below 100 in May. Hong Kong’s government is under pressure to get infection chains back under control. Lo promised that the system would not record citizens’ movements. He also ruled out police setting codes to red in the future to break up potential protests. fin

  • Coronavirus
  • Health
  • Hongkong

Severe turmoil in front of bank in Henan

Protests and wild brawls broke out outside a People’s Bank of China in Henan province over the weekend. On Sunday, several victims of what is possibly China’s biggest financial scandal were surrounded by local police and beaten by unknown men.

Around 1,000 people had gathered in front of the People’s Bank of China branch in Zhengzhou on Sunday morning to withdraw money from their accounts. As this had not been possible for several weeks, the people held up banners. They read: “No deposits, no human rights”, “We are against the corruption and violence of the Henan government” or “Henan banks, give me my money back”.

Then the peaceful protests came to an abrupt end: Men dressed in white shirts surrounded the bank customers and savagely beat the crowdall under the eyes of uniformed police. Many protesters were put into vans and taken away. The victims suffered broken bones and injuries to their heads and eyes.

The protests are prompted by a huge banking scandal. Since April, four banks in Henan province have frozen the accounts of thousands of customers. When reports subsequently emerged that a shareholder in the bank had embezzled large sums, the bank’s customers tried to save their savings. However, they found that they could no longer withdraw any money. Joern Petring

  • Banks
  • Finance
  • Henan

Slower growth on China’s car market

Due to falling demand for commercial vehicles, the Chinese Automobile Association CAAM has lowered its sales forecast for the current year. For the whole year, the organization expects to deliver 27 million new cars, trucks, and buses – half a million fewer vehicles than its original forecast in December. Year-on-year growth is expected to be just 3 percent – down from 5.4 percent – according to data released on Monday.

The sluggish sales of commercial vehicles in particular burden the prospect. Here, a decline of 16 percent to four million units is expected. The passenger car market, on the other hand, is expected to recover further and grow by seven percent despite all the obstacles caused by strict COVID lockdowns in recent months. Electric cars in particular are expected to show strong growth of more than 50 percent thanks to government incentives.

At automaker Mercedes-Benz, however, new car sales in China, the world’s most important single market, fell by 25 percent in the second quarter. The DAX group cited a shortage of semiconductors and logistical problems in connection with the lockdown, such as the closure of the important commercial port of Shanghai, as reasons. rtr

  • Autoindustrie
  • CAAM

IMF urges China to cancel debt

The International Monetary Fund is urging China and other major creditors to make concessions to heavily indebted developing countries. If efforts for debt relief are not made soon, a downward spiral threatens, IMF Chief Kristalina Georgieva told Reuters. At the end of the week, the 20 leading industrialized and emerging countries will meet in Bali. The debt of particularly poor countries is likely to be a topic of discussion.

In October 2020, the G20 group agreed on how to prevent sovereign defaults in African countries, for example. The trigger was a sharp rise in debt due to the COVID pandemic. Since then, however, not much has happened. There have been no debt cuts or restructurings.

Georgieva warned that there was no room for complacency on this issue. Otherwise, the trust would be gambled away and there could be a downward spiral. German Minister of Finance Christian Lindner (FDP) has repeatedly warned of a debt crisis in emerging and developing countries and has called China to account.

According to the IMF Chief, one-third of emerging markets and two-thirds of developing countries are in difficulty because of high debt. Recent interest rate hikes – in the US and the UK, for example – are exacerbating the situation by drawing capital away from poorer nations. Georgieva stressed that it was essential to agree on debt relief for Zambia, Ethiopia and Chad. The three African countries have requested aid under the G20 framework, but have been waiting since then. Negotiations on this are to take place in July. rtr

  • Debt
  • Finance
  • G20

Wang Yi warns Asian countries about the USA

On Monday, China’s Foreign Minister Wang Yi warned Southeast Asian nations against US influence. Speaking at the secretariat of the Association of Southeast Asian Nations (ASEAN) in the Indonesian capital of Jakarta, Wang said the countries should not take sides in the rivalry between the major powers or even allow themselves to be used as “chess pieces” on the world stage. Rather, countries in the region should remain independent and respect each other’s sovereignty. Wang stressed, “We should insulate this region from geopolitical calculations.”

The struggle for influence in various regions of the world intensified significantly not only with the start of the war in Ukraine – and the geopolitical rivalry between China and the US becomes increasingly apparent (China.Table reported).

While China has been trying for several years to strengthen its trade relations and expand its influence through the “New Silk Road” initiative, the US is currently developing an increasingly China-critical stance. The US is engaged in Southeast Asia through the “Quadrilateral Security Dialogue” (Quad for short), in which it cooperates with Japan, Australia, and India. In addition, the US formed the Aukus Alliance in the Indo-Pacific a few months ago. Within this framework, the US and the UK want to help their partner Australia build nuclear submarines. In response to China’s “New Silk Road,” the G7 countries have launched an infrastructure initiative (China.Table reported).

Consequently, Wang warned in Jakarta on Monday, saying Southeast Asian nations must be prevented from being coerced into great-power rivalry through “hegemony and bullying.” The region should reject attempts to divide it into “confrontational and exclusive groups,” he said. “We should uphold true regional cooperation that unites countries within the region and remain open to countries outside,” the Chinese Foreign Minister said. Wang is currently on a tour of Southeast Asia to promote, among other things, China’s “New Silk Road” initiative. rad

  • ASEAN
  • Geopolitics
  • Indo-Pacific
  • New Silk Road
  • Quad

Heads

Wolfgang Ehmann – a Swabian in Hong Kong

Wolfgang Ehmann is the head of the AHK in Hong Kong.

Wolfgang Ehmann, 62, sits in his office on the 19th floor of the Cofco Tower on Hong Kong’s Gloucester Road. When he looks up from his computer screen, he sees the metropolis as if on a postcard – sailing ships passing by, glittering skyscraper facades, and, in the background, the hazy outline of a mountain landscape. “The topography of Hong Kong is unique,” says Ehmann. He repeatedly notices this when he goes hiking in the country parks that surround the city.

Ehmann is the Head of the German Chamber of Commerce Abroad in Hong Kong. With his 13 colleagues, he strengthens bilateral relations between China and Germany. The members come primarily from Germany’s SME sector. From mechanical engineers to tech companies, everything is there. What exactly does he do? “Answer questions,” he says. His job is to take people by the hand and give them the best possible starting conditions in Hong Kong. He obtains credit reports, helps open accounts, or looks for suitable office space.

Contacts are particularly important

But above all, he makes connections. He knows his way around Hong Kong, the business world is his home. Although someone who does good business in Germany is not out of luck in Hong Kong, contacts are particularly important here. You need an intermediary to introduce you. “Cold calls” are not so welcome. “The shortest distance between two points here is often a sinuous line,” he says. You know someone who knows someone. Contact is usually never made directly, he says.

Ehmann should know. After all, he has lived in Hong Kong for 35 years. He was just 26 when he moved from Freiburg to the Chinese Special Administrative Region after completing his business studies. His father managed the Hong Kong office of the Heidenheim-based machine manufacturer Voith and had arranged his first job for him.

“Hong Kong has its own DNA. This variety, these contrasts, the fast-paced life – you either love it or you hate it,” says Ehmann. The climate, the many people, the crowds, the constant fight for space – all of it is exhausting, too, Ehmann finds. For balance, he jogs or rides his bike in the hilly surrounding countryside. “If it weren’t for that, I don’t know if I’d still be living here.”

He rejected the protests

Ehmann’s perception of the 2019 protests in the metropolis was rather negative. “In my opinion, the protests were completely misguided.” Public transport came to a standstill, and colleagues sometimes did not come home from work. “I have always been able to understand that the frustration was great. The government has long failed to address the concerns of the young population. But I was repulsed by this level of violence,” says Ehmann.

Ehmann still feels connected to his homeland. He once sat with a banker from Ulm. He immediately heard the Swabian tongue and became friends with him. They are now a small group of businessmen from Baden-Württemberg who either live in Hong Kong or spend most of the year here. They call themselves the “Spaetzle Connection.” Tim Winter

  • Hongkong
  • Trade

Executive Moves

Antonia Gutmann has been the new Chanel Marketing Manager at smartphone manufacturer Oppo in Düsseldorf since May. Previously, she was Junior Manager for Chanel Marketing, also at Oppo.

Is something changing in your organization? Why not let us know at heads@table.media!

Dessert

One last handshake, then it’s time to go: These students are waiting in Shanghai for admission to their Gaokao exam. Final exams didn’t start in Shanghai until this Monday. Due to the COVID lockdown, the Gaokao in the metropolis had been postponed by a month.

China.Table editorial office

CHINA.TABLE EDITORIAL OFFICE

Licenses:
    • China’s ‘debt trap’ in Sri Lanka
    • Possible constitutional change in Japan
    • Covid ankle monitors in Hong Kong
    • Protest at Henan bank
    • Slower growth on car market
    • IMF urges debt relief
    • Wang Yi warns about US influence
    • Heads: Wolfgang Ehmann, Head of the AHK in Hong Kong
    Dear reader,

    The situation in Sri Lanka is dramatic. The country is suffering the deepest economic crisis in its history. Unemployment and rising prices are driving people onto the streets, while a huge mountain of debt is crushing the national budget. On the weekend, insurgents even stormed the President’s palace.

    But who is to blame for this state of affairs? Many point to China. In their opinion, it is a prime example of China’s alleged debt trap. Frank Sieren has taken a closer look at the complicated mix of loan agreements, fixed interest rates, and feasibility studies for the port project and comes to the conclusion that it was not China’s alleged debt trap that snapped shut in Sri Lanka. Instead, the reasons can also be found in Europe and the USA.

    In our second analysis today, we look at Japan. There, the former party of assassinated Ex-Prime Minister Shinzō Abe won the election to the upper house of parliament on the weekend. Now, unexpectedly, the ruling Liberal Democratic Party and their coalition partners have an opportunity to implement a decades-old concern: Japan’s conservatives could finally amend the pacifist constitution. For China, that would probably be an unacceptable act. Finn Mayer-Kuckuk has analyzed the new post-election situation. He shows why Japan’s incumbent Prime Minister Kishida is unlikely to seek a constitutional amendment after all, despite his election victory.

    Your
    Michael Radunski
    Image of Michael  Radunski

    Feature

    Sri Lanka and China’s alleged debt trap

    Construction work around the Hambantota port
    (archive photo from 2021)

    Sri Lanka is in the midst of the biggest economic crisis in its history. The island nation has more than $50 billion in foreign debt. Inflation is around 60 percent. Over the weekend, insurgents stormed the presidential palace. This Tuesday, President Gotabaya Rajapaksa and Prime Minister Ranil Wickremesinghe and his government team plan to resign unanimously.

    Many people immediately think of China when it comes to Sri Lanka’s debt. More specifically, of the alleged Chinese debt trap into which Beijing is driving the countries of the Belt and Road Initiative – “Chinese neocolonialism,” as it is called in Washington. President Rajapaksa and Prime Minister Wickremesinghe did indeed maintain close relations with China for a long time. Now they have to face the accusation of having been cheated by China.

    Hambantota is considered a prime example of Beijing’s debt trap, Sri Lanka’s second-largest but newest deep-sea port. The port is located on the most important shipping route between Europe and Asia and is also of military interest. So far, so true.

    The port of Hambantota: a geopolitical myth

    But taking a closer look at the accusation of the debt trap, it quickly turns out to be a geopolitical myth. It reads as follows: Beijing has lent Sri Lanka money at high-interest rates for a new port, which basically cannot be profitable, only to force Sri Lanka to give China the strategically important port on India’s doorstep for 99 years – because that was the guarantee for the original loan.

    However, the story of China as a loan shark has a fundamental problem: it is not true. This is proven by the latest research conducted by the top US university Johns Hopkins in the context of the economic crisis: “It’s a lie, a powerful one at that,” says Professor Deborah Bräutigam, summarizing the results as succinctly as they are provocative. They were even recently published as a major piece in “The Atlantic” magazine, one of the most renowned American journals.

    The feasibility study on which the expansion of the port is based was not financed by Beijing. 75 percent was paid by the Canadian government for $1.5 million, prepared by SNC-Lavalin, one of Canada’s leading construction companies. The result: The port is economically viable if an international consortium builds, operates, and later hands over the port in a joint venture. Accordingly, Colombo will not have to shoulder the investment costs of $1.7 billion on its own. A second study by the renowned Danish consulting firm Ramboll, which implements many EU projects, comes to the same conclusion.

    With these studies, the government of Sri Lanka advertised the project in Canada, the USA, and India – but no one was interested. Nor was anyone from the EU. For the investors, the political situation after 30 years of civil war and a tsunami was (and still is) simply too risky.

    China’s role

    The only ones who did not shy away from entrepreneurial risk were the Chinese. China Exim Bank offered Sri Lanka a $307 million, 15-year loan, including a choice between fixed interest rates of 6.3 percent or flexible rates. The government chose the latter, riskier option. That Beijing’s interest rates are reasonable, has been evidenced by an international bond that Colombo issued simultaneously. Sri Lanka must offer 8.3 percent interest to borrow money on the international market.

    However, the Sri Lankan government decided to operate the port itself. It was ceremoniously opened in 2010. But it quickly became clear that this would not work. What’s more, instead of waiting for the first phase to become profitable, as the Western consultants had suggested, Colombo also built the second expansion phase in 2012 – with a new $757 million loan at now only two percent. This was because interest rates had dropped in the aftermath of the global financial crisis.

    In 2016, when the port was still not making enough profit, Colombo asked China Harbor and Merchants Group to operate the port for 35 years, as it was already successfully managing the capital’s port. But before the Chinese operators could get a foothold, Sri Lanka was so over-indebted that growth eventually collapsed entirely.

    However, with a share of 10 percent, the Chinese play only a marginal role in this debt. “Sri Lanka owed more to Japan, the World Bank, or the Asian Development Bank ADB than to China,” Bräutigam notes in her study. In any case, she says, Sri Lanka owes most of its debt to the private international capital market, where it was unable to repay around $4.3 billion in 2017.

    Sri Lanka’s economy has completely collapsed

    Following the advice of the IMF, Colombo then attempted to privatize the port internationally to obtain US dollars. But only two Chinese companies were interested in the global bidding process. For $1.12 billion, China Merchants will get 70 percent of the port for 99 years.

    However, this feat of strength was also wasted. An attack in 2019 that killed more than 200 people and the COVID pandemic in the following two years ultimately wiped out Sri Lanka’s economy. “Our economy has completely collapsed,” Prime Minister Ranil Wickremesinghe recently had to admit to Parliament. Inflation in Sri Lanka is over 60 percent. Food prices have risen by more than 80 percent. And because of a shortage of foreign currency, the country is unable to import enough fuel.

    Sri Lanka’s debt trap was…mostly generated by internal policy decisions, aided by Western financiers,” the South China Morning Post newspaper also summarized.

    China has become cautious

    But in the meantime, China has also become cautious. So cautious that Sri Lanka’s President Gotabaya Rajapaksa complained to Bloomberg that Beijing was denying his country substantial aid. Moreover, Sri Lanka could not access promised China loans of $1.5 billion. And the request for an aid package of $1 billion received no response at all.

    Rajapaksa, of course, knows which narrative works well internationally: First eviscerated by China, then abandoned in the worst crisis. But this has not helped him. Because Beijing knows that the President will not remain in power, it is now limiting its aid to humanitarian measures. 10,000 tons of rice are being sent to Sri Lanka, as well as medicine. And two new port cranes were delivered as planned at the end of June.

    But negotiations on the long-pending free trade agreement between China and Sri Lanka have stalled. Above all, Beijing hopes that Sri Lanka can make it without the US-dominated IMF.

    And while Beijing has become cautious, India is trying to improve its position in Sri Lanka. This year alone, Delhi has extended loans totaling $376 million – making it the largest lender of the year. This compares with only $13 million last year. At the recent Quad Summit – the meeting of the major Asian democracies India, Japan, and Australia with the US – Delhi lobbied for the IMF to agree to bail out Sri Lanka. But with a new government in Colombo, the power game between India and China over Sri Lanka is open again.

    • Finance
    • Geopolitics
    • Sri Lanka
    • Trade

    Japan’s government could change peace constitution

    Japan’s Prime Minister Fumio Kishida after winning the election. Will he now change Japan’s constitution?

    In a parliamentary election on Sunday, the ruling Liberal Democratic Party (LDP) in Japan was able to gain votes. This brings within reach a political project that has failed several times in recent decades: The amendment of a constitutional article that commits Japan to peacefulness. To this day, the country’s army is not officially designated as such. Prime Minister Fumio Kishida could now bring the legal framework into line with reality.

    Even if there is still a long way to go before a concrete vote is held, the public debate about Peace Article 9 of the constitution is already relevant for China. The amendment of a constitutional article that obligates Japan to remain peaceful. Even though Japan has highly armed forces in practice, pacifism is part of its self-image. A departure from this stance would show that advocates of military solutions are gaining influence.

    Conversely, the constitutional amendment would also be a pretext for China’s leadership to portray Japan as militaristic and to stir up sentiment against its neighbor. All these are among the reasons why Japan’s governments have so far been reluctant to put the constitutional amendment to a vote.

    Officially Japan is still demilitarized

    Japan has been in a curious situation since World War II. The US dictated a constitution that prohibited the defeated nation from rearming. But then came the Cold War, and the US suddenly insisted that Japan do its part in defending the region against the Soviet Union, North Korea, and China.

    The country then established the “Self-Defense Forces” in 1954. Officially, not an army, but in practice, it looks just like one. This way, Japan was even faster than the other defeated nation, Germany. The Bundeswehr was not established until a year later. For both countries, this marked the end of the short phase of demilitarization.

    But while the Bundeswehr was founded on a clear legal basis, Japan never adapted its constitution to reality. New generations of Japanese who had broken with the wartime generation’s way of thinking liked their peaceful constitution. They liked the idea of a more harmless, better Japan. In opinion polls, they traditionally opposed the amendment of Article 9. This was one of the reasons why a corresponding majority was never achieved in parliament.

    Since Sunday, the LDP and three other parties leaning in favor of the amendment hold a two-thirds majority in parliament. This makes it possible, at least in theory, to amend Article 9.

    Japan is armed with the most modern equipment

    However, the peace article should not obscure the fact that the self-defense forces are excellently equipped. Japan has 260,000 soldiers under arms, compared with only 185,000 in Germany. The navy has sophisticated equipment such as helicopter carriers, which are currently being converted into aircraft carriers. A fleet of silent submarines that can also fire missiles constantly patrols the Japanese islands.

    Prime Minister Shinzō Abe, who was gunned down on Friday, had worked hard to reconcile the constitution with the fact that Japan is actually heavily armed. He predicted that his country would continue to arm itself. Japan’s neighbors include North Korea, Russia, and China. Tensions are to be expected there in the long term. In the meantime, even a full-blown conflict seems possible.

    Whether Abe’s death favors or hinders constitutional change is currently the subject of debate. After all, he was an advocate of the amendment. Kishida could now feel obligated to push the project forward for this very reason.

    Kishida more concerned about inflation – and seeks dialogue

    However, Prime Minister Kishida currently has quite different problems and priorities. In his press conference after the polls closed on Sunday, he cited inflation and debt as Japan’s main problems. He said he wanted to “let people discuss” the constitutional amendment. It is questionable whether he will now devote his political capital and energy to the entirely theoretical constitutional issue, or whether he will not rather stick to economic policy.

    Kishida himself is not an agitator. Instead, he repeats his view that more dialogue would do the region well. At the same time, he warns against increasing Chinese military activity. He is referring in particular to the constant intrusions of Chinese fighter jets near Taiwan. Against this background, he is massively increasing defense spending. Which, of course, can be done without amending the constitution.

    The amendment of Article 9 would be of little use to Kishida in his attempt to rely on dialogue on the one hand and inconspicuously upgrade the army on the other. A likely scenario, therefore, would be that he works toward this pro forma but lets the initiative fade away in quiet. Like so many governments did before him.

    • Geopolitics
    • Japan
    • Military

    News

    Hong Kong: Ankle monitor for COVID patients?

    The city of Hong Kong plans to electronically monitor citizens in quarantine who have tested positive for COVID. Patients will be able to serve their isolation time at home. But they could wear an ankle monitor while doing so, Health Secretary Lo Chung-Mau announced Monday. At the same time, the COVID app, modeled on mainland China, will display a health code in traffic light colors in the future to “better manage” contact restrictions.

    Unlike the rest of China, Hong Kong does not yet use health codes that can be used to quickly prove its own vulnerability status. Recently, however, the number of new cases detected daily in Hong Kong has been on the rise to more than 2,500, after dropping below 100 in May. Hong Kong’s government is under pressure to get infection chains back under control. Lo promised that the system would not record citizens’ movements. He also ruled out police setting codes to red in the future to break up potential protests. fin

    • Coronavirus
    • Health
    • Hongkong

    Severe turmoil in front of bank in Henan

    Protests and wild brawls broke out outside a People’s Bank of China in Henan province over the weekend. On Sunday, several victims of what is possibly China’s biggest financial scandal were surrounded by local police and beaten by unknown men.

    Around 1,000 people had gathered in front of the People’s Bank of China branch in Zhengzhou on Sunday morning to withdraw money from their accounts. As this had not been possible for several weeks, the people held up banners. They read: “No deposits, no human rights”, “We are against the corruption and violence of the Henan government” or “Henan banks, give me my money back”.

    Then the peaceful protests came to an abrupt end: Men dressed in white shirts surrounded the bank customers and savagely beat the crowdall under the eyes of uniformed police. Many protesters were put into vans and taken away. The victims suffered broken bones and injuries to their heads and eyes.

    The protests are prompted by a huge banking scandal. Since April, four banks in Henan province have frozen the accounts of thousands of customers. When reports subsequently emerged that a shareholder in the bank had embezzled large sums, the bank’s customers tried to save their savings. However, they found that they could no longer withdraw any money. Joern Petring

    • Banks
    • Finance
    • Henan

    Slower growth on China’s car market

    Due to falling demand for commercial vehicles, the Chinese Automobile Association CAAM has lowered its sales forecast for the current year. For the whole year, the organization expects to deliver 27 million new cars, trucks, and buses – half a million fewer vehicles than its original forecast in December. Year-on-year growth is expected to be just 3 percent – down from 5.4 percent – according to data released on Monday.

    The sluggish sales of commercial vehicles in particular burden the prospect. Here, a decline of 16 percent to four million units is expected. The passenger car market, on the other hand, is expected to recover further and grow by seven percent despite all the obstacles caused by strict COVID lockdowns in recent months. Electric cars in particular are expected to show strong growth of more than 50 percent thanks to government incentives.

    At automaker Mercedes-Benz, however, new car sales in China, the world’s most important single market, fell by 25 percent in the second quarter. The DAX group cited a shortage of semiconductors and logistical problems in connection with the lockdown, such as the closure of the important commercial port of Shanghai, as reasons. rtr

    • Autoindustrie
    • CAAM

    IMF urges China to cancel debt

    The International Monetary Fund is urging China and other major creditors to make concessions to heavily indebted developing countries. If efforts for debt relief are not made soon, a downward spiral threatens, IMF Chief Kristalina Georgieva told Reuters. At the end of the week, the 20 leading industrialized and emerging countries will meet in Bali. The debt of particularly poor countries is likely to be a topic of discussion.

    In October 2020, the G20 group agreed on how to prevent sovereign defaults in African countries, for example. The trigger was a sharp rise in debt due to the COVID pandemic. Since then, however, not much has happened. There have been no debt cuts or restructurings.

    Georgieva warned that there was no room for complacency on this issue. Otherwise, the trust would be gambled away and there could be a downward spiral. German Minister of Finance Christian Lindner (FDP) has repeatedly warned of a debt crisis in emerging and developing countries and has called China to account.

    According to the IMF Chief, one-third of emerging markets and two-thirds of developing countries are in difficulty because of high debt. Recent interest rate hikes – in the US and the UK, for example – are exacerbating the situation by drawing capital away from poorer nations. Georgieva stressed that it was essential to agree on debt relief for Zambia, Ethiopia and Chad. The three African countries have requested aid under the G20 framework, but have been waiting since then. Negotiations on this are to take place in July. rtr

    • Debt
    • Finance
    • G20

    Wang Yi warns Asian countries about the USA

    On Monday, China’s Foreign Minister Wang Yi warned Southeast Asian nations against US influence. Speaking at the secretariat of the Association of Southeast Asian Nations (ASEAN) in the Indonesian capital of Jakarta, Wang said the countries should not take sides in the rivalry between the major powers or even allow themselves to be used as “chess pieces” on the world stage. Rather, countries in the region should remain independent and respect each other’s sovereignty. Wang stressed, “We should insulate this region from geopolitical calculations.”

    The struggle for influence in various regions of the world intensified significantly not only with the start of the war in Ukraine – and the geopolitical rivalry between China and the US becomes increasingly apparent (China.Table reported).

    While China has been trying for several years to strengthen its trade relations and expand its influence through the “New Silk Road” initiative, the US is currently developing an increasingly China-critical stance. The US is engaged in Southeast Asia through the “Quadrilateral Security Dialogue” (Quad for short), in which it cooperates with Japan, Australia, and India. In addition, the US formed the Aukus Alliance in the Indo-Pacific a few months ago. Within this framework, the US and the UK want to help their partner Australia build nuclear submarines. In response to China’s “New Silk Road,” the G7 countries have launched an infrastructure initiative (China.Table reported).

    Consequently, Wang warned in Jakarta on Monday, saying Southeast Asian nations must be prevented from being coerced into great-power rivalry through “hegemony and bullying.” The region should reject attempts to divide it into “confrontational and exclusive groups,” he said. “We should uphold true regional cooperation that unites countries within the region and remain open to countries outside,” the Chinese Foreign Minister said. Wang is currently on a tour of Southeast Asia to promote, among other things, China’s “New Silk Road” initiative. rad

    • ASEAN
    • Geopolitics
    • Indo-Pacific
    • New Silk Road
    • Quad

    Heads

    Wolfgang Ehmann – a Swabian in Hong Kong

    Wolfgang Ehmann is the head of the AHK in Hong Kong.

    Wolfgang Ehmann, 62, sits in his office on the 19th floor of the Cofco Tower on Hong Kong’s Gloucester Road. When he looks up from his computer screen, he sees the metropolis as if on a postcard – sailing ships passing by, glittering skyscraper facades, and, in the background, the hazy outline of a mountain landscape. “The topography of Hong Kong is unique,” says Ehmann. He repeatedly notices this when he goes hiking in the country parks that surround the city.

    Ehmann is the Head of the German Chamber of Commerce Abroad in Hong Kong. With his 13 colleagues, he strengthens bilateral relations between China and Germany. The members come primarily from Germany’s SME sector. From mechanical engineers to tech companies, everything is there. What exactly does he do? “Answer questions,” he says. His job is to take people by the hand and give them the best possible starting conditions in Hong Kong. He obtains credit reports, helps open accounts, or looks for suitable office space.

    Contacts are particularly important

    But above all, he makes connections. He knows his way around Hong Kong, the business world is his home. Although someone who does good business in Germany is not out of luck in Hong Kong, contacts are particularly important here. You need an intermediary to introduce you. “Cold calls” are not so welcome. “The shortest distance between two points here is often a sinuous line,” he says. You know someone who knows someone. Contact is usually never made directly, he says.

    Ehmann should know. After all, he has lived in Hong Kong for 35 years. He was just 26 when he moved from Freiburg to the Chinese Special Administrative Region after completing his business studies. His father managed the Hong Kong office of the Heidenheim-based machine manufacturer Voith and had arranged his first job for him.

    “Hong Kong has its own DNA. This variety, these contrasts, the fast-paced life – you either love it or you hate it,” says Ehmann. The climate, the many people, the crowds, the constant fight for space – all of it is exhausting, too, Ehmann finds. For balance, he jogs or rides his bike in the hilly surrounding countryside. “If it weren’t for that, I don’t know if I’d still be living here.”

    He rejected the protests

    Ehmann’s perception of the 2019 protests in the metropolis was rather negative. “In my opinion, the protests were completely misguided.” Public transport came to a standstill, and colleagues sometimes did not come home from work. “I have always been able to understand that the frustration was great. The government has long failed to address the concerns of the young population. But I was repulsed by this level of violence,” says Ehmann.

    Ehmann still feels connected to his homeland. He once sat with a banker from Ulm. He immediately heard the Swabian tongue and became friends with him. They are now a small group of businessmen from Baden-Württemberg who either live in Hong Kong or spend most of the year here. They call themselves the “Spaetzle Connection.” Tim Winter

    • Hongkong
    • Trade

    Executive Moves

    Antonia Gutmann has been the new Chanel Marketing Manager at smartphone manufacturer Oppo in Düsseldorf since May. Previously, she was Junior Manager for Chanel Marketing, also at Oppo.

    Is something changing in your organization? Why not let us know at heads@table.media!

    Dessert

    One last handshake, then it’s time to go: These students are waiting in Shanghai for admission to their Gaokao exam. Final exams didn’t start in Shanghai until this Monday. Due to the COVID lockdown, the Gaokao in the metropolis had been postponed by a month.

    China.Table editorial office

    CHINA.TABLE EDITORIAL OFFICE

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