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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