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Globalisation Enter the Dragon!

2017-09-14 00:05:28
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‘If you want to become rich, you will have to build the road first’, so goes the traditional Chinese saying. In other words, it is reference to the infrastructure development as the solid basis to propel or boost economic growth. In the analysis of things in this context, it became apparent that China, under its ambitious ‘Belt and Road Initiative’ (BRI) has stepped in to develop the Hambantota Port and the industrial park integrated with it.  

It turned clear at a media programme organised on the BRI at Tsinghua University here in Beijing with the participation of over a dozen journalists from South and South-East Asian regions.  

Hambantota Port, built with a multi-billion dollar loan from the Chinese government during the previous rule, has been leased out to China Merchants Port Holding Company in partnership with the Sri Lanka Ports Authority for development and commercial operation .  

According to the leading Chinese academics attached to the School of Finance of this particular university headquartered in Beijing, the Hambantota Port is earmarked as a partially released infrastructure project under the BRI.  

On the one hand, it links China with East Asia and Europe, and  on the other, the BRI links up China with South Asia, Middle East, South -East Asia. Sri Lanka is among the very first countries that pledged cooperation with the BRI

In fact, the BRI is a long term project that aims at integration of China with the rest of the world for improved and enhanced connectivity. It seeks to expand bilateral trade, policy communication, promotion of cooperation among emerging industries and people to people contacts etc. On the one hand, it links China with East Asia and Europe, and  on the other, the BRI links up China with South Asia, Middle East, South -East Asia.

Sri Lanka is among the very first countries that pledged cooperation with the BRI. That happened during the term of the last government that elevated bilateral relations with China to the level of Strategic Partnership Cooperation. After blowing hot and cold, the new government also threw its weight behind the project seen as the next phase of economic globalisation. In fact, Prime Minister Ranil Wickremesinghe signed the official document along with the leaders of other countries involved in the project at the summit on BRI in China, last year.  

The globalisation, marked by cross border exchanges during its heyday, passed two main phases namely the rule-based system and the inclusiveness-based system. It has now entered the next level with the implementation of BRI. Hambantota Port Project has been implemented well in line with this concept.  

For the expansion of trade, China has laid down plans. China opened up for market economy in 1978 under its leader Deng Xiaoping. Initially, it, as outlined by the Chinese dons, developed the coastal areas of the country in terms of industrialization. Reforms were introduced in the financial sector to facilitate the growth, and for over 30 years, the country sustained sound growth rates, on most occasions , at double digit levels.

After becoming a moderately prosperous country that even withstood the international financial crisis in 2009, China is now set to expand its global trade complement to reach the next level of development. It is today the largest international trade economy. So, the academics said reforms introduced at that time are extended to the next level under the leadership of current President Xi Jinping by opening up more and more to the global market.  

Hambantota Port is earmarked as a partially released infrastructure project under the BRI China signed local currency swap agreements with 36 Central Banks RMB still accounts for 2% of world trade Sri Lanka also contributed to the initial capital.

They say China also views globalisation as something offering both opportunities and risks. Among them is opposition to openness and advocation of protectionism in countries that are party to the BRI.  
As far as the Hambantota Port in Sri Lanka is concerned, there is protest over the leasing out of a strategic asset. However, it is not yet clear whether these academics took note of this trend in Sri Lanka when they formulate their thoughts for lectures. Investment in Hambantota is only a small one compared with the massive amount of money put on the ground by China under the BRI .  

Will RMB replace US$ as currency of international trade with BRI countries?  

The answer is definitely going to be yes in this instance. Already, plans are underway for the internationalisation of Reminbi (RMB - the official currency of the People’s Republic of China) along with the execution of the BRI. According to Dr. Zheng Xuechun of People’s Bank of China, the developing and emerging economies suffer due to fluctuation of US$ at times, causing transaction costs for those countries involved in international trade.  

As part of the internationalisation of RMB, China signed local currency swap agreements with 36 Central Banks. Besides, it signed currency settlement agreements with nine countries. Sri Lanka also signed such an agreement with China in 2014 for 10 million RMB. Dr. Zheng said the internationalisation of RMB is still at an early stage, though.  

China signed local currency swap agreements with 36 Central Banks. Besides, it signed currency settlement agreements with nine countries. Sri Lanka also signed such an agreement with China in 2014 for 10 million RMB

In another instance, it was cited how rubber trade between China and Malaysia was hit by the fluctuation of the value of US$ on one occasion in the past. The Chinese authorities ask as to why bilateral trade should suffer due to such fluctuations of US currency. Be that as it may, RMB still accounts for two percent of world trade.  

As part of this exercise in seeking financial integration, China is to issue more and more RMB Bonds in its territory for the BRI countries. Already, Beijing-based Asian Infrastructure Investment Bank, an inter governmental and multilateral development organisation, has issued 1.7 billion US$ as loans for nine projects in the region. Sri Lanka also contributed to the initial capital. Its capital accounts of 100 billion US$.  

In the implementations of economic development plans under the BRI, the Chinese scholars said the time was ripe for reconsideration of international conventions to facilitate the fulfilment of current global trends.    


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