India's competition magnifies as Sri Lanka, China join hands to take on IFC

Competition to India’s international financial centre at Gandhinagar has got magnified with Sri Lanka deciding to collaborate with China to develop a rival financial centre.

At the end of October, Sri Lanka President Maithripala Sirisena handed over the deeds for the transfer of 116 hectares in Colombo Port City to China Harbour Engineering Company (CHEC) on a 99-year lease to build the financial centre.

China is present in a big way in Sri Lanka despite earning criticism for the unviable cost of signature projects like the proposed Hambantota port, for which it captured, again, a 99-year lease. It is also building power projects and an airport in the country.

Colombo has for some time been planning to use reclaimed land from its port, the largest in South Asia, to develop an international financial centre, which, it says, will be located midway between Dubai and Singapore. It is a project steered by Prime Minister Ranil Wickremasinghe with the expectation of “realising financial assets worth 10 per cent of the GDP within the next five years”. The GDP of the nation, according the World Bank data, is $88.9 billion (2018).

The agreement reached between the Sri Lankan government and CHEC Port City Colombo notes that of the 269 hectares of reclaimed land in the port owned by the Sri Lankan government through its urban development authority, 116 hectares will be leased to on a 99-year lease for “further development”. The rest would be used for public and commercial use as part of the financial centre. For comparisons, India’s GIFT city is bigger than the Colombo centre at 359 hectares. CHEC is a subsidiary of China Communications Construction Company Limited. The parent company was incorporated in 2006 and is listed on the Hong Kong and Shanghai Stock Exchanges, with an employee base of over 120,000 and a presence in 145 countries, it website notes. The agreement for transfer of the land was signed in the presence of the President Sirisena and the Chinese ambassador to Sri Lanka Cheng Xueyuan.

• In October, Sri Lanka President Maithripala Sirisena handed over the deeds for the transfer of 116 hectares of land in Colombo Port City to CHEC to build a financial centre
• China is already present in the island nation despite earning criticism for the unviable cost of signature projects 
• Colombo has for quite some time been planning to use reclaimed land from its port, the largest in South Asia, to develop an IFC that it claims will be located just midway Dubai and Singapore

Reporting on the development Chinese news agency Xinhua quoted Sirisena who said “the project was a valuable long-term investment for the Sri Lankan economy and expressed hope that the Port City would attract higher volumes of Foreign Direct Investment to further the development of the country”. However other details of the plan are not yet public. For instance, it is not clear what would be the terms on which Chinese financial entities can set up shop in the CHEC project. 

While major economies of the world have often tried to develop international financial centres, success has been elusive. Rajesh Chakrabarti, professor and dean of Jindal Global Business School said scale is necessary to develop such a centre. “An expanding economy needs more avenues to source finance, but unless there is adequate depth in the hinterland, an IFC is difficult to build up”. As an example he says both Dubai and Singapore depend on easy access to rest of Asia to sustain their business. 

About Sri Lanka’s proposed IFC, experts said China is clearly exploring ways to provide finance to its wave of infrastructure businesses from an offshore base. Since many of its neighbours run trade deficits with Beijing, those countries are reluctant to be financed from markets like Shanghai or even Hong Kong, one of them said. Without wanting to be quoted, the expert who has been involved with GIFT in India said there will be competition. “India government should move faster with the development of GIFT, to keep this competition at bay. We had factored in Singapore and Dubai but this is a new one”.