China Foreign Minister arrives in Sri Lanka amid tested ties, forex crisis

ECONOMYNEXT – Chinese Foreign Minister Wang Yi arrived in Sri Lanka for a two day official visit amid a tested diplomatic relation between the two countries after a fertilizer shipment and an unprecedented economic crisis faced by the Indian Ocean island.

State Councilor and Foreign Minister Wang Yi’s visit comes as both China and Sri Lanka celebrate 65th year of their diplomatic relations.

He also comes after Sri Lanka’ state-owned People’s Bank settled 6.9 million US dollars to a Chinese company which sent an organic fertilizer shipment on the request of Sri Lankan authorities.

Wang Yi is expected to meet top leaders of the government to mend severed ties and possible assistance to face the island nation’s forex crisis which is now leading to a risk of sovereign debt default.

Wang Yi’s visit also comes after Sri Lanka took a deliberate effort to seek Indian assistance to face its forex crisis. Finance Minister Basil Rajapaksa has been promised $1.9 billion including a $400 million swap arrangement, $500 million credit line for fuel from India.

India was also given 14 oil tanks for an extended 50 year lease and 49 percent of a joint venture company that will handle another 61 oil tanks next to Sri Lanka’s strategic natural port of Trincomalee.

Sri Lanka canceled three power system installation projects in three northern islands after India raised security concerns because those islands are located within 50 kilometers from South India. China has said it has not given up the northern project.

Sri Lankan agriculture minister Mahindanada Aluthgamage’s comment of “contaminated, harmful” on Chinese fertilizer shipment angered China after Sri Lankan authorities blocked the payment for the Chinese fertilizer through a court order in November.

The Chinese embassy in Colombo blacklisted Sri Lanka’s People’s Bank for not honouring payment. The People’s Bank on Friday in a statement said it had honoured a 6.9 million dollar payment to the Chinese fertilizer supplier.

Wang Yi also comes at a time Sri Lanka is facing a foreign exchange shortage. Sri Lanka’s central bank on December 29 drew a 10 billion yuan (around 1.5 billion US dollars) swap which was signed in March last year to shore its reserves to 3.1 billion US dollars.

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