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Key to greater FDI and development

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The miracle of “Shenzhen” inspired governments globally to find ways and means out of adverse situations that plague countries in terms of their economic performance, especially in the post-second world war era.

Shenzhen was well-regarded the world over as the most judicious and prudent way of experimenting with fundamental economic reforms the Chinese leaders wanted to introduce to the country’s economic structure.

It was more of a litmus test of how market reforms such as liberalisation of the economy works within the global economic context.

The man behind the Shenzhen success story was Chairman Deng Xiaoping. The story of Shenzhen began in May 1980 and spread its wings rapidly across various parts of China, making dramatic and dynamic changes in that country’s economic growth story.

There was a similar success story in respect of economic growth in our own country when President J.R Jayewardene strategically placed Sri Lanka in the global open market by introducing the Greater Colombo Economic Commission (GCEC) through a Parliamentary Act even before China embraced the market economy in a more phased out manner. Sri Lanka gradually lost its clout as a pioneering nation in the region to introduce market reforms, perhaps due to unforeseen and unknown reasons and internal political squabbles that led to economic instability.

At one stage former President Jiang Zemin, as a young engineer and a Vice Minister of China, visited Sri Lanka to study the pros and cons of a liberalised economy taking President Jayewardene’s model as a case study before launching Shenzhen in 1980.

Former Foreign Secretary Bernard Goonetilleke who was assigned to Beijing as our ambassador had a personal tete–a-tete with Chairman Jiang Zemin when he presented his credentials some years ago.

Goonetilleke had this interesting story to relate on Chairman Jiang’s visit to Sri Lanka.

“I presented credentials as Ambassador of Sri Lanka to the People’s Republic of China to President Jiang Zemin in early 2000 as the successor of Ambassador R.C.A. Vandergert. Usually, several newly appointed ambassadors present their credentials to the Head of State at the same time. The usual practice is that the Chinese President makes use of the opportunity to have a short discussion with the newly appointed ambassadors.

When the opportunity came for me to present my credentials to the President, he took approximately 40 minutes to engage in a discussion with me which was unusual. The intimate discussion demonstrated not only China’s interest in Sri Lanka as a friendly nation but also his affection towards our country.

The backdrop to the discussion was twofold. The first was the security situation in Sri Lanka resulting from the separatist war which was quite

intense around that time. He wanted to get an overall picture of the security situation and how the Security Forces were managing it, in particular who was responsible for supporting the LTTE. His interest was justifiable on two counts. One was that China was among the few countries that were supporting Sri Lanka against the LTTE, supplying arms, ammunition and heavy artillery weapons to fight the guerrilla group. The second was that China itself was facing a similar security situation in the Xinjiang autonomous region which was getting intense at that time.

The second area of discussion related to Sri Lanka’s experience with the open economy introduced by the Government of the late President J.R. Jayewardene. As you would recall, China itself was moving in the direction of an open market economy and welcoming foreign investments during the latter part of the 1970s. The new administration in Sri Lanka wanted to open up the economy and sought the assistance of the UNDP to get it moving in a new direction. For this, in 1978, the Government sought the support of the UNDP and through it obtained consulting services from Shannon Free Airport Development Company Ltd. Phase I of the GCEC project started in June 1979 and lasted till April 1980 whereupon phase II started in mid-1982 and lasted till 1983. Phase III of the project started in August 1984.

round this time young Jiang, with a degree in electrical engineering and having worked as an engineer in several factories, had become Vice Minister of the State Commission on Imports and Exports (1980) and become a member of the Central Committee of the Chinese Communist Party (1982).

During the conversation, President Jiang said that in the early 1980s China was looking for a suitable model to open up its economy and sought the help of the UN (I presume it was UNDP) and decided to dispatch a team of experts for a study. For this purpose, they had selected two countries viz. Malaysia, which already had an open economy and Sri Lanka, which was moving from a closed to a free market economy with the establishment of the GCEC assisted by the UNDP.

During the discussion, he said that the Chinese team first went to Malaysia and later visited Sri Lanka. He said that the Government accorded them with all facilities and the GCEC officials were very cordial and helpful and requested the Chinese team to ask any question they wished to ask. After a successful visit, the Chinese team had returned home.

As an afterthought, President Jiang inquired from me whether I knew who was in the Chinese delegation and who headed it. While I knew of the visit, I was not privy to the details of the visit and I told him so. What followed was a burst of loud laughter and thumping of the chest by President Jiang, loudly saying “I”, meaning that that delegation was led by none other than him.

While I do not recall when this visit had taken place, it would have taken place around 1980 or 1981, in between Phase I and Phase II of the GCEC project. The rise of the Chinese economy commenced with the opening up of foreign trade and investment and the implementation of free-market reforms in 1979 which coincides with the establishment of the GCEC. There was no looking back so far as China was concerned, returning a real annual Gross Domestic Product (GDP) growth averaging 9.5 percent through 2018, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history”.

Not even President Jayewardene would have thought that the young Vice Minister would become the President of China at a later stage.

President Jayewardene by all means was acting contrary to the assertions of the closed economic concept of Prime Minister Sirimavo Bandaranaike and cracked open the economy to compete with external market forces.

He was aware of the intricacies that would crop up with controversial legislation where the Commission was empowered to amend or suspend certain laws stipulated in a Schedule of the Act.

President Jayewardene was mindful to enact the Greater Colombo Economic Commission (GCEC) Act when the 1972 first Republican Constitution was still in force and the National State Assembly, which was later replaced and named as the Sri Lanka Parliament under the constitutional reforms introduced by him in September 1978, was in existence.

The GCEC Act came into being in March 1978 under which Sri Lanka’s first Special Economic Zone (SEZ) was established.

Through the 1978 Constitution, among other things, the then UNP Government in power added an entrenched provision which stipulates that the ‘Sovereignty of the People’ that included the legislative power of the people is exercised through Parliament. Article 3 of the 1978 Constitution makes the Sovereignty of the People inalienable and Parliament in that context is unable to abdicate its power of suspending or amending Acts of Parliament and delegating the legislative power to another institution. Therefore, where the Colombo Port City Economic Commission (CPCEC) Bill is concerned, the Government must take a fresh look at some of the provisions which would enable the Commission to exercise legislative power and which may fall outside its ambit. Legal experts are of the view that to make it workable, the Government may have to go before the people for approval unless it finds another way out to surmount this difficulty.

With the GCEC Act, President Jayewardene nevertheless circumvented a foreseeable difficult situation by passing it when the 1972 Constitution was in force. A two-thirds majority was sufficient to bring or introduce any reform necessary to make the GCEC workable. In the absence of the referendum clause linked to sovereignty in the Constitution, President Jayewardene fulfilled the required tenets of granting the Commission the power to make necessary amendments to the Parliamentary Acts specified in the Schedule. However, in the present context the Government has to exercise caution in dealing with this specific situation.

The Colombo Port City Economic Commission is the second of its kind that is similar to the GCEC to encourage foreign direct investments to the country in a bid to boost its economic prospects. The main objective of the Colombo Port City Economic Commission (CPCEC) Bill is to showcase Sri Lanka to the entire world as a potential investment destination and an economic hub in the Indian Ocean with incentives. There are many arguments that it will be a separate entity and a pseudo-Chinese colony, but this argument does not hold any water.

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