China has blacklisted a state-owned bank in Sri Lanka after it allegedly failed to honor letters of credit issued for a fertilizer deal that was later canceled by the Sri Lankan government over substandard quality issues.  In a statement Friday, the Chinese Embassy in Sri Lanka said it had blacklisted People’s Bank, and also advised Chinese companies not to do business with the bank. The row erupted after Sri Lanka refused to pay for a canceled fertilizer deal. 

The ban follows a dispute over contaminated fertilizer which Sri Lanka refused to accept from a Chinese company.

The Economic and Commercial Office of the Embassy in a statement said, recently, the People’s Bank of Sri Lanka has witnessed the vicious event of L/C default, causing huge losses to Chinese enterprises in international trade with Sri Lanka.

“This bank now has been blacklisted by the Economic and Commercial Office of the Chinese Embassy in Sri Lanka,” the statement said. It further advised all Chinese enterprises to strengthen risk control and avoid accepting L/C issued by People’s Bank of Sri Lanka in international trade with Sri Lanka.”  

The bank later also issued a clarification, saying the payment was refused because of a Sri Lankan court order that had put a ban on transactions. It also clarified that other payments won’t be affected by the order.  

China accused the People’s Bank of Sri Lanka of causing huge losses to Chinese enterprises in international trade with Sri Lanka.

“The Office solemnly reminds all Chinese enterprises to strengthen risk control and avoid accepting L/C issued by People’s Bank of Sri Lanka in international trade with Sri Lanka,” the Chinese Embassy said. The decision has also been submitted to the Ministry of Commerce of China.

Significantly, the move came a day after the Chinese Ambassador Qi Zhenhong met Sri Lankan Prime Minister Mahinda Rajapaksa on Thursday. 

Soon after the cancelation of the deal, Sri Lanka signed an agreement with an Indian firm for the shipment of 3.1 million tonnes of nono nitrogen liquid urea, off which 45,000 tonnes have already been shipped. 

China’s latest move--sort of punitive action-- came at a time when both Colombo and New Delhi are putting sincere efforts to mend ties through various means, including cultural diplomacy. Earlier this month, Indian Foreign Secretary Harsh V Shringla also undertook a three-day visit to the country. 

(SAM)