Debt-Trap: China’s Invisible Hand Behind the BRI

As a result of an increasingly insular US, with US President Donald Trump’s imposition of tariffs- China has been trying to find common cause with a number of countries, including US allies, such as Japan, India and South Korea on the issue of globalization.

While unequivocally batting in favor of an open economic world order, Chinese President Xi Jinping has also used forums like Boao to speak about the relevance of the Belt and Road Initiative (BRI)/One Belt, One Road Initiative (OBOR). At the Boao Forum (April 2018), the Chinese President sought to dispel apprehensions with regard to the Belt and Road Initiative. ‘China has no geopolitical calculations, seeks no exclusionary blocs and imposes no business deals on others’.

There is absolutely no doubt that the One Belt, One Road Initiative/ BRI is a very ambitious project, and while it is likely to face numerous obstacles, it is a bit naïve to be dismissive of the project. 

Debt Trap and China’s Denial

Yet, China in promoting the BRI is in denial with regard to one of the major problems of the project, the increasing concerns of participant countries with regard to the increasing external debts resulting out of dependence upon China’s financial assistance. This phenomenon has been dubbed as ‘debt trap’.

This is evident from an article in the Global Times ‘Smaller economies can use Belt and Road Initiative as leverage to attract investment’. The article is dismissive of the argument that BRI has resulted in a debt trap. Says the article: ‘It is a misunderstanding to worry that China’s B&R initiative may elevate debt risks in nations involved in massive infrastructure projects. Countries are queuing up to cooperate with China on its B&R initiative, but many Western observers claim the initiative will create a problem of debt sustainability in countries and regions along the routes, especially those with small economies’.

The article begins by citing the example of Djibouti in Africa, and how infrastructure projects are generating jobs, and also helping in local capacity building, then cites other examples like that of Myanmar to put forward the point that accusations against Beijing of promoting exploitative economic relationships with participant countries in BRI is far from the truth.

The article in Global Times conveniently quotes Myanmar’s union minister, and security adviser Thaung Tun where he has dubbed the Kyaukpu project as a win-win deal, it conveniently overlooked the interview of Planning and Finance Minister Soe Win, who was skeptical with regard to the project. Said Soe Win in an interview with Nikkei, ‘lessons that we learned from our neighboring countries, that overinvestment is not good sometimes’.

The Minister in the interview drew attention to the need for projects to be feasible, and for the need to keep an eye on external debt (Myanmar’s external debt is nearly 10 Billion USD, and 40 percent of this is due to China).

The case of Sri Lanka, where the strategically important Hambantota Port has been provided on lease to China (for 99 years) in order to repay debts is too well known.

The new government in Malaysia headed by Mahathir Mohammed has put a halt on three projects estimated at over 22 Billion USD. This includes 20 Billion East Coast Railway Link (ECRL) which seeks to connect the South China Sea (off the east coast of peninsular Malaysia) with the strategically important shipping routes of the Straits of Malacca to the West. A Chinese company, China Communications Construction Co Ltd had been contracted to build 530 kilometre stretch of the ECRL. On July 5, 2018, it stated that it had suspended work temporarily of the project, on the request of Malaysia Rail Link Sdn Bhd.

The other two projects are a petroleum pipeline spread 600km along the west coast of Peninsular Malaysia, and a 662km gas pipeline in Sabah, the Malaysian province on the island of Borneo.

During a visit to Japan, Mahathir had categorically said that he would like to have good relations but not be indebted to China,  and would look at other alternatives. The Malaysian PM shall also be visiting China in August 2018 to discuss these projects.

While Beijing has the full right to promote its strategic interests, and also highlight the scale and relevance of the BRI, it needs to be more honest with regard to the issue of ‘debt trap’ (especially, if it claims to understand the sensitivities of other countries, and does not want to appear to be patronizing). While smaller countries may be economically dependent upon China, the latter should dismiss the growing resentment against some of its projects at its own peril. Countries like Japan have already sensed the growing ire against the Chinese, and have begun to step in, even in countries like Cambodia (considered close to China). A number of analysts are quick to state that there is no alternative to Chinese investment but the worries in smaller countries with regard to Chinese debts proves the point that this is not the case. China needs to be more honest, at least in recognizing some of its shortcomings, in the way it deals with other countries.

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