China’s debt-trap diplomacy advances

Posted on Mar 11 2019 - 10:12pm by Editor

1 March 2019

China’s Debt-trap diplomacy is a strategic policy, that threatens the global balance of power. As China’s Belt and Road Initiative (BRI) spreads further afield, the number of countries laden with sky-high debt to China is rocketing. Beijing has systematically exploited this unmanageable debt to seize vital strategical assets.

The most vivid example of this is the take-over of Sir Lanka’s Hambantota Port. Over the course of his leadership, China provided billions of dollars to the Rajapaksa government in Sri Lanka, including at least $7.6 million to his 2015 election campaign. These funds were transferred through its port construction fund, China Harbour. Following Rajapaksa’s government being voted out of office in 2015, Sri Lanka’s new government struggled to pay the huge debts which had amounted to China. In December 2017, after months of negotiation and under Chinese pressure, the Sri Lanka government was forced to officially hand its deep-sea Hambantota port, near the main shipping route from Asia to Europe, and the surrounding 15,000 acres of land over to China Merchants Port for 99 years. The $1.12 billion total price was used to reduce the Sri Lankan government’s debt to China, which is estimated at over $5 billion. The Sri Lankan government continues to take on further loans to service this debt.

With Hambantota Port fresh in memory, the current disagreement at the Doraleh Container Terminal (DCT) in Djibouti should be ringing alarm bells. China Merchant’s Port Holdings (CMP), the very same state-owned conglomerate which seized the Sri Lankan asset is tightening its grip on the Djibouti terminal, which was illegally appropriated from DP World in February 2018. Although the terminal is officially under the management of the Djiboutian government, CMP, which already operates the neighbouring terminal is reported to have been operating at the DCT on behalf of the government. Once again, Djibouti’s staggering debt is causing it to bend to China’s will. It is projected that Djibouti’s debt is worth 88% of its GDP, with China responsible for the bulk of this. Although not yet official, it seems likely that the Djiboutian government will soon cede control of the port to CMP.

This is of critical importance to the balance of power in the region, given the US and Chinese military presence in Djibouti. Djibouti hosts America’s only permanent military base in Africa at Camp Lemonnier, critical for counter-terror operations. US officials have voiced concern that if, as feared, the port is given to China, critical supply lines will be jeopardised. In August 2018, 16 US senators, penned a letter expressing their concerns over bail out requests to the IMF by countries, like Djibouti, that have fallen victim to China’s debt-trap diplomacy. Signatories include Ted Cruz and James Inhofe who are known critics of the Chinese engagement in Djibouti. The letter was sent to Secretary of State Mike Pompeo and Treasury Secretary Steve Mnuchin.

Djibouti’s strategic location on the Bab el-Mandeb strait, and its status as the sole maritime entry point for Ethiopia give its global alliances significant weight. China built its first overseas military base in Djibouti in August 2017. The base’s proximity to the Camp Lemonnier has already caused tensions, including an incident whereby Chinese laser were suspecting of targeting US military personnel. This latest move to take over the port would result in a huge shift in the regional balance of power, in China’s favour.

Kenya is next in line to fall into the debt trap. Back in 2014, Kenya signed a $3 billion deal with Beijing to fund a rail link between Nairobi and Mombasa. The line was vastly overpriced, costing more than three times international standards. Kenya now finds itself in a position where it is unable to repay China and is facing having to surrender Mombasa Port. This concern is justified. A leaked copy of the contract signed between China and Kenya revealed that if the loan was not repaid, national assets, normally protected by sovereignty, could be seized.  

Mombasa port is a major trade centre and home Kenya’s only large seaport. It also provides interior countries a vital trading route to the Indian Ocean, including the intercontinental undersea telecom cables, which connect the African Great lakes to the rest of the world.

China’s use of debt-trap diplomacy is systematic. It exploits vulnerable and enables China to advance its economic, political and military interests across the world. Its takeover of major assets is creating what some have called “the string of pearls”, a strategic corridor with access to major ports, which gives China the infrastructure to expand not just its economic interests, but also its navy. The ports in Djibouti and Kenya are vital geostrategic locations for Western powers. If Beijing were to seize these assets the balance of power would shift heavily in favour of China.

China’s debt-trap diplomacy advances  

China’s Debt-trap diplomacy is a strategic policy, that threatens the global balance of power. As China’s Belt and Road Initiative (BRI) spreads further afield, the number of countries laden with sky-high debt to China is rocketing. Beijing has systematically exploited this unmanageable debt to seize vital strategical assets.

The most vivid example of this is the take-over of Sir Lanka’s Hambantota Port. Over the course of his leadership, China provided billions of dollars to the Rajapaksa government in Sri Lanka, including at least $7.6 million to his 2015 election campaign. These funds were transferred through its port construction fund, China Harbour. Following Rajapaksa’s government being voted out of office in 2015, Sri Lanka’s new government struggled to pay the huge debts which had amounted to China. In December 2017, after months of negotiation and under Chinese pressure, the Sri Lanka government was forced to officially hand its deep-sea Hambantota port, near the main shipping route from Asia to Europe, and the surrounding 15,000 acres of land over to China Merchants Port for 99 years. The $1.12 billion total price was used to reduce the Sri Lankan government’s debt to China, which is estimated at over $5 billion. The Sri Lankan government continues to take on further loans to service this debt.

With Hambantota Port fresh in memory, the current disagreement at the Doraleh Container Terminal (DCT) in Djibouti should be ringing alarm bells. China Merchant’s Port Holdings (CMP), the very same state-owned conglomerate which seized the Sri Lankan asset is tightening its grip on the Djibouti terminal, which was illegally appropriated from DP World in February 2018. Although the terminal is officially under the management of the Djiboutian government, CMP, which already operates the neighbouring terminal is reported to have been operating at the DCT on behalf of the government. Once again, Djibouti’s staggering debt is causing it to bend to China’s will. It is projected that Djibouti’s debt is worth 88% of its GDP, with China responsible for the bulk of this. Although not yet official, it seems likely that the Djiboutian government will soon cede control of the port to CMP.

This is of critical importance to the balance of power in the region, given the US and Chinese military presence in Djibouti. Djibouti hosts America’s only permanent military base in Africa at Camp Lemonnier, critical for counter-terror operations. US officials have voiced concern that if, as feared, the port is given to China, critical supply lines will be jeopardised. In August 2018, 16 US senators, penned a letter expressing their concerns over bail out requests to the IMF by countries, like Djibouti, that have fallen victim to China’s debt-trap diplomacy. Signatories include Ted Cruz and James Inhofe who are known critics of the Chinese engagement in Djibouti. The letter was sent to Secretary of State Mike Pompeo and Treasury Secretary Steve Mnuchin.

Djibouti’s strategic location on the Bab el-Mandeb strait, and its status as the sole maritime entry point for Ethiopia give its global alliances significant weight. China built its first overseas military base in Djibouti in August 2017. The base’s proximity to the Camp Lemonnier has already caused tensions, including an incident whereby Chinese laser were suspecting of targeting US military personnel. This latest move to take over the port would result in a huge shift in the regional balance of power, in China’s favour.

Kenya is next in line to fall into the debt trap. Back in 2014, Kenya signed a $3 billion deal with Beijing to fund a rail link between Nairobi and Mombasa. The line was vastly overpriced, costing more than three times international standards. Kenya now finds itself in a position where it is unable to repay China and is facing having to surrender Mombasa Port. This concern is justified. A leaked copy of the contract signed between China and Kenya revealed that if the loan was not repaid, national assets, normally protected by sovereignty, could be seized.  

Mombasa port is a major trade centre and home Kenya’s only large seaport. It also provides interior countries a vital trading route to the Indian Ocean, including the intercontinental undersea telecom cables, which connect the African Great lakes to the rest of the world.

China’s use of debt-trap diplomacy is systematic. It exploits vulnerable and enables China to advance its economic, political and military interests across the world. Its takeover of major assets is creating what some have called “the string of pearls”, a strategic corridor with access to major ports, which gives China the infrastructure to expand not just its economic interests, but also its navy. The ports in Djibouti and Kenya are vital geostrategic locations for Western powers. If Beijing were to seize these assets the balance of power would shift heavily in favour of China.

 

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