13 December 2018
by MARK O’NEILL
A worker stands at a construction site of a railway bridge being put up by a Chinese firm in Laos under Beijing’s Belt and Road initiative. China has been accused of saddling developing nations with debt they will never be able to repay. Photo: Bloomberg
The Cold War between Beijing and Washington is moving into new areas. Among them, one pertains to the Belt and Road Initiative (BRI) launched by Chinese President Xi Jinping in 2013.
“China has been engaging in dangerous debt diplomacy throughout the region and led several countries to have several debt problems from accepting loans that are not transparent,” a top US administration official told reporters at the APEC summit in Singapore in mid-November.
The BRI is one of the largest infrastructure and investment projects in history, covering more than 68 countries, including 65 percent of the world’s population and over 40 percent of global GDP. So far it has involved investments of more than US$200 billion. It is China’s most ambitious international expansion ever.
The Obama administration regarded BRI as a China-led initiative to fund and build infrastructure in developing countries which other nations did not want to pay for. It was neither for nor against it. It saw the new ports, roads and railways as beneficial for US companies which invest in and trade with the countries that built them.
President Obama shared the view, which all US administrations held since normalization of ties in 1979, that common interests of the two countries are more important than differences and that these could be resolved through negotiation.
This has all changed under President Donald Trump, who took office in January 2017. He sees China as a serious economic and diplomatic rival. Robert Lighthizer, his US Trade Representative, has described China as an “existential threat”.
This has caused it to see the BRI in a new, and more dangerous, light. It has criticized the tender process used in BRI projects as closed to international competition and only open to Chinese companies. It has said recipient countries take on debt they will never be able to repay.
Earlier this year, the Center for Global Development (CGD) found eight BRI countries at serious risk of not being able to repay their loans. The eight – Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan – are among the poorest in their respective regions and will owe more than half of all their foreign debt to China.
Unable to repay its debt, Sri Lanka last December leased the port of Hambantota to China for 99 years. In July last year, China Merchants Port Holdings Company agreed to pay US$1.12 billion for an 85 percent share in the port on a 99-year lease. In addition, the government built an international airport in the city with a Chinese loan of US$210 million; in a remote location, it has very few flights. The Mattala airport is named after Mahinda Rajapaksa, president between 2006 and 2014; his hometown is Hambantota.
Beijing angrily rejects these criticisms. It says that the BRI is a win-win for both sides, enabling countries to improve their poor infrastructure that will enable them to accelerate their economic growth.
Many countries, especially poor and developing ones, warmly welcome the railways, roads, ports and power stations which China is building. They do not have the money or expertise to build them; western governments and private companies are unable or unwilling to do it. They see the projects as essential to becoming modern economies.
Many in the West support BRI. “BRI is a strong signal that China wants closer, faster, better connections with its main trading partners,” former German Chancellor Gerhard Schroeder told a seminar in Hamburg on November 26.
Peter Helis, vice-chairman of the European Union Chamber of Commerce in South China, told the same seminar that the major rail, port and pipeline projects funded by BRI had proved beneficial. “There are already several railways linking China’s western cities and Hamburg and Duisburg. So why not utilize them?” he said.
But the Trump administration has turned its formidable propaganda machine against the BRI. It has presented it as a way for China to use its wealth, technology and skilled manpower to dominate developing countries and make them dependent on it.
By adopting Chinese standards for railways, telecommunications systems and power equipment, these countries will be obliged to go on buying from Beijing. Many of them have weak governance; this allows, the Americans say, Chinese state firms to win – or pay for – the approval of their leaders without foreign competition.
The Trump administration is presenting the BRI as a 21st century version of colonialism. Over the last six months, many articles have appeared in the western media that present negative examples of the initiative.
One example is the Maldives. Using publicly available data, the CGD estimates the debt of the Maldives to China at US$1.3 billion, more than a quarter of annual GDP, to build houses, bridges and other infrastructure. The small country in the Indian Ocean with a population of 400,000 is heavily dependent on tourism. This dependence was the main reason why, in September, voters there turned strongly against the pro-China President Abdulla Yameen in favor of an opposition candidate.
As the Sino-US rivalry intensifies, we will see more attacks on the BRI. Beijing must fight harder to defend it.