15 October 2018
by GOVIND BHATTACHARJEE
It began as a faint murmur of protest, but the murmurs are now rising to a tumult. Jeff Smith of Heritage Foundation, a Washington based think-tank, recounts these instances in a well-researched paper. Thailand had rejected proposals in 2016 for Chinese infrastructure investments and refused to grant land rights for them. “Thailand is not Laos,” its minister had said then, referring to Laos where China’s $ 6.7 billion funding for the railway amounts to half the country’s GDP.
Even China’s all-weather friend Pakistan with which it enjoys a relation “stronger than steel and sweeter than honey” had to cancel a Chinese proposal in 2017 to finance and construct the multibillion-dollar Diamer- Bhasha Dam over the Indus in Gilgit-Baltistan, as China’s financing conditions which included Chinese ownership of the project were perceived to be against Pakistan’s interests. Three major road projects already stand cancelled and Pakistan has also rejected a demand that the Chinese currency Yuan be used in the Gwadar Free Trade Zone, to operate which China already has a 40-year lease. The China- Pakistan Economic Corridor (CPEC), which includes energy and infrastructure projects worth $60 bn, employs more than 7000 Chinese engineers and workers, protected by 15000 Pakistani security-men.
CPEC projects, the shining diadem of BRI, details of which are opaque and often shrouded in utmost secrecy are estimated to cost $62 billion. An estimated 80 per cent of this cost will be financed by China, but on its own terms. Pakistan, the biggest debtor to China now, is facing a crippling debt-burden and adding to its distress are the higher interest rates being charged by China ~ 5 per cent for some projects against 2-2.5 per cent concessional rate given to most China Exim Bank customers. Some Pakistanis have started seeing the CPEC as a “Trojan Horse” rather than a “Gift” from an “Iron Brother”.
Chinese enterprises will enjoy multiple tax and duty concessions which are unavailable to Pakistani businessmen, Chinese nationals will enjoy visa-free access to Pakistan without reciprocity and Chinese aid will come either as costly loans or equity swap. To add insult to injury, Pakistan cannot take loans from anyone except Chinese banks and already had to refuse a loan of $8 billion offered by ADB on softer terms. China has reportedly financed 80 per cent of Pakistan’s external debt, and Pakistan’s external debt payments are estimated to soar by 65 per cent in the current fiscal, to $12.7 billion.
Pakistan is also facing an overwhelming foreign exchange crisis with its forex reserve dwindling to only $8.4 billion in September 2018. It is contemplating to approach the IMF for a bailout loan of $ 12 billion which the US is likely to oppose for fear that the funds will ultimately go to China in the form of debt repayment. Now the only option for Pakistan is to approach China and to convince it that without the funds, the future of CPEC itself will become uncertain. Pakistan’s fears are not unfounded, for a failure to pay off its debt will give control to China over its coal mines, oil pipelines and power plants and enormous leverage to China in Pakistan’s affairs.
Beginning with Hambantota, China’s BRI has lost much of its sheen, as country after country is seeing through the Chinese gameplan of unequal treaties and ultimate debt-equity swap, recognizing that ultimately it will only benefit China, not them. In Malaysia, the corrupt government under Najib Razak who is now in jail for swindling billions of dollars of taxpayers’ money, had a cozy relationship with China. He had contracted projects worth billions of dollars for the BRI, giving the technology giant Alibaba the right to turn a site near Kuala Lumpur airport into a Digital Free Trade Zone.
After winning the May 2018 elections, the new Prime Minister and veteran politician Mahathir Mohamad had to visit China in August, to tell the Chinese that Malaysia was cancelling the $ 20bn East Coast Rail Link, a massive BRI project, as well as two oil pipelines in Sabah province. What he did not tell was that these projects not only had hugely inflated costs, but their terms were also heavily skewed in China’s favour. “We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” Mahathir said in Beijing. The East Coast Rail Link, he said, could have been built by a local company with half the $13.4 billion sum his predecessor agreed to pay state-owned China Communications Construction.
In August 2018, Myanmar scaled back the $7.3 billion Chinese- backed Kyauk Pyu Deepwater port project to only $1.3 billion, “over concerns it is too expensive and could ultimately fall under Beijing’s control if Myanmar were to default on its debt.” In June 2018, Vietnam witnessed public protests against the government’s proposal to grant special economic zones to foreign firms with leases of up to 99 years, which stirred fears that it would end up “giving China control over parts of Vietnamese territory.”
Last month, in Maldives, after the unlikely defeat of strongman Abdulla Yameen who had locked up his opponents in jail including the Supreme Court judges who had ruled against him, the President-elect Ibrahim Mohamed Solih has now pledged to review the commitments Yameen had made to China for its BRI projects. During Yameen’s regime, China had surpassed India to become the second-largest exporter to the archipelago nation after the United Arab Emirates. The country owes $2 billion debt to China, a huge burden for a 400,000-plus nation entirely dependent on tourism. Similarly, China owns 82 per cent of Djibouti’s and 55 per cent of Kenya’s foreign debt. Nepal is the only country in the neighbourhood now steadily slipping into China’s orbit, without probably realizing the dangers.
Even the UN had raised a red flag about financial risks involved in BRI just after the OBOR summit in May 2017, with an UNESCAP study highlighting disproportionate amounts of debts arising from the BRI projects in several countries owed to China compared to their GDPs. The $ 62 billion CPEC projects in Pakistan are equivalent to 20 per cent of its GDP, and two BRI agreements signed with Kazakhstan in 2013 and 2014 for $52 billion are worth almost 40 per cent of Kazakhstan’s GDP.
The study also reported that the financing for BRI-related infrastructure projects will require huge Chinese capital investments of the order of $ 4 trillion, which will have serious social, environmental and political consequences for Asia.
India’s was a lone voice amidst global adulation for the BRI, when it refused to participate in the BRI summit in China on account of the CPEC unveiled in 2015 which traverses the POK. But since mid-2017 the democratic QUAD ~ Australia, India, Japan, and the US ~ and several European countries have begun to signal major reservations about the BRI.
No major European country has signed a formal BRI MoU with China so far, as it fails to meet the European standards for transparency and accountability and retains too much control. The controls extend to the security of Chinese investments through all means, including military. Since 2008, the Chinese military footprint has been extended to the Indian Ocean, through naval patrols and its first overseas military base in Djibouti.
Hambantota is a part of this well-orchestrated strategy, as is the BRI, to link the country’s “core” national security interests to expansion of its influence and authority. In fact, the Chinese Defence Minister, Wei Fendge, stated in 2018 that China was “ready to provide security guarantees for the One Belt, One Road project.” The Heritage paper of Jeff Smith has quoted General Qiao Liang from the PLA Air Force that Chinese military must “have the capacity to prepare for expeditions along the belt and road”, terming the BRI “a tremendous incentive for China’s military reforms according to our national interests and needs.”
Chinese military strategy is inextricably linked with economic coercion, an example of which was recently demonstrated in Australia where there is a raging debate about Chinese influence operations inside the country through “propaganda, political donations, and the mobilization of sub-groups within Australia’s Chinese population to urge Canberra to support China’s territorial claims in the South China Sea.”
The QUAD along with EU nations is holding out a new vision for connectivity as an alternative to BRI, based on democratic and equitable principles of high-quality, transparent, sustainable and inclusive infrastructure along with development finance programmes, responsible and sustainable lending and debt financing, rule of law, and respect for sovereignty and autonomy of nations.
As Prime Minister Narendra Modi had said at the June 2018 Shangri La Dialogue, “There are many connectivity initiatives in the region. If these have to succeed, we must not only build infrastructure, we must also build bridges of trust. And for that, these initiatives must be based on respect for sovereignty and territorial integrity, consultation, good governance, transparency, viability and sustainability. They must empower nations, not place them under impossible debt burden.” The bottom-line is trust, and China is facing a huge deficit of global trust at the moment.