by Dr. James M. Dorsey
China has yet to fully take into account frequent criticism of its commercial approach to Belt and Road-related projects
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| Sri Lankan president Mahinda Rajapaksa and Chinese president Xi Jinping at commissioning of the Colombo Port City project, a part of China's Maritime Silk Road, photo via Flickr page of Mahinda Rajapaksa |
BESA Center Perspectives Paper No. 1,383, December 27, 2019
EXECUTIVE SUMMARY: The pending Chinese acquisition of a stake in Tajikistan’s aluminum smelter, coupled with earlier tax concessions to Chinese companies that
would substantially reduce the trickle down effect of investments for
the troubled Tajik economy, suggest that China has yet to fully take
into account frequent criticism of its commercial approach to Belt and
Road-related projects.
Desperate for cash, Tajikistan is about to sell yet another vital asset to China at
a time when countries like Sri Lanka and the Maldives are demanding
renegotiation of debt settlements that either forced them to surrender
control of critical infrastructure or left them with unsustainable
repayments.
The Washington-based Center for Global Development warned last year that “23 of 68 countries benefiting from Belt and Road (BRI) investments were significantly or highly vulnerable to debt distress.”
The center said eight countries — Tajikistan, the
Maldives, Pakistan, Djibouti, Kyrgyzstan, Laos, Mongolia, and Montenegro
— are particularly at risk.
“There is…concern that debt problems will create
an unfavorable degree of dependency on China as a creditor. Increasing
debt, and China’s role in managing bilateral debt problems, has already
exacerbated internal and bilateral tensions in some BRI countries,” the
report said.
Progress on the construction of a road in
Afghanistan’s Wakhan Corridor, a narrow strip in the east of the
country that touches the Chinese border and separates Tajikistan from
Pakistan and Pakistan-controlled Kashmir, may explain China’s seeming
insensitivity to the concerns of beneficiaries of the People’s
Republic’s largesse.
The road would link the corridor to Central Asia
in the north and Pakistan’s Chinese-built Arabian Sea port of Gwadar in
the south, a crown jewel in China’s infrastructure- and energy-driven
Belt and Road Initiative.
To be sure, the road has local rather than geopolitical significance for
the workers building it (it provides them with jobs), as well as for
the region’s shepherds (it facilitates access to mountain pastures), as
documented by anthropologists Tobias Marschall and Till Mostowlansky.
For China, the stakes are geopolitical and economic.
The road would not only facilitate commerce with
Central Asia as well as traffic from Gwadar but also construction of
shorter pipelines as well as a fiber optic cable.
Perhaps more importantly, it would, together with a military base in Tajikistan and Chinese cross border operations in the corridor itself,
facilitate the movement of troops in China’s gradual projection of
military power beyond its borders, particularly in regions adjacent to
its troubled northwestern province of Xinjiang.
The road’s potential military significance raises
questions about the sustainability of a presumed division of labor
between Russia and China under which Russia shoulders responsibility for
security in Central Asia while China concentrates on economic
development.
Ironically, if the examples of Sri Lanka, the
Maldives, Pakistan, and Malaysia are anything to go by, coupled with
anti-Chinese sentiment in Central Asia fueled in part by the brutal
crackdown on Turkic Muslims in Xinjiang, China’s approach to Belt and
Road-related development could turn out to be a threat to its broader
geopolitical ambitions and regional security policy.
Sri Lanka recently demanded that China return control of Hambantota port.
Sri Lanka became the poster child of allegations
that China was pursuing debt trap diplomacy two years ago when it
surrendered control of the port to China as part of a deal to reduce the
country’s debt payments.
China lent Sri Lanka $5 billion between 2010 and
2015 for infrastructure projects that included development of Hambantota
at interest rates of up to 6.3%.
By comparison, World Bank and Asian Development Bank rates on soft loans range from 0.25% to 3%.
“The perfect circumstance is a return to the norm.
We pay back the loan in due course in the way that we had originally
agreed without any disturbance at all,” said newly appointed Sri Lankan
PM Ajith Nivard Cabraal.
Similarly, the foreign ministry of the Maldives said earlier this month that it is seeking to restructure its Chinese debt.
“Borrowings by the previous government were
unreasonable and put us in difficulty. But we can solve this mess
through diplomatic means,” said FM Abdulla Shahid.
Last month, former president Abdulla Yameen was
jailed for five years and fined $5 million for corruption during his
term, which ended late last year. Shahid’s government has accused China
of land grabs during Yameen’s term.
In a rare success, Malaysia earlier this year negotiated a one-third reduction in the cost of a $15.7 billion Belt and Road-related rail project.
In a further concession, China agreed that 70% of the workforce would
be Malaysian and that Malaysian contractors would get 40% of the civil
works.
China has been accused repeatedly of employing
Chinese rather than local labor for Chinese-funded projects along the
Belt and Road and importing materials from China rather than sourcing
them locally.
The government of Pakistani PM Imran Khan has been less successful than its Malaysian counterpart.
It recently bowed to Chinese pressure to revive hundreds of projects that were suspended after the government took power in 2018.
The appointment of a retired lieutenant general as
head of a new authority overseeing the China Pakistan Economic Corridor
(CPEC), which groups together Belt and Road-related projects, reflected
China’s wariness toward messy Pakistani politics and preference for
dealing with the country’s military.
With Sri Lanka as the antithesis, analysts suggest that China is determined to make Pakistan a success story.
“The big battle at the moment is about CPEC’s
reputation, and Beijing cares about salvaging that. They need to show
BRI has been a success, that it hasn’t put Pakistan’s economy in trouble
and that there isn’t a backlash. If they can’t do it in a context like
this, it suggests that there is something flawed in the model,” said
Pakistan and China scholar Andrew Small.
Source: https://besacenter.org/perspectives-papers/china-debt-trap-diplomacy/
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