China’s debt-trap diplomacy

Many countries have been pushed into indebtedness due to Beijing’s Belt and Road initiative. Kenya seems to be the latest victim

Published: 19th December 2019 04:00 AM  |   Last Updated: 19th December 2019 03:07 AM   |  A+A-

China is now going to occupy Kenya’s immensely profitable Mombasa port. Beijing had lent huge amounts for the development of Kenya’s railway network, which the African nation is not in a position to repay. Not only this, the inland container depot in Nairobi is also under threat of a Chinese takeover.
We must remember that the modus operandi is the same as was in Sri Lanka, when Colombo had to hand over the port of Hambantota to China on a 99-year lease due to non-payment of Chinese borrowings.

China had lent 550 billion Kenyan shillings for construction of Kenya’s Standard Gauge Railway project. It is not fetching enough revenue and has lost 10 billion Kenyan shillings in the first year itself. China is going to acquire not only that project but also the Mombasa port to make up for the deficit. The auditor general of Kenya says that a one-sided agreement was reached with the Exim Bank of China, and even the arbitration of this agreement can only take place in China. Significantly, all the SGR receipts still go to the escrow account as per the unequal agreement favouring China.

The most dangerous clause in this agreement is that the Kenyan government has guaranteed a minimum occupation in the railway project to China. This is now leading to a situation of Kenya losing possession of its important public assets. In fact if we see it carefully, the whole Belt and Road Initiative (BRI) that was rolled out by China is actually proving to be a part of its debt-trap diplomacy.

Significantly, BRI was being called a major infrastructure initiative, which by developing roads, railways and sea routes, would make the movement of goods between different countries easier and cheaper, thereby promoting international trade. China is trying to make the world embrace the argument that the BRI project will prove useful to developing countries in enhancing mutual trade, economic relations and connectivity. While explaining the benefits of BRI, efforts are being made in public discourse to hide its political, economic and geopolitical implications and threats.

The success of any scheme depends on its financing. This applies even more to infrastructure projects. When the Belt and Road Project was launched, all funding came from the Chinese government, the China-led Asian Infrastructure Investment Bank and other institutions from Beijing. Since investment in BRI and other related infrastructure was coming from China, whether the Chinese government itself or financial institutions under the Chinese government, many countries got caught in a debt trap due to different reasons. In most of these cases funding was at an exorbitant rate of interest or it was made for non-viable projects or both. Sri Lanka’s Hambantota port became a startling example in this regard. Looking at this, many countries have started shying away from China’s infrastructure proposals. Similarly, another port in Djibouti, a country that has been the main military base of the US in Africa, is now on the verge of being taken over by a Chinese company due to heavy debt. Opposition to BRI is increasing due to the rising debt burden in many countries. In the last two years, not only opposition parties in BRI partner countries, social organisations too are strongly opposing the project.

The China-Pakistan Economic Corridor (CPEC) is said to be the first project of BRI. Pakistan’s experience should be considered as a guide for the future. Four years ago, the then prime minister of Pakistan Nawaz Sharif had said that CPEC would prove to be a “game changer” for Pakistan and South Asia. But the way Pakistan has sunk into debt after four years shows that is not the case. Further, the growth there has come down from 5.8% in 2017-18 to 3.4% in 2018-19 and a projected 2.7% now. With the worsening economic condition of Pakistan, nobody in that nation is now calling CPEC a ‘game changer’.

Due to the high cost of infrastructure projects being built by China in Pakistan, the debt burden is increasing to unbearable levels and so is the repayment pressure on Pakistan. And the benefits from these infrastructure projects are very meagre and uncertain. Therefore, Pakistan is not very optimistic about CPEC any more.

It has to be understood that the World Bank also has many apprehensions about the BRI initiative. This has been discussed in detail in several World Bank reports, but so far there is a lack of concerted effort by international financial institutions to take over BRI projects. All kinds of contradictions of China and the clear expansionist policy of that nation can become an obstacle in solving these problems. Time will tell whether China will come out of its ‘monopolist’ policy and make elaborate efforts to push BRI through global forums. If China doesn’t mend its ways, it will create obstacles to its own plans. But whatever the case may be, the fact is today, around 10 countries have been trapped in China’s debt- trap diplomacy through BRI.

Ashwani Mahajan
Associate Professor, Department of Economics,PGDAV College (University of Delhi)

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