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Economics

China’s Belt and Road Initiative: Debt trap or hope?

Asia News Network commentators weigh the pros and cons of working with China on its Belt and Road Initiative.


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Updated: November 20, 2018

INDONESIA’S INTERESTS

Shah Suraj Bharat The Jakarta Post, Indonesia

Indonesia has been a reluctant participant in China’s Belt and Road Initiative (BRI) but as the country’s financial insecurity becomes increasingly apparent, we can expect to see greater interest in the BRI.

Indeed, financial insecurity is especially pertinent given the country’s recent economic woes. The rupiah is among the world’s worst-performing currencies, down almost 9 per cent this year despite the country’s good macroeconomic fundamentals.

What’s more, the struggle to diversify and source finance for President Joko Widodo’s US$355 billion (S$490 billion) infrastructure drive has left state-owned enterprises unsustainably bearing the brunt of its costs. Combined with the sharp decline of the rupiah, financial pressures meant the 2019 state budget saw a lowly 2.4 per cent increase in infrastructure spending.

This is where the BRI becomes of increasing interest. All is not rosy, however. This new source of finance is underpinned by Chinese economic statecraft, described by Brussels-based academic Ramon Pacheco Pardo as China’s use of economic inducements to gain influence in target countries. Countries such as Sri Lanka have been forced into debt-for-equity arrangements, with China taking over operations at the US$1.5 billion Hambantota Port, which it helped finance and build, after the government struggled to repay its debts.

Meanwhile, the new Malaysian government has halted US$22 billion worth of BRI projects and Prime Minister Mahathir Mohamad accused China of securing influence via debt-funded infrastructure schemes that recipient countries could not afford.

Indonesia’s government often struggles to manage anti-Chinese sentiment. Yet, the fact remains that Indonesia needs to attract finance for its financial security and national interests.


TRAP OF THE CENTURY?

Govind Bhattacharjee The Statesman, India

IT BEGAN AS A FAINT MURMUR OF PROTEST, BUT THE MURMURS ARE NOW RISING TO A TUMULT.

Mr Jeff Smith of Heritage Foundation, a Washington-based think-tank, recounts these instances in a paper.

Beginning with Hambantota, China’s BRI has lost much of its sheen as country after country is seeing through the Chinese game plan of unequal treaties and ultimate debt-equity swap, recognising that ultimately it will benefit only China, not them.

In August, Myanmar scaled back the US$7.3 billion Chinese-backed Kyauk Pyu Deepwater port project to only US$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”.

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 US$6.7 billion funding for the railway amounts to half the country’s gross domestic product.

Even China’s all-weather friend Pakistan had to cancel a Chinese proposal last year to finance and construct the multibillion-dollar Diamer-Bhasha Dam over the Indus in Gilgit-Baltistan as China’s financing conditions 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, the yuan, be used in the Gwadar Free Trade Zone.

The China-Pakistan Economic Corridor (CPEC), the shining diadem of BRI, is estimated to cost US$62 billion. An estimated 80 per cent of this cost will be financed by China, but on its own terms.

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.

China has reportedly financed 80 per cent of Pakistan’s external debt and the external debt payments are estimated to soar by 65 per cent to US$12.7 billion.

Beginning with Hambantota, China’s BRI has lost much of its sheen as country after country is seeing through the Chinese game plan of unequal treaties and ultimate debt-equity swap, recognising that ultimately it will benefit only China, not them.

In August, Myanmar scaled back the US$7.3 billion Chinese-backed Kyauk Pyu Deepwater port project to only US$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, 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, President-elect Ibrahim Mohamed Solih has pledged to review the commitments his predecessor had made to China for its BRI projects.

Even the United Nations raised a red flag about financial risks involved in BRI just after the Obor summit in May last year, with a UN Economic and Social Commission for Asia and the Pacific study highlighting disproportionate amounts of debt arising from the BRI projects in several countries owed to China compared to their GDPs.

The US$62 billion CPEC project in Pakistan is equivalent in worth to 20 per cent of its GDP, and two BRI agreements signed with Kazakhstan in 2013 and 2014 for US$52 billion are worth almost 40 per cent of Kazakhstan’s GDP.

India was a lone voice amid global adulation for the BRI, when it refused to participate in the BRI summit in China.

But since the middle of last year, the democratic Quad – Australia, India, Japan and the United States – and several European countries have begun to sign al reservations about the BRI.


BRI FOR ALL

Zhou Li China Daily, China

Since the founding of new China, especially since the introduction of reform and opening-up, Chinese leaders have solemnly declared that the country will never seek hegemony no matter how developed it becomes.

China has never asked other countries to follow or “copy” its development model. It is China’s belief that world peace and common development can be based only on mutual respect, cooperation, learning and trust.

So, it is actively building a global partnership network by expanding areas of common interest with other countries and promoting international relations.

Over the past five years, China has put forward the BRI for greater connectivity among countries, economies and regions, and launched fruitful cooperation with many countries.

It has participated actively in multilateral organisations, such as the UN, G-20, Shanghai Cooperation Organisation and Brics, and handled various disputes through consultations.

However, the Donald Trump administration, with its “America First” fixation, has adopted an extremist policy in a bid to strengthen the US hegemony and is brushing aside the established rules of international cooperation and bypassing the UN and other international organisations.

This goes against the consensus among other countries that uphold multilateralism rather than unilateralism, free trade rather than protectionism, dialogue rather than sanctions, and mutual benefits.

The China-proposed BRI is an effort to unite and rally the international society to build a new type of international relations and promote the building of a community with a shared future for mankind.



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About the Author: Asia News Network is a regional media alliance comprising 24 media entities.

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