Shooting an Own Goal: China’s Belt and Road funding terms spark criticism

By James M. Dorsey

Steep commercial terms for China’s investment in infrastructure projects across Eurasia related to its Belt and Road initiative may give it control of key ports and other assets as recipients of Beijing’s largess find themselves trapped in debt. Yet, that comes with a risky price tag: potentially rising anti-Chinese sentiment, questioning of Chinese intentions, and a tarnishing of the image China is seeking to cultivate.

Cynically dubbed debt-trap diplomacy, multiple countries along China’s Belt and Road risk financial crisis. The Washington-based Center for Global Development recently warned that 23 of the 68 countries involved were “significantly or highly vulnerable to debt distress.”

The centre said in a report that eight of the 23 countries -- Djibouti, Kyrgyzstan, Laos. the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan – were particularly at risk.

Djibouti already owes 82 percent of its foreign debt to China while China is expected to account for 71% of Kyrgyz debt as Belt and Road-related projects are implemented.

“There is…concern that debt problems will create an unfavourable 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 (Belt and Road initiative) countries,” the report said.

International relations scholars Robert Daly and Matthew Rojanski noted in a separate report on a recent trip to the Russia, Kazakhstan and China intended to gauge responses to the Belt and Road initiative that Eurasian nations were eager to benefit from Chinese investment but wary of Beijing’s intentions.

“We found an eagerness to participate in projects that support national development, but deep resistance to any westward or northern expansion of China’s practices, ideas, or population… Neither (Russia or Kazakhstan) hopes that China’s power will increase with its investments.,” the scholars said.

Outgoing US Secretary of State Rex Tillerson echoed the centre’s concerns on a visit to Africa this month. China “encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth, Chinese investment does have the potential to address Africa’s infrastructure gap, but its approach has led to mounting debt and few, if any, jobs in most countries,” Mr. Tillerson said.

China has sought in some cases to counter resistance by offering more concessional or, in the case of Pakistan. interest-free instead of commercial loans for some projects.

Nonetheless, China has used debt relief as a vehicle to gain control of assets. Tajikistan saw an undisclosed amount of debt written off in exchange for ceding control of some 1,158 square kilometres of disputed territory. Sri Lanka, despite public protests, was forced to give China a major stake in its port of Hambantota.

Djibouti, one of the eight countries most at risk and a rent-a-military-base East African nation that hosts a major US facility, is about to follow in Sri Lanka’s footsteps. Djibouti last month seized control of the Doraleh Container Terminal from Dubai-based DP World and reportedly intends to hand over its management to a state-owned Chinese company.

Marine General Thomas Waldhauser, the top US commander in Africa, warned that the consequences of a Chinese takeover “could be significant.” He said moves by China, described by the Pentagon as one of several “revisionist powers” that “seek to create a world consistent with their authoritarian models,” had prompted him to revise US military strategy in Africa.

For their part, Pakistan and Nepal withdrew last November from two dam-building deals. The withdrawal coincided with mounting questions in Pakistan, a crown jewel in Chinese geo-strategic ambition, about what some see as a neo-colonial effort to extract the country’s resources.

China's seeming obliviousness to the potential impact on recipients and its own standing of its funding approach appears to be rooted in President Xi Jinping's rewriting of history and spin on reality that threatens to become a self-fulfilling prophecy.

Launching Belt and Road in a speech in Kazakhstan in September 2013, Mr. Xi suggested that the initiative constituted a revival of China’s centuries-old relationship with Eurasia. “More than 2,100 years ago … (Chinese) imperial envoy Zhang Qian was sent to Central Asia twice to open the door to friendly contacts between China and Central Asian countries as well as the transcontinental Silk Road linking East and West,” Mr. Xi told his audience.

In Indonesia a month later, Mr. Xi reminded the country’s parliament that “Southeast Asia has since ancient times been an important hub along the ancient Maritime Silk Road.”

Messrs. Daly and Rojanski noted that the historic Silk Road was never centred on China and that it served both commercial and military purposes. “The term ‘Silk Road’ was coined in 1877 by a German geographer to connote the historic phenomenon of Eurasian trade rather than a particular route,” the scholars said.

They suggested that Eurasian nations had not forgotten that historically Chinese expansion westwards had often been violent,” a fact Mr. Xi chose to overlook in his projection of the Belt and Road initiative.

It was, moreover, not immediately clear “that China’s branding, cash, and ambition can overcome the uneven development, political and cultural diversity, age-old hatreds, and daunting geography” of the Belt and Road, Messrs. Daly and Rojansky said.

Mr. Xi’s projection of a China-centric world is reflected in the country’s media that positions the Belt and Road as a vehicle to cement the People’s Republic’s place in the world as well as Communist Party rule despite paying lip service to the principle of a win-win proposition.

Chinese ambitions are evident in its efforts to internationalize its currency, the renminbi, as well as the inclusion of elements of the Chinese surveillance state and the propagation of Chinese culture through local media in investment target countries, for example Pakistan. They are also apparent in the creation of special Chinese courts to adjudicate Belt and Road.

China this month announced the establishment of a new agency to coordinate its foreign aid program. The agency is part of an effort to project China’s global influence more effectively and increase Communist Party control.

Taking issue with the Chinese effort, the Washington-based centre suggested that China as well as recipients of Beijing’s largess would be better served if the People’s Republic adopted a multilateral approach to Belt and Road-related funding rather than insisting on going it alone.

Said Scott Morris, a former US Treasury official and co-author of the centre’s report: “The way forward demands a clear policy framework aligned with global standards, something that has been absent from China’s lending practices to date. Whether Chinese officials have the will to pursue this approach will be critical in determining the ultimate success or failure” of the Belt and Road initiative.

Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario,  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa, and the forthcoming China and the Middle East: Venturing into the Maelstrom