By Bob Koigi, Fair Planet, 4 September 2019, Read the original article here.
This, includes Italy, the only member of the G7. China under the five ports initiative is modernizing the Venice, Ravenna and Trieste Italian ports, the Slovenia’s Capodistria and Fiume in Croatia which will then be interconnected by the North Adriatic Port Association (NAPA).
The BRI is approximated to cost more than £760billion with China already having invested $210 billion on the project, a big chunk having been spent in Asia.
Majority of developing countries are welcoming the idea, as a plausible option to expand roads, railways, ports and other key infrastructural projects due to the low-interest credit facilities that the Chinese are extending to them and minimum or in some cases no strings attached compared to grants and aid from the West. Some schools of thought have hailed the new Chinese initiative as the 21st century Marshall Plan that offers an opportunity to cut trade costs, boost connectivity and reduce poverty in most of these developing countries.
In Africa where the project has made successful inroads, the continent has managed to add four new railways among them a 1,866 kilometer Benguela Railway in Angola, 759 kilometer Addis Ababa- Djibouti line, the 186 kilometers Abuja-Kaduna railway and Kenya’s Nairobi- Mombasa Standard Gauge Railway.
The forays have paid off, with China having replaced US as Africa’s largest trading partner for over close to ten years. Up to $143 billion in loans has been extended to Africa by China between 2000 and 2017 according to researchers at the China-Africa Research Initiativebased at the Johns Hopkins University in the United States.
But as China’s trade scope spreads across the world, and Xiping’s signature foreign policy plan, the BRI, advances across continents, so do concerns about the predatory style the country has embraced in dealing with its trade partners and its approach that has been interpreted as a way to cement its place in global geopolitics and exert itself as a global economic powerhouse. Of particular concern is the way China is funding expensive, yet poor performing projects even as the recipient countries, mostly developing, struggle to service loans which are then cancelled in exchange for strategic gains in a well-orchestrated debt-trap diplomacy.
In most of these countries, the cumulative debt to China has been rising since 2013, exceeding 20 per cent of their GDP.
According to the Center for Global Development, by the beginning of this year, eight countries that had signed up for the Belt and Road initiative were at a risk of defaulting on loan repayment. These countries that are the poorest in their areas including Djibouti, Pakistan, Mongolia and Laos among others owe more than half of their foreign debt to China.
In cases of inability to service these loans, debt diplomacy applies where either the loan is forgiven in exchange for silence on key issues like human rights violations, political influence or China acquiring strategic equities as was the case in Sri Lanka. When China was building the country’s port in 2007, it offered Sri Lanka a $361 million credit facility to boost operations and a further $1.9 billion to assist in upgrades and construction of the airport. This, despite heavy concerns over the commercial viability of the port. Come 2017 Sri Lanka owed Chinese firms over $8 billion from the port deal which hadn’t made any significant profits for a decade. Sri Lanka was trapped and had to grant the Chinese 85 per cent stake on the port in Hambantota in a 99-year lease agreement. In Djibouti where the public debt currently stands at 80 per cent of the country’s GDP with a big share being owned to China, China has set up its first overseas military base in the country as it advances its interests in the continent. Other African countries including Zambia, Burundi and Mozambique are either teetering on debt distress or are already in one.
Experts now argue that the new strategy by China is catching more countries especially the developing ones off guard and there haven’t been any tangible benefits for these countries. “The approach is predatory and the rush to take loans to finance capital projects is coming to bite African countries. These projects aren’t generating any meaningful profits yet loans have to be serviced. That is where the debt-trap diplomacy is playing out to the benefit of China. Then there is the policy of having the Chinese companies do all the construction and bring in their experts. It is hurting local industries,” said Dr. Justus Ber from the University of Nairobi Institute of Diplomacy and International Studies.
But another school of thought has poked holes at the debt trap diplomacy narrative arguing that China has been lenient with defaulters and at times forgives these loans while advances even bigger ones to defaulters. The argument further goes that China stands to lose from the defaulting countries owing to the huge investment it has already made. Rhodium Group, a New-York based consultancy firm in a report that tracked 40 cases of China’s debt renegotiations with 24 countries found out that China had pursued deferments and debt waivers in an arrangement that has seen it renegotiate $50 billion of loans in the last ten years. Last year, the firm says, China cancelled a $7 million loan to Botswana and even went ahead to extend another $ 1 billion to the country to finance its infrastructure in a clear sign of its commitment to cementing trade ties with partners.
“Write-offs are often conceded by Beijing without a formal renegotiation process. Instead, Beijing usually unilaterally agrees to cancel part of a borrowing country’s debt, even when there are few signs of financial stress on the part of the borrower. Such cases of debt forgiveness are therefore probably used to signal support to the recipient countries, and improve bilateral relations,” read a section of the report.