China stages tactical retreat on debt traps

The Chinese are crafty operators. Having seen how countries are questioning the Belt and Road Initiative (BRI) as a sinister means of saddling them with huge debts for infrastructure projects, especially how the Chinese acquired Sri Lanka’s Hambantota port for a 99-year lease as a debt swap because of Colombo’s inability to repay the loan, Beijing has softened its tone.

The manner in which Beijing manipulated to capture a port has sent shivers down the spine of many a country that salivated at the thought of Chinese investment. The second BRI forum meeting in China has been an exercise in softening up to the suspicious world.

There are questions being raised about the sovereignty of countries that fell into a debt trap even in Pakistan which is steeped in heavy debt already on account of the China-Pak Economic Corridor which seeks to provide a short route to China to cut through Pakistan and reach the port of Gwadar for trading goods.

Chinese President Xi Jinping, conscious of the under-current of concern over China’s designs to neo-colonise these countries re-launched the global infrastructure drive last week at the second BRI forum, this time stressing sustainable financing and transparency even as it pitched in for ports, railways and power projects stretching from south-east Asia to central Europe. The whole thrust was to restore trust in Chinese projects and intentions which was badly shaken.

To what extent the Chinese government succeeded in allaying fears only time will tell. But there were some limited gains for Beijing whose economy is not in the best of shapes after the Americans squeezed their arm to force them to pay higher tariffs on import of Chinese goods.

As a boost to its efforts, Malaysia, which had decided to withdraw from all BRI projects after Mahathir Mohammed returned as prime minister after a long gap, announced it would resume a previously cancelled high-speed rail project. The Malaysians are still watchful but to extract a smile from Mahathir is no cakewalk.

This was only one of the projects that had been scrapped but it is nevertheless a boost considering that Mahathir had won the elections riding, among others, on opposition to Chinese attempts at driving Malaysia into a debt trap. Another Chinese breakthrough has been Italy’s decision to join up last month. The first BRI forum in 2017 had attracted 29 world leaders. This time around that number went up to 37 camouflaging the discontent.

But this is no mere game of numbers and the Chinese know it better than anyone else. They continue to be wary of the detractors, principally the US and India besides Japan and Australia. Phillip Hammond, UK chancellor, arrived in Beijing hunting deals too, just a day after news that Chinese technology group Huawei would be allowed to help build 5G networks in Britain.

Yet, some key issues remain as part of China’s ambitious drive and it is wrong to believe that the debt trap fears have been decisively allayed. The first and most obvious fear is debt trap itself. Critics allege that China “traps” its BRI partners financially, often pointing to a debt-for-equity deal that handed China control of the port in Sri Lanka.

Poorer nations from Laos to Tajikistan are still signing up to vastly expensive Chinese schemes that offer poor value for money while straining their public finances. Indeed, the Chinese are making hay while the sun shines. The second problem is transparency. Despite its grand scale, there is still no reliable list of BRI projects, no disclosure of the lending standards China follows, nor even the amount China has invested.

The Chinese are finding it hard to convince doubters on debts primarily because they are not open about the criteria they use in deciding who to lend to and why.  The third BRI challenge relates to its muddled organisation. Despite BRI’s image as a centrally run mega-project, China has allowed many deals to be struck locally, via a mix of state-backed companies, public sector banks and freewheeling regional governments.

And it is here that the problems began. Infrastructure deals are notoriously complex, especially for transnational projects like high-speed rail. Renegotiations are not uncommon, even for experienced bodies like the World Bank. Yet BRI which has repeatedly seen terms negotiated behind closed doors, in countries such as Malaysia and Pakistan, come unstuck in the face of public outcry.

Many a time, China’s central government more often has to step in to fix dubious projects agreed by underlings lower down the chain. These negotiations go one of two ways. Either China’s partners complain and win terms, as was true in Malaysia and in Myanmar over a multibillion-dollar deep-sea port. Or, as in the case of Sri Lanka, the renegotiations go in China’s favour, but at the cost of accusations of debt trickery. In both cases China looks the villain of the piece.

Seeing the roadblocks in the way of convincing the world to accept its higher status and deal with it as though it is perched on a pedestal, the Chinese are looking upon India as a stumbling block. As a matter of strategy China is wooing India to allow it (the Chinese) to mediate in the Indo-Pak tangle in Kashmir while expecting India to soften its stance on CPEC.

This seems too far-fetched but the rewards for China could be quite irresistible considering that New Delhi has leverage with Balochi rebels who could be a source of danger to Chinese hegemonic plans in the region.

Kamlendra Kanwar is a political commentator and columnist. He has authored four books.

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