China’s Debt Trap

China is investing billions of dollars in many countries, with a long term plan. It also gives credits to these countries. So, these countries are under burden of this loan and it is a China's strategy to subjugate these countries. 

During Cold war, USA and USSR had many military alliances and groups. During that period, to keep influence and group intact, both superpowers had used military resources and all pressure tactics. After disintegration of USSR, economic influence took place of these military alliances to many extent. But, to keep more and more countries under your wings, subjugate them and become a superpower, is the basic law and remains the same. China’s ambitious ‘Belt and Road Initiative’ program and other investment initiatives prove this basic law. China has been building many projects in many countries, to help these small countries for developmental.  It gives loan to these countries too. In fact, these countries are encumbering under this loan. More than eight countries, including Pakistan, have surpassed their average loan acquire level. Now, it is becoming more and more clear, that this is a debt trap of China and itis executing it very smartly. 

To maintain military and economic interest, presence in countries on certain route or a region, is not a new thing. Britain had its presence along gulf region, to secure trade route to other parts of Asia, including Indian subcontinent. Britain had this advantage for almost up to 1971. USA occupied Britain’s place thereafter, but it has been just military presence and for keeping watch on oil traffic. China’s economy emerged in 1980’s and in last few years, it has been deliberately investing in Asia, Africa and eastern parts of Europe. At an initial stage, China explains this is for development of those countries only. Now, this investment was significant and China’s economy too. So, China named it as ‘One Belt, One Road’. (Now, Belt and Road Initiative.) But, these countries are in debt trap and heavily paying for it. Loan levels of Pakistan, Kyrgyzstan, Laos, Maldives, Djibouti, Mongolia, Montenegro, Tajikistan are much higher than their average levels so far. It is difficult for them to repay loans, as a result their economies are under stress. Obviously, China is taking advantage of it. 

Sri Lanka is a classic case to explain this debt trap. During Mahinda Rajpakshe’s regime, Sri Lanka took billions of dollars of loan from China for infrastructure projects. Hambantota port at southern part of Sri Lanka was one of those projects. It is more important for China and its Maritime Silk Route. This port became operational in 2010 and as per the plan, China is entitled to gain it's loan amount from port's bussiness. But, Sri Lankan government was unable to repay loan as per planning, although land near the port was allocated to Chinese companies, so there was a lot of discontent among Sri Lankans. It also contributed in Maitripal Sirisena’s victory. But, he also failed to fulfill his promises. So, in the end, 70 per cent shares of these port was sold to Chinese company named China Merchant Port Hoardings. This company is entitled to use this port for 99 years, according to lease agreement. 

Sri Lanka government is under burden of loan of 64 billion dollars, which included 1.2 billion dollars loan for Hambantota port. To think about this debt trap, we have to look at China’s interest rates too. World Bank or Asian development bank gives loan with 0.25 to 3 per cent per year interest rate, for any development work. But, China’s interest is up to 6.3 per cent. Some experts explain that out of Sri Lanka’s  64 billion dollars payable amount, 8 billion dollars are only because of these interest rates. China has given loan to Hambantota airport, but it is  emptiest airport in the world. Debt trap includes giving loan to small countries for infrastructure, even if these countries don't need it. 

This is all about Sri Lanka, but ‘all weather’ friend Pakistan is not holy cow for China. China Pakistan Economic Corridor (CPEC) is the project in BRI, which is most controversial and most popular. China invested around 56 billions of dollars for this project. Gwadar port is a link between BRI and Maritime Silk Route. Actually, ‘CPEC is to take away Baloch territory away from us,’ says Miran Baloch, member of Baluchistan Liberation Front. This reaction says it all. Pakistan will need 40 years to repay the loan amount, which is taken for CPEC. This project includes power generation and other projects. But, it is for Chinese companies and there is no chance for local players. In these projects, only Chinese workers are working. China’s exports have been on the rise, so almost 200 textile mills closed down in Pakistan. 

China’s economy emerged in 1980’s and since then there has been a focus on Africa. Africa has lots of natural resources, but lacks in human resources and technology. China is occupying that space. Infrastructure is basic hurdle in Africa. In Africa, mining, commercial investment and infrastructure works are opportunities. According to a data released in 2015, Africa got 83.4 billion of dollar foreign investment or grant. China’s share in it was of 20.9 billion dollars. USA and European countries only concentrated their focus on oil and power sectors. But, China focused on railways, highways, port, oil and natural gas, power projects. China’s investment in African countries in 2014 was about 40 times greater than it had been in 2000. China’s one company got a contract for construction of coastal railway line in Nigeria. This contract is of 11.97 billion dollars and it is China’s highest deal in engineering sector. China built Ethiopia’s first express-way.

China also has tensions with South-East countries regarding South China sea and other issues. But, these countries  have also caught in China's trap and Laos is first in this list. China gave 6.7 billion dollars credit to Laos, which is quarter of GDP of Laos, for a high speed train connecting China. This Railway goes through Thailand and it is most useful for China to connect with southwards. According to IMF, out of Laos’s bilateral credit, 65 per cent is from China. In future, Laos’s economy will develop with lesser rate, so how can Laos will repay this loan? Few years ago, Laos built a stadium for South-Asian games. But, government could not repay loan amount, so Laos leased 300 hectares of land to Chinese company. Cambodia's story is also the same. It took credit of 1.6 billion dollars from different institutions and 3.9 billion dollars from China. Since 1992, Cambodia has been receiving credits and grants from China. 

Government companies play important role in China’s expansion policy. According to one report, China Development Bank and China Export-Import Bank have given loans of 200 billion dollars to Asian and African countries. In BRI initiative, 47 government companies have been participating. Let's take the example of China Communications Construction Group, which got contracts of 40 billion dollars. It includes roads of 10,320 KM, 95 ports, 10 airports, 152 bridges and 2080 railway tracks. 

China has been executing this plan since last 2-3 decades and it has yielded result now. Although, having differences with China on political or ideological fronts, these countries could not keep themselves out of the trap. Chinese debt influence has been increasing, so other countries must do something to keep it in check. In Indo-Pacific region, India, USA, Japan and Australia are coming together. It is kind of military unity. But, by looking at China's debt trap, there is dire need of such association on economic forum too.

Original article published in Maharashtra Times, you can see it here..

https://maharashtratimes.indiatimes.com/editorial/ravivar-mata/chinas-debt-trap/articleshow/63558973.cms