The Chinese stranglehold
China’s use of ‘debt diplomacy’ as the mainstay of its foreign policy is a cause of increasing alarm for the ‘developing’ world
China has not faltered in its practices of selling debt. In fact 'debt diplomacy' has emerged as the cornerstone of its foreign policy. It has also shown willingness to use all its persuasive skills for the same, everything from coercion to corruption. A very large expanse of the developing world has been engulfed in this syndrome. This nefarious methodology hinges on identifying chinks in the armour of countries in the developing world, crying for development and exploiting them for a strategic stranglehold by the Chinese Regime. The process is quite simple. In the garb of financial support, provide loans at interest rates amounting to as much as 6 per cent and in the event of nonpayment, gradually take control of territories and commercial activities in return.
In the most recent of these ventures — which virtually got unnoticed due to the Coronavirus outbreak — on 18 January, Myanmar and China signed 33 MoUs, agreements, protocols and exchange letters. This includes a concession agreement and shareholder's agreement of Kyaukphyu Special Economic Zone Deep Sea Port Project. These were signed during the visit of the Chinese President Xi Jinping to Myanmar. He has also promised to arrange funding of 4 billion yuan over the next three years to support the development of Myanmar. This relationship essentially bloomed in return for China supporting Myanmar against a global tirade against Myanmar for its handling of the Rohingyas and drying up of the financial pipeline. This deep seaport is already being seen as a debt trap for Myanmar by Premier Suu Kyi's Economic Advisor, akin to what happened to the Hambantota port built in Sri Lanka by China. This deep seaport has been given to the Chinese Government on a 99 years lease for debt relief. And thus, the Chinese have attained their strategic objective for their maritime force.
On the anvil are various joint projects, the China-Myanmar Economic Corridor between Yunnan and Mandalay, urban development in Yangon, the acceleration of the Mee Laung Gyaing Integrated Liquid Natural Gas power project in Ayeyarwady Region and a loan to Myanmar for procuring 28 passenger train coaches from China.
It would be appropriate to pay heed to a deft warning echoed by a prominent member of the Indian Cabinet, Hardeep Singh Puri whilst he was addressing a grouping of ASEAN. In his view, whilst ASEAN countries may take advantage of China's aggressive investment policy, especially on infrastructure, they must also see to it that their respective governments have the means to pay for the loans and that the projects are viable. They may end up paying more than what they bargained for. If it leads to debts and equity, then it should be shunned. Puri, a leading scholar and a former Indian diplomat had aimed these comments at the Philippines already grappling with the Chinese threat in the South China Sea.
He had cited the case of Sri Lanka's investment deals with China for the ambitious construction of a deep seaport and international airport in the remote Hambantota and Mattala regions, respectively. The story as to how this airport rose and fell is a dive into a quagmire of national politics, geopolitical manoeuvring, raw corruption and the hunger of China to invest in massive infrastructure projects along what has subsequently been dubbed the 21st Century Maritime Silk Road.
At a cost of USD 209 million, 190 million of which is coming in the form of loans from China, Mattila was selected as the site for the country's number two air transport hub. In addition to the international airport, there would be a gargantuan, USD 1.4 billion-plus multi-stage deep seaport, a large industrial zone, a massive conference centre, a world-class cricket stadium, housing developments, a hotel and a tourism area, all held together by some of the best new highways in the country.
Hambantota was to become the shining achievement of the Rajapaksa regime and the nomenclature of the area's big projects do not conceal this fact in any way. Mattala Rajapaksa International Airport is complemented by the nearby Magampura Mahinda Rajapaksa Deep Sea Port as well as the Mahinda Rajapaksa International Cricket Stadium. This was a president who for nearly a decade virtually ruled as a dictator, appointing his family members and friends to positions of power and keeping the country in a very firm grasp.
In terms of funding these series of massive projects, China was more than willing to fill the void. At least USD 4.8 billion, mostly in the form of soft loans, were allocated from China during Rajapaksa's reign. But down the line, the government of Prime Minister Ranil Wickremesinghe had to sell an 80 per cent stake in the port's operations for USD 1.1 billion to China Merchant Ports Holding Company Ltd, which also has the contract for the Colombo Port. Sri Lanka took this step to service the debt on the loan it took from Exim Bank China to build the port, the repayment amounting to SL Rs 9.1 billion ($ 60 million) annually. Fortunately, the Indian Government signed an agreement with the Sri Lankan government forbidding the use of the port for strategic military purposes by foreign navies. But in my view this would not hold much water now since the Rajapaksa family is in full control of Sri Lanka. The Chinese are already at the Colombo port.
Pakistan's economic woes came to surface most recently with two numbers released on 31st January. The country's overall debt had increased by 40 per cent in the previous fiscal year, rising by Rs 11.6 trillion from June 2018 till September 2019. We thus have the spectacle of the China Pakistan Debt relationship, a stranglehold it cannot extricate itself from for the Chinese support on FATF and no alternate payment methodologies.
Then there are stories from Indonesia, the Horn of Africa and Venezuela. Venezuela's Road to disaster has been notably littered with Chinese cash.
Prashant Dikshit is a retired Air Commodore and strategic affairs commentator. Views expressed are strictly personal