by James Crickton*

Whether the World Bank (WB), International Monetary Fund (IMF), and above all their patron-in-chief, the United States of America, (USA) like or not, today China is the world’s largest official creditor. Beijing is walking the distance where needed donning the mantle of the Modern-Day Good Samaritan.

Neither the colour of the people nor of the currency matter as long as the lending programme fits its global strategy. If in the process, Xi Jinping regime is able to dominate the world without brute force like in good old colonial times, so be it.

Why grudge the advantage that China has come to cash in with its imaginatively designed Belt Road Initiative (BRI). And has given fresh currency to the old adage: “If you can’t punch, throw a sack of gunny bags and the land is yours…”

AidData, a US Research Lab, confirms what is heard in whispers at the UN corridors. It is that China’s annual international development finance commitments exceed that of “the US and other major powers on a 2-1 basis or more.”

China’s critics have a different take.

China is saddling low-income countries with loans and is forcing them to make strategic concessions when they are unable to repay, say these critics, whose number is swelling in the wake of Sri Lanka’s nightmares with debt.

Sri Lanka’s Alnaskar dreams had led to the building of Hambantota port close to the busy sea lanes in the Indian Ocean. Instead of becoming Singapore’s envy as the master planners in Colombo desired, it ended up as an albatross. And Hambantota debt restructuring is China’s and Chinese military’s gain with Beijing acquiring the sobriquet – Modern Day Shylock. Now ain’t it smart? Why grudge?

The new Silk Road as the Belt Road Initiative is described, is China’s geopolitical and geo-economic strategy to expand its dominance worldwide. This strategy is only plausible when the ratio of economic strength is much higher compared to other nations as leverage. So why not give the devil its due as the saying goes.

There are an array of domestic reasons triggering the Chinese overseas development financing. These push factors are exporting the excess capacity of its state-owned contractors like the Chinese Communication Construction Company, CCCC, and the Bridge Corporation to showcase its soft power. The overseas job market thus created has become the Eldorado for the idle hands at home. Then there are, pull factors, Beijing’s objectives of giving credit to developing countries when there are no other avenues.

Lack of transparency and corruption are inherent in such dealings with non-disclosure clauses thrown in as new Shylock norm. So why make hue and cry, more so as the lender is not cut in the mode of the lender of the last resort, namely the IMF with accountability writ large on the Board? Remember Beijing is not walking on a one-way street with a bag filled with Yuans.

An analysis of World Bank data shows that most countries in Africa owe China a third of what they owe to non-Chinese lenders. The interest rate is as high as 12 per cent on a debt that totaled 696 billion dollars two years ago in 2020.

The loans as also the interest there on are not imposed, but negotiated. So what is wrong? Where is the pressure to accept a high interest?

Well blame it on the necessity of the borrower? Also on the absence of another lender?

Should the lone lender become the exploiter?

It is this concern that has given currency to the phrase – debt-trap diplomacy in the context of the very first BRI – China Pakistan Economic Corridor (CEPC). It has since become the tagline for BRI everywhere with nations in debt approaching China as the sole avenue of financial support that sans political questions.

Three recent studies hold special interest in unraveling the Chinese munificence. One is the study by AidData from its perch at Virginia based William & Mary’s Global Research Institute. The second is of Germany’s Kiel Institute. And the third of Johns Hopkins University by China Africa Research Initiative, which essentially looks at Zambia’s tryst with China.

These studies show that the borrowing nations have economies of varying sizes. Larger economies are able to borrow more from China. And get exposed to larger risk. AidData’s report titled ‘corridors of power’ highlights Beijing’s ‘use of economic, social, and network ties to exert influence’ along 13 Silk Road countries in South and Central Asia (SCA). These ties ‘foster interdependence with the PRC that have the potential to both empower and constrain SCA countries, while threatening to displace or diminish the influence of regional rivals such as Russia, India, and the United States’, says the report.

Venezuela, the South American nation, has the greatest debt exposure to China. It has borrowed a staggering $74.7 billion but has not fallen a victim to debt-trap diplomacy to the glee of the acolytes of the bamboo capitalist.

Others in the pecking order, Angola ($39.9 bn), Pakistan ($24.4 bn) Ethiopia ($10.9 bn), Iraq ($10.5 billion), and Sri Lanka ($10.4 billion) are in a different league though.

Another variable, sovereign debt -to- GDP ratio is a cause for alarm in respect of ten countries. These are Congo (49.7%), Equatorial Guinea (46.8%), Djibouti (40.3%), Maldives (37.8%), Angola (34.0%), Suriname (30.2%), Kyrgyzstan (29.9%), Samoa (29.4%), Laos (27.1%) and Zambia (27%).

The plight of these countries conveys the same message. It is that China moderates its debt-trap strategy according to urgency in geopolitics. It is ready to play the long game and use it to its advantage, for instance, in Africa when the going appears to be in its favour. In such scenario, China doesn’t exercise demand on repayment or equity in lieu.

However, such benevolence is not shown in South Asian countries as the Sri Lanka realised the hard way. Maldives may be next to feel the Chinese pinch. The island nation owes about $1.4 billion to China which amounts to 78% of its external debt.

The experience of these two countries as also of Pakistan, which considers itself as the iron friend of Beijing tells the same story: China exploits countries with a history of financial mismanagement and debt.

The chosen instrument for these ventures is the Chinese Communications Constructions Company (CCCC). It has delivered on its mandate namely expansion of the Beijing Economic Corridor everywhere except in Greenland where the Denmark government turned out to be more smarter than the lender from the land of Confucius. How the stakes played out against the Chinese is a long story.

Suffice to say the CCCC rolled back its offer to foot the entire bill for the expansion of Nuuk’s airport. Denmark was quick to grasp the import of the Chinese plan to gain a stronghold over a key global transportation route, and thus pose a direct threat to the NATO and US military. It, therefore, decided to take a 33 per cent stake in the $109 million venture. This was not acceptable to China. And CCCC backed out while Greenland ducked the debt trap. Generating revenues to pay off China is beyond its capacity; it could have resulted in a repeat of Hambantota story – transferring strategic geo-infrastructure to China in lieu of debts.

Chinese firms like the CCCC are solely motivated by geo-political dominance on government directives. It is their mandate. They’re not just interested in lending but also purchasing lands and investing across the production chain especially in Latin America. These state-owned enterprises are the vortex of debt trap geo- economics unleashed by China’s new helmsman, Xi Jinping, the man in a hurry to go down in history.

This reality check shows China’s ‘debt-trap diplomacy’ as a blatant reality. It is not the figment of imagination. No grudging whatsoever.

The experience of Greenlands and a host of countries from Latin America to Africa and Asia is a wake-up call.

Shun the Yuan lender from the Middle Kingdom!

—* The writer is a regular contributor to Poreg