The shadow of Chinese domination

China has been accused of requiring secret negotiations and non-competitive pricing on projects in which bidding must be closed and contracts must go to Chinese state-owned or state-linked companies that charge significantly higher prices than would be charged on the open market.

by Anwar A. Khan

Debt-trap diplomacy is carried out in bilateral relations between countries with a negative intent. The creditor country intentionally extends excessive credit to a debtor country, thereby inducing the debtor into a debt trap. This is done with the intention of extracting economic or political concessions from the debtor country when it becomes unable to honour its debt. The conditions of the loans are often not made public, and the borrowed money commonly pays contractors from the creditor country.

 Although the term has been applied to the lending practices of many countries and the International Monetary Fund (IMF), it is, as of 2020, most commonly associated with the People's Republic of China (PRC) failed to make Bilateral Agreements as part of China's Belt and Road Initiative (CBRI) have furthered this association, especially regarding commodity-backed loans to developing nations.

The term "debt-trap diplomacy" is coined to describe China's predatory lending practices in which poor countries are overwhelmed with unsustainable loans and would be forced to cede control of strategic assets to China.The term was first used in 2017; within 12 months it had quickly spread through the media, intelligence circles, and western governments. It has since expanded to include other parts of the world and was further defined and expanded upon in the context of Chinese geostrategic interests in a 2018 Harvard University report.

The Belt and Road Initiative (BRI) is a multi-billion-dollar expansion project of China, to expand its power through lending to countries to spur their economic growth. The BRI project was launched in 2013 by Chinese leader Xi Jinping to improve the infrastructure of countries in Europe, Africa, and Asia in exchange for global trade opportunities and economic advantage.

Studies of economic experts in the practices of China found the patterns of China's bank lending purposefully trap governments to gain strategic opportunities for China. This is clearly a part of China's geostrategic vision.”

China's overseas development policy has been called debt-trap diplomacy because once indebted economies fail to service their loans, they are said to be pressured to support China's geostrategic interests. Some commentators maintain China is supporting repressive regimes in a neocolonialist manner through high-interest loans, intending to coerce these countries, once they default, to align with China on key strategic and military issues. 

China has been accused of requiring secret negotiations and non-competitive pricing on projects in which bidding must be closed and contracts must go to Chinese state-owned or state-linked companies that charge significantly higher prices than would be charged on the open market.

Western, Indian, and African media have criticised China's secretive loan terms and high interest rates. For example, a 2006 loan to Tonga sought to rebuild infrastructure. From 2013 to 2014, Tonga suffered a debt crisis when the Exim Bank of China, to which the loans are owed, did not forgive them. The loans claimed 44 percent of Tonga's gross domestic product (GDP). Western analysts have said China's practices may hide hegemonic intentions and challenges to states' sovereignty. China has also been accused of imposing unfair trade and financial deals when cash-poor countries are unable to resist Beijing's money.

A SAIS-CARI report from August 2018 found "Chinese loans are not currently a major contributor to debt distress in Africa. Yet many countries have borrowed heavily from China and others. Any new [Forum on China–Africa Cooperation (FOCAC)] loan pledges will likely take the growing debt burden of African countries into account." A 2019 peer-reviewed Johns Hopkins research paper by Deborah Brautigam found "the evidence so far, including the Sri Lankan case, shows that the drumbeat of alarm about Chinese banks' funding of infrastructure across the BRI and beyond is overblown.”

The Rhodium Group has stated China's leverage in debt renegotiation is often exaggerated and was realistically limited in power, and that the findings of their study frequently showed an outcome in favor of the borrower rather than the supposedly predatory Chinese lender. A May 2019 article in the Sydney Morning Herald said the term was being questioned by new research; an analysis of 40 Chinese debt re-negotiations by the Rhodium Group found "asset seizures are a very rare occurrence" and that debt write-off is the most common outcome. The article also reported the views of Australian National University senior lecturer Darren Lim, who, referring to the Rhodium Group study, said much of the leverage shifts to the borrower rather than the lender after the loan has been made.

A report by the Lowy Institute said China had not engaged in deliberate actions in the Pacific that can justify the accusations of debt-trap diplomacy, at least based on contemporaneous evidence, and stated China has not been the primary driver behind rising debt risks in the Pacific, but warned the scale of its lending and the institutional weakness within Pacific states would pose risks of small states being overwhelmed by debt. Other critics include Chinese state-owned newspaper Global Times and Rwandan President Paul Kagame.

China is a major stakeholder in the economies of many African countries with a significant influence on many aspects of the continent's affairs. Recently, when African countries have rapidly increased their borrowing from China. According to research conducted as part of the Jubilee Debt Campaign in October 2018, African countries owed China US$10 billion in 2010, increasing to over US$30 billion by 2016. China's lending to African countries is part of a large-scale overseas investment boom, forming part of its quest to secure access to raw materials and become an economic superpower.

As of 2020, the countries in Africa with the largest Chinese debt are Angola (US$25 billion), Ethiopia (US$13.5 billion), Zambia (US$7.4 billion), the Republic of Congo (US$7.3 billion), and Sudan (US$6.4 billion). In total the Chinese have loaned US$143 billion to African governments and state-owned enterprises between 2000 and 2017.

In the 2015 and 2017 records of World Bank, several African countries have large debts with China and other creditor nations. Interest rates of about 55% in the private sector prompted some African countries to go to China for loans, which charges around 17%. The debts of African countries to China paid for the investment in sectors needing critical development and growth. In exchange, China in demands payment in the form of jobs and natural resources.

The risks involved in borrowing countries are unexpectedly high. In recent news, when many countries in the BRI project have started rethinking the project and most have repayment issues. According to Jonathan Hillman, director of the Reconnecting Asia Project at the Center for Strategic and International Studies, there is more to these projects than financial strategy; "It's also a vehicle for China to write new rules, establish institutions that reflect Chinese interests, and reshape 'soft' infrastructure."

The negative effects of Chinese loans to African economies include fear of losing local companies to Chinese companies with strong buying power. Debt from China has promoted illicit trade among China and African countries; such imports are cheap because of China's low-cost labour and are preferred to locally manufactured goods, for example, clothing and electronics. Trade between African countries and China has also affected ties between African countries and other continents, especially Europe and North America. According to Deborah Brautigam, Chinese loans are prone to misuse, and have promoted the levels of corruption and fights for power in African countries.

Over four-fifths of China's investments are spent on infrastructure projects in underdeveloped and developing countries. Forecasts of the International Monetary Fund (IMF) show the economic growth-rate of China will fall to around 6.2%, which is around 0.4% less than in 2018. Reason for the decline are the increasing number of trade disputes between China and the US, and the sudden increase in debt in the past decade, which was used for infrastructure programmes.

Between 2006 and 2017, Kenya took out loans of at least US$9.8 billion (Sh1043.77 billion) from China. Chinese debt accounts for 72% of Kenya's foreign debt. China lent Kenya extensive funds to build highways and a railway between Mombasa and Nairobi, totaling over US$6.5 billion as of 2020. In late December 2018, Kenya reportedly came close to default on Chinese loans to develop its largest and most lucrative port, the Port of Mombasa. A default could have forced Kenya to relinquish control of the port to China. Kenyan media has debated whether Chinese loans are worth the risk, drawing analogies with the experience of Sri Lanka; some commentators have said these loans could jeopardise Kenyan sovereignty.

Loans from China to build the Hambantota Port in Sri Lanka have been cited as an example of debt-trap diplomacy, after Sri Lanka defaulted and subsequently gave a 99-year lease to China in place of payment.

Critics cite the example of a loan given to the Sri Lankan government by the Exim Bank of China to build Magampura Mahinda Rajapaksa Port and Mattala Rajapaksa International Airport as an example of debt-trap diplomacy. The state-owned Chinese firms China Harbour Engineering Company and Sinohydro Corporation were hired to build Magampura Port for US$361 million, which was 85% funded by Exim Bank of China at an annual interest rate of 6.3%. Due to Sri Lanka's inability to service the debt on the port, it was leased to the Chinese state-owned China Merchants Port Holdings Company Limited on a 99-year lease in 2017. This caused concern in the United States, Japan, and India that the port might be used as a Chinese naval baseto contain China's geopolitical rivals.

The terminus point is: We witnessed what China did to us during our glorious Liberation War in 1971 to attain Bangladesh. During my service life for 45 years with private business organisations, I started meeting Chinese people since 1981 which has still been continuing till to this day. Our company has offices in Hong Kong and Shanghai. China is the largest raw materials producing country all-over the world. Like so many other countries, we also buy their products in multi- millions of US Dollar every year. I personally visited various parts of China more than 40 times; I have close Chinese friends of about 100 in number; mixed with them so closely along with their families. My general impression about them is: they are very shrewd and noncommittal in dealing with others…Like Americans, they have many faces or hats for their bigger benefits!

Bangladesh is now encircled by China for huge investments in our large infrastructure projects for their improvidentblueprint! So, Bangladesh should be careful!!

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The writer is an independent political observer based in Dhaka, Bangladesh who writes on politics, political and human-centred figures, current and international affairs