Asia Sentinel: China’s Belt-Road Initiative – Too Good?

Asia Sentinel:  China’s heavily-promoted Belt and Road Initiative (BRI), designed to ensure that all roads lead to Beijing on Beijing’s terms, is facing increasing headwinds across Asia and beyond as the leaders of countries involved have started to count the cost. In addition, China’s attempts at political and economic manipulation of smaller countries are becoming increasingly visible, making client countries suspicious as well.

Some 70 countries are participants in the scheme. But some are finding themselves tied to China by onerous loan provisions whether they want to be or not. In all, according to reports, at least seven countries have found themselves saddled with projects that are far behind schedule and often the victims of loans from China’s Ex-Im Bank and other Chinese financial institutions, with construction workers provided by China and with little employment benefit to the host countries.

There have long been concerns that China’s ascendancy in Cambodia, one of Asia’s poorest nations, has been be transformed into political power. In January, Chinese Premier Li Keqiang signed 19 agreements worth billions of dollars in infrastructure, agriculture and other development to augment what is already an overwhelming presence in Phnom Penh. That influence made itself apparent dramatically in 2016 when Cambodia, a member nation of the Association of Southeast Asia Nations, blocked a resolution questioning China’s hegemony over the South China Sea.

Accordingly, other governments have begun to roll back Beijing’s advances. Nepal recently announced it would cancel a US$2.5 billion hydro project contract, citing concerns over contract irregularities in the runup to elections. Myanmar recently reaffirmed its 2011 decision to scrap the Mytsone Dam, on which Chinese companies had already spent US$3.5 billion and which was projected to transmit 90 percent of its power to China. 

Thailand, which originally intended to award China a contract for a 700-km high-speed rail connection between Bangkok and the northern city of Chiang Mai, has reverted to Japan for both loans and technology, out of growing public antipathy to overdependence on China, a condition that could lead countries like the Philippines to the brink of bankruptcy, critics say.

In Malaysia, the Philippines and Indonesia, delays and cost overruns have hobbled huge infrastructure projects. In Indonesia, the Chinese at virtually the last minute won the rights to build a 142-km fast rail line from Jakarta to Bandung, edging out the shocked Japanese, who had been vying for the contract for nearly a decade. But the project has stalled on land acquisition and other issues, with only about 10 percent of the construction completed so far. That in turn has played a major role in putting at risk Meikarta, a gigantic new city being built on the edge of Jakarta and projected by its developers, a Lippo conglomerate concern, to house eight million people. Problems with funding have also cropped up, meaning Indonesian subcontractors face trouble.

Some of the opposition stems from the fact that other governments see the BRI as a Chinese hegemon that is creating a new economic hierarchy. Concern has been growing for some time in Nepal, for instance, that the Himalayan country is being swallowed by its giant neighbor.  But the creation of that hierarchy isn’t merely through massive inflows of debts and high interest rates. China has also used its economic clout to manipulate the politics of its target countries in an attempt to keep those forces in power that favor a Chinese presence and even benefit from it although it hasn’t always worked out, sometimes leaving China in embarrassing situations.

Malaysia’s deposed Prime Minister Najib Razak stands out on the list of leaders propped up by China to beef up the BRI. Beijing helped Najib, who is said to have sold his country to China, cover big financial scams, allowing China to extract massive concessions in turn. Najib has been arrested for complicity in looting the state-backed 1Malaysia Development Bhd investment fund of a reported US$4.5 billion. That was one factor that helped the opposition, led by former Prime Minister Mahathir Mohamad, who has promised to thoroughly review China’s investments, win the recent election.

But Najib isn’t the only example, nor is Malaysia the only country where opposition against Chinese investment as well as manipulation of politics is on the rise. It is shaping BRI-targeted countries’ polities into authoritarian systems. Only such systems, with pro-China actors in seats of authority, can serve Chinese interests.

Sri Lanka is the next case in point. Just like Malaysia’s Najib, Sri Lanka’s former president Mahinda Rajapaksa was the key to handing over the Hambantota port to China for 99 years after the new administration discovered massive spending on infrastructure, including the port, which gets almost no traffic, saddled the country with unsustainable debt.

And as a New York Times investigation has pointed out, one key element in Chinese strategy was flooding the Lankan government with loans and forcing it to submit to Chinese demands –the classic ‘debt trap’ for countries hungry for Chinese capital. Until Rajapaksa was defeated in 2015, he remained Beijing’s favorite to the extent that Beijing even funded his election campaign. The Times report claims that during the 2015 elections “large payments from the Chinese port construction fund flowed directly to campaign aides and activities for Mr. Rajapaksa, who had agreed to Chinese terms at every turn.” 

As such, Sri Lanka is expected to pay US$12.3 billion on Chinese loans this year alone. Although Rajapaksa lost the 2015 election, the new government of Maithripala Sirisena, first attempting to cancel some of the development loans but has found itself in a debt trap, forced to move ahead on the projects as other debts have continued to flow in and interest rates remain high. Some 77 percent of next year’s repayments, according to the Sri Lankan finance minister, are for debts obtained by the previous government on Chinese projects. The Sirisena government has had to resort again to fresh loans from China to maintain the flow.

The Chinese eagerness for direct and indirect control is not just limited to using money to flood governments with loans, it is also using other discreet methods to beef up the ‘governmentality’ ability of states such as Pakistan, where China, as the China Pakistan Economic Corridor master plan has revealed, is going to spend a lot of money to increase the country’s surveillance capability.  And, as with the CPEC, countries are finding the infrastructure projects are not only being built on Chinese loans, they are often built by Chinese labor, meaning that no economic benefit from increased employment accrues to the host countries.

The major infrastructural investment in this regard is the laying of a country-wide fiber-optic cable, which would both transform Pakistan’s communication network and give China extensive control over information flows in the country. This control is aimed at transforming China and China-funded projects into ‘sacred cows.’ Already, the CPEC is a ‘no-go’ discursive area, and wherever opposition has occurred it has been removed.

Another such example in Pakistan is the Thar coal project, reportedly home to the world’s seventh-largest coal reserve, with around 175 billion tonnes of stocks. 

While China has in recent years begun to cut back on domestic coal and steel production in an effort to make its own development model more efficient and ecologically sustainable, Beijing’s loans were attractive enough to entice Pakistan to accept China’s offer to fund the Thar project and turn a blind eye to its negative impacts.

The ecological aspect notwithstanding, the project is being completed even though it is bringing misery to the local population, a big part of which has been displaced. Pakistan’s Sindh Engro Coal Mining Company is leading the development in partnership with China Power International.

Montenegro, lying on the Adriatic coast, has discovered itself tied to the China Road and Bridge Corporation (CRBC) and China Exim Bank, the contractor and financier respectively of s 41-km. highway whose cost has skyrocketed by 19 percent, eating up 25 percent of gross domestic product and crowding out other productive spending according to an analysis by the World Bank. The loan contract implies a 28 percent concessionality to the Chinese. 

The examples China has already set in countries like Pakistan, Sri Lanka and Malaysia make it clear that its geopolitical calculus of economic development carries the added benefit of economic domination, which leads to political domination. But this ‘pro-China’ development agenda is already facing trouble. With Beijing failing in both Malaysia and Sri Lanka to protect its favorites, the writing seems to be on the wall as the stage for a potential reverse seems to be in the offing.

Salman Rafi Sheikh is a Pakistani academic and a longtime contributor to Asia Sentinel.