Countries around the world are now rethinking the readily available loans offered by China for infrastructure projects in their countries, after fearing they could fall prey to Beijing’s debt-trap diplomacy.
Last week, Sierra Leone, one of the world’s poorest countries, scrapped plans to build a controversial $400-million airport outside the capital, Freetown, to be funded by Chinese loans. The mega-project, which was due to be completed in 2022, had been commissioned by former president Ernest Bai Koroma. But the new president, Julius Maada Bio, has since reassessed the huge loans offered by China to his predecessor.
The decision by the new Sierra Leone government comes amid rising concern that many African countries risk defaulting on their debts to Beijing. Nearer home, Malaysian Prime Minister Mahathir Mohamad announced in August that Malaysia will suspend the construction of two large infrastructure projects to be financed by Chinese companies. During his five-day visit to China, Mahathir said the Chinese-funded $20-billion East Coast Rail Link (ECRL) project and a natural gas pipeline project in Sabah will be cancelled “until such time that Malaysia can afford it”.
The ECRL would have connected the South China Sea with strategic shipping routes in western Malaysia, creating an important trade link. It is part of China’s Belt and Road Initiative (BRI), a 1-trillion-dollar project to link 70 countries in Asia, Oceania, Africa and Europe with railway lines and shipping lanes.Losing natural resources Malaysia’s decision came after Pakistan and Nepal last year turned down Chinese infrastructure loans in favour of other sources of funding.
Through the BRI, China offers huge loans that have higher interest rates, with the natural resources of debtor countries used as collateral. China can then take control of the resources if a country defaults on its repayments. Last year, for instance, Sri Lanka, weighed down by more than $1 billion in debts to China, handed over a port to companies owned by the Chinese government.
China-funded projects also require the hiring of Chinese-owned contractors rather than local companies and workers. Chinese loans, with interest rates of 2-3 per cent, are 1,100 per cent more expensive than those from Japan, at only 0.25-0.75 per cent. According to the Washington-based Centre for Global Development, a non-profit research organisation, BRI-participating nations who default on loan repayments will eventually find themselves at the mercy of Beijing.
Eight counties, it said, are now vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan. In the Philippines, the Duterte administration seems to be impervious to concerns raised about China’s “hidden agenda” in extending massive loans to poor countries. The programme, some analysts have said, is tantamount to a new form of colonisation of vulnerable nations by Beijing. During President Rodrigo Duterte’s first visit to China in October 2016, Chinese President Xi Jinping pledged to provide funding for 30 projects in the Philippines worth billions of dollars. China has earmarked 4.37 billion pesos (more than Bt2.6 billion) for the Chico River Dam Project, which broke ground on June 8.
The project, funded by the China Exim Bank, is implemented by China CAMC Engineering Co Ltd. Beijing has also pledged to fund two Philippine railway projects with a combined cost of $8.3 billion, and 30 smaller projects valued at $3.7 billion.
According to Philippines Budget Secretary Benjamin Diokno, agreements on several more China-funded projects will be signed during the scheduled visit of President Xi to Manila in December. Manila lawmakers are already expressing alarm over the use of the country’s natural resources as collateral for loans from China. “Protection and preservation of national interest compels us to reject the Chinese concept of using natural resources as loan collateral,” said Muntinlupa Representative Ruffy Biazon. “It’s obvious that this is their mode of territorial expansion.”
Source: The Nation