China’s abandoned debt traps cost nations billions
Roads to nowhere, abandoned railroads and half-built bridges – China has been accused of using “debt trap” schemes to trap poorer countries and expand its power around the world.
The Communist Party’s creeping influence and international ambitions are visible through its Belt and Road initiative, with Beijing wooing the nations of Asia and Africa with lofty promises.
With loan offers and huge infrastructure projects like roads, railways and bridges, many countries end up getting more than they negotiated with China.
Courted by the glitzy sales pitch, many can’t afford the returns when China knocks on the door.
And then construction projects end up being abandoned or unfinished until the debt is paid off.
The move saw China seize resource-rich mountains in Tajikistan and reportedly took a stake in a key port in Sri Lanka.
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Experts fear that as debt grows, many more of these projects will go unfinished – and Chinese lenders will take control of land and strategic assets instead of paying them back.
Countries like Sri Lanka, Kenya, Montenegro, Laos and Kazakhstan found themselves crippled by debt and dependent on Beijing.
There have been more and more questions about the wisdom of becoming too dependent on Chinese finance and ending up in forms of debt dependence on China.
The Belt and Road Initiative – dubbed the “Project of the Century” by President Xi Jinping – has been touted by Beijing officials as a global infrastructure development fund that aims to connect China to the rest of the world .
However, some see it as a plan to further China’s ambitions by using “predatory loans” and “debt traps” to bring nations under their sphere of influence.
One in five infrastructure projects in Africa is now funded by China and one in three is built by Chinese companies, with many lucrative deals requiring Chinese construction companies, according to East Africa Monitor.
But China’s growing concerns about the viability of projects along the Belt and Road Initiative have left infrastructure projects in a shoddy state that poor states must try to fix.
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Shaun Breslin, professor of politics and international studies at the University of Warwick, said that “the West’s imposition of political conditionalities on aid and trade relations has created space for China to operate. “.
âChina has made much of its unconditional economic relations with developing economies,â he said. The Sun Online.
âBut there have been more and more questions about the wisdom of becoming too dependent on Chinese finance and ending up in forms of debt dependence on China in various countries along the Belt and Road, and it could become more important. “
Montenegro ended up with a disastrous, Chinese-built road dubbed “the highway to nowhere”.
Perched atop huge cement pillars towering over Montenegro’s scenic Moraca River canyon, Chinese workers began building a state-of-the-art 270-mile highway to Belgrade, the Serbian capital.
Workers spent six years digging tunnels in solid rock and raising concrete pillars over gorges and canyons – but the road leads nowhere.
The government can’t afford to build the rest or repay the first installment of China’s $ 1 billion loan – and it has forced the government to raise taxes and partially freeze public sector wages.
The IMF estimated the project would cost an additional $ 1.2 billion to complete – and it feared China would seize land in Montenegro to collect its debts.
“Roads to nowhere”
Meanwhile, the China-built Mombasa-Nairobi standard gauge railway in Kenya was supposed to travel 290 miles from the country’s coast to Uganda.
But the flagship project didn’t quite reach the border, and the railroad abruptly stopped in a sleepy village west of the Kenyan capital, Nairobi.
Construction was halted in early 2019 after China withheld some $ 4.9 billion in funding needed to complete the line, Bloomberg reports.
Construction has been suspended after Chinese President Xi Jinping called for stricter regulations on the financial viability of infrastructure projects.
Kenya is now said to owe Beijing $ 9 billion in infrastructure loans – and authorities have played down suggestions that the Communists could take over the port of Mombasa.
In Asia, a high-profile project in Kazakhstan was put on hold after a local bank that managed Chinese funds went bankrupt.
The $ 1.9 billion rail project was due to start operating in 2020, but the Development Bank of China halted lending after the collapse of the Bank of Kazakhstan where the funding was deposited.
This means that a series of concrete columns winding through the capital city of Nur-Sultan are the only evidence of the China-funded project.
Kazakh officials have said they will now have to borrow from national banks to complete the work, Bloomberg reports.
Meanwhile, Tajikistan, which shares a border with China’s Xinjiang Province, was forced to cede 1,158 square kilometers of territory in the Pamir Mountains to China after defaulting on its loans.
This meant that Chinese companies were getting rights to extract gold, silver and other minerals in the region.
And Laos has become the latest victim of so-called Chinese debt diplomacy.
The South Asian country is struggling to repay Chinese loans and has ended up ceding majority control of its national electricity grid to China Southern Power Grid Company, a state-owned company.
Sri Lanka is also trapped in a vicious cycle of taking new loans from China and paying off old ones.
The country defaulted on a Chinese contract to build the Port of Hambantota – and the company got a 99-year lease in return, sparking furor.
In a damning statement, former US Secretary of State Rex Tillerson once said that Beijing “uses opaque contracts, predatory lending practices and corrupt deals that bog nations in debt and undermine their sovereignty, refusing their long-term autonomous growth â.
But Linda Calabrese, a researcher at ODI and a doctoral student at the Lau China Institute, said “no evidence of a debt trap” had been found in Hambantota’s case.
“There is currently a lot of evidence, in academic literature and other sources, that there is no conscious decision by China to trap countries in a debt trap,” she said. declared. The Sun Online.
âChinese lenders provide money, sometimes at concessional rates, and sometimes at market rates, but they want to be paid off – they have no interest in trapping countries in debt.
âThe most famous case of a suspected debt trap, the Port of Hambantota in Sri Lanka, has been investigated by several researchers, and no evidence of a debt trap has been found. “
Yet fears that Sri Lanka could become a “Chinese colony” were rekindled this week after China won another contract to build a 17-kilometer elevated highway on the outskirts of Colombo.
The terms of the deal allow the China Harbor Engineering Company to own the highway, make a profit, before handing it over to the Sri Lankan government in 18 years, reports Nikkei Asia.
Jonathan E. Hillman, senior researcher and director of the Center for Strategic and International Studies in the United States, believes that loans from China “offer a channel of influence.”
He said: âThis can put pressure on borrowing countries to make additional concessions, such as granting privileged access to natural resources, future government contracts and diplomatic support.
“These types of concessions are more likely than asset foreclosures because they are not as publicly visible and directly linked to specific projects.”
In 2018, the Center for Global Development qualified Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Montenegro, Pakistan and Tajikistan as “highly vulnerable to debt distress” due to the Chinese Belt and Road Initiative. the road”.
This story originally appeared on The sun and is reproduced here with permission