Debt burden and BRI

first_imgChinese President Xi Jinping will have to hard sell BRI (Belt and Road Initiative) in the 2nd Forum, concluding today in Beijing. BRI envisages massive investment in infrastructure, encompassing marine, rail and road projects across 65 countries from Asian to Europe and Africa, that collectively account for 30 per cent of global GDP. BRI was expected to emerge as a fulcrum to the global economic and political landscape, under Chinese hegemony. However, fear of debt trap for smaller and weaker nations looms large. Further, in the light of the US-China trade war, BRI is losing the steam. Many of the debt-laden countries are scaling down their projects under BRI and some are feared for losing their political sovereignty. Also Read – A special kind of bondThe fallacy of the debt trap lies with China luring small and weaker nations with massive loans in the name of infrastructure development. And, when their debt is not paid, it captures their land and resources. It violates the global norms for a development loan, as it leaves little room for debt relief. Observers and analysts accused China of playing a game of bully with “debt diplomacy”. Certain projects become dormant despite the huge investment. According to the Washington Post, some projects with big investment make no economic sense. In Sri Lanka, Chinese loan was spent in the designated airport to handle a million passengers in a year. Now, it has been dubbed as one of the emptiest airports. Also Read – Insider threat managementThe harsh critic of BRI is Malaysian Prime Minister Dr Mahatir Mohammad, who demanded re-negotiation of East Coast Rail Link project with Chinese financial support. The project was approved by the previous government. The present government reduced the scope and cost of the project by a third. His Deputy Minister of International Trade and Industry accused over-pricing, which created a financial burden on the government. Joining the stream was Pakistan, who recently cancelled Rahim Yar Khan power project, which was part of BRI. It has cut the size of Belt and Road project by US$ 2 billion. The Railway Minister Rashid said that “Pakistan is a poor country that cannot afford huge debt burden” Sri Lanka has already sunk in the debt trap. Its Hambantota Port was taken over by China for a 99-year lease on account of Sri Lanka’s failure to repay the loan. Myanmar announced that it was wishing to scale down the Kyaukpyu Port project. In the Maldives, the ratio of debt to GDP sparked to 70 per cent, believed to be due to BRI. In August 2018, President of Maldives Abdul Yameen inaugurated Chinese–built bridge connecting two islands in the archipelago. One month later, Yameen was voted out and the new government began decoding the mountain of the debt burden. Yameen, a close friend of China, borrowed heavily from Beijing to build a new runway for the airport, housing development and hospitals and a long “China-Maldives- Friendship Bridge”. A study by the Centre for Global Development portrays eight nations vulnerable to Chinese debt trap under BRI. They are mostly African and Eurasia countries, and Pakistan. India is not a party to BRI. It suspected the project is a smokescreen, which China is using to siege strategic control on the Indian Ocean. Nevertheless, it poses a big challenge to India to increase hobnobing with its neighbours and friends in Africa. The Chinese debt trap leads to loss of financial sovereignty of these countries. Debts are turning into equity and finally, ownership goes to China. This will weaken trade opportunities between India and its neighbours, some of ASEAN nations and African countries. The growing burden of debt will give more opportunities to China to dominate the terms for trade and investment with the debt-ridden countries. SAFTA (South Asia Free Trade Area) and ASEAN are the cases in point. It will be a new turf for Chinese backdoor entry to India through Bangladesh and Nepal and some ASEAN members. The surge in debt burden will increase India’s vulnerability in the emerging trade block, say RCEP (Regional Cooperation for Economic Partnership). The countries which are currently suspected to fall prey to the debt trap are members of RCEP such as Malaysia, Laos, and Myanmar. China is the biggest stakeholder in RCEP, which includes ASEAN 10 + 6 (China, Japan, Australia, South Korea, New Zealand, and India). At present, India has a trade deficit with RCEP, which is mainly due to China. Given China’s predominance in RCEP, the major concern for India is the trade expansion with debt-laden countries, who are likely to lose trade sovereignty. It will provide a leeway to China for its backdoor entry into India. Apart from trade vulnerability, the debt trap will escalate security concerns. The growing debt burden, which will rip the political sovereignty of India’s neighbours, is feared to escalate security concerns. The acquisition of Hambantota Port in Sri Lank by China is a case in point, where security vulnerability will rise with Chinese aggression in the Indian Ocean. The port is likely to be used for China’s military base, as is suspected. Given the deceleration of BRI rhetoric in the wake of rising debt burden for smaller and weaker nations and the trade war between US and China, which hardly foresees cease-fire in the near term, it is imperative for China to reinvent the project. In light of this, India needs a constant watch and dialogue with debt-laden countries from the perspectives of trade expansion and deepening political relations with these countries. (The views expressed are strictly personal)last_img

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