Fears of excessive debt drive more countries to cut down their Belt and Road investments
Some countries are scaling down or scrapping entire projects that are part of China’s Belt and Road Initiative amid mounting financial concerns over the continent-spanning venture.
In recent months, developing nations such as Pakistan, Malaysia, Myanmar, Bangladesh and Sierra Leone have either canceled or backed away from previously negotiated BRI commitments, citing worries over high project costs and their impact on national debt and the economy.
That revised stance not only confirms global fears over the terms of BRI financing, it could also indicate that developing countries are now more willing to prioritize sovereign interests over their need for foreign investment.
The BRI — Beijing’s signature foreign policy program — is the superpower’s attempt to stretch its economic power across the globe through the construction of maritime and overland transportation links across Asia, the Middle East, Africa and Europe. But critics see it as a means to benefit China’s military, increase opportunities for Chinese companies and help Beijing gain political leverage.
Under the trillion-dollar endeavor, Chinese state-owned entities flush with cash offer participating countries cheap loans and credit to build large-scale projects such as ports and railways. These arrangements are usually negotiated government-to-government with below-market interest rates but many nations are growing wary over their debt loads.
Since April 2018, several BRI projects have encountered delays, suspension, or outright cancellations “due to skepticism and pushback against the project,” according to an August report by The Economist Intelligence Unit.
News emerged this week that Islamabad had requested Beijing in December to shelve a joint $2 billion coal power project. That comes after Pakistan’s Railways Minister Sheikh Rasheed Ahmad said in October that his country would be reducing Chinese loans for rail projects from $8.2 billion to $6.2 billion.
Myanmar’s government also cut down the price for a Chinese-backed deepwater port in the conflict-ridden state of Rakhine from $7.3 billion to $1.3 billion, Reuters reported last year, citing concerns the initial cost would leave the Southeast Asian nation in a lot of debt.
Sierra Leone, one of Africa’s poorest countries, also scrapped plans to build a $318-million airport with a Chinese company last year while Malaysian Prime Minister Mahathir Mohamed has suspended $22 billion worth of Chinese-backed projects.
Early last year, Bangladesh canceled an expansion of a major highway that was meant to be built by China Harbour Engineering Company after the Chinese firm allegedly offered a government official a bribe, AFP quoted the South Asian state’s finance minister as saying. And Tanzania reopened negotiations with Beijing last year over a planned $11 billion port.
Many of these countries want to avoid the same fate as Sri Lanka.
Shock waves rippled throughout the developing world when Colombo handed over a strategic port to Beijing in 2017, after it couldn’t pay off its debt to Chinese companies. It was seen as an example of how countries that owe money to Beijing could be forced to sign over national territory or make steep economic concessions if they can’t meet liabilities. The phenomenon has been dubbed debt-trap diplomacy, which Chinese President Xi Jinping’sgovernment has denied engaging in.
The fact that emerging markets are standing up against the unsustainable terms of BRI financing is a positive sign, geopolitical expert Parag Khanna said in his new book “The Future is Asian.” In a way, China’s forays are actually modernizing these countries, “helping them gain the confidence to resist future encroachment,” wrote Khanna, a managing partner at data-based advisory firm FutureMap.
The worries among BRI countries aren’t surprising given the numerous warnings of sovereign debt risks — the Center for Global Development last year said 23 countries faced high risks of debt distress.
Fears are also rampant that the Belt and Road project may be running out of money.
Private investment remains limited and even with capital from international institutions such as the Asian Infrastructure Investment Bank, the BRI faces a funding gap of up to $500 billion a year, Wang Yiming, deputy head of the Development Research Centre of China’s State Council, said in April.