Frightened by China’s predatory tactics, countries like Bangladesh, Malaysia, Myanmar, Pakistan and Sierra Leone decided to cancel or downsize some of their Belt and Road projects rather than end up like Sri Lanka.
Although we are writing about “the post-virus era”, we are far away from it. In a more virulent form, the Chinese virus has again attacked.
What has happened to the much-touted Bilk and Rob (sorry Belt and Road) Initiative that began seven years ago with so much fanfare to link imperial China with her tributaries (the rest of the world)?
The flightless and long dead 16th century bird from Mauritius called the Dodo achieved widespread recognition from Alice’s Adventures in Wonderland, becoming a fixture in popular culture as a symbol of extinction and obsolescence. The BRI has done this in double quick time. Upwards of a trillion dollars were to be spent in globalization’s final frontiers, and humankind would thrive forever in a true multi-polar global power structure with Chinese characteristics, since “a rising tide lifts all ships”. Such outreach had never been seen before in human history, and poor nations danced with joy. It did not matter that the loans were on commercial terms, far more costly than funds from Western donors or the concessional windows of the multilateral development banks.
Developing nations were sick of the conditionalities and interminable assessment missions by multilateral financiers and of the constant hectoring by the rich nations on good governance, corruption, democracy, etc. In its early days, 70% of World Bank financing went to economic infrastructure; now, it is around 30%. Quick, no-questions-asked Chinese loans may seem like ambrosia, but the reality is different—waste, environmental destruction and untenable debt.
IT IS THE SCAM OF THE MILLENNIUM
BRI white elephants languish semi-finished around the world and local populations wait for the promised manna from the Chinese heaven, occasionally expressing their impatience violently. The BRI projects were gigantic, mesmerizing, but hopelessly overpriced and unproductive, preferring expediency to transparency. And the investments went to countries with “junk” ratings.
China could not care less, as long as Chinese companies went out to conquer the world through “friendship” deals. “God, I love this man”, fawned the pugnacious President of the Philippines about Xi Jinping before quickly changing his opinion.
The “debt trap” first emerged in Sri Lanka in late 2018. Hambantota port was an economic no-go, but touted as Sri Lanka’s path to the developed world, with a spanking new deep seaport, an airport, a stadium, a giant conference centre and many miles of new roadways. China opened its cheque book, first for a USD 307 mn loan, but with the condition Sri Lanka accept Beijing’s preferred company, China Harbor, as the port’s builder, rather than adopt an open bidding process.
That is a typical Chinese condition. Beijing lends billions of dollars (that must be repaid at a premium) to hire Chinese companies and Chinese workers. Sri Lanka could not pay back the loans. Playing hardball, China grabbed a 70% share of the seaport for 99 years for just over USD 1.1 bn, with Colombo using the money to augment its foreign exchange reserves and repay some debts. The promises of increased trade and economic wealth were quashed almost immediately as the port opened its doors in a shambolic inauguration ceremony. Sri Lanka sunk deeper into debt to China. Dreams of making it a “Smart One Stop Shop” quickly became nightmares. Hambantota handles about one ship a day as major shipping lines route cargo through Colombo.
China’s debt-trap diplomacy became clear to vulnerable countries around the world, fuelling corruption and autocratic behaviour in struggling democracies.
The win-win nonsense meant that heads China won, tails China won.
Chinese officials became concerned that the universal graft in Chinese-funded projects could be a liability. In 2017, Xi promised to strengthen international cooperation on anticorruption to build the Belt and Road Initiative with integrity (of course, integrity with Chinese characteristics!).
Integrity and China? Is the moon made of blue cheese?
A long list of Chinese companies is debarred from the World Bank and other multilateral development banks for fraud and corruption, which covers everything from inflating costs to giving bribes.
Frightened by China’s predatory tactics, countries like Bangladesh, Malaysia, Myanmar, Pakistan and Sierra Leone decided to cancel or downsize some of their Belt and Road projects rather than end up like Sri Lanka.
Foreign debt has to be serviced via exports, and the pandemic and recession have devastated GDP and exports. Most of China’s main clients in Africa are now in debt distress or at high risk of debt distress.
Malaysia’s embattled former Prime Minister Najib Razak first danced the tango with Xi PingPong and grabbed almost USD 40 bn of Chinese investment between 2010 and 2016. But then, facing serious allegations of misappropriating over USD 7 bn, Najib tried to brazen it out, begging PingPong to cover the theft by inflating costs of some projects and ploughing back the excess. Yes, of course, responded the God of China, provided you give us big stakes in national railway, ports and pipeline projects.
Bangladesh stopped a highway and booted out China’s Harbour Engineering Company as the company offered a Bangladeshi official a huge bribe.
According to a 2017 McKinsey survey, up to 80% of Chinese companies in Africa acknowledged paying bribes while in the latest Transparency International Bribe Payers Index Chinese firms are at the bottom.
As the Law of Unintended Consequences kicked in, the Chinese virus began damaging more than peoples’ health. Even in all-weather ally Pakistan, just 32 of the total 122 projects announced under the BRI have been completed so far. According to the Green Belt and Road Initiative Centre, a research organization, Chinese investment slumped in 2020 to USD 47 billion, just about half of the previous year, while BRI loans fell from USD 75 billion in 2016 to USD 3 billion in 2020. And the amusing thing is that as their economies cratered, BRI beneficiaries have asked for more investments and forgiveness of previous debts.
China has fallen into its own debt trap, hoist with its own petard.
The Director-General of the Chinese Foreign Ministry’s International Economic Affairs Department, said last year that 20% of BRI projects were seriously affected while other 30-40% witnessed adverse impact, owing to the virus. He has, presumably, been sent for re-education.
The London-based Overseas Development Institute (ODI) reported that China Export and Credit Insurance Corporation was “greatly frustrated” by Zimbabwe’s failure to pay a USD 10 million commitment fee for an electricity project.
This is what we call win-win. Ancient Greek literature said aeons ago: Whom the gods would destroy, they first make mad.
An internal Pakistani report last year concluded that six China-funded power projects under CPEC had resulted in huge profits for the Chinese firms through over invoicing and tariff charges (of several hundred million dollars). For Pakistan’s citizens, who are always told how China was their most reliable friend in the world, it was a shock to discover that China was a ruthless economic predator. Its economy crushed by the virus, now even Pakistan wants China to reduce the interest rates on its loans.
How dare a Chinese colony ask for such things? To make the point, China insists that Pakistan raise an entire force to protect Chinese workers on the CPEC. Gwadar city, the centrepiece of the BRI projects in Pakistan, will be fenced off with high resolution surveillance cameras. Local Baloch will need a pass to enter Gwadar city, to be issued by a Chinese overlord. And, in a first, it asked for international bank guarantees for the USD 6 bn Karachi-Peshawar railway line. It does not trust the Pakistan government’s sovereign assurances.
Pakistan was to be a regional counterweight to India instead of a training ground for Uyghur militants from Xinjiang.
The Chinese example of state-driven investment in infrastructure created economic growth, but also created the illusion of social stability and improved security. Driven by overcapacity at home, Chinese companies are lured by easy finance and a closed bidding process in Pakistan, enabling them to offload outdated coal-based energy technology for which there is dwindling demand globally. The few coal-fired power plants that are the early harvest of the CPEC collapsed along with Pakistan’s grid in January 2021. It would appear from empirical data that China sold Pakistan a lemon.
The virus has accelerated the trend to rationalize global value chains (GVCs), decoupling from China, building flexibility (and alternative locations) into GVCs, holding more inventory and other forms of insurance against hold-ups and breakdowns, and localization.
“Working from anywhere” has a deeply negative impact because infrastructure depends largely on “working on site”. The “market for market transactions” already under pressure before the virus hit, faces permanent shrinkage.
But with virus-induced travel restrictions, China cannot find employment overseas for its “teeming masses yearning to breathe free” according to the Statue of Liberty. With sharper forensic focus on the costs and benefits of the BRI in the resource-scarce, depressed world economy of the recovery period, China will not know where to hide.
As for the future, China, blinded by a bloated sense of self-importance, cannot see that the type of infrastructure that will be welcomed post-virus is “soft infrastructure”—institutions that rely on human capital and services, including healthcare, financial systems, education systems, law enforcement and government services delivered direct to the public. China knows nothing about them.
China’s rising domestic unemployment, acknowledged by its Prime Minister, is an immense problem, particularly in cities and among migrant workers and will lead to increasing social unrest and demands to spend at home in China, not abroad.
Ideology does not matter to China (why else would it mollycoddle Wahhabi Pakistan?).
How long will the world dance with monsters, rabid wolves, intent on destroying freedom and democracy?
Today China displays great confidence and a sense of victimhood at the same time. China’s humiliation is self-imposed, by the Communist Party. Why is Ping-Pong nervous? He had hoped to swallow some poor weak nations. Now his buddies, Lucifer, Mammon, Asmodeus, Leviathan, Beelzebub and Satan wait impatiently to swallow him.
Ambassador Dr Deepak Vohra is Special Advisor to Prime Minister, Lesotho, South Sudan and Guinea-Bissau; and Special Advisor to Ladakh Autonomous Hill Development Councils, Leh and Kargil.