BRI: Sound investment or Debt trap? – International relations assignment writing

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This paper looks at the BRI, examining two countries that are at high debt risk for financing BRI projects. It then contrasts this with a country that stands to gain more than it will lose, or is at low debt risk. The countries in question are Pakistan, Djibouti, and THIS COUNTRY.

On September 7, 2013, President Xi Jinping proposed the Silk Road Economic Belt in his speech titled ‘Promote People-to-people Friendship and Create a Better Future’ at Nazarbayev University, Kazakhstan. On October 3, 2013, Xi Jining proposed building the 21st Century Maritime Silk Road in his speech titled ‘Jointly Build a China-ASEAN Community of Common Destiny’ at the Indonesian Parliament. The Belt and Road (B&R) is the combined abbreviation of the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

In May 2017, the first Belt an Road Forum for International Cooperation convened in Beijing. Though this initiative is of Chinese origin, it belongs to the world. Its not just a re-livening of the formerly prosperous ancient Silk Road; its purpose runs deeper than that. The Belt and Road focuses on Asia, Europe, and Africa, but it is open to all partners who might be interested. [1]

The BRI is an ambitious effort to improve regional cooperation and connectivity on a trans-continental scale. Through this initiative, China aims to strengthen infrastructure, trade, and investment links between China and some 65 other countries that account for over 30 percent of global GDP, 62 percent of population, and 75 percent of known energy reserves. The BRI links China to Central and South Asia, and on to Europe through the Silk Road Economic Belt, and links China to the nations of South East Asia, the Gulf Countries, North Africa, and on to Europe still, through the New Maritime Silk Road. The BRI is a process of open, inclusive and common development, and as such has been interpreted to be open to all countries, along with international and regional organisations.

The five major priorities of the BRI are policy coordination, infrastructure connectivity, unimpeded trade, financial integration, and connecting people. According to the European Bank for Reconstruction and Development (EBRD), the BRI is expected to involve over US$1 trillion in investments, largely infrastructure development for ports, roads, railways and airports, as well as power plants and telecommunications networks. The countries involved have different things to gain, based on their respective economies. On China’s end, it stands to gain different things from each differcnt economy or region too. And the issue here is that China is drawing these countries into further debt (as some of them have already been in debt to China) through this initiative, which observers feel is part of debt trap diplomacy.

Debt trap diplomacy is a type of diplomacy based on debt carried out in the bilateral relations between countries. It involves one creditor intentionally extending excessive credit to another debtor coutry with the alleged intention of extracting economic or political concessions from the debtor country when it becomes unable to honour its debt obligations, the argument here is that China’s BRI is a huge debt trap for the countries involved. Howevwe it is not every country that is at risk of debt. There are high debt risk and low debt risk countries. Many vulnerable/developing countries are already in debt to China, a seemingly never ending debt because China regularly forgives these debts, then promptly renews them with new deals and projects. According to a study by the International Monetary Fund (IMF), from 2013 to 2016, China’s contribution to the public debt of heavily indebted poor countries nearly doubled from 6.2 percent to 11.6 percent[2]. China’s lending is expanding even more through the BRI. Many observers, having noted a lack of economic feasibility in BRI projects, suspect that the initiative is partly motivated by China’s desire to stimulate its own economy, obtain strategic assets, and convert its economic access into political and strategic influence in recipient countries.

Another issue encompassed under debt trap diplomacy is that of transparency. The economic benefits or gains of recipient countries in such cases as this don’t occur as first priority, more as an afterthought[3]. And the fact that China lacks transparency obscures its risks to recipient countries, many of which are already under financial distress and/or are vulnerable. Simply because these risks are concealed, it does not eliminate their consequences. This is evidenced by cases in which cash-strapped developing countries fail to pay back the loans for multi-billion dollar projects, which can result in a loss of strategic assets, major hurdles to economic development, and a loss of sovereignty.

A brief comparison with a traditional donor, the US, helps shed more light on this issue. Most US aid falls under the categories of emergency response and humanitarian assistance, global health, peace and security, and good governance by funding accountability measures, judicial reform and support for human rights. Loan assistance is not always beneficial in improving economic growth, especially when it becomes difficult for countries to pay off those loans. Taking the case of Sri Lanka for example; it was forced to give up one of its ports in a 99-year lease to China when it struggled to pay off its loans. In 2010 Sri Lanka’s $1.3 billion southern port of Hambantota was opened using debt from Chinese-controlled entities, which it failed to pay back. Then in 2016 Sri Lankan ministers struck a deal to sell an 80 percent stake in the port to state-controlled China Merchants Port Holdings, but due to general discontent a new deal was struck in which the Chinese company would hold  70 percent stake in a joint venture with the state-run Sri Lanka Ports Authority. Even with this deal there was discontent as observers both within and without the country felt that government was ‘selling’ Sri Lanka. For China though, this collaboration with the port was part of the BRI initiative (other similar ports involved in the project include Pakistan’s Gwadar port; the centrepiece of the $55 billion China-Pakistan Economic Corridor).

In contrast, when the US engaged in the Power Africa program to add 60 million new home and business connections to Africa’s power grid, though US and private firms provided the financing to build the new electricity projects; it was local workers that were hired to do the work. This is not the case with China as it tends to bring in its own workers to do even the least demanding jobs (such as truck driving), and the argument here is that aid isn’t really aid if its used to hire donor-country workers.

In addition to that, the US as a donor is transparent in its dealings, employing safeguards so that anyone can follow the money. The US government has made all of its program data public through platforms such as the Foreign Aid Explorer and Foreignassistance.gov. All this goes to show just how much effort the US has gone to, to achieve transparency. The same cannot really be said for China unfortunately.

Drawing the focus back to Pakistan as a high debt risk country; this paper focuses on Pakistan due to the fact that it currently serves as a centrepiece for the BRI. Policy coordination is an important guarantee for this initiative. An important point under policy coordination is infrastructure connectivity, which is high on the BRI agenda. There are six major corridors which connect the Asian economic circle with the European economic circle. Regarding Pakistan, the BRI connects China and Pakistan through the China-Pakistan Economic Corridor (CPEC). Within the framework of this corridor is a cooperation plan focusing on energy, infrastructure, transportation, industrial cooperation, and Gwadar Port which has been implemented in the framework of this corridor. China and Pakistan have established the Joint Cooperation Committee of the CPEC, which meets regularly.

Pakistan is not referred to as the centrepiece of the BRI without cause. For a long time, China has had interests in Pakistan, and has protected them to the point of possibly souring relations with long-time partner India. As it stands, India has opted out of the BRI, and boycotted both BRI summits to show its rejection of the initiative. A major part of the OBOR is the CPEC that passes through Pakistan occupied Kashmir (PoK), which in itself is an area of contention. Had China consulted with India on this issue beforehand, perhaps there would be a more positive response from India regarding its participation in the BRI. Observers have noted that it is now for China to decide whether the benefit it derives from its economic and strategic relationship with Pakistan is worth the economic and strategic cost of antagonising India and pushing it to a point where India reconsiders and revaluates its policy of strategic caution in pushing ahead in initiatives aimed at containing China.

Pakistan serves as a bridge for China to develop its ties with the Muslim world and the West. At diplomatic and political level, Pakistan has supported China over Tibet, Xinjiang, Taiwan, and human rights issues; all of which are sensitive areas for China. The China-Pakistan relationship benefits both parties on multiple fronts, under the light of BRI, the focus in this paper is on the economic front. Pakistan’s geographical location implies great commercial and strategic value for China. It provides China with access to the Middle East, Central Asia, Europe and other regions of the world. The development of the CPEC and Gwadar Port as an energy hub will link Kashgar to Gwadar and open up enormous economic opportunities for both countries.[4] The Gwadar Port itself is important to China because it is through this port that China gains access to the Straits of Hormuz, the Persian Gulf, the Arabian Sea and the Indian Ocean. WHICH ARE IMPORTANT TO CHINA FOR THESE REASONS. In addition to that, the Port would also provide China with an alternative route to Malacca Straits in the South China Sea. The CPEC would connect Gwadar Port with the western provinces of China; these are poorly developed regions of China, so this connectivity will help in the development of these regions. Through the CPEC, China will also be able to transport mineral resources and hydrocarbons from Central Asia. The port will also become an important staging area for China’s rapidly expanding and modernisisng navy and submarine fleet. The CPEC holds massive potential for China, and Pakistn as well stands to gain plenty,  in short, China’s importance to Pakistan is not one-sided as China also needs Pakistan for its global outreach, and to achieve its strategic, political, economic, and regional interests. The concern is that as Pakistan continues to gain, it falls further into the debt trap.

“Basic Knowledge on the Belt and Road.” Belt and Road Portal, State Information Center, 2019, https://eng.yidaiyilu.gov.cn/info/iList.jsp?tm_id=139&cat_id=10058&info_id=87423.

Caroline Freund, Michela Ruta, “Belt and Road Initiative,” The World Bank. The World Bank Group, 2018, https://www.worldbank.org/en/topic/regional-integration/brief/belt-and-road-initiative.

Green, Mark. “China’s Debt Diplomacy.” Foreign Policy  (2019).

Ijaz, Aymen. “Why Does Pakistan Matter to China?” The Patriot, 2016.

“How U.S. Aid Avoids ‘Debt-Trap Diplomacy’.” Bureau of International Information Programs, 2019, 2019, https://share.america.gov/us-development-assistance-avoids-debt-trap/.

[1] “Basic Knowledge on the Belt and Road.” Belt and Road Portal, State Information Center, 2019, https://eng.yidaiyilu.gov.cn/info/iList.jsp?tm_id=139&cat_id=10058&info_id=87423

[2] Green, Mark. “China’s Debt Diplomacy.” Foreign Policy  (2019).

[3] “How U.S. Aid Avoids ‘Debt-Trap Diplomacy’.” Bureau of International Information Programs, 2019, 2019, https://share.america.gov/us-development-assistance-avoids-debt-trap/.

[4] Ijaz, Aymen. “Why Does Pakistan Matter to China?” The Patriot, 2016.

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