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Is China’s loan diplomacy taking South Asia in its deadly grip?

By Shankar Kumar
Published on :
Is China’s loan diplomacy taking South Asia in its deadly grip?

Is the Pakistan government under Imran Khan going to review China-Pakistan Economic Corridor because it “unfairly benefits” China? Media reports suggest that Prime Minister Imran Khan has set up a nine-member committee to look into all CPEC-related agreements. That Pakistan may not go the Sri Lankan way is a concern among the members of the new government in Islamabad. Last year, heavily indebted Sri Lanka had to hand over $1.12 billion Habantota Port and 15000 acres of land around it on a 99-year lease to China as Colombo struggled to repay the debt.

According to the State Bank of Pakistan, external debt and liabilities against Pakistan have soared to a record $91.8 billion. It may touch $100 billion very soon as it faces tough challenges in meeting growing external financing requirements. Pakistan’s Finance Minister Asad Umar said Pakistan owes about $8.4 billion to China. But this doesn’t take into account China’s investment in CPEC project.  Chinese Foreign Minister and state Councilor Wang Yi during his visit to Pakistan on September 8 said that his country has invested $19 billion in the past four years in 22 early harvest projects under CPEC.

However, under the garb of offering Pakistan a new era of hope and happiness, China through CPEC is pushing it into the throes of woes and sufferings. It is facing the prospect of default on the balance of payment if it can’t secure a bailout package. It borrowed at least $1.2 billion from China and banks from the Middle-East region in April-May to help it bridge a $3 billion gap of current fiscal year. In the next four months, experts say it requires $3billion to make payments to creditors including World Bank, IMF, Paris Club and China. If Finance Minister Asad Umar is to be believed, Pakistan needs $9 billion urgently to meet the current account deficit.

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US Secretary of State Mike Pompeo has already made it clear that the IMF will not give a bailout package to Pakistan that may in turn be used for repayment of debt to China. Left with no option, Pakistan will have to stand at China’s door again for more loans and that means going under more Chinese debt. On account of CPEC loan which stands at $ 6 billion, Pakistan will have to furnish $1 billion as interest to China by 2022, the Pakistan Finance Minister told the National Assembly in August 2018.

Earlier in an interview with Financial Times, Abdul Razak Dawood who is an adviser to Prime Minister Imran Khan on trade and investment blamed the previous Nawaz Sharif government for making a “bad” deal with China on CPEC. “They didn’t do their homework correctly and didn’t negotiate correctly so they gave away a lot… Chinese companies received tax breaks, many breaks and have an undue advantage in Pakistan,” Abdul Razak said.

Sri Lanka, yet another South Asian country, has already lost its momentum much before it could set forth a journey towards prosperity, thanks to China’s predatory behaviour.  Even after handing over Hambantota Port to China in December 2017 on a 99-year lease, Sri Lanka is deep in China’s debt as rate of interest on the existing loans is very high. In 2018, the island nation owes nearly $13 billion to China. In May, Sri Lankan Finance Minister Mangala Samaraweera said the debt crisis would further worsen in 2019 when $4.3 billion has to pay for debt servicing. The island nation, in the meantime, is seeking some $5 billion to refinance the debt due to this year.

Fingers are being raised against China for the trouble it has brought to Sri Lanka, yet while putting on a brave face it says it is involved in developmental push of the country. It doesn’t accept that it is responsible for Sri Lanka’s woes. Rather while continuing with its hidden agenda it tries to influence local politics also. As per some media reports, China allegedly tried unsuccessfully to get Mahinda Rajapaksa elected as Sri Lanka’s President in the 2015 election. Since Rajapaksa as the Sri Lankan President had given Beijing a free run in the island nation, allowed it to fund even unviable projects and supported Chinese foreign-policy objectives in the region, Beijing didn’t want new Sri Lankan leader to sit on the presidential seat in Colombo.

In Nepal also, China is playing a similar kind of game. Besides, investing in infrastructure-related projects, Beijing has pumped in money for the development of hotels and restaurants in the tiny Himalayan nation. It is engaged in the construction of outer ring road in Kathmandu and Pokhara international airport. Helped by ideologically suitable Nepali governments, China bankrolled money even for those projects which the Nepalese had scrapped the latter because of their unviability. In November 2017, the then Nepali Congress government headed by Sher Bahadur Deuba cancelled the $2.5 billion Budhi Gandaki Hydro Electric Project deal with China, which the Communist Party Nepal (Maoist) government under Pushpa Kamal Dahal alias Prachanda had signed.

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Return of K P Oli to power in Nepal in February 2018, has encouraged China to deepen its influence in the length and breadth of the Himalayan nation. He has already vowed to revive the controversial Budhi Gandki project. The two countries had signed a slew of agreements of worth $2.4 billion during Oli’s five days visit to Beijing in June. These agreements included connecting Tibetan city Shigastse with Kathmandu with rail—all this under China’s Belt and Road Initiative that Nepal signed with Beijing two years ago. With tourism being the only source of revenue generation in Nepal, how will it repay billions of dollar worth of loans to China is a question.

Even as such concerns have a limited support from Nepalese elites, Oli’s arrival to power has egged on China to play bold geo-political game against India. This can be seen in Nepal’s decision to withdraw its army from the first ever BIMSTEC military drill in Pune after having made a commitment to participate.

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Then it is the Maldives which is going under China’s debt trap. Like Nepal, the Indian Ocean archipelago is completely dependent on tourism for revenue and yet, China is pouring in cash and kind in the island country’s infrastructure. Beijing knows about consequence. It knows that Male will not be able to pay back its loans, and hence, like Sri Lanka’s Hambantota port, there are greater chances of controlling physical assets it has built in the island nation, located strategically in the Indian Ocean. Indications are clear: China has perfected its debt-trap strategy in South Asia where countries like Sri Lanka, Pakistan and Maldives, in the lure of easy Chinese money, may find it hard to protect their sovereignty from Beijing’s divisive tentacles.