Despite being one of the most formidable global powers today, China and its policies remain a mystery to a large part of the world. Even those nations that consider themselves close partners of Beijing hardly know much about the way policies are formulated and their likely impact.
Chinese behaviour remains shrouded in mystery, further complicating China’s already complex relationship with the world. This lack of transparency means that often the world is left to deduce motives and intent without any real evidence and data. And as a consequence, diametrically opposite assertions can often be made depending upon the vantage point of the nation in question.
Pic caption: Pakistan’s Gwadar Port aims to become the new Dubai. But it will in all probability end up as Chinese base, meeting a fate similar or worse to that of the Hambantota Port
In recent years, Chinese belligerence has grown and its seeming desire to weaponise everything from trade and information to development aid and health engagements has only made matters worse for Beijing. From a rising power which a decade back could seemingly do no wrong, China is widely being viewed today as the source of much of what’s wrong with global governance. Just at the time when Beijing could have underscored its credentials as a responsible global stakeholder with much of the world reeling from multiple shocks, the Chinese Communist Party looks intent on generating a considerable pushback from major powers.
In a first of its kind, a recent report by the researchers at AidData, the Washington-based Center for Global Development (CGD), Germany’s Kiel Institute and the Peterson Institute for International Economics has examined 100 Chinese loan contracts with 24 low- and middle-income countries, shedding new light on China’s priorities when it comes to its role as a development partner. Though debates around the ‘debt trap’ model of Chinese development cooperation have been raging for quite some time now, this is the first empirical study of its kind at a time when China’s economic profile has grown in Africa, Latin America, Eastern Europe and Asia and there is a mounting global debt crisis facing the world’s most vulnerable economies.
Underlining China as a “muscular and commercially savvy lender to the developing world,” the report argues that the contracts in question “use creative design to manage credit risk and overcome enforcement hurdles.” Some of the key provisions that define these contractual obligations include extreme confidentiality, preventing borrowers from revealing the terms of the loans, possible punishment of debtors for going against the interests of a “PRC entity” as well as keeping the debt out of collective restructurings.
Slowly, but surely, the true nature of Chinese lending got revealed as debt burdens mounted and China used impending defaults to make a go for strategic assets.
Xi Jinping’s ambitious global infrastructure investment strategy, the Belt and Road Initiative (BRI) is, of course, the critical anchor to much of the lending, with China emerging as the world’s least creditor accounting for 65% of official bilateral debt. The opacity surrounding the Chinese lending through its BRI has raised hackles through much of the world with cases piling up of China pursuing a highly aggressive foreign policy in the garb of investment lending. China’s leverage over the developing world has increased in proportion to the unsustainability of its loans and rising debt levels.
China, of course, maintains that all it is doing is providing its own development aid and debt financing model which other lenders are not willing to provide. And for a large part of the developing world, the initial attraction to Chinese loans was a function of a sense of desperation in the absence of alternatives.
Slowly, but surely, the true nature of Chinese lending got revealed as debt burdens mounted and China used impending defaults to make a go for strategic assets. The recent report also shows that certain provisions in the contracts remain political in nature even when the intent is largely commercial. The threat of ending diplomatic ties with China is always hovering in the background. In multiple ways, therefore, these contracts give China leverage in its dealings with an already vulnerable developing world.
China and the world
While China has much to answer for, a large portion of the blame should also be borne by the developed world for not being able to offer any reasonable alternative to Chinese heavy-handedness. It is not readily evident what alternatives are there for the developing world to a heavily predatory BRI, which despite all the problems, still remains the only show in town. Even in India’s vicinity, countries from Sri Lanka to Bangladesh have indicated that they are keen on alternative sources of funding but major powers are yet to demonstrate their commitment to their changing needs.
In a recent statement, Bangladesh Prime Minister Sheikh Hasina’s foreign affairs advisor, Gowher Rizvi argued that “our [Bangladesh’s] relationship with China is very much confined to investments and development projects…However, even then we have been very mindful. We do not want to create a situation where we have borrowed more than we can repay…We have learnt from Sri Lanka, we have learnt from Djibouti.” The developing world is asking for help but major players are missing in action.
The idea of an India-Japan led Asia-Africa Growth Corridor had looked very promising but it has failed to take off. The Trump administration had launched the “Blue Dot Network” in 2019 to boost private-sector led infrastructure development in the Indo-Pacific but it excluded direct financing of projects. Last month’s Quad leader’s summit talked of addressing the shared challenge of quality infrastructure investment and more recently, the US and the UK have asked the democratic countries to provide an alternative to China’s BRI.
But all this looks too little, too late. China’s predatory development cooperation framework may have many problems but at least it is there in practice. The other alternatives are still struggling to get off the drawing boards. It can only be hoped that the new report on China’s secret debt contracts would finally be able to shake the world from its stupor and propel it towards framing a new development cooperation paradigm away from China’s increasingly pernicious influence.