BRI’s ‘Colonialism’: Will China Use 2nd Forum To Rebuild Image?

China is investing heavily in Pakistan, its strategic ally, which gladly acts as its proxy against India.

Image used for representational purposes.

(Photo: iStock / Altered by The Quint)

Well into the sixth year of President Xi Jinping’s signature initiative, Beijing is vigorously preparing to host the second Belt and Road (BRI) Forum on 25-27 April 2019. The biennial jamboree is likely to attract 37 heads of states / governments, and representatives of around 150 nations, as per Foreign Minister Wang Yi.

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For the first time, Italy, a G7 country, will be participating as a beneficiary. Most leaders from South Asia, barring India and Bhutan, will also be present. But the celebratory mood is subdued, due to mounting criticism of the predatory BRI deals that are trapping member-nations in a debt-web.

The Lure of BRI

Flushed with enormous funds (USD 3.8 trillion in foreign exchange reserves by end-2013 as per the World Bank), soaring ambitions, ample chutzpah, manufacturing over-capacity and sluggish domestic demand, as well as, being aware of the insatiable global demand for infrastructure finance, China believed that it had hit a goldmine in conceiving BRI. Former Foreign Secretary Shyam Saran says that BRI provides the underpinning for Chinese strategic outreach.

Worldwide, at least USD 1.5 trillion is annually required for infrastructure development and renewal. Notwithstanding some opacity, Beijing is said to have earmarked USD 300 billion in loans and grants till 2030, which are expected to generate projects worth USD 1 trillion.

Some 65 countries have already signed into BRI, which is focused on South Asia and ASEAN nations, but includes Africa, Central Asia, Eastern & Central Europe and the Caribbean, within its sweep. Asia accounted for 39 percent of the contract value from January 2014 to June 2018, higher than Africa's 30 percent, according to Moody's Investors Service.

BRI: Chinese Game Plan to Gain Access to Ports Across the World

China is investing heavily in Pakistan, its strategic ally, which inter alia gladly acts as its proxy against India. It has committed to infuse over USD 62 billion in loans and grants in the China Pakistan Economic Corridor (CPEC) to establish energy, highways, agriculture and connectivity projects in Pakistan. Some 22 projects worth USD 28 billion have already been completed since 2014 (as of mid-2018) according to the Pakistani ministry of planning.

While benefiting Pakistan, CPEC will also meet a key strategic objective of China, to link its landlocked and turbulent Xinjiang province to Pakistan’s Gwadar port, on the mouth of the Arabian sea.

India sees CPEC as an assault on her sovereignty, as it passes through her territory in Jammu and Kashmir, under the illegal occupation of Pakistan, aka Pakistan occupied Kashmir (POK). Neatly embedded in BRI, is the Chinese game plan to gain access to a string of ports across the world.

“Their efforts to build ports around the world … have a state national security element to each and every one of them... BRI is no different,” cautioned the US Secretary of State, Mike Pompeo.

Growing Resistance to Chinese Projects in Pakistan

Earlier, China had grabbed the USD 1.5 billion Hambantota Port on the southern coast of Sri Lanka on a 99-year-lease, under a controversial debt-for-equity swap, when Colombo failed to service the Chinese loan. It is noteworthy that Chinese developmental loans typically carry a 4 percent annual interest rate which is 40 times higher than Japanese ODA loans.

CPEC has indeed led to energy generation and job creation in Pakistan. It has lit up parts once plagued by blackouts. Yet there is a growing resistance to Chinese projects despite Pakistan’s pressing infrastructure needs. Balochistan, its restive province, where the Gwadar port is located, is already up in arms, having realised that CPEC is causing further exploitation and mostly benefiting other provinces.

It has amended laws to freeze the sale of land to Chinese companies in Gwadar. Insurgents have carried out deadly strikes against Chinese targets in 2018 – first a suicide attack on its engineers and then the storming of the Chinese consulate in Karachi.

The other challenge is Pakistan’s acute economic and financial crisis. Its foreign exchange reserves stand merely at USD 8.84 billion (as on 15 March 2019). Islamabad is knocking on various doors for bailouts, including IMF’s. It is just not in a position to repay Chinese loans, instalments of which (including repatriation of profits) would touch USD 5 billion per annum by 2022. The consequences remain to be seen, but could lead to China taking control of its vital assets.

Pricing of BRI Lacks Transparency

Pakistan and other BRI nations have been greatly encouraged by China’s sudden decision to slash the price-tag of a Malaysian railway project by 30 percent, to bring back the country into the BRI fold. Prime Minister Imran Khan, who is attending the BRI Forum, is expected to ask Beijing to amend the terms of CPEC agreements, to safeguard the Pakistanis’ interests.

China’s ill-advised move fully reinforces the criticism that the pricing of BRI deals lack transparency, and is governed by geopolitical considerations.

Aware that countries like Sri Lanka, Bangladesh, Laos, Cambodia, Philippines and Indonesia were facing financial constraints because of their overzealous involvement in the BRI, Malaysian Prime Minister Mahathir observed, “Some countries see only the project and not the payment part of it. That's how they lose large chunks of their country. We don't want that.”

According to the Washington-based Center for Global Development, nations participating in the BRI that default in loan repayments, will be at the mercy of Beijing. Eight nations are now vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan.

In the Maldives, Mohamed Nasheed, former president and now an adviser to the new incumbent, disclosed that the Chinese Ambassador conveyed to the incoming administration last year, that Maldives owed them USD 3.2 billion – more than double the USD 1.3 billion amount on the official books. By any standard, this is a staggering figure, as the tiny nation’s GDP is just USD 4.51 billion (2017).

Beijing Can’t Seem to Convince New Delhi

In the recent period, countries across Asia have suspended, scaled back or terminated projects, amid concerns over corruption, influence-peddling and rising debt. Myanmar, which owes 40 percent of its external debt to China, halted a USD 3.6 billion Chinese-backed dam five years ago, and has now asked that a new port on the Bay of Bengal be “slimmed down”. As per Japanese Nikkei in Bangladesh, there is a quieter undercurrent of unease over the USD 24 billion pledged – but not yet disbursed – for BRI projects, among the fiscal conservatives in the finance ministry, who are loath to let the country's external debt swell.

In 2017, Nepali Deputy Prime Minister Kamal Thapa announced the decision to scrap the USD 2.5 billion contract for a Budhi Gandaki hydroelectricity project, accusing the Chinese Gehzouba Group Corporation (CGGC) of financial irregularities. The new communist government is in the process of re-awarding it to CGGC after renegotiating the terms and modalities, but without following a competitive bidding process.

And finally, India, which has steered clear of both BRI and CPEC. India’s contention is that the connectivity initiatives must be based on universally recognised international norms, good governance, rule of law, openness, transparency and equality, and must be pursued in a manner that respects sovereignty and territorial integrity. This position is known to China. Even so, Beijing has tried several times to bring India around.

‘Made by China, for China’

A White House National Security Council spokesperson derided BRI as “made by China, for China.” And that indeed is the case. The projects are conceptualised by Chinese companies (mostly SOEs), contracts go to them, they bring in Chinese material, technology and workforce, and of course, the profits go to China. There is no competitive bidding or independent oversight. Naturally a backlash is inevitable. The message has since been heard by the Chinese leadership.

A totalitarian regime, China will be hard-pressed to clean up its act. It would be tough to convince the world that BRI is not a new form of colonialism.

“China is trying to rethink a little bit of this… they know that some of these debt problems will explode at some point,” Bloomberg news reports former World Bank President Robert Zoellick, as saying. However, to salvage its investments and prestige, Beijing has little choice but to come up with BRI 2.0, that is much more transparent and mutually beneficial.

(The writer is a former High Commissioner to Canada, Ambassador to South Korea and Official Spokesperson of the Ministry of External Affairs. He can be reached at @AmbVPrakash. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)