China’s Belt and Road Initiative: Debt Colonialism or Genuine Investment?
Chinese President Xi Jinping has promised investments and loans to African nations worth $60 billion as a part of the Belt and Road Initiative.
Xi denies the allegation that the financial support is a debt trap that will be used to establish new colonialism in the continent. According to Xi, his administration will continue to try and connect the economic prospects between Africa and China through the Belt and Road Initiative.
A Significant Investment
Speaking at the Forum on China-Africa Cooperation (FOCAC) in the Chinese capital of Beijing, Xi said that the amount includes grants worth $15 billion, interest-free and soft loans, $20 billion in a credit line, $10 billion for development funding, and $5 billion for importing from Africa.
Xi is also encouraging Chinese companies to invest at least $10 billion in Africa in the next three years, adding that the Chinese investment has “no political strings attached.”
“China’s cooperation with Africa is clearly targeted at the major bottlenecks to development. Resources for our cooperation are not to be spent on any vanity projects, but in places where they count the most,” Xi added.
Xi told businessmen that the Belt and Road Initiative introduced by Beijing will be expected to expand the market. The president is also optimistic that the China-Africa partnership under the Belt and Road Initiative is a push toward prosperity that will benefit both sides.
What is the Belt and Road Initiative?
The Belt and Road Initiative is an ambitious development strategy introduced by Xi in 2013 as One Belt One Road (OBOR). The initiative focuses on connectivity and cooperation involving nations in Europe, Africa, and Asia. The plan is also known as the “21st Century Silk Road.”
The program is estimated to cost more than $1 trillion. As of July 2018, Beijing has spent more than $210 billion in investments, mostly in Asian countries. To date, Chinese firms have won construction contracts along the “belt and road” worth more than $340 billion.
Russian expert Viktor Larin confirmed that the Belt and Road Initiative is a geopolitical project in the first place and has nothing to do with the Marshall Plan introduced post-World War II, which was a large-scale economic project launched by the U.S. to rebuild the economy in European countries between 1947 and 1951.
Larin said that Xi Jinping’s foreign strategy is a continuation of its “openness” policy paired with former Secretary of China’s Communist Party Jiang Zemin’s motto to “go outside.”
Does the Belt and Road Initiative pose any risk?
It is impossible for developing nations not to be lured by Chinese offers through the Belt and Road Initiative, as the world’s second-largest economy is willing to spend $150 billion annually. The initiative offers something most countries need, including infrastructure project funding, as explained by John Hurley, one of the research writers at The Center for Global Development.
The study from the institution revealed that 23 out of 68 countries under the Belt and Road Initiative partnership are at greater risk of being default after five years, with eight nations, including Pakistan, Laos, and Mongolia, are at the most severe risk of failing to repay their debt at all.
To get an idea of the risk, take a look at Pakistan: the country is tied to the China-Pakistan Economic Corridor worth $62 billion, excluding other loans. The China government took 80 percent of the project which was mostly used for power plant development.
What if the country fails to repay? They are forced to release their assets, like what happened to Sri Lanka who obtained the loan in 2015.
At that time, Colombo was under pressure because then-President Mahinda Rajapaksa was accused of violating human rights. However, China kept on pouring the loan up to $8 billion. When Sri Lanka could not repay the debt, the country had to release a 70 percent share of the Hambantota Port to the Chinese government. Sri Lanka’s accumulated foreign debt stands at around $55 billion. The interest rate for loans provided to Sri Lanka by China is 6.3 percent, higher than that set by the World Bank (WB) and the Asian Development Bank of 0.25 percent to 3 percent.
Malaysia decided to cancel two infrastructure projects by Chinese firms, according to Malaysian Prime Minister Mahatir Mohamad. The veteran leader explained that his country’s current main priority was to reduce state debt. “I believe China itself does not want to see Malaysia become a bankrupt country. China understands our problem and agrees,” the 92-year-old leader stated.
China denies planning to trap developing nations with loans
The Chines government says that the term “debt colonialism” is merely an effort to tarnish China’s image, especially since loans provided are approved by both sides.
“Chinese companies do not win all the bids; many are won by European and American companies. Do these non-Chinese projects in Africa and Asia also constitute ‘debt colonialism?'” says Wu Dongxu, General Manager of Trans Continental Management Consultancy.
Jane Golley, an Associate Professor at Australian National University, thinks otherwise: “They’ve presented this very grand initiative which has frightened people. Rather than using their economic power to make friends, they’ve drummed up more fear that it will be about influence.”