DNA Edit: Chinese debt knell

With the One Belt, One Road or OBOR, summit getting underway, China has, undeniably, trumped India. The pun is intended as news reports suggest that even the US will register its presence at the mega summit which will be attended by leaders of 28 other countries. For China, this is a geopolitical and economic home-run, the likes of which has not been seen in contemporary international politics. Via this $1 trillion programme, China is digging its pincers deeper into the strained power fabric in South-East Asia and Africa, while lifting barriers in Europe and the Middle-East.

The OBOR project will help China access and create a market for its cheap, and often shoddily manufactured domestic products, while covertly augmenting regional influence in these countries. Representatives from over 50 countries will be participating in the summit. These representatives would do well to remind themselves that Chinese assistance and overtures are of the Trojan horse variety. Consider, for instance, the case of Sri Lanka, which under the misguided leadership of Mahinda Rajapaksa, cheered the investments being made by Chinese companies. These investments were completed on the backing of easy-flowing Chinese funds. China shielding Rajapaksa from grave allegations of war crimes at the United Nations, of course, helped smooth things, politically.

However, what was Rajapaksa’s treasure is now President Sirisena’s terror. The once easy-flowing money has pushed Sri Lanka over a financial edge, ensnaring the country in the throes of a $8 billion debt trap. These funds were borrowed at exorbitant interest rates, and the infrastructure projects they led to are now, little better than an empty hovel. The Hambantota port is vegetating; most of it largely unused.

Meanwhile, China has stepped up its engagement with Pakistan pledging to invest up to $57 billion by 2022, while pushing the same debt trap policy in Pakistan as well. The money being invested in Pakistan is coming through Chinese state-owned banks at a high-interest cost. Pakistan’s leverage has ballooned in the last few years, diminishing the say of the local government. It won’t be long before the Chinese government will start dictating its terms. Once the debt is too big to be serviced, the only option left for these countries is to convert the loans into equity, passing managerial control to Chinese entities. Otherwise, interest burden is reduced by passing more project contracts to Chinese firms, further cementing China’s hold. China is the proverbial wolf in sheep’s clothing. India realises that.