December 28, 2017

The Chinese road to dusty debt

http://m.thehindubusinessline.com/opinion/the-chinese-road-to-dusty-debt/article10003542.ece

Updated: December 27, 2017 19:24 IST | G Parthasarathy

Hambantota port: Too big a burden to bear | RK Radhakrishnan

While Sri Lanka and Pakistan are in over their heads, Myanmar and Indonesia offer some resistance to ‘aid’ from Beijing

China’s much touted ‘silk roads’ and ‘maritime silk routes’ trace their origin to its trade across Central Asia and the Indian Ocean. Interestingly, silk constituted a relatively small portion of Chinese trade, though it gave an exotic content to what was primarily commercial activity in which China was the principal beneficiary.

The maritime silk route across the Indian Ocean was first set during the course of seven expeditions between 1404 and 1433 by a Chinese naval fleet headed by Admiral Zheng He, a Mongolian Muslim eunuch appointed by Ming emperor Yongle. During the course of expeditions to Indonesia, Malaysia, Sri Lanka and Calicut, Zheng brought back kings and princes to ‘Kowtow’ (genuflect) before the Ming emperor.

Exploitative actions

Indonesia has ensured that it responds cautiously to Chinese inducements and avoids getting closely drawn into a Chinese embrace. Beijing, however, seems to have drawn Sri Lanka into its web, taking advantage of the island’s economic vulnerabilities. After visiting Calicut in 1406, Zheng returned to Sri Lanka in 1411 with a large army to take revenge for an earlier perceived insult. Parts of the island were plundered and the Sri Lankan king, Vira Alakeswara, was taken back to Nanjing, together with the holy ‘tooth relic’ of the Buddha; the king was replaced by a ‘malleable’ ruler. While the humiliated king was returned to his people a few years later, the tooth relic was returned six centuries later, in 1960, by Prime Minister Chou en Lai, as a gesture of “goodwill”, Chinese style. Chinese trade was historically as exploitative as trade by the British East India Company.

Today, Colombo is full of hoardings of China’s “magnanimity”, manifested in its “assistance” in infrastructure, industrial and construction projects. Beyond the Galle Main Road in Colombo is the $1.4-billion Port City Project to be filled with Chinese built, owned, or managed luxury apartments, golf course, theme park, hotels and office buildings. All these will soon become part of Sri Lanka’s mounting official debt burden. This will accentuate the already unbearable debt burden Colombo has accumulated from earlier Chinese “aid”. The main instruments of this “aid” and plunder of natural resources are the China Communications Construction Company and its subsidiary, the China Harbour Engineering Company. The World Bank has blacklisted both these companies across the world because of their corrupt practices, including bribery. The only well-executed and profitable Chinese-built project in Sri Lanka is the container terminal in Colombo.

Apart from this, Chinese projects located in President Mahinda Rajapakse’s constituency, Hambantota, have imposed an unsustainable debt burden on Sri Lanka. Given the western aversion for his regime and Indian doubts about the project’s viability, Rajapakse welcomed Chinese “assistance” to develop his constituency. He sought and obtained Chinese “support” to heavily finance projects ranging from the Hambantota port, to a power plant, an airport, an industrial park, a cricket stadium and a sports complex. All these investments have proved uneconomical. Hardly any ships visit Hambantota , barely one aircraft lands in the airport daily, and the sports facilities remained unutilised, even as locals were outraged by the proposed construction of an industrial park. Sri Lanka has been spending 90 per cent of government revenues to service debts.

Pressure tactics

Unable to repay its debts, Sri Lanka has been forced to convert Chinese investments into equity in Hambantota, giving the Chinese partial ownership of the port. Following discreet Indian expressions of concern, Sri Lanka has retained operational control of Hambantota port, ensuring that Chinese submarines and warships do not freely berth there.

Some pre-emptive action has also been taken to ensure that the eastern port of Trincomalee does not become the next port of interest for Chinese strategic ambitions, thanks to the timely initiative of Petroleum Minister Dharmendra Pradhan. The Indian Oil Corporation has established a business presence in Sri Lanka for progressive involvement in the use of Trincomalee for import and processing of petroleum products. It is imperative to build on this, by constructing a modern petroleum tefinery, on equitable terms, in Trincomalee.

China’s belt and road initiative in Myanmar is primarily concentrated on developing the Bay of Bengal port of Kyaukpyu ,and connecting the port to neighbouring Yunnan province by oil and gas pipelines, and road and rail networks. But Myanmar is wary of over-dependence on China because of, amongst other reasons, environmentally damaging energy projects and its yearning for access to precious metals and stones. Myanmar may, however, find it difficult to resist the pressure unless India, Japan, South Korea, the US, the EU and neighbouring Asean countries make a coordinated effort to strengthen economic relations with it. A similar approach would be needed regarding China’s approach to construction projects in Nepal and Bangladesh.

China’s ‘all- weather friend’ Pakistan is also facing problems in implementing the China-Pakistan Economic Corridor (CPEC). Despite high-level meetings, important projects like the Diamer-Bhasha Dam located in Gilgit-Baltistan, in Pakistan Occupied Kashmir, are stalled, because of disagreement on the financial terms set by the Chinese.

There are also differences on implementing railway projects based out of Peshawar and Karachi, apart from a series of road projects. Moreover, there is very little transfer of technology and know-how, and minimal local participation in Chinese construction projects. Beijing has, after all, to utilise its vast surplus labour force and construction machinery and materials abroad, as its unprecedented domestic construction projects at home are completed.

Pakistan’s dilemma

More and more questions are being raised in Pakistan about where the resources will come from to repay the over $50-billion debt the that will accrue from CPEC projects, where local participation is minimal. Moreover, Pakistan will soon be unable to credibly claim that it exercises its sovereignty in places like the Gwadar port, which is all set to become a Chinese-run military base, close to the strategic Straits of Hormuz.

Writing in Dawn newspaper, columnist Khurram Hussein perceptively observes: “In reality, the China Pakistan Economic Corridor is about allowing Chinese enterprises to assume dominant positions in all dynamic sectors of Pakistan’s economy, as well as a ‘strategic’ direction that is often hinted at, but never fleshed out.”

The writer is a former High Commissioner to Pakistan


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