Concerns about Debt Grow on China’s Belt and Road

Concerns about Debt Grow on China’s Belt and Road

Concerns about money owed to China for its Belt and Road Initiative are increasing in Asia, Africa and the Middle East.

The initiative, a huge infrastructure project, is a Chinese effort to improve transportation and increase trade across the area.

In recent weeks, more than $30 billion in infrastructure projects have been canceled. Officials are reconsidering some loans and investments.
Governments from Vietnam to Zambia are seeing public opposition to Chinese investments as well as fear of what has been called “debt diplomacy.”

In August, Malaysian Prime Minister Mahathir Mohamad canceled more than $20 billion in Belt and Road projects for railroads and pipelines. Pakistan cut another $2 billion off plans for a railway. Last year, Pakistan canceled a $14 billion dam project because of financial concerns. Last month, Nepal canceled another dam project, and Sierra Leone announced last week that it was dropping an airport project over debt concerns.

In some countries, such as Vietnam, it is just the idea of Chinese investment that has led to push back.

Following public protests, Vietnam recently decided to postpone plans for several special economic areas.

Several Belt and Road projects have been canceled or delayed in countries where elections led to a change of power. Economist Christopher Balding told VOA that the newly elected leaders appeared worried about taking on large amounts of debt.

"The people in these countries are very worried about the level of debt that these countries are taking on in regard to China, and I think that is very important to note," Balding said.

"It's not just anti-China people that are driving this,” he added.

China says there are no political conditions connected to its investments and loans. The government argues it is providing loans in places others will not. But Beijing's takeover of a port in Sri Lanka late last year did little to ease those concerns.

String of ports

The New York Times reported that China agreed to forgive Sri Lanka's debt in exchange for a 99-year lease on the port of Hambanthota and 6,000 hectares of land around it.

The Sri Lankan government denies it gave land to a Chinese company. Yet, the deal has persuaded some people that China is setting up debt traps. They believe the Chinese will take control of the roads and other infrastructure that Chinese state-operated companies build.
Hambanthota is one of 42 ports where China has been part of the building and operations.

In 2021, China will accept responsibility for operating one of Israel's largest ports in Haifa. Iran is considering China as a building partner for its port in Chabahar, near the Iranian border with Pakistan.

But the Chabahar port project is on hold because of United States restrictions against Iran. And that is not the only problem, notes David Kelly, research director at the Beijing-based group China Policy.

"It's in the driest…part of Iran," Kelly said. "It looks like a real loser commercially, unless it (has) a lot of oil."

Some observers say the Middle East, with its oil money, is less at risk for debt traps.

However, the port that is most like the one in Sri Lanka is Djibouti in East Africa. That is where China recently set up its first overseas military base.

Djibouti owes more than 88 percent of its Gross Domestic Product (GDP). China owns $1.4 billion of that debt. That kind of indebtedness might lead to agreements similar to Sri Lanka’s, experts say.

Debt traps

The Center for Global Development says 23 of the 68 countries where China is investing for Belt and Road projects are at high risk of debt problems. Another eight, including Djibouti, may have debt problems linked to future projects. The Washington, D.C.-based group published the information in a report released earlier this year.

China argues that its investments are aimed at increasing trade and helping developing countries.

Cancellations continue

Oh Ei Sun is a senior fellow with the Singapore Institute of International Affairs. He told VOA that all of the cancellations and changes are what he calls Belt and Road indigestion.

Concerns about debt traps and debt diplomacy will not have an effect on China in the future, he says, but stops, starts and cancellations will continue.

Oh says China's model of development is build infrastructure and the economy will grow. This worked in China, but it may not work in other countries.

I’m Susan Shand.

Words in This Story

infrastructure – n. the equipment and structures (such as roads and bridges) that are needed for a countryor area

commercial – adj. related to or used in the buying and selling of goods and services

strategic - adj. of or relating to a general plan that is created to meet a goal in war or politics, usually over a long period of time

indigestion – n. an unpleasant feeling (such as pain or a burning sensation) in your stomach or chest that is caused by difficulty in breaking down food

lease – n. an agreement by which one provides land, property or equipment in exchange for payments over a set period