Asian countries should not fall into China’s debt trap

NS Venkataraman

NS Venkataraman

By NS Venkataraman

CHENNAI, India, 3 August 2017

While China is showing military muscle power to India, Japan, and a few other Asian countries, with small Asian countries it is using economic muscle power to bring them to heel.

Most of the small Asian countries do not have the capital and resources for investment in projects, and therefore they seek overseas investment and funds almost desperately. Such overseas investments come not only from China but from several other countries. However, there is a significant difference between the investments and collaboration from China compared to that from other countries.

It is now well realized by most Asian countries that China has the definite objective of dominating Asia and bringing it under its thumb so that it would remain as the undisputed leader of Asia, and then extend this domination to other parts of the world. The recent activity of China clearly indicate that it has no hesitation to use its economic muscle power to achieve its objective of dominating the other Asian countries with weak economies.

China is investing heavily in the small Asian countries and extending soft loans to several of them to implement the projects. This gives great opportunity for China to open the market for its products to these countries and also dump its equipment and machineries there.

Though China claims that its investment, economic aid, and soft loans have no strings attached, the ground reality is different. With huge soft loans extended to the Asian countries that have no resources to invest, in the event of these countries being unable to repay the debt and interest, China is bound to force them to convert debt into equity in various projects aided by China. In the process, China would get some level of control in the economy and governance in the Asian countries in later days. There are several signs of this already happening.

Sri Lanka and China

Sri Lanka’s estimated national debt is around 64.9 billion USD, of which around 8 billion USD is owed to China. It is reported that Sri Lanka now spends 90 per cent of all government revenues to service debts.

Obviously, Sri Lankan government is now realizing the possibility of getting into the China’s debt trap and consequent threat to its sovereignty in the long run.

It is reported that the Sri Lankan government has decided to revise the agreement with China regarding its Chinese-built southern port of Hambantota, where the China government owned China Merchants Port Holdings, which built the port for 1.5 billion USD, signed agreement earlier taking an 80% stake. the Sri Lankan government is reported to have decided to limit the Chinese company’s role to run commercial operations at the port, and also is not permitting any military activities.

This decision of the Sri Lankan government to limit the activities of Chinese company in the port would certainly displease China. It remains to be seen how China would react to this decision in the coming days.

Bangladesh and China

While Sri Lanka is now facing the threat of a debt trap from China, the situation faced by Bangladesh is no better.

China has provided large soft loans to Bangladesh to fund China-supported projects in Bangladesh. It is quite likely that Bangladesh will not be able to repay the debt in the foreseeable future. China clearly knows this. China is now demanding directly and indirectly to change the pattern of loans for the projects and converting them to commercial credit, which would bear higher interest rates. While Bangladesh has resisted the Chinese demand so far, it remains to be seen how long it can do so.

Mongolia and China

China now accounts for around 68.5% of Mongolia’s foreign trade between January and May this year. This has gone up from 1.5% in 1989. Such trade relations with China is pushing Mongolia into a debt trap . Mongolia has considerable coal and copper deposits, and China would be eyeing these deposits if and when Mongolia would not be able to honour the trade commitments to China.

Pakistan and China

The China–Pakistan Economic Corridor, also known by the acronym CPEC, is a collection of infrastructure projects that are currently under construction throughout Pakistan. Originally valued at $46 billion, the value of CPEC projects is now worth $ 62 billion. CPEC is intended to rapidly modernize Pakistani infrastructure and strengthen its economy by the construction of modern transportation networks, numerous energy projects, and special economic zones.

Almost the entire investment in the Economic Corridor Project is made by China, as Pakistan has little resources to spend for this project. China is supporting the Economic Corridor Project by investing in equity and extending soft loans. Pakistan will not be able to repay the debt and the interest in the foreseeable future

China’s investment and involvement in various strategic projects in Pakistan are so deep, that there is no way that Pakistan can get out of China’s stranglehold in future.

Nepal and China

China’s investment in Nepal is now steadily increasing. The politically and economically weak Nepal is rapidly coming under China’s economic dominance.

Venezuela and China

In the case of Venezuela, China has invested over 52 billion USD. Venezuela with its weak economy will never be able to pay back the debts. China’s investment is now partly by equity and rest by debt.

All the Chinese loans to Venezuela are commodities-backed, under which Venezuela is obliged to keep supplying to China millions of barrels of oil to feed the Chinese economic boom.

Long-term game plan under progress

China is emboldened in its strategies to economically subjugate the Asian nations by the success of its game plan in Pakistan, where China’s domination is now almost complete.

North Korea is another region where China’s game plan to dominate has been well-executed. This isolated country is almost entirely dependent on China now, and perhaps it has already become an extended territory of China.

Another ongoing game plan for China is in Myanmar, where a natural gas pipeline is being laid from Myanmar to China. In the coming years, sale of natural gas to China would become the economic mainstay of Myanmar, and Myanmar will need to keep China in good humour all the time.

While the smaller Asian nations do have apprehensions about China’s long term game plan, they seem to have already partly fallen into China’s debt trap.


About the author

NS Venkataraman is a chemical engineer as well as a social activist in Chennai, India. He is the founder trustee of Nandini Voice for the Deprived, a Chennai-based not-for-profit organisation serving the cause of the deprived and down-trodden, and working for probity in public life.

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