The fear of debt trap lies with China luring small and weaker nations with massive loans in the name of infrastructure development. And, when their debts are not paid, it captures their land and resources. It violates the global norms for development loan, as it leaves little room for debt relief.
CHINESE President Xi Jinping will have to hard - sell BRI (Belt and Road Initiative) in encompassing marine, rail and road projects across 65 countries from Asia to Europe and Africa, that collectively account for 30 percent of global GDP. BRI was expected to emerge a fulcrum for a new shape for global economic and political landscape, with China at the helm, but fear for debt trap for smaller and weaker nations looms large. Further, in the light of US-China trade war, BRI is losing the steam. Many of the debt laden countries are scaling down their projects under BRI and some fear losing their political sovereignty. The fear of debt trap lies with China luring small and weaker nations with massive loans in the name of infrastructure development.
And, when their debts are not paid, it captures their land and resources. It violates global norms for development loan, as it leaves little room for debt relief. Observers and analysts accused China of playing a game of bully with “debt diplomacy”. Certain projects become dormant despite the huge investment. According to ‘Washington Post’, some projects with big investment make no economic sense. In Sri Lanka, Chinese loan was spent on designated airport to handle one million passengers a year. Now, it has been dubbed as one of the emptiest airports. The harsh critic of BRI is Malaysian Prime Minister Dr. Mahatir Mohammad, who demanded re-negotiation of East Coast Rail Link project with Chinese financial support. The project was approved by the previous Government. The present Government reduced the scope and cost of the project by third.
His Deputy Minister for International Trade and Industry alleged over-pricing, which created financial burden on Government. Joining the stream was Pakistan, who recently cancelled Rahim Yar Khan power project, which was part of BRI. It has cut the size of Belt and Road project by US $ 2 billion. Railway Minister Rashid said that “Pakistan is a poor country, that cannot afford huge debt burden” Sri Lanka has already sunk in the debt trap. Its Hambantola Port was taken over by China for 99 year lease on account of Sri Lanka’s failure to repay the loan. Myanmar announced that it was wishing to scale down Kyaukpyu Port project. In Maldives, ratio of debt to GDP spiked to 70 percent, believed to be party to BRI. In August 2018, President of Maldives Abdul Yameen inaugurated Chinese –built bridge connecting two islands in the archipelago.
One month later, Yameen was voted out and the new Government began decoding the mountain of debt burden. Yameen, a close friend of China, borrowed heavily from Beijing to build new runway for the airport, housing development and hospitals and a long “China-Maldives- Friendship Bridge”. A study by Centre for Global Development portrays eight nations vulnerable to Chinese debt trap under BRI. They are mostly African and Eurasia countries and Pakistan. India is not party to BRI. It suspected the project is a smokescreen, which China is using to sieze strategic control of Indian Ocean. Nevertheless, it poses a big challenge to India to increase ties with its neighbors and friends in Africa. The Chinese debt trap leads to loss of financial sovereignty of these countries.
Debts are turning into equity and finally ownership goes to China. This will weaken trade opportunities between India and its neighbours, some of ASEAN nations and African countries. The growing burden of debt will give more opportunities to China to dominate the terms for trade and investment with the debt ridden countries. SAFTA (South Asia Free Trade Area) and ASEAN are the cases in point. It will be a new turf for Chinese backdoor entry to India through Bangladesh and Nepal and some ASEAN members. The surge in debt burden will increase India’s vulnerability in the emerging trade block, say RCEP (Regional Cooperation for Economic Partnership). The countries, which are currently suspected to fall prey to debt trap, are members of RCEP, such as Malaysia, Laos and Myanmar. China is the biggest stake holder in RCEP, which includes ASEAN 10 + 6 (China, Japan, Australia, South Korea, New Zealand and India). At present, India has trade deficit with RCEP, which is mainly due to China. Given the China’s predominance in RCEP, the major concern for India is the trade expansion with debt laden countries, who are likely to lose trade sovereignty.
It will provide a leeway to China for its backdoor entry into India. Apart trade vulnerability, debt trap will escalate security concerns. The growing debt burden, which will rip the political sovereignty of India’s neighbours, is feared to escalate security concerns. The acquisition of Hambantola Port in Sri Lank by China is a case in point, where security vulnerability will rise with Chinese aggression in Indian Ocean. The port is likely to be used for China’s military base, as is suspected.Given the deceleration of BRI rhetoric in the wake of rising debt burden for smaller and weaker nations and the trade war between US and China, which hardly foresees cease fire in near term, it is imperative for China to reinvent the project. In the light of this, India needs a constant watch and dialogue with debt-ridden countries from the perspectives of trade expansion and deepening political relations with these countries.