As Sri Lanka Shows, China’s Belt and Roads Loans Are Not Just a Debt Trap
March 2, 2021 at 10:06 am
In recent years, whether the China Belt and Road Initiative (BRI) is a predator has been the subject of debate, with some arguing that the loans offered by Beijing are a trap. debt and others stressing that the BIS is ultimately beneficial for developing countries. . The truth is somewhere in the middle, and Sri Lanka shows how.
The example often used to portray China’s BRI as nefarious is Colombo’s controversial agreement to lease the Port of Hambantota to a Chinese-majority joint venture in 2017. The general view is that Sri Lanka was forced to “to spitThe Port of Hambantota to China after it failed to repay its earlier loans. These critics see the port as a white elephant project of a former president, Mahinda Rajapaksa, with little economic benefit to the country. Some US officials have even gone so far as to describe Sri Lanka as having “effectively ceded its sovereignty on a key asset ”when the transaction is concluded.
At the other extreme, some observers increasingly defend China as an unworthy target of criticism. They point out that Sri Lanka’s debt to China is no greater than its debt to certain other countries and multilateral development banks. In addition, they consider the Hambantota Port Agreement as little evidence of Beijing having a grand strategy and considers Chinese lenders and negotiators to be quite fair and willing to restructuring loan conditions for beneficiaries.
A few factors that inform Sri Lanka – and perhaps other small states – when it comes to the great powers are being overlooked in this debate.
First, there are national factors to take into account. Observers have correctly noted that Rajapaksa is from Hambantota District and his port defense has a clear element of self-interest. The project was popular locally, as was the expected income injection it would bring.
Beyond local politics, however, there are deeper domestic structural and economic drivers. Hambantota is close to major shipping lanes, and building a port there could help the country take advantage of its proximity to international trade routes. Hambantota is also in a part of the country that was the site of insurgency and natural disaster. Its development was seen by several administrations as a means of pacifying the region while advancing national economic objectives. Indeed, despite the beginnings of Rajapaksa pursuit Hambantota project with China in the mid-2000s, it was actually the administration that defeated it that ultimately leased the port for 99 years.
Second, Sri Lanka’s debt problem predates its relationship with China as a development partner. Many of its economic difficulties are more related to the “middle income trap»Than a Chinese debt trap. Since achieving middle-income country status, Sri Lanka has failed to successfully or responsibly update its debt management strategies to reflect the loss of development assistance it had become. . used for decades. Hambantota deal was a much sought-after infusion of around $ 1 billion in foreign direct investment to rebuild the country foreign exchange reserves at a critical time of concern. But this balance of payments crisis had lasted for years.
Third, China and its state-owned enterprises have some responsibility in creating an unfavorable situation for Sri Lanka and other BIS countries. China is touting itself as an alternative development model for the world, but Chinese negotiators have pursued an excessive 99-year lease to operate the Port of Hambantota with a country in desperate economic distress. Although Chinese port operators have been highly sought after for their success in operating ports, this long period is an outlier for port transactions in the region.
In other words, in Sri Lanka, China is not only to blame, but it is not faultless either. And this is rightly worrying for many other countries around the world.
For US policymakers, the fundamental concern is not really the equity of China’s loans, but rather the extent to which friendly states can fall into China’s orbit. If the United States is to prevent this from happening, it should pay more attention to the domestic structural and economic factors that drive these states to seek Chinese deals. The start of the Biden administration offers a good opportunity to do so.
First, Washington can address the structural obstacles that small states face in the larger international economic system. In particular, it can use its influence in multilateral development banks to help middle-income countries that have not sufficiently updated their economic practices. Second, the United States should recognize the agency of small states and not diminish them as giving up their sovereignty when they conduct their own trade infrastructure deals. In the case of the Port of Hambantota, Sri Lankan leaders also sought American funding, which was not to come; American investors were not interested in the project.
As part of its renewed focus on climate change, the Biden administration may consider opportunities to provide development finance to turn Hambantota into a January 2020 compliant fuel hub. requirement of the International Maritime Organization (IMO) to reduce the sulfur content. Sri Lanka has re-launched fuel service operations over the past year to take advantage of the need for ships to have IMO compliant fuel.
American policymakers are right to worry about the results of China’s agreements with small states, which constitute the majority of the international community. But to solve this problem, Washington needs to focus more on understanding the drivers of small states and the structural dynamics that push them into high-powered competitors. After all, small states have an agency, but great powers also have responsibilities.