More and more countries around the world are now rethinking the readily available loans offered by China for infrastructure projects in their countries, after realizing they could fall prey to China’s debt-trap diplomacy.
Last week, Sierra Leone, one of the world’s poorest countries, nixed plans to build a controversial $400-million airport outside the capital, Freetown, to be funded by Chinese loans. The megaproject, which was due to be completed in 2022, had been commissioned by former president Ernest Bai Koroma. But the new president, Julius Maada Bio, has since reassessed the huge loans offered by China to his predecessor.
The decision of the new Sierra Leone government comes amid concerns that many African countries risk defaulting on their debts to China.
Nearer home, Malaysian Prime Minister Mahathir Mohamad announced in August that Malaysia will suspend the construction of two large infrastructure projects to be financed by Chinese companies. During his five-day visit to China, Mahathir said the Chinese-funded $20-billion East Coast Rail Link (ECRL) project and a natural gas pipeline project in Sabah will be canceled “until such time that Malaysia can afford it.”
The ECRL would have connected the South China Sea with strategic shipping routes in western Malaysia, creating an important trade link. It is part of China’s Belt and Road Initiative (BRI), a trillion-dollar project to link 70 countries in Asia, Oceania, Africa and Europe with railway lines and shipping lanes.
Last year, Pakistan and Nepal also turned down Chinese infrastructure loans in favor of other sources of funding.
Through the BRI, China offers huge loans that have higher interest rates, with the natural resources of debtor countries used as collateral. China can then control such resources if a country defaults on its repayments. Last year, for instance, Sri Lanka, with more than $1 billion in debt to China, handed over a port to companies owned by the Chinese government.
China-funded projects would also require the hiring of Chinese-owned contractors rather than local companies and workers. Chinese loans, with interest rates of 2-3 percent, are 1,100 percent more expensive than the ones from Japan at only 0.25-0.75 percent.
According to the Washington-based Center for Global Development, a nonprofit research organization, nations participating in the BRI that will default in loan repayments will eventually find themselves at the mercy of Beijing. Eight nations, it said, are now vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan.
In the Philippines, the Duterte administration seems to be impervious to concerns raised about China’s “hidden agenda” in extending massive loans to poor countries. The program, some analysts have said, is tantamount to a new form of colonization of vulnerable nations by Beijing.
During President Duterte’s first visit to China in October 2016, Chinese President Xi Jinping pledged to provide funding for 30 projects in the Philippines worth billions of dollars.
China has earmarked P4.37 billion for the Chico River Dam Project, the groundbreaking of which was held last June 8. The project, funded by the China Exim Bank, is implemented by China CAMC Engineering Co. Ltd. Beijing has also pledged to fund two Philippine railway projects with a combined cost of $8.3 billion, and 30 smaller projects valued at $3.7 billion.
According to Budget Secretary Benjamin Diokno, agreements on several
China-funded projects would be signed during the scheduled visit of President Xi to Manila in December.
Some lawmakers have already expressed alarm over the use of the country’s natural resources as collateral for loans from China.
“Protection and preservation of national interest compels us to reject the Chinese concept of using natural resources as loan collateral,” said Muntinlupa Rep. Ruffy Biazon. “It’s obvious that this is their mode of territorial expansion.”
Is anyone listening in Malacañang?
Alito L. Malinao is the former news editor of the Manila Standard. He is on leave as journalism professor at the Pamantasan ng Lungsod ng Maynila and is the author of the book “Journalism for Filipinos.”