By Harsh V. Pant
Despite being one of the world’s most formidable powers, China and its policies remain a mystery. Even nations that consider themselves close partners of Beijing hardly know much about the way its policies are formulated and their impact. Even Chinese behaviour appears shrouded in mystery, complicating its already complex relationship with the world. This lack of transparency means that often the world is left to deduce motives without any real data. As a consequence, diametrically opposite assertions are often made, depending on the vantage point of the country in question.
In recent years, Chinese belligerence has grown, and its seeming desire to weaponize everything from trade and information to development aid and health engagements has only made matters worse. From a rising power that could do no wrong a decade ago, China today is widely being viewed as the source of much of what’s wrong with global governance. Just at a time when Beijing could have underscored its credentials as a responsible global stakeholder with the world reeling from multiple shocks, the Chinese Communist Party looks bent on provoking a push-back from major powers.
A report by researchers at AidData, Washington-based Center for Global Development, Germany’s Kiel Institute and the Peterson Institute for International Economics have examined 100 Chinese loan contracts with 24 low- and middle-income countries, shedding new light on its priorities when it comes to its role as a development partner. Though its ‘debt trap’ model of development cooperation has been under debate for some time, this is the first empirical study done at a time when China’s economic profile has grown in Africa, Latin America, Eastern Europe and Asia, and the world has a mounting global debt crisis.
Underlining China as a “muscular and commercially savvy lender to the developing world”, the report argues that the contracts in question “use creative design to manage credit risk and overcome enforcement hurdles.” Some key provisions that define these contractual obligations include extreme confidentiality, a bar on borrowers from revealing loan terms, possible punishment of debtors for going against the interests of a ‘PRC entity’, and debt kept out of the purview of collective restructuring plans.
President Xi Jinping’s ambitious global infrastructure investment strategy, the Belt and Road Initiative (BRI), is the critical anchor for much of its lending, with China emerging as the world’s biggest creditor, accounting for 65% of official bilateral debt. The opacity of its lending through the BRI has raised hackles around the world, with China charged with pursuing a highly aggressive foreign policy in the garb of investment lending. China’s leverage over the developing world has increased in proportion to debt levels and the unsustainability of the loans it has extended.
China, of course, maintains that all it is doing is providing its own development aid and debt-financing model, which other lenders are not willing to offer. For a large part of the developing world, the initial attraction to Chinese loans was a function of a sense of desperation in the absence of alternatives. Slowly, the true nature of Chinese lending got revealed as debt burdens mounted and China used impending defaults to make a go for strategic assets. The report also shows that certain provisions in Chinese contracts are political in nature, even where the intent is commercial. The threat of China snapping diplomatic ties always hangs over debtors. In multiple ways, therefore, these contracts have given China leverage in its dealings with vulnerable countries.
While China has much to answer for, a large part of the blame should also be shared by the West for not offering any reasonable alternative. It is not evident what alternative developing countries have to the highly predatory BRI, which, despite its problems, remains the only show of its kind in town. Even in India’s vicinity, countries from Sri Lanka to Bangladesh have indicated a keenness for alternative funding, but major world powers are yet to show commitment.
In a recent statement, Bangladeshi Prime Minister Sheikh Hasina’s foreign affairs advisor Gowher Rizvi argued that “[Bangladesh’s] relationship with China is very much confined to investments and development projects… However, even then, we have been very mindful. We do not want to create a situation where we have borrowed more than we can repay…” The developing world is asking for help, but major players are missing in action. The idea of an India-Japan led Asia-Africa Growth Corridor looked very promising, but has failed to take off. The Donald Trump administration in the US had launched the Blue Dot Network in 2019 to boost private sector-led infrastructure development in the Indo-Pacific, but it excluded direct financing of projects. Last month’s summit of Quad leaders discussed the shared challenge of quality infrastructure investment, and more recently, the US and UK asked democratic countries to come up with an alternative to China’s BRI.
All this looks too little, too late. China’s predatory development cooperation framework may have many problems, but at least it exists. Its alternatives are still struggling to get off the drawing board. One hopes that the new report on China’s secret debt contracts will finally shake the world out of its stupor and propel it towards framing a new development cooperation paradigm away from China’s pernicious influence.
This commentary originally appeared in Live Mint.