China’s Belt & Road Initiative (BRI) has raised many legitimate issues and questions, but a hidden agenda to lay “debt traps” for developing countries to take over their valuable assets or commodities is not one of them.

Many independent economists think tanks and international bodies agree the mega-development initiative has been driven by economics, primarily China’s own domestic overcapacity and overproduction, rather than any grand geopolitical ambition to take over the world.

Yet, that has been the most consistent misrepresentation by Washington. US Vice-President Mike Pence criticised China in October 2018 for using “debt-trap diplomacy” in Sri Lanka to establish a “forward military base for China’s growing blue-water navy”.

US Secretary of State Mike Pompeo has repeatedly warned countries not to join the BRI not only because of the supposed debt traps, rather they risk angering the United States and affect their bilateral relations.

A new study by the influential London-based Chatham House, also known as the Royal Institute of International Affairs, has observed that the geopolitical narrative is convincing only because it’s easy to understand for its sheer simplicity; it’s also false. To understand economics, though, requires case-by-case consideration involving dozens of countries.

“The BRI simply cannot unfold according to a unilateral Chinese strategy,” the report said. “It can only develop gradually, through bilateral negotiations with over 130 partners; it is co-created through countless, fragmented interactions.”

Quite simply, the BRI involves too many moving parts and vested interests within China’s public sector and bureaucracy, most of which have been driven by profits rather than politics. Some projects actually predate BRI by years, some even by decades, and have only been put under BRI to give “more meat to the bone”, so to speak.

Meanwhile, virtually all the projects have been initiated by the host countries because of their own domestic politics and economic needs. They exercise far more agency and independence – for better or worse, including corruption and “pork barrel” politics – than the typical Western critique allows.

Such conclusions are not new, but worth recapping in light of America’s persistent disinformation campaign. In a 2018 study, the Washington-based Peterson Institute for International Economics pointed out that the US was already using such claims to bolster its powers to veto future rescue packages put together by the International Monetary Fund for potentially distressed countries linked to BRI.

The new Chatham House study singles out two of the most notorious cases of projects in Sri Lanka and Malaysia under the BRI for special attention.

Critics of the BRI almost always point to Sri Lanka’s Hambantota Port as the case par excellence for China’s debt-trap diplomacy.

The story goes that China loaned money to Sri Lanka to build the port, knowing it would be crushed under the debt so that Beijing could seize it for its blue-water navy in the name of debt relief.

It is also factually false, though that hasn’t prevented some mainstream Western media from repeating the same charge, even today.

As usual, it was not Beijing but former Sri Lankan president Mahinda Rajapaksa who first proposed the project as part of his government’s ill-conceived and unsustainable development programme for the country. It quickly became a “white elephant” project. There was no doubt it contributed to Sri Lanka’s debt distress, which however arose “not from Chinese lending, but from excessive borrowing on Western-dominated capital markets”, according to the study.

The growing debt problems of many developing economies stemmed more from the tapering of the US Federal Reserve’s quantitative easing programme, which increased the borrowing costs of countries such as Sri Lanka and forced it to seek assistance from the IMF.

There was also no debt-for-asset swap. The port is still owned by Sri Lanka and is used today by its own southern naval command, which provides no access to the Chinese navy. The debt is still owed to the Chinese, who have leased the port for US$1.1 billion, which the country used to pay down debts to other, mostly Western, creditors and boost its foreign reserves.

The Chatham House study concludes: “In short, the Hambantota Port case shows little evidence of Chinese strategy, but lots of evidence for poor governance on the recipient side.”

The World Bank has estimated that the world, especially developing countries, will need US$97 trillion of infrastructure investment by 2040, with a projected shortfall of US$18 trillio

With Malaysia, the common charge by Western critics has been that China deliberately foisted infrastructure projects on the country to lay debt traps. In reality, the vast majority of projects under the BRI have been non-strategic investments in real estate, entertainment and industry, “while port and railway projects were developed commercially by subnational actors on both sides”.

The United Malays National Organisation (Umno), the country’s main ruling party, dominated the government from 1957 to 2018. It had long pursued high levels of foreign investment to promote growth. The BRI fit this strategy, which used mega projects to serve the interests of powerful domestic constituencies from among the ethnic Malay community through targeted economic patronage based on banking and industrial ties.

This arrangement had served both countries. It was disrupted not by any debt distress, but by the notorious 1MDB scandal. Ostensibly a development fund, it was turned into a corrupt “slush fund” for Umno and unravelled between 2014-16.

As the corruption came to light, the Malaysians secured inflated loans from Chinese contractors for the East Coast Rail Link (ECRL) and two gas pipeline projects and secretly funnelled back the new money to repay loans for the heavily indebted 1MDB from mainly Western financial intermediaries and interests.

When the Pakatan Harapan (PH) coalition came to power in 2018, it naturally laid all the blame on Umno, former prime minister Najib Razak, who was subsequently convicted on six charges of corruption linked to 1MDB and the Chinese.

At the time, Malaysia under the new PH-led government was seen as emblematising a growing “pushback” against China’s expansionism. Since then, we have seen the PH government watering down its criticism of China while its pushback against the BRI was limited to projects linked to 1MDB to discredit Najib and unravel his patronage network.

BRI investments remain mutually beneficial for both countries, whoever happens to be in power in Malaysia.

“Approved BRI projects follow the logic of economics, not of geopolitics,” the report concludes. “Outbound investment does not even correspond to the six ‘corridors’ outlined in Beijing’s rather imprecise BRI policy documents, but remains heavily concentrated in East Asian and developed economies, with non-BRI investment growing faster than BRI investment.

“Official documents show that BRI projects were ‘not regulated or guided’ by government policy frameworks; ‘the main motivation’ was ‘industrial overcapacities’, with provincial governments even appropriating BRI funds to bail out domestic SOEs. Funding has been skewed heavily towards state-linked construction firms facing collapsing domestic demand.

“Rather than debt-trap diplomacy, bumps on the Belt & Road are typically caused by the intersection between powerful interests and associated governance shortcomings on the Chinese and recipient sides. Chinese SOEs’ desperate need for contracts, and weak governance of development financing, coupled with poor planning or venal interests in recipient countries, are generating badly conceived projects that replicate China’s surplus capacity crisis.”

As one of the report’s authors, Shahar Hameiri, wrote elsewhere: “Never attribute to malice what can be explained by incompetence.”

But the real question for the world remains: why support the BRI?

The World Bank has estimated that the world, especially developing countries, will need US$97 trillion of infrastructure investment by 2040, with a projected shortfall of US$18 trillion. This is a gap that won’t be filled by Western and multilateral development agencies, especially from the US, with their insistence on “good governance” programmes.

Like it or not, China’s BRI will cater to a genuine global need for years and decades to come.

Author: Alex Lo
Editor’s note: The article reflects the author’s opinion only, and not necessarily the views of editorial opinion of Belt & Road News.