Accusations of “debt trap diplomacy” levelled at China’s Belt and Road plan to offer billions in loans to poor nations for infrastructure have been questioned by new research which shows asset seizures by Beijing are rare.
An analysis by New York’s Rhodium Group of 40 debt renegotiation’s made by China across 24 countries found “asset seizures are a very rare occurrence”.
Instead, debt write-off was the most common outcome, happening in 16 cases, including Vanuatu.
Apart from a high-profile example in Sri Lanka, where control of the Hambantota Port was passed to a Chinese company, the only other potential case the researchers could find was in Tajikistan in 2011 where land was transferred to China.
Instead, the report found “debt renegotiation’s usually involve a more balanced outcome between lender and borrower, ranging from extensions of loan terms and repayment deadlines to explicit refinancing, or partial or even total debt forgiveness.”
In 11 cases, including Tonga, the loan was deferred.
Where there was a change of government leadership in a country, Beijing was “often compelled to agree to term renegotiation’s, usually to borrowing countries’ advantage”, the report found.
But China’s lending was likely to slow, the report said, given the US$50 billion (NZ$75 billion) in debt that had needed to be renegotiated.
Australian National University senior lecturer Darren Lim said the “debt trap diplomacy” claim was never credible, and had been pushed by the Trump Administration.
“It beggared belief that Beijing was deliberately setting up recipient countries to fail,” he said.
Lim said much of China’s lending has been to high-risk countries with poor credit ratings “but once the money is in, much of the leverage shifts to the borrower”.
“The practice of Chinese lending has generated significant political pushback across the region, in particular because it is perceived to cause corruption and waste for very little overall benefit to the host country,” he said.
He said the strength of BRI was its recognition that developing countries need infrastructure investment.
“Its great weakness is that many of these countries are vulnerable, because they don’t have the political and legal institutions to handle large volumes of debt.
“As the Rhodium Group report points out, many Chinese-financed projects have become distressed, and more will likely follow. Distress arises because projects are poorly vetted and fail to generate positive returns.”
Lim said Chinese President Xi Jinping’s speech to the Belt and Road Forum in Beijing last week was sensitive to concerns that China needs to “cut down on rash lending practices”.
Australian government ministers last year expressed concern about Chinese infrastructure lending in the Pacific, and the Morrison government unveiled a A$2b fund and Pacific Pivot strategy seen as countering Chinese influence.
“Successful policy will never mean ‘countering’ BRI – it will mean ensuring the BRI projects are structured to maximise the benefits to local communities and minimise some of the downside risks,” Lim said.
La Trobe University’s head of humanities and social sciences, Nick Bisley, said: “Beijing is aware of the negative publicity around Hambantota and equally is aware of the economic downsides of ending up with a series of infrastructure white elephants across the region.”
He said China was using BRI to build political capital and this wouldn’t be achieved via asset seizures.
“If Australia is concerned about the risks of this kind of thing happening in the Pacific perhaps the best thing it can do is advise and support the borrowers. Deals have to be negotiated and no one is forcing recipients to take the money,” he said.