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China’s creditor imperialism

Unlike International Monetary Fund and World Bank loans, Chinese loans are backed by strategically important natural assets with high long-term value (even if they lack short-term commercial viability). Hambantota, for example, straddles the Indian Ocean trade routes linking Europe, Africa and the Middle East with Asia. In return for financing and building the infrastructure that poorer countries need, China demands favorable access to its natural assets, from minerals to ports.

Moreover, as the experience of Sri Lanka clearly illustrates, Chinese funding can hamper its “partner” countries. Rather than offering grants or concessional loans, China is giving out huge project-related loans at market-based rates, with no transparency, let alone environmental or social. As US Secretary of State Rex Tillerson recently said, with the BRI, China aims to set “its own rules and standards.”

To further strengthen its position, China has encouraged its companies to bid for the outright purchase of strategic ports, when possible. The Mediterranean port of Piraeus, which a Chinese firm acquired last year for $436 million from cash-strapped Greece, will serve as the BRI’s “dragon’s head” in Europe.

By thus exerting its financial weight, China seeks to kill two birds with one stone. First, he wants to address domestic overcapacity by boosting exports. And, second, it hopes to advance its strategic interests, including expanding its diplomatic influence, securing natural resources, promoting the international use of its currency, and gaining relative advantage over other powers.

China’s predatory approach – and its jubilation over securing Hambantota – is ironic to say the least. In its relations with smaller countries like Sri Lanka, China replicates the practices used against it during the European colonial period, which began with the Opium Wars of 1839-1860 and ended with the seizure of Communist rule in 1949 – a period that China bitterly calls its “century of humiliation”.

China has described the 1997 restoration of its sovereignty over Hong Kong, after more than a century of British rule, as redressing a historic injustice. Yet, as Hambantota shows, China is establishing its own Hong Kong-style neocolonial arrangements. Apparently, Xi’s promise of the “great rejuvenation of the Chinese nation” is inextricable from the erosion of the sovereignty of small states.

Just as European imperial powers used gunboat diplomacy to open up new markets and colonial outposts, China uses sovereign debt to bend other states to its will, without having to fire a single shot. . Like the opium the British exported to China, the easy loans offered by China are addictive. And, because China chooses its projects based on their long-term strategic value, they may generate insufficient short-term returns for countries to repay their debts. This gives China additional leverage, which it can use, for example, to force borrowers to swap debt for equity, thereby expanding China’s global footprint by trapping a growing number of countries in the world. debt slavery.

Even the terms of the 99-year Hambantota port lease echo those used to force China to lease its own ports to Western colonial powers. Britain leased the new territories to China for 99 years in 1898, resulting in Hong Kong’s landmass expanding by 90%. Yet the 99-year term was set simply to help the ethnic Manchu Qing dynasty save face; the reality was that all acquisitions were considered permanent.

Today, China applies the concept of imperial 99-year lease in faraway countries. China’s Hambantota lease deal, reached this summer, included a promise that China would pay $1.1 billion off Sri Lanka’s debt. In 2015, a Chinese company took a 99-year lease on Australia’s deep-water port of Darwin, home to more than 1,000 US Marines, for $388 million.

Similarly, after lending billions of dollars to heavily indebted Djibouti, China this year established its first overseas military base in the tiny but strategic state, just a few miles from a US naval base, the only permanent US military installation in Africa. Trapped in a debt crisis, Djibouti had no choice but to lease land from China for $20 million a year. China has also used its leverage in Turkmenistan to secure pipeline natural gas largely on Chinese terms.

Several other countries, from Argentina to Namibia to Laos, have been caught in a Chinese debt trap, forcing them to face agonizing choices in order to avoid default. Kenya’s crushing debt to China now threatens to turn its bustling port of Mombasa, the gateway to East Africa, into another Hambantota.

These experiences should serve as a warning that the BRI is essentially an imperial project aimed at bringing the mythical Middle Kingdom to fruition. States caught in debt bondage to China risk losing both their most valuable natural assets and their very sovereignty. The velvet glove of the new imperial giant covers an iron fist, an iron fist that has the strength to extract the vitality of small countries. ©2017/Project Syndicate

Brahma Chellaney is a professor of policy studies at the Center for Policy Research in New Delhi.

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