CHINA is “colonising” smaller countries by lending them massive amounts of money they can never repay, it’s been claimed.
The country is accused of leveraging massive loans it holds over small states worldwide to snatch assets and increase its military footprint.
Developing countries from Pakistan to Djibouti, the Maldives to Fiji, all owe huge amounts to China.
Already there are examples of defaulters being pressured into surrendering control of assets or allowing military bases on their land.
Some are calling it “debt-trap diplomacy” or “debt colonialism” – offering enticing loans to countries unable to repay, and then demanding concessions when they default.
Chinese President Xi Jinping has offered a $60 billion aid package to African countries over the next three years, in response to the continent’s increasing debt distress — with no strings attached.
China’s investment plans include $5 billion in African exports, $10 billion for development, and $15 billion grants and interest-free loans. A $20 billion credit line will also be included, as well as emergency food aid, scholarships and vocational training, and increased agricultural development.
“China will extend $60 billion of financing to Africa in the form of government assistance as well as investment and financing by financial institutions and companies,” China’s president said during the Forum on China-Africa Cooperation (FOCAC), a triennial meeting between Chinese leaders and leaders from across Africa. Leaders of 53 African nations were present during the two-day summit in Beijing.
The $60 billion aid package is the same amount Beijing previously pledged at the last FOCAC summit in South Africa in 2015. While aid pledged during FOCAC summits in the past has a history of increasing from year to year, such pledges have remained consistent more recently.
Jeremy Stevens, international economist for the Standard Bank Group, said it would not be “politically appropriate” to offer larger loans at a time that the continent is already overloaded with debt. Stevens contended that the lack of increase is not a step back in relations, rather it is “a maturation and a natural evolution of the relationship.”
Since 2000, Africa has borrowed around $130 billion from China. The International Monetary Fund warned this year that, thanks to 40 percent of Africa’s low-income countries being at risk or in debt distress, the continent is facing a debt crisis — though researchers at the China-Africa Research Initiative at Johns Hopkins University have concluded that Chinese loans are not a major contributor to debt distress in most African nations.
Beijing’s planned investments in developing nations are coming under increased scrutiny. In response to accusations of encouraging “debt trap” diplomacy in Africa, Xi said the aid package is not “a scheme to form an exclusive club or bloc against others. Rather it is about greater openness, sharing and mutual benefit.” He added:
“China does not interfere in Africa’s internal affairs and does not impose its own will on Africa. What we value is the sharing of development experience and the support we can offer to Africa’s national rejuvenation and prosperity.”
Xu Jinghu, the special envoy for Africa, said in response to the accusations:
“It’s senseless and baseless to shift the blame on to China for debt problems.”
Jinghu added that China would conduct studies in order to avoid causing additional debt problems on the African continent, specifying:
“These projects will take into account their development prospects so as to help African countries achieve sustainable development and avoid debt or financial problems.”
Sri Lanka provided a prime example last year.
Owing more than $1billion (£786million) in debts to China, Sri Lanka handed over a port to companies owned by the Chinese government on a 99-year lease.
And Djibouti, home to the US military’s main base in Africa, also looks likely to cede control of a port terminal to a Beijing-linked firm.
America is eager to stop the Doraleh Container Terminal falling into Chinese hands, particularly because it sits next to China’s only overseas military base.
Last March ex-Secretary of State Rex Tillerson said Beijing encouraged “dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty”.
A report from The Center for Global Development offers some insight into the spreading China debt.
It shows how infrastructure project loans to the likes of Mongolia, Montenegro and Laos have resulted in millions or even billions in debts, which often account for huge percentages of the countries’ GDPs.
Many of these projects are linked to the “Belt and Road” initiative – a bold project to create trade routes through huge swathes of Eurasia, with China at the centre.
Participating countries often undertake work on roads and ports with part-funding from China.
More recently, China’s debt empire has been rearing its head in the Pacific, prompting fears the country intends to leverage the debt to expand its military footprint into the South Pacific.
Beijing’s creation of man-made islands in the disputed South China Sea for use as military bases suggests the concern may be warranted.
In April China made these intentions more obvious – approaching Vanuatu about setting up a military base.
Australia expressed alarm at this move, which would effectively increase Chinese military presence on a key gateway to Australia’s east coast, The Times reports.
Vanuatu owes £191million to China, according to one think tank.
Among the projects this money funded was the largest wharf in the South Pacific – considered capable of accommodating aircraft carriers.
Tonga also carries some big debts and has already admitted to struggling with repayments.
Tongan PM Akilisi Pohiva said on Wednesday that he was concerned Beijing was preparing to seize assets from his country.
He urged other Pacific islands to join voices in calling for loan write-offs.
Two loans from China’s Export Import Bank totalling more than £91million equal a quarter of the country’s GDP.
He told Australia’s ABC: “It has become a serious issue. We have debt distress.”
Pohiva said with China debt becoming so prolific, it was no longer a problem to be dealt with individually.
He added: “I think these small countries will eventually come together to find a way out.”
China defended its lending practices, saying they were “sincere and unselfish”, and insisting it only lent to countries that could repay.
Tonga is one among a list of South Pacific countries that have taken on debt in recent years.
Sydney’s Lowy Institute think tank, which has closely monitored China’s activities in the Pacific, estimates Beijing has poured nearly £1.4billion into Pacific countries since 2006.
Other big debtors include Papua New Guinea, which owes roughly £498million in development and aid debt, Fiji, which owes £496million, and Samoa, with debt of £181million.