There were reports that China was scheduled to take over Uganda’s Entebbe airport as the country had failed to repay a $207 million loan. Uganda’s attempts to reschedule the loan were turned down. Two days after this development made global headlines, Chinese officials in Beijing refuted these claims stating China had not taken over any assets in Africa.
Simultaneously, addressing the Eighth Ministerial Conference of the Forum on China-Africa Cooperation, President Xi Jinping stated, “China will exempt African Least Developed Countries from debt incurred in the form of interest-free Chinese government loans due by the end of 2021.”
He also promised vaccines and other support to African nations, hoping to woo them to continue supporting the Belt Road Initiative (BRI). As per a Chinese think tank, the International Institute on Green Finance, the BRI covers 40 countries in Sub Saharan Africa, 34 in Europe and Central Asia (including 18 belonging to the EU), 24 in East Asia, 17 in the Middle East and North Africa, 19 in Latin America and the Caribbean and six in Southeast Asia.
China has been largely exploiting Low-and Middle-Income Countries (LMIC). In most cases the agreements signed are secretive and nations cannot release the terms and conditions.
Reports also mention that loans are given at commercial rates of interest and penalties for failure to repay are included. A report released by a research laboratory, AidData, in end of September stated that 165 countries owe at least $385 billion to China which funded their projects. This report further states that 42 countries owe more than 10 per cent of their GDP to China. It adds that nearly 70 per cent of the sums owed by countries are funds provided by China to its own state-owned companies and joint ventures for construction purposes in respective countries.
The funds are not routed through the banks of concerned countries. The construction involves largely Chinese labour, implying their salaries are paid by the host nation. This ensures true figures remain hidden. The Maldives example is a case in point. The current government headed by Mohmad Solih took control of the island nation in Nov 2018.
Six months later, the government was still in doubt of the amount it owed China. Its estimates varied from $1 billion to 3 billion, and the Chinese ambassador was the determining authority. It is almost similar to the system adopted by rural money lenders in India. Sri Lanka is an example of Chinese exploitation of strategic assets, where it was compelled to hand over the Hambantota port, on a 99-year lease to a Chinese state-owned company. China adopts different methods to exploit its loans. In Venezuela, China has pushed the nation to deposit its oil earnings into an account controlled by China. In case it defaults on payment, China withdraws directly from this account.
In Tajikistan, it secured 1,158kms of territory in exchange for debt. After the Sri Lanka incident, other countries in Asia began renegotiating Chinese loans. Malaysia renegotiated a Chinese railroad project reducing the cost by 1/3rd, while Myanmar reduced a port construction project by almost 1/4th.
Bangladesh cancelled the Sonadia deep seaport in October 2020 followed by three railway line construction projects. Many countries have commenced stalling BRI projects due to high costs, corruption, overpricing and inability to sustain Chinese loans. As per AidData $11.58 billion worth projects in Malaysia, $1.5 billion in Kazakhstan and more than $1 billion in Bolivia have been cancelled.
For China, Africa was always important, as it was largely ignored by the world. Crude oil and copper are two minerals that China needs, and the continent has them in abundance. The only way to ensure an uninterrupted supply is to compel nations possessing these into its debt trap. Amongst the nations owing huge amounts to China are Kenya, Nigeria, Angola, South Africa, Zambia, Congo, Sudan and Ethiopia.
In fact, almost the entire continent. The world watched silently as China, offered vast sums to corrupt leaders and ate up their nations. The IMF was unwilling to bail out countries facing debt servicing problems with China, despite being aware of Chinese intentions. What begins as discussions on the takeover of strategic assets ended up in control of the nation’s mineral wealth. Writing for an online journal, African Liberty, Ibrahim Anoba states, “China is smart and deliberate about its policy in Africa.
It understands the development deficit on the continent, and it is strategically using this to keep Africa’s economic future under its arms.” The US-backed Build Back Better World (B3W) and the European Union’s Global Gateway have emerged as a challenge to the BRI in Africa. China has begun facing a push back. It was this rejection that compelled Xi Jinping to announce freebies and sops in his address to the Eighth Ministerial Conference of the Forum on China-Africa Cooperation.
He stated, “China will encourage its businesses to invest no less than $10 billion in Africa in the next three years and will establish a platform for China-Africa private investment promotion.” The Chinese game is now being understood and the Chinese are being pushed away. The only nation which has failed to learn from errors of others is Pakistan.
Its loans from China are far beyond its repayment ability. It has already handed over Gwadar on a platter for 40 years with China pocketing 90 per cent of the revenue. Baloch locals suffer from lack of water and electricity as all resources are being utilized by China. The local fishing industry is facing closure with large Chinese trawlers exploiting Pakistan’s coastal waters.
Protests in Baluchistan are becoming a national security problem. Yet Pakistan continues to borrow, pushing itself deeper into debt. China adheres to the philosophy of John Adams, the second US President, who stated, “There are two ways to conquer a nation.
One is by the sword and the other by debt.”China employs the sword against its smaller and immediate neighbours. As distances grow, it chooses debt as its master weapon. It is time for nations to understand the Chinese game plan and push back.
(The writer is a retired Major-General of the Indian Army)