Did China ruin Sri Lanka?


RECENTLY, a review of a number of aborted Chinese loan deals that had been intended for big-ticket infrastructure projects was ordered by President Bongbong Marcos, a decision that was met with widespread approval, though for different reasons. (I will henceforth use Bongbong Marcos to refer to the President, and avoid using “Ferdinand Jr.” to refer to him. This way, what is lost in constant genuflection toward a problematic past will be replaced by familiarity that he himself cultivates).

For those who are concerned about the government’s debt burden generally, which has expanded rapidly over the past several years, the signal from the new administration that it would try to be more discerning was welcomed. Likewise, those who are worried about the ramifications of the previous administration’s encouragement of Chinese neo-colonization were relieved by the indication that the new government is willing to try to throw a few sandbags in front of that flood.

If you put those two ideas together, the result is an idea that has been around for years, a nagging suspicion that the Chinese have not been able to entirely dampen, though they have gone to great lengths to try to do so: the so-called Chinese debt trap.

The idea is that China, under the guise of providing development investment to countries, mainly those connected to its Belt and Road Initiative (BRI), is carrying out a program of imperialist expansion by funding infrastructure projects with loans that have terms that the beneficiary countries cannot possibly meet. Once they inevitably default or are forced to approach China to renegotiate the unmanageable obligations, China then takes control of the infrastructure concerned, thus obtaining a legal, physical foothold in strategic locations.

China has always steadfastly denied that this is what they are up to because what else are they going to say, and has conducted a well-organized and intensive public relations campaign to refute the charge. They just want to bring love and rainbows and wonderful consumer goods to the world, borne away to the West swiftly by way of the BRI on ships and trains that have those cute banners bearing inspirational messages written in Mandarin attached to their bows. Chinese business benefits from access to new markets, consumers on the opposite end of that chain benefit from access to Chinese wonderfulness, and the countries that form the links in between benefit from economy-building developments they wouldn’t otherwise be able to acquire. Everybody wins, so why do you hate nice things and keep bringing up the “Chinese debt trap”?

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To be fair, there has not been much evidence to support the allegation of the Chinese debt trap. For the most part, the few instances where it has at first appeared as though the trap had been sprung (mainly in Latin America and Africa), the financial breakdown on the part of the host countries can be attributed to other problems, as the terms that were offered by the Chinese were not particularly unusual. However, there is one case that won’t let the Chinese debt trap tale be written off as the fable the Chinese wish it to be, and that is Sri Lanka.

In 2011, the Hambantota Port on Sri Lanka’s southeast coast opened. Conveniently located in the hometown of the (now former) ruling clan of Sri Lanka, the Rajapaksas, it had been funded by a Chinese loan of about $1.5 billion. During the Rajapaksa regime, China was the biggest foreign investor in Sri Lanka at least in terms of infrastructure and 10 percent of the hapless country’s $57 billion foreign debt is owed to China.

As far as the port is concerned, that deal went sideways almost immediately. It was supposed to pay for itself — Sri Lanka’s loan payments for it were $59 million per year — but instead racked up over $300 million in losses by 2016, mainly due to corruption and generally bad management, forcing the government to enter into a debt-for-equity arrangement in 2017 that gave the Chinese government-backed China Merchants Group a 70-percent stake in the port and a 99-year lease on the land surrounding it.

Here is where the argument that China has helped to cause Sri Lanka’s spectacular collapse finds some traction because while the debt swap deal got Sri Lanka out from under bills it couldn’t pay, it also robbed it of desperately needed potential income to manage its many other problematic affairs. Hambantota lies about 10 nautical miles north of the major east-west sea lane across the Indian Ocean, and if managed correctly could be extremely profitable, only now those profits are flowing into Chinese coffers and not Sri Lankan ones.

China is not stupid, and could not have had any illusions about the corruption and incompetence of the Sri Lankan regime it was dealing with, and though it might not have expected it to collapse as it has, the fact that it has done so is likely seen as a potential opportunity for China to entrench itself even more firmly in Sri Lanka. While international institutions such as the International Monetary Fund and the World Bank are scrambling to come up with rescue packages for Sri Lanka, China is already in a position to offer aid that Sri Lanka desperately needs — food, fuel and funds. All at a price, of course, but the implications of those are not likely to be considered at length now, as the country obviously has more immediate concerns.

As has been emphasized many times already, the Philippines is not Sri Lanka; the factors leading to Sri Lanka’s collapse are unique in many ways, and China would not find the same sort of opportunity here. That is not to say that China wouldn’t find some other opportunity because after all, it has already made significant inroads into the Philippines’ energy and telecommunications sectors, and it has a similar strategic incentive to do so as it did with Sri Lanka. Sri Lanka and its now Chinese-controlled deep water port virtually astride a key shipping route, lies squarely on the flank of China’s dangerous rival, India. The Philippines, already China’s opposition in its maritime control aspirations, offers the opportunity to render that dispute moot, as well as another front against renegade Taiwan.

Thus, regarding Chinese offers of assistance with a great deal of skepticism and careful understanding of the terms presented is certainly prudent. That does not mean every potential deal will be unfavorable, and the ones that are not should not be refused; but the default assumption of the last administration that anything offered by China is beneficial is naïve and reckless, and needs to be rejected.

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Twitter: @benkritza