The true price of accepting Chinese cash – China’s debt-trap diplomacy snares our Asian neighbours

It wasn’t long ago that local entrepreneurs in Sri Lanka’s remote Hambantota district were running “white elephant” tours of the sleepy town’s Chinese-funded, multi-billion-dollar attractions.

They would start at the international airport dubbed the “emptiest airport in the world” and move on to the port with no ships, and finally the cricket stadium.

In symbolism not lost on the home team, wildlife officers were deployed at the last international match there in July to keep elephants from the ground.

What else was there to do but laugh at the obscene folly of former president Mahinda Rajapaksa who in 2009, flush with success from his brutal suppression of a 27-year Tamil insurgency, sought to cement his legacy in epony­mous vanity projects in his home town of 11,000 people on the country’s southern tip?

When international lenders baulked at the project, Rajapaksa turned to the country least interested in his government’s poor human rights and corruption rec­ord, and most eager to lend money: China.

Nine years on, and few in Hambantota — or anywhere in Sri Lanka for that matter — are laughing.

Last month, Hambantota Port was handed over to a Chinese state-owned company under a 99-year lease deal widely cited as a cautionary tale on the debt legacy of Chinese investment in Asia and the Pacific.

Mahinda Rajapaksa International Cricket Stadium in Hambantota, Sri Lanka.

The $US1.1 billion ($1.4bn) deal was the only option for an administration that inherited a mountain of Chinese debt on a series of infrastructure follies it had no ­capacity to service.

China lodged a diplomatic protest with Canberra this week over comments made by International Development Minister Concetta Fierravanti-Wells that Beijing was financing white elephant projects across Pacific nations with ­onerous loans.

“I’ve gone to (the Pacific) ­islands and you’ll be driving along some back road and all of a sudden you see this Chinese road crew building a road to nowhere,” Ms Fierravanti-Wells said.

“We don’t know what the consequences are when (Pacific ­nations) have to pay back some of these Chinese loans.’’

Chinese state news service Xinhua accused Australia of “behaving like an arrogant overlord” in the Pacific in an online opinion piece.

“If Australia really cares about its Pacific neighbours, it should first learn from China to treat those much smaller neighbours as equals and refrain from behaving like an arrogant overlord,” Xinhua’s Xu Haijing wrote.

“Then it could learn, again from China, to contribute constructive ideas, if not funds, to ­address the real concerns of the peoples in those countries.”

These days a “real concern” among many Sri Lankans is that their debt to China has compromised the country’s sovereignty.

The Mattala Rajapaksa International Airport in Hambantota, dubbed ‘the emptiest airport in the world’.

Examining Sri Lanka’s disastrous experience last September, an article in The New York Times suggested it could be a “harbinger for debt crises to come” and that other recipients of Beijing loans under its massive Belt and Road Infrastructure initiative — such as Pakistan — could soon also find themselves struggling to repay and forced to swap key ­assets for debt.

The new Sri Lankan government came into office in 2015 promising to offload debt and unravel some of the more controversial Chinese contracts, including a reclamation project of Chinese-built, owned or operated high-rise apartments, hotels and office space in the middle of the capital, Colombo.

In the end the high-debt load made Sri Lanka “beholden to China, constraining its choices” and forcing even greater concessions that have ceded further ­control to Beijing, says David Brewster, a senior research fellow at ANU’s National Security ­College.

That is not to say all Chinese investment should be seen as a grand conspiracy to seize foreign assets and wield foreign policy clout, certainly no more so at least than any other great power, he adds.

Nonetheless, Hambantota’s $US1.5bn port is a glittering prize for China, sitting as it does on the edge of the vital Indian Ocean shipping lane through which 80 per cent of China’s imported oil passes.

A 99-year-lease on that port, which China is now extending with a neighbouring industrial zone, nails down a key plank in its grand plan to build a modern Silk Road land and maritime trade corridor with its Asian neighbours, the Middle East, Africa and Europe.

Brahma Chellaney, a China analyst with New Delhi’s Centre for Policy Research, says “Australia has woken up rather late” to what he calls China’s “debt-trap ­diplomacy”, given the foreign policy challenges it faces should ­Pacific states trapped in debt to China lose their decision-making autonomy.

Hambantota Port was handed over to a Chinese state-owned company under a 99-year lease deal widely cited as a cautionary tale on the debt legacy of Chinese investment.

Professor Chellaney says India has become increasingly alarmed over China’s “creditor imperialism” in the Indian Ocean.

“Just as European imperial powers employed gunboat diplomacy, China is using sovereign debt to bend other states to its will,” he wrote last month in an opinion piece for Project Syndicate.

“As Sri Lanka’s handover of the strategic Hambantota Port shows, states caught in debt bondage to the new imperial giant risk losing both natural assets and their very sovereignty.”

China’s past and possibly ongoing bailout of the Malaysian government’s corruption-plagued 1MDB state development fund — said to owe $US6.5bn to an Abu Dhabi state investment arm — has also raised questions over what Beijing will expect in return.

Chinese state-owned enterprises bought $US2.3bn worth of 1MDB-owned power plants, a deal that also involved assuming an unspecified amount of debt.

James Chin, a Malaysia analyst and director of the University of Tasmania’s Asia Institute, says there is an implicit quid pro quo in China’s buyout of 1MDB assets that has already affected Malaysia’s foreign policy.

“For instance, one thing they really needed (Prime Minister Najib Razak) to do was tone down the Spratly Island issues, which you can see has happened ­already,” he said, referring to China’s island-building in the disputed South China Sea.

China’s economic clout with Cambodia and Laos had earlier helped it foil a united ASEAN stand against its aggressive pursuit of South China Sea dominance. Similarly, Chinese infra­structure investment pledges in The Philippines have gagged a formerly vocal opponent to its ­expansionism.

Even closer to home, Canberra is monitoring Chinese investment in East Timor as our tiny neighbour seeks urgent ways to diversify its oil and gas-dominated economy before reserves run dry in the next few years.

In recent years, Beijing has ­financed the construction of East Timor’s presidential palace, its military headquarters and its foreign affairs ministry building that — so the joke goes — is held ­together with Chinese listening devices.

New Delhi meanwhile is watching Beijing’s expanded presence in Indian Ocean nations — Pakistan, Sri Lanka, Maldives and Bangladesh — for fear it could lead to “strategic encirclement” through Chinese-controlled ports. A week after Beijing took control of Hambantota port, India ­reportedly bid $US300 million to secure a 40-year lease on the nearby “ghost” airport to foil any plans Beijing might have to convert the port into a naval base.

China opened its first overseas military base last year in Djibouti, a tiny Horn of Africa nation now heavily indebted to China after taking on billions of dollars in unserviceable loans. There have been rumours this week of plans to develop a second naval base in Pakistan to supply and service Chinese ships.

That is a worst-case scenario for New Delhi, which fears ­Chinese warships could one day be stationed at Pakistan’s Gwadar Port, a Beijing-financed deep water port on the Arabian Sea near the strategic Strait of ­Hormuz shipping lane through which India ships much of its ­imported oil.

Last year, China secured a 40-year lease over that port, too, the centre piece of its $US62bn China-Pakistan Economic Corridor that Pakistan hopes will kickstart its fragile economy. The 3200km land corridor from Xinjiang to Gwadar connects China with the Middle East and Central Asia, and cuts 10,000km off the ­alternative sea route via the ­Malacca Strait.

Both the World Bank and International Monetary Fund have warned that the Chinese loans, offered at rates as high as 7 per cent, could place unsustainable ­financial strain on Pakistan and force them to step in with another massive bailout.

Fears over the Gwadar port may have helped motivate New Delhi to join revived quadrilateral talks with Japan, the US and Australia last November. India will need deeper engagement with all three nations to counter China’s growing maritime power.

Professor Chellaney says all Asia Pacific powers must now do more to co-ordinate their ­response.

“Right now, each country is seeking to deal with this issue individually, which allows China’s strategy to gain momentum through smaller nations,’’ he said.


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