From the article:
Chinese engineers are drilling their way through the green hills of Laos, clearing a path for a railway that one day may traverse South-East Asia. Each time they complete a tunnel—at least three times in the past month—they hold a brief ceremony, waving Chinese flags for the cameras. They are celebrating not just their engineering success but also the evidence before them that the Belt and Road Initiative (bri), China’s global infrastructure-building scheme, is making progress. The full railway is a long way off. Work has barely begun in Thailand, the next link. But the section in Laos should be in use by 2021.
It will be a test of what many see as a big economic danger of the bri: that it will saddle poor countries with unmanageable debts. China insists that its tens of billions of dollars in loans and investments are fostering global prosperity—a message that it is sure to repeat to foreign leaders attending the second Belt and Road Forum, which takes place from April 25th to 27th in Beijing (pictured is a floral display marking the event). But worries about the cost of the bri, a project closely linked with President Xi Jinping’s foreign policy, have become widespread. Malaysia, Pakistan and Sierra Leone are among a growing list of countries that have delayed or scrapped China-led projects.
There are three main concerns about the bri’s financial consequences. The most extreme is that the scheme involves what is pithily described as “debt-trap diplomacy”. In this view, China is deliberately overloading weak countries with loans; when they buckle, it seizes their assets and influences their politics. This idea has featured in speeches by some American officials, including the vice-president, Mike Pence, who see bri as an attempt to undermine America’s global influence.
Yet the investments funded by Chinese cash are not in China, so China has limited ability to grab assets when governments default. If it pushes too hard it may merely stoke antipathy. Instead, it usually responds by reducing the amount of money that debtors have to repay. Countries with longer records of lending to poor countries often do the same: the Paris Club of creditors was formed in 1956 to devise ways of reducing defaulters’ debt loads. The Centre for Global Development, a think-tank in Washington, has counted more than 80 cases between 2000 and 2017 in which China provided relief to its debtors overseas.
An oft-cited example of China’s supposedly predatory approach involves Hambantota, a Sri Lankan port which has flopped commercially. In 2017 Sri Lanka handed control of the port to a state-owned Chinese company on a 99-year lease. But Deborah Brautigam of Johns Hopkins University says that of more than 3,000 China-financed projects that she and others have tracked, Hambantota is the only one that is used in support of the debt-trap theory. It is the exception, not the rule.
What it lacks in malevolence, the bri may make up in clumsiness. This is the second concern: that China is lending to vulnerable states without sufficient caution. Take a group of 37 poor countries monitored by the imf. Loans from traditional bilateral lenders, including America and Japan, have declined from 7% of the debtors’ gdp to 2% over the past decade. Loans from China, by contrast, have soared from virtually nothing to 4%.
It is welcome that China is supporting hard-up nations. But its enthusiasm generates foolhardiness. David Dollar of the Brookings Institution in Washington has found that Chinese development lending appears indifferent to political and economic risks. The Centre for Global Development has identified eight countries drowning in red ink that could be further swamped by bri projects (see chart). A report in December released by Peking University ranked 94 bri countries based on measures such as the quality of their financial regulation and their openness to trade. Pakistan came second to last. That is awkward for China: Pakistan may receive as much as $60bn in bri loans, which would make it the biggest recipient of all.
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