When the previous Sri Lankan government invited China to invest in Sri Lanka as part of an ambitious port development project, little did they realize that they would end up coughing out a strategic port in Hambantota as part of debt recovery. In 2015, Sri Lanka had to lease out the port and 15,000 acres of land around it for 99 years as it was unable to keep up with the repayment schedule with China.
Similar instances of countries’ being forced to do away with strategic assets like ports, railway links and mines have been reported in countries like Kyrzygstan, Djibouti and Maldives. The Chinese debt unlike other global financial assistance is ruthlessly designed to lure the beneficiaries in the beginning and then lead them to the vicious lending-default-borrowing-lending cycle. The Chinese loan carry higher interest rates and shorter maturities, requiring refinancing in every two years or less where strategic national assets are used as collateral. Those features enabled Chinese state-controlled banks to lend to poor countries.
The Chinese modus operandi under Xi is designed to encourage developing countries into a spending spree on various infrastructure projects. The Kiel Institute, a German research group, pegs China’s lending to the developing world upwards of $520 billions, with the vast majority doled out in the last few years.These investments are like the prophetical Trojan horse that enters the national economic structure under guise of developmental projects and then takes the country to a never-ending ‘debt trap’. Djibouti’s debts to China increased by more than 80 percent of its annual economic output. Ethiopia’s debt to China is estimated at around 20 percent of its annual output. In Kyrgyzstan, the amount is believed to be 40 percent.
Pakistan appears to be heading in the same direction. PM Imran Khan envisaged a vision of ‘Naya Pakistan’ and introduced a strict anti-corruption drive by bringing in stringent laws to punish the corrupt in Pakistan, whom he squarely blamed for the current economic state of the country. The people of Pakistan applauded him for his initiatives. Significantly, however, Khan seems to be silent over the allegations of massive corruption and malpractices in the projects under the China Pakistan Economic Corridor (CPEC). Slated as an ambitious project, CPEC was signed between the Chinese government and the former PM Nawaz Sharif. Apparently, ‘Panama Papers’ even mentions Nawaz Sharif receiving huge kick back money from the Chinese companies. Inputs suggest that the all-powerful Pakistan Army, which is largely responsible for bringing Khan to power also has a huge role to play in forcing him to look the other side on CPEC projects.
The $62 bn CPEC, which was believed to pull Pakistan out of its dire economic straits has recently run into controversy after the Independent Power Producers(IPP) enquiry reports were made public. The IPP enquiry was commissioned by Khan to bring out irregularities in the power distribution and tariff system. It has come out with a report that has incriminating evidences of gross mal practice and over payment to few companies. Notable amongst them are, two Chinese funded projects under CPEC, namely the Huaneng Shandong Ruyi (Pak) Energy (HSR) or the Sahiwal and the Port Qasim Electric Power Company Limited (PQEPCL) coal plants.
For these two projects, worth $3.8 billion, the enquiry committee found overpayment of Rs.483.64 billion or approximately $3 billion. This includes overpayment of Rs. 376.71 billion to HSR and Rs. 106.93 billion to PQEPCL on account of excess set-up cost, excess return due to excess set-up cost in 30 years, and excess return due to miscalculation in Internal Rate of Return (IRR).
Prime Minister Khan in a public message on 21 April, applauded the enquiry committee and went on record stating that he would take the strictest actions against the perpetrators. Moreover, a month has passed since his claim and the report still remains unheard of in Pakistani media. Incidentally, the Chairman of CPEC Lt Gen Asim Saleem Bajwa has been appointed as the Media advisor to the PM. Bajwa, the ex DG of the Public Relations wing of the Pakistan Armed Forces seems to have brought in his present role to further regulate the media on stories related to IPP reports on Chinese malpractices.
The developing countries are no alien to the Chinese arm-twisting diplomacy. It is believed that the Chinese ambassador to Pakistan called on the Pakistani Foreign Affairs minister Shah Mahmood Qureshi and warned him strictly against the report findings going public or against any action initiated to harm the reputation of the Chinese projects. Pakistan understands that Beijing will not take kindly to any criticism of President Xi’s pet project BRI of which CPEC is an integral part. It is also aware of it’s vulnerability when it has already requested China for a debt restructuring plan due to the global economic slowdown post the Coronavirus pandemic.
While, the “select few” beneficiaries of these are likely to be unaffected by the findings of the report, the poor Pakistani public is on the verge of another power hike. The power tariffs in Pakistan are already amongst the highest in the world. This is rather ironical, considering the fact that Pakistan produces surplus power. The demand remains low and production high, but the misrepresentations by the Chinese firms and the malpractices in the projects have to be made good and charging the consumer is the only viable option left. The high-power tariffs in Pakistan has already forced many small-scale industries like textiles and marbles to squeeze production.
It was announced that the tariff could increase by Rs 24.17 per unit in the next month. This would land a heavy blow on the power dependent sectors in an already bleeding economy. The IMF has been pushing Pak officials hard to narrow the gap between revenue and expenditure by raising taxes and power tariffs, literally asking the Pak public to foot the Chinese bill. Given Pakistan’s history of high-levels of corruption and China’s rapacious practices, the Pakistani public appears to have no alternative but to pay more for the anticipated prosperity that the CPEC is supposed to usher. While, the Chinese complicity is blatant, the firms have shown no signs of adjusting the excess payments.
China is yet to give any clear indications on its debt restructuring plan post Covid 19 pandemic after a request by many poor countries. While the G20 has decided to freeze interest on all loans for the year, China says it will have specific plan for each country. This is a clear indication that China want the debtors to remain divided and not stack up against it. The countries with similar arrangements under BRI are in all likelihood falling into the set Chinese trap. The Chinese strategy is straight- they offer a lucrative loan under the Exim policy that a developing country is more than eager to take. However, the caveat remains that the loanee has to select a company chosen by China for the said project. This is how China pushes its Trojan Horse into these poor countries with a weak economic backbone and then subjugates the host.
Although, the pandemic has pushed the global narrative against China and it is on a PR overdrive to improve its image, it is likely to pursue its ‘debt trap policy’ in a more aggressive way than ever before. The US China trade war complemented by the global aversion towards Chinese economic hegemony has made it a wounded dragon, viler and more dangerous in its approach. It is about time that developing economies understand the Chinese trap and stay clear of it. As for Pakistan, it has already put itself under subservience, thanks to the CPEC projects. Transparency is impossible with the current benefactors in control calling the shots- The Pakistan Army. Imran Khan can only walk as far as the leash is loosened by the Army.