7 Oct 17/Saturday
The latest in a tussle over Chinese investments in Hambantota, a southern town near an important shipping route, where China controls the sea port and plans an industrial zone for Chinese firms and a $3 billion refinery with annual output of around 5 million tonnes. A Chinese based company Huanqiu Contracting & Engineering Corp, a subsidiary of state-owned China National Petroleum Corp, and private refiner Shandong Dongming Petrochemical Group have jointly bid for the refinery located near the port. However, Sri Lanka has rejected the proposal which it perceives as a threat to its small but growing domestic market. This year, Sri Lanka revised the terms of its deal with China Merchants Port Holdings which has a 99-year lease on the Hambantota port, to give greater influence to a local state-run partner.
Probably Sri Lanka has learnt its lesson and thus the resistance. It is interesting to see how some countries, overwhelmed by their debts to China, are being forced to sell to it stakes in Chinese-financed projects or hand over their management to Chinese state-owned firms. In financially risky countries, China now demands majority ownership up front. For example, China clinched a deal with Nepal this month to build another largely Chinese-owned dam there, with its state-run China Three Gorges Corporation taking a 75% stake. Likewise, last October, China cancelled $90 million of Cambodia’s debt, only to secure major new contracts. Also, several of these projects that have been completed are now bleeding money. For example, Sri Lanka’s Mattala Rajapaksa International Airport, which opened in 2013 near Hambantota, has been dubbed the worlds emptiest. Hambantota’s Magampura Rajapaksa Port remains largely idle and so does the multibillion-dollar Gwadar port in Pakistan.
By integrating its foreign, economic, and security policies, China is advancing its goal of fashioning a hegemonic sphere of trade, communication, transportation, and security links. If states are saddled with onerous levels of debt as a result, their financial woes only aid China’s neo-colonial designs. China through OBOR initiative, is supporting infrastructure projects in strategically located developing countries, like Sri Lanka, Nepal, Bangladesh and Pakistan often by extending huge loans to their governments. As a result, countries are becoming ensnared in a debt trap that are leading these countries to a vulnerable to China. Extending loans for infrastructure projects is not inherently bad. But the projects that China is supporting are often intended not to support the local economy, but to facilitate Chinese access to natural resources, or to open the market for low-cost and shoddy Chinese goods. In many cases, China even sends its own construction workers, minimizing the number of local jobs that are created. For China, however, these projects are operating exactly as needed: Chinese attack submarines have twice docked at Sri Lankan ports, and two Chinese warships were recently pressed into service for Gwadar port security. Countries that are not yet ensnared in China’s debt trap should take note and take whatever steps they can to avoid it.