India has decided to stay away from the second Belt and Road Initiative (BRI) summit which began in Beijing on 25th April 2019. 37 leaders, including Russian president Vladimir Putin, Italian Prime Minister Giuseppe Conte, UK Chancellor Philip Hammond Pakistan’s Prime Minister Imran Khan and the heads of state of the 10 ASEAN (Association of South-east Asian Nation) states are attending the event. The US has reportedly sent low-level delegates, and India is not attending.
From a high moral ground Wang Yi, China’s Foreign Minister stated in 2018: “ Belt and Road is not a ‘geostrategic concept’ but a part of efforts to build a community with a shared future for mankind together with countries around the globe.” The initiative was unveiled by Chinese paramount leader Xi Jinping in September and October 2013 during visits to Kazakhstan and Indonesia. Subsequently, it was promoted by Premier Li Keqiang during state visits to Asia and Europe. The initiative was given intensive coverage by Chinese state media. He said “Indeed, B&R is the connectivity of system and mechanism. To construct a unified large market and make full use of both international and domestic markets, through cultural and integration, to enhance mutual understanding and trust of member nations, ending up in an innovative pattern with capital inflows, talent pool, and technology database.”
India has not joined BRI on impeccable grounds. Countries like Turkey, Poland, Spain, Fiji, Sri Lanka, and Argentina have decided not to attend BRI summit this time owing to contentious concerns. The concerns are regarding the funding pattern and objectives of the plan. India has the guts to call a spade, a spade. It does not mince its words in bringing about the fact that big Chinese loans under BRI are coercing countries towards a debt trap.
Attractive Trap: Would All Borrowing Countries Meet the Same Fate as That of Sri Lanka?
Countries which would be benefitting from the project are turning more cautious. Sri Lanka, Malaysia, and the Maldives have genuine concerns about the programme. Recipient countries are perturbed about debt accumulation and increased Chinese influence. Sri Lanka has been particularly affected – it had to hand over control over of Hambantota port to China in 2017 to help repay foreign loans.
Tom Rafferty, the China economist at The Economist Intelligence Unit, commented China is using this week’s summit to “reposition and, it hopes, revive the initiative after it lost its way in 2018 amid project delays and a slowdown in associated lending.” He further stressed that the Chinese government “wants to convince the international community that the Belt and Road Initiative is inclusive and policy concessions in areas such as debt sustainability” are likely.
China’s finance minister tried on April 25, 2019, to dispel complaints that its Belt and Road infrastructure-building initiative leaves developing countries with too much debt, promising “sustainable financing” as leaders gathered to celebrate the project. Although many developing nations have welcomed the initiative to increase trade by building ports and other facilities in a region the Asian Development Bank says it needs $26 trillion of investment by 2030 to keep economies growing. On the other hand countries including Malaysia and Thailand have either canceled or scaled back projects due to high costs. Some other countries are struggling to repay Chinese loans. Beijing will pursue “stable and sustainable financing,” said the finance minister, Liu Kun, at an event held ahead of the start of the second Belt and Road Forum. Chinese regulators will work with banks and multinational institutions to “build a high-quality, high-standard, sustainable financing system,” said Liu Kun.
US$440 billion have been provided by Chinese lenders in financing. Though details of how much has been repaid or how much is deemed to be at risk of possible default are not known. In addition, some 500 billion Yuan ($75 billion) has been raised in Chinese bond markets, according to Yi, who spoke at the event with Liu. On April 24, 2019, Ethiopia expressed its elation on having being forgiven interest owed through the end of 2018 on Belt and Road loans to the northeast African country. Little did it realize that the carrot being shown and offered, is just a caveat to lure the gullible country into debt whirlpool. Chinese-led projects are also alleged to cause environmental harm or/and allow corruption.
Taking a holistic view BRI is expected to bring the following benefits to China:
(a) New export markets
(b) Tariff reduction
(c) Promotion of Chinese currency
(d) Access to new trade routes
(e) Political influence
Although all the above reasons deserve attention, the third and fifth items should be of utmost concern to the world in general and the US in particular.
A subtle, gradual but sure effort to make Renminbi the dominant currency of the world
China is following a recipe of what it takes to become a dominant currency. Although currently, the Yuan remains far behind the US dollar in international financial transactions one cannot ignore the fact that Renminbi has already surpassed the Euro as the second most widely used currency in global trade finance. China is insisting it’s trading partners to invoice in Renminbi, the official Chinese currency. Although at present US Dollar is the numero uno currency of the world, yet in the longer run, if the gap between the U.S. and one of these other economies widens far enough, the dollar may potentially fall on‚ the world stage to a very substantial extent, much as the British pound sterling did in the early part of the 20th century. Though presently there is no imminent threat to US dollar as a world currency, however, in the longer run, if the gap between Chinese and the US shares in the world exports widens far enough, we could eventually get to a point where a renminbi-dominant equilibrium becomes inevitable.
De-dollarization, if it succeeds will have a major impact on US currency value. This will, in turn, devalue the US dollar position which will dethrone the ‘petrodollar’ (means for settling international trading in oil). China intends to weaken the petrodollar by promoting the use of their own currencies for trading oil and for other commercial transactions which will come in the form of bilateral currency agreements. For example, the $400 billion Russia/China natural gas deal of 2014 was actually a zero dollar agreement. Payment for the gas was settled in Roubles and Yuan, thus avoiding transactions in US currency. In fact, there are already murmurs of Yuan replacing Pakistani Rupee as dominant currency as a fall out of CPEC projects in Pakistan. This brings us to a highly relevant question:
Does China have a hidden agenda of replacing the US Dollar with the Chinese Yuan as the world currency?
26 Apr 19/Friday Written by Naphisa