However, critics have argued that BRI is no more than a push by the Chinese government for global dominance, driven by economic greed of developing nations. Better known as debt-trap diplomacy, economic experts have pointed out that BRI encourages indebtedness among developing nations, giving China economic leverage should these countries fail to repay. Indeed, Chinese loans are becoming insurmountable for many, forcing nations to give up control over key state companies and land in exchange for loan extension and debt forgivenesses.

A survey done by the Peking University and Beijing-based Tiahe Institute revealed that nearly half of the 100 countries evaluated were not suitable to participate in the BRI due to their poor financing means and weak infrastructure. These countries are labelled as high-risk nations due to their high probability of defaulting on loans. Considering this, is BRI an act of Chinese altruism, or a well-strategized world domination plan?

Debt Trap Diplomacy

Debt trap diplomacy refers to the forging of a debt-based relationship where the wealthier nation engages in excessive lending that puts lending nations in distress. A trap is set up where poorer nations plunges into a debt abyss, tormented by the rising interest payments and constant payment schedules.

This has appeared to be the case for BRI where China has gained significant economic and political leverage through a systematic bankrupting of the borrowing nations. Dubbed by China as a win-win situation for all, BRI has without a doubt filled in the monetary vacuum by providing the necessary loans to fund key infrastructure projects. However, given the poor credit rating of these poorer nations, many BRI projects are at risk of a default. Thus in reality, BRI creates more of a ‘your land is mine because you can’t pay me’ situation. With many of the debt payments maturing in the coming years, debt trap diplomacy is becoming ever more evident. To detractors of BRI, BRI, the trillion dollar project is a blatant act of economic colonialism. This article will ignore the high-publicized economic corridors and delve into the struggles that poorer nations have faced with their mounting Chinese loans.

Kenya-China: Forging a Debt-ridden Future

China has forged an intimate economic relationship with Kenya over the past year with significant loans taken to finance Kenya’s infrastructure building. These include several major highways and the Mombasa-Nairobi Standard Gauge Railway (SGR). Contracted to the China Road and Bridge Corporation, the SGR connects Kenya’s two major cities, the seaport city of Mombasa and the country’s capital Nairobi. With a distance of 485 km, it runs along the former, now defunct Uganda Railway and was contracted to China Road and Bridge Corporation at a cost of USD3.6 billion . A USD 3.2 billion loan was undertaken by China Exim Bank in 2014 to finance the construction. However, SGR proved to be unprofitable in its first year of operation, making a loss of USD18 million. SGR’s Madaraka Express ferried 1.3 million passenger, or 4,000 passenger a day between Nairobi and Mombasa.

Projects they support are often unsustainable and of poor quality. And too often, they come with strings attached and lead to staggering debt. — US Vice President Mike Pence at 2018 APEC CEO Summit

In November 2018, Moody’s, an American credit rating and research agency, reported that Kenya is at high risk of losing strategic assets due to mounting debts owed to China. With the repayment expected to triple in July 2019 after a five year grace period of low interest, it appears that Chinese lenders may soon take over Mombasa’s Kilindini Harbor, the only international seaport in Kenya. Nonetheless, Kenya President Kenyatta have refuted claims, responding that the country is ahead of the repayment schedule and that the takeover of Kilindini Harbor is pure propaganda. Chinese Foreign ministry Hua Chunying also denied the claims, stating that the “allegation regarding Mombasa as a collateral in the repayment

Nation’s Debt to China as a share of external public debt. Source: Bloomberg & Center for Global Development

Zambia-China: The Takeover of State Entities

Similarly in Zambia, China have proposed to take over the Kenneth Kaunda International Airport as well as state electricity company ZESCO should Zambia fail to repay its huge Chinese loans. In June of 2018, Zambia declared an USD 9.4 billion external debt (or 34.7% of GDP) of which one-third is Chinese loans. While the Zambian government have denied claims with regards to the Chinese takeover of ZESCO, statements regarding the outcome Zambian National Broadcasting Company (ZNBC) have been mixed.

Approval of Conditional Merger to ZNBC and Startimes. Source: Zambia Reports

ZNBC is Zambia’s oldest and largest radio and TV provider and have dominated the industry since its inception in 1988. Zambia Chief Government spokesperson Dora Siliya have previously denied claims that the Chinese government will take over ZNBC as ‘loans cannot be defaulted if the projects are not even completed”. However, in October of 218, reports from Zambia’s Competition and Consumer Protection Commission confirmed a conditional merger between ZNBC and Hantex International Corporation, a subsidiary of Startimes International Holdings Limited. Startimes is a Chinese media company with huge presence in the African region. Under the merger, a joint venture, Top Star Communication Company Limited was formed to assist Zambia’s Digital Migration project.

The latest article published in November of 2018 involved a press release by Zambia’s Cabinet Office that ZESCO will undergo reforms to transform it ‘into a more effective and efficient public utility company’. This has led to differing opinions among the Zambian public, which may have concluded that the government will eventually cede control of ZESCO and Kaunda International Airport.

Sri Lanka-China: The Poster Child of Debt Trap Diplomacy

The opening of Hambantota Port in 2010 by former Sri Lanka President Mahinda Rajapaksa. Source: Quartz

The takeover of Sri Lanka’s Hambantota Port is perhaps the classic case of debt trap diplomacy within the BRI’s sphere.

In 2008, former Sri Lanka president Mahinda Rajapaksa negotiated with the Chinese government for the construction of a USD1.5 billion port at Hambantota. Various studies have shown the infeasibility of building the port as many shipping lines prefer to dock at Colombo, Sri Lanka’s capital and see little benefit in diverting operations south. Nonetheless, Mahinda ignored concerns, commissioning China Harbor Engineering Company and Sinohydro to oversee the construction. In 2012, only 34 ships docked at Hambantota.

In 2017, succumbing to heavy debts and upcoming repayments, the Sri Lankan government negotiated for a USD1.12 billion equity deal. Under the deal, a joint venture was formed where China Merchants Port Holdings Company will hold a 70% stake in Hambantota port and 6,000 hectares of surrounding land as part of a 99-year lease. The equity deal was also part of Sri Lanka’s plan to convert USD6 billion of loans it owns to China. Hambantota port, which lies in India’s backyard, will become a crucial vantage point for China’s navy, which are venturing out of its waters in recent years as a display of military dominance.

If it can carry goods, it can carry troops — Jonathan Hillman, Director of Reconnecting Asia Project, Center for Strategic & International Studies

In an act of resistance or rather, defiance, Sri Lanka announced the shift of its southern naval command to Hambantota Port. This has eased tension in New Delhi, where frequent appearance of Chinese naval ships and submarines have caused unnecessary hysteria in India. In June of 2018, India also took over the Chinese-built Mattala Rajapaksa International Airport in a joint venture with the Sri Lankan government, effectively a checkmate for the Chinese government. Located 40km from the Hambantota port, Rajapaksa airport is dubbed the ‘World Emptiest International Airport’, receiving only one flight a week despite a capacity to handle one million passengers a year.

The Growth of BRI Skepticism

With increasing concerns over the viability of BRI, some nations have moved to limit their risk on BRI projects.

Dr Mahathir Mohamad during his visit to Beijing in August 2018. Source: Washington Post

During Malaysia’s Prime Minister Dr Mahathir Mohamad visit to Beijing in August, he warned of a ‘new version of colonialism’ and announced the deferment of the USD20 billion East Coast Rail Link (ECRL) and two oil and gas pipelines worth USD2.3 billion.

However, citing dilemma between the USD4.9 billion payment that Malaysia has made and the country’s ability to complete the project, Mahathir expressed that the ECRL project could resume on a smaller scale to reduce Malaysia’s spending while ensuring that China does not suffer a loss.

China wants to put tough conditions on the loan contract, demanding that the Chinese government could seize other assets of the Thai government if the Thai government defaults on debt repayments — Arkhom Termpittayapaisith, Thailand Minister of Transport

In Thailand, the nation rejected generous loans offered by Chinese bank and opted to bear the full cost of developing a 606km rail line between Bangkok and Nong Khai Province in northern Thailand. Nonetheless, both have agreed to cut down the distance to 253km, from Bangkok to Nakhon Ratchasima. The Sino-Thai high-speed railway will be divided into 14 contracts, with Chinese state-owned CRRC supplying the necessary technology and blueprint.

The Kyaukpyu Port in Myanmar would be scaled down from its initial USD7.3 billion cost to USD1.3 billion, which is the first of the four phases for the project. Nepal has also abandoned a USD2.5 billion deal with China Gezhouba Group Corporation to build the Budhi Gangki hydropower plant, opting to work with Nepal Electricity Authority (NEA) instead.

BRI a Necessary Evil?

Is BRI necessary to bolster the growth of developing nations? Are there any other way to fast track progress in Kenya, Zambia and Sri Lanka? Are nations like Thailand and Malaysia able to build high-speed railways without China?

The truth is, China has done more good than bad. No organization has been as effective as China in accelerating growth in these nations. Governments of developing nations have been frustrated with international organizations such as World Bank for their reluctance to approve high risk, unprofitable projects. BRI provided them an opportunity, a hope, and a dream. However, many went on a borrowing binge.

WIthout a doubt, BRI is the project of the century and it will expand China’s economic and political scale, albeit at the expense of other countries. Without a definite deadline, BRI could theoretically stretch till China runs out of steam or 2049, the 100th anniversary of the People’s Republic of China and Xi’s theoretical deadline for a “fully developed, rich and powerful” China.

Many developed nations remained uncertain about the complications of BRI and have opted to wait on the sidelines. While the US have openly criticized the BRI, little have been done. Meanwhile, organizations such as the United Nations, World Bank and Asian Development Bank on the other hand have opted to provide additional funding, consulting work and the necessary blueprint for infrastructure building. As BRI gain traction and more borrowing nations default, Chinese hegemony looms just around the corner.

Soon, it may be too late to lend a helping hand.