Partners in Beijing’s regional economic programme put off by terms of big-ticket infrastructure and energy deals.
China’s attempts to extend its economic influence across south and southeast Asia have encountered a series of setbacks as nations participating in Beijing’s Belt and Road Initiative (BRI) suspend and seek to renegotiate projects, amid fears of racking up debt to China and surrendering economic sovereignty.
From Pakistan to Thailand, government unease over the perceived onerous terms of some infrastructure schemes suggest that BRI partners are wary of becoming over-reliant on China, which professes a desire to promote development cooperation yet seeks often to extract maximum strategic and commercial benefit from the projects it funds.
Launched in March 2015, BRI is a state-led enterprise aimed at creating a land and maritime network of trading hubs and transport corridors across Asia and the Middle East, connecting China to Europe. Nine hundred billion dollars’ worth of loans are being extended to projects ranging from ports, railway lines to special economic zones as a means of promoting commercial links with Beijing.
Concerns over BRI saddling countries with unsustainable debt and exposing them to creeping Chinese ‘economic colonisation’ have been raised following the experiences of Pakistan and, in particular, Sri Lanka, Beijing’s key partners in the region. Both are now deeply in hock to China – and have seen BRI-funded ports being effectively handed over to the Chinese: through a 99-year lease in the case of Hambantota in Sri Lanka and a 40-year revenue sharing and control agreement for Gwadar in Pakistan that grants Islamabad just 9 per cent of revenue, according to the Pakistani newspaper Dawn.
In November, around the time the Gwadar terms were disclosed in the Pakistan Senate, Islamabad withdrew its request to include the $14 billion Diamer-Bhasha dam in the China-Pakistan Economic Corridor, a major BRI project which includes Gwadar, reported the Pakistani newspaper The Express Tribune. It quoted the chairman of the country’s water and power development authority, Muzammil Hussain, as saying, “Chinese conditions for financing the Diamer-Bhasha dam were not doable and against our interests.”
Pakistan’s new government, sworn in last month, is reportedly planning to review or renegotiate CPEC project agreements, having already said it would bring them before parliament to ensure transparency. A cabinet official Abdul Razak Dawood told the Financial Times last week that the former administration had done a “bad job” in negotiating with China over CPEC, not doing “their homework correctly”, and in the process “gave away a lot”.
Following his extraordinary election victory over Najib Razak in May, Malaysia’s new premier, 93-year-old Mahathir Mohamad, has been making good on his election pledge to review Chinese-funded infrastructure projects. He has described the contracts for some as “unfair treaties”.
Over the course of Najib’s premiership, Chinese investment in Malaysia, regarded as a strategic crossroad in Asia, poured in, but with Mahathir now at the helm Beijing will find Malaysia more circumspect in BRI negotiations. Last month, following a trip to Beijing, he cancelled three BRI projects, a railway and two energy pipelines worth more than $20 billion. “It’s about borrowing too much money, which we cannot afford, we cannot repay…,” he said.
In Myanmar, the country’s de facto leader Aung San Suu Kyi has actively promoted ties with Beijing which had soured in late 2011 after the $3.6 billion Myitsone dam project was suspended following a public outcry over its environmental and social impact. The facility would have transmitted 90 per cent of its power to China.
But now, according to Reuters, fears over debt are behind Myanmar’s efforts to seek a big reduction in the scale of the Chinese-backed $7.3 billion Kyauk Pyu port project on the Indian Ocean, which receives oil and gas shipments piped to China’s Yunnan province. Myanmar’s planning and finance minister, Soe Win, told the Nikkei Asian Review in July that it was important to heed “lessons that we have learned from neighbouring countries that overinvestment is not good sometimes”.
In an effort to lessen their dependence on China, Thailand has proposed a new regional fund to be jointly managed with Cambodia, Laos, Vietnam and Myanmar. Contributions from financial institutions and countries outside the region would be welcomed and funds would also be raised by issuing debt for projects. The plans send a message to Beijing that it cannot have things all its own way when negotiating BRI projects.
While Chinese investment is bolstering Asian countries in the short term, recipients are becoming more alert to the high price of economic partnership down the line. There is mounting evidence that many BRI enterprises are contributing to unsustainable levels of debt and allowing Beijing to gain sizeable stakes in strategically important assets. China must listen to the complaints of its Asian partners. Otherwise, far from being an emblem of cooperation across the region, BRI is likely to become a growing source of serious friction.