Though China terms baseless India’s worries that it is trying to establish foothold in India’s neighbourhood by trapping countries in a debt trap, its steps say otherwise.
India’s neighbourhood countries that China is eyeing are Pakistan, Bangladesh, Sri Lanka, Nepal and Myanmar. Having a strong Chinese presence in these countries would give China strategic advantage over India. So, China, in the name of building economic corridors linking Asia, Africa and Europe, offers these countries huge loans for infrastructural projects at higher interest rates and when these economically poor countries are not able to repay the loans, China acquires controlling stakes in them, as high as 85 per cent.
China rubbishes all such claims and says in its One Belt One Road or Belt & Road (OBOR or B&R) is a venture aimed at mutual benefit for all in the region. But an editorial in Global Times, one of the official publications of China, has clearly stated that “it should be made clear that the B&R is not a charity program, and most projects under the initiative are reciprocal, rather than aid.”
Though the editorial is written in context of an Indian publication’s report that claims that China is trying to convert its soft loans to Bangladesh to commercial credit, it gives a hint of what the Chinese designs are going to be, especially in countries where China is investing heavily in projects under its One OBOR or B&R initiative.
Pakistan is the classic case here where China is establishing China-Pakistan Economic Corridor (CPEC) with an estimated investment of $50 billion that could go up to $75 billion. Though Pakistan’s power elite sound bullish with CPEC as if it will miraculously transform Pakistan, protesters and activists in Pakistan rue that the mammoth infrastructural exercise, that passes through the disputed territory that India considers its own, will convert Pakistan into a Chinese colony.
China is already acquiring controlling stakes in projects in Myanmar and Sri Lanka. According to a Reuters report, China has demanded 70-85 per cent stakes in the projects funded by China in Myanmar including Kyauk Pyu, a strategic deep sea strategic on the Bay of Bengal. In Sri Lanka, China funded projects Hambantota Port and Mattala Airport, both strategically important, especially for India, have gone into China’s control. With Bangladesh, China signed projects worth $25 billion during Chinese President Xi Jinping’s Bangladesh visit in October 2016. Earlier this month, Nepal signed a $ 2.5 billion deal with China to build the country’s largest hydroelectric dam. In May, Nepal and China signed a MoU on OBOR.
China, known for territorial expansionism and autocratic rule, is also an economic powerhouse now. It is now financially big enough to first pump its money in small, poor nations and then acquire controlling stakes in organizations as the nations fail to repay, be it the poor or financially weaker nations of Asia or Africa and the editorial narrative that “China needs to take a more sophisticated approach in clarifying its loan arrangements in overseas cooperation and should maintain its bottom line by avoiding interest rate competition in loan offerings” fits in the expansionist mindset of its one-party regime.
Soft loans come with symbolic interest rates of around 1 per cent or even less or in some cases with no interest rates and are given to the borrowers for development projects while commercial credit is given at much higher interest rates. The editorial argues that “there is no need for China to compete with other countries in offering competitive interest rates just to please partners or win contracts, to the detriment of its own interests” referring to India’s $7.5 billion line of credit to Bangladesh at a nominal interest rate.
Pakistan, Bangladesh, Nepal, Sri Lanka, Myanmar, all these countries are in India’s neighbourhood. China is either funding huge projects there or has signed deals worth multiple billions of dollars. And as it intends to charge a much higher interest rate for its loans, something that may result in countries defaulting on Chinese loans and thus ceding the projects’ control to China, India has a valid reason to get worried, especially after the historically hostile attitude that China has harboured against India. China has always tried to encircle India by increasing its presence in the South Asian countries.