Present and future of the BRI, high debt levels and its political consequences.
4. HIGH DEBT LEVELS AND ITS POLITICAL CONSEQUENCES
One of the biggest risk facing the BRI are the high debt levels of the recipient countries, that put in great danger the economies of some of the countries along the corridor. Here we must ask ourselves what are the intentions behind the enormous involvement of China in these countries.
4.1. High debt levels.
In Laos, China is founding a high-speed rail that will cost the country half its GDP. In Pakistan, the IMF is in talks with the government to get a bailout. They cannot deal alone with the debt left by the infrastructure investment deals signed with China. For years, international organizations have been avoiding and criticizing these investments, in an effort to shine light to the lack of transparency and risks related to the high debt levels assumed by these countries.
On the left axis, Figure 4.1 shows the money invested in BRI projects, while the right axis shows its relation to GDP. Blue dots show that in countries like Lao PDR and Timor-Leste, the investment done through the BRI amounts to more than their entire GDP. These are small countries, with a smaller GDP. There are other countries like Pakistan or Malaysia, who have invested each around 60 Billion US$ with the initiative, and do not have BRI debts that represent more relative to their GDP. The general trend shows that debt-to-GDP ratios are augmenting in a constant rate across the developing world, not just because of the increasing investment of this initiative, but as an increasing trend of investment of the different international entities in these countries.
Figure 4.1: BRI financing in Belt and Road corridor economies
Source: WIND database and World Development Indicators.
Before the second BRI forum, China was undergoing a marketing and publicity problem. Some of these countries spoke out and talked about the abuses from China, the danger of the debt that they are getting into and the fear of China exerting land due to the contracts signed.
More recently, China has started talking about sustainable debt. They went as far as to add it to their constitution: “Working with the international community would help China further reduce risky loans and ensure sustainable return on investment”. This can be seen as a sign that the direction going forward has changed. They want to consider sustainability issues regarding the construction and the loans, as well as ensure the safety and long term stability of the countries they invest in. This could also mean nothing since principles, rules and beautiful ideas are easy to think and write on paper, but rarely translate into reality.
Estimated BRI debt financing is expected to be considerable for a handful of countries including some with current debt vulnerabilities. In numbers, the cost of BRI transport projects in the countries that lie along the economic corridor is estimated to range between 144$US Billions and 304$US Billions at the moment. The numbers change a lot depending on how the project is measured.
Moreover, large infrastructure projects usually incur in over costs. Some of these investments do not make economic sense. For example, the second international airport that has been built in Kenya, is currently empty and seems to be going to stay that way for some time. Maybe in ten or twenty years, people will start using it because of the increased inflow of international people, but not next year.
These investments take place in the context of rapidly rising public debts, as countries get themselves into consecutive loans and projects, instead of prioritizing the job and the resources of the country. Transport projects can create wealth for these countries, but for some countries the costs of new infrastructure could outweigh the gains. It would require further study to know how these countries are going to overcome their debt problems, and we are yet to see how are they going to maximize the utility of those installations. They will need to find resources to be able to repay their debts before they become a danger to the economy.
4.2. BRI study cases
Since this is a very wide and dubious matter, we will study the political consequences through study cases that will allow a better understanding of the matter at hand.
The Port of Piraeus, in Greece, is the largest passenger port in Europe, in the latter years it has also become an important hub for containers and goods trade between china and Europe (Amaro, 2019). It was bought in 2009 by COSCO, the China Ocean Shipping Company. COSCO bought it to the Greek government when they were under the highest pressure from the European authorities to repay their debts after the crisis.
They had no money to pay their debts and decided to start privatizing. Since then, the COSCO has taken control of the docks, for which they paid 100 million euros each year, and the port has become the third most important port in the Mediterranean. The port of Piraeus has become the 8th most concurred port in Europe. The economy of the port is getting better, while workers have fights with the Chinese business authorities over the payments and salaries. They would have liked to talk with the United States or the Europeans, but China was the one with the capacity for action and delivery.
A similar thing has happened in Sri Lanka, where the lease of the port was treated as a major geopolitical and strategic action (Moramudali, 2020). To the eyes of a normal spectator, nothing over there looks military nor strategic. The Hambantota International Port has been used for political purposes by the west, they have argued that China could use it for military purposes, to build a military base and to have a harbor in the Indian Ocean. China, to western eyes, is using it to build strength overseas by creating a series of enclaves all over the Indian ocean to have power to use if necessary. Even if this is true, the reality in place is very different.
As it stands today, the port was bought by a Chinese company. The loans and interests for the port loans comprised about 1,5% of Sri Lanka’s external debt repayments obligations, nothing more. Sri Lanka was always able to pay in due date. China holds only a small part of Sri Lanka’s external debt. The rest is related to commercial western banks and American holdings. The lease on the port is like the Piraeus Port. The company called China Merchants Port is paying for the use of the port, but Sri Lanka still owns it. The port, now in the hands of the Chinese, has increase the livelihood of the communities surrounding the port. It was under-utilized by the government of Sri Lanka, but now it receives China’s trade and containers.
In Kenya, a Chinese company, through the BRI, has built the railway that connects Nairobi with Mombasa (BBC, 2017). Nairobi is the country’s capital, and Mombasa is the second largest city, located in the coastal part of Kenya. This new railway has reduced transport cost, increase passenger demand and is driving growth and increasing connection between the two cities.
Not all constructions gather such good results. In the Mekong river, infrastructure development is creating a lot of backlash, due to its negative environmental impact and the social issues surrounding the areas that are been disrupted (Geall, 2019). Companies and plans that build dams all over the Mekong river do not consider environmental impact reports. They do not take any responsibility for all the destruction and harvesting problems that is affecting the population that live and feed of the food that provides the river and its natural resources. Many communities along the river are now protesting and trying to get better compensations for the displacements that they will have to go through.
This are just some examples to show how the different constructions and plans along the BRI can be broad, and each one of them shines light a different problem and requires a completely different solution.
