China’s BRI could be a debt trap, economists warn
16 Oct 2018 - by
While there are huge benefits in China’s global trade network, Belt and Road Initiative (BRI), World Bank trade director Caroline Freund has warned against the debt trap in which countries might find themselves in.
“There are huge opportunities,” she told delegates attending the gathering of economists and finance ministers in Nusa Dua, Bali this week.
Improved infrastructure meant more trade, more investments and higher growth, said Freund.
And yet she added that countries must remain vigilant against being over eager to participate in BRI.
“Sustaining public debt becomes an issue because these projects are expensive,” she told AFP.
The latest country to run to the IMF for a bailout is Pakistan who borrowed $54bn from China to develop Gwadar port on the Arabian Sea.
The plight of Pakistan, paradoxically indebted to a country it looked to for a loan so it could bargain on future trade benefits, is also mirrored by the case of Sri Lanka’s southern container port of Hambantota.
After significant infrastructural aid was pumped into upgrading the port and related logistical networks to the immediate north of the city, Sri Lanka found itself over-capacitated in the short term and unable to honour the repayment terms it had signed with China.
Burdened by debt, Sri Lanka had no alternative but to sign a 99-year lease with China Port Holdings in a bid to generate revenue that almost immediately is paid back to China for outstanding loans.
It also comes as no surprise that the Chinese company in question is state owned.
China argues that the deal created more employment but Sri Lankans claimed that Hambantota had practically been given to its Asian benefactor.
As for the job opportunities China claims to have created, IMF and World Bank data revealed that on average less than 4% of locals benefited from jobs originating from Chinese-funded infrastructural aid anywhere in the world.
According to statistics employment opportunities that spring from Chinese construction in BRI countries mostly go to Chinese nationals.