The “One Belt, One Road” of China’s Debt Hell: U.S. Agencies Identify Eight “High Risk” Countries
A country that should have received aid, but is now saddled with huge debts and deprived of its infrastructure. Warnings about the huge debts created by China’s modern-day “One Belt, One Road” economic zone concept are spreading rapidly here. A U.S. think tank has identified eight countries that may have difficulty repaying their debts. The negative aspects of the One Belt and One Road, weighed down by debt and interest rates, come to mind.
It Came With a Big Price
Participating countries should not consider it a free lunch (such as China’s investment in infrastructure).
The International Monetary Fund (IMF) Managing Director Lagarde pointed out in a speech on April 12 about One Belt, One Road. The head of the IMF has publicly warned of the risks associated with One Belt One Road.
Sri Lanka is a prime example of the “price” to be paid for its massive debt.
Construction of the Hambantota Port in the south of Sri Lanka began in 2010 under the pro-China Rajapaksa regime, and much of the construction cost of about $1.3 billion (about ¥142.1 billion) was covered by loans from China.
However, Sri Lanka was burdened by the maximum interest rate of 6.3 percent per year set by the Chinese. The country was not in a financial position to begin with, and from the outset, it began to struggle to repay the loan. Finally, last December, it agreed to lease 80% of its stake in the port to a Chinese state-owned company and receive $1.12 billion ($122.4 billion) in lease payments.
Although it is in the form of a lease, the lease period is 99 years, making it a de facto sale. From Sri Lanka’s point of view, the port has been in the hands of China for some time now.
In March, then-Secretary of State Tillerson called for a situation in which the countries participating in the One Belt One Road project are transferring completed infrastructure to China and called for “careful consideration of [project contracts] so that we don’t have to give up part of our sovereignty.
External debt is 80% of GDP… Doubts about repayment ability.
In this context, the Center for Global Development, a U.S. think tank, released in March of this year the results of a survey on the debt of the countries participating in the One Belt One Road. It examines the repayment capacity and the degree of dependence on China for debt, among other things, using IMF data.
Eight countries were identified as at risk for debt: Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Montenegro, Tajikistan, and Pakistan.
According to the report, the East African country of Djibouti saw its external debt increase from 50 percent of GDP to 85 percent of GDP in two years. The majority of the debt is held by China. In Southeast Asia’s Laos, rail projects worth up to $6.7 billion ($732.7 billion) account for almost half of the country’s GDP and could make debt repayment more difficult, the report said.
In the Central Asian country of Tajikistan, the IMF and World Bank have assessed the debt as “high risk” but said more infrastructure investment will be made in the future.
Pakistan was identified in the survey as “most at risk”. Infrastructure development is underway under the China-Pakistan Economic Corridor (CPEC), a project related to the One Belt, One Road, with an estimated $62 billion (6.78 trillion yen) in loans from China. The study warned that “high interest rates are a risk for Pakistan.
“China will not become another East India Company.
There does not seem to be a shared sense of urgency on the part of the member countries.
Within Pakistan, there is no public opposition to CPEC. A local journalist said, “There is a welcoming atmosphere that China will develop infrastructure and create jobs.
On the contrary, the leaders have said that they welcome Chinese investment.
”CPEC is not a debt trap. What China wants is a partnership.
Speaking at a CPEC-related forum held on March 23 in southern Karachi, Planning Minister Asan Iqbal expressed his confidence in China. It is clear that he was aware of external concerns.
Furthermore, Iqbal cited the East India Company, which monopolized trade in Asia in the 17th and 18th centuries and was involved in colonial management, and said, “China will not become the East India Company. He also said, “There is nothing for Pakistan to fear.
Of course, if infrastructure development and other factors lead to increased productivity and economic development, debt repayment could proceed smoothly. The diplomatic source said, “One belt, one road cannot reach a good result without a number of assumptions,” and said, “It’s great that infrastructure is in place, but we need to look at what is lurking behind it.