Tuesday, April 10, 2018

Lend quickly and unsustainably. China's modus operandi

From Vanuatu to Papua New Guinea, from Sri Lanka to Pakistan, from the Maldives to the tiny republic of Djibouti on the Horn of Africa, Chinese ‘assistance’ follows roughly the same pattern.

It comes in the form of loans, not much cheaper than, and sometimes more expensive than loans that could have been obtained from organisations set up for the purpose such as World Bank and International Monetary Fund. But their advantage is that they are approved quickly and are often for purposes more attractive to elites than to the countries themselves.

China was insistent on lending for a 1000-seat convention centre in Vanuatu rather than the hospital that some of the local authorities would have preferred.

It's also often smaller things; bursaries for children of the elites to be educated in China, contracts for their families.

And there’s usually a port or an airfield involved.

In Sri Lanka’s case, China advanced loans approaching US$15 billion for projects including a power plant, an airport, an extension of an existing seaport and a new seaport.

After a 2015 election dominated by allegations of corruption, a new president came in promising to weaken the bonds with China. Instead, he found himself bound by contracts to make payments on debts for projects that weren’t commercial. The new Hambantota airport became known as the world’s emptiest. He agreed to hand over to China 99-year leases on the Hambantota seaport (and the airport) in exchange for writing down the debt.

In Djibouti, a dirt poor country with a population of less than one million, China advanced US$9 billion, pushing it towards unsustainable debt. After the International Monetary Fund has sounded a warning it lent US$1.1 billion to develop a port. In January 2016 it was granted a commercial lease at the port that quickly escalated to becoming a commercial and military logistics hub, and then a full naval base. It was built and occupied within 18 months. By November 2017 Chinese troops were conducting live fire drills.

Observers say that if China gets the right to build a military base in Vanuatu it’ll also be constructed in record quick time. China’s modus operandi is to lend target countries more than they can afford for projects that won’t pay returns, buttering up decision makers along the way, then to renegotiate the debt in return for the right to strategically important assets.

It spreads its money widely, because it knows that doesn’t work in one country will probably work in another. And when it gets approval, it moves fast, knowing that in many of the target countries circumstances change quickly.

In The Age and Sydney Morning Herald