BRI:- China's Debt Trap | Gist of Rajya Sabha TV / RSTV (now Sansad TV) - UPSC PDF Download

Introduction:

With annual international development finance commitments hovering around 85 billion dollars a year, China is outspending the U.S. and other major powers on a 2-to-1 basis or more. China is using debt rather than aid to establish a dominant position in the international development finance market. What is more alarming is that its Belt and Road Initiative (BRI) is plunging nations into massive debt. A recent study by development research lab AidData has uncovered details of the problem, pointing out that 42 countries now have levels of public debt to China in excess of 10% of their GDP. The report says that these debts are systematically underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in Low and Middle Income Countries are not the primary borrowers responsible for repayment. In addition to handling these hidden debts, 35% of China’s BRI infrastructure project portfolio has encountered major implementation problems, like corruption scandals, labor violations, environmental hazards, and public protests. China is now facing the BRI backlash in a growing number of countries across Africa, Asia, Latin America, and Central and Eastern Europe. While policymakers in some countries have cancelled high-profile BRI projects, others, with concerns of their own, have decided to take a second look at whether the benefits of BRI participation outweigh the risks.

What is BRI?

• BRI is China’s ambitious project announced in 2013. It covers about 65% of the world population, 60% of the world GDP and over 70 countries in six economic corridors.
• China is spending almost $1 trillion to revive and renew the overland and maritime trade links between China, Europe, West Asia, and East Africa through construction of modern ports linked to high-speed road and rail corridors.

India’s concerns with BRI:

• India argues that the BRI and China-Pakistan Economic Corridor project violates its sovereignty because it passes through the part of the Pakistan-occupied Kashmir that belongs to India.
• Debt trap: BRI projects are pushing recipient countries into indebtedness, do not transfer skills or technology and are environmentally unsustainable.
• China is planning to extend the CPEC to Afghanistan. Meanwhile, Maldives, Nepal, Myanmar and Sri Lanka are eagerly pursuing potential BRI projects.
• Through OBOR, China is countering the strategies of India in North East region and is promoting its greater presence in North East India, part of which China claims as its own territory. This may have a security impact on India.
• Tense bilateral relations with China, deep mistrusts and India’s growing concerns over Chinese hegemonic intentions in South Asia and Indo-Pacific region make it practically unlikely that India will ever consider joining this project.
• Military deployment: The fact that the Chinese have begun to deploy 30,000 security personnel to protect the projects along the CPEC route makes it an active player in the politics of the Indian sub-continent. Clearly, this is a case of double standards.

How does China’s debt trap diplomacy work?

• In a push to gain rapid political and economic ascendency across the globe, China dispenses billions of dollars in the form of concessional loans to developing countries, mostly for their large-scale infrastructure projects.
• These developing nations, which are primarily low- or middle-income countries, are unable to keep up with the repayments, and Beijing then gets a chance to demand concessions or advantages in exchange for debt relief.

How countries are being trapped?

• Sri Lanka was forced to hand over control of the Hambantota port project to China for 99 years, after it found itself under massive debt owed to Beijing. This allowed China control over a key port positioned at the doorstep of its regional rival India, and a strategic foothold along a key commercial and military waterway.
• In exchange for relief, China constructed its first military base in Djibouti. Whereas Angola is replaying multibillion-dollar debt to China with crude oil, creating major problems for its economy.

What are these concessional loans granted by China?

• The ‘concessionality’ factor is achieved either by offering interest rates that are below the market rates or leniency in the grace period, and often with a combination of both.
• These loans generally have long grace periods.

Has India taken any loans from China?

• India has not entered into any loan agreement directly with China.
• However, it has been the top borrower of Asian Infrastructure Investment Bank (AIIB), a multilateral bank wherein China is the largest shareholder (26.6% voting rights) and India the second (7.6% voting rights) among other countries.

How is the debt trap affecting India, then?

• Most of India’s neighbours have fallen prey to China’s debt trap, and ceded to China’s $8 tn project – One Belt One Road Initiative (OBOR) which seeks to improve connectivity among countries in Asia, Africa and Europe.
• Many nations have ceded control over strategic sea ports which can affect India’s regional security.
• China through OBOR can increase India’s political cost of dealing with its neighbours because Kashmir, which India considers its part is also used in OBOR by Pakistan.
• Kautilya, the famous India theorist on statecraft, suggests it is important to monitor and contain the activities of the state’s “enemy” and its diplomacy through engagement and cooperation rather than war.
• Brahma Chellany, India’s leading China expert, writes in The Japan Times: “Indeed, by working to establish its dominance along the major trade arteries, while instigating territorial and maritime disputes with several neighbors, China is attempting to redraw Asia’s geopolitical map.”
• In The Times of Central Asia, James Dorsey informs that a leaked long-term plan for China’s massive $56-billion investment in Pakistan exposes the goals of Beijing’s One Belt, One Road initiative as a “ploy for economic domination, the creation of surveillance states, and allowing China to influence media landscapes.”
• Kautilya, the famous India theorist on statecraft, suggests it is important to monitor and contain the activities of the state’s “enemy” and its diplomacy through engagement and cooperation rather than war.