China has projected its One Belt One Road (OBOR) project as a global ideal that will spread economic benefits to less-developed countries. China–Pakistan Economic Corridor (CPEC) will be a significant part of OBOR, a network through South Asia, the Middle East, Africa and Europe by building land and sea links. But well before the much-touted project begins, China’s hidden exploitative motives are out in the open.
Experts have warned CPEC is China’s colonial ploy to create a permanent foothold in Pakistan. A good illustration is the deal Sri Lanka has signed with China today.
Sri Lanka has signed a $1.1 billion deal with China for control and development of the deep-sea port of Hambantota. A state-run Chinese company will have a 99-year lease on the port and about 15,000 acres for building an industrial zone.
In the past few years, China gave Sri Lanka big loans to build infrastructure. Now, Sri Lanka is unable to repay those loans. It is leasing out land to China to repay its loans. Part of the money it gets by leasing out the Hambantota port will go into repayment of Chinese loans. This is how China sneaks into a country on the back of costly loans.
Pakistan, too, can fall into the Chinese debt trap.
China has provided Sri Lanka with over $5 billion between 1971 and 2012, and most of this has gone into infrastructure development, with China investing $1 billion into a deep-water port at Hambantota and billions into the Mattala Airport, a new railway and the Colombo Port City Project.
Sri Lanka’s estimated national debt is $64.9 billion, of which $8 billion is owed to China — this can be attributed to the high interest rate on Chinese loans. For the Hambantota port project, Sri Lanka borrowed $301 million from China with an interest rate of 6.3%, while the interest rates on soft loans from the World Bank and the Asian Development Bank are only 0.25–3%. Interest rates of India’s Line of Credit to the neighbouring countries are as low as 1%, or even less, in some cases.
China’s strategy to grab land in smaller, less-developed countries is simple: it gives them loans on high rates for infrastructural projects, gets equity into projects, and when the country is unable to repay the loan, it gets ownership of the project. The Hambantota deal is an example of this strategy.
The huge loan of more than $50 billion for building CPEC in Pakistan could spell doom for an already faltering Pakistani economy—and can finally turn into a Sri Lanka-like situation. Unable to repay the loan, Pakistan will have to give control of its land to China.
The huge PR exercise to sell the OBOR project as a global ideal to the world cannot hide China’s exploitative approach to international business. Before OBOR could begin, small neighbouring countries are seeing consequences of dealing with China. OBOR too will come with the notorious Chinese debt trap. Ongoing projects in several small countries have already become part of the OBOR project.
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