Colombo, November 2 (Ceylon Today): China recently released a special document on its neighbourhood policy, which says that the policy is based on developmental cooperation for mutual benefit.
However, while acknowledging the considerable developmental spinoffs from China’s Belt and Road Initiative (BRI) projects, Western observers point out that these projects could land the recipient countries in debt traps. The US Council on Foreign Relations (CFR) said in a paper published in February 2023, that the BRI “has stoked opposition in some Belt and Road countries that have experienced debt crises.”
At the outset, the Chinese document states the extremely challenging context in which it has had to shape its neighbourhood policy.
“Global governance is in dysfunction; the Cold War mentality is resurfacing; unilateralism, protectionism and hegemonism are rampant. There are multiple risks in such fields as energy, food, finance, industrial and supply chains and climate change.”
“Asia also faces challenges such as uneven economic growth and pronounced security and governance issues. Some countries have intensified efforts to build regional military alliances. The Korean Peninsula issue remains complicated and intractable. Afghanistan faces numerous challenges in its reconstruction. Terrorism, natural disasters and other non-traditional security threats persist.”
The Chinese document goes on to say that there are two different approaches to the above mentioned situation:
- One that advocates true multilateralism, a development-first approach, mutually beneficial cooperation, openness and inclusiveness, integrated development, and pursuit of common development in harmony.
- The other represents a relapse into the Cold War mentality and exclusive clubs, and attempts to draw lines based on values, politicize economic issues, divide the region into different security blocs, and stoke division and confrontation.
Over the past half-century and more, Asia has tended towards the first approach based on cooperation rather than confrontation, the document contends.
“This is mainly credited to the commitment of the countries in Asia to independence, unity for strength, mutual respect, inclusiveness, mutual learning, mutual benefit and win-win cooperation,” the document says.
China’s Extensive Reach
Despite the obstacles, China has reached understandings with Pakistan, Laos, Cambodia, Myanmar, Indonesia, Kazakhstan, Tajikistan, Uzbekistan, Thailand, Mongolia, Turkmenistan, Malaysia and Kyrgyzstan on building a community with a shared future.
It has agreed with the five Mekong countries to build a community with a shared future among Lancang-Mekong countries, and announced with the five Central Asian countries the decision to build a China-Central Asia community with a shared future.
China has resolved boundary issues with 12 neighbours on land through negotiations. It has signed and ratified the Protocol to the Treaty on a Nuclear-Weapon-Free Zone in Central Asia, respects Mongolia’s nuclear-weapon-free status, became the first to join the Treaty of Amity and Cooperation in Southeast Asia and is fully prepared to sign the Protocol to the Southeast Asia Nuclear- Weapon-Free Zone Treaty at any time.
Largest Trading Partner
China is the largest trading partner of 18 neighbouring countries. In 2022, China’s trade in goods with neighbouring countries exceeded US$ 2.17 trillion, up by 78% from 2012.
The two-way investment between China and ASEAN has exceeded US$ 380 billion in cumulative terms. China took the lead in ratifying the Regional Comprehensive Economic Partnership (RCEP) and worked for its entry into force and implementation, enabling and enhancing regional economic integration.
Belt and Road Initiative
China has signed Belt and Road cooperation documents with 24 neighbouring countries and worked to synergize the BRI with cooperation plans of ASEAN and the Eurasian Economic Union.
It has initiated the establishment of the Asian Infrastructure Investment Bank and the Silk Road Fund to provide financial support for infrastructure projects.
The China-Central Asia mechanism established by China and the five Central Asian countries has emerged as an important platform for in-depth cooperation between the six countries, it says.
The Lancang-Mekong Cooperation is a success story of mutually beneficial cooperation in the sub-region, and the Lancang-Mekong Cooperation Economic Development Belt is taking shape, the document says.
China has helped solve political issues too. “On Afghanistan, China has established a mechanism for coordination and cooperation among Afghanistan’s neighbours, relaunched the China-Afghanistan-Pakistan Foreign Ministers’ Dialogue, and issued the Tunxi Initiative on helping Afghanistan with reconstruction and development, building synergy among various parties.”
“On Myanmar, China has encouraged the parties to bridge differences, restore social stability in the country, and launch political dialogue as quickly as possible.
On the future trajectory, the document says that China will further expand trade with regional countries, increase imports from neighbouring countries, and improve customs clearance facilitation.
China will continue to promote the process of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA), it adds.
The document stresses the importance of maintaining the stable andsmooth operation of industrial and supply chains to underpin open and inclusive cooperation.
In an article in Center on Foreign Relations (CFR) published in February 2023, James McBride, Noah Berman, and Andrew Chatzky refer to a 2021 study that analysed over a hundred debt financing contracts China signed with foreign governments, found that “China views BRI projects as a commercial endeavour, with loans close to a market interest rate that it expects to be fully repaid.”
Furthermore, “some BRI investments have involved opaque bidding processes and require the use of Chinese firms. As a result, contractors have inflated costs, leading to cancelled projects and political backlash.”
“The contracts often contain clauses that restrict restructuring with the group of twenty-two major creditor nations known as the Paris Club.”
CFR’s Belt and Road Tracker shows that the overall debt to China has soared since 2013, surpassing 20% of GDP in some countries.
“Since the COVID-19 pandemic and the Russian invasion of Ukraine roiled global markets, a climbing number of low-income BRI countries have struggled to repay loans associated with the initiative, spurring a wave of debt crises and new criticism for BRI. In Pakistan, for example, imports required to build CPEC infrastructure contributed to a widening budget deficit, ultimately resulting in a bailout from the International Monetary Fund (IMF). In Ghana and Zambia, high debt loads that partly consisted of BRI loans led to sovereign default,” CFR points out.
US Bid to Match China
The US has been working on projects to give the developing world an alternative to China, but not successfully, the CFR article admits.
“President Donald Trump passed the BUILD Act, which consolidated Overseas Private Investment Corporation (OPIC), a U.S. government agency for development finance, with components of the U.S. Agency for International Development (USAID) into a separate agency (the Development Finance Corporation) with a $60 billion investment portfolio.”
“ In 2021, President Joe Biden, in collaboration with the Group of Seven (G7), launched the Build Back Better World Initiative (“B3W”) an infrastructure investment program conceived to compete with BRI.”
However, many acknowledge that its lack of financing prevents it from acting as a serious challenger to China’s initiative, CFR acknowledges.
“One year after B3W was announced, commitments under the initiative totalled only U$ 6 million, and it had been renamed the Partnership for Global Infrastructure and Investment.”
It is suggested that rather than investing in infrastructure, where China holds an economic advantage (China won more than eight times as many World Bank-funded infrastructure contracts as the United States in 2020), the US should boost its aid-based lending through existing multilateral institutions, such as the World Bank and IMF.
US Could USE BRI
Interestingly, some Americans find a silver-lining in the BRI. Jonathan E. Hillman, of the Centre for Strategic and International Studies, as said the US could use BRI projects as a way to have China pay for infrastructure initiatives in Central Asia that are also in the US interest.