By Raffique Shah
July 12, 2019
Last May, Minister of Finance Colm Imbert announced at a post-Cabinet media briefing that Shanghai Construction had been awarded a billion-dollar contract to build the Port-of-Spain General Hospital’s new central block. Minister Imbert said that the Chinese construction giant, which is no stranger to undertaking big projects in Trinidad and Tobago, had bid TT $1 billion, which was $600 million less than Bouygues Batiment, a French company.
The Guardian report on the contract noted that “T&T’s debt to China has jumped from $2.2 billion last year to $6.2 billion after Government partnered with China again on two new projects. That new figure includes the existing debt inherited from the former administra-tions and now includes the $3 billion for newly-proposed La Brea Dry Dock facility and the $1 billion plan for (the) Phoenix Park (industrial estate).”
The report continued: “…Many people (unnamed) have expressed concerns that if T&T is not careful it may run the risk of falling into a crouching economic tiger, hidden dragon debt trap similar to several countries who (sic) were unable to repay China, such as Sri Lanka, which hand-ed over its strategically located US $1.3 billion Hambantota port to China…”
Introducing the “debt-trap” angle to what should have been a routine story, the reporter sought validation for the demonisation of China over its perceived use of lending large sums mostly developing countries to acquire geopolitically strategic installations and enterprises. The newspaper actually found someone, an American who was described as “an expert in the field of Chinese migration of investments”, who just happened to be at the US Embassy.
According to the news report, “…Dr Evan Ellis is a research professor of Latin American Studies at the US Army War College (USAWC) Strategic Studies Institute (SSI) and has been studying Chinese investment in the Caribbean and Latin America for the past 16 years…” Phew! Quite a military mouthful, that. Anyway, sticking with what the US brands “the Chinese debt-trap”, Professor Ellis “warned the ((T&T) Government to be ‘cautious’ before signing any deals for in-vestments (with the Chinese)”. He spoke specifically of the La Brea Dry Dock and Phoenix Park Industrial Estate, the report noted.
Now, all these fears over China lending developing countries money for projects—the Hambantota Port in Sri Lanka being the prime example—then seizing the facilities when the borrowing countries cannot repay the loans, is hogwash. According to credible Lankan economists Dushni Weerakoon and Sisira Jayasuriya, “…Why Sri Lanka is so widely showcased as an example of the dangers of Chinese debt diplomacy despite the fact Chinese loans are clearly not the primary cause of Sri Lanka’s debt imbroglio has more to do with global politics than the real facts of the Sri Lankan case…”
In a paper that was first published in East Asia Forum, the economists noted; “Sri Lanka’s debt repayment problems had very little to do with Chinese loans. Chinese loans comprise about 10 per cent of Sri Lanka’s total foreign debt. Of this debt, over 60 per cent was lent to Sri Lanka on concessional terms that, while not as generous as those from Japan — Sri Lanka’s largest bilateral source of loans — were not really excessive.
“Faced with a restive electorate with rising expectations — and unable to implement policies to attract non-debt creating capital flows, enhance productivity and achieve sustained growth — successive Sri Lankan governments tapped cheap debt markets to finance persistent fiscal and current account deficits.
“Today, the country is caught up in a classic vicious cycle of ever-increasing borrowings to pay past debts and finance ongoing deficits ..” Sounds familiar?
And this: “Sri Lanka faces a record foreign debt repayment of nearly US $6 billion in 2019 — of which $2.6 billion must be paid in the first quarter of 2019 alone…. Leasing the Hambantota port (to China, reportedly for 99 years) was part of a strategy to find cash and stave off pressures on the available fund of reserves…”
So China did not use inducements to Sri Lanka to lend the country money. It was successive governments that eagerly borrowed, much like what has happened here in T&T and so many other cash-strapped developing countries.
What bothers America more is that since 2005, China is estimated to have lent some US $140 billion to primarily four Latin American countries— Venezuela, Brazil, Ecuador and Argentina. More ominously, around 80 per cent of China’s foreign direct investment (in minerals, metals, manufacturing, and recently the services sector), which stood at zero in 2005, exceeded US $118 billion by 2018, and extended to Mexico.
So while the Trump administration is busy imposing tariffs on imports from not just China, but on goods and services from its friendliest allies in the European Union and even its neighbor Canada, China was busy making friends and influencing nations, lending money, and investing heavily in countries the US once deemed its “backyard”.
The tariffs, incidentally, are estimated to cost US companies and consumers US $4 billion per month. More jarring to Trump, most US companies that he all but ordered to relocate their plants to the USA or face sanctions, have ignored his threats. In fact, two weeks ago, iconic US tech-giant Apple, announced that it would shut down a product-plant in Texas and relocate in China.
Meanwhile, last April, the Financial Times (London) featured an article that boldly stated: “An examination of 38 Chinese debt renegotiations with 24 countries in the past decade by the Rhodium Group, a consultancy, concluded that China’s leverage remains limited, with many of the renegotiations resolved in favour of the borrower. Debt write-offs were found in 14 cases, deferments in 11 cases, and refinancing and debt term changes accounting for most other cases.”
The study found that outright asset seizure had occurred only in the case of Sri Lanka’s Hambantota port in 2017. Indeed, at the controversial Belt and Road Initiative summit held in Beijing early last April, the report noted, “President Xi Jinping said China had signed $64bn in new deals. The announcement highlighted the country’s continued use of cheque book diplomacy…”
Trump and his dubious aides who demonise China even as they hug Xi are worse than Satan correcting sin.