Opposition to China’s Belt and Road has become widespread and almost gone mainstream. The generational project that is to clearly proliferate China’s external economic posture as much as supporting the development of mostly emerging nations across the Eurasian plate and Africa has been bedevilled in the Western media and among punditry and politicians, called a failure, and labelled an instrument for China to pursue an aggressive foreign policy.
Beijing has blatantly been accused of conducting a course of the by now infamous debt traps, and on every occasion of a Chinese firm lending to a sovereign or sovereign-like institution in an emerging nation, that is perceived to be or become part of the Belt and Road concept, the fingers are actively being pointed. The latest case in point has been the tiny European state of Montenegro that over the weekend requested the EU to relieve it from liability pressures and help refinance a Chinese loan.
As reported elaborately in the
FT, Montenegro caused quite a stir in 2014 when its previous government signed a landmark deal with China’s EXIM Bank to finance 85% of a 1 billion dollar landmark road project, allegedly to connect the country more closely with the EU, a member of which it hopes to become by 2024. Much like with Montenegro, China has made consistent inroads into Balkan nations by way of financing infrastructure and energy projects.
The country’s new government has now determined that the grandstanding of such a road project is no longer economically viable. According to the FT, China holds 1/4 of Montenegro’s debt, and as the first repayment of loans is due in July, the new finance minister has turned to Brussels for help, calling it an easy decision for the EU, low-hanging fruit of sorts. There, officials have reacted coyly, weighing the political will to assist against the disproportionate financial burden for such a small place.
The FT also notes that default might well result in the Chinese gaining access to Montenegrin land as collateral. Of course, the Council on Foreign Relations and other institutions in the Western fold couldn’t wait to talk up a scenario in which China was on the cusp of acquiring real leverage over Montenegro’s policy choices, political attitudes, and narratives in the Western Balkan. An example was yet again made of China’s debt diplomacy at the expense of poor little countries.
Well, I guess there are a couple of comments to be made. Naturally, China would not do anything that did not further its external economic cause, and if Montenegro offered to be part of the BRI concept or simply a network node in a much larger context, so be it. Why not assist in sizeable infrastructure programs that are meant to benefit all parties? The Balkan area is simply a geographic hotbed for land transportation routes between Asia and Europe.
Who else could Chinese firms deal with but elected governments, wherever they do business. And as we have learned from experience, Chinese institutional lending is in many cases being done by policy banks or state- and private enterprises operating in those countries. The loan agreements aren’t necessarily conventional and, again naturally, designed to protect the creditors. Sri Lanka’s Hambantota port and the debt swap into a 99-year lease is a case in point.
I have been asked whether a country like Montenegro didn’t have any handle on transferring sovereignty on land to a creditor in case of default. Of course, it would in all likelihood not be a Chinese firm repossessing the actual land like a car or a boat, but they could be awarded long leases or equity stakes in the toll road. This makes perfect sense in any loan default situation. But does that mean China necessarily gains material leverage over a debtor country as suggested? I don’t think so.
On the contrary, creditors are as pregnant with such a project as the debtor and have every interest to make it work and profitable. Hambantota is a good example. The Sri Lankan port opened in 2010 but had been running up losses until Chinese management took over after the debt-to-lease swap. Undeniably, such transactions are likely to lead to accusations of the so-called debt-trap diplomacy and the forced takeover of strategic assets that are in the interest of China.
But again, it is not that China forced anyone’s hand to enter into a loan agreement. Last I looked it was democratically elected governments that welcomed Chinese companies into their countries and embraced the assistance to develop crucially important infrastructure etc. Like with the new Montenegrin government, they are free to look for other potential creditors if they can, whether for reasons of fending off alleged Chinese encroachment or sheer opportunism.
Post the recent elections in Sri Lanka the Rajapaksa government didn’t seem to be all too concerned betting on China and keeping Chinese money and companies around. As it just transpired over the weekend, the new government secured more dollar
funding from China Development Bank to increase their foreign reserves and to stabilise the local currency. And just to be clear, China’s share of Sri Lanka’s foreign debt is around 10%, so Beijing doesn’t really own anyone on the island.
So, will Beijing attempt to further its economic cause and actively try to expand China’s ecosystem beyond its borders? Of course it will. In fact, China itself has no choice but to move in this direction. It is simply growing too big and must groom partners of the future and secure trading routes for existential reasons. But is this narrative of China’s debt-trap policy and exploitation of smaller countries a tad too much and just good propaganda for the Western media’s audience? It certainly has a smell to it.
