New Delhi: Has China got trapped in its own “debt trap diplomacy”, which it has “strategically planned” for many smaller nations over Asia, Central Asia and Africa? It’s no secret that the Asian “economic giant” had doled out billions of dollars in the name of loans and infra-development funds, in return for which it had kept “ports, mines and crown jewels as collateral”. This was to realise China’s dream to be the world’s economic and political powerhouse, but that seems to have backfired as countries are unable to pay, a new report in the New York Times points out.

 

From Kyrgyzstan to Sri Lanka to a number of African nations, including Ethiopia, requests are pouring in for Beijing to restructure, delay repayments or forgive tens of billions of dollars of loans due this year, the report says.
Diplomacy and strategic affairs experts see this to be more than a mere loan crisis for Beijing. Many point to China’s “strategic missile—Border and Road Initiative (BRI)” becoming the biggest casualty and this is also the time for a “country like India to make inroads into these Dragon-troubled nations”.

 

As Aparna Pande, Director at the Hudson Institute, explains, the “Big Game” behind BRI/One Border, One Road (OBOR): “BRI was meant to boost China’s image as the to be superpower that built infrastructure around the world (even if at the cost of high interest loans). When Beijing starts calling in its loans, and more and more countries have to hand over ports or highways (like Sri Lanka) the image of China will take a hit. BRI /OBOR has had this inbuilt problem whereby massive loans at high interest have been given to countries, most of which will be unable to repay these loans. For China these loans were worth it because the money helped them buy leverage within these countries. It also provided access to infrastructure (ports, highways) and energy resources (oil, gas, minerals).” She added, “And if the countries were unable to pay back the loans, then Beijing would in turn get complete access to a port or highway like Hambantota port in Sri Lanka.”

 

Someone like Michael Kugelman, an expert on South Asian affairs at Woodrow Wilson Center in Washington DC, says, “There’s good reason to believe that BRI could suffer a major short-term blow in the post-pandemic world order….With China increasingly on the defensive amid a global backlash against its activities, New Delhi has an opportunity to step in, which it would be wise not to squander.”

 

A trade and global business expert, Mukesh Aghi, who is the CEO and President of US-India Strategic Partnership Forum, echoes Kugelman and adds, “China is seen as a hard power, a threat. While India is seen as a soft power, a friend. India needs to leverage this perception, image and attitude.”

 

True, India doesn’t have the economic might of China, but a goodwill tag. And there is an urgency for India to act fast as BRI is nothing but China’s strategic ploy to wield its economic influence and showcase its military might to nearly 70 nations, almost 1/3rd of the world, it will pass through. Aghi feels the time has come for India to pick partners and priorities to match their current demands with “soft diplomacy” against China’s “debt trap diplomacy”.
Kugelman told The Sunday Guardian: “Not only will BRI countries be reeling economically and hesitant to take on fresh loans, but China itself will be grappling with its own slowdown. Beijing may itself be hesitant to commit to new high-risk BRI investments. While China typically is willing to take on a lot of risk—both security and financial—for its BRI investments, the post-pandemic new normal may give it pause because of its own financial constraints.”
Stressing India’s action at this moment, Kugelman said: “There is certainly an opportunity for India to help those nations indebted to China, though New Delhi’s capacity to provide assistance may be hampered by its own inevitable economic struggles–at least in the near term…Still, India can leverage its regional heft and capital to appeal to countries looking for an economic partner with less predatory and opaque investment tactics than China. India’s Act East policy, which seeks to expand relations with many of the countries in East and Southeast Asia that have come into Beijing’s orbit, is the ideal vehicle through which to implement this outreach.”

 

Now Beijing also faces a dilemma over the looming loan defaults, set to start a backlash from the lenders back home and also for BRI projects largely becoming “non-performing assets”. Aghi says, “Almost $520 billion has been lent through white elephant construction projects. The loans are at high interest rates with national assets of nations as collateral. Rampant corruption is driving some of these projects, for example, in Pakistan almost $2.3 billion worth of bribe has taken place with the leadership for the power plant projects. Majority of the countries are unable to pay these loans hence gradually they are becoming non-performing assets. More important, there is a growing discontent within China about these lending while the local population quality of living is still low and suffering. Since, the steel, cement and other material is used from China with Chinese construction workers, these initiatives are not creat.ing local jobs while enhancing corruption within the ruling elite. As time goes by, poor nations will default and non-performing assets will not only damage its relations with these nations, but also upset back home Chinese citizens, including money lenders and banks.”

 

Pande added, “The challenge President Xi and China face is: will the strategic benefits China gains in some countries through BRI (e.g. Pakistan) mean that China continues to put money into BRI projects or will the backlash China faces when it starts calling in its loans force Beijing to scale back and limit itself to only certain countries and projects?”

 

Aghi picks up areas where India can help these nations against China. “Experiences and expertise of Indian entrepreneurs in Africa show that locals prefer Indians rather than the Chinese. Indians integrate well in African society, they create jobs and they become part of the local culture. Sindhi community is a prime example,” says Aghi adding, “Chinese dictate, partner with corrupt leaders, create their own ghettos, do not integrate with the society, hence alienating the population.”

Soft diplomacy will be counter to Dragon’s BRI, says Aghi. “India’s strength is not mega infrastructure, its energy should be on health, education, IT services, building self-sustaining societies and giving soft loans. First focus on providing world class higher education, partner in the healthcare services. Focusing on treatment of local disease, cheap generic drugs and medical tourism. Partner with African nations on building world class universities, IT companies, entertainment industry etc.”

Will Beijing’s loss in “Great BRI Game” be New Delhi’s gain? Time will tell!