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International loans, with strings attached

Some poorer nations are growing wary of generous Chinese investments

International loans, with strings attached

An offshore development of artificial islands under construction in Malacca, Malaysia. The project is backed by Chinese investment. (Lauren DeCicca/The New York Times/Redux)

During a five-day trip to Beijing this week, the prime minister of Malaysia, Mahathir Mohamad, took a strong stance against further Chinese investment in the Southeast Asian nation, canceling $22 billion worth of China-backed infrastructure projects. Malaysia is the latest country to adopt a cautious view of generous Chinese investments as poor countries fall into China’s debt trap.

“We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” the 93-year-old Mahathir said on Monday after meeting with Chinese Premier Li Keqiang.

Mahathir’s predecessor, Najib Razak, led Malaysia into $250 billion worth of debt. Najib had eagerly agreed to projects financed and built by China, including a deep-water port, a renovated harbor, a rail network, and four artificial islands. Mahathir after winning the May elections quickly halted two major Chinese projects in order to start pulling the country out of the red.

Chinese President Xi Jinping’s Belt and Road Initiative aims to invest up to $8 trillion in 68 countries to create a network of transportation, energy, and telecommunication infrastructure across Asia, Europe, and Africa. While cash-strapped countries initially cheered the inflow of Chinese cash, some are seeing their infrastructure fall into Chinese hands after they are unable to pay back the loans.

Take, for instance, Sri Lanka. Under the former pro-China President Mahinda Rajapaksa, China provided Sri Lanka hundreds of millions of dollars in loans to build the largely useless Hambantota Port, Rajapaksa’s pet project. The catch: A Chinese construction company would build it and Sri Lanka needed to share intelligence with China, according to The New York Times.

Rajapaksa lost reelection in 2015, leaving the mounting debt to his successor, President Maithripala Sirisena. Unable to keep up with debt repayment, Sri Lanka in December handed the port and 15,000 acres of land around it to China for 99 years. This gives China control of territory only a few hundred miles from its rival, India. This year, Sri Lanka must repay $12.3 billion owed in debts around the world while only generating an expected $14.8 billion in revenue.

According to a study by the Center for Global Development, eight countries are very susceptible to debt distress due to Belt and Road investments: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan. In Djibouti in East Africa, China has provided nearly $1.4 billion of funding for major investment projects, an amount equivalent to 75 percent of the country’s GDP. China has also built its only overseas military base in the country. 

Like Malaysia, other countries are also becoming wary of Chinese investments. Last year Pakistan turned down Chinese financing for the $14 billion Diamer-Bhasha Dam and decided to build the dam itself. Nepal also decided not to have China Gezhouba Group build the $2.5 billion Budhi Gandaki hydropower plant. Instead the state-owned Nepal Electricity Authority decided to take it on.  

To see how much China is investing overseas, check out the China Global Investment Tracker created by the American Enterprise Institute and the Heritage Foundation.

National baby fund?

Now that China’s population control policy has led the country into a demographic crisis, the government is considering ways to encourage couples to have more children, with one People’s Daily columnist calling it a “national issue.” In a column in Xinhua Daily, a think tank proposed forcing couples to contribute a portion of their salary to a “procreation fund.” The money could only be accessed once a family had a second child. Those who had only one child, or who chose not to have children, would have the money returned to them at retirement.

The columns produced a large backlash. One commenter wrote: “When you don’t want children, you force people to get sterilized. When you want more, you urge us to give birth. What do you think I am?”