China’s roads win hearts in South Asia – but at a cost

Khunjerab in Pakistan is a high desert, dry and cold region. Surrounded by towering mountains, pristine glaciers, and alpine meadows, this rugged landscape is home to some of the world’s highest peaks.

Meandering through it is a highly strategic road linking China to the port of Gwadar on Pakistan’s southwest coast.

The Silk Road route has been used for trade and travel for centuries, and in the past decade has become the center of Beijing’s Belt and Road Initiative (BRI).

President Xi Jinping’s vision to rebuild the ancient route, described as “one of the most ambitious infrastructure projects ever conceived,” heralds the construction of a transportation network across South Asia and the In the process, it developed poor countries and helped the Chinese government win allies abroad.

Western countries have long been wary of Beijing’s moves, wondering if these investments could actually help China develop a series of ports for use by its navy in the South China Sea, the Arabian Sea and all the way to Africa. I was concerned. China denied this.

To date, more than 145 countries, representing almost 75% of the world’s population and more than half of the world’s GDP, have signed the BRI.

The biggest project so far is the China Pakistan Economic Corridor (CPEC). Initially, $60bn (£49bn) was pledged to build a network of roads, rail and pipelines through this remote and rugged region of Pakistan.

The ultimate plan was to connect oil and gas pipelines directly from Central Asia and the Middle East to western China, cutting off long sea routes around South and Southeast Asia.

Pakistan’s development in this region was of great significance to China. It could serve as a counterweight to long-time rival India, be a gateway to Afghanistan and the rare earth reserves it may hold, and provide a gateway to the rebel Xinjiang region. It will provide an opportunity to secure a border that is full of borders.

Despite progress, CPEC, like many other BRI projects, has been plagued by corruption, delays, and other problems, including environmental and security concerns. Gwadar Port, which was supposed to be the flagship facility, is still empty and there is no sign of cargo entering or exiting.

This is the third installment in a series examining China’s overseas investments ten years after Xi Jinping launched the Belt and Road Initiative.

Much of this has to do with Pakistan’s own economic problems. It was on the brink of default earlier this year, plagued by high inflation, low growth and a weak currency. Authorities were struggling to pay for imports needed to build CPEC infrastructure as textile workers were laid off and factories closed because companies could not afford raw materials or electricity.

Ultimately, the International Monetary Fund (IMF) approved a $3 billion bailout program in July. However, Pakistan’s external debt still stands at $100 billion, a third of which is owed to China.

And Pakistan is not the only country in this predicament.

Since the establishment of the Belt and Road, China has become the largest creditor and important source of investment for many developing countries, and many of Pakistan’s neighbors in South Asia are now in the crosshairs as the Belt and Road develops. I am aware that

“Nepal, Sri Lanka and Bangladesh see the Belt and Road in 2013 and beyond as an opportunity to diversify their options and attract much-needed imports and investment to modernize their economies,” said the Center for Social and Economic Progress. said Constantino Xavier, a researcher in foreign policy and security studies. In Delhi.

“But today, the grass is getting greener…In Nepal, China has started interfering in political affairs, in Sri Lanka, China has converted unsustainable infrastructure investments into long-term leases that violate its sovereignty, and in Bangladesh, it has begun to interfere in political affairs. It is clear that the subsidies promised by China are, in effect, expensive loans.

The Chinese government has also changed the way it supports these countries. a study It turns out that China spent $240 billion on bailouts for 22 countries between 2008 and 2021.

“Ultimately, the Chinese government is trying to save its own banks, which is why it has embarked on the risky business of international bailout financing,” said Carmen Reinhardt, former World Bank chief economist and one of the study’s authors. ” he said.

China rarely forgives debt, and how much money it lends and on what terms is secret. Experts say this makes debt restructuring difficult when multiple international financial institutions are involved.

What can happen in cases like Sri Lanka, which experienced large-scale social unrest and political turmoil after its foreign exchange reserves were depleted, is that countries get stuck in a cycle of trying to repay the interest, limiting the economic growth that helps pay the interest. It means that it will be done. First, get rid of debt. When money stops flowing in, people begin to lose their jobs, an inflationary spiral ensues, and critical imports such as food and fuel become impossible to buy.

China provided emergency loans and extended payment deadlines.

But despite criticism, experts say they are engaging in “debt trap diplomacy,” an idea popularized by the Trump administration in which debt-ridden governments offer major assets to creditor countries as collateral. points out.

They added that there is no benefit to China from such foreign loans because Chinese banks are at risk of incurring debts to domestic real estate companies.

Ana Hirogashi, an analyst at research institute Aid Data, said China is often implicated in the economic woes of these countries, but it’s not just about the loans. Transparency around financing is an issue, she added, but as with Sri Lanka, China will eventually come to the negotiating table.

Sri Lanka has struck deals with creditors China and India as part of an effort to restructure its debt and pave the way for approval of a $2.9 billion IMF bailout.

The question then arises: Why is China tied to countries with such poor economic fundamentals? For example, analysts say that if China really wanted Pakistan to develop, it could have helped expand the Karachi port instead of investing in Gwadar.

Meir Nowens, head of the China program at the International Institute for Strategic Studies (IISS), said: “There is an element of opportunism and politics in Chinese investment. Bilateral political relations with host governments could be improved. “There is,” he says.

“China is using this as an example to support its own narrative of being a leader in the Global South, a country that supports developing countries, understands them, and responds to their needs. .”

Chinese transactions are known to have fewer terms and conditions and can be completed in a shorter period of time than those made by commercial lenders. Multilateral institutions like the World Bank and the International Monetary Fund (IMF) are also slow and often attach social and environmental clauses to their aid commitments.

“Many leaders in the Global South are battling election cycles and need to complete projects quickly with minimal policy conditions,” Hirogashi said.

Despite successes and failures, analysts note that infrastructure that would not otherwise have been built continues to lift the economic prospects of many developing countries, including those in South Asia.

“China’s Belt and Road is driving growth and development in South Asia, forcing India and other countries to find better and faster ways to offer alternatives. “Beyond China and India, there are many more countries, including other actors such as Japan and the European Union,” Xavier added.

For example, last year the G7 announced plans to increase investment in infrastructure in low- and middle-income countries. And on the sidelines of the G20 summit this month, the India-Middle East-Europe Economic Corridor (IMEC) was announced, which aims to connect India with the Gulf and other countries in the Middle East and Europe through trade corridors. The United States is also involved, with President Joe Biden saying there will be more such corridors in the future.

According to Xavier, China has become “an entrenched economic and political actor across South Asian countries.”

However, with China’s economic slowdown, a new shift in the world order may soon occur.

“As China shifts its growth model to domestic consumption and has less capital available to deploy in South Asia, countries in the region are now turning to India, Japan, the United States, the European Union and other traditional partners. We’re rebalancing. That’s clear. China has been largely inactive in Sri Lanka since the financial collapse,” Xavier said.