Debt weapon of choice for China to penetrate developing countries

Chinese President Xi Jinping (left) and his Kenyan counterpart Uhuru Kenyatta inspect Chinese honour guards during a welcoming ceremony outside the Great Hall of the People in Beijing on August 19, 2013. If not tamed, the loans from China will continue to subject poor nations into new rounds of dependency. PHOTO | WANG ZHAO | AFP

What you need to know:

  • The BRI, mooted in 2013, is an elaborate loan regime that China is rolling out to poor countries, especially in Asia and Africa.
  • When States default on the loans, this affords China the liberty to seize assets and even territory in lieu of the repayments.
  • Sea and land rights are critical for this expedition that is desirous of dislodging the US from the super power perch.

Alarm bells are ringing in Asia and Pacific countries. Chinese loans advanced under the Bridge and Rail Initiative (BRI) have started to sting.

That is why recently, Myanmar announced that it was scaling down on Chinese loans for its Kyaukpyu deep water port, noting that the project could be unviable and could trap the country in unsustainable debt.

In the same week, Tonga, the tiny Asia-Pacific nation, also raised the alarm and begged China to write off her debt.

Malaysia is also likely to drop a $20 billion (Sh2th) loan from China intended for the construction of a railway line.

Myanmar has cut the loan portfolio for Kyauk Pyu from $7.3 billion to $1.3 billion.


And for the Tonga case, Prime Minister Akilisi Pohiva cried out aloud that: "If we fail to pay, the Chinese may come and take our assets, which are our buildings.”

It is estimated that Tonga’s debt to China is about $100 million.

Mr Rex Tillerson, the former US Secretary of State, was worried by the increased Chinese loans to African countries.

He complained China “encourages dependence using opaque contracts, predatory loan practices and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long term self-sustaining growth”.

Of course the US was uncomfortable with a rising China. Yet, the latest concern from indebted countries vindicates Mr Tillerson’s concerns.

Angola is one such country. Today, approximately half of Angola’s 1.7 million barrels a day of oil goes to China.

Yet with the BRI diplomacy, more loans are set to be dangled to states.


The BRI, mooted in 2013, is an elaborate loan regime that China is rolling out to poor countries, especially in Asia and Africa.

The epic project targets more than 65 countries for land and sea infrastructure, a powerful diplomatic statement that is sending tremors across the globe.

China is projecting the initiative to cost $1 trillion. States are scrambling for the loans that will ultimately, if the BRI succeeds, position China as a super power.

But observers of international relations have dabbed BRI an instrument of what is now called "Debt Trap Diplomacy”.

Indeed, China is a calculating financier. Most of its loans are collateralised against strategic assets like minerals or seaports.

When States default on the loans, this affords China the liberty to seize assets and even territory in lieu of the repayments.


In March, the think tank, Centre for Global Development (CGD), in a report, Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective, determined that eight countries (Laos, Mongolia, Pakistan, Djibouti, Kyrgyzstan, Montenegro, Tajikistan and Mongolia) were likely to default on their obligations to China.

This will have far-reaching political and economic consequences, likely to change their histories in the process.

The infamous case of Sri Lanka’s Hambantota port is legendary. Sri Lanka had taken a loan of $1 billion for the port.

But the port, according to observers, lacked any commercial viability.

Finally, when Sri Lanka failed to repay the loan, it had to lease the port to China for 99 years.

To China, economics may not make much sense now, but the port will be a key instrument for its expanding navy power.


Mr Tillerson was acutely uncomfortable with the Chinese loans, especially to Africa.

He reckoned they don't bring significant training programmes that enable African citizens to participate fully in the future.

According to him, "the financing models are structured in a way that the country — when it gets into trouble financially — loses control of its own infrastructure or its own resources through default”.

Though it has been resisting the description, China is determined to expand its empire.

It is engaged in all the trappings of a rising global power.

It is bolstering its sea power, ranging from the controversial South China Sea, to pursuing strategic ports in Asia, Africa and Mid-East.

It is no accident that strategic ports such as Djibouti and Hambantota are firmly under its grip.


That's a scoop. And who knows, the proposed $10 billion Bagamoyo port in Tanzania may soon be in its fold too.

At our doorstep, China has also secured a 10-year lease for Doraleh Multipurpose Port in Djibouti at an annual rent of $20 million.

Djibouti, a poor Horn of Africa state, is heavily indebted to China. Djibouti’s debt ratio to GDP is 85 per cent.

The 10-year lease essentially affords China the benefits of Djibouti’s strategic geopolitical location with an outlet to the Red Sea and Mandeb Strait, a busy commercial sea route.

It is also a favourite base for Western navy bases including the US, France, Italy and Japan.

In the scramble for the Horn, Beijing has secured a navy base here too, its first outside Mainland China and would be key to securing its national interests.

China, in this loaning charm offensive, has demonstrated its Alpha State stripes and hegemonic aspirations.


Sea and land rights are critical for this expedition that is desirous of dislodging the US from the super power perch.

Ultimately, the loans are designed to construct a more sinocentric world order.

To China, the strategic geopolitical advantage across Africa, Europe and Asia is what matters and if it takes a poisoned chalice in form of unsustainable loans, so be it.

The rise of the Oriental empire has left Americans smarting. On a recent tour of Asia, the US Secretary of State, Mr Mike Pompeo, rolled out a $113 million financing strategy in emerging Asian countries in a bid to counter the BRI.

Mr Pompeo’s initiative targets energy, infrastructure, and technology. However, pundits find this counter strategy as too little too late.

Loans from China are irresistible because they come with less strings attached on matters such as governance, democracy or human rights.

Bureaucrats too can easily get a cut without much accountability. Yet, the loans are like a Trojan horse. Its consequences will be far-reaching.


While the British expanded the empire through conquest, China understands a subtle approach, which is sovereign debt.

It is now the ammunition of choice for China to penetrate developing countries and get them to suit its expanding economic and military interests.

Observers will be concerned about the implications of this to sovereignty.

Eric Toussaint in his report, Debt as an Instrument of the Colonial Conquest of Egypt, aptly observed “in the case of Egypt and Tunisia, the European powers used debt as their most powerful weapon for ensuring domination, leading to the total submission of previously independent states”.

Even Hong Kong fell in British hands for a 99-year lease as a concession. China seems to be following this script.

In Sub-Saharan Africa, China’s expeditions augmented since 2000 when Beijing launched Forum on China-Africa Cooperation (FOCAC).

This is a more structured foreign policy on Africa that sought to cement cooperation in political, economic and social development. Then the loans started to pour in — fast and furious.


Today, never has one country exercised so much influence in Africa since the fall of the British, as China does.

IMF’s Wenjie Chen and Roger Nord capture this dizzying reality in their report, China and Africa: Crouching Lion, Retreating Dragon?, that China has become, by far, the largest source of bilateral loans, accounting for about 14 per cent of stock of total debt contracted by sub-Saharan African countries, excluding South Africa.

Today, China controls 66 per cent of Kenya’s bilateral debt.

This is incredible. Kenya is one of the countries listed in tier two of the CGD report that will likely struggle with servicing of the Chinese debts.

To meet her obligation, Kenya may be forced to embark on stringent austerity measures as well as increased taxation.

It is no wonder that the Budget for financial year 2018/ 2019 expanded the taxation net, capturing wide-ranging products including petroleum.

In any case, prices at the pump are set to rise in September.


When it comes to geopolitics, Kenya is strategically located.

The most advanced economy in the region, peaceful and with access to the Indian Ocean, Kenya is a jewel that both the West and the East covet.

It is no wonder that President Uhuru Kenyatta will soon be meeting with world powers ranging from UK’s Prime Minister Teresa May to US President Donald Trump later this month.

Their discussions will surely touch on terrorism, but the Chinese question will definitely be high on the agenda.

Kenya has been an ally of the West since independence.

But Kenya developed a "Look East" foreign policy at the dawn of the new millennium, responding to Beijing’s charm of no-strings attached loans.

But the loans have also been a subject of heated debate with discomfitures expressed by the local political class as well as international regimes like the IMF and World Bank.

That is why Mr Tillerson warned about the loans from China.

“When coupled with the political and fiscal pressure, this endangers Africa’s natural resources and its long-term economic political stability.”


But it is no secret that Africa’s natural resources have been auctioned to Beijing.

From mines in Zimbabwe to Angolan oil, Africa is being drained day and night in a systemic design.

Going forward, investments that end up comprising the welfare and sovereignty of states should be discouraged.

This is why a framework for citizen participation in determining the debts that a State should seek should be inculcated in governance systems.

If not tamed, the loans from China will continue to subject poor nations into new rounds of dependency, and therefore, will lead them down a path to more underdevelopment.

Myanmar, Sri Lanka and Tonga are just a tip of the iceberg.

The Trojan horse in form of the sweet loans is turning out to be anything but a gift.

Mr Wamanji is a Public Relations and Communication Adviser. [email protected].