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Belt and Road Initiative: China and the world

It is in the interest of participating nations to keep the process transparent and allow investment in limited quantum and in a phased manner so as not to end up borrowing more than they can pay back and risk unsustainable level of debt.

In 2013, Chinese President Xi Xinping, mooted the idea to revive ancient Silk route and termed it as One Belt One Road (OBOR). He presented OBOR as a program which will propel infrastructure growth in participating nations and increase connectivity across Central Asia, Europe and Africa thus significantly increasing trade. The projects that China had financed before 2013 were amalgamated in OBOR. 6 years later much has changed, for one, OBOR has now been renamed as Belt and Road Initiative (BRI) and China has contributed significantly towards infrastructure development in many nations, building new ports, airports, railway lines, power plants, housing and in some cases even whole cities from scratch vital to the progress of any nation. Today, projects worth almost $340bn are underway in various countries and this amount is expected to increase to $1tn in 6-7 years.

However not everything about BRI is helpful for participating nations as it also brings a spate of problems, like- high amount of debt and scale of operations from infrastructure nowhere near to the forecasts shown in a feasibility study which restricts the revenue. While some countries such as Sri Lanka have already suffered a great deal because of this, many others such as Pakistan, Maldives, Malaysia and Djibouti are at high risk of defaulting on their debt repayments and getting stuck in a debt spiral. What were the factors that led these countries to such a situation and what is their present position?

Sri Lanka

After the end of the bloody civil war, China was the very first country to start investing in the country. Starting 2009, almost $8 billion were invested in multiple projects, Hambantota port, Mattala Rajapaksa International airport, an affordable housing project in Jaffna, a port city dubbed as Sri Lanka’s Dubai, roads and a number of hospitals among many others. Hambantota port was shrouded in controversy even before its construction began in 2008. The capacity of Colombo port, Sri Lanka’s largest, had just been increased by 30% in 2003. It was the expansion of one of the two terminals, another terminal could be expanded later and by 2008 port wasn’t even operating at full capacity which could be realised in later years thus rendering the need for whole new port questionable. The construction of the new port finished in 2010 and since then it hasn’t seen much business, handling just 1 ship a day on an average.

The revenue from port wasn’t enough for Sri Lanka to pay back the loan to China, so in 2017 an agreement was signed to lease the port to China for 99 years in lieu of repayment of the loan for that particular project. Mattala airport, located near Hambantota, was constructed in 2013 at a cost of $209mn out of which China lent $190mn. Initially, several airlines operated from there but ceased operations eventually due to low demand. Without any revenue, the airport became unsustainable as the operating cost was still being incurred while there was no revenue. India entered into a joint venture to run the airport in 2017 basically to keep an eye on Hambantota port. As of in 2018, no flights are scheduled from the airport due to the absence of demand. According to the 2012 annual report by the Ministry of Finance and Planning of Sri Lanka, China had invested $3.851bn in the country; $3.841 billion in loans and only $10 million as grants. Currently, China Communications Construction Company (CCCC) is engaged in building the Port City also known as Colombo International Finance City. It is being presented as Sri Lanka ’s own London and Singapore in terms of financial importance. The deal was signed during the tenure of Mahinda Rajapaksa and construction was to begin in 2011.

In 2014, Prime Minister Ranil Wickramsinghe suspended the project citing damage to the environment, however, the construction was resumed in 2016 after CCCC threatened to bring a legal case against the government for damages. Construction is expected to complete by 2041 and total estimated investment in the project by then would be $16bn. Today Sri Lanka is entangled into a web of debt where it is constantly borrowing more to pay off existing commitments; government borrowed $3.5bn in 2018 to pay off loans maturing at the end of this year. As per Finance Minister, Mangala Samaraweera, the situation will be worse in 2019 when loans worth $4.9bn will have to be repaid. The current government has blamed the previous administration of Mahinda Rajapaksa for not carrying out proper feasibility studies for personal gains. A recent New York Times report claimed: “large payments from Chinese port construction fund flowed directly to campaign aides and activities for Rajapaksa, who had agreed to Chinese terms at every turn and was seen as an important ally in China’s effort to tilt influence away from India in South Asia.” The report goes on to allege that Rajapaksa’s campaign and his aides received a total of $7.6mn from China for 2015 elections.


China-Pakistan Economic Corridor can easily be termed as the crown jewel of Belt and Road Initiative. CPEC is an umbrella program under which China would undertake multiple projects for transportation, energy and communication. Initially, in 2014, the total worth of planned projects were estimated to be at $46bn but now it has increased to $62bn. Financing for projects will be provided by Exim Bank of China, China Development Bank and Industrial and Commercial Bank of China in form of loans. As of now, projects worth almost $26bn are in various stages of construction.

Gwadar deep sea port is located in Balochistan region, being constructed by China Overseas Port Holding Company (COPHC), is one project under CPEC, once completed, it will have a capacity of handling 1 million tonnes cargo annually. Pakistan has already leased the land to COPHC for 40 years. Pakistan government claims that Gwadar port will generate a significant amount of revenue given its proximity to the Gulf of Oman from where majority of oil passes, however as per contract91% of revenue from the operation of the port and 85% of revenue from free zone will go to COPHC. China is also building a gated city near Chinese workers working at the port. Only Chinese nationals will be allowed in the city and China has also asked Pakistan to legalise Yuan in the port. As per estimates, 500,000 Chinese nationals will be living there by 2022. This is more than the local populace of that area which numbers around 250,000. It can alter the demography of Balochistan, an already troubled province, in a significant manner. It also shows that port may not generate as many jobs for locals as Pakistan is hoping since the majority of positions will be held by Chinese workers.

Besides CPEC, China and Pakistan are also engaged in another program named North Indus Cascade Project, under which China will build 5 dams on the Indus River. This project is valued at $50bn and it is independent of CPEC. This is presenting an even more significant challenge to Pakistan. The new government under Imran Khan has pulled $14bn Diamer Bhasa Dam out of the project citing strict conditions over Chinese financing which would give ownership of dam to China. World Bank and IMF have refused to provide funding for this project citing “it lies in the disputed territory of Gilgit-Baltistan.” Khan has also asked for a review of terms of all projects under CPEC to make them friendlier towards Pakistan but much to his chagrin, China has refused to review the projects that are already under construction.

Now Pakistan is finding it difficult to repay debt. In the financial year 2016-17, Pakistan borrowed $10bn to service foreign debt. It also issued bonds against national assets such as Karachi airport, dams and highways. Things will get difficult for Pakistan once payment for debt under CPEC start in 2021 and at the peak, it will have to make annual payments of $3.5bn. In addition, Pakistan will have to spend $22bn for capital goods till 2022.

Realising that repayment of debt may not be possible; Pakistan invited Kingdom of Saudi Arabia(KSA) to join CPEC in September 2018 and KSA agreed. However since then, Pakistan has declared that KSA will not be joining, whether this is due to objections from China or some other reason is not clear. With a balance of payment crisis, foreign reserves are at an all-time low, Pakistan approached IMF for a bailout of $11bn dollars. However no deal has been finalised as IMF is demanding to see the details of loans under CPEC, a standard practice to check the financial health of any sovereign looking for a bailout, but Pakistan has declined to share the details. Moreover, to add to the woes of Pakistan, USA has declared that it will not allow Pakistan to use any money received from IMF towards repayment of Chinese loan. Pakistan also approached Saudi Arabia and China for financial assistance and has also received $7bn from the former and latter has also agreed to provide assistance but the details of such assistance have not been made public.

With the present economic situation and an ever-increasing debt burden, it’s entirely possible that Pakistan may end up being not able to repay the debt accrued under CPEC and North Indus Cascade Project upon which Hambantota port like deals may be struck between Pakistan and China handing over vital national assets to China.


Till 2012 China didn’t even have an embassy in archipelago nation and since then has invested over a billion dollars in many projects across the country. China undertook an expansion project of international airport, which was earlier awarded to Indian company, GMR, but was later cancelled even though GMR quoted a cost of $511mn whereas China will undertake the project at a cost of $800mn, a 1.3 mile long bridge connecting male to the airport worth $400mn and a hospital. All these contracts were signed during the previous government. These contracts have increased Maldives’ debt considerably. The current finance minister Ibrahim Ameer told reporters “We believe most of these projects are at inflated prices so we are looking at them. We cannot do much in terms of renegotiation but going forward our objective would be to reduce cost.” He revealed that the cost for the hospital has already run up to $140mn whereas the rival original offer was for $54mn. Former President Mohammed Nasheed claimed that the Chinese ambassador to the Maldives handed over a $3.2 billion invoice to the new government, however, China denies these allegations. If the Maldives was to pay back the entire loan back to China by itself, it will need to set aside an amount equal to 10% of its GDP annually. The new administration has asked India for assistance and has secured financial assistance of $1.4bn which will be utilised in repaying Chinese debt.


China has so far invested a total of $34bn in Malaysia. East coast rail link, Forest City and Singapore-Kuala Lumpur are the most valued of all. The total valuation of Forest city after completion is estimated to be $100bn. It can house 700,000 people. Over two-thirds of apartments have been sold to Chinese nationals whereas Malaysians have bought only about 10% of apartments as they are too costly for locals. China is also building a deep sea port close to Malacca Strait that is large enough for an aircraft carrier. This port has brought in questioning China’s strategic aims as Malacca Strait is one of the world’s most vital sea routes from where most of the world trade takes place, including oil. 80% of China’s trade passes through here and it would want naval presence nearby to protect its interest. PM Mahathir Mohammed, who defeated Najib Razak in recent elections under whom deals with China were signed, has been very vocal against Chinese projects in the country. He termed Forest City akin to having a Chinese town in the middle of the country which can create demographic problems and has declared that no foreign nationals will be allowed to live in the city but the constructions will go on. He has also cited concerns about the growing debt which the country might not be able to pay back and consequently has cancelled projects worth $22 billion fearing Malaysia will end up in a situation akin to Sri Lanka where it will have to hand over the control of territory to China.

Malaysia has also cancelled East coast rail project, that would connect East coast of peninsular Malaysia in South China all to the west with Thailand for transportation of goods, along with Singapore-Kuala Lumpur High-Speed Rail project and gas pipeline calling them unnecessary. This change in the stance of Malaysia has been detrimental to China’s BRI as many countries have now adopted a policy of wait and watch before entering into contracts with China under BRI. Malaysia used to be the most welcoming country towards Chinese investment and signed a lot of contracts but now it is a frontrunner in cancelling projects and most vocal against the policies of financial assistance provided for the projects. China surprisingly has shown an accommodative approach towards Malaysia and has agreed to discuss the terms of contracts. Soon after PM Mahathir’s comments on Forest City project, China appointed a Malaysian national as new Managing Director, earlier this post was occupied by a Chinese national.

There is a striking similarity among Chinese investments across countries in the Indian Ocean Region:-

  • Financial assistance to the government to avoid any meaningful resistance against projects;
  • Opaque decision-making process;
  • Lending more even when the country is struggling with high debt;
  • A strategically located port and;
  • Resistance to any external participation which might ease repayment burden on the host nation.

Currently, Former PM of Malaysia Najib Razak is being probed by law enforcement agencies in relation to payment for gas pipelines projects awarded to China for which 88% of total payment was made and the project completion is less than 15%. Even former President of Sri Lanka Mahinda Rajapaksa and Former Maldives President Abdulla Yameen are under investigation for receiving election campaign funding from Chinese companies. China was quick to utilise its influence in developing port near strategic sea routes and choke points. Gwadar port in Pakistan situated just north of Gulf of Oman provides access to Strait of Hormuz form where the majority of world’s oil passes. This port also provides China with an alternative land route for its trade, bypassing the need to cross the Indian Ocean and areas under the influence of the USA and its allies.  Melaka port in Malaysia is located at the southern end of Malacca Strait, which connects South East Asia, East coast of China and East Asia with Central Asia and Africa is the busiest sea route. A military base in Djibouti along Bab-el-Mandeb strait which connects Asia to Europe and North America through Suez Canal.

China has also been quite rigid in laying down the conditions for financing which generally have not been in best interest of borrowing nation, consequently country ends up with a lot of debt not able to pay it back, neither able to bring in any other country as party to the project to ease loan burden due to China’s objections. Brahma Chellaney, a fellow with Delhi based think tank Centre for Policy Research, said it is in the interest of China if countries are not able to pay back the loans since it gives China control of vital assets. It is in the interest of participating nations to keep the process transparent and allow investment in limited quantum and in a phased manner so as not to end up borrowing more than they can pay back and risk unsustainable level of debt.

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