The spectre of Chinese debt traps over South Asia!

Ranjan Basu, New Delhi
Published : 07:30, Jun 09, 2019 | Updated : 13:14, Jun 10, 2019

A bank clerk counts Chinese yuan banknotes at a branch of Industrial and Commercial Bank of China in Huaibei, Anhui province, June 8, 2012. REUTERSA major global super power, China, has entrapped many countries in debt, alleges several Western nations. In international lingo, it’s called Debt Trap Diplomacy.

But the amount of loan given to foreign countries was never available. The issue came to the fore when Sri Lanka, unable to pay back the debt, handed over Hambantota Port to China and Malaysia cancelled a Chinese funded rail project in fear of falling into debt.

However, recent research has revealed the scale of Chinese loans in South Asia. Pakistan, known as China’s ‘All weather friend’, took a loan of $ 650 crore from China in the current fiscal year.

The Maldives has a loan of more than $ 140 crore. The new finance minister of the archipelago nation said that the rate of interest is 1.5 to 2 per cent. But loans under sovereign guarantee scheme go up to 6 to 7 per cent.

When the new government in the Maldives took oath last November, the Forbes magazine said that the pressure on the island nation to pay back the loan is so much that even if the new president wants, he cannot tilt towards India.

For Sri Lanka, the situation is even more desperate; a BBC report states that Sri Lanka has to spend 95 per cent of revenue earning to pay back loans.

From 2008 till 2012, sixty per cent of Sri Lanka’s loan came from China.

Meanwhile, Nepal has also titled towards China. The new project in Nepal discussed at all levels is the Trans Himalayan Highway. Some say this will open a new horizon for Nepal while others feel that this will turn into a white elephant.

Nepalese economist, Jagannat Adhikary, observes: “despite the fear if Nepal will even be able to pay the debt or not, there is widespread enthusiasm to be linked to the One Belt initiative.”

The PM of Nepal has already signed an MoU with Beijing worth $ 2.4 billion.

However, the Nepal government wants the money for the implementation of the Trans Himalayan Railway to be given as grant.

Under the Belt Road Initiative, Bangladesh government has already taken $ 570 crore as loan from China. This money will be used for Padma Bridge railway link, Daserkandi sewerage line, Karnaphuli tunnel and for the modernisation of telecom. 

Chinese ambassador to Dhaka has said that China does not want to entrap any country in a debt trap.

When Chinese Premier XI came to Bangladesh in 2016, financial deals worth $ 260 million was signed but it was later revealed that money was not grant but loans on easy conditions.

Though India wants to compete with China, she has also taken huge loan from Chinese sponsored bank, Asia Infrastructure Investment Bank.

Economist Dr Prabir De who has been analysing Chinese loans for a period, says: “many countries take the Chinese money as grant but in the end nothing is free; Chinese loan is lower than that of World Bank but it’s not totally without interest.”

Economist Mirza Azizul Islam added: “We must ensure that Chinese loan does not get an open ticket.”

It’s wise to take loan for export oriented sectors, observed Mirza.

“From export earnings, the Chinese debt can be paid back.”