China’s grandiose Belt and Road Initiative (BRI) is not only the most expansive geopolitical undertaking ever attempted by a sovereign state but also the most puzzling of enterprises initiated by any nation. Ever since the death of Mao Zedong in 1976 and subsequent opening up of the Chinese economy in 1979, the global media has obsessively portrayed China as the economic power house of the world.

In 1979, at the urging of Deng Xiaoping, the state council authorised the creation of special economic zones as part of a policy directed at liberalising the foreign trade system and opening the economy to the west. Fired by the zeal to substantiate their claim that China after liberalisation was an unstoppable economy, reputed journals like Liberty (March/April 1980) and Economist (July 17, 1997) attributed an unverifiable quote to Napoleon Bonaparte, which said, “China? There lies a sleeping giant. Let him sleep, for when he awakes he will move the world.”

The unverified Napoleonic quote gained currency, and was repeated by countless writers in subsequent times. In a secret communication, J. N. Dhamija, Indian ambassador at Kabul, referring to China’s rise, informed the home government that “The giant is awake, stirring out of the dreams to new conquests and achievements of crimson glory and tutelage of ancient past.”

Deng Xiaoping’s policy offered investors low-cost labour, reduced rents and taxes, and scaled down or waived customs duties, which unsettled the west’s economic and trade related monopoly. China attracted unprecedented foreign investment in infrastructure projects as well as in industries that would successfully promote exports and enhance technological development.

The BRI has increased its footprint in more than 80 countries.  But August was a cruel month, as Malaysian Prime Minister  Mahathir Mohamad  cancelled two projects, including a $20 billion rail network. 

Consolidating on the financial gain of its near-four decades of post-liberalisation, China managed to amass an unparalleled amount of wealth to unleash a never-before “cheque-book diplomacy”. The BRI initiative is a flamboyant physical extension of this cash bonanza. India was the sole voice from the outset to oppose BRI, suggesting that “the project is little more than a colonial enterprise, leaving debt and broken communities in its wake.”

As President Xi Jinping told the Boao Forum in April that the BRI has increased its project footprint in more than 80 countries, global media (barring very few) continued glamorising China’s ambitious endeavour. But August was a cruel month for Beijing, as the Malaysian Prime Minister Tun Dr Mahathir Mohamad opposed what he saw as unfair Chinese deals at the Great Hall of the People in Beijing. He cancelled two major projects, including a $20 billion rail network, the centrepiece of China’s outreach in Malaysia, as well as a $2.3 billion gas pipeline. Now, many others too are articulating hitherto unspoken doubts about projects in their countries.

The initial five-year run of the Chinese mega finance initiative starting in 2013 has produced disastrous results in Europe (Montenegro), Africa (Djibouti) and Asia (Sri Lanka, Pakistan and Myanmar) but few had the courage to travel to China and tell its leaders that their investment was designed to produce unsustainable debt loads and an influx of Chinese labour at the expense of local workers.

China’s BRI modus operandi, a combination of intentionally ensnaring cash-strapped economies in debt, bailing out graft-ridden state-owned companies and bankrolling the ruling elite’s grip on power to sign bad deals was actually working well until Mahathir threw a spanner into the machine. He did not name BRI or its affiliates during his China sojourn but squarely blamed it for unfair practices and made it clear that Malaysia “do not want a situation where there is a new version of colonialism because poor countries are unable to compete with rich countries.”

Mahathir compared BRI projects in Malaysia to the unequal treaties forced on China by Britain in the 19th century after defeat in the opium wars. This frontal attack stunned the global media. Seasoned commentators and analysts started reporting about the deleterious impact of BRI.

China has spread its money in places where even angels fear to tread. When other countries fled the Venezuelan market, China  provided the government with a flood of cash starting in 2007. 

A chorus grew among other vulnerable nations that they had actually contracted debt for projects “that are neither viable nor necessary” for their economic growth except in their strategic-economic worth to China.

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hina has energetically sold BRI as a solution to global economic blues, especially as other big powers refuse to fund projects in poor countries. Beyond the funding, recipient nations have realised that they are subjecting themselves to coercive conditions and crippling debt, unsustainable by their fragile economies. China has been silently propelling its foreign policy by “Shylocking”—loading a client with unpayable debt and using it for diplomatic leverage. In the story of the proverbial moneylender, Shylock in Shakespeare’s Merchant of Venice lends money to Antonio but demands a pound of Antonio’s flesh should the debt not be paid on time.

Standing on an unparalleled foreign currency reserve of $3,161 billion, China has been eager to spread its money in places where even angels fear to tread. When other countries fled the Venezuelan market, China not only entered but provided the government with a flood of cash starting in 2007. Within a decade Venezuela had run up a bill of $62 billion. The debt proved disastrous for the economy.

Despite the huge credit line Venezuela is in an economic death spiral of runaway inflation, catastrophic oil production collapse and unmanageable crisis of deprivation. Unending repayments of debt strained the economy to breaking point. Noting the downward spiral, China stopped granting new loans in 2015, showing the bilateral relationship to be a zero-sum game. Sitting on a Chinese debt pile of $23 billion, Venezuela is on the verge of going the Sri Lanka way—to recoup its debt China may demand ownership of Venezuelan ports or oil fields.

Venezuela is not the only country in such a vice. The United Nations Economic Commission for Latin America and Caribbean records show Brazil has received $54 billion in Chinese loans for some 100 projects in the period 2003 to 2017. Brazil’s decrepit electricity sector is in virtual Chinese control. Its influence in the Brazilian economy is great enough for the right-wing presidential candidate Jair Bolsonaro to promise a review of Brazil’s relationship with China if he is elected. The election is scheduled for this month. Bolsonaro alleged that “China, though an important trading partner for Brazil, is not buying goods from Brazil, but is trying to buy Brazil.”

The Argentine government is another example of a willing entrant into the Chinese debt trap. The previous President Christina Fernandez de Kirchner negotiated unequal deals worth $18 billion with Chinese companies. When President Mauricio Macri won the election in 2015 he slammed the brakes on his predecessor’s decision to sign deals with China. Macri alleged that rather than going through the foreign ministry, Kirchner dealt directly with Chinese firms and signed unsustainable deals.

As BRI matures, the project appears to be more of a propellant of economic turmoil—making poor countries subservient to their creditor—than a platform for shared benefit and mutual growth. 

In a desperate effort to rescue the ailing power sector Macri took the extremely unpopular step of raising tariffs by 300 per cent. But that was not enough so Macri had no option but to move ahead on projects Kirchner had signed because Argentina needs capital to raise its electricity output. China was ready with its cheque book and in May 2017, Macri signed a $17 billion deal with President Xi Jinping in attendance to augment the power sector and railway projects. Looming recession, dying power sectors and a severe shortage of cash led both Argentina and Brazil to set aside the concerns that China would use the investments to insinuate itself in their most strategic sectors.

Long before the arrival of BRI, from 2005, China began to provide loans to cash-strapped Latin American and Caribbean countries. A region proverbially short of investment eagerly embraced the new benefactor, little knowing that they would end up in a cycle of unending debt, risking economic ruin and foreign control. The total comes up to nearly $163 billion.Venezuela is the leader of the pack at $62.2 billion and Brazil is not far behind, but the list includes even tiny Barbados and Bahamas. No one, it seems, has escaped Beijing’s benevolence.

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s BRI matures, the project appears to be more of a propellant of economic turmoil—making poor countries subservient to their creditor—than a platform for shared benefit and mutual growth. Rising debt seems to be the call sign of the initiative, which is leading to bilateral tensions. In April 2018, protesters set fire to a Chinese venture in south Kyrgyzstan fearing negative environmental impact. The protesters were also signalling their opposition to the Chinese push in Kyrgyzstan.

Chinese money is not cheap. The global interest rate is up to 2.5 per cent while the Chinese tariff is as high as 5 per cent.

In Sri Lanka daily clashes were reported between local people and police over the China-funded industrial zone at Hambantota port. The $62 billion China-Pakistan Economic Corridor has Pakistan in thrall. Its foreign reserves at present are about $10 billion, sufficient to fund imports for just two months. As the government prepares for an International Monetary Fund (IMF) bailout package, its 13th such request, the US, IMF’s largest shareholder, has made it clear it will oppose such a request. It has categorically stated that bailout money, if any, can’t be used to pay China, whose BRI is turning Pakistan into another Venezuela.

Pakistan cancelled three China-funded road projects in 2017 citing heavy tariff and unequal profit distribution. Contrary to perception, Chinese money is not cheap. The global interest rate is up to 2.5 per cent while the Chinese tariff is as high as 5 per cent. Pakistan’s new government made some noise on unequal treaties and deals under CPEC. Last month, the Financial Times quoting Abdul Razak Dawood, a member of Pakistan’s CPEC committee, reported that “the previous government did a bad job negotiating with China on CPEC—they did not do their homework correctly and did not negotiate correctly so they gave away a lot”. Dawood promised a rethink on CPEC–its benefits and liabilities. As the news started spreading, there was a huge uproar in China.

Soon the statement was disowned and the matter resolved. Considering its dependence on China, the report was painted as a “out of context” statements and “Pakistan reassured the Chinese side that CPEC is a national priority and there is complete unanimity on the future of CPEC.”  

Pakistanis hope Prime Minister Imran Khan will reset the deal and engage China on equal terms. But as Imran is running a coalition on a razor thin majority with the opposition controlling the Senate, it is difficult for him to question Chinese heavy-handedness. Add to that the feeling that China is the great equaliser in Pakistan’s rivalry with India and his job becomes doubly difficult. Therefore, rather than debating CPEC’s economic efficacy, he succumbed to Chinese pressure. During the visit of Chinese foreign minister Wang Yi in September, Imran said his government was committed to implementing the CPEC.

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imilarly, in Indonesia there was a lot of talk about halting a China-backed project owing to its high cost. But after a year’s pause, the BRI-backed $5.5 billion Bandung-Jakarta high speed rail project is again on track. Local opposition groups emphasise that Indonesia will be permanently in hock to China and unable to meet repayment obligations.

Myanmar was another country that passed on BRI for some years because of concern about a debt trap. The issue of affordability and viability delayed the China Myanmar Economic Corridor’s takeoff. Despite growing concerns, on September 13, Myanmar signed a memorandum of understanding to establish the 1700-km China-Myanmar Economic Corridor, confirming its integration into Beijing’s grand BRI architecture.

In Nepal, BRI faces different hurdles. In May 2017, then Nepal Prime Minister, the pro-Chinese Pushpa Kamal Dahal (better knows as Prachanda) signed a deal to build the Budhi Gandaki hydroelectric project. A month later, when Sher Bahadur Deuba took over as prime minister, he cancelled it as the council of ministers found the project cleared “in an irregular and thoughtless manner”. Nearly a year later, in May 2018, the K. P. Sharma Oli-led government announced the cancellation of another hydroelectric project—the West Seti project cleared to be developed by China’s state-owned Three Gorges International Corp. Nepal accused the company of “haggling with the government for better terms on construction and tariffs”. These two cancellations cast a shadow on the future of China’s Nepalese ambition.

But after widespread concerns about the possible drying up of Chinese investment, in June, Barsha Man Pun, Nepal’s minister for energy, water resources and irrigation tried to play down the matter. He stated that “The West Seti project is still in the hands of the China” and “Nepal is trying to negotiate a better deal”. Refuting reports about the cancellation of West Seti, the Chinese foreign ministry stated that the report was not true and “relevant Chinese enterprises are conducting negotiations with the Nepalese side on the economic feasibility and other relevant matters.”

World Bank data show Bangladesh as the single largest recipient of loan commitments in 2016 at $18.9 billion, of which 97 per cent were contracted with China.

The coordinated press meets reiterated the fact that the BRI project in Nepal was not derailed but facing roadblocks. Giving rest to the speculation that Nepal was against BRI, Prime Minister K. P. Sharma Oli travelled to Beijing in June 2018 and signed a memorandum of understanding on a cross border railway project.

Bangladesh is another country vulnerable to such diplomatic overtures. During his October 2016 visit to Bangladesh, China’s Xi announced a $40 billion credit line under BRI. Bangladesh badly needs infrastructure improvement and therefore, despite the government’s realisation that BRI could have an impact on its sovereignty and debt burden, it is embracing the projects without hesitation.

During the October 2017 World Economic Forum meet at New Delhi, Shahidul Haque, Bangladeshi foreign secretary had reiterated that his country was eager to remain affiliated with BRI projects. He emphasised that Bangladesh needs better connectivity with the world and hence these projects are essential. World Bank data show Bangladesh as the single largest recipient of loan commitments in 2016 at $18.9 billion, of which 97 per cent were contracted with China.

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ar from Asia, Djibouti in the Horn of Africa faced a similar crisis. As part payment of growing Chinese debt, in 2015, the country offered China a military base. It was officially inaugurated by China in August 2017. Djibouti’s debt is around 88 per cent of its GDP, which stood at $1.72 billion, the majority owed to China. Regardless of the forced sale of the military base, in July 2018, Djibouti’s President Ismail Omar Guelleh described a $3.5 billion Chinese investment under BRI as a “hope for thousands of young jobseekers.”

The other African countries that are risking debt trap include Zambia and the Republic of Congo. As part of its Shylock-style foreign policy, China has provided around $130 billion to African countries starting from 2000 to 2018.

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hina, by way of offering huge grant to vulnerable countries, is successfully gaining overseas territory and port facilities through its debt diplomacy. Under BRI funding China offers project loans without too much fuss. But the high interest rates eventually force participating countries to offer uncomfortable concessions as the debt becomes unserviceable. Many recipient countries seem to think high cost bad projects to develop infrastructure are better than none at all, especially when China is ready to bear the risk. Poor countries need financial support no matter the source. Since the US and the European Union are in no mood to fund large-scale projects in these countries, Chinese capital is eagerly welcomed despite the strings attached. 

In October 2015, Australia’s Northern Territory government granted a 99-year lease on the port of Darwin to the Landbridge Group owned by Chinese billionaire Ye Cheng. Considering its strategic location—closer to Jakarta than Canberra—China wanted it in the BRI scheme. Darwin Island has hosted a contingent of 1,250 US Marines since 2011 and the number is to grow to 2,500 by 2020. Despite the US presence and Darwin’s strategic location post-9/11, Washington refused to fund overseas projects on a large-scale. China happily filled in the gap, getting ownership of the port and increasing its strategic footprint.

India was the only major country to oppose BRI from the beginning. What Delhi predicted five years ago about the impact of BRI is being picked up by other affected countries and western powers.

In April 2016, China acquired a 99-year lease on the Greek port of Piraeus. It was eyeing Piraeus for a decade. Success came only in 2016 with the Greek crisis at its peak, when BRI entered Europe through the country. As the European Union and other western governments balked at helping mitigate the economic burden Greece resorted to selling assets. COSCO, the Chinese state-owned company became the sole bidder for the port. Even before the deal, COSCO was operating the container terminal in Piraeus under a 35-year concession acquired in 2009, the year the crisis began.

In July 2017, China acquired another port, Hambantota in Sri Lanka, also on a 99-year lease, as the government decided to part with it in order to reduce the debt burden of $8 billion owed to China. So that was another strategic asset acquired at cut rates, an addition to its “string of pearls” in key locations across the globe.

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ndia was the one exception. Its suspicions rose from their recent history and Beijing’s position as Pakistan’s “all-weather friend”. It was the only major country to oppose BRI from the beginning on principled grounds. What Delhi predicted five years ago about the impact of BRI is actually being picked up by other affected countries and western powers in the present days. On December 2, 2015, well before it was officially opened, minister of state for external affairs, Gen. V. K. Singh, told the Lok Sabha that the government was aware of the Silk Road Economic Belt and the 21st Century Maritime Silk Road under which China had signed MoUs with some countries. But the question of India’s participation did not arise.

China could ill-afford to ignore India in its BRI dream. New Delhi received a formal invitation to participate in the six separate forums China organised on May 14-16, 2017 as part of the Belt and Road Forum in Beijing. As the whole world seemed hypnotised by Chinese show, on May 13, a day before the formal opening of BRI, the foreign ministry provided a calculated response. India had long opposed Chinese overtures but this was the first formal expression of disapproval. The ministry release said “international norms, good governance, rule of law, openness, transparency and equality” must be the touchstone of any global endeavour, which were totally absent in the BRI.

Modi reiterated India’s opposition stating that the BRI was neither “inclusive, sustainable and transparent” nor “respects countries’ sovereignty and territorial integrity”.

In a clarification of its disapproval it stated that BRI “would create unsustainable debt burden for communities”, disturb “ecological and environmental protection” and deprive recipient countries of the right to get “transparent assessment of project costs”. Disrespect of “sovereignty and territorial integrity”, as the China Pakistan Economic Corridor runs through Pakistan Occupied Kashmir, were other facets of opposition to BRI, the release said.

The initiative has been extensively discussed in Parliament, and commented upon, in official communiques and in Prime Minister Narendra Modi’s speech. On July 20, 2017, Rajya Sabha member Mohammad Nadimul Haque wanted on record whether BRI crossed Indian territory. Gen. V.K. Singh replied that CPEC “passes through parts of the state of Jammu & Kashmir that has been in illegal occupation of Pakistan since 1947”.

He said, “Government has conveyed to the Chinese side and asked them to cease these activities.” 

On August 10, 2017, in the Rajya Sabha replying to a member’s question on whether “it is a fact that the BRI represents an opportunity for India”, M. J. Akbar, minister of state for the external affairs said CPEC as a flagship project of BRI “reflects lack of appreciation of India’s concerns on the issue of sovereignty and territorial integrity”. Therefore, irrespective of economic opportunity, the project was unwelcome.

At the 18th Shanghai Cooperation Organization Summit on June 10, 2018, Prime Minister Modi reiterated India’s opposition stating that the BRI was neither “inclusive, sustainable and transparent” nor “respects countries’ sovereignty and territorial integrity”. Since the formal announcement of BRI by China the US has been less than appreciative. In October 2017, US secretary of state Rex Tillerson accused China of practising “predatory economics”. He cautioned participating countries that Chinese policy could load them with enormous amounts of debt. In April 2018, IMF managing director Christine Lagarde cautioned her audience in Beijing that BRI ventures could lead to a problematic increase in debt, restricting other spending as debt service obligations rose. That could create serious balance of payment challenges.

In a scathing attack, the May 2018 Pentagon Annual Report to Congress states that China’s BRI is “intended to develop strong economic ties with other countries, shape their interests to align with China’s, and deter confrontation or criticism of China’s approach to sensitive issues”.

China  seems deaf to the global outcry that the initiative is falling apart. President Xi told the 2018 Boao Forum for Asia that “China has no geopolitical calculations, seeks no exclusionary blocs and imposes no business deals on others.”

According to a study by the Washington-based consultancy RWR, 234 of the 1,674 China-backed BRI projects have run into roadblocks, about 15 per cent of the total. Another study by another Washington-based institution, the Center for Global Development, estimates that 23 countries in Asia, Europe and Africa are on the verge of debt distress due to BRI-related financing. 

Ever since the US and Russia stopped funding global projects and since the beginning of US-led “war on terror”, many poor nations have been desperate for a financier to fund their infrastructure projects. China has been ready to oblige and nations have taken the bait, to their subsequent regret and China’s ultimate profit. It has operated in plain sight but even the great powers did not take it seriously until recently.

In any case and regardless of its undesirable fallout, BRI was bound to attract negative reporting and scathing attacks on its workings. A closer analysis of the negative reporting or important attacks on BRI reveals that most of the criticism is either Washington-based or Washington-sponsored.

Amazingly, five years after its formal inauguration, amid a virulent global campaign against the initiative, China has kept its calm and deftly moved forward on its agenda.

It seems deaf to the global outcry that the initiative is falling apart. President Xi told the 2018 Boao Forum for Asia in Hainan province that since its launch, “more than 80 countries and international organisations have signed cooperation agreements with China” under BRI. He denied the charge of geopolitical ambitions. “China has no geopolitical calculations, seeks no exclusionary blocs and imposes no business deals on others.”

From a government standpoint the five-year run of BRI is a resounding success. China is expanding its international influence, first by providing finance when no one else will, and then by using it as a lever to acquire key assets. Debt has thus become an important strategic tool.

It should be noted that five years is too short a time to assess the success of BRI projects. There is concern among the leadership that some projects will never generate a return and that growing dissatisfaction over higher tariffs may turn the tide against China. Therefore, Beijing blocked some deals in areas where it sees the risk as high and probability of return as low. Chinese officials are cautioning their firms to undertake a thorough analysis before investing in projects. Sending Chinese workers to project bases may ensure speedy implementation but excite local hostility. China is learning from its mistakes, taking precautions not to arouse local opposition to the projects it is funding.

From a government standpoint the five-year run of BRI is a resounding success. China is expanding its international influence, first by providing finance when no one else will, and then by using it as a lever to acquire key assets. Debt has thus become an important strategic tool in its diplomatic arsenal. Djibouti, Piraeus and Hambantota are early proof that debt can be swapped for other concessions. China’s BRI has a clear vision and clearer ambition—through debt you can rule, or at least dominate, the world.

“Debt book” diplomacy is the perfect alternative to military force as it attracts far less attention and may even prove more durable. Nothing beats a 99-year lease. The Shylock style is still under test but early results since BRI’s inception are promising. China is moving towards its stated goal since 2002, which is to avail the strategic opportunity to expand China’s “comprehensive national power”. BRI is about using China’s economic, diplomatic and military assets in an overarching plan to colonise the world.

Participant countries are reluctant players but have few options. Their economies badly need foreign investment and China seems to be the only willing lender. The only choice is the bad one of whether they should ignore or waive national security concernsfor cash to build infrastructure. 

There is a growing need to devise a new tool or formula, something on the lines of the financial equivalent of the Non-Alignment Movement (NAM), but which actually works and keeps the recipient’s interests front and centre. BRI needs a counter-narrative but at present only one country appears to have the resources and the will to devise such a grand scheme.