China’s quest for world dominion

PERRYSCOPE
Perry Diaz

With the recent participation of the Philippines in China’s “One Belt, One Road” (OBOR) Initiative last November 2018, one doesn’t fail to wonder:  Will it be good for the Philippines or will it fall into China’s “debt-trap diplomacy” as almost all of the 70 countries that participated and ended up gurgling under an ocean of indebtedness?

To answer the question, one needs to look at what happened to those who participated to date.  For lack of space, we can’t cover them all but here are some that’s worth looking at. 

It begins with “soft-power diplomacy” where China persuades or attracts other countries to join her OBOR Initiative.  She began using soft-power diplomacy in the 2000s.  But it was Chinese President Xi Jinping who put it to work when he assumed office in 2012. 

Xi began a worldwide campaign to sell soft power to other countries, particularly the poor and developing countries that were easy bait to promises of economic progress.  Like the 19th century snake oil salesman, Xi tried to sell a product that works like magic.  He also started selling the OBOR Initiative, a new Silk Road that would connect -- by land and by sea -- Asia, Middle East, Africa, and Western Europe.  OBOR would entail building roads, railway systems, seaports, and other infrastructure.  Amazingly, they sold!

But what the participating countries didn’t realize was they’re falling into China’s  “debt trap.”  It lures poorer countries by offering “cheap loans” for infrastructure projects.  But it involves certain conditions that greatly favor China, to wit: no bidding process, project to be done by one of China’s state-owned companies, the workers to be Chinese nationals, cost overruns to be renegotiated (that usually ends in higher interest rates), high-value collaterals, and contract disputes to be arbitrated in China under Chinese laws. 

One of the early participants was Sri Lanka.  The first project was the Hambantota Port, which initially cost $1.12 billion to build.  Other projects followed until Sri Lanka ended up owing a $13-billion debt to Chinese state-owned banks.  Pretty soon, she couldn’t repay the loans.

Hardball Diplomacy

That’s when China applied “hardball diplomacy,” which demanded economic or political concessions in exchange for debt relief.   Sri Lanka was forced to lease the port and 15,000 acres of land around it for a period of 99 years.   

Sri Lanka was not the only one who fell into China’s “debt-trap diplomacy.”  A recent report said that at least 16 countries are vulnerable to China's economic coercion, including Kenya, Pakistan, Zambia, Djibouti, Cambodia, Laos, Thailand, Malaysia, Myanmar, Tonga, Micronesia, Vanatu, and the Philippines.

Another project that would soon follow the fate of Sri Lanka is Kenya.  If Kenya fails to begin repayment of a $2.3 billion loan for Kenya Railways Corporation (KRC), China would seize the Kilindini Harbor, the biggest port in East Africa, which was the collateral for the Chinese loan.  The massive construction loan was the result of Kenya participating in OBOR.   

But the problem was that the feasibility studies were performed by China, which might have estimated high revenue to be able to service the loan.  This led to fears of Kenya’s ability to repay the loans, which would trigger the seizure of the collateral.  Should there be any dispute with the Chinese bank, it would be handled through an arbitration process in China, not in Kenyan courts. 

One of the earlier OBOR projects China had were the Gwadar Port in Pakistan and the China-Pakistan Economic Corridor (CPEC) that connects the landlocked western China to the Indian Ocean.  It was reported that Pakistan’s debt liabilities have risen from $83 billion to $88.9 billion in 2017.  It was also reported that Pakistan’s debt would balloon to $100 billion by 2024 of the total investment of $18.5 billion.   The interest on the bank loans is around 7% per annum payable in 25 to 40 years, which cost Pakistan around $8 billion per month.

Neocolonialism

But what is interesting to note is that China has gained a military footprint in Pakistan, which she can use to counter the presence of the U.S. in the Indian Ocean and Arabian Sea.  China could also use Gwadar to refuel her submarine fleet; thus, extending her navy’s global reach beyond the South China Sea.  

And in time of conflict with the U.S. or India, China would have the ability to block the chokepoint at the Strait of Malacca; thus, cutting off the huge U.S. naval forces in the Pacific from getting into the Indian Ocean and Arabian Sea.

In 2015, China passed a new national security law that provided a legal basis for China to deploy military forces abroad to safeguard her infrastructure projects and Chinese expatriates who were working at these projects in Africa under China’s OBOR Initiative.  China also published her second Africa policy paper, stating that she would strengthen military exchanges and cooperation such as carrying out joint military training and exercises, as well as helping African countries to “enhance their capacity building in national defense and peacekeeping.”

With control over seaports in Pakistan, Sri Lanka, Kenya, Djibouti, and Myanmar, China would be able to encircle the U.S. strategic base on Diego Garcia in the middle of the Indian Ocean.

In 2018, China released an action plan for 2019 to 2021, following the Beijing Summit of Forum on China-Africa Cooperation (FOCAC). The plan called for “stepping up OBOR security cooperation with particular focus on railways, industrial parks, and major events,” as well as protecting Chinese nationals and Chinese companies, which makes one wonder:  Is this China’s blueprint for neocolonialism in Africa?

New Cold War
With that as the backdrop, a new Cold War has begun in the Indian Ocean with the informal alliance of the U.S., India, Australia, and Japan (known as the quadrilateral alliance) against China.  The stakes are high.  More than 60% of the world’s oil shipments pass through the Indian Ocean, mainly from the Middle East and East Africa’s oil fields that are bound for China, Japan and other fuel-importing Asian economies.   In addition, 70% of all container traffic passes through the Strait of Malacca, which China would attempt to block in the event of conflict with the quadrilateral alliance.