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Myanmar to trim Chinese loans to avoid debt trap

By Dipanjan Roy Chaudhury, ET Bureau | Aug 31, 2018, 10.57 PM IST

Loans for BRI have raised fears of countries falling into a debt trap as it happened with Sri Lanka and Cambodia.

New Delhi: China’s Belt and Road Initiative (BRI) has run into a hurdle in Myanmar, with the host government reducing the scope of Beijing’s loans for the Kyaukpyu Port in Rakhine state, fearing a debt trap.

China had planned to fund $7.3 billion for Kyaukpyu Deepwater Port project, but will now be allowed to invest only $1.3 b for the initiative, ET has learnt. Myanmar’s officials indicated to ET that the government wants to avoid any debt trap by accepting huge loans from China that comes with a high interest rate.

The project’s original plan was to construct 10 berths for large oil tankers in the deep-water port, but it has now been whittled down to two.

The Chinese foreign ministry though has claimed that negotiations are still on. The primary developer, China CITIC Group, claims that the $1.3 billion is for the “initial phase,” which is one of the four phases.

▶The Myanmar government has stated that it will not provide sovereign guarantees for any loans to the project and the government will require a▶ third-party independent audit on project spending.

The port of Kyaukpyu (Rakhine state) is located at the entry point of the China-Myanmar Oil and Gas pipeline and the key pillar for BRI, linking the Indian Ocean to the southern part of China. In December 2008, China and Myanmar had signed a deal to construct an oil pipeline at Kyaukphyu enabling Beijing to avoid the Malacca Straits for transport of oil sourced from West Asia.

India has constructed Sittwe Port also in Rakhine state and the Special Economic Zone is being set up there.


Loans for BRI have raised fears of countries falling into a debt trap as it happened with Sri Lanka and Cambodia. But it is not just the Myanmar government that had red flagged China’s economic strategy, the German government too has issued warnings about China’s acquisition efforts and has encouraged European companies to join forces to take on competition from China.

Leading German media house ▶Deutsche Welle recently reported that China has been obtaining state-of-the-art technology through the acquisition of foreign companies.

It has also been acquiring infrastructure projects in Europe in order to gain political influence.

Thomas Bareiß, secretary of the Committee on Economic Affairs and Energy, said that the ▶German government inspected 80 acquisition proposals in 2017, and 30% of such requests were from Chinese companies.

Bareiß said although Germany is open to foreign investment, it should not underestimate the acquisition attempts made by these Chinese investors and all the Eastern European countries should unite on the issue.

Deutsche Welle quoted him saying,▶“We can’t be too naive and too reckless. The competition in the international community requires a tough position. We are willing to face it, but it must be under fair and equal rules of the game. We are still far from it because the investment environment around the world is very different.”

Recently, for the second time, China’s state-owned company, the China Grid Corporation of China, failed to acquire a 20% stake in the German transmission system operator, 50Hertz.


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