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Chinese debt trap :An Interview with Barry Sautman and Yan Hairong

The Chinese debt trap :An Interview with Barry Sautman and Yan Hairong

February 23, 2019, 9:02 pm 

*  Sri Lanka the ‘ground zero’ in Chinese debt trap discourse

*  The phrase ‘Chinese debt trap’ coined by RAW academic

*  Chinese govt. initially wary about further involvement in Hambantota

*  Public diplomacy not China’s strong point

*  Djibouti port doing well under China Merchant Co.

*  China Merchant Co upbeat about prospects of Hambantota port

by C.A.Chandraprema

Two Hong Kong based academics, Professor Barry Sautman of the Hong Kong University of Science and Technology and Prof. Yan Hairong from the Hong Kong Polytechnic University were in Sri Lanka last week on a case study of Sri Lanka as a prime example of a country caught in a ‘Chinese debt trap’.

Since 2004, the duo had specialized in studying the economic relationship between China and Africa. Their special focus was on Zambia where China had heavy involvement in the mining industry and to a lesser extent in retailing and agriculture as well. When the belt and road initiative came along they became a part of a project financed by the Hong Kong government to look at the belt and road initiative as a whole, and to do it through case studies.

Six countries were selected for case studies. Among them was Ethiopia which is the number one belt and road country in Africa.  Professor Sautman states that Sri Lanka was also selected because it was ‘the absolute ground zero’ in the belt and road discourse. There are many articles in the Western media which refer to the belt and road initiative and they almost invariably refer to Sri Lanka. Their main interest with regard to Sri Lanka is the question of the so called ‘Chinese debt trap’.

Although there has been a lot of discussion about the Chinese debt trap there has not been a single academic article, about it and Professors Sautman and Hairong had set out to address that shortcoming. The Sunday Island interviewed the two academics last week. 

Q. In which countries have you completed your case studies in relation the belt and road initiative? 

A. We’ve have published a fair amount about Zambia. We have also done some work in Ethiopia and we will be doing more field work in Kenya, Djibouti and Eritrea. Sri Lanka will be the number one example. We want to be able to talk about how the belt and road initiative intersects with these ideas about a Chinese debt trap and to do that through ground level research. We have interviewed government officials, scholars and think tanks in Ethiopia and the large Chinese companies that have involvements in the area. We have also spoken to ordinary Chinese people who have come to work and live in what happens of be a belt and road initiative country.

 Q. When this is a study that is financed by the government of Hong Kong, people could say that you started off with the premise that there is no such thing as a Chinese debt trap.

 A. It was our choosing to look at the Chinese debt trap. When we applied for our grant we said nothing about it at all. We had no real idea about it then. Once we started to look at Sri Lanka, we realized that there is all this talk about a debt trap. We did not come with any real preconceptions. We have found that the gap between the research done by other scholars and what is being reported in the Western media is huge.  

Q. What are your preliminary findings with regard to Sri Lanka? 

A. We have concentrated our research on the question of the Hambantota port and the overall relations between China and Sri Lanka. We are looking at specific issues that have arisen in the course of that relationship. We have come to the conclusion that the idea that China is trying to reduce Sri Lanka into a colony is fanciful. We cannot find any evidence to say that China has proceeded in that manner and that the political forces in Sri Lanka would be amenable to that.

When we were in Ethiopia one of the points that the government officials that we interviewed made was that they are a sovereign state and they will defend their sovereignty strongly. They would never allow any other country to put them into a position of subordination. It does not matter how much they (China) may be involved in the Ethiopian economy, or the tales that may be told overseas but they have always safeguarded their sovereignty.

The same thing can be said about Sri Lanka. We don’t see anybody in Sri Lanka who would want to make their country a colony of China or a colony of India for that matter. The idea that the Chinese government wants to make Sri Lanka a part of a ‘string of pearls’ is also fanciful. This idea of a ‘string of pearls’ by the way, is not a Chinese invention at all. It was invented in 2004 by some American academics. Now people assume that it is a Chinese concept to have a ‘string of pearls’ in the form of military bases along the Indian Ocean littoral.

The other place in regard to which a Chinese debt trap is most often mentioned is Zambia where we have done a lot of work and we know that everything that has been said about a Chinese debt trap in Zambia is erroneous. There may be wider issues of indebtedness with regard to most developing nations, which have to do with commercial loans which are more connected to Western entities than to Eastern entities. With regard to debt relating to developing countries, the policy of China has been that they would be amenable to working out some compromise such as rescheduling or loan forgiveness. Sri Lanka also has never defaulted on a repayment and therefore there is no crisis that we can detect.  

Q. Have you taken a look at how this talk of a Chinese debt trap evolved over the years? Some of the Chinese loans were taken fairly early on by Sri Lanka around 2006/7 for projects like the Norochcholai power plant and even the Hambantota harbor. That was long before the belt and road initiative and long before Xi Jinping became the President. Most of these projects that were built with Chinese funding were on offer to other potential financers as well but there were no takers. The Hambantota port was first offered to India.

 A. We have looked at where the term Chinese debt trap came from and the person who coined the term is an Indian named Brahma Chellaney who works for the Institute of Policy Studies in Delhi and has close relations with RAW. Earlier he had circulated a rumour in the form of newspaper articles in all five continents saying that China was exporting prisoners to work on Chinese infrastructure projects in developing countries. We took an interest in this claim because it was centered mostly on Africa where we were doing work. Zambia was the centre of the claim.

We found that there was absolutely nothing to the rumor. We found reports in more than 25 developing countries in local newspapers saying that the Chinese were sending prisoners to work in those countries. When Britain sent convicted prisoners to Australia many escaped into the bush. But there has not been a single instance of a Chinese prisoner having escaped while being employed in a foreign infrastructure project. Chellaney was basically a full time propagandist. He may have got this idea of a Chinese debt trap after hearing it from Sri Lanka first.   

Q. When these loans were first taken around 2006, nobody was talking about a Chinese debt trap. It was after the war and that too closer to 2014 that this talk of a Chinese debt trap emerged in Sri Lanka. Originally it was not so much the debt trap but the ‘excessive involvement of China’ in Sri Lanka that was at issue. I think this talk of a Chinese debt trap hit the international headlines only after the Hambantota port was given by the present Sri Lankan government to China.

When the Rajapaksa government was in power, there was no talk of ever giving the port to China and the Chinese had never asked President Mahinda Rajapaksa for that port on lease. The present government was brought into power by the USA, Britain, EU and India. It is the government that was brought into power by the rivals of China that handed the port over to China. Today, India has no security. All the shipping to the East cosat of India has to go past the Hambantota port.

The West and India are tryng to explain away this embarrassing foreign intervention fiasco by saying that it is not the fault of the government that they brought into power that China now has a strategic foothold in the Indian Ocean but that Sri Lanaka was caught in a Chinese debt trap so they were compelled to hand the port over to China. The former President has said publicly on several occasions that China never once asked him for the port and it appears that China never asked the present government for the port either. It appears to be the present government that went to China and prevailed upon them to take the port on lease.  

A. There is some evidence of that. When the Sri Lankan Prime Minister visited Beijing, he raised the matter and the Chinese government was reluctant at first. There had to be some kind of persuasion. Initially the Chinese side was reluctant to involve itself further with Hambantota. We spoke to China Merchants Co which is headquartered in Hong Kong and they were insistent that they considered the Hambnatota port to have a very bright future and that they would not have entered into this deal if they had not thought that way.  

Q. Why is it that there has not been a concerted effort on the part of the Chinese government to answer these allegations of a Chinese debt trap not just with regard to Sri Lanka but to other countries such as Zambia as well? Here they did make some effort in that direction because the Chinese embassy called some journalists and told them that the proportion of Chinese loans in Sri Lanka’s loan portfolio was quite low and that other countries had a much greater shares of Sri Lanka’s external debt.  

A. Frankly speaking, the Chinese government does not know how to do public diplomacy. They will issue statements of the kind that you just mentioned which will automatically be discounted as propaganda. However if some story appears in the New York Times, it will be assumed to be objective and not to have a political slant. Though the Chinese government has experienced some improvement in this regard, it is still a long way away from effectively dealing with criticism.

 Q. China has been giving out project loans not just to Sri Lanka but to other countries around the world. On the one hand this is a business proposition because when they give out export financing loans, Chinese companies get work around the world. Is this simply a business proposition or is there also a political motive?

 A. There certainly is both. They expect that there will be some political quid pro quo. However they are dealing with sovereign countries. Turkey has many Chinese funded infrastructure projects, but still Turkey feels free to accuse China of genocide and the setting up of concentration camps etc. Generally speaking, the Chinese government hopes that when giving project funding that it will result in making friends with the recipient country.

Generally it can be seen that countries that are recipients of Chinese project funding tend to be supportive of China in voting in the United Nations for example. What the US does on the contrary is to act coercively. At one point when Colin Powell was Secretary of State he issued a memo saying that we now have in place sanctions against 78 countries and he requested Congress not to pass any more sanctions because there are too many to deal with. In contrast to that China has not imposed sanctions against anybody.

 Q. With regard to these project loans that China has been giving out since say 2005, how many countries have defaulted or fallen behind their payments?

 A. In Latin America, Argentina and Venezuela have either defaulted or come close to defaulting. But these countries don’t have only Chinese loans. They have other commercial loans from Western entities as well.  

Q. Of all the belt and road initiative countries what are the countries where China has the major share of the external debt portfolio?  

A. Djibouti is the example that is most talked about. About 70% of its external debt is to China. But Djibouti is a small country with just 800,000 people. The loans given to Djibouti relate to a few large infrastructure projects. The port is run by China Merchant Co. and is doing very well indeed. The Chinese government expects Djibouti to repay its loans in part from the money made by the port. Ethiopia sends 95% of its imports and exports through this port. 

Q. How many ports has China built or improved around the world as a part of its belt and road initiative?  

A. there are about 15 ports that Chinese interests have been involved in recent years, most of these ports are related to China Merchants or to COSCO and some other companies.

 Q. How many of them are doing well? 

A. It’s still too early to say. A port like Gwadar in Pakistan is still being built.

 Q. These ports are being built in sovereign countries so for each one of these countries, it will be a matter of importance whether that port makes money or not.  

A. The Gwadar port in Pakistan is not a port that is going to make money by ships coming to bunker or for ‘roll on roll off’ operations as in the case of the Hambantota but that port will be vital to move to China products such as natural gas which will be sent by pipeline to China.

 Q. There was all this hype about Hambantota port being in direct competition with Singapore. Now that China Merchant Co has taken over, they will have to channel as much Chinese shipping through it as possible to make it feasible?  

A. Probably so, but Singapore may also lose because of the port building programme that the Indonesian government has as its main development strategy - the building of a whole string of ports along the west coast of Indonesia and this may draw a huge amount of traffic away from Singapore. Those will not be Chinese funded ports.

China Merchant Co is seeking to attract a lot of Japanese shipping to Hambantota because the Japanese are still large scale shippers. They intend on concentrating on ‘roll on roll off’ operations and on bunkering. The Japanese seem to be interested.  

Q. Have you gone into the bids that were put in to take the Hambantota port on lease? There is this belief in Sri Lanka that the bid put in by China Harbor Co was far more favourable to Sri Lanka than that put in by China Merchant Co. This has to do with the choice that the Sri Lankan government made. The Chinese government is not to blame if Sri Lanka had chosen the wrong bid.  

A. What we have heard is that the Sri Lanka Ports Authority picked China Harbor but the government picked China Merchant Co. That is what the former head of the Ports Authority told us.  One factor may have been that China Merchant has a good reputation in running ports whereas China Harbour has been mostly building ports, not running them.


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