BACKING OUT OF CHINA DEALS A WISE MOVE
A number of Asian leaders are having difficulties repaying their debts to China, among them are Sri Lanka and Pakistan
UNITED States’ experts, who were closely monitoring Prime Minister Tun Dr Mahathir Mohamad’s recent China visit, seem to be impressed by his handling of the Chinese hosts after getting Malaysia out of questionable deals, which could be interpreted as a snub to the Chinese.
Dr Mahathir had vowed, upon assuming office three months ago, that he would meticulously examine the deals his predecessor, Datuk Seri Najib Razak had entered into with China; this was necessary to bring Malaysia’s fiscal affairs in order.
The China-backed projects had raised many questions, including their overall utility value for Malaysia’s economy. Three China-backed projects totaling some US$22 billion (RM90.55 billion) were under intense scrutiny by financial experts who recommended their cancellation because of fears of falling into China’s debt-trap.
The projects included a railway connecting Malaysia’s east coast to southern Thailand and Kuala Lumpur, and two gas pipelines.
“I explained to the Chinese leaders why we can’t have the ECRL (East Coast Rail Link)” Dr Mahathir commented on concluding his China visit.
Malaysia, he explained, could not afford to borrow the huge amount of money for the project which it could not repay. The biggest challenge facing Malaysia’s government is to reduce the mountain of financial debts which is said to be some US$250 billion.
Indeed, during his meeting with Chinese Premier Li Keqiang, Dr Mahathir sought the latter’s expert advice and help in resolving Malaysia’s fiscal problems. This was, in fact, a nice way to tell his hosts that Malaysia does not have the money to finance the Chinabacked projects, and was therefore cancelling them.
A number of Asian leaders, dazzled by the flow of easy Chinese money, find themselves unable to repay the money on maturity and are caught in the vicious debt trap. The Chinese are not so forgiving: they, usually, demand a major strategic asset from the host country unable to repay debts. Sri Lanka, which serves a good example, ended leasing its Hambantota port for 99 years because of the huge debts owed to China.
Pakistan is another example of a country addicted to money poured in by the Chinese who are constructing the ambitious China-Pakistan Economic Corridor which will benefit, mainly, the Chinese and not so much the cash-starved Pakistanis who face a major financial and economic crisis. Pakistan’s new Prime Minister Imran Khan is under extreme pressure to review the CPEC and other projects pushed by the previous government.
Indeed, many Pakistani experts are making a shocking discovery: that the projects, which were finalised in a non-transparent manner, are funded mainly from commercial loans provided by Chinese banks, while the heavy equipment and tools are supplied by China and almost the entire labour force is Chinese.
Indeed, the US media reported that some Chinese-funded thermal power plants, for example, are supposed to pay 34 per cent a year in dollars over the next 30 years.
The total value of China-backed projects in Pakistan is estimated around US$58 billion which is a mind-boggling sum for a county already sunk deeply in debts.
China has, meanwhile, come calling on the Pakistanis to repay. And, the catch-22 element is that Pakistan, facing its worst economic crisis, will probably seek more Chinese money to repay China’s old loans. The irony cannot be missed here.
The US, a major contributor to the IMF, has let it be known, through Secretary of State Mike Pompeo, that it will not allow Pakistan to use IMF funds, paid out of American taxpayers’ money, for bailing out China.
Thus, Dr Mahathir managed to stave off the much-feared debt trap.
Malaysia’s finance ministry had stated in July that 88 per cent of the costs of the two US$2.32 billion gas pipeline projects had been paid to the Chinese contractor despite only 13 per cent of the work being completed. One pipeline is in Sabah while the other runs from Melaka to Kedah.
Nevertheless, Dr Mahathir used the old Asian tradition of giving the Chinese leadership face-saving compliments after backing out from the deal. He was generous in his praise, saying that Malaysia could learn “how a big country like China can meet the needs of its 1.4 billion population”.
Furthermore, Dr Mahathir offered to strengthen business ties with China which is Malaysia’s top trading partner. The bitter pill had a thick sugar coating.
China now fears that other partner countries in China’s ambitious Belt-and-Road-Initiative could also begin to question the value of China’s projects. The projects, presented under the garb of economic cooperation, have a strong security component that will cripple the economies of heavily-indebted countries and also bring them in China’s security clutches.
Dr Mahathir had the foresight to wriggle out of questionable deals.
The Chinabacked projects had raised many questions, including their overall utility value for Malaysia’s economy. Three China-backed projects totaling some US$22 billion (RM90.55 billion) were under intense scrutiny by financial experts who recommended their cancellation because of fears of falling into China’s debt-trap.
The writer is a New York-based journalist with extensive writing experience on foreign affairs, diplomacy, global economics and international trade.