Lebanon eyes Chinese aid

As talks with the IMF flounder, state looks east amid worsening economy but risks US ties

FACING a worsening economic crisis and with little chance of Western or oil-rich Arab countries providing assistance without substantial reforms, Lebanon’s cash-strapped government is looking east, hoping to secure investments from China that could bring relief.

But help from Beijing risks alienating the US, which has suggested such a move could come at the cost of Lebanese-US ties.

A tiny nation of 5 million on a strategic Mediterranean crossroads between Asia and Europe, Lebanon has long been a site where rivalries between Iran and Saudi Arabia have played out. Now, it’s becoming a focus of escalating tensions between China and the West.

In recent months, the Lebanese pound has lost about 80% of its value against the dollar, prices have soared uncontrollably, and much of its middle class has been plunged into poverty.

Talks with the International Monetary Fund (IMF) for a bailout have faltered, and international donors have refused to unlock $11 billion pledged in 2018, pending major economic reforms and anti-corruption measures.

Left with few choices, Prime Minister Hassan Diab’s government, supported by the Iran-backed Hezbollah and its allies, is seeking help from China, an approach that the Shia militant group strongly supports.

“Our move toward China is very serious but we are not turning our back to the West,” a ministerial official said.

“We are passing through extraordinary circumstances and we welcome whoever is going to assist us.”

He said China has offered to help end Lebanon’s decades-long electrical power crisis through its state companies, an offer the government is considering. In addition, Beijing has offered to build power stations, a tunnel that cuts through the mountains to shorten the trip between Beirut and the eastern Bekaa Valley, and a railway along Lebanon’s coast, according to the official and an economist.

The US said such a move could come at the expense of Beirut’s relations with Washington.

The China overtures come at a time when Hezbollah and its allies are increasingly portraying the crisis in Lebanon, which stems from decades of corruption and mismanagement, as one fomented by the US administration. They accuse the US of imposing an informal “financial siege” on Lebanon, partly to put pressure on Hezbollah, which Washington and its Gulf Arab allies consider a terrorist organisation.

Earlier this month, Diab received China’s ambassador to Lebanon, Wang Kejian, after which Lebanon’s industry minister was asked to follow up on possibilities of co-operation.

Kejian declined to comment. Hezbollah has advocated for a bigger role for China and other allies in Lebanon. The group opposed an IMF programme to get Lebanon out of its crisis, fearing it would come with political conditions. But it begrudgingly accepted that Lebanon engage in the negotiations as long as the IMF didn’t dictate policy. Seventeen rounds of talks between the government and the IMF since mid-May have failed to make any progress.

Lebanon defaulted on its sovereign debt in March, and economist Hasan Moukalled said Western companies will be reluctant to invest there as long as the country does not reach a deal with the IMF. This is what makes Chinese companies different, he said.

Moukalled, who visited China in 2018 and last year, said the projects that China offered to work on were worth $12.5 billion.

China can gain from close relations with Lebanon, with the country serving as a launch pad for the reconstruction of neighbouring Syria, another Beijing ally.

Lebanon’s Port of Tripoli has been expanded in recent years and could be a terminal in China’s trillion-dollar Silk Road project that’s carving a trade route from east Asia to Europe.

The government is also in talks with Iraq’s government, which is offering to give fuel to Lebanon in return for agricultural products.