Poor nations need an alternative to Chinese debt
There was a week in 2019 that should have set alarm bells ringing. In the space of four days, Kiribati and the Solomon Islands both announced they were immediately severing diplomatic ties with Taiwan and switching allegiances to Beijing. These two tiny Commonwealth island nations are both 5,000 miles from Beijing. Welcome to the new era of global China.
The seeds of that diplomatic win for Beijing were sown a decade ago. From 2008 to 2009, China’s two biggest lending banks went from overseas lending of £7.5billion to more than £45billion. Roads, bridges and railways sprang up across Africa, the Caribbean and the South Pacific.
By the time Xi launched the “One Belt One Road” – now known as the Belt and Road (BRI) – in 2013, China’s expansion of overseas lending was well under way. From Dhaka to Darfur, governments loaded up with debt in exchange for the infrastructure they desperately needed.
But the reality is that many recipients of this flow of cash signed up to bad deals. In too many cases, Beijing cosied up to corrupt leaders, heavily indebting their countries on opaque terms under contracts laden with confidentiality clauses.
That is why we are in a situation where Zambia’s new government has just confirmed that the country actually owes more than £4.5billion to China – double what its predecessor claimed. For a country with a GDP of £14billion, that is a striking difference.
It’s not surprising that in many Commonwealth countries, the opacity of the debt and the poor environmental and labour standards on those projects have triggered backlash. The riots in the Solomon Islands are, at least partly, a protest against extractive arrangements with Chinese businesses. Kenya abandoned plans for a huge new Chinese-built coal plant after staunch local opposition in Lamu. And Nigerian MPS have voted to review all of its Chinese loans.
We can’t blame the Commonwealth countries. The UK and the West seem to have taken the past decade off. There were no better alternatives.
The good news is that we have belatedly woken up. Our allies, Japan and Australia, have stepped up their game in the Indo-pacific, and the US is on a mission to revive its influence in Africa and Asia.
But the challenge of China’s investment is also changing. We are now in the era of BRI 2.0. In the wake of the pandemic, Chinese leaders appear to be trying to reset. Lending for infrastructure has collapsed. Kenya’s feted high-speed railway, from the port of Mombasa to Uganda, was meant to be a headline BRI megaproject, but it lies unfinished, 300 miles short of its destination, after the project ran out of cash. Beijing is embroiled in debt renegotiations with at least 18 African countries.
In the face of this debt disaster, Beijing is pivoting. The BRI is being rebranded as the Digital Silk Road. Beijing has pledged to kit out the world with 5G networks and data centres.
We should be wary, because this creates a new set of risks. Building Africa’s digital infrastructure creates a stronger lock-in effect than physical infrastructure. Anyone can build a bridge, but not everyone can build a 5G system that works alongside Huawei. And technology also makes it much easier to export a brand of digital authoritarianism that China has implemented at home.
The Commonwealth needs sustainable infrastructure and investment. We can’t compete with China on the sheer amount of capital, but we can compete on transparent lending and inclusive growth. The UK needs to work with allies to ensure that Commonwealth countries have an alternative to China’s deep pockets. The British International Investment (BII) announced on Wednesday will be a good start if it doesn’t just rebrand the Commonwealth Development Corporation, but builds on it, and brings in new partners.
It’s a challenge we need to take on. The world deserves to choose to invest in freedom, not be forced to take Beijing’s controlling cash.