China Uses Predatory Loans and Infrastructure Projects to Snare Developing Countries

Roads to nowhere, abandoned railways and half-built bridges - China has been accused of using "debt trap" projects to ensnare poorer countries and expand its power worldwide.

With promises of loans and expansive infrastructure projects like roads, railways and bridges, many countries end up getting more than the bargained for with China.  Wooed by the glitzy sales pitch, many cannot afford to keep up with the return payments when China comes knocking like an international loan shark.  And then the building projects end up being abandoned or unfinished until the debt is settled - with the Communist Party more than happy to take their pound of flesh.

The initiative has seen China get its hands on resource rich mountains in Tajikistan and allegedly take a stake in a key port in Sri Lanka.  Experts are concerned that as debt mounts, many more of these projects will go unfinished - and Chinese lenders will seize control of land and strategic assets in lieu of repayment.

Countries such as Sri Lanka, Kenya, Montenegro, Laos and Kazakhstan have found themselves crippled by debt and reliant on Beijing.   One-in-five infrastructure projects in Africa are now funded by China and one-in-three are built by Chinese companies, with many lucrative deals demanding the use of Chinese construction firms, according to East African Monitor.

Shaun Breslin, professor of politics and international studies at Warwick University, said the West's "imposition of political conditions on aid and trade relationships has created a space for China to operate.  China has made much of its no strings attached economic relations with developing economies."

"But there have been increasing questions about the wisdom of becoming too reliant on Chinese finance and ending up in forms of debt dependence on China in various countries along the Belt and Road, and this might become more important," he added.  Former Secretary of State Rex Tillerson once said Beijing "uses opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth".

Montenegro has found itself left with a disastrous Chinese-built road dubbed "the highway to nowhere".  Perched on top of massive cement pillars towering above Montenegro’s picturesque Moraca river canyon, Chinese workers started building a 270-mile state-of-the-art highway to the Serbian capital Belgrade.  Workers have spent six years carving tunnels through solid rock and raising concrete pillars above gorges and canyons - but the road goes nowhere.  The government can't afford to build the rest or repay the first installment of China's $1 billion loan - and it forced the government to raise taxes and partially freeze public sector wages.  The IMF estimated the project would cost another $1.2 billion to complete - and its feared China could seize land in Montenegro to cash in its debts.

Meanwhile, The Chinese-built Mombasa-Nairobi Standard Gauge Railway in Kenya was supposed to weave 290 miles from the country's coast all the way to Uganda.  But the flagship project didn't quite reach the border and the railroad ended abruptly in a sleepy village about 75 miles west of the Kenyan capital, Nairobi.  Construction was halted in early 2019 after China withheld some $4.9 billion in funding needed to finish the line, Bloomberg reports.  Kenya is now said to owe a whopping $9 billion to Beijing in infrastructure loans - and authorities have downplayed suggestions that the Communists could seize the port of Mombasa. 

A high profile project in Kazakhstan was put on hold after the collapse of a local bank which handled Chinese funds.  The $1.9 billion railway project was supposed to start operating in 2020, but China Development Bank halted lending after the collapse of the Kazakhstan bank where funding was deposited.  It means a series of concrete columns snaking through the capital of Nur-Sultan are the only evidence of the Chinese-funded project.   Officials in Kazakhstan have said they will now have to borrow from domestic banks to complete the work, Bloomberg reports.

Meanwhile, Tajikistan, which shares a border with China's Xinjiang province, was forced to hand over territory of 1,158 square kilometers of the Pamir mountains to China after defaulting on loans. It meant the Chinese companies snagged rights to mine gold, silver and other mineral ores in the region.

Laos has now become the latest victim of China's so-called debt diplomacy.  The South Asian country has been struggling to pay back Chinese loans, and ended up handing over the majority control of its national electric grid to China Southern Power Grid Company, a state-owned enterprise.

Sri Lanka has also been trapped in a vicious cycle of taking fresh loans from China and repaying old ones.  The country defaulted on a Chinese contract to build Hambantota Port - and the company got a 99-year lease in return, prompting fury over Beijing's shady intentions.  Fears over Sri Lanka becoming a "Chinese colony" have been reignited after China won another contract to build a 17 kilometer elevated highway on the outskirts of Colombo.  The terms of the deal allow China Harbor Engineering Company to own the highway, earn profits, before handing it over to the Sri Lankan government in 18 years, Nikkei Asia reports.