It has happened far too many times to countries getting aid from China. What starts out as a long-term loan ends up becoming an albatross around the receiving country’s neck until it is forced to part with a sizable amount of its revenues. Most of the times, the debt is so overloaded that countries cede land to China to just get out of their debt obligations. The case of the port of Hambantota, being transferred to China on a 99-year lease is the latest example.
On paper, China has agreed to stay and oversee just the commercial operations at the port but only time will tell if they will start meddling in the affairs of Sri Lanka. Remember East India Company?
This post lays bare the modus operandi of China, in many of its “loans for development” sagas and how India should win over its neighbors, most of whom are culturally aligned with it.
The ex-Prime Minister of Sri Lanka, Mahinda Rajapakse, wanted to build something enduring for the people of his constituency, which encompassed the sleepy harbor town of Hambantota. Rajapakse thought if he could build a state-of-the-art port with all facilities, then he could compete with the likes of Dubai and Singapore.
Ravaged from the long war with the LTTE, Sri Lanka did not have the money nor the resources to build the port. Enter China. China offered to give a loan, build an airport and the required road connectivity connecting the length and breadth of the island. The bill? A cool $8 billion.
Did Hambantota succeed in gaining customers at the expense of Dubai and Singapore? Unfortunately not. The port opened with much fanfare in 2010, but cargo lines proved reluctant to switch from their existing transshipment hubs. With insufficient revenues to service its debts to its Chinese creditors, at the end of 2016, the Sri Lankan government concluded a US$1.2 billion debt-for-equity swap that saw a Chinese state company assume ownership of the port on a 99-year lease.
In a massive strategic victory for China, Sri Lanka’s Hambantota port was officially transferred to China for 99 years by the government of Prime Minister Ranil Wickremesinghe under a landmark agreement finalized on 25 July 2017. On paper, China has agreed to stay and oversee just the commercial operations at the port but only time will tell if they will start meddling in the affairs of Sri Lanka. Remember East India Company?
In the pretext of developing the China Pakistan Economic Corridor (CPEC) China has been using salami tactics to slowly acquire control of Pakistan. Residents of Gilgit-Baltistan are up in arms over their land being forcibly taken from them at throwaway prices. Residents of Gilgit allege that China has built a residential complex that can house thousands, all Chinese. In these enclaves, all signs are in Chinese. Worse, Chinese are beginning to get involved in the local politics of Gilgit-Baltistan.
The majority of Pakistan’s population lives along one of the highways being built by China. It would be foolhardy to not expect the Chinese to have a liberal sprinkling of its armed forces along the highways, masquerading as civilians and maintenance people.
Even in trade, Pakistan says they are getting the short end of the stick from China. In the first half of 2016, Chinese imports to Pakistan surged by 30% while Pakistani exports to China dropped by 8%.
Pakistani authorities are blaming trade barriers put by Beijing on Pakistani goods and a Free Trade Agreement (FTA) that is tilted “against” Pakistan – so much for the ‘Higher than the Mountains, Deeper than the Ocean’ friendship. But there is more – Pakistan’s current account deficit rose 121% between July 2016 and February 2017. Pakistan will have to pay $90 billion back to China over 30 years for the CPEC and this does not include cumulative debt interest in case of default.
Nepal started flirting with China after the upheaval that happened because of the changes it made in its Constitution. After a bruising blockade, relations between India and Nepal are slowly coming back to normal. Perhaps to counter India’s perceived tacit support of the blockade, Nepal started reaching out to China and almost signed an agreement similar to the Hambantota one with them.
In November 2017, Nepal pulled the plug on one of the One-Belt-One-Road initiative projects that would have resulted in China constructing a dam for Nepal for a hydro-electric dam. The government of Nepal appears to have decided to abandon the US$2.5 billion deal to build the Budhigandaki Hydroelectric project dam with the Chinese state company China Gezhouba Group. The deal was scrapped by a new, incoming administration which criticised that the deal was signed without an open tender process, which was required by law. It must be kept in mind that Nepal is currently ruled by a Communist-led alliance.
What should India do?
Unlike China, India does not have a colonialist reputation. When it built a new parliament building for Afghanistan, it was done with no strings attached. Originally conceived to cost $45 million, this building was commissioned in 2007 as a mark of friendship and co-operation to rebuild a war-weary Afghanistan. Like the $2 billion deal that India signed with Iran to supply rail locomotives, lay tracks and so on, India must engage with all its neighbors, sometimes proactively. It must keep differentiating itself from China and always work with allies on a quid pro quo basis. India has an excellent record as a supplier of talented manpower which stays apolitical regardless of the country. Modi has excelled as a diplomat in creating new relationships, often based on personal charm and magnetism. For this reason alone, he deserves another term.
 Pakistan has handed control of Gilgit-Baltistan to China – Dec 9, 2012, YouTube
 Could Nepal’s new Communist alliance lead to closer ties with China? – Oct 10, 2017, SCMP.com
 Modi inaugurates the new Afghan Parliament building built by India – Dec 25, 2015, Hindustan Times
 India, Iran sign $2-Billion Deal For Rail Sector Cooperation – Jan 23, 2018, SeekingAlpha.co
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