Minh Pham and Yves Carmona | China: benevolent brother or nasty NINJA?
In less than a generation, the global economic line-up will be starkly different from the one we know today. China, now the world's second largest economy, is projected to surpass the United States by 2050, as will India. The United States will trail a distant third, at nearly half the economic size of China.
China's entry into the heavyweight economic club marks its bittersweet journey since Mao's revolution and the formation of the People's Republic in 1949, eradicating a century of humiliation at the hands of Western powers.
As a result, in recent years, much has been discussed about the potential 'Thucydides trap', which pits a rising power against an established power and which inevitably escalates towards war. Both China and the US are increasingly blurring the lines between economic and national-security advantages - such that a formal declaration of war may not be necessary. One front in this power struggle is the massive infrastructure lending programme initiated by the Chinese government known as the Belt and Road Initiative (BRI), a more than trillion-dollar programme funded by China and executed mainly by Chinese building contractors.
It allows poorer countries to tap into a pool of capital to build and expand highways, railways, bridges, ports, pipelines, and power plants. The infrastructure network links the countries to China, and each other, in a vast web of markets, all purportedly benefiting buyers and sellers alike.
Six years since its launch, BRI has built an impressive portfolio. In promoting the initiative, President Xi Jinping of China contends that it will provide overall progress in the countries that participate.
But the European Union, the United States, and India, among others, have raised deep concerns. They argue that, much like the sub-prime 'NINJA' (No-Income, No-Job, No-Asset) mortgages granted to American homeowners that provoked the Great Recession in 2008, these Chinese loans can lead vulnerable countries with failed governance into a debt trap.
In developing Asia alone, where demand for infrastructure until 2030 is estimated at US$1.7 trillion per year, BRI and its supporting lending institutions fill a significant chunk of the financing gap. In Lao PDR, for example, the US$6 billion Lao-China railway, agreed to in 2016, was the largest foreign investment in Laos that year, equivalent to 35 per cent of the country's GDP.
In Myanmar, the government just signed a US$1.3-billion deal for the construction of a deep-sea port off Rakhine state that will connect it with China. In Pakistan, China inked a US$2-billion loan just days after the election of Prime Minister Imran Khan in August 2018.
The list of recipient countries, all minority partners in these deals, encompasses numerous countries in Africa, Latin America, and Central and Eastern Europe, particularly in the Balkans. For many of these countries, access to international capital markets is difficult and China represents an easy source of funds - though omnipresent and controlling.
There are already many examples of recipients being trapped. Sri Lanka is the poster boy of Chinese loans gone bad. From 2010 to 2015, then Sri Lankan President Mahinda Rajapaksa tilted decisively towards China in exchange for large-scale infrastructure projects, many of which bear his family name. But when it could not meet its debt obligation, the successor government handed over to China the deep-water port of Hambantota, along with 15,000 acres of land around it, for a 99-year lease, in exchange for a debt write-off of US$1.1 billion.
This has provided a strategic foothold for China in the Indian Ocean, just a few hundred miles from India, China's long-time nemesis. Similarly, in Maldives, the newly elected government is assessing the country's Chinese debt inherited from the previous administration.
The Chinese have also been active in Europe. Greece handed over the management of two of the three terminals of Piraeus, its largest port, for a US$1.7-billion loan. China has since targeted similar facilities in Italy, Spain, Portugal, Malta and Cyprus - creating a maritime 'road' strategic value chain that confers China a commanding platform in the Mediterranean.
The West is finding itself at a loss to counteract China's global tour de force. Besides hectoring the BRI as a debt trap while praising the virtues of austerity and fiscal rectitude, the response by the US, EU and others has simply been too little, too late.
In this undeclared war, the challenge is how to move against China when there are no demarcated front lines, no overtly defined offensive policy or budget, and no visible target to shoot down. For now, the West just flounders.
- Minh Pham is the former United Nations representative in Maldives, Jamaica and Laos. Yves Carmona is the former French ambassador to Laos and Nepal. Email feedback to email@example.com.