Crying wolf at Chinese debt trap when real worry is hidden elsewhere
It is perhaps fashionable to cry ‘wolf’ at China when we talk about the country’s debt trap, but a leading economist, Subhashini Abeysinghe, has pointed out that such warnings are mis-directed and that it is the island’s borrowing from international financial markets that is the bigger threat.
Speaking at the “Belt and Road Initiative (BRI) at Five Years” seminar last week, Ms. Abeysinghe, research director at Verite Research, who touched on the economic perspective of the BRI said the perception that Sri Lanka was in a debt trap to China was wrong, rather it was in massive hock to international sovereign bonds.
“Where is the pressure coming from in terms of servicing our debt? It comes from international sovereign bonds. These bonds are maturing and they make up most of our external debt, not China,” Ms. Abeysinghe pointed out to a large audience at the BMICH.
Sri Lanka’s external debt to China rose from 2 per cent of GDP in 2008 to 9 per cent this year whereas the dollar-denominated international sovereign bonds has risen from 4 per cent in 2008 to more than 50 per cent currently.
In September, at the World Economic Forum in Hanoi, Vietnam, then Prime Minister Ranil Wickremesinghe while admitting that there was a large amount of Chinese loans said he didn’t see it as a “threat” as the amount was not big.
Mr. Wickremesinghe said: “As far as the loan-debt portfolio is concerned, our biggest chunk today would be the international sovereign bonds.
With China, we did have short term issues regarding the Hambantota Harbour and Mattala Airport, but that has been sorted out and at least we are turning them into profitable projects.”
He added: “From 2008 to 2014, China was the main lender. We did point out that too much of borrowings can cause issues for us, but the biggest segment of debt is what we raised on the international financial markets. We cannot be negotiating or re-negotiating to pay them back. With China or some other country, we may have some room, but certainly not with international sovereign debt.”
Ms. Abeysinghe reminded the seminar – jointly organised by the Chinese Embassy and the Bandaranaike Centre for International Studies – that although China had lifted 750 million people out of poverty, it still had a large number of poor people.
“China might be the world’s second largest economy but it is still a developing country where the per capita income is lower than others. Yet, China has a lot of excess capacity which is exported creating regional integration,” Abeysinghe said.
In his opening address, Chinese Ambassador Cheng Xueyuan revealed 130 countries and regions had signed more than 150 agreements with China since the BRI was initiated by Chinese President Xi Jinping in 2013.
“The BRI has developed from an idea into reality and it has become popular. Today trade with China and all these countries amount to US$5.5 trillion,” Ambassador Cheng said. “Sri Lanka is one of the first countries to openly support BRI which adheres to the golden rule of consultation, cooperation and contribution.”
Mr. Cheng ticked off some of the numerous China-backed projects which has transformed Sri Lanka in recent years – the Norochcholai power station which provides 40 per cent of the country’s electricity; the Colombo Airport Expressway; CITIC Colombo Port terminal; the Moragahakanda Dam and reservoir, the biggest in the country; Colombo Port City; and Hambantota Port and Industrial Park.
“The frenetic cooperation between our two countries has made a significant contribution to the development of this country,” Ambassador Cheng added.
Dr. Rong Ying, Vice-President of the China Institute of International Studies, in his keynote speech said: “BRI is committed to follow international rules and laws and was green and environmentally friendly. It is not an exclusive China club. Every country is welcome aboard. We are also not building a military alliance.”
“After five years, the vision is bearing fruit. BRI has gained momentum and received wide-ranging support. In South Asia, it is a catalyst and game-changer for development. It has helped ailing economies in the region and boosted growth rates to six per cent,” Dr. Rong pointed out.
Likening the BRI to a Chinese painting, Dr. Rong added: “Traditional Chinese painting begins with freehand brushes. Now it is time (after five years) to follow it with more detail – technique – painting.”
A total of 21 scholars from 10 countries including China, Sri Lanka, Pakistan, India, Bangladesh, Nepal, Singapore, Spain, Greece and Kenya took part in the seminar.
Also addressing the seminar were Prof. Swaran Singh, Jawaharlal Nehru University, New Delhi who gave a talk on “South Asian perspective of BRI”, while Dr. George Tzogopoulos, senior research fellow, Centre International de Formation Europe, spoke about the European perspective and Prof. Macharia Munene, Professor of International Relations and Diplomatic History, US International University, Africa, Kenya spoke about the African perspective.