China’s Financial Support: Entangling Malaysia and Bangladesh in A Debt Trap?

China’s financial help to economically weaker nations, prior to and also under the Belt and Road Initiative, is beneficial for both it and the countries that have partaken in the program.

However, there remains a long-held source of concern: there are worries that countries getting financial assistance from China under the program are caught in a deepening debt trap.

Sri Lanka in a debt trap?

The new Sri Lankan government which took over in 2015 had wanted to reduce the dependence of the country on financing from China, unlike its predecessor; however, it has been unable to do so. The Hambantota stake sale is an unwelcome reminder to many of its reliance on the Asian major.

The island nation currently holds a total debt of $64 billion. Debt repayment is a drag on public finances with over 90% of government revenues directed towards it. According to The Independent Singapore, Sri Lanka owes China $8 billion out of the aforementioned overall debt.

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The government witnessed massive protests from locals ahead of the Hambantota deal on possible military usage of the port as well the advantage the deal grants to it in the bunkering business. Further financial dependence on China was another concern.

Sri Lanka is not the only one which is feeling stifled due to the financial support from China.

Loans to Bangladesh

Bangladesh has been a big beneficiary of China’s One Belt, One Road (OBOR) initiative due to its strategic geographic location as it pertains to China’s energy imports.

During a visit by China’s President Xi Jinping in October 2016, companies representing the two countries had signed trade and investment deals amounting to $13.6 billion. Loan agreements to the tune of $20 billion were also reached. Since these deals were finalized in the presence of government leaders, Bangladesh had deemed them to be soft loans.

However, since then, China is pushing the country to convert these loans to commercial credit as it holds that there was no promise for implementation of these loans on a government-to-government basis. A conversion to commercial credit would make these loans very expensive, and has thus elicited a strong response from Bangladesh.

Malaysia is also worried

Opposition parties in Malaysia have been questioning the government’s dependence on Chinese financing.

According to data from the World Bank and Malaysia’s statistics department, between 2010 and 2016, state-owned Chinese firms constructed and invested $35.6 billion (152 billion ringgit) worth of infrastructure projects in Malaysia.

The Independent Singapore reported Nurul Izzah Anwar, vice president of the People’s Justice party and daughter of jailed Malaysian opposition leader Anwar Ibrahim, as saying “As a simple measure of magnitude, the 14 memorandums of understanding that Prime Minister Najib Abdul Razak signed with China last November stand grandly at 143.6 billion ringgit, equivalent to 55% of our 2017 federal budget.”

She further said “Deals concluded too soon increases the plausibility for exploitation, collusion and corruption. Be frantic for China’s good graces and greedy for its wealth, and we stand to lose leverage over Malaysia’s own needs and priorities.”

The image of a greedy financier which aims to increase its influence by the financial subjugation of economically weaker nations is not one which flatters China. And neither does flaunting its military might which aims to arm-twist its neighbors and close trading partners.

Let’s look at this aspect closely in the next article.

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