By Kalinga Seneviratne
KUALA LUMPUR (IDN) – One of the major discussions at the ‘China Conference’ organized by the Hong Kong based South China Morning Post (SCMP) on October 10-11, was China’s Belt and Road Initiative (BRI) and the perception created in the region, by the western media in particular, that it is a ‘debt trap’. Many speakers from Asia, especially those from Malaysia, argued that more transparency in negotiating such projects could refute such allegations.
After coming to power five months ago, Malaysian Prime Minister Mahathir Mohammad caused anxiety in Beijing when he cancelled $23 billion of China funded infrastructure projects citing inflated costs. Many speakers from Malaysia argued that this should be seen in terms of corrupt practices of the previous regime and not as a signal that Malaysia sees Chinese investments as debt traps.
In a closing keynote address on October 11, Malaysian Economic Affairs Minister Azmin Ali said that the new government has reinvigorated the ‘Look East’ policy that Mahathir promoted during his earlier sting as PM from 1981 to 2003. The minister said that investors should refrain from judging Malaysia’s investment policies from the recently cancelled projects involving China.
“Rather than viewing the new Malaysia with anxiety, I urge Chinese businesses to view us through the prism of hope and opportunity,” Azmin told the conference. “Now, more than ever before, Malaysia is one of the most attractive places in Southeast Asia to do business.” Increasing transparency of government practices were also pointed out by other speakers from Malaysia.
Speaking at a panel discussion on ‘Avoiding the Belt and Road Debt Trap’, Shan Saeed, Chief Economist at Dubai based real estate brokerage IQI Global argued that the term has been coined by people who do not know Chinese history nor understand Chinese culture.
He pointed out that China has traded peacefully with the prosperous Melaka (now part of Malaysia) for centuries, and it was when the Europeans came in the 17th century that it was occupied and colonized. He argued that the western media need to listen to and understand China before they report on BRI (and perceived Chinese intentions).
Professor Belal Ehsan Baaquie, of the Kuala Lumpur based International Centre for Education in Islamic Finance, a fellow panelist, argued that the BRI should not be seen merely as an infrastructure project, as it would open up a whole new dimension that could make the U.S. dollar redundant in regional trade. That would not be a bad idea he added, because “U.S. dollar is used for political purposes”.
When IDN asked the panelists if there were double standards in the international media in assessing Chinese loans and those given by the World Bank and IMF. While the latter, in particular the Structural Adjustment Policy criteria, have devastated agriculture and manufacturing in many countries – which are called “bail outs” – these have helped open up markets for western goods and services.
Another fellow panelist Stephen Groff, Vice President of the Asian Development Bank (ADB), admitted that there has been hypocrisy when it comes to debt. “The West has undertaken a lot of poor policies in the past,” he told IDN. “We have learned from these and become more transparent.”
Prof Baaquie argued earlier that the Sri Lankan Hambantota Port project that is widely sighted by the international media in discussions on China’s so-called ‘debt trap’ diplomacy – where Sri Lanka had to give the port and about 1500 hectares of land on a 99 year lease to a Chinese government linked company when the $1.4 billion loan could not be paid – was not the fault of the Chinese government, but bad planning by the former Sri Lankan regime of President Mahinda Rajapakse. “Rajapakse designed the port project not China,” he noted. “Corruption would lead to overvaluations (and) it is a universal problem.”
Groff said, he does not believe in the ‘debt trap diplomacy’ argument, because it is not a sustainable model. He agreed that the responsibility of governments taking the loans should be a factor in judging these projects. Thus, he added, if the negotiation process is transparent there would be less room for corrupt practices.
Xiangwei Wang, Editorial Advisor of SCMP who moderated the discussion, acknowledged in an interview with IDN that China and its media have done a poor job of explaining the intentions about the BRI and in particularly addressing the concerns head on, like the debt trap diplomacy. “For instance, the Hambantota project (could be seen) not as a debt trap but a bailout,” he argued, referring to the question posed by IDN to the panel.
Xiangwei added that the Chinese media are well funded and they have good reporters and writers but “their propaganda style means that their efforts would fail to counter western influence in the region” and the “Chinese government and the Chinese media should step up their game” to explain themselves better to the region.
In an interview with IDN, Prof Baaquie argued that the Islamic model of financing could be adopted to overcome what is called the ‘debt trap’ because both the lender and borrower have an equal stake in the success or failure of the project. However, he said in order to avoid religious sensitivities in the region, this form of finance could be called “risk sharing finance”.
“China must not behave like the ADB or World Bank. These are debt-collectors. Bank gives money and the risk is entirely yours. In Islamic banking there is no transfer of risk, both share the risk,” he told IDN, adding, “it’s not about religion, but there is a religious perspective that finance must be just and fair”.
Prof Baaquie admitted that the biggest obstacle to this form of financing is to get a big project to implement this principle. He lamented that even big Islamic banks are not practicing this principle in their project financing.
“They are caught in a trap,” he noted. “If they break the system, the whole financial system can’t read the instruments, can’t read the risks. So they (Islamic banks) basically have to work within that (western) framework.”
Pointing to the Hambantota port project, Prof Baaquie argued that if the Chinese had done a risk sharing assessment and had shown a stake in the project, they would have viewed the financing differently. The way it was actually done was to have Sri Lanka basically underwrite the risk component of the project. “The borrower takes the entire risk,” he noted. “They are (China is) guaranteed a return.”
Another aspect of BRI that was debated during the conference was the lack of attention given to social and cultural aspects of the project. In another panel discussion, this topic was taken up by the former Under-Secretary General of the UN, Dr Noeleen Heyzer from Singapore, who argued that China has been a leading player in the ancient land and maritime Silk Routes (on which BRI is modeled) and these were not merely transporting goods for commerce, but also ideas, culture and religion.
She pointed out that during the 2007 Global Economic Crisis “we could not trade out of the crisis because the regional infrastructure wasn’t there” to drive regional demand. “One way was to build infrastructure and economic corridors” that BRI aims to do.
In an interview with IDN after the session, she argued that the ancient Silk Routes were basically a “pulse for flow of culture” and hence, if BRI is going to be sustainable and inclusive “they have to include both social and cultural elements”.
“They (China) need to respect communities on the whole route. They have to ensure that the communities feel they will benefit,” argued Dr Heyzer. “Currently there are many concerns about debts and bringing of foreign (Chinese) labour, rather than enrichment of communities.” [IDN-InDepthNews – 12 October 2018]
Photo: A glimpse of the China Conference. Credit: Kalinga Seneviratne | IDN-INPS.
IDN is the flagship agency of the International Press Syndicate
Facebook.com/IDN.GoingDeeper – twitter.com/InDepthNews