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You may not have noticed, with the outbreak of the trade war with the United States and all the rest, but China's economic diplomacy has had some bad weeks. The flagship initiative of the country's belt and road is facing increasing resistance, slowing a momentum that seemed impossible to stop. In fact, I would say that the BIS is at a standstill.
The most obvious sign was that Malaysia had halted Chinese projects worth $ 22 billion, including a controversial rail link along the country's east coast. The decision seemed inevitable after the May elections. One of the pillars of Prime Minister Mahathir Mohamad's successful campaign to overthrow Najib Razak was the accusation that Najib's close ties with China had spawned corruption and bad decisions. Mahathir's associates linked the scandal to the 1MDB development fund to BRI funding, while Najib's partners doubled, placing Chinese President Xi Jinping on their party posters. A Malaysian politician complained that visitors might have thought that Xi himself was on the ballot.
In many ways, China's stumbles in Malaysia are exactly what BIS skeptics have always said. Projects that could be easily implemented in China would experience delays and cost overruns in less regulated countries; the growth of the debt, the deficits and the Chinese immigration would trigger a political opposition; and when a new political leadership canceled these projects, bilateral and multilateral tensions exploded.
Malaysia is only the most publicized example. In the north, Myanmar's planning and finance minister, Soe Win, told Nikkei this week that his government would demand that a new port on the Bay of Bengal be "lightened." For China, the port is essential – the shortest way to get oil from the Indian Ocean to the south of China, avoiding a strategic stranglehold in the Strait of Malacca. But Myanmar now owes 40% of its foreign debt to China, which, as pointed out by Win, with a slight understatement, is "discouraged". Myanmar leaders can hardly be held responsible for reducing emissions. neighboring countries, "said Soe Win. In Sri Lanka, a boom in Chinese finance has already pushed a government to the door and left his successor struggling with expensive white elephants. Interest payments on Chinese loans – about $ 11 billion a year – would have consumed almost all the island nation's tax revenues. (The financing of Chinese infrastructure is not cheap – Sri Lanka would have paid 6%). This prompted the new government to grant a Chinese company a controlling stake in the empty port of Hambantota in a debt-equity and panicked transaction. India has enough to explore to buy the world's most empty airport. world at 20 kilometers – also funded by China, of course – just to make sure it stays out of Chinese hands. Negotiators began talks this week on a price
Even in Pakistan, which had adopted the Sino-Pakistani Economic Corridor as an effective antidote to dependence on an increasingly hostile West decision-makers have doubts. Expensive imports of Chinese machinery pushed the current account deficit – and the rupee – to the wall. The Pakistani central bank has only enough reserves to cover a few months of imports – and that is after the country borrowed nearly 4 billion dollars from the Chinese last year.
The Pakistani authorities reportedly warned the Chinese that they would do better to turn to the International Monetary Fund, and then "we should disclose all the terms on which China agreed to build the CPEC." Pakistani voters, who will soon be going to the polls, may have to wonder why a full disclosure of these terms would be so embarrassing. Chinese leaders will soon learn a lesson that the United States learned long ago: Pakistan is the only country in the world to negotiate with a rifle all by itself. I suppose China will pay this time, but that will not make the CPEC more financially sustainable.
While all this was going on, Chinese Premier Li Keqiang was in Sofia to meet the leaders of Central and Eastern Europe for the annual "16 + 1" forum – a meeting that was lacking in enthusiasm compared to previous conclaves. European leaders will have noted that the big investments in infrastructure have not exactly timed out of China – and, elsewhere, where they are, such as at the port of Piraeus in Athens, they may have opened the door to crime and fraud.
When the belt and road were first announced, it must have been felt like a gift from heaven for beleaguered governments trying to raise funds for the infrastructure their constituents wanted. But, the truth is that China's money came with onerous conditions – high interest rates, supply guarantees for Chinese companies, imported workers. China was also not really prepared for the hurdles faced by massive investments in countries with disordered and more responsible policies.
Can the initiative be saved? Perhaps. After all, China has a surplus of capital that has to go somewhere. But, if it wants its investments to be sustainable, China will have to behave in these countries much more like the western capital than it is trying to move. It means being cautious, cooperative with local capital and civil society, and respectful of political sentiment, even of dissidents. In other words, the Chinese state should behave like the private sector. And we know how difficult it is …
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Sharma is a columnist at Bloomberg Opinion. He was a columnist for Indian Express and Business Standard, and he is the author of "Restart: The Last Chance for the Indian Economy".
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