Communist China is spreading red ink around the world by setting debt traps for developing nations in the form of seductive loans that have little chance of being paid off.
Eight countries (Djibouti, Tajikistan, Kyrgyzstan, Laos, Maldives, Mongolia, Pakistan, and Montenegro) are on the brink of becoming Chinese colonies by financial default and the United States is not at all pleased.
Not even making the endangered-country list is the island state of Sri Lanka, which lies off the southeast tip of southern India and owes China $6 billion of loans. To defray that cost, in June 2018, China Merchants Port Holdings paid $584 million toward a $1.12-billion debt-to-equity agreement to take over maritime port operations at Hambantota which launched its first naval ship “Jetliner” on November 18, 2010:
“Under the deal, signed in July 2017, China Merchants Port (CMPort) will run the $1.5 billion Chinese-built port on a 99-year lease. The $1.12 billion total price is to be used to reduce the Sri Lankan government’s debt to China.”
China Merchants Port Holdings is the Hong Kong-based subsidiary of the state-owned conglomerate China Merchants Group. This loan payback deal also beefed up the Sri Lankan treasury by $292 million in December 2017 and $97 million in January 2018.
The EXIM Bank of the People’s Republic of China funded 85 percent of the first phase of the Hambantota Port construction project, at a cost of $361 million. The Sri Lanka Port Authority has been operating the facility at a loss, making paying back loans difficult.
Chinese negotiators first proposed taking over 80 percent corporate ownership in the port but trade unions and opposition groups organized protests that forced officials to empower China solely with running commercial operations. Colombo, the largest and busiest port in Sri Lanka, retained control of broader security issues.
The final deal leased 70 percent of Hambantota Port to CMPort with the condition that CMPorts will divest 20% of its shares to a Sri Lankan company within ten years.
The United States, India, and Japan are concerned that China plans to use the port as a naval base.
According to the Kiel Institute for the World Economy, a think tank based in Germany, the amount of money other countries owed China soared more than ten-fold between 2000 and 2017, from under $500 billion to over $5 TRILLION.
The Kiel report revealed that Chinese loan debt in 50 developing countries has increased on average from less than 1 percent of their GDP (gross domestic product) in 2015 to more than 15 percent in 2017.
This sudden and staggering international beholdenment to the most powerful Communist country in the world is being hidden – the loan activity “isn’t reported to or recorded by official institutions such as the International Monetary Fund (IMF), the World Bank or the Paris Club — a group of creditor nations.”
Kiel researchers concluded that, with China due 5 percent of total global output, it has morphed into “the largest official creditor, easily surpassing the IMF or the World Bank.”
Chinese Merchant Port Holdings is also flexing its corporate spending muscles in Djibouti, Africa, a small nation with a population of 884,000 people which happens to lie on the coast opposite the “heel” of Saudi Arabia. The port there has great strategic value for navigation through the watery Red Sea boundary between the two continents.
In 2017, China’s People Liberation Army (PLA) began operating its first overseas base in Djibouti next to one of the main ports – and a scant 15-minute drive from Camp Lemonnier, the only permanent U.S. military base there. American intelligence and counterterrorism operations on the African continent are staged from Lemmonier by the 4,000 service personnel on base.
The commander of U.S. Africa Command (AFRICOM), General Thomas Waldhauser, said at a recent Senate committee briefing:
“It’s no secret that roughly 98% of the logistics support for Djibouti, as well as Somalia and East Africa, come through that port. That port is one of five entities in the overall Djiboutian port. And so, our access there is necessary and required.”
Then, on February 22, 2018, the Djibouti government illegally seized control of the Doraleh Container Terminal S.A. from a corporate entity owned by Dubai Ports World (DP World) that “designed, built, and, since 2006, operated the Terminal pursuant to a concession awarded by the Government in 2006.”
In 2013, Djibouti had sold 23.5 percent of its 66.66 percent stake in the Doraleh Terminal to CMPort. Dubai’s DP World retained ownership of the remaining 33.34 percent of the terminal. As a concession, DP World was granted the rights to develop new ports, including the Chinese-built Doraleh Multipurpose Port that opened in mid-2017.
The same February day in 2018 that the Djibouti government appropriated the Port, it also terminated its contract with DP World by presidential decree and expropriated all assets at the port. In September, Djibouti officials “nationalized the state port company’s stake in Doraleh, effectively taking Doraleh out of commercial hands.”
In November, DP World sued CMPort Holdings for bypassing its concession agreement with Djibouti and acquiring an indirect shareholding in the Doraleh terminal.
In March 2018, Gen. Waldhauser told the House Armed Services Committee:
“When we talk about influence and access, this is a classic example with regards to China, of how we’ve got to proceed and how we’ve got to be careful as we move forward.”
On March 6, former U.S. Secretary of State Rex Tillerson warned that the Chinese government “encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth.”
Hats off to Pakistan and Nepal which refused to participate in Chinese infrastructure loans last year and found alternative funding sources.