China is playing the West’s debt game

To Washington’s growing dismay, China today, using methods first used by the West itself, has embarked on an effort to create an international system in its own image.
Sunday 07/04/2019
Beyond trade. Djibouti Foreign Minister Mahamoud Ali Youssouf (L) and Chinese Foreign Minister Wang Yi at the Diaoyutai State Guesthouse in Beijing, February 20. (Reuters)
Beyond trade. Djibouti Foreign Minister Mahamoud Ali Youssouf (L) and Chinese Foreign Minister Wang Yi at the Diaoyutai State Guesthouse in Beijing, February 20. (Reuters)

French President Emmanuel Macron was in Djibouti in March, pointing out the evils of the country’s growing indebtedness to China. Indeed, the public debt of the country of fewer than 1 million, situated on a small spit of the African Red Sea coast, increased from 50% of GDP in 2014 to 85% in 2017.

China, which was recently granted a concession to operate one of the impoverished country’s strategic port facilities, is a major player in the economic life of Djibouti, as it is throughout Africa and Asia.

Stepping in where the West fears to tread, China is using investment and below-market loans to establish its national companies from Malaysia to Ethiopia as key drivers of modernisation and integration into China’s Belt and Road Initiative.

Macron, speaking at the Chinese-built presidential palace, had no money to invest but plenty of advice.

“China is a great world power and has expanded its presence in many countries, especially in Africa, in recent years but what can look good in the short term… can often end up being bad over the medium to long term,” he said.

“I wouldn’t want a new generation of international investments to encroach on our historical partners’ sovereignty or weaken their economies.”

Aboubaker Omar Hadi, chairman of Djibouti Ports and Free Zone Authority, dismissed Macron’s concerns about a Chinese-fuelled “debt trap” as “complete nonsense.”

Macron, however, is not alone in warning the scores of nations that have signed on as partners with the Belt and Road Initiative, including most recently Italy, a founding member of the European Union, of the perils of Chinese bearing gifts.

During a swing through Latin America last year, US Secretary of State Mike Pompeo added Washington’s weight to the chorus of voices decrying what he termed China’s “predatory economic activity.”

“When China comes calling it’s not always to the good of your citizens,” he warned. “When they show up with deals that seem to be too good to be true, it’s often the case that they, in fact, are.”

Beijing has little patience for Washington’s critique, describing it as “groundless accusation[s] filled with Cold War mentality” and “wobbly allegations based on anything but facts.”

China’s bombast notwithstanding, Macron and Pompeo have a point.

Throughout Africa and parts of Asia, China’s expansion has been marked by growing indebtedness to Beijing, leading to occasional charges of “colonialism” and forcing many recipients of China’s largesse — most recently Ethiopia, to renegotiate loan repayment terms, or, in the case of Sri Lanka, to turn over operation of the Chinese-built port of Hambantota.

Warnings from the West ring hollow and concerns about recipient countries’ economic well-being contain more than a whiff of hypocrisy. China was not the first to perfect this policy, shovelling money to less developed countries on the periphery of empires real or imagined in a relationship that was rarely, as Macron suggests, one marked by “a respectful partnership.”

It is the French themselves — and even more the British — who own the patent rights to the strategy that the Chinese are now pursuing with such self-interested vigour.

More than a century ago, Egypt suffered the consequences of its indebtedness to rapacious Western creditors who financed construction of the Suez Canal in the 1860s. Egypt, under the rule of Khedive Ismail, was the Djibouti of its day, a strategically located entrepot at the intersection of East and West and in chronic need of cash, readily supplied by British and French bankers.

Unable to repay its European creditors, especially at the extortionate rates they demanded, Egypt during the 1870s ceded financial and administrative control to the French and British. Soon after, it lost its political autonomy when, at European instigation, Ismail was toppled and replaced by his more agreeable son Tewfik in 1879. The coup de grace was administered in 1882 when British warships made landfall in Alexandria. Outright British invasion signalled Egypt’s loss of sovereignty and an occupation that lasted until 1956.

A century after Westerners arrived bearing their poisoned chalice, Egypt was yet again at the centre of Western efforts to use economic assistance to establish a coercive dependence on the West by mobilising international support (World Bank) to fund Gamal Abdel Nasser’s Aswan Dam.

At that time, the Eisenhower administration, like Beijing today, dangled economic and technical assistance as it sought out friends and allies among what was then known as “the uncommitted third” of nations that had yet to declare their affinity for Washington or Moscow.

Nasser’s Egypt was a particular prize in this Cold War contest but when the young leader wouldn’t get with Washington’s Cold War programme, US Secretary of State John Foster Dulles unceremoniously withdrew the offer of aid, precipitating Nasser’s nationalisation of the foreign company operating the Suez Canal. That abruptly ended the last remaining vestige of the “respectful partnership” imposed by France and Britain almost one century earlier.

France and Britain, looking forward by looking back, invaded Egypt in October 1956 but US President Dwight Eisenhower, who wanted to establish America’s power to shape the new rules of the Cold War era, bounced them (and Israel) out of Egypt.

Nasser basked in the international limelight. He had survived and even triumphed over the last gasp of European imperialism, demonstrating to the new pretender in Washington that the poor countries of the third world had options other than those defined by the West. The Aswan High Dam, built and financed by Russia, was inaugurated in 1964.

To Washington’s growing dismay, China today, using methods first used by the West itself, has embarked on an effort to create an international system in its own image. Whether Djibouti, Ethiopia, Kenya and scores of others will maintain the ability to retain their sovereign decision-making power and benefit from China’s vision is an open question.

But, whatever the century or the donor, the offer of cash always has strings attached. That’s the whole point. Foreign policy is not social work, as Henry Kissinger once quipped. Now it’s China’s turn.

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