With the recent participation of the Philippines in China’s “One Belt, One Road” (OBOR) Initiative last November 2018, one cannot fail to wonder: Will it be good for the Philippines or will it fall into China’s “debt-trap diplomacy”, like almost all of the 70 countries that participated and ended up gurgling under an ocean of indebtedness?
To answer the question, one needs to look at what happened to those who participated to date. For lack of space, we can’t cover them all but here are some that’s worth looking at.
It begins with “soft-power diplomacy” where China persuades or attracts other countries to join its OBOR Initiative. It began by using soft-power diplomacy in the 2000s. But it was Chinese President Xi Jinping who put it to work when he assumed office in 2012.
Xi began a worldwide campaign to sell soft power to other countries, particularly to poor and developing countries that were easy to bait with promises of economic progress. Like a 19th century snake oil salesman, Xi tried to sell a product that works like magic. He also started selling the OBOR Initiative, a new Silk Road that would connect — by land and by sea — Asia, Middle East, Africa, and Western Europe. OBOR would entail building roads, railway systems, seaports, and other infrastructure. Amazingly, they sold!
But what those participating countries didn’t realize was that they were falling into China’s “debt trap”, which lures poorer countries by offering “cheap loans” for infrastructure projects. However, it involves certain conditions that greatly favor China, to wit: there is no bidding process, the project will be completed by one of China’s state-owned companies, the workers would be Chinese nationals, cost overruns would be renegotiated (which usually resulted in higher interest rates), there is high-value collateral, and contract disputes are to be arbitrated in China under Chinese laws.
One of the early participants was Sri Lanka. The first project was the Hambantota Port, which initially cost $1.12 billion to build. Other projects followed until Sri Lanka ended up owing a $13-billion debt to Chinese state-owned banks. Pretty soon, it couldn’t repay the loans.
That’s when China applied “hardball diplomacy,” which demanded economic or political concessions in exchange for debt relief. Sri Lanka was forced to lease the port and 15,000 acres of land around it for a period of 99 years.
Sri Lanka was not the only one that fell into China’s “debt-trap diplomacy.” A recent report said that at least 16 countries are vulnerable to China’s economic coercion, including Kenya, Pakistan, Zambia, Djibouti, Cambodia, Laos, Thailand, Malaysia, Myanmar, Tonga, Micronesia, Vanatu, and the Philippines.
Another country that will soon share in Sri Lanka’s fate is Kenya. If Kenya fails to begin the repayment of a $2.3 billion loan for Kenya Railways Corporation (KRC), China will seize Kilindini Harbor, the biggest port in East Africa, which is collateral for the Chinese loan. The massive construction loan was the result of Kenya participating in OBOR. But the problem is that the feasibility studies were performed by China, which might have estimated high revenue to be able to service the loan. This led to fears of Kenya’s ability to repay the loans. Not being able to do so will trigger the seizure of the collateral. Should there be any dispute with the Chinese bank, it will be handled through an arbitration process in China, not in Kenyan courts.
Some of the earlier OBOR projects include the Gwadar Port in Pakistan and the China-Pakistan Economic Corridor (CPEC), which connect landlocked western China to the Indian Ocean. It was reported that Pakistan’s debt liabilities have risen from $83 billion to $88.9 billion in 2017. It was also reported that Pakistan’s debt would balloon to $100 billion by 2024 of the total investment of $18.5 billion. The interest on the bank loans is around 7% per annum payable in 25 to 40 years, which cost Pakistan around $8 billion per month.
But what is interesting to note is that China has gained a military footprint in Pakistan, which it can use to counter the presence of the U.S. in the Indian Ocean and Arabian Sea. China could also use Gwadar to refuel its submarine fleet; thus, extending its navy’s global reach beyond the South China Sea. And in time of conflict with the U.S. or India, China will have the ability to block the chokepoint at the Strait of Malacca; thus, cutting off the huge U.S. naval forces in the Pacific from getting into the Indian Ocean and Arabian Sea.
In 2015, China passed a new national security law that provides a legal basis for China to deploy military forces abroad to safeguard its infrastructure projects as well as Chinese expatriates who are working on these projects in Africa under China’s OBOR Initiative. China also published its second Africa policy paper, stating that it would strengthen military exchanges and cooperation such as carrying out joint military training and exercises, as well as helping African countries “enhance their capacity building in national defense and peacekeeping.”
With control over seaports in Pakistan, Sri Lanka, Kenya, Djibouti, and Myanmar, China will be able to encircle the U.S. strategic base on Diego Garcia in the middle of the Indian Ocean.
In 2018, China released an action plan for 2019 to 2021, following the Beijing Summit of Forum on China-Africa Cooperation (FOCAC). The plan called for “stepping up OBOR security cooperation with particular focus on railways, industrial parks, and major events,” as well as protecting Chinese nationals and Chinese companies, which makes one wonder: Is this China’s blueprint for neocolonialism in Africa?
New Cold War
With that as the backdrop, a new Cold War has begun in the Indian Ocean with the informal alliance of the U.S., India, Australia, and Japan (known as the quadrilateral alliance) against China. The stakes are high. More than 60% of the world’s oil shipments pass through the Indian Ocean, mainly from the Middle East and East Africa’s oil fields that are bound for China, Japan and other fuel-importing Asian economies. In addition, 70% of all container traffic passes through the Strait of Malacca, which China would attempt to block in the event of conflict with the quadrilateral alliance.
It is now evident that China’s OBOR Initiative is a creative way to achieve global military power…without firing a shot. Indeed, it is a dream come true for China.
In 1405, the Ming Dynasty’s Emperor Yung Le (Zhu Di) ordered a massive “Treasure Fleet” of 200-300 ships with 28,000 men to sail the “Western Ocean” (Indian Ocean). He dreamt of ruling the seas. Yung Lo also claimed the island of Lusong (now Luzon of the Philippines) and placed it under his empire.
When Yung Lo died in 1424, his successor, Emperor Hongxi, didn’t share his father’s dream. He lost interest in Lusong and dissolved the colonial government. He then banned the famous Admiral Zheng He’s naval voyages. Hongxi died a month later in 1425. In the next six centuries, China had no navy and anyone caught even sailing on the high seas was summarily put to death. Not anymore.
In my column, “Has Chinese colonization begun?” (November 16, 2018), I wrote: “With historical incidents of Chinese colonization of Luzon, and the present-day massive arrival of Chinese nationals assimilating into the various industries in the country, many are concerned that they would soon control the wealth and patrimony of the nation.
“Just like 600 years ago when China claimed and placed Luzon under her empire, is she now in a position to claim the Philippines as her province or vassal state? Has Chinese colonization begun?”
Today, China is sailing again in an attempt to rule the seas…and the world. The question is: Will “Emperor” Xi Jinping succeed where Emperor Yung Lo failed in his quest for world dominion?