China’s Debt Trap Diplomacy Restricts Myanmar’s Economic Sovereignty

Parvedge Haider:

China’s acceleration of economic supremacy is being felt around the globe in last few decades, specially during the reign of present leader Xi Jinping. Xi has expanded China’s foreign aid, infrastructure investment, energy engagement and interconnectedness in many folds. At present China is believed to be the world leader in infrastructure development that causing its rapid economic growth. At the same time, there are controversies on their ‘debt trap diplomacy’ which apparently seems to be very alluring for the developing countries but in the long run those are being capitalized for a bigger benefit of China. The definition of Wikipedia explains that Debt trap diplomacy is a type of diplomacy based on debt carried out in the bilateral relations between the countries. It involves one creditor country intentionally extending excessive credit to another debtor country with the alleged intention of extracting economic or political concessions from the debtor country when it becomes unable to honor its debt obligations. The conditions of the loans are often not made public and the loaned money is typically used to pay contractors from the creditor country. A good number of countries already have experienced the ‘debt trap diplomacy’ from the counter countries. Hambantota port in Sri Lanka could be an example. When Sri Lanka was unable to comply the debts for the project, China took the opportunity to take maximum control of the port in the process of time. The same pattern was seen in Djibouti, where the Chinese People’s Liberation Army Support Base started operating since 2017. It is the Chinese People’s Liberation Army Navy (PLAN)’s first overseas military base and was built at a cost of US$590 million. But Djibouti also has to repay enormous amounts of money it has borrowed from China which were taken to build a new port, a new rail road linking that port with the Ethiopian capital Addis Ababa, a new airport as well as a pipeline for bringing fresh water from Ethiopia. According to figures released by the International Monetary Fund (IMF), those loans amount to at least US$ 1.1 billion, which might be difficult for Djibouti of repaying. Even when it comes to a long term friend and ally like Pakistan, Chinese investment is tied to loans and credits. In Pakistan, Chinese companies are involved in building a mega-port at Gwadar, which is China’s other outlet to the Indian Ocean. The importance of the port Gwadar lies in its location, as it will firmly position on the shores of the Arabian Sea. Gwadar might have greater strategic plan in future.

China’s interest in Myanmar might be multifarious. One of the reasons could be the economic and strategic access to the Indian Ocean through a deep water port at Kyaukpyu in Myanmar’s western Rakhaine state. This port is likely to be a crucial link of Beijing’s US $1 trillion Belt and Road Initiative (BRI). The plan to build a port at Kyaukpyu was first announced in 2007, it attracted the attention of China to think of linking it with BRI. A state-owned investment company of the People’s Republic of China, CITIC (China International Trust Investment Corporation) group won the tender to take 70% of the project with remaining 30% going to the Myanmar government. But it is difficult for Myanmar to pay that 30% amount of that project and it might compel them to get loan at least US $2 billion. It made Myanmar at risk of falling into China’s so called “debt trap diplomacy”, when they would be unable to repay BRI related debts. The parliamentarians of Myanmar are considering this issue very seriously and requesting the National League for Democracy (NLD) led government to pay back the loans to China as fast as possible to avoid a sovereignty-eroding debt trap. It is to be noted that Myanmar could achieve only US$6.35 billion as a foreign currency reserve in 2018 and the national debt estimated at US$10 billion. Out of which US$4 billion is now owed to China.

Parliamentarian Than Soe recently suggested sending rice instead of dollars to China. It’s not really sure, China will be agreed to this proposition of Myanmar or not. The interest rate on most Chinese loans is quite high. In maximum cases it is near about 4.5%. The economic condition of Myanmar would not be so grave in nature, most of Myanmar’s foreign debt was accumulated between 1988 and 2011, a period when the country was subjected to western sanctions imposed against the previous military regime’s poor policy. At that time, China was the only major foreign donor, willing to lend generously to the ostracized regime. The international sanction on Myanmar for two decades obliged them to depend on China despite of numerous uncomfortable terms. It became a heavy concern for Myanmar when the discussion was raised on China-backed $10 billion Kyaukphyu port project.
It seems that China would like to keep the multiple options open in their favor. It’s not only through Pakistan; China is preparing two different corridors open in its favor for reaching to the Indian Ocean. The one through Myanmar is more important for trade and at least equally important when it comes to long term strategic influence, which China needs to secure its oil imports from the Middle East and trade routes to and from Africa and Europe. China has built oil and gas pipelines, that allows it to bypass the potentially vulnerable places at the Malacca channel. It is to be noted there are almost 80% of China’s energy imports pass through the narrow Malacca channel between Malaysia and Indonesia. Considering the risk involved in it, China wants to keep the multiple passages open to reach Indian Ocean.
Apparently it seems that there will be number of infrastructure project ahead in favor of Myanmar, but the debt load ultimately will facilitate China’s grand strategic designs including a high-speed railroad connecting China’s landlocked southern region to a deep-sea port at Kyaukphyu. As of 2011, the year the previous military regime started to relax on political restrictions to deal with the western countries, Myanmar had $6.7 billion in foreign debt, maximum of which was held by China. Another $3.1 billion was incurred between 2011 and 2016, when a military backed civilian government led by Thein Sein was in power. Chinese loans have gone mainly to pay for infrastructure projects, including hydropower dams, in joint venture agreements with mostly state-owned Chinese companies. Those projects, have not always progressed as planned, sometimes those were materialized on the mercy of China’s desire. In 2011, Thein Sein suspended the $3.6 billion Myitsone dam, a controversial project of large dam and hydroelectric power development which was planned to be built in Myanmar, but the proposed construction site was changed to the convergence of the Mali and N’mai rivers in Myanmar. However, at present the project has been suspended. Local groups had protested against the dam’s environmental impact. However, if the China Power Investment Corporation claims the already expended amount, Myanmar may have to pay $800 million with interest. The NLD government is now doing necessary profit-loss analysis whether to repay that amount or to continue with the Chinese pressure to restart the project. Since NLD came to the power in 2016, Myanmar is trying to diversify its development assistance sources, specially to Japan and the Asian Development Bank, both of which offered lower interest rates and more favorable repayment terms than China. NLD government did not receive a well composed economy since it took over the power. Long term military rule that started in 1962 left behind weak institutions to oversee and regulate the economy. Until 1988, Myanmar was a military-run socialist state where the regional black markets were on the rise. Limited free enterprises were allowed after 1988, but the military maintained a full control of the economy through its partnership with local entrepreneurs. Though there were considerable amount of liberty in the business sector since 2011, it could not recover the economy which was highly affected due to decades of military mismanagement.

Recent atrocities by the Myanmar military in the western Rakhine state became a big concern, where more than 700,000 Muslim Rohingya had to flee away to neighboring Bangladesh. The UN has termed this inhuman action of Myanmar to be a text book example of ethnic cleansing. It caused huge defame and criticize against Myanmar, which is likely to be the reason to re-impose limited sanctions by the western countries. Now, Myanmar might not have lot of alternatives other than China to accomplish necessary financial support and investment needed to develop. The idea of repaying loans by rice could be an unconventional option as discussed in the parliament; it will be difficult to meet the required amount which was taken on loan earlier.

Myanmar has signed an agreement with China’s state-run CITIC Group to initiate work on a deep-sea port in the west of the country. After completion of the initial phase of work, there is fear of debt trap diplomacy against Myanmar. Despite of that a “framework agreement” has been signed between the Government of Myanmar and CITIC for the port in KyaukPyu, at Rakhine State. This agreement brings Myanmar more close to China for becoming a party to the dream project of BRI after the exodus of more than 700,000 Rohingya Muslims from the Rakhine State, but the fear of ‘debt trap’ cannot be ignored.