8 Special reportChina’s Belt and Road The EconomistFebruary 8th 2020
21the euin return for a third bailout, it offered coscocontrol of the
whole port. coscohas invested $5bn, with more promised for
everything from a ship-repair business to turning warehouses
into hotels for cruise passengers.
Under cosco, container volumes have grown by more than
700%. Next year Piraeus may overtake Valencia in Spain to become
the biggest port in the Mediterranean and the seventh biggest in
Europe. Its value to Asian exporters is as a trans-shipment hub.
Goods arriving in Piraeus via the Suez Canal are quickly shipped to
other parts of the Mediterranean. That saves time and money com-
pared with unloading in the giant ports of northern Europe, such
as Rotterdam (though coscohas stakes there too). coscois also in-
vesting in a rail route for sending freight from Piraeus to the Bal-
kans and beyond to the German-led manufacturing cluster in east-
ern Europe. The railway neatly connects the land-based approach
with that by sea.Shake Djibouti
But for every success, there are other strange, stalled or suspicious
Chinese port ventures. The merging of commercial and military
potential is glaring in tiny Djibouti, guarding the approach to the
Red Sea and the Suez Canal. There, China opened its first overseas
military base in 2017, ostensibly for Chinese unpeacekeepers in
the Horn of Africa as well as to combat piracy. Djibouti has not
been fussy about hosting bases, so long as it makes money from
them, and China’s sits not far from those of the United States,
France and Japan.
But a few months later the Djibouti government nationalised
the main port, tearing up the long-term deal it had signed with dp
World, Dubai’s port operator. Soon after, it handed a stake in the
port to China Merchants, which has taken over its running. Inter-
national arbitration courts have ruled in dpWorld’s favour, though
that is unlikely to dislodge China Merchants. A Chinese state-
owned enterprise, therefore, handles nearly all the incoming sup-
plies for the other bases, a source of alarm for the United States and
its allies. Similarly, China may have the upper hand in Djibouti
now, but the country’s fiscal position is the most parlous of all bri
countries—and more than half of its debt is to China. To hawks it
means China holds all the cards. Others point to China’s reputa-
tional risk should Djibouti default.
Another case is Hambantota, a port at the southern tip of Sri
Lanka often cited as a notorious instance of debt-trap diplomacy.
Opened in 2010, China Merchants took control of the new port in
2017 on a 99-year lease when the government struggled to service
its debt. The debt-trap accusation is off the mark here, for China
built the port chiefly to indulge the president of the time (and now
prime minister), Mahinda Rajapaksa, in the region of his family’s
political base. Chinese enterprises were already making out likebandits at the Colombo port. Besides, given the riskiness of the
proposition, Chinese banks made sure to charge commercial rates
of interest.
There was, in other words, no well-laid plan. Yet it remains the
case that Hambantota sits strategically just a few miles north of
one of the world’s busiest sea lanes. Moreover, once bunkering fa-
cilities are installed, and ships start to call in to refuel, Hamban-
tota may no longer be the white elephant it is today. Thus China
will have one more strategic stepping stone in the Indian Ocean in
years to come.
Accusations of debt-trap diplomacy are especially rife in the Pa-
cific. In November 2018 America’s vice-president, Mike Pence, told
Asia-Pacific leaders: “Do not accept foreign debt that could com-
promise your sovereignty.” The perils would be especially acute for
its remote and fragile economies. Yet a paper by Roland Rajah,
Alexandre Dayant and Jonathan Pryke of the Lowy Institute, a Syd-
ney think-tank, paints a nuanced picture of China’s Pacific activi-
ties. They conclude that China is not pursuing a policy of deliber-
ate entrapment. Only in Tonga does China account for more than
half of outstanding debt. Meanwhile, nearly all official lending
comes in the form of concessional loans with low interest rates
and long grace periods—a stark contrast to China’s lending in the
other parts of the world.
Certainly the sheer scale of Chinese lending poses risks in fu-
ture. But the debt-diplomacy debate should not overshadow more
salient problems with China’s activities in the Pacific. For Mr Pryke
of the Lowy Institute, they include both the quality of Chinese
lending, and the way relationships are forged. “They’re using cor-
ruption to lubricate their engagement,” he argues. By striking
murky deals with politicians, China undermines already weak go-
verning institutions.
There are accusations elsewhere of projects that aggravate do-
mestic problems in the countries in which they are undertaken. In
January President Xi Jinping became the first Chinese leader to vis-
it Myanmar in 20 years, a trip over which much was at stake. With a
deap-sea port being built at Kyaukpyu in Rakhine state, a corridor
is to connect landlocked parts of south-west China to the Indian
Ocean. Myanmar offers China a crucial energy route from Kyauk-
pyu to Kunming, capital of Yunnan, its most south-westerly prov-
ince. One pipeline has the capacity to pump 12bn cubic metres of
gas a year from fields in the Bay of Bengal. A second is for oil from
the Middle East. A planned railway is to run from Kyaukpyu to
Kunming via Mandalay, a city in central Myanmar with a large Chi-
nese presence.
The pipelines have special value to China, whose strategists
have long fretted over a “Malacca Strait dilemma”. The strait, whichTipping towards BeijingSource:IMF *Importsandexports3020100
0 5 10 15 20 25 30
Share of trade* with China, %20182000Shareoftrade*withtheUnitedStates,%GermanyJapanNew
ZealandPhilippinesSouth
KoreaAustraliaBritainFranceWorldThey want your stuff
China, exportsSources:CEIC;WindInfo *BeltandRoadInitiative †JanuarytoNovember8006004002000
19*161412102008To BRI* countries, $bn
3020100-10-20
19†171513112009% change on a year earlierTotalexportsBRI*exports