Is the BRI a way for China to reshape international aid policy?

By Turkan Omari

In the form of financial aid with development ambitions,China is increasingly becoming a donorthe size of the US, the largest bilateral donor inthe world. With the BRI allowing for developingcountries to receive investment without ideologicalstrings attached, is China changing foreignaid as we know it?

It was in October 2013 that Chinese President Xi Jinping first unveiled the Belt and Road Initiative (BRI). The initiative aims to connect Asia with Africa and Europe through land and sea corridors to improve regional integration, increase trade and achieve economic cooperation with other regions. The Belt and Road Initiative is the largest infrastructure project of the 21st century and many of the routes correspond to the ancient SilkRoad, which was used to transport spices and fabrics between China, Middle East and Europe.

Today, 138 countries worldwide have joined the BRI allowing China to increase its investment in the form of bilateral loans for large infrastructure projects such as roads, railways, airports, power plants and telecommunication networks.

However, there are some major concerns about how the BRI investment strategy will affect international aid policy. Instead of cheap credit, BRI investments often come with market interest rates, with shorter repayment periods and loans approved by government development banks or commercial banks. Yet, there are countries like India that are granting loans with cheap credits and according to indian senior analysts the Indian loans are demand-driven, and respond to the needs of the people without imposing debt-traps or long-term dependency like the BRI-loans have shown to do. Additionally BRI in comparison to the Multilateral development Bank that offers stable, low-cost and long-term loans for various projects within developing countries. The BRI loans primarily seek to make profits of the granted loans at the expense of the recipient country falling under the debt-trap where they are unable to repay the loans in time that also undermines their sovereignty. Additionally according to CSIS (Center for Strategic and International Studies) the BRI-loans also violate several international leading best practices involving procurement, transparency, and dispute settlement. And notably, as part of securing the loan, the projects financed by it become collateral. While China stresses financial gains for both parties, some would argue that the BRI is a way for China to reshape international aid in a way that pushes developing countries into diplomatic debt traps, signing unfavorable trade agreements that further increase their debt and result in China taking over strategic assets. One such case can be found in Sri Lanka. In 2005, president Rajapaksa decided to build a port in the southern part of the island in the Hambantota district, with the assumption that the port would become one of the world’s busiest in a few decades. As reported by Business Hours, China was the only investor to bid, and it came with the expensive price tag of $300 million with more than 6 percent interest, and a repayment plan of 11 years.

However, the price became much higher than that as the local community raised concerns on how the major infrastructure project coming to fruition can have a major negative impact on the local wildlife.The small village of Hambantota is known for its large gathering of flamingos in the shallow bays and elephants walking through the jungle along the paths they had trodden up for generations, relatively undisturbed by mankind.

When a new government came to power in Sri Lanka in 2010, it did not take long for it to realize that the Hambantota port was too big a project to be worthwhile. Construction was halted and, as the US think tank CSIS reports, 95% of the country’s government profits in 2015 went to repaying loans and interest. Continued negotiations therefore ended in 2017 with China taking control of the Hambantota port as collateral for the loans, in a 99-year lease.

Worth to mention is that the port is strategically located next to one of China’s biggest power rivals, India. Could it be said that these are loans with a hidden agenda? While Xi Jinping rejects the notion, stating that China is not “indulging in outdated geopolitical arrangements”, there is no denying that with developing countries such as Sri Lanka incapacitated, this ‘trap diplomacy’ allows for China to take over their strategic assets.

Why are developing countries increasingly seeking risky loans from China?

Part of the answer is in that many developing countries suffer from authoritarian regimes, corruption, and lack of transparency and democracy.

Ralf Leineweber/ Unsplash

The so-called traditional donors that dominate international development cooperation consist mostly of Western countries, with Sweden being one of the pioneers. While China can be said to provide the ‘hardware’ of poverty alleviation in the form of BRI projects, Sweden focuses on what can be called the ‘software’: international development cooperation. Swedish development aid policy is based around the democratic project to further the socio-economic and humanitarian development of all parts of society. It aims to narrow the gap between developing and developed countries and to reduce the increasing tensions in the world in order to build peace.

To receive financial aid from traditional Western donors like Sweden, the receiving countries in question must commit to upholding and working towards democratic values. For countries unable or unwilling to do so however, Chinese investment might be more attractive, as it does not follow these traditional foreign aid conditions as set by Western donors.

Instead, China has its own philosophy, reflected in its eight principles of foreign aid, one of which is ”respect for sovereignty and no strings attached”. China’s flexible foreign aid strategy, combined with its expanding economic status, has attracted the attention of many developing countries that want both easier access to bilateral funds and to break away from Western influence. It offers the possibility of lifting developing countries’ populations out of poverty through infrastructure-driven growth without the pressure to at the same time tackle corruption, inequality, and lack of democracy, transparency and accountability. It comes as no surprise then, that China has had no difficulty bringing developing countries on board the BRI ship.

Yet, this can be seen as problematic in many ways. One being that Chinese foreign aid contradicts the main goal of all developing funds, which is to eradicate economic inequality and promote democracy and human rights. The BRI initiative does not consider individual freedom, political equality, democratic self-government, and the rule of law. Moreover, BRI-linked countries’ labour conditions of workers have been described by Human Rights Watch as abusive and unfair, suggesting that the Chinese foreign aid principle of “respect for sovereignty” means that people governed by undemocratic governments, that oppose the respect for human rights, are left to fend for themselves.

While the concept of developing countries trying to become independent of Western financial aid might seem progressive, with Chinese investment they might instead throw themselves into debt crises. The BRI interferes with decades of work by traditional donors to promote democracy, human rights, and macroeconomic stability, an interference which could undermine and worsen international security. There are currently no indicators of how the BRI will directly affect Swedish foreign aid policy, but it is nonetheless clear that the more China emerges as a major donor, the more traditional foreign aid norms and values will be challenged. From the standpoint of traditional donors, this kind of no-strings-attached investment promises a future where the values of liberal freedom, human rights and democracy are undermined in favor of financial gains and geopolitics.

Chuttersnap/Unsplash

Chuttersnap/Unsplash