China is expanding its reach with its Belt and Road Initiative. This has been going on for a number of years.
Advantages
Where third world countries could not get financing for large infrastructure projects, China is willing to provide financing and building of these huge projects. These projects are of great benefit to the host country
- Host countries get financing for large infrastructure projects that they would not normally be able to afford
- China has projects that employ Chinese workers and use Chinese products such as steel and equipment. This keeps Chinese workers in China employed.
- projects get completed and are functional
Disadvantages
- Projects are created that are too large and too elaborate for the host country. This tremendously increases costs
- If a host country cannot repay the loan, China will lease the infrastructure, sometimes for 99 years. This is a form of taking control of parts of the host country. There is currently a 99-year lease on Sri Lanka’s Hambantota port because they could not afford the loan repayment
- Projects use Chinese financing, hire Chinese firms and employ only Chinese workers. Local workers do not benefit
State-owned enterprises carrying out BRI projects have also been criticised for not using local labour forces, for disregarding environmental concerns and for corruption.
- Projects are signed with the host country but there is no transparent bidding process for contractors. Chinese firms are chosen, all without the host country’s input. This lack of transparency is concerning.
According to the few financial details of CPEC that are available, Pakistan is not benefiting significantly from the programme. Reportedly, although China has lent Pakistan US$26 billion-US$30 billion for power and transport projects that are part of the economic corridor, not a single dollar has entered Pakistani banking channels.
Instead, Chinese banks give the loans to Chinese companies, which buy equipment in China and use it in Pakistan.
- The lack of transparency from these Chinese loans may disqualify host countries from IMF and World Bank loans.
- Loans to host countries may have been skimmed and paid to country politicians, all without any proof on paper
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Studying the article, please let me comment on the advantages and disadvantages I may differ with as postulated:
.01 Advantages
.1 Postulation – Employment of Chinese workers and use Chinese products in projects
.1 My observation – And what happens when, for example, the project or program (a combination of related projects) is so large that, for example, it makes more sense to manufacture inputs locally? For example, for 500,000 houses annually each consuming 20 tons of cement, is manufacturing the required 10 million tons of cement locally under, say, a BOT arrangement with local partnerships permissible?
.02 Disadvantages
.1 Postulation – Projects too large and elaborate, which increases costs
.1 My observation – Is this not just deficient planning on the part of BRI and the host country?
.2 Postulation – A host country’s inability to pay the loan leads to China’s of the infrastructure, which is a form of taking control of parts of the host country. Example – Sri Lanka’s Hambantota Port
.2 My observations
o Is recovery under a variety of terms negotiated prior, even of a television set, after inability to pay not normal business practice globally except under Islamic banking?
o Out of more than 200 projects, is Hambantota Port not the only project where such a repayment issue have arisen? Is this statistically significant?
o Hambantota Port is an example of deficient project management right from the business case.
.3 Postulation – Projects use Chinese financing, hire Chinese firms and employ only Chinese workers. Local workers do not benefit
.3 My observations
o Is there alternative finance for the BRI apart from the Chinese one?
o If China provides the finance and skills, do the lowered risks and assured completion not a desirable issue?
o For 3 years, I used to walk to my office alongside a Nairobi highway under construction by a Chinese firm which was completed in 2021. In all that time, I saw a maximum t3 Chinese supervisors while everyone else – plant operators, truck drivers, engineering surveyors, laborers and so on – were Kenyans. I note the same all over Kenya when I travel.
Much as there would be teething problems for such a huge undertaking, with time as planning improves, labor is trained and more materials are manufactured at source, things are bound to improve.