Posts Tagged ‘Sri Lanka’

U.S. Embarks on Tortoise vs. Hare Investment Race With China

November 13, 2018

HONG KONG—The U.S. has launched a new strategy aimed at ramping up investment in Asia to vie with Chinese President Xi Jinping’s overseas infrastructure-building spree, as Beijing grapples with setbacks to its sprawling program.

But China has a head start—and a state-led model that makes it easier to finance and build on a large scale. Mr. Xi’s Belt and Road initiative has offered hundreds of billions of dollars for railways, bridges and ports in dozens of countries, expanding its strategic influence along the way.

Among the recipients are economies that have struggled to attract U.S. investment or adequate financing from multilateral banks.

The Trump administration is looking to change that by helping the private sector invest. In October, President Trump signed into law the Build Act, which creates a new development finance agency that offers loans, loan guarantees and political-risk insurance to private companies.

Mr. Trump said last year that this strategy would offer “strong alternatives to state-directed initiatives that come with many strings attached,” a reference to Beijing’s plan. The goal, proponents say, is to encourage businesses to invest in low-income countries and spur growth with projects that make economic sense.

The Build Act allows for $60 billion in U.S. development financing around the world under the new agency, the U.S. International Development Finance Corp. The IDFC merges existing programs, doubles the current agency’s spending cap and has the authority to own equity stakes in projects, giving it more flexibility to choose and guide them.

The U.S. sees Belt and Road as a tool used by Beijing to advance its strategic and military interests. A number of Trump administration officials and U.S. lawmakers describe the risks of China using “debt traps” to gain control of sensitive infrastructure and “predatory economics” to undermine the autonomy of debt-burdened countries.

Some new governments in Asia also see it that way. Many developing economies initially embraced China’s plans, which pledged to address, at least in part, Asia’s infrastructure spending needs, estimated by the Asian Development Bank at $1.7 trillion each year through 2030.

But elections have delivered setbacks to China, including the suspension of $20 billion in projects in Malaysia, Pakistan’s shifting strategy to combat an emerging financial meltdown and the ouster of a China-leaning government in the Maldives. Some newly empowered politicians said China-backed projects approved by previous governments promoted corruption, saddled their countries with debt and threatened their sovereignty.

So far, however, for countries facing dire infrastructure needs, “there aren’t many specific or visible alternatives to China,” said Amitendu Palit, a senior research fellow at the Singapore-based Institute of South Asian Studies. “China is still their best bet.”

China’s political leaders are able to steer investment decisions, and the country is often willing to fund projects in high-risk markets that others avoid.

The first section of Pakistan’s Multan-Sukkur Motorway, a key leg in the China-Pakistan Economic Corridor, was inaugurated in May. The new government in Islamabad is looking for help to manage the debt burden of its Belt and Road projects.
The first section of Pakistan’s Multan-Sukkur Motorway, a key leg in the China-Pakistan Economic Corridor, was inaugurated in May. The new government in Islamabad is looking for help to manage the debt burden of its Belt and Road projects. PHOTO: AHMAD KAMAL/ZUMA PRESS
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“China has giant state-owned enterprises that are directed by organs of the state to make huge investments, even investments that are of questionable commercial value,” said Jeff Smith, a research fellow in the Asian studies program at the Heritage Foundation. “The U.S. political and economic system is not designed to play this game.”

The Trump administration has earmarked $113 million for digital, energy and infrastructure projects in the Indo-Pacific region, in what Secretary of State Mike Pompeo described as a “down payment on a new era in U.S. economic commitment.”

“With American companies, citizens around the world know that what you see is what you get: honest contracts, honest terms, and no need for off-the-books mischief,” Mr. Pompeo said in July.

China has said its Belt and Road loans aren’t debt traps, and that its financing is aimed at boosting economic and trade links.

In Washington, there is “a lot of debate and consternation about how to respond” to China’s plans, said Mr. Smith.

One effort involves leveraging regional alliances. A U.S. government agency that will be absorbed into the IDFC signed an agreement with Japan and Australia in July to jointly mobilize investments, echoing U.S. security alliances in the Indo-Pacific.

With Japan’s record of infrastructure development, including this bridge that opened in Bangladesh in 2005, the U.S. is looking to Tokyo to help mobilize investment in Asia.
With Japan’s record of infrastructure development, including this bridge that opened in Bangladesh in 2005, the U.S. is looking to Tokyo to help mobilize investment in Asia. PHOTO: MAJORITY WORLD/UIG/GETTY IMAGES
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Tokyo has experience in infrastructure financing in developing countries in Southeast Asia, where it is involved in a range of projects, including railways and energy production. Prime Minister Shinzo Abe said in 2015 that Japan would provide $110 billion to fund Asian infrastructure projects over five years.

Japan has expanded its operations, searching for investment opportunities in South Asia and offering loans to countries such as Bangladesh for ports and bridges.

Tokyo has sought to differentiate itself from Beijing by emphasizing “quality infrastructure,” and framed its efforts increasingly as part of the broader Indo-Pacific strategy designed to counterbalance China. Japanese money remains more selective than China’s and isn’t available to many countries.

Infrastructure projects should “increase employment, help grow education opportunities for the workers, attract even more FDI and as a result make the loans easy to pay back,” Mr. Abe said in June, when he announced new efforts to mobilize billions of dollars in funding. “Infrastructure that stimulates self-sustaining cycles in this way is high-quality infrastructure.”

Construction of this breakwater, shown in May, is part of a port project in Colombo, Sri Lanka under China’s Belt and Road Initiative.
Construction of this breakwater, shown in May, is part of a port project in Colombo, Sri Lanka under China’s Belt and Road Initiative. PHOTO: CHEC/ZUMA PRESS

Write to Niharika Mandhana at niharika.mandhana@wsj.com

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Washington ‘deeply concerned’ over Sri Lanka crisis, calls for upholding democratic institutions

November 10, 2018
In this file photo Sri Lanka's President Maithripala Sirisena waves to supporters at a rally in Colombo. — AFP
In this file photo Sri Lanka’s President Maithripala Sirisena waves to supporters at a rally in Colombo. — AFP

“The US is deeply concerned by news the Sri Lanka parliament will be dissolved, further deepening the political crisis,” the US State Department said in a statement on Twitter.

“As a committed partner of Sri Lanka, we believe democratic institutions and processes need to be respected to ensure stability and prosperity,” it said.

Sirisena is facing increased international pressure from the US, the United Nations (UN) and the European Union (EU) to allow parliament to vote on which prime minister should form a government.

‘Against the constitution’

Sirisena’s United People’s Freedom Alliance (UPFA) admitted ahead of the president’s stunning announcement that they had failed to secure enough cross-over MPs to win a confidence vote.

By avoiding a test of his majority on the floor of the House, Rajapakse will remain caretaker prime minister until elections are concluded and a new parliament meets on January 17.

Before signing the order sacking the parliament with effect from Friday midnight, Sirisena also inducted more ministers into his cabinet.

“At the moment we have 104 or 105 MPs,” UPFA spokesman Keheliya Rambukwella told reporters, adding that the Sirisena-Rajapakse group hoped to secure support from “crossover” legislators.

The admission, which came despite Sirisena’s earlier claim that he had the support of 113 legislators when he sacked Wickremesinghe, had fuelled speculation that he would go for snap elections.

The leftist People’s Liberation Front (JVP), which regards the sacking of Wickremesinghe as unconstitutional, accused Sirisena of trying to consolidate his power grab.

“Dissolving parliament at this time is illegal and goes against the constitution,” JVP general secretary Tilvin Silva told reporters.

Sirisena suspended parliament to give himself more time to engineer defections, according to the opposition.

Several legislators have said they were offered millions of dollars to switch allegiance and at least eight have already jumped to the president’s side.

Wickremesinghe, who has not left his official Temple Trees residence since his sacking, maintains that the action against him was unconstitutional and illegal, and insists his group can muster a majority.

Image damaged

Under pressure from the UN, US and the EU to allow a parliament vote, Sirisena agreed three times to lift the suspension but changed his mind each time.

The EU said on Friday, before the dissolution, that the crisis had scarred the Indian Ocean island’s international reputation.

The EU, in a joint statement with Norway and Switzerland, called for parliament to reconvene and hold an immediate vote.

“Any further delay could damage Sri Lanka’s international reputation and deter investors,” the statement said.

Wickremesinghe late on Thursday thanked his supporters and urged them not to give up in the showdown.

“You have not let this country be plunged into the darkness of dictatorship. For this inspiring effort, I want to thank everyone who has risen to fight for democracy and justice,” Wickremesinghe said in a video posted on Facebook.

The power struggle on the island of 21 million people has paralysed much of the administration, according to legislators on both sides of the dispute.

AFP

Behind Sri Lanka’s turmoil, a China-India struggle for investments and influence

November 8, 2018

Gleaming cranes stretch out on the waterfront in the Sri Lankan capital Colombo as Chinese companies construct a $1.5 billion new commercial district, including hotels, marinas and a motor racing track. They have already built a giant container terminal nearby and a huge port in the south.

Now India, the traditional power in the region, is muscling into port and other projects, pushing back hard against China.

Image result for Colombo port, construction, photos

The big fear for India is that Sri Lanka, just off its southern coast and on one of the world’s busiest shipping routes, could become a Chinese military outpost.

But the battle is creating political turmoil in Sri Lanka. A bust-up between President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe over how far to accommodate Indian interests is a key reason the nation’s unity government has just fallen apart, government officials and foreign diplomats said.

Wickremesinghe, who was fired on Oct. 26 and replaced by veteran pro-China politician Mahinda Rajapaksa, told Reuters about arguments at a cabinet meeting chaired by the president last month over a proposal to grant development of a Colombo port project to a Japan-India joint venture.

“There are arguments in the cabinet, sometimes heated arguments,” he said.

Wickremesinghe did not name the president but said: “There was a paper put forth to not give it to India, Japan.”

He added that he insisted that the ultimate decision should respect a memorandum of understanding signed between India, Japan and Sri Lanka.

It was the first account of what transpired in the Oct 16 meeting and the government’s pushback against India.

Wickremesinghe declined to respond when asked if he believed the China-India struggle was behind his firing. But Rajitha Senaratne, a former government minister who attended, confirmed the president and the prime minister had argued at the meeting.

Two Sri Lankan officials, as well as a Western diplomat and an Indian government source, who were all briefed on the meeting, corroborated the minister’s account.

The president’s office did not respond to requests for comment. Sirisena told a public meeting on Monday his political rivals were trying to drive a wedge between him and the Indian government by painting him as anti-India.

The Indian foreign ministry said Delhi was committed to giving developmental assistance to Sri Lanka.

In a statement last week, the Chinese embassy in Colombo rejected allegations China was involved in a conspiracy to change Sri Lanka’s leadership, saying it does not believe in such interference.

Japan did not respond to a request for comment on the sacking of the government. But Wickremesinghe and an official from the Japan International Cooperation Agency said a $1.4 billion soft loan for a light railway project in Colombo was on hold.

SECOND TERMINAL

India had been pushing Sri Lanka for the award of an estimated $1 billion contract for a second foreign-operated container terminal in Colombo. It has pointed to a memorandum of understanding (MOU) Sri Lanka signed in April 2017.

Reuters has reviewed unpublished documents from that MOU and it lays out a blueprint for projects India would be involved in, including an oil refinery, roads, power stations and the container terminal. The agreement also includes room for Indian involvement in the development of industrial zones.

The cabinet meeting was supposed to give clearance for the port project but President Sirisena said the country, already mired in $8 billion of Chinese debt, couldn’t give any more of its assets to foreigners, according to Senaratne.

“There was a misunderstanding between the president and the prime minister,” said Senaratne, who was the health minister in the deposed cabinet. The Colombo terminal should be left to the state-owned Sri Lanka Port Authority, which was already developing the facilities, he quoted the president as saying.

Tension had been building between Sirisena and Wickremesinghe even before the clash over the port project. The president did not approve of some economic reforms, such as opening up the services sector to foreign investment, being introduced by the prime minister.

Sri Lanka is only one of a number of South Asian countries where the China-India rivalry has roiled domestic politics.

China has been constructing ports, power stations and highways in Pakistan, Bangladesh, Sri Lanka, the Maldives and Nepal, much of it now tied to its ambitious Belt and Road Initiative to connect China with countries cross Asia and beyond.

In September, the leader of the Maldives – who had courted Chinese investments – lost an election in a result seen as a setback to Beijing’s ambitions for the islands.

  “DEBT DIPLOMACY”

One of the officials briefed on the cabinet meeting said he was told Sirisena quoted U.S. Vice President Mike Pence’s warning last month that China was using “debt diplomacy” and the Hambantota port in the south could become a Chinese forward military base.

Sirisena told the cabinet Sri Lanka didn’t want this kind of international attention and vowed he wasn’t going to compound the problem by granting the Colombo deal to an outside party, this official said.

But Wickremesinghe, who has forged close ties with India and Japan to balance ties with China, said at the meeting that the cabinet had already approved the broader pact with India a year ago, he told Reuters.

He said the debt-burdened Sri Lanka Port Authority wasn’t in a position to build the terminal on its own, Wickremesinghe said he told the meeting.

“It wasn’t even an Indian project, Japan was going to be the majority partner with India at 20 percent,” Wickremesinghe said in the interview.

But the president not only rejected the proposal but shocked those present by turning on New Delhi, saying he was the target of an assassination plot and suggesting India’s foreign intelligence agency, the Research and Analysis Wing (RAW), was behind it, said officials who attended the meeting.

The Sri Lankan government later denied Sirisena named the agency, India’s equivalent of the CIA. India’s foreign ministry said Sirisena spoke to Indian Prime Minister Narendra Modi about the issue to ensure it didn’t lead to a diplomatic crisis.

But ten days after the cabinet meeting, Wickremesinghe was out and former president Rajapaksa was named in his place. Rajapaksa had ushered in Chinese investment when he was president from 2005-2015 and lost a presidential election to Sirisena after reports that RAW had helped build a coalition against him.

    CHANGING LANDSCAPE

In Colombo, the increasing Chinese influence is there for all to see.

On the city’s ocean front, a part of the ocean is blocked from view because of the reclamation project that will eventually turn into the new commercial district. Giant billboards and wire mesh, including some signs in Chinese, close off the largest construction site in the capital.

There is a growing Chinese community of about 12,000 expatriates, up from barely a few hundred a few years ago. They are scattered in Colombo and Hambantota.

Modi’s government is determined to start to turn back the tide. It is aggressively pitching for projects next to Chinese investments, so China’s military does not get a free pass.

“India can ill afford to ignore the strategic advantage China has gained in Sri Lanka so close to peninsular India,” said Colonel R. Hariharan, a retired Indian army intelligence officer.

The Colombo port isn’t the only priority. In Hambantota, India is bidding to take control of an airport built next to the Chinese seaport even though it handles hardly any flights.

“We are fully in the game,” said an Indian government source. It kept its profile low, though, because of local sensitivities, the source said.

Additional reporting by Ranga Sirilal; Editing by Martin Howell and Raju Gopalakrishnan

Reuters

India and China nervous spectators in Sri Lanka crisis

November 1, 2018

Rival Asian giants India and China are anxiously watching the constitutional conflict between contending prime ministers in Sri Lanka to see whose interests get the upper hand in their own strategic battle.

It is the second time in barely a month that the Indian Ocean has become a battleground between the powers, after the Maldives’ hotly disputed presidential election saw the eviction of a pro-Chinese leader.

Both may be minnows compared to the two giant neighbours that loom over it to the north.

But they sit on the key sea trade and oil routes from Asia to the Middle East and Europe making them vital strategic interests for the rival powers.

New Delhi and Beijing insist that they are watching from outside the political ring as Sri Lanka’s ousted prime minister Ranil Wickremesinghe slugs it out with Mahinda Rajapakse, the island’s former authoritarian leader named to take over by the president.

© AFP | India and China are closely watching the political crisis in Sri Lanka

But the stakes are high.

“With parliament suspended and all the political trickery between the two sides, the growing tensions are a worry for India and China,” said an Asian diplomat in Colombo.

China was quick to deny an accusation by a lawmaker from Wickremesinghe’s party this week that it was paying for Rajapakse’s attempts to win over rival deputies.

“Groundless and irresponsible,” said a frosty Chinese embassy statement in response to the allegations.

The constitutional crisis pits two very different characters against each other.

Wickremesinghe is a soft-spoken reformist technocrat and free market proponent seen as wary of China’s often one-sided economic deals and less suspicious of India.

Rajapakse is a seasoned political bruiser, deeply charismatic but tainted by an authoritarian decade in power that culminated in a ruthless military campaign against Tamil Tiger rebels which ended a decades long civil war but killed some 40,000 civilians and saw widespread atrocities.

He was also much closer to Beijing — billions of dollars of Chinese investment flowed into Sri Lankan infrastructure during his administration ranging from roads and ports to land reclamation in Colombo.

– Tightrope act –

Maithripala Sirisena, the final key character in Sri Lanka’s current political crisis trinity, vowed to change all that when he beat Rajapakse in a 2015 presidential election and put Wickremesinghe in charge of the government.

That should have encouraged India, which is desperate to stop China expanding its economic and military footprint in the Indian Ocean and other backyard states such as Bangladesh, Bhutan and Nepal.

But Wickremesinghe found the battle against Sri Lanka’s huge foreign debt too much.

Last year his government gave a 99-year lease on the Hambantota deep-sea port to China because it was unable to repay Beijing’s loans for the $1.4-billion project.

It was forced to deny US claims that China could set up a military base at the port.

India — a modest investor in power and railway projects in the north of the country — is meanwhile in talks to run Hambantota airport, another white-elephant project built with Chinese loans under Rajapakse.

The airport and port deals have not been good for China’s image.

Both projects have been held up by critics as an example of how China’s global largesse often comes with onerous repayment strings attached.

Delhi has turned on the charm with its own deals while in 2015 Narendra Modi became the first Indian premier to do a standalone visit to the island in 28 years, with a second visit two years later.

Many analysts see Sri Lanka riding a tightrope between India and China no matter who wins the power struggle in Colombo.

“They have been pulled into a perverse relationship with the Asian giants that none of the political parties can rectify easily,” Samir Saran, president of the Observer Research Foundation think-tank in New Delhi, told AFP.

“Rajapakse definitely favoured Chinese investment and there was a move away from it after he left, but it still wasn’t a complete break from China. It was more a move towards neutrality,” added Madhu Bhalla, a former East Asian department head at the Delhi University.

“In its struggle with China for influence in Sri Lanka, the Indian government will not be pleased if Mahinda Rajapakse establishes himself in power,” said Alan Keenan, a Sri Lanka specialist for the International Crisis Group.

“But already before the latest crisis, India and Rajapakse had been mending fences, as Rajapakse and his new party appeared increasingly likely to return to power (through elections) by late 2019 or early 2020.”

Guo Xuetang, director of the South Asian and Indian Ocean Research Center at Shanghai University, said “small countries” like Sri Lanka and the Maldives do not want to be anyone’s client state anyway.

“They do not want to be controlled by China, nor by India,” he added. Whether Sri Lanka chooses India or China in the future will be a “balance of interests,” said the specialist.

AFP

Chinese-style ‘digital authoritarianism’ grows globally: study

November 1, 2018

Governments worldwide are stepping up use of online tools, in many cases inspired by China’s model, to suppress dissent and tighten their grip on power, a human rights watchdog study found Thursday.

The annual Freedom House study of 65 countries found global internet freedom declined for the eighth consecutive year in 2018, amid a rise in what the group called “digital authoritarianism.”

The Freedom on the Net 2018 report found online propaganda and disinformation have increasingly “poisoned” the digital space, while the unbridled collection of personal data is infringing on privacy.

© AFP/File | Chinese officials have held sessions on controlling information with 36 of the 65 countries assessed by a human rights study

“Democracies are struggling in the digital age, while China is exporting its model of censorship and surveillance to control information both inside and outside its borders,” said Michael Abramowitz, president of Freedom House.

“This pattern poses a threat to the open internet and endangers prospects for greater democracy worldwide.”

Chinese officials have held sessions on controlling information with 36 of the 65 countries assessed, and provided telecom and surveillance equipment to a number of foreign governments, Freedom House said.

The accusations made by Freedom House are “without basis, unprofessional, irresponsible, and have ulterior motives,” said Chinese foreign ministry official spokesman Lu Kang at a regular press briefing in Beijing on Thursday.

Cyberspace is complex, he added, and requires “the global community, including governments, businesses, think tanks and media to adopt a constructive attitude to maintain it.”

The report found 17 governments approved or proposed laws restricting online media in the name of fighting “fake news,” while 18 countries increased surveillance or weakened encryption protection to more closely monitor their citizenry.

According to the researchers, internet freedom declined in 26 countries from June 2017 to May 2018. Gains were seen in 19 countries, most of them minor.

– China’s ‘techno-dystopia’ –

One of the greatest threats, Freedom House said, is efforts by China to remake the digital world in its “techno-dystopian” image.

It cited a sweeping Chinese cybersecurity requirement that local and foreign companies “immediately stop transmission” of banned content, and compels them to ensure that data on Chinese users is hosted within the country.

This has been followed by “hundreds” of new directives on what people can and cannot do online, and tighter controls on the use of VPNs to evade detection.

The report said leaked documents and other evidence suggest as many as a million Muslims may be held in internment camps in Xinjiang, many as a result of nonviolent online activities.

China appears to be using its big tech firms involved in telecom infrastructure to extend its dominance and gain an edge in surveillance, according to Freedom House.

Companies such as Huawei — largely banned from contracts in the US and Australia — are building infrastructure in many parts of the world including Africa and Latin America, according to Freedom House board chairman Michael Chertoff, a former US secretary of homeland security.

“This opens up a potential for exploiting information in these countries by having technological backdoors that can be used by the Chinese government to collect intelligence,” Chertoff said.

– Suppressing dissent –

The researchers said online freedom is facing threats in democratic and authoritarian states.

India led the world in the number of internet shutdowns, with over 100 reported incidents in 2018 so far, claiming that the moves were needed to halt the flow of disinformation and incitement to violence.

Similar actions were taken in Sri Lanka and elsewhere.

“Cutting off internet service is a draconian response, particularly at a time when citizens may need it the most, whether to dispel rumors, check in with loved ones, or avoid dangerous areas,” Freedom House researcher Adrian Shahbaz said.

“While deliberately falsified content is a genuine problem, some governments are increasingly using ‘fake news’ as a pretense to consolidate their control over information and suppress dissent.”

Shahbaz said more governments, including Saudi Arabia, are employing “troll armies” to manipulate social media and in many cases drown out the voices of dissidents.

“It has now become a tool of authoritarian diplomacy to deploy an army of electronic trolls,” he said.

The researchers said online freedom also declined in the United States in part due to the rollback of “net neutrality” rules which ensured that all data be treated equally, without “fast” or “slow” lanes for commercial or other reasons.

It said online freedom also faces threats in the US as a result of the reauthorization of a surveillance law and a “hyperpartisan” environment in social media marked by large disinformation efforts.

AFP

Related:

Chinese state media hits out at ‘ignorant and malicious’ Mike Pompeo

October 22, 2018

US Secretary of State had warned of risks from ‘too-good-to-be-true’ Chinese investments

South China Morning Post

PUBLISHED : Monday, 22 October, 2018, 9:50am
UPDATED : Monday, 22 October, 2018, 9:50am
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Image result for mike pompeo, photos

Chinese state media sharply criticised US Secretary of State Mike Pompeo on Monday after he warned Latin American leaders about the risks of seeking Chinese investment.

During a tour of the region last week, in which he met the presidents of Mexico and Panama, he told reporters that “when China comes calling it’s not always to the good of your citizens”.

“When they show up with deals that seem to be too good to be true it’s often the case that they, in fact, are,” he said on Thursday in Mexico City, according to comments posted on the US State Department’s website.

In an editorial on Monday, the state-run China Daily newspaper said Pompeo’s comments were “ignorant and malicious” and criticism that its ambitions Belt and Road Initiative was creating debt traps in other countries was false.

President Xi Jinping has been pushing the plan to expand trade corridors along a modern-day Silk Road linking Asia, Europe and Africa, pumping credit into building roads, railways and ports in a trillion-dollar infrastructure initiative.

The country is keen to bring Latin American countries on board as well, though the initiative has started to face rising scepticism as some countries, such as Sri Lanka, have become saddled with debt that they struggled to repay.

Pompeo said the United States welcomed competition from China, but criticised a lack of transparency at its state-owned enterprises and what he called “predatory economic activity”.

In comments made in Panama he said that counties should have their “eyes wide open” when it came to Chinese investment.

“It’s simply the case that in parts of the world China has invested in ways that have left countries worse off, and that should never be the case,” he said.

The state-owned Global Times said in a separate editorial on Monday that Pompeo’s comments were “disrespectful”, adding that the United States was trying to “drive a wedge” between growing Sino-Latin American relations.

While the United States has traditionally had strong political clout in the region, China has become a major trade partner for many Latin American countries, including Argentina, Chile and Brazil.

“Most countries are disappointed with the US and want to shed themselves of US dependence,” the newspaper said. “Latin American countries know how to weigh their interests.

https://www.scmp.com/news/china/diplomacy/article/2169576/chinese-state-media-hits-out-ignorant-and-malicious-mike-pompeo

China Backs Pakistan At IMF — No reason to keep CPEC shrouded in secrecy

October 17, 2018

THE public endorsement is likely a result of a great deal of behind-the-scenes lobbying.

It is welcome that China, via its foreign ministry spokesperson, has announced its support for the IMF “making an objective evaluation of Pakistan based on professionalism and earnestly helping it properly address the current difficulty”.

Dawn (Pakistan)
Editorial

Related image

For Pakistan, walking a familiar IMF tightrope has been significantly complicated by the increasing competition and hostility between China and the US on the global stage and in this region. The US, which at least until the Trump administration touted its adherence to a so-called rules-based world order, had initially come out in an almost ugly American fashion against CPEC, virtually demanding that Pakistan limit the scope of the project if the IMF is to be allowed to deliver a bailout package to Pakistan.

Take a look: US arrogance

At least publicly, the hostile and threatening US rhetoric has been toned down in recent days and it is, instead, the IMF leadership that has underlined the need for greater Pakistani transparency on its CPEC-related financial commitments.

What is not known is the extent to which China is resisting Pakistan sharing CPEC data with the IMF or, indeed, if there are binding covenants that prevent Pakistan from making public such data.

Worryingly, the PTI federal government may not have the expertise or the clarity necessary for navigating such fraught international political and financial challenges — though arguably no other Pakistani government would be considered well placed to deal with such complex challenges either.

Read: Rearranging CPEC

At a minimum, however, the federal government ought to use the imminent IMF bailout as an opportunity to draw some new lines in this country’s fiscal dealings with the outside world and transparency at home. The US hostility towards and seemingly the IMF’s scepticism of CPEC aside, there is no plausible reason for the PTI to continue with the excessive secrecy that characterised the PML-N’s approach to CPEC.

If binding commitments have been made regarding the secrecy of certain contracts and they can be justified in light of international best practices, the PTI government should publicly say so. If not, why is the PTI seemingly reluctant to place before parliament and other appropriate forums the full scale of Pakistan’s debt and financial exposure to China?

If new best practices are to be instituted and financial transparency promoted, the shackling and blindfolding of the State Bank of Pakistan under the previous PML-N government in particular will need to be reversed.

An autonomous and empowered State Bank that has access to the full range of financial data is not only necessary for a well-managed economy, it could also help protect the public’s interest when IFIs and global powers squabble among themselves and heap pressure on Pakistan.

Whatever Washington’s motives, the IMF’s incentives and China’s fears may be, surely the Pakistani public deserves to know the full picture of the state’s financial liabilities, external and domestic.

Published in Dawn, October 17th, 2018

https://www.dawn.com/news/1439506/imf-and-chinas-support

Related:

Pakistan: Government Defends CPEC, Relationship With China, Debt — IMF talks of “excessive debts which cannot be repaid”

October 12, 2018

Outflows under China-Pakistan Economic Corridor (CPEC) will begin in 2021 and peak over the next three years without creating a debt trap, an official of the Planning Commission with knowledge of the financing arrangements told Dawn on condition of anonymity.

Image result for China, Pakistan, Photos

Separately, the Planning Commission released a lengthy statement trying to address the concerns of the global community about Pakistan’s mounting Chinese debts and whether or not CPEC could turn out to be a “debt trap” for Pakistan.

Most recently, the IMF Managing Director told reporters at a press conference in Bali on Thursday that the fund will demand “absolute transparency” about all debt, without explicitly naming Chinese debt, whether under CPEC or not. A day earlier, the IMF Chief Economist Maurice Obstfeld told reporters that Pakistan should avoid “excessive debts which cannot be repaid” when availing Chinese borrowing for infrastructure development.

Image result for IMF Chief Economist Maurice Obstfeld, photos

IMF Chief Economist Maurice Obstfeld

By contrast, the planning commission official on Thursday said CPEC was rather being expanded and its pace expedited.

He said the debt repayments will start in 2021 with about $300-400 million annually and gradually peak to about $3.5 billion by fiscal year 2024-25 before tapering off with total repayments to be completed in 25 years.

The planning commissioned statement tried to strike a more earnest tone. “CPEC is not imposing any immediate burden with respect to loans repayment and energy sector outflows” it said, arguing all debt related outflows will be outweighed by the resultant benefits of the investments to the Pakistan economy. The statement, however, did not give any figures on the size of the outflows or their timeline.

“The present government, with mutual consultation of Government of China is broadening the base and expediting pace of CPEC, within the broad parameters of the already approved CPEC framework”. A mechanism is being developed to include third party participation in CPEC, it added.

The commission reiterated that CPEC was a “flagship” project and most active project of Belt and Road Initiative where 22 projects worth a total of $28 billion have been actualized over the past four years. “The project could not be compared with Chinese overseas investment in Sri Lanka or Malaysia as frameworks and financial modes of CPEC are altogether different in nature” the statement continued.

CPEC finances are divided in government to government loans, investment and grants. Infrastructure sector is being developed through interest free or government concessional loans. Gwadar Port is grant-based investment which means the Government of Pakistan does not have to pay back the invested amount for the development of the port.

Energy projects are being executed under Independent Power Producers (IPPs) mode and finances are mainly taken by the private companies from China Development Bank and China Exim Bank against their own balance sheets, therefore, any debt would be borne by the Chinese investors instead of any obligation on part of the Pakistani government.

Pakistan has opted for Chinese investment under CPEC due to the favorable financing arrangements, it continued. “China stepped forward to support Pakistan’s development at a time when foreign investment had dried up, and economic activities were being crippled by energy shortages and infrastructure gaps.”

The statement described CPEC as “an engine for economic growth and is expected to increase Pakistan’s GDP growth by 2 to 3pc. CPEC has also facilitated in overcoming crucial energy, transport infrastructure and supply chain bottlenecks.”

Published in Dawn, October 12th, 2018

https://www.dawn.com/news/1438508/govt-fires-back-at-critics-of-cpec-debt

Fearing debt trap, Pakistan rethinks Chinese ‘Silk Road’ projects

September 30, 2018

After lengthy delays, an $8.2 billion revamp of a colonial-era rail line snaking from the Arabian Sea to the foothills of the Hindu Kush has become a test of Pakistan’s ability to rethink signature Chinese “Silk Road” projects due to debt concerns.

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The rail megaproject linking the coastal metropolis of Karachi to the northwestern city of Peshawar is China’s biggest Belt and Road Initiative (BRI) project in Pakistan, but Islamabad has balked at the cost and financing terms.

China’s push to revive Silk Road trade routes is running into problems that risk tarnishing the economic crown jewel of Xi Jinping’s presidency. (File/AFP)

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Resistance has stiffened under the new government of populist Prime Minister Imran Khan, who has voiced alarm about rising debt levels and says the country must wean itself off foreign loans.

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“We are seeing how to develop a model so the government of Pakistan wouldn’t have all the risk,” Khusro Bakhtyar, minister in Pakistan’s planning ministry, told reporters recently.

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The cooling of enthusiasm for China’s investments mirrors the unease of incoming governments in Sri Lanka, Malaysia and Maldives, where new administrations have come to power wary of Chinese deals struck by their predecessors.

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Pakistan’s new government had wanted to review all BRI contracts. Officials say there are concerns the deals were badly negotiated, too expensive or overly favored China.

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But to Islamabad’s frustration, Beijing is only willing to review projects that have not yet begun, three senior government officials have told Reuters.

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China’s Foreign Ministry said, in a statement in response to questions faxed by Reuters, that both sides were committed to pressing forward with BRI projects, “to ensure those projects that are already built operate as normal, and those which are being built proceed smoothly.”

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Pakistani officials say they remain committed to Chinese investment but want to push harder on price and affordability, while re-orientating the China-Pakistan Economic Corridor (CPEC) — for which Beijing has pledged about $60 billion in infrastructure funds — to focus on projects that deliver social development in line with Khan’s election platform.

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China’s Ambassador to Pakistan, Yao Jing, told Reuters that Beijing was open to changes proposed by the new government and “we will definitely follow their agenda” to work out a roadmap for BRI projects based on “mutual consultation.”

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“It constitutes a process of discussion with each other about this kind of model, about this kind of roadmap for the future,” Yao said.

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Beijing would only proceed with projects that Pakistan wanted, he added. “This is Pakistan’s economy, this is their society,” Yao said.

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Islamabad’s efforts to recalibrate CPEC are made trickier by its dependence on Chinese loans to prop up its vulnerable economy.

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Growing fissures in relations with Pakistan’s historic ally the United States have also weakened the country’s negotiating hand, as has a current account crisis likely to lead to a bailout by the International Monetary Fund, which may demand spending cuts.

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“We have reservations, but no other country is investing in Pakistan. What can we do?” one Pakistani minister told Reuters.

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Crumbling railways

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The ML-1 rail line is the spine of country’s dilapidated rail network, which has in recent years been edging toward collapse as passenger numbers plunge, train lines close and the vital freight business nosedives.
Khan’s government has vowed to make the 1,872 km (1,163 mile) line a priority CPEC project, saying it will help the poor travel across the vast South Asian nation.

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But Islamabad is exploring funding options for CPEC projects that depart from the traditional BRI lending model — whereby host nations take on Chinese debt to finance construction of infrastructure — and has invited Saudi Arabia and other countries to invest.

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One option for ML-1, according to Pakistani officials, is the build-operate-transfer (BOT) model, which would see investors or companies finance and build the project and recoup their investment from cashflows generated mainly by the rail freight business, before returning it to Pakistan in a few decades time.

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Yao, the Chinese envoy, said Beijing was open to BOT and would “encourage” its companies to invest.

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Rail mega-projects under China’s BRI umbrella have run into problems elsewhere in Asia. A line linking Thailand and Laos has been beset by delays over financing, while Malaysia’s new Prime Minister Mahathir Mohamad outright canceled the Chinese-funded $20 billion East Coast Rail Link (ECRL).

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Beijing is happy to offer loans, but reticent to invest in the Pakistan venture as such projects are seldom profitable, according to Andrew Small, author of a book on China-Pakistan relations.

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“The problem is that the Chinese don’t think they can make money on this project and are not keen on BOT,” said Small.

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Off-books debt

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During President Xi Jinping’s visit to Pakistan in 2015, the ML-1 line was placed among a list of “early harvest” CPEC projects that would be prioritized, along with power plants urgently needed to end crippling electricity shortages.

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But while many other projects from that list have now been completed the rail scheme has been stuck.

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Pakistani officials say they became wary of how early BRI contracts were awarded to Chinese firms, and are pushing for a public tender for ML-1.

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Partly to help with price discovery, Pakistan asked the Asian Development Bank (ADB) to finance a chunk of the rail project through tendering. The ADB began discussions on a $1.5-2 billion loan, but China insisted the project was “too strategic,” and Islamabad kicked out the ADB under pressure from Beijing in early 2017, according to Pakistani and ADB officials.

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“If it’s such a strategic project then it should be a viable project for them to finance on very concessional terms or invest in?” said one senior Pakistani official familiar with the project, referring to the BOT model.

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China’s foreign ministry said Beijing was engaged in “friendly consultations” with Pakistan on the rail project. Chinese companies participated in BRI projects in an open and transparent way, “pooling benefits and sharing risks,” it said.

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Analysts say Pakistan will struggle to attract non-Chinese investors into the project, which may force it to choose between piling on Chinese debt or walking away from the project.

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In 2017, Pakistan turned down Chinese funding for a $14 billion mega-dam project in the Himalayas due to cost concerns and worries Beijing could end up owning a vital national asset if Pakistan could not repay loans, as occurred with a Sri Lankan port.

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Khan’s government chafes at several Chinese intercity mass transport projects in Punjab, the voter heartland of the previous government, which now need hundreds of millions of dollars in subsidies every year.

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They also fume about the risk of accumulating off-books sovereign debt through power contracts, where annual profits of above 20 percent, in dollar terms, were guaranteed by the previous administration.

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With the ML-1 line, there are also those who harbor doubts closer to home, including the previous government’s finance minister, Miftah Ismail, who said his ministry had always had concerns about its viability.

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“When people say it’s a project of national importance, that usually means it makes no sense financially,” he said. (Reporting by Drazen Jorgic; Additional reporting by Asif Shahzad in Islamabad and Ben Blanchard in Beijing; Editing by Alex Richardson)

Reuters

Backlash against China could jeopardize its ‘free ride’

September 29, 2018

China is the “most protectionist, mercantilist, and predatory major economy in the world.”

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In a recent official visit to China, Malaysian Prime Minister Mahathir Mohamad criticized his host country’s use of major infrastructure projects – and difficult-to-repay loans – to assert its influence over smaller countries. While Mahathir’s warnings in Beijing against “a new version of colonialism” stood out for their boldness, they reflect a broader pushback against China’s mercantilist trade, investment and lending practices.

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Malaysian Prime Minister Mahathir Mohamad

Since 2013, under the umbrella of its Belt and Road Initiative, China has been funding and implementing large infrastructure projects in countries around the world, in order to help align their interests with its own, gain a political foothold in strategic locations, and export its industrial surpluses. By keeping bidding on BRI projects closed and opaque, China often massively inflates their value, leaving countries struggling to repay their debts.

By Brahma Chellaney

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Once countries become ensnared in China’s debt traps, they can end up being forced into even worse deals to compensate their creditor for lack of repayment. Most notably, last December, Sri Lanka was compelled to transfer the Chinese-built strategic port of Hambantota to China on a 99-year, colonial-style lease, because it could longer afford its debt payments.

Sri Lanka’s experience was a wake-up call for other countries with outsize debts to China. Fearing that they, too, could lose strategic assets, they are now attempting to scrap, scale back, or renegotiate their deals. Mahathir, who previously cleared the way for Chinese investment in Malaysia, ended his trip to Beijing by canceling Chinese projects worth almost US$23 billion.

Sri Lanka’s experience was a wake-up call for other countries with outsize debts to China. Fearing that they, too, could lose strategic assets, they are now attempting to scrap, scale back, or renegotiate their deals

Countries as diverse as Bangladesh, Hungary and Tanzania have also canceled or scaled back BRI projects. Myanmar, hoping to secure needed infrastructure without becoming caught up in a Chinese debt trap, has used the threat of cancellation to negotiate a reduction in the cost of its planned Kyaukpyu port from $7.3 billion to $1.3 billion.

Even China’s closest partners are now wary of the BRI. In Pakistan, which has long worked with China to contain India and is the largest recipient of BRI financing, the new military-backed government has sought to review or renegotiate projects in response to a worsening debt crisis. In Cambodia, another leading recipient of Chinese loans, fears of in effect becoming a Chinese colony are on the rise.

The backlash against China can be seen elsewhere, too. The recent annual Pacific Islands Forum meeting was one of the most contentious in its history. Chinese policies in the region, together with the Chinese delegation leader’s behavior at the event itself, drove the president of Nauru – the world’s smallest republic, with just 11,000 inhabitants – to condemn China’s “arrogant” presence in the South Pacific. China cannot, he declared, “dictate things to us.”

When it comes to trade, US President Donald Trump’s escalating trade war with China is grabbing headlines, but Trump is far from alone in criticizing China. With policies ranging from export subsidies and non-tariff barriers to intellectual-property piracy and tilting the domestic market in favor of Chinese companies, China represents, in the words of Harvard University’s Graham Allison, the “most protectionist, mercantilist, and predatory major economy in the world.”

As the largest merchandise exporter in the world, China is many countries’ biggest trading partner. Beijing has leveraged this role by employing trade to punish those that refuse to toe its line, including by imposing import bans on specific products, halting strategic exports (such as rare-earth minerals), cutting off tourism from China, and encouraging domestic consumer boycotts or protests against foreign businesses.

The fact is that China has grown strong and rich by flouting international trade rules. But now its chickens are coming home to roost, with a growing number of countries imposing anti-dumping or punitive duties on Chinese goods. And as countries worry about China bending them to its will by luring them into debt traps, it is no longer smooth sailing for the BRI.

Beyond Trump’s tariffs, the European Union has filed a complaint with the World Trade Organization about China’s practices of forcing technology transfer as a condition of market access. China’s export subsidies and other trade-distorting practices are set to encounter greater international resistance. Under WTO rules, countries may impose tariffs on subsidized goods from overseas that harm domestic industries.

Now, Chinese President Xi Jinping finds himself not only defending the BRI, his signature foreign-policy initiative, but also confronting domestic criticism, however muted, for flaunting China’s global ambitions and thereby inviting a US-led international backlash. Xi has discarded one of former Chinese strongman Deng Xiaoping’s most famous dicta: “Hide your strength, bide your time.” Instead, Xi has chosen to pursue an unabashedly aggressive strategy that has many asking whether China is emerging as a new kind of imperialist power.

International trade has afforded China enormous benefits, enabling the country to become the world’s second-largest economy, while lifting hundreds of millions of people out of poverty. The country cannot afford to lose those benefits to an international backlash against its unfair trade and investment practices.

China’s reliance on large trade surpluses and foreign-exchange reserves to fund the expansion of its global footprint makes it all the more vulnerable to the current pushback. In fact, even if China shifts its strategy and adheres to international rules, its trade surplus and foreign-currency reserves will be affected. In short, whichever path it chooses, China’s free ride could be coming to an end.

http://www.atimes.com/backlash-against-china-could-jeopardize-its-free-ride/