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Belt and Road Initiative isn't the master plan for debt-trap diplomacy. It is simply the most expensive lobbying campaign and fraudulent scheme ever by the CCP. It is fucking CLEVER!
As Shahar Hameiri and I argue in a new report for British think tank Chatham House, they analyze the very complex mechanism behind China’s Belt and Road Initiative (BRI). In actuality, the concept of debt-trap diplomacy comes from the hyper-nationalistic, hyper-protectionist India. Narratives of debt-trap diplomacy, originating in a New Delhi think tank, has been especially influential. Beijing is supposedly deliberately luring poor countries into unsustainable debts to finance infrastructure projects, enabling China to seize these assets when recipients experience debt distress, extending China’s strategic reach. This whole narrative misunderstands China and ignores the interests and agency of recipient countries.
For example, Sri Lanka has been taunted as the worst victim from China's debt-trap diplomacy.
In fact, the proposal to build the port didn’t originate with Chinese geostrategists, but with Sri Lanka’s powerful Rajapaksa family. It was part of a grandiose development strategy—adopted in 2006, long before the BRI was launched—aimed at bolstering electoral support in the family’s home district, and feathering the regime’s own nest. A new airport, conference center, cricket stadium, and airline also featured in this dubious vision. After the projects are completed easily, the Colombo company, the Sri Lankan company that borrowed from China, offsets the debt into the sovereign debts. In truth, it barely hurts Sri Lanka at all as the Chinese debts are merely 6% of their GDP. By 2016, Sri Lanka was in a serious debt crisis—caused not by Chinese lending, which accounts for only 6 percent of Colombo’s external debt—but rather a reckless borrowing on dollar-denominated international markets amid U.S. quantitative easing. Nor did Beijing exploit the crisis to seize the port in exchange for debt relief. At Colombo’s urging, it arranged for another state-owned firm, China Merchant Ports, to “invest” $1.1 billion in exchange for a 99-year lease. But the original loans remained in place. The cash injection went to repay Western creditors and bolster Sri Lanka’s foreign reserves. This is why Sri Lanka’s port minister “thank[ed] China for arranging this investor to save us from the debt trap.” China Merchant Ports is now struggling to make this white elephant turn a profit to recoup its investment. China is also supposed to have seized Hambantota to extend its naval reach, but in reality, it cannot use the port for military purposes. This was expressly forbidden in the lease agreement. Sri Lanka’s navy remains responsible for port security and is shifting its southern command to Hambantota.The loans simply disappeared after the Chinese finished the construction of Sri Lankan major projects, and I suspect that the corrupt families of Sri Lanka got all of them. The CCP also helps those political elites of Sri Lanka through those construction programs that boosted the images of prestige among the voters. China simply paid the families to be rewarded with political help from Sri Lankan elites in the future. First, it is just an expensive bribery campaign for the elites of developing countries to assist China in the international stages. Rallying the support from these countries can tremendously boost China's image in the long run.
Secondly, China uses the BRI to help the underperforming SOEs and provinces that do not experience the amazing economic boom in the Chinese coastal regions. Mostly helping the CCP cadres to gain power and position in the central government.
A forerunner of the BRI, for example, the Great Western Development Campaign, was more of a slogan than a clearly defined policy. Intended to uplift China’s poorer inland regions, associated funding was mostly directed by state-owned enterprises (SOEs) and provincial governments into infrastructure projects that generated massive surplus capacity but enriched companies and advanced local cadres’ careers.As the result, many of these projects also provide jobs for the most desperate men and women of poorly developed regions in China. Sending these Chinese people aboard to offset the threats of peasantry uprisings. Additionally, it boosts the portfolio of the underperforming SOEs to create a false image of China's prosperity among Western investors.
But the real content was supplied by SOEs and provinces, which inserted their own pet projects into the BRI platform. These actors care little about China’s diplomatic objectives (indeed, they often undermine them in practice), but are adept at harnessing their interests to top leaders’ vague ideas and slogans. Accordingly, BRI planning documents are extremely loose, accommodating various interests and projects, rather than directing the party-state’s resources towards specific geopolitical ends. There is no detailed grand strategy. There is not even an official map—and unofficial ones were banned in 2017.Recently, Ye Jianming, who built the CEFC China Energy and was compared to Rockefeller, was charged with bribery in China. His arrest was ordered by Xi Jinping, himself! Additionally, the CCP also arrests Wang Sanyun, former Communist Party Secretary of Gansu province, for accepting bribes from Jianming. It is likely that Jianming is merely a money vessel for Wang Sanyun to help this General Secretary of Gansu to launder the money.
However, we also learn more about the factional wars that have a regional distinction. Simply, it is tied back to the research of Chatham House. The BRI is highly related to the regional development of non-coastal regions of China, and there are a lot of high-value bureaucrats behind this program. Almost all of these people make the BRI going bankrupt due to mismanagement and corruption. Again, the BRI fails to achieve any diplomatic purpose other than lining the pockets of regional bureaucrats and regional Communist-Secretary warlords. Giving Xi Jinping a reason to selectively crack them down in his ongoing wars against Jiang Zemin's faction and other factions inside the CCP.
Ye Jianming was "cleaned" because he was allied with the Jiang Zemin faction, like Guo Wengui.
Last but not least, Kyle Bass also uncovers the true intention of the BRI.
EISEN: No, I'm sure there are even cheaper places than China but it's also a consumer demand story as well.The Belt and Road Initiative is entirely funded by the supernational institutions and global banks who are too dumb to buy into Chinese promises. Now, China, like the CCP, can easily default to collapse most of the world's financial and banking sectors. The debts that the Chinese have incurred are too massive to imagine. As Kyle said, China didn't spend much of their own money on the BRI, rather than the other people's money.
BASS: Yeah but they have to pay dollars for it, right? We have to keep funding them with dollars. Like, they have, they have come at us in so many different ways.
They have infiltrated supernational institutions like the World Bank, the African Development Bank and even the W.H.O. which we've seen in the last few months and everything they do is in an effort to get all of these institutions to pay dollars to Chinese Belt and Road loans. When you look at the Chinese grand strategy and you look at their plans for 2025 and 2050. If you look at Secretary Xi's speech from the last party Congress in 2017, their plan is easy to see. It's just we on Wall Street and we in the United States, we can't wait to chase 1.4 billion consumers and somehow figure out how to sell them things when in the end, I think all they do is enrich few people in the United States and they repress and suppress their own people and don't live by global standards. I just don't understand why we even interface with them given all of the inputs and the facts that we now know today.
The CCP will not lose anything if they default on the debt obligation, because the borrowing mechanism is so opaque that the Chinese government doesn't have a clear involvement at all, rather the private agents (shell companies) of the CCP have been doing all the tricks. China's creditworthiness won't take any hit if the BRI fails because Western analysts can't hardly prove any involvement from the Chinese national government. This is why Goldman Sachs, Deutsche Bank, HSBC, Morgan Stanley, MUFG, and many more banks are now kowtowing to every demand and statement from the CCP. They feared their own collapses if the Chinese ever declare to default. This is possibly one of many reasons for the FED's insane QE to save the world's financial sector from the black practices of Chinese fraudulent borrowings. I believe the QE will continue to extend for a very long time after China is effectively decoupled from the world's financial systems, if Trump is still in charge.