The Chinese have long been using “debt diplomacy” to build their influence across the globe. And with the worldwide COVID-19 pandemic severely impacting economies everywhere to the greatest extent since the Great Depression, this is a dangerous time for underdeveloped nations to engage in large borrowing deals with the Chinese.
The leaders of the G20 have suspended principal and interest payments, for some of the poorest countries that are in economic stress due to the pandemic and in danger of defaulting on loans, through the end of 2020 at least. China has joined in on this. However, they’d never done so in the past as their predatory lending practices have made them the world’s leading loan shark nation.
They are following the ancient Chinese stratagems that they have been following for centuries. Many have said that a number of these tactics go back to Sun Tzu and the Art of War:
Decorate the tree with false blossoms
(樹上開花／树上开花, Shù shàng kāi huā)
Tying silk blossoms on a dead tree gives the illusion that the tree is healthy. Through the use of artifice and disguise, make something of no value appear valuable; of no threat appear dangerous; of no use appear useful.
Make the host and the guest exchange roles
(反客為主／反客为主, Fǎn kè wéi zhǔ)
Usurp leadership in a situation where you are normally subordinate. Infiltrate your target. Initially, pretend to be a guest to be accepted, but develop from inside and become the owner later.
Loot a burning house
(趁火打劫／趁火打劫, Chèn huǒ dǎ jié)
When a country is beset by internal conflicts, when disease and famine ravage the population, when corruption and crime are rampant, then it will be unable to deal with an outside threat. This is the time to attack. Keep gathering internal information about an enemy. If the enemy is currently in his weakest state ever, attack him without mercy and totally destroy him to prevent future troubles.
Since 2013, China has loaned about $339 billion dollars to many underdeveloped countries many of them in Africa. And many of those loans will soon be in default.
The reason this has worked so well for Beijing is tied right into the final stratagem. Many of the countries in Africa and other Third World regions went for loans to the Chinese. This was because their corrupt and weak national governments were not going to abide by the transparency and the strict guidelines put forth by the International Monetary Fund (IMF) and the World Bank. The Chinese offer huge sums of cash with high-interest rates and no questions. But the catch is, these countries have to put up national infrastructure as collateral.
A state-owned China bank loaned Sri Lanka $1.3 billion to build up the port of Hambantota in 2010. However, the Sri Lankan government struggled to repay the debt, with the port project incurring heavy losses. The Sri Lankan government had also taken out loans for other infrastructure development projects, while their debt to China ballooned to $8 billion.
Unable to repay, the government gave China a 99-year lease to operate the port of Hambantota where Chinese companies now hold 70 percent of the controlling power. Last year in 2019, the new government, led by President Gotabaya Rajapaksa, wanted to undo the previous regime’s deal to lease the port to the Chinese, citing national interest. But that has little chance of success.
In September 2018, Zambia lost Kenneth Kaunda International Airport to China because it defaulted on its debt repayment.
In 2018, the government of Djibouti unilaterally terminated DP World’s contract to operate the Doraleh Container Terminal. At the time, DP World was in the 14th year of a 25-year contract. The government then nationalized the shares of the holding company for the Doraleh Container Terminal, in which DP World had a 33 percent stake. And, immediately upon the cancelation of the DP World agreement, control of the port was offered to China Merchants Port Holdings. A $3.5 billion free trade zone and a “global logistics hub” are envisioned under the present regime.
What makes this so noteworthy is that Djibouti is strategically located at the crossroads of Africa and the Middle East, on a narrow strait that controls access to the Red Sea and the Suez Canal. It is no coincidence that the Chinese chose Djibouti as their first location to create an overseas military base. And, by further building up its facilities, it can be developed to a huge international transport hub that could bypass the ports of the Middle East altogether.
Militarily, Djibouti is part of China’s emerging strategy of establishing a strategic position in both the Indian Ocean and the Horn of Africa that will enable it to project power while checking the longstanding U.S. presence in the country. And if China placed restrictions on the port’s use, it could greatly affect the resupplying the U.S. base in Djibouti and the ability of Navy ships to refuel there.
Djibouti has been experiencing an economic boom recently, in large part financed by Chinese loans. The Chinese have made huge investments in ports, railways, warehouses, and industrial parks. But the warnings of other nations about a Chinese “debt trap,” whereby Djibouti would become unable to serve its loans, have so far fallen on deaf ears.
The IMF recently stated that Djibouti’s public and publicly guaranteed debt has climbed to 104 percent of its GDP. Beijing now holds over 70 percent of Djibouti’s gross domestic product in debt. This is sticking generations of taxpayers with gigantic bills, which if not repaid could prompt China to take over critical infrastructure–much like it did in Sri Lanka.
Farther south, China persuaded the government of Kenya to build a new 300-mile railway between Nairobi and the port city of Mombasa for about $4 billion, rather than repairing an existing line that would have cost about $1 billion. The Kenyan project became one of the most expensive rail projects in Africa.
Since its opening in 2017, the railway lost $100 million in just its first year of operation. The promised economic benefits to Kenya were not working out since Chinese companies had been given all of the construction contracts. This left Kenya with a debt to China of $3.2 billion. Kenyan media reports have stated that China could seize Kenyan infrastructure, including the port of Mombasa, as well as the Inland Container Depot in Nairobi if the loan falls into default. They also reported that the loan agreement requires any disputes to be arbitrated in China.
Since 2019, the railway continues to lose money on each of its passenger and cargo trips, while Kenya’s loan repayments to China are rapidly getting out of control. The government, however, insisted that all is well. “China is not seeking to colonize us, but they understand us and our point of need,” President Uhuru Kenyatta told the media.
The Kenyan railway is operated by a Chinese company, and Chinese workers have taken many of the top jobs as conductors, engineers, and managers. Chinese flags are displayed in every passenger car. The Mombasa station even features a bronze statue of a Chinese hero, the explorer Zheng He, who led a maritime expedition to East Africa back in the 15th century.
“China uses so-called debt diplomacy to expand its influence. The terms of [its] loans are opaque at best, and the benefits invariably flow overwhelmingly to Beijing,” Vice President Pence said in October 2018.
“Just ask Sri Lanka, which took on massive debt to let Chinese state companies build a port of questionable commercial value. It may soon become a forward military base for China’s growing blue-water navy.”
China Merchants has also invested large amounts of cash in the West African ports of Lomé, Togo, and Lagos, Nigeria.
In Tanzania, China has already built a huge $30 million training facility for the Tanzanian People’s Defense Force in February 2018. President Magufuli and the Chinese Ambassador to Tanzania attended the opening of the center, which was built in part by the Chinese military.
But this isn’t happening only in Africa. China is investing in port facilities in Italy and Greece. Chinese banks have invested heavily in the United States as well, purchasing over $500,000,000 worth of American farmland. They also bought Smithfield Foods in 2013, the world’s largest producer of pork products.
The Chinese have also invested heavily in Hollywood and their influence is already being seen. In the new “Top Gun: Maverick,” film, Tom Cruise’s character can be seen wearing his well-know flight jacket, but there were some noticeable changes:
Maverick’s jacket now appears changed to appease China’s feelings. His old jacket, from the earlier film, had a large patch “Far East Cruise 63-4, USS Galveston,” commemorating a real-life U.S. tour of Japan, Taiwan, and the Western Pacific. That patch displayed the U.S., U.N., Japanese, and Taiwanese flags.
In this film, the patch now has the U.S. and U.N. flags, but not the Japanese or Taiwanese flags. Hmm. The Chinese bristle at any mention of Taiwan and Japan and will refuse to broadcast any film that they feel is disrespectful to them. Paramount Pictures buckled under pressure.
So the U.S. and other nations need to take a long hard look at what is going on all around them, including in their own back yard.
Mistrust of the Chinese is growing and their complete fudging of the coronavirus numbers, while playing upon the higher (true) numbers that the U.S. is reporting, is a transparent attempt to portray themselves as the much more competent world leader.
Sun Tzu’s writings are the game plan… but it doesn’t seem like anyone is paying attention.