China wins Belt and Road fans but criticism persists

China has invested $90 billion in projects since the Belt and Road in 2013 was launched, while banks have provided between $200 billion and $300 billion in loans. (AFP)
Updated 23 April 2019
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China wins Belt and Road fans but criticism persists

  • The initiative envisages massive investments in maritime, road and rail projects across 65 countries
  • China added a key nation to its roster when Italy became the first G7 member to sign on to the project

BEIJING: President Xi Jinping will lead a hard sales push at a Beijing summit this week, to corral more countries into a global infrastructure project at the core of China’s superpower ambitions and win over those who see a strategic threat.
The Belt and Road Initiative (BRI) envisages massive investments in maritime, road and rail projects across 65 countries from Asia to Europe and Africa that collectively account for 30 percent of global GDP.
If fully realized, it could shape the world economic and geopolitical landscape for decades to come.
But its scope and ambition have divided Europe, while US officials have called it a “vanity project,” and detractors have warned that it is laden with debt risks and opaque deals favoring Chinese firms and labor.
Despite the criticism, momentum appears to be on Xi’s side, with leaders from 37 countries flocking to Beijing for the three-day summit beginning Thursday.
It’s the second such event, with an inaugural 2017 summit bringing 29 leaders together.
China added a key nation to its Belt and Road roster when Italy became the first G7 member to sign on to the project last month.
Prime Minister Giuseppe Conte will participate in the summit and Switzerland appears set to sign on with President Ueli Maurer flying to Beijing.
Russian President Vladimir Putin and other leaders from Europe, Asia and Africa will also attend, but major EU nations are sending ministers and the United States said it would not have a high-level delegation.
Since Xi launched Belt and Road in 2013, China has invested $90 billion in projects while banks have provided between $200 billion and $300 billion in loans, according to Xiao Weiming, a Chinese government official overseeing Belt and Road.
Examples of debt trouble abound.
Sri Lanka turned over a deep-sea port to China for 99-years after it was unable to repay loans. Pakistan needs an international bailout. And Montenegro has had to make difficult choices after taking on crushing Chinese debt to pay a Chinese company to build a new highway.
It has also become an election issue in some countries.
Chinese officials say the projects foster development in poor countries and Xiao dismissed “debt trap” warnings as repeating “the same old tune.”
Foreign Minister Wang Yi denied last week that the project was a “geopolitical tool,” though he admitted that “jointly building the Belt and Road is a developing process, it won’t happen overnight, and there will inevitably be some troubles.”
Italy rolled out a red carpet for Xi Jinping in Rome last month and signed a memorandum of understanding on the Belt and Road, with Beijing planning to invest in Italian ports.
The NATO member country’s ascension drew consternation in Brussels and Washington, and even within the leadership of Rome’s ruling coalition — Deputy Prime Minister Matteo Salvini said Italy would be “no-one’s colony.”
For China, the initiative is both a practical solution to economic issues at home and a way to expand its global influence — a key concern for Xi, who frequently trumpets the goal of a “great rejuvenation of the Chinese nation.”
It “alleviates a lot of the built up excess industrial capacity that results from the Chinese economic model,” said James Bowen of the Perth US-Asia Center.
“Chinese workers need jobs and China has materials that need to be exported and built out in other countries rather than in China.”
The World Bank estimates that Belt and Road funded infrastructure could marginally boost trade and officials there say it is offering funding in areas where it is sorely needed.
But the money comes as loans instead of aid, requiring countries to pay China back for the massive projects its companies and people build.
Pushing back has proved a successful election issue in Asia, including in Sri Lanka, the Maldives and Malaysia, as the trademark infrastructure push is used to whip up fears about eroding sovereignty.
In the Maldives, Ibrahim Mohamed Solih claimed victory last year on the back of an anti-corruption campaign targeting the opaque deals with Beijing and “China’s colonialism.”
Opposition candidates in Sri Lanka and Malaysia similarly wielded the debt laden deals to victory.
The new Malaysian prime minister canceled some and renegotiated a rail project cutting 30 percent off the price tag.


Pakistani central bank lifts interest rate as inflation bites

Updated 20 May 2019
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Pakistani central bank lifts interest rate as inflation bites

ISLAMABAD: Pakistan’s central bank raised its key interest rate to 12.25% on Monday, warning that already soaring inflation risked further rises on the back of higher oil prices and reforms required for a bailout from the International Monetary Fund.
The 150 basis points increase follows a preliminary agreement last week with the IMF for a $6 billion loan that is expected to come with tough conditions, including raising more tax revenues and putting up gas and power prices. It was the eighth time the central bank has increased its main policy rate since the start of last year.
With economic growth set to slow to 2.9% this year from 5.2% last year, according to IMF forecasts, the rate rise adds to pressure on Prime Minister Imran Khan, who came to power last year facing a balance of payments crisis that has now forced his government to turn to the IMF.
Higher prices for basic essentials including food and energy has already stirred public anger but the central bank suggested there was little prospect of any immediate improvement.
Noting average headline inflation rose to 7% in the July-April period from 3.8 percent a year earlier, the central bank said recent rises in domestic oil prices and the cost of food suggested that “inflationary pressures are likely to continue for some time.”

 

It said it expected headline inflation to average between 6.5% and 7.5% for the financial year to the end of June and was expected to be “considerably higher” in the coming year. Expected tax measures in next month’s budget as well as higher gas and power prices and volatility in international oil prices could push inflation up further, it said.
It said the fiscal deficit, which the IMF expects to reach 7.2% of gross domestic product (GDP) this year, was likely to have been “considerably higher” during the July-March period than in the same period a year earlier due to shortfalls in revenue collection, higher interest payments and security costs.
Despite some improvements, financing the current account deficit remained “challenging” and foreign exchange reserves of $8.8 billion were below standard adequacy levels at less than the equivalent of three months of imports.
The central bank said it was watching foreign exchange markets closely and was prepared to take action to curb “unwarranted” volatility, after the sharp fall in the rupee over recent days that saw the currency touch a record low of 150 against the US dollar.
Details of what Pakistan will be required to do under the IMF agreement, which must still be approved by the Fund’s board, have not been announced but already opposition parties are planning protests.
As well as higher energy prices that will hit households hard, there are also expectations of new taxes and spending cuts in next month’s budget to reach a primary budget deficit — excluding interest payments — of 0.6% of GDP.
With the IMF forecasting a primary deficit of 2.2% for the coming financial year, that implies squeezing roughly $5 billion in extra revenues from Pakistan’s $315 billion economy, which has long suffered from problems raising tax revenue.

FACTOID

Pakistan’s economic growth is set to slow to 2.9% this year.