Can China takeover sovereign assets? Has it?
|Debt trap Meme: Trading in fear
Following the failure of similar ideas as “the trickle-down
effect,” “High wages kill Job creation,” and “efficient market” hypotheses, “Debt
trap diplomacy” is the fad.
However, beneath the veneer is the fear of China’s emergence
as an economic powerhouse that challenges the West’s dominance. In just about
40 years, China’s GDP has grown from $245 billion in 1976 to $16 trillion in
2021, second only to the US whose GDP is estimated at $22 trillion in 2021. It has drawn some 800 million people out of
poverty and into the middle class over the same period.
China has leapfrogged entire Western Europe and Japan in
45 years. In the process, disrupting the West’s dominance over the world’s
resources and markets. This is the source of anti-Chinese vitriol.
How did this happen? After the fall of the Berlin Wall, the
West rested on its laurels assuming that everyone will adopt the liberal
economic model championed by Prof. Milton Friedman. They marketed the “Market
efficiency” thesis as the best vehicle for prosperity through the disastrous Structural
Adjustment Programmes, SAPs.
China rejected the model despite pressure from the Bretton
Woods institutions. It adopted its own form of Market socialism with
outstanding results. It beats the West in several measures. China’s
manufacturing sector is now the largest in the world standing at 27 percent of
the GDP. In the US, the manufacturing sector contributes just 10.3 percent of
GDP. In real terms, China’s manufacturing sector contributes US$4.32 trillion to
the GDP compared to $2.27 trillion in the US.
In Engineering, China
is also way ahead of the West, having advanced from manufacturing under license
a few years ago to owning inventions in heavy industry such as trains and
Locomotives. It has just tested its fastest train in the world, the Maglev, an
electric train that cruises at 431 KPH. In the last 12 years, China has built
the largest network of high-speed railways, some 39,700Km, claiming the global
Lion’s share (67%) of the high-speed railway network.
electronic gadgets including Mobile Phones and IT technology dominate the
world. It was the first to deploy 5G broadband. China is also the leading
manufacturer of Semiconductors and APIs.
China’s entry into Africa as the top development partner was
a second jolt to the West, which is still recovering from the financial
meltdown of 2008, and incessant wars in the Middle East. The vitriol is thus
the West’s attempt to at least contain if not stop Chinese expansion. Will it
It does not appear to be working. Africa particularly is
still trooping to China with project proposals to get funding. Hence the threat of re-colonization through
debt-trap diplomacy. “China is deliberately saddling Africa with heavy debts,”
so goes the thesis, “with a view to recolonizing it in the future.”
Is Africa falling prey to Chinese” brutal lending Practices?” In his book, Confessions of an Economic Hitman, John Perkins says that saddling
the developing world with unpayable debts
is the West’s playbook. HEMs forced
the developing world to accept projects with exaggerated outcomes and inflated
costs in order to funnel money out of the World Bank to large corporations in
the US through “tied aid,” says the book.
China on the other hand finances projects initiated by the
borrower. In other words, African governments identify, evaluate, and select the
projects they present for financing. African governments, therefore, have a good
grasp of the need for, the benefits of the project, and the risks. That is why
China now controls 42 percent of EPC projects in Africa.
The Projects proposed
by HEMs never produced the proposed outcomes because they were never meant to.
Therefore, the developing world could not generate sufficient funds to pay off
the loans. Is China doing the same? John Perkins disagrees.
So why is this thesis still coasting around? Appetitive
elites in Africa latch on the narrative for political and financial gain. Corruption
allegations and the perceived Chinese threat sell fast in Africa. Devoid of any marketable political ideology,
Opposition parties latch on to “political scandals” in a bid to gain power.
In Kenya for
instance, before China became a major development partner, the opposition told
us of the huge theft of proceeds of a Sovereign bond issued in 2014. It never
provided any evidence to back its claims. Then they turned on the rising debt.
Now China has become the next red herring with tales spun about China’s threat
to Africa’s independence.
Public Offices have been drawn into misinformation
campaigns. For instance, the story of China taking over the Mombasa Port in
Kenya in case of default was allegedly “leaked by the controller and Auditor
General’s (CAG) office” in the run-up to the 2017 election. The auditor had
earlier succumbed to opposition pressure to travel to the US to investigate how
Kenya’s funds from a Eurobond sale ended up at the Federal Reserve.
Any public Servant, the CAG included, should know how. The
Central Bank of Kenya, CBK, holds accounts with its counterparts in the world,
among them the Federal Reserve in New York.
The Central Bank is also the Custodian of all foreign exchange in
Kenya. Therefore, it buys all forex in
Kenya shillings. In this case, CBK simply bought the proceeds from the
government of Kenya’s agent, JP Morgan. JP Morgan was the lead bank in the
In Uganda recently, newspaper headlines read “Uganda hands
over Entebbe airport to the Chinese over unpaid debt.” Really? That China lent Uganda some US$200 million to
expand and upgrade its international Airport at Entebbe back in 2015 is not in
doubt. The loan came with a seven-year grace period that ends in April 2022.
Along the way, “some bureaucrats” got uncomfortable with some
clauses in the loan agreement and raised the alarm. They sought to renegotiate
those clauses but China’s Exim Bank declined.
However, there is no evidence that the Exim-Bank of China hinted
at taking over the Airport at all. The story was inept. The grace period is
not yet over, so loan servicing is yet to begin. Uganda for its part is not in
default. China simply refused to renegotiate the deal meaning Uganda had to
abide by the terms of the agreement, and when the loan falls due, pay.
This takes us back to the question; Can China take over the
international Airport in Entebbe or any national asset anywhere over an unpaid
debt? Are there any
precedents? Has China taken over any national asset anywhere over unpaid debts?
a critic refer to Hambantota Port in Sri Lanka. The story of a Chinese company
acquiring this Port in a debt swap is false. The government of Sri Lanka sold a
70% stake in the port to the China Merchants Port Holdings Company Limited (CM
Port) in a 99-year lease for $1.12 billion. The port itself cost US$390
million to build.
concession earned Sri Lanka badly needed forex to pay off debts that were
unrelated to the Port, says Umesh Moramudali, a Sri Lankan Economist in an
article in the Diplomat magazine. https://thediplomat.com/2020/01/the-hambantota-port-deal-myths-and-realities/
a country take over the assets of another sovereign state over unpaid debts? Experts
reject this thesis saying China’s chance of effecting such a feat is slim. The
potential political backlash from such an action is scary, say experts.
Further, such action would be a breach of a country’s sovereignty, a
declaration of war. Does China have the nerve and military muscle to enforce
debt collection? Well….