‘Debt trap created not because of money from China’

BY SCMP AND SILVI WRITER

Countries that fell into debt trap on major infrastructure projects financed by China didn’t have “good assessment” on financial terms and repayment requirements, said a railway expert, also a transport adviser to the World Bank.

Andrea Giuricin, a visiting professor to the China Academy Railway Sciences, said China’s state-run construction companies are still lacking in project management expertise, despite of having mastered some of the world’s most impressive engineering and building technology.

China “lacks a good track record in management,” he said in a latest interview with the South China Morning Post. “Most of the high-speed railways in China are losing money, and the data is not transparent. For some places, you simply don’t need to build the fastest railway.”

“The debt trap is created not because of the money from China, [but] mainly because some countries did not do a good assessment” on the financial terms and repayment requirements, Giuricin said.

Giuricin’s comment came as China’s railway line to Laos is almost half complete, putting it on schedule to begin service in December 2021, the Hong Kong based newspaper quoted the chief of Lao Railways as saying.

Trains on the line can travel at up to 160 km/h (100mph) said Lao Railways’ director general Somsana Ratsaphong. Tickets will start from US$20 a trip.

The US$7 billion project is a showcase of Chinese President Xi Jinping’s “Belt and Road Initiative” for rebuilding infrastructure along the ancient Silk Road from China to Africa and Europe, which has garnered an estimated US$460 billion in investments since its inception in 2013. The Kunming-Vientiane link would eventually connect with a railway line to Bangkok, and southward along the Malay peninsula through to Singapore.

The Chinese government will bankroll 70 percent of the cost of the railway, while Laos – where subsistence agriculture makes up half of the economic output – pays for the remaining 30 percent with loans from Chinese financial institutions. China was the biggest foreign investor in Laos as of 2016, having invested US$5.4 billion since 1989.

Part of the loan’s tenure will be interest-free, with a 2 percent annual rate charged over 30 years, according to Ratsaphong. The financing terms have raised concerns among developing nations of being pushed into a debt trap, as debtors may find themselves saddled with large borrowings that would take a long time to repay.

“For an economy like ours, with a population of only 6.8 million people, it is good for us to make use of the manpower and finance from China,” said Ratsaphong, during the Asia-Pacific Rail conference in Hong Kong.

Infographic
Source: the Nation

Malaysian Prime Minister Mahathir Mohamad has been the most vocal critic, instructing his government to scrap a US$20 billion rail link on the country’s east coast after balking at its construction cost and the terms of its loans from Chinese banks.

Sri Lanka handed over management of the Hambantota Port to China in a 99-year lease in 2017, after failing to repay loans on the US$1.5 billion project.

But Ratsaphong doesn’t seem to worry about the danger of his country might fall into a “debt trap”, as the new rail link promises closer connectivity, which will spur greater economic development in his nation, one of the poorest among the 10 economies among the Association of Southeast Asian Nations, or ASEAN.

“The railway will bring new developments including industrial parks, hotels and tourism business that generates income “way bigger than ticketing”, said Ratsaphong, noting journey costs would be cut by 40 percent, compared to using roads on the same route.

 

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