China is accused of exploiting developing countries under the mask of OBOR. Is it true or a kind of propaganda? Why China is lending money on such a high-interest rate, it knows very well that these poor countries would not be able to payback.
Binita SarkarLevel 1
Is China’s One Belt, One Road (OBOR) initiative really aiming to help developing countries?
The OBOR initiative will indeed connect dozens of countries across the world through an extensive network of sea and land routes. China promised to spend $1 trillion on OBOR projects.
Now one thing is for sure that these projects will promote global trade and develop infrastructure in countries which do not have funding to finance such infrastructure projects.
However, it is crucial to understand that China finances OBOR projects in the form of lending money to host countries. Furthermore, the loans are offered at high-interest rates which may be difficult for the countries to pay back.
Consequently, China would be in a position to acquire equity leading to ownership of the project. This allows China to have a permanent footprint in other countries, which otherwise could not be possible for China to achieve such a goal.
Most OBOR projects are also using raw materials imported from China. Furthermore, the Chinese labours are also deployed on OBOR projects in these small countries. Ironically, the terms and conditions of most projects are hidden from the public as these deals usually are signed with crooked bureaucracies and corrupt governments.
These projects are good in the short term, but it may have serious repercussions in the future. Unfortunately, interest rates from the World Bank and Asian Development Bank are quite low, around 0.25% to 3%, but difficult to get access as the lendings linked to various conditions. On the other hand, getting loans from China is easy, but come with a high-interest rate.
In Sri Lanka, Hambantota Port is one of the prime examples under the OBOR projects. Sri Lanka borrowed $301 million from China Hambantota Port at 6.3% interest rate. However, due to weak economic growth and loss-making port, Sri Lanka is struggling to pay its debt. The resolve the issue, the Sri Lankan government agreed to convert Chinese debt to equity. This will lead to Chinese ownership of Hambantota Port. China also acquired a 99-year lease for operating the Port.