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Chinese Assistance: Unheard Concerns

October 18, 2016

Signing of 27 MoUs and agreements, worth around $20 billion, including $13.6 billion investment deals during Chinese president’s official visit to Bangladesh usher in a new Sino-Bangladesh relationship. Like every new beginning, hope and optimism fly high. Media reported that both the countries liked to call it as “strategic partnership” and China stressed on “political partnership”.

A good number of projects signed revolve around energy, infrastructure and development for Special Economic Zone for Chinese investors. Nitty-gritty of the deals is yet to ascertain. Most of the projects will be financed by Chinese credit with an interest rate tag of 2 % per annum. Chinese financed projects are not new in this part of the world. Sri Lanka has a taste of it and witnessed eye-dazzling infrastructure boom. However, Chinese credit runs the risk of becoming a bane unless a well-designed check-list is followed. In Sri Lanka, newly built airport and seaport have become a major source of concerns because they have not become fully operational due to lack of economic activities around them. A huge SEZ is being built to attract FDI to make the port live up to its utility.

Meanwhile Sri Lankan government is facing severe cash crunch. According to a Forbes report, 95.4% of all govt revenue is being used by the Sri Lankan govt to pay back loans, borrowed at strict commercial rates. As relations became strained over loan repayment, Sri Lanka officially urged Chinese government to ease its debt by converting some of its debt into equity. China ruled out outright such possibility and probing option like selling debt-ridden projects to other Chinese companies. In addition, Chinese funded airport and seaport were marred by corruption and remained a controversial topic in country’s last general election.

In implementing Chinese development projects in Bangladesh, we cannot overrule that we may suffer from similar kind of fallouts. Provided that govt in this part of the world is less transparent in utilizing foreign aid and development projects are often crippled by unnecessary delay and cost overrun, the sheer size of Chinese credit has a greater chance of being defaulted.

In this scenario, the takeover of debt-ridden projects by other Chinese companies are highly likely. If that happens, we will not only lose stake at those projects, we will become subject of the rules set by Chinese companies and Chinese govt. and whenever the companies face troubles the Chinese government will step in on their behalf. This argument holds true for the country, here Bangladesh, that is accommodating Chinese interests. What has been going on in Gulf, like American power projection,we may see a replication of that in this part of the world by the Chinese.

The lifespan of our Bangladeshi companies is really worrying. Most of them originated from crony capitalism  and cannot withstand adverse policies in a changing political atmosphere. Citycell is an apt example. Moreover, there are other external factors that may pose serious risks and radically change the healthy balance sheet of these companies: a major crisis in Middle East or in Eastern Europe, an unusual rise in oil or coal prices, volatile currency market and most importantly any change in government policy.

Everyone takes at face value the argument that these infrastructure projects will pave the path for FDI in manufacturing sector mopping up unused labor forces.

But a different reality prevails in the ground. When we introduced the quick-rental power plants as stop- gap measures for incessant power supply, we were told as soon as Big Power plants would come into operation, these quick-rental plants, run by furnace oil would be wound up. However, quick-rentals are still in operation as big power projects are yet to start their operation.

Oil prices are all time low in the international market so we did not feel the pain of quick-rental power burdens. At the same time, we did not reap the benefit as much as the oil prices drop. Apart from recuperation of losses of Bangladesh Petroleum Corporation, powerful lobby of quick-rental plant owners pegged oil prices high to get government incentives reserved for them. Clearly, what you are told and what you get have a shocking gap.

Another major cause of concern remains in the energy projects. If the coal is imported from the source of the same Chinese company or from its subsidiary company, there is a chance of fidgeting the figures in the balance sheet by parent companies.  And if a Chinese company gets full control of that power plant then the task of doctoring the figures will become very easier. By changing the balance sheet figures it may have the capacity to influence the calculation of profit earned and the corporate tax to pay.Governments in this part of the world long for big corporate investment since they are a major source of tax revenue. What good will it bring to govt and how will govt pay for subsidies and development expenditure if tax evasion techniques are applied?

The growing clout of authoritarian regimes is another issue that worries us in this Sino-centric development model.If you look at the Chinese peripheral model then you will notice that most of the recipient countries in this model have authoritarian regimes and dysfunctional democracies. Moreover, human rights records in these countries are very poor. China stays quiet about human rights abuses in these countries as long as the regimes are favorable to its interests. Have you heard of any opposition from Chinese government regarding blogger killing, disappearance of opposition activists and 2013 general election? Rather we witnessed that Chinese ambassador came down hard on organizers of an international photo exhibition for showing images of self immolating Tibetans and forced organizers to take off those photos.

Army business model may get further stimulus with the arrival of this Chinese assistance. For instance, site development  of one of the coal plant, signed in this visit, is being done by a commercial wing of Navy. Defense spending spree already spurred defense article production at facilities across the country and with the inflated pocket  ambitious quarter in the defense establishment may further finance political (mis)adventure to secure its investment.

The more the economy tilts towards China, the more confident becomes the anti-democratic forces. As long as these forces do not meddle in China’s interests, it may take a backseat in case of any restaging of events like 1/11 that froze democratic processes for 2-long years.

China asserts its own claim in any kind of international dispute. Recently it blatantly refused to accept Hague based International Tribunal’s ruling on maritime dispute between China and the Philippines. Earlier it had turned down Sri Lankan proposition for a debt-equity swap on the ground that “Chinese laws do not allow such swap”.How will Bangladesh force China to respect domestic and international laws if any dispute crops up here in Chinese projects and if it refuses to act by such laws?

To some extent, China made the nature of this relationship clear by applying terms “strategic” and “political”. Extensive investments in the energy and infrastructure projects in developing countries are an effort to reach out those countries before they fall into the clutches of western financial institutions. And then project power in these countries with the excuse of protecting its interests. All the parties in Bangladesh welcome the investment with open arms.  As soon as this “political strategic partnership” blossoms, their enthusiasm will evaporate into air. In that partnership, freedom of expression, second opinion etc are redundant and irksome and there is little room for their accommodation into this kind of “partnership”. My fear is that this kind of partnership may create a favorable ground for authoritarian regimes to whom democratic values and democracy itself have to perform kowtow.


From → Analysis

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