Transcript §

• 0:01 In January 2008, unbeknownst to the world,
• 0:04 something shady was happening off the southern coast of Sri Lanka.
• 0:09 Construction was beginning on a shiny, new 4,000-acre port in the tiny town of Hambantota.
• 0:16 85% of the $361 million price tag was paid for with Chinese loans.
• 0:24 But this, on its own, was no cause for concern. China’s EXIM
• 0:28 bank funds thousands of projects around the world.
• 0:32 What was strange was the location.
• 0:36 Positioned between the Suez Canal and Strait of Malacca, tens of thousands of ships pass by
• 0:41 each year on their way between Europe and Asia — one of the busiest transcontinental routes.
• 0:48 Yet, Sri Lanka, with a population of 21 million, already had a profitable,
• 0:53 functioning port just 100-miles northwest, in Colombo — the world’s 25th busiest, in fact.
• 1:02 So why, then, build a second so close, in such a small town, and at such great expense?
• 1:10 Sure enough, this skepticism would soon be vindicated.
• 1:14 In 2012, 3,667 ships berthed at the neighboring port of Colombo.
• 1:21 Two years had passed then since the opening of Hambantota, yet it attracted just… 34.
• 1:28 By 2016, the project had lost $230 million according to its own
• 1:34 ministry of finance. And there’s more…
• 1:38 In addition to the sea port, an equally pristine and equally empty airport was built nearby.
• 1:46 The last remaining airline pulled out in 2018 due to insufficient demand.
• 1:51 Its long runway and modern terminal may now be used for… long-term parking.
• 1:58 So, if not profit, what motivated these extravagant investments?
• 2:03 It all begins to crystallize when you just zoom out.
• 2:08 Sri Lanka is geographically blessed not only with proximity to global shipping lanes,
• 2:13 it’s also just 34-miles, at its closest point, to India — one of China’s closest rivals.
• 2:20 Coincidence? Maybe. But then, in 2017, came what many see as the smoking gun.
• 2:28 Unable to pay back its many multi-million dollar loans,
• 2:31 Sri Lanka was forced to hand over the port and 15,000-acres around it, to China.
• 2:38 It didn’t take a wild imagination to see how the country then already notorious for making illegal
• 2:44 claims in the South China Sea might use this strategic outpost for more than mere shipping.
• 2:52 Since then, close observers have watched the same early warning signs play out around the globe.
• 2:58 Tajikistan. Djibouti. Ethiopia. Kyrgyzstan. Angola. Nigeria. What could once be dismissed
• 3:04 as circumstantial, many now argue has become a neocolonial playbook.
• 3:10 It’s called [ ].
• 3:17 Here’s what happens:
• 3:19 First, China approaches a small, impoverished nation — usually in Africa — with an offer it
• 3:24 can’t refuse. Stadiums, palaces, roads, ports — it doesn’t really matter what “it” is. Between
• 3:33 2000 and 2019, Chinese banks have loaned an estimated $153 billion to African governments
• 3:40 alone. Looking at a map, it’s hard to find a place on the continent that hasn’t taken Chinese loans.
• 3:47 Inevitably, the project fails. Trains sit empty, airports open without flights,
• 3:53 roads lead to nowhere, and an oil refinery runs at just 6% capacity.
• 3:58 In fact, it almost seems like China wants them to fail.
• 4:03 Finally, the coup de grâce. After the fanfare has subsided and the recipient country is left
• 4:09 right back where it started plus crumbling roads and mountains of debt, in swoops China.
• 4:14 It generously offers to forgive the loans. And all it asks for is one thing in return: a tiny,
• 4:22 insignificant piece of its sovereign territory. And voilà — China has a new military base.
• 4:31 Or, rather, that’s how the story goes.
• 4:34 The “debt-trap” narrative is so often repeated that it’s been labeled a “meme”.
• 4:39 Yet almost everything said thus far is either downright wrong or at least misleading.
• 4:45 In the case of Sri Lanka, no debt was ever forgiven, no sovereignty was ceded to China,
• 4:51 there is no military base, and China didn’t approach Sri Lanka — Sri Lanka approached China.
• 4:58 There’s another way to make sense of China’s actions.
• 5:01 And it neither requires that you assume it’s evil, nor benevolent.
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• 5:15 When poor countries need money, wealthy ones, through organizations
• 5:18 like the Development Assistance Committee have, for the last 80 years, provided it.
• 5:24 But what these largely-Western countries and banks will pay for has changed dramatically over time.
• 5:31 At one point, 70% of World Bank financing went toward economic
• 5:36 infrastructure — physical things like roads, water, and electricity. Today,
• 5:41 just 30%, in favor of things like education, democratic elections, and family planning.
• 5:48 But while the West has largely moved on from infrastructure, the developing world hasn’t.
• 5:55 Africa, for instance, receives only about half of the $130-170 billion in infrastructure
• 6:02 it needs each year, leaving it with a massive $68-108 billion gap.
• 6:09 Now, hold that thought for a second.
• 6:12 Sometime around 2010, the world’s most populous country had a problem. After two decades of
• 6:19 breakneck growth and development, it began, to put it simply, running out of things to build.
• 6:25 China was still developing like crazy, but with diminishing returns.
• 6:30 By 2012, the profit rate of new domestic infrastructure projects fell below zero.
• 6:36 Meanwhile, the entire economy, and with it, the party’s legitimacy,
• 6:40 depends on these construction jobs, excess foreign exchange, and the manufacturing industry.
• 6:47 In short: to feed the bottomless appetite of Capitalism, China needed to find new consumers.
• 6:54 Supply, meet demand. In Africa, it found the perfect match.
• 7:00 If one views development as a predictable, repeatable series of stages,
• 7:05 China was, only recently, one stage ahead of Africa — meaning it had
• 7:09 lots of experience building exactly the sorts of things it now needed.
• 7:14 Whether true or not, China believed its port cities and economic zones
• 7:18 were models that could be exported across the globe.
• 7:22 It was the perfect collision of excess supply
• 7:26 and unmet demand. In just a few short years, Chinese overseas investment exploded.
• 7:34 For recipient nations, this wasn’t just a lot of money at the right time, but also the right kind.
• 7:41 When giant, multilateral institutions like the World Bank lend you money,
• 7:45 you better be prepared to show exactly how,
• 7:48 when, who, and where it went. And, in addition to all the paperwork you’ll have to fill out
• 7:53 and kickbacks you’ll miss out on, you might even be required to implement policy reforms.
• 7:59 Aid, in other words, is both “free” and extremely costly.
• 8:04 That is, until China came along. The icing on the cake of Chinese money is that its
• 8:10 companies don’t ask ‘Why do you need this project?’, only ‘When can we get started?’
• 8:15 The result is that these investments are designed to be as scrupulous
• 8:19 and economically viable as are the recipient governments.
• 8:23 When local politicians are careful and institutions strong, Chinese investment is
• 8:28 uniquely valuable because it takes on countries and projects someone more cautious might avoid.
• 8:34 The Chinese shipping conglomerate Cosco, for instance, turned Greece’s Piraeus Port into
• 8:40 the Mediterranean’s second-largest, despite being one of only two bidders to take control in 2016.
• 8:46 Low-interest Chinese loans helped Angola boost its credit rating, giving it access to new lenders.
• 8:53 When it goes poorly, on the other hand, it can go really poorly.
• 8:58 The state-owned China Communications Construction Company was debarred by the World Bank for bribery
• 9:03 and Chinese officials were involved in Malaysia’s Development Berhad Scandal.
• 9:08 In the case of Sri Lanka’s Hambantota port, the story is a bit more complex.
• 9:15 First, you may ask: Was the project destined to fail?
• 9:19 The answer is… inconclusive.
• 9:22 What we do know is that its government
• 9:24 had been considering the project for decades before it approached China.
• 9:29 And while the port of Colombo is indeed nearby,
• 9:32 it was then approaching capacity, and many of the world’s ports are close to one another.
• 9:37 A second and separate question is: Was corruption involved?
• 9:42 Here the answer is a resounding… ‘yes’.
• 9:46 Hambantota is not just any rural coastal town, but the hometown of the president who
• 9:51 signed off on the project. Despite a large rock blocking the harbor, making it entirely unusable,
• 9:58 it “opened” on his birthday in 2010 — a sign of his personal association and involvement.
• 10:04 $7.6 million of project funds were secretly diverted to his failed re-election campaign.
• 10:12 If there is a “pattern” to China’s overseas investments,
• 10:15 it might be frequent — though not universal — corruption.
• 10:19 Bribes and kickbacks are widespread across much of the developing world,
• 10:24 and Chinese companies seem generally willing to pay them.
• 10:28 A significant number of these projects benefit no one
• 10:31 except local politicians and Chinese developers.
• 10:35 But corruption is not the same as a deliberate debt-trap. If China wanted its borrowers to
• 10:42 default on their loans, one might expect it to specifically target countries likely to do so.
• 10:48 Yet, independent researcher after researcher has failed to find any such evidence.
• 10:54 Quote, “It is unlikely that [the] Belt and Road Initiative will be plagued with
• 10:57 wide-scale debt sustainability problems”, says the Center for Global Development.
• 11:03 The Lowy Institute finds that, quote, “90% of China’s bilateral loans have
• 11:07 gone to countries that… could sustainably absorb such debt”.
• 11:11 And finally, Deborah Brautigam of Johns Hopkins writes, quote, “so far, in Africa, we have not
• 11:16 seen any examples where we would say the Chinese deliberately entangled another country in debt…”
• 11:22 Experts attribute China’s slightly higher lending to high-risk countries as compared to,
• 11:27 say, Japan or the World Bank, to its sheer scale.
• 11:31 Remember, we’re talking about over ten thousand projects across over 100 countries. With this
• 11:37 much money being spread across this wide a surface area, there will be a few white elephants. Add in
• 11:44 its “no-strings-attached”, “look-the-other-way” approach, and that number doubles.
• 11:49 Now, China may not set out with this intention,
• 11:52 but you might argue that once it sees an opportunity, it takes advantage.
• 11:57 Two countries are usually cited as examples.
• 12:01 First, if all one knows about Sri Lanka is that it took out a $300 million loan in 2008 from China,
• 12:08 who then took over that same port in 2017,
• 12:11 it may appear to be a clear-cut case of “debt-trap diplomacy”.
• 12:15 But what this version of events misses is context. At the time the deal was struck,
• 12:21 China was not even Sri Lanka’s largest source of debt — actually it owed more to the Asian
• 12:26 Development Bank, Japan, and the World Bank. The Chinese portion represented just 10% of the total.
• 12:34 So why did Sri Lanka make the deal?
• 12:37 In 2004, it suffered a devastating tsunami, which contributed to a decline in exports.
• 12:44 This, in turn, led to a “balance of trade” problem. In short: because it was importing more
• 12:50 than it was exporting, it ran out of US Dollars, which it needed to make payments on its loans.
• 12:56 In other words, Sri Lanka needed hard cash today, which China provided.
• 13:03 It was almost certainly unwise to take out even more loans to build the Hambantota
• 13:07 port — at least, at that time — but it would have had this problem regardless,
• 13:13 because the vast majority of its debt was owed to other nations and institutions.
• 13:18 The exact details of the deal are also frequently misconstrued. What actually
• 13:24 happened is that the Chinese company paid $1.1 billion for a 70% stake of a 99-year lease.
• 13:32 No debt was forgiven in the process — the money was used
• 13:35 to pay off other loans from other countries.
• 13:38 Neither will it gain a new military base — at least, not,
• 13:42 as the lease stipulates, without Sri Lanka’s explicit permission.
• 13:48 Next is Djibouti.
• 13:50 Here, in 2015, China built its first and currently only overseas military base.
• 13:56 But so has Germany. And Spain. And France. The U.K.. Saudi Arabia. And the U.S..
• 14:02 Its colonial history is long and complicated.
• 14:05 But the ultra-condensed version is that, in place of natural resources,
• 14:10 Djibouti has access. Access to this 18-mile wide chokepoint between the Red Sea and Indian Ocean.
• 14:18 Its leaders have squeezed this fact for all its worth by renting land
• 14:22 to almost any military willing to pay. Even Russia is invited.
• 14:29 Africa is not a country. Every nation that borrows from China is different.
• 14:35 The “debt-trap” narrative is right to identify an inherent power differential
• 14:39 between giant China and the (mostly) much smaller countries it lends to.
• 14:44 But, by portraying China as the only party with agency, it neglects the unique circumstances
• 14:50 of each nation and absolves corrupt local politicians of all culpability.
• 14:56 Take a look, for instance, at the amount of debt China has refinanced, renegotiated,
• 15:01 or outright forgiven — less than France or Japan, but not far behind the U.S. or Germany.
• 15:08 This data suggests recipients have some degree of leverage.
• 15:13 Of course, none of this should be confused with charity.
• 15:16 When Chairman Xi Jinping visits Senegal, one of the continent’s poorest nations, for example,
• 15:22 China gains something valuable though intangible.
• 15:26 While it may not be a primary motivation, it receives, in return, diplomatic recognition,
• 15:32 support, and, when it comes to, say, the South China Sea or Xinjiang, silence.
• 15:39 So, is Chinese investment:
• 15:41 (A) An ambitious, 21st-century Marshall Plan on steroids,
• 15:46 Or
• 15:47 (B) One, giant, trojan horse designed to bankrupt poor countries and put
• 15:51 the People’s Liberation Army in every corner of the globe?
• 15:55 Well, neither; it’s not much of a ‘plan’ at all.
• 16:01 You may have noticed this video makes no reference to its official name:
• 16:05 “The Belt and Road Initiative”.
• 16:07 That’s because… it doesn’t really exist.
• 16:11 Originally called the “Silk Road Economic Belt with Central Asian Countries” in 2013,
• 16:17 the “project” has become increasingly vague and amorphous since.
• 16:22 To this day, there is no clear definition of what is and isn’t a Belt and Road project. In fact,
• 16:28 different levels of its own government disagree.
• 16:32 Look at a map of all “participating countries” and it becomes so large as to lose all meaning.
• 16:38 There is no grand, cohesive, 50-year strategy. And that’s the problem.
• 16:46 The same inefficient construction and opaque back-room deals that characterize
• 16:50 the Chinese domestic economy are now being replicated abroad.
• 16:55 That should raise eyebrows.
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My Thoughts/Notes: