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Two views on ‘debt trap’

"The Philippine government should really carefully study its options when considering loans from China.''

 

The New York Times ran a lengthy article in June last year entitled "How China got Sri Lanka to cough up a port." The port referred to is located in Hambantota, a sparsely populated area in Sri Lanka’s southeastern coast that's said to be still largely overrun by jungle. The Hambantota port was built by China Harbor Engineering Co. one of Beijing's largest state-owned enterprises, for $361 million, of which 85 percent was funded by the Chinese government’s Export-Import Bank, or Exim. It opened on Nov. 18, 2010.

The article reported that Sri Lanka struggled to make payments on the debt it had incurred. Under heavy pressure and after months of negotiations, the Sri Lankan government handed over to the Chinese in December the port and 15,000 acres of land around it for 99 years. The transfer gave China control of territory just a few hundred miles off the shores of a rival, India, and a strategic foothold along a critical commercial and military waterway, according to the report. This, it said, "is one of the most vivid examples of China’s ambitious use of loans and aid to gain influence around the world—and of its willingness to play hardball to collect."

In conclusion, the report said the Hambantota case underscores China's global investment and lending program amounting to "a debt trap for vulnerable countries around the world."

That, however, is just one side of the story.

Obviously in reaction to the NYT report, a spokesman of China's Foreign Ministry, Lu Kang, said later that China and Sri Lanka are committed to pushing forward cooperation on the Hambantota port project and realizing the goal of making Sri Lanka the logistics center of the Indian Ocean.

"This is not only conducive to the economic development of Sri Lanka, but also conducive to regional interconnection and the common prosperity of regional countries," the spokesman said.

"According to the needs of Sri Lanka, Chinese financial institutions have provided support to Sri Lanka in solving the financing gap. Later, the Chinese side made efforts to adjust relevant asset allocation according to the wishes of the Sri Lankan side," said Lu, noting that those arrangements will benefit business cooperation between the two sides.

"If the fabricators of the so-called 'debt trap' can not give the developing countries real help, they can at least take a healthy attitude towards the sincere cooperation between other countries," said Lu.

A news report in the China Daily on Aug. 28 last year acknowledged that while "the port has endured a relatively slow pace of growth and development in recent times", the joint venture agreement signed in July 2017 to begin operations at Hambantota port is nevertheless poised to show steady growth, with automobile transshipments constituting a major component of the facility's growing business.

Under the JV agreement, China Merchants Port Holdings and Sri Lanka's Port Authority agreed to jointly operate the port via Hambantota International Port Group and Hambantota International Port Services.

Automakers from Japan, South Korea and India have begun transshipping increasing numbers of vehicles through Hambantota, being drawn by its convenient location, deepwater berths and availability of storage space.

In the past, automakers in East Asia and India have had to transfer their cargo ships in the Sri Lankan capital, Colombo, to unload for other destinations. However, with space limitations in Colombo, Hambantota wants to offer its facility for auto transshipments.

According to the Hambantota International Port Group, 99 percent of employees are Sri Lankans, and many have been sent to Shenzhen to receive port-related technical training.

With the cooperation between China and Sri Lanka, the port is now gearing up to become a leading port in the Indian Ocean region.

The news report quoted Ravi Jayawickreme, CEO of the port facility, saying the two sides are making efforts to convert the facility into a multipurpose port that could provide a variety of services.

"This area of Hambantota is one of the poorest per capita in the country. So a port like this on the rise is going to be a big boost for the people to raise their living standards," was quoted as saying.

Hambantota is within 20 kilometers of one of the world's busiest shipping lanes where approximately 200 to 300 vessels daily carry two-thirds of global energy products and half of all containerized cargo. Hence, prospects are bright for the port facility to earn revenues and enable Sri Lanka to benefit from the joint venture with China.

The Hambantota case is increasingly being cited by Western media to warn developing nations, including the Philippines, against contracting loans from China. But the Philippine government should really carefully study its options when considering loans from China, and for that matter, all other countries, and go over the terms and conditions with a fine-tooth comb, to see how these would benefit, first and foremost, the national interest and the Filipino people.

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Topics: Ernesto Hilario , debt trap , China , Sri Lanka
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