As the COVID-19 pandemic enters its second year, developing countries around the world are struggling with stalled-out growth and loan repayments that are now outside their ability to pay, even while further financing is needed to rebuild their economies.
Caught between a rock and a hard place, emerging markets are increasingly leaning on Beijing. The only G20 country to post positive economic output in 2020, China is streamlining its Belt and Road Initiative (BRI) for the post-COVID-19 age and swooping in to seemingly extricate countries from their dire financial straits.
After relations soured between one-time allies Pakistan and Saudi Arabia, causing Riyadh to call in a $3 billion loan, cash-strapped Islamabad was only able to make a $1 billion payment in December thanks to a Chinese bailout— leading a Pakistani foreign ministry official to gush to Reuters that “China has come to our rescue”.
Shortly afterwards, Chinese foreign minister Wang Yi embarked on a goodwill tour of Africa, notably writing off $28 million in matured loans for the Democratic Republic of Congo. The debt forgiveness, plus another $17 million in pledged financial support, offered Kinshasa a welcome gift as it became the 45th nation to sign up to the BRI in early January.
Given the outcry in Sri Lanka over the loss of the port, a vital gateway to Indian Ocean trade routes, many observers might have expected Colombo to wean itself off of Chinese funding. Instead, its reliance on Beijing seems to have grown, to the exclusion of other investors and global partners.
Where once Sri Lanka mostly relied on China to fund costly infrastructure projects like the Hambantota port, it is increasingly seeking syndicated loans from China as an alternative to issuing sovereign bonds or getting help from international institutions.
Desperate for cash to service $15 billion owed to foreign creditors amidst the pandemic, Sri Lanka has repeatedly rejected IMF assistance and turned instead to the China Development Bank, while reports have surfaced in recent weeks that Colombo intends to pull out of two Japan-funded infrastructure projects in order to hand them over to the Chinese on less favorable loan terms.
The consequences of this continued rapprochement with Beijing are already becoming clear: the US recently withdrew a $480 million infrastructure grant over Sri Lanka’s failure to assert its sovereignty over Chinese influence. Beijing has already stepped in to fill the funding gap, with plans to build everything from costly port cities to tire factories in Sri Lanka.
Facing a record economic slump and questions over whether it can honor its debt commitments, Colombo will undoubtedly accept China’s help, like Djibouti, Pakistan and the DRC have.
Beijing labels itself an emerging market’s “most reliable” partner—are countries willing to have it become their only major partner?