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Three Examples of China Using Its One Belt, One Road Network Initiative To Project An Increase In Military Power Are In Sri Lanka, Pakistan And Djibouti

ArmchairTechInvestor, May 20, 2018, by Brad Peery

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*One can profess that China’s One Belt, One Road (OBOR) trade network, covering over 60 countries, is for humanitarian purposes and will assist the countries on the network in improving their economic opportunities. The network connects with about 65 percent of the world’s population and over 30% of its GDP. China’s role is to finance infrastructure development in the countries. China goes into the countries and provides high interest loans that many of the countries can’t afford. If they default, China can then take over the facilities, and establish a permanent presence within those countries. This can also have the effect of the country not being able to arrange outside financing, making them even more reliant on China.

With regard to loans having been made by China, If repayments are not made, the country begins a long-term period where their foreign policy choices will be constrained. Sri Lanka is an example of what can occur. A new government in Sri Lanka had a desire to develop closer relations with India and the U.S. They were constrained by a previous debt for equity swap with China that resulted in China getting a 99-year lease on a very strategically important port at Hambantota, Sri Lanka. The loan that was made was not a financially sound investment and resulted in Sri Lanka defaulting on the loan, with tragic consequences to the country.
* China’s Belt and Road Initiative is Being Blamed for Sri Lanka’s Hambantota Port Problems. But the Real Story is Rather Different.
Silk Road Briefing, April 23, 2018

**Large government-backed loans to foreign countries come with social and political strings attached. The Washington Post reports that China’s ZTE Corporation “sold technology and provided training to monitor mobile phones and Internet activity.” Today, Chinese tech giant Huawei is partnering with the government of Kenya to construct “safe cities” that leverage thousands of surveillance cameras feeding data into a public security cloud “to keep an eye on what is going on generally” according to the company’s promotional materials. Not all elements of China’s domestic surveillance regime are exportable, but as the “New Digital Silk Road” takes shape, the public and online spaces of countries along it will become less free.
**China’s vast foreign investment program comes at a sharp cost to human rights and good governance, Foreign Policy, By Richard Fontaine and Daniel Kliman, May 16, 2018

***According to the Washington Post’s, By Bill Gertz, “China is constructing its second overseas military base in Pakistan as part of a push for greater power projection capabilities along strategic sea routes. The facility will be built at Jiwani, a port close to the Iranian border on the Gulf of Oman, according to two people familiar with deal.”

Djibouti is a different situation. China already has a base there and has plans to expand that base into a regional military supply port.

Some Pentagon officials regard the Djibouti base, and the future second base at Jiwani, as part of efforts to control oil shipping in and out of the Persian Gulf and the Red Sea. Both Chinese bases are located near strategic chokepoints-Djibouti near the Bab el Mandeb on the Red Sea and Jiwani close to the Strait of Hormuz on the Persian Gulf.

“Djibouti’s government will embrace greater Chinese involvement in the nation’s ports and sees no reasons for U.S. concern that its strategic interests may be threatened”, Finance Minister Ilyas Dawaleh said.

Djibouti is located on a global shipping crossroads that links the Red Sea and Suez Canal, Djibouti has become increasingly important to regional and world powers. Djibouti is almost the size of the state of Massachusetts. The largest U.S. military base in Africa is situated there and China’s first such overseas facility, which was inaugurated in August 2017, is also in the Doraleh area.

The Horn of Africa country is embroiled in a dispute with DP World Ltd. over the running of the Doraleh Container Terminal and has struck a deal to boost cargo trade with a company working with Chinese state-owned enterprises. It would be “ridiculous” to imagine that China could restrict or deny U.S. access to Doraleh as a result of the deal, Dawaleh said in a phone interview.

“Djibouti’s development needs all its friends and strategic partners,” he said. “At the same time, no one can dictate to us who we should deal with.”

U.S. Africa Command General Thomas Waldhauser warned that a Chinese takeover of Doraleh could have “significant” consequences if there were restrictions on the U.S.’s ability to use the facility.
***Beijing is using commercial bridgeheads to give its warships staying power in the Indian Ocean. Foreign Affairs, By Keith Johnson and Dan De Luce, April 17, 2018

ArmchairTechInvestor Opinion
China may be providing benefits to some of the countries on their OBOR network. Others are likely to be unable to meet their debt payments to China, and China will extract a substantial price for such defaults. Many of these defaults will result in China essentially owing the assets in the partner country.

Estimates put China’s total Belt and Road-related construction and investment at more than $340 billion from 2014 to 2017. The total project cost is estimated to be from $4 trillion to $8 trillion dollars, so it appears that as much as 8% of the total cost of the project has already been made by China. The size of the project represents an enormous financial commitment, even for China.

China’s plans call for the Jiwani base in Pakistan to be a joint naval and air facility for Chinese forces, located a short distance up the coast from the Chinese-built commercial port facility at Gwadar. Both Gwadar and Jiwani are part of Pakistan’s western Baluchistan province. There is social unrest in that province, and China has a commitment from Pakistan to provide a 15,000 person military guard to protect the Gwadar Port area. It is reported that most of the people living in the area are Chinese.

China is a tough negotiator and will extract a significant price, if there is a default on their debt. As happened in Sri Lanka, this can include the conversion of their debt to equity in a project, with China essentially owning the project.

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