Belt and Road: “debt trap’ hovering over Indonesia
Indonesians risk losing control of a Chinese-funded high-speed train on Java. Delays in construction have led to extra costs. Chinese lenders are asking for government guarantees. The Sri Lanka scenario is repeating itself. The Widodo administration wants interest rates halved. For critics, Japan’s proposal was preferable.
Beijing (AsiaNews) – Indonesia is at risk of ending up in what many observers call China's "debt trap".
Funded with Chinese loans, the Jakarta-Bandung high-speed train (KCJB) project has suffered repeated delays, leading to an extra cost of US$ 468 million, covered with government funds.
The railway is part of the Belt and Road Initiative, launched by Chinese President Xi Jinping in 2013 to boost China’s trading position and geopolitical influence in the world.
China’s partners in the Belt and Road project are at risk of having to hand over their assets to China, especially infrastructure such as ports, airports and railways, in case of non-repayment of loans and related interests.
The best-known case is that of Sri Lanka. In 2017, the Sri Lankan government leased the southern port of Hambantota to a Chinese company for 99 years when it began having difficulty repaying its loans.
In Indonesia, the company building the railway on Java has asked that its concession be extended from 50 to 80 years, Nikkei Asia reports. Kereta Cepat Indonesia China is 40 per cent owned by Chinese concerns. Now dissatisfaction with the situation is growing in the Indonesian government.
In 2015, President Joko Widodo chose China over Japan because it set the date of completion for 2018 with trains rolling the following year. The Chinese proposal was also cheaper, US$ 5.5 billion versus US$ 6.2 billion.
Now, in addition to delays and extra costs, critics of the Chinese option point out that China’s interest rate is much higher than Japan’s.
The Widodo administration asked for a cut from 4 to 2 per cent, but China lowered its offer only to 3.4 per cent, while the China Development Bank demanded a public guarantee on the loans.
Many countries that have accepted Chinese investment under the Belt and Road initiative have poor finances. Recent calculations found that 60 per cent of China’s overseas lending portfolio supports countries in debt distress.
Several economists note that this, coupled with fears of China’s growing influence, has led its partners to be more cautious about the Belt and Road Initiative.
It is no coincidence that Chinese investments in the Belt and Road dropped considerably compared to the pre-pandemic period, from US$ 46.2 billion in 2019 to US$ 28.7 billion last year, according to the China Global Investment Tracker.