Thursday, Dec 01, 2022

A fatal friendship with Beijing

Raja Menon writes: China's intervention has proved disastrous for the economies of Myanmar, Sri Lanka and Pakistan.

It's incredible how the recourse to availing Chinese money by Myanmar, Pakistan and Sri Lanka has led to a feeling of hubris among the leaders. (File Photo)

Once upon a time, there were three South Asian countries that were, small to medium-sized, puttering along on their chosen paths to national prosperity with varying degrees of success. None of them was destined to be a great power but each, in its own way, had its attractive qualities. Myanmar, China’s closest neighbour with a long history of cross border trade, was the first country to voluntarily turn towards Beijing, from 1988, when the State Law and Order Restoration Council (SLORC) took over the reins of government. World sanctions followed, but Beijing reassured the generals of its continued support and in 1989, signed a treaty of trade and cooperation that made China the sole supporter of the illegitimate military government.

The discontent in Myanmar continued against the military government’s leaning towards China until the internal situation exploded in 2007, with a full and brutal military crackdown. Myanmar had a creditable human development index rating earlier, and diversified trade with the outside world. But the strong western sanctions after 2007, made China virtually its sole trading partner. This writer, on a visit to Myanmar in 2008, was aghast to see the mountainous stacks of Burma teak logs piled up inside the army’s military cantonment. The link with China became essential for the regime’s survival but did little to increase economic prosperity. Wood alone accounts for about 70 per cent of Myanmar’s exports to China. It’s clear that China is stripping bare Myanmar’s centuries-old teak forests.

Pakistan is a country that started well, in 1947, being allocated what is probably the world’s largest man-made irrigation system in Punjab and a thriving international harbour at Karachi. Not burdened by any governmental emphasis on Fabian socialism, Pakistan’s economy thrived, although the army entered politics as early as the mid-Fifties. Once it was touted as a progressive country, and visitors arrived from South Korea to study its economic model. Internationally, it played its cards well, receiving military aid in plenty from the US and later on from China. The first agreement on economic cooperation with China was signed in 1963, immediately after India’s border defeat. It would not be incorrect to say that both Pakistan’s internal dynamics and external policy has been influenced by its enmity with India, which became the core of the army’s raison d’ etre and its continued role in politics. The growing radicalisation of Pakistan was set in motion during the reign of General Ziaul Haq who virtually Islamised an already Muslim country. Of course, the state was “used” by the US to create the Taliban to fight the Russians in Afghanistan and then dumped in 2001 when the US attacked Afghanistan.

The year 2012 was a defining moment for Pakistan when it launched a military operation against terror and signed on to the China Pakistan Economic Corridor. Probably, one thing was the cause of the other. New Delhi and Washington imagined wrongly that the CPEC would lead to a major People’s Liberation Army-Navy (PLAN) expansion into the Indian Ocean through Gwadar, which even now is a largely disused port. In what proved eventually to be a classic debt trap, the Chinese investments went to the head of Pakistan’s leaders — especially Imran Khan who started his political career as a CPEC sceptic. As a conservative IMF estimate put it, Islamabad’s poor management of the economy and reckless borrowing has put its immediate financial needs (2022) at $51 billion.

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Most of the World Bank’s warnings to Islamabad go back to right after 1971 war, and include admonishments to the government to increase the tax base as well as root out corruption in tax collection. The CPEC project unveiled by Xi Jinping in 2015 is China’s flagship project in the BRI but the cost ballooned from $46 billion to $62 billion for opaque reasons. In turn, Pakistan would be China’s gateway to the Islamic world and the Indian Ocean and help mitigate the criticism of its brutal Uyghur genocide.

Pakistan’s own government has accused the CPEC of over-charging a random project by $3 billion. Projects chosen are unviable like the Gwadar port and the Lahore Metro and attracted huge public criticism. The CPEC was put on hold and rebooted. The IMF warned Islamabad of the CPEC repayment boosting the current account deficit, forcing Pakistan to cut Chinese interest payments for 10 years. The CPEC has been a humbling experience for China and an economic disaster for Pakistan.

Sri Lanka could well have been the country of which a poet said — if there be a heaven on earth, it is this (albeit a tropical paradise). Blessed with human development indices second only to Japan’s in Asia, its largely Buddhist people have lapped up the free education offered by the government. But as in paradise, there was the devil with a poisoned apple in the form of Mahinda Rajapaksa, who insisted on a port in his constituency —Hambantota. Against all economic surveys and advice, the port was built, it floundered and Sri Lanka transferred the land as equity to China for 99 years — reminiscent of the deals struck by the East India Company.


From 2012 to 2016, China accounted for 30 per cent of all FDI to Sri Lanka, becoming the top source of foreign investment. Today China is funding 50 projects in the country, involving more than $1 billion, including the Colombo Port and the Lakvijaya thermal power plant. There is a strong rumour that project costs are padded for corrupt reasons so that the Chinese loans are accepted at 6.5 per cent interest, as against 2.5 per cent from the ADB. As in the case of Myanmar, China earned the goodwill of the Colombo government by supporting it during the civil war and using its veto to block UN sanctions. Today, the Sri Lankan economy is in complete meltdown, with China holding the largest amount of Sri Lankan debt. Private banks have run out of funds to finance imports. Its main sources of revenue, tourism and remittances, have dried up, and the government is in a crisis.

It’s incredible how the recourse to availing Chinese money by Myanmar, Pakistan and Sri Lanka has led to a feeling of hubris among the leaders, inducing them to take bad economic decisions in the perception that Beijing is footing the bills.

This column first appeared in the print edition on April 18, 2022 under the title ‘Fatal friendship’. The writer, a former rear admiral in the navy, is the author of A Nuclear Strategy for India

First published on: 18-04-2022 at 03:30:10 am
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