Last Friday, Prime Minister Dr Keith Rowley boasted that a new dry-docking facility in La Brea, a joint venture between TT and China, will create 5,000 jobs and add seven per cent to the local economy. Beyond that, Rowley was vague.
The MoU was signed between the National Infrastructure Development Corporation (NIDCO) and the China Harbour Engineering Company (CHEC), an important part of diversifying the TT economy and hopefully, offset the fallout from the closure of the Petrotrin refinery.
The deal with CHEC is part of China’s larger Belt and Road Initiative, a US$4 trillion project ostensibly designed to increase trade and cultural ties between China and the rest of Asia along the old Silk Road route. Its other more surreptitious objective is to increase the economic might and political influence of the world’s second biggest economy.
The country has engaged what many of the Belt and Road’s critics call “debt-trap diplomacy.” Massive Chinese firms, many of which are state-owned, armed with billions of investment dollars guaranteed by state-owned banks, move into strategic developing economies with the promise of funding major infrastructural projects via concessional loans at “competitive” rates. In countries desperate for investment dollars, the Chinese appear as saviours, a new order from traditional trade partners.
But can TT avoid the additional debt burden that is the unavoidable price that comes from doing business with the Chinese?
The government seems to believe it.
At a political rally in June, Rowley said as much, when he referred to his trip in May to China: “We told them we need your investment. You need out location in the Caribbean,” hinting that the government is well aware of China’s play.
The evidence, though, from multiple international examples, suggests that it could be more difficult.
The New York Times in June published an investigative article titled, How China got Sri Lanka to cough up a port. The article delved deep into the history and political machinations that led to former Sri Lankan prime minister Mahinda Rajapaksa being voted out of office after effectively forcing the country, under the burden of crippling debt, to cede the strategically located Hambantota Port to China for 99 years.
As the Times noted, the transfer gave China control of territory just a few hundred miles off the shores of one of its regional rivals, India, and a strategic foothold along a critical commercial and military waterway.
“The case 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,” the Times said.
The lead construction company in the Hambantota Port Development Project was China Harbour Engineering Company.
“The Hambantota Port Development Project distinguished itself mostly by failing, as predicted. With tens of thousands of ships passing by along one of the world’s busiest shipping lanes, the port drew only 34 ships in 2012,” the Times said.
CHEC agreed to the construction of the port even though feasibility studies and other potential partners backed out because the port was expected to fail. When it unsurprisingly did, they swooped in to collect on their debt. Sri Lanka racked up US$8 billion in debt with interest rates as high as seven per cent. Unable to make its commitments, it signed over a 70 per cent, 99 per cent stake in Hambantota.
Sri Lanka is the most glaring example of perceived Chinese largesse gone south. But there are some other countries where deals have come under scrutiny. In Djibouti, a country in East Africa, China has provided US$1.4 billion in funding for major projects—nearly 75 per cent of the country’s GDP. Its debt profile is 88 per cent of GDP, of which the majority is owed to China.
Adding to the economic aspect is geopolitics—Djibouti is home to Camp Lemonnier, a US military base—and now, since 2017, China’s first overseas military base, just six miles away.
The journal Foreign Policy notes in an article in July that one concern is that the Djibouti government, facing mounting debt and increasing dependence on extracting rents, would be pressured to hand over control of Camp Lemonnier to China.
In Europe, China has also partnered with the Montenegro government to construct a 165 kilometre highway through some of the roughest terrain in southern Europe, a Reuters article in July noted.
The first stretch is underway, and unlike the TT deal, there’s some specifics to the funding China is providing. Montenegro received €809 million to cover 85 per cent of the first part. China Road and Bridge Corporation (CRBC) is the contractor, CHEC’s sister company. They both share parent China Communications Construction Co.
The dollar-denominated loan carries a two per cent interest rate, 20-year repayment schedule and 6-year grace period – attractive terms but a major long-term burden for a country of roughly 620,000 people, Reuters said. The terms of the contract, though, is where China’s dominance is displayed.
In the event of any legal disputes, a Chinese arbitration court will have jurisdiction. CRBC won commitments that all imported construction materials, equipment and other goods be exempt from customs and value-added tax. Chinese workers were given 70 per cent of the work.
Like the Sri Lankan port, feasibility studies have suggested this project isn’t worth the investment—in order to justify the expense, the average traffic needs to be 22,000 to 25,000 vehicles a day; the average is fewer than 6,000. It’s unclear what the outcome of this project will be, but Montenegro debt is approaching 80 per cent of GDP, and the International Monetary Fund advises that it cannot take on more debt. The deal, the article notes, puts China in a very comfortable position in Europe.
For TT, the outcome is still unclear. The government insists that this alliance with China will ultimately benefit the country. The government also insists that the country’s debt profile is manageable. The recent Summary Economic Indicator bulletin from the Central Bank projects TT’s total public sector debt for 2018 to be $$122 billion or 60.7 per cent of GDP; of that, $2.229 billion is owed to China, the government disclosed earlier this year. Among the projects TT owes China for funding include nearly $620 million for the National Academy for the Performing Arts and its southern sister, as well as nearly $1 billion for the Couva Hospital. Can the country accrue more debt and at what cost? We're about to find out.