Avoiding the Chinese Debt-Trap

 

Applied Intelligence     A Strategy for the Caribbean’s Future Prosperity…

Perry C. Douglas, for Inclusive Economies…The Application of Technology as an Agent of Social Change

 

October 12, 2020

Black populations in the Caribbean have had a 400-year experience—400 years beginning with enslavement under brutal dehumanizing conditions by Europeans in plantation-based economies, followed through by colonialism.  The evolution of which has been deliberate, systematic, and shrewdly evolving; all for the economic exploitation of one race of people for the benefit of another.  Economics remains at the core of this 400-year experience. The entire system was created to extract resources from plantation economies to facilitate global commerce for the enrichment of Europeans.  This stolen inter-generational wealth resource underwrote the future imperial and colonial aspirations of Europeans.  The European Renaissance period, for example, would never have happened without the economic engine of slavery to finance it!  The vast resource extraction drove trade, commerce, and new industries on a global scale. Creating wealthy European families in the process, allowing them to spend lavishly on science, engineering, the commissioning of great works of art, luxury, architecture, and more.  European expansion in its formative years was underwritten and derived from the exploitation of free African labour.  It is not very difficult to generate great profits and form industries when your resources, material, and labour are free, supported, and facilitated by the state and the associated churches.

 

Through this system of economic exploitation, raw materials like sugar, molasses, rum, tobacco, cotton, gold and metals, spices, hardwood, rice, and more.  Saw the taking of those free raw materials, transported to Europe to be manufactured into goods for sale; creating commerce, global trade, and industry.  Enormously wealthy European families were then formed from that commerce, and the foundations of inter-generational wealth transfers were established for Europeans.

 

George Bernard Shaw once said, “if history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.”

 

Today with Beijing’s scramble for Africa and the Caribbean, history is repeating, and local populations are once again being left behind.  The Chinese Belt and Road Initiative (BRI), is a clear attempt at geopolitical conquest, and poor countries are being sucked in all over again.  Countries in the regions of Southeast Asia, Africa, Latin America, and the Caribbean are being lured into the debt trap cheap Chinese money.

 

How slavery and colonialism had fuelled European economic expansion; neocolonialism is now the preferred method for Chinese global expansion.  Raw materials like aluminum, steel, minerals, fossil fuels, agricultural commodities…are all needed to build China at home, (just as it did with Europe) to fuel manufactured products for export and commerce.  Like the European colonizers, China extracts resources and sends them to Chinese factories, importing back cheap and low-quality finished goods, undermining local African manufacturers, for example, who end up unable to compete.  Additionally, that trade and commerce create massive wealth for the Chinese, so, what’s the big difference between European colonialism and Chinese neocolonialism?  Not much, same playbook!

 

According to the article in NewAfrican: Viewpoint: Why we should be aware of China’s ‘new colonialism,’ by African businessman Benedict Peters.  We are now “slowly awakening to the growing menace of China’s plans for economic supremacy. In Africa, it is clear that China’s campaign of foreign investment is a new form of colonialism.”  Writes Benedict Peters.

 

In the article “Belt and Road: colonialism with Chinese characteristics” author Anthony Kleven points out that “while China’s tens of billions of investments and loans are greedily gobbled up by cash-starved African states, they are not as bereft of strings as is often claimed.  The BRI is trapping numerous countries in unsustainable levels of debt.”  One of the many examples he gives is where China has set its sights on Guinea’s bauxite reserves, one of the world’s largest.  China needs such a resource to keep its Chinese aluminum industry running.  China has promised Guinea loans twice the size of its GDP—and so, an abundance of related Chinese companies has now taken control of Guinea’s bauxite reserves.

 

In short, China lends desperately poor countries billions for investment, knowing very well that those investments are incapable of producing enough output or return, enough to service the huge debt load taken on.  Deals often have predatory type terms and conditions attached for non-performance.  Allowing China contractually, to seize vital public infrastructure assets as collateral if those set terms are not upheld, i.e. neocolonialism at its most elegant form.  

 

In the recent article titled: China’s Opaque Caribbean Trail: Dreams, Deal, and Debt by Caribbean Investigative Journal Network (CIJN.)  The piece is filled with many examples of the Chinese debt-trap strategy.  For Caribbean countries, one of the most visible, expansive, and expensive forms of Beijing’s engagement with the region is its financing of large-scale infrastructure projects.  The CIJN investigation unveiled a trail of official secrecy, questionable procurement processes, and the looming threat of potentially insurmountable debt.  The Chinese playbook is the same everywhere—huge hotel projects, highways, agriculture projects, even building a Prime Ministers fancy new house.  According to CIJN, “China’s Caribbean portfolio is extensive. It includes highways and bridges, housing, energy, mining, air and seaports, tourism projects, hospitals, and even official residences, forming a part of that country’s strategic thrust into Latin American and the Caribbean.”

 

The investigating team uncovered, that in most cases, the precise terms of agreements are not routinely publicized, the procurement processes and concessions are a mystery.  The Chinese often end up with all the labour contracts, and their labour practices lack adherence to any type of building code and other health and safety standards. 

 

A 2012 independent forensic audit of the Jamaica Development Infrastructure Programme (JDIP) and the Palisadoes Shoreline Protection, and Rehabilitation Works Project concluded there was “non-adherence to allocations approved by Parliament and the Ministry of Finance.  There was also the arbitrary issuance of Variation Orders and selection of sub-contractors along with the unprogrammed and arbitrary allocation of funds for institutional strengthening,” according to the audit document.

According to clause 13.3 of the contract ($630 million North-South Highway project signed with China Harbour Engineering Corporation (CHEC) on June 21, 2012): 

 

“The Government shall unconditionally and irrevocably waive any right of immunity (to the fullest extent permitted by applicable law) which it or any of its assets now has or may acquire in the future in any jurisdiction.”

 

To add insult to injury, the highway deal, in a case study conducted by the Caribbean Development Bank (CDB,) found there was “no way costs could be recouped through toll payments.”  Hence, China now said that since the investment couldn’t be recouped through toll payments, land adjacent to the highway should be given as compensation.  Jamaica of course had already agreed to those terms in the clause.  China of course enforced it and the Chinese company promptly brought in 1000+ workers from China to begin work on a commercial project—free land, no Jamaican worker participation, no contracts for Jamaican firms, no economic benefit to Jamaica.

 

“New roads, new businesses, new hotels, and booming Chinese immigration has led to many companies being staffed with more Chinese workers than local Bahamians.” Forbes

 

In practical terms, this meant that the Jamaican state allowed China, in a case of a breach of contract by the Government of Jamaica, or actions that the Chinese have determined results in non-performance, would be actionable on Jamaica’s sovereignty.  When contextualized, the clause essentially allows for the GOJ to forfeit any current or future owned assets to China, for debt recovery by seizure.  A blatant neocolonialism play and encroachment on sovereignty.

 

In Trinidad and Tobago, the sudden termination of the Government’s $71.7 million project between China Gezhouba Group International Engineering Company and the Housing Development Corporation (HDC) in 2019 has drawn attention to a lack of transparency in the awarding of the contract, and what has been described as overly generous concessions to this Chinese company.

In Suriname, there are increasingly alarming rising fears that mounting debt to China, spanning decades, can have the impact of stalling future development and exposing the country to liabilities way above its ability to pay.

 

In short, China lends desperately poor countries billions for investment, knowing very well that those investments are incapable of producing enough output or return, enough to service the huge debt load taken on.  Deals often have predatory type terms and conditions attached for non-performance.  Allowing China contractually, to seize vital public infrastructure assets as collateral if those set terms are not upheld, i.e. neocolonialism at its most elegant form. 

 

Economics has never been a morality play; so, it’s not China’s responsibility to look after the interest of our people, it is the responsibility of leaders, in consultation with the people, to lead and look after the interest of their nations.  We must be committed to real change, otherwise, nothing will ever change!  The highly skilled Chinese negotiators need to be matched with our powerful team of negotiators, weaponized with the tools and resources of Artificial Intelligence and Machine Learning algorithms, and systems that can process and provide actionable solutions at a simple keystroke.

China’s engagement in the region does not necessarily have to be negative, it could be a big positive for growth.  Notwithstanding, it will all depend on how we play our cards—understand the historical colonialism playbook of others and develop counter offences…be proactive, not reactive, and control the narrative.  There must be a better more equitable vision for a mutually beneficial operating model, for the management of the relationship with China.  This operating ecosystem must be formattable, backed up by strong executable mechanisms, progressive regulatory environments, compliance, and governance, abiding by sturdy democratic principles…the rule of law, freedom of information, and enhanced transparency, in the context of an anti-corruption agenda.

 

Assets belonging to the people becoming collateralized property in business deals is beyond the pale, way beyond the bounds of any acceptable actions and behaviour by any government, and it is fundamentally illegal.  Sovereignty represents a state’s most precious right and freedom under international law. 

 

Project in Guyana signed on January 9, 2017; in Article 8.1:

 

“The borrower hereby irrevocably waives any immunity on the grounds of sovereignty or otherwise for itself or its property in connection with any arbitration proceeding…or with the enforcement of any arbitral award pursuant thereto.”  

 

“This is Guyana dangerously agreeing to cede sovereignty. It plays into the Chinese strategy of using economic weaponry in the pursuit of influence and domination,” says attorney and chartered accountant Christopher Ram.  In short, these governments have signed away their nation’s sovereignty, dignity, and basic self-respect, to China.  China could simply walk in and take control of Guyana’s assets through its preset “debt trap.”

 

Very recently, July 2020, a Kenyan Appellate Court halted a construction deal, by pronouncing the $3.2 billion contract between Kenya and China for the construction of the Standard Gauge Railways (SGR,) as illegal.  The recent judgment effectively lifted the lid on the “dragon's debt-trap diplomacy.”  China had been pressuring Kenya to pay the huge debt, while in the middle of battling a pandemic. 

 

Since 2013, Kenya has saddled itself with more than $5 billion in loans from China for construction on the project.  However, in just its first year of operation, the project reported losses of about $98 million US, making servicing the debt impossible.  And of course, the terms of the deal made it such, that if Kenya couldn’t repay, it could end up giving China control over some of its most important assets.  In this case, it would have been Mombasa Port, Kenya’s largest and most valuable port in east Africa, the gateway into Kenya and landlocked neighbouring nations Burundi, Congo, Rwanda, South Sudan, and Uganda. “Therefore, losing control over the port would mean erosion of Kenya's sovereignty.”  The implications are freighting, thousands of port workers would be forced to work under its Chinese lenders—colonialism would have crept back.  Fortunately, Kenya’s court system saved the day, bringing a wake-up call to all those involved in similar entanglements with China.  We hope Caribbean leadership took the call! 

 

COVID-19 has provided us with a pause, an inflection point, to shift our thinking and strategy focus towards a better future, we can’t get stuck in the past, behind amateurish politicians, with nothing but stale ideas that have never worked out for the people.  If we stand still, we perish; we must move in the same direction the world is moving in or be left behind!

 

 

Like Africa, the Caribbean desperately needs foreign direct investment to develop its economy, even more so with the global economy transitioning into the digital age.  However, the specifics of every deal and financial structure must be transparent to the public.  Furthermore, the base economics supporting the investment must be presented ahead of time, including performance-based metrics, data sources supporting the investment case, data-driven analysis, and specific analysis and modelling, including advance predictive modelling and decision-making algorithms.  Most importantly, deals must be inclusive to the broader population of the Caribbean, demonstrating first, the intrinsic net benefit to the region. 

 

In short, greater investment focus on digital commerce needs to be applied, become the priority.  It is counter-intuitive to build backward and in line with China’s geopolitical and economic objectives when the rest of the world is moving in another direction. 

 

Domestic success depends on global commerce, but for over 400 years we’ve been on the wrong side of that curve.  Digital transformation underpins a prosperity reality and must be the government’s top policy development priority.  Resources need to be mobilized with the stated objective being to leapfrog the regional economy into the more prosperous global economy, our ambitions have to be focused, and big!  We can’t just sit there, letting others decide our future for us.

  

We must invest to diversify the entire region to protect our society from future global shocks, as witnessed by the pandemic, which has essentially wiped out the tourism economy.  We need diversification and foresight. 

 

If we had a vibrant commerce based agricultural and fisheries industry, for example, with robust global digital sales and marketing capabilities, we would be able to achieve food security and effectively export meaningfully for-profit simultaneously.  Pandemic or no pandemic!

 

A diversified economy is a resilient economy. 

 

A fundamental change in approach and the underlying variables is relative to how development should logically be carried out—a fundamental change in basic thinking, concepts, and practices, highly relevant to the digital era in which we live in, is paramount!  The Caribbean needs a new common Investment Policy Statement, a new operating paradigm, one that is progressive, inclusive, with empathy towards sustainable socioeconomic development.  Politicians should no longer be put in charge of investment decisions, instead, a professional data and applied intelligence-driven performance approach must be taken up immediately!  Scientific ecosystems coupled with highly qualified investment committees, responsible to the people, is the push!  Driven by intelligent scientific data-based decisioning and predictable modelling, powered by Artificial Intelligence, followed up with fearless implementation and actions, transparent and measurable—is the push!  This new paradigm includes an advanced level of due diligence, governance, and transparency, all of which must be brought to the investment decisioning forefront, in examining the probability of desired outcomes in future ‘worlds’ scenarios.

 

Throughout history, technology-driven economic investment and infrastructure development have driven civilizations to prosperity, always!  History shows, through evidence and analysis, that those nations that have deliberately focused on facilitating technology-led growth, went on to forge empires.  Today, the world is at another transitioning inflection point, and good decisions taken here can change the directional curvature of prosperity for the entire Caribbean.  History shows, like other periods of great technological transition opportunities before it, mishandling it at this critical juncture, will set the entire region back behind the prosperity curve, for generations to come!

 

The genesis of our future prosperity begins with how we first choose to think!  Instinctive and emotional thinking must be put aside for a more slow, deliberative, and logical process—with an entrepreneurial mindset being at the forefront.  Increased efficiencies and productivity will increase a nation’s profits and inter-generational wealth curve trajectory, upwards.  Growing the standard of living through the development of a highly-skilled, tech-savvy middle-class, throughout the region.  This is our best and most optimal opportunity; lets push!

 

Socioeconomic also history tells us that we must resist the intuitive nature of our human condition, towards decision-making processes and choices.  Think and focus logically instead, find the data-driven solutions, and put emotions and ego aside. Playing the long game is critical to future success.  Decisions based on intelligence gathering and actions are central to good outcomes.  Such focused thinking is paramount and can be the genesis of a true Caribbean Renaissance.