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The hurried withdrawal of the US from Afghanistan—the 1975 fall of Saigon déjà vu—has been heralded as a win for China and an opportunity for Beijing to extend its influence across the region. It’s even been raised as a lesson for Taiwan not to rely on American protection, in the eyes of the Global Times, a state-run tabloid. However, the ironic truth for China is that the only thing worse than US soldiers near its borders is not having them there at all. Afghanistan is a big headache for Beijing, which fears chaos there will spill over not just to its restive region of Xinjiang but to Pakistan. The People’s Republic has invested huge infrastructure projects as well as extended huge loans to Islamabad as part of the Belt and Road Initiative (BRI).

Since the BRI’s inception in 2013, China has splashed billions of dollars abroad: building roads, dams and power plants. China Development Bank and Export-Import Bank of China lent an estimated $282 billion to countries in Asia, Africa, Latin America and Europe. So much so that in 2020, China’s capital account recorded a deficit for the first time. Pakistan is the biggest beneficiary of this infrastructure drive. The so-called China Pakistan Economic Corridor is reportedly worth $62 billion. The country is potentially a key link between China’s interests in Central Asia and the shipping lanes in the Indian Ocean.

But lately, Beijing has begun to worry about its assets there. On 14 July, a blast on a Chinese shuttle bus in northern Pakistan killed nine Chinese engineers working on the $4 billion Dasu dam. The project, led by state-owned China Gezhouba Group, is not even part of the Corridor, and is financed by the World Bank. This attack followed a Pakistani Taliban suicide bombing at a hotel where the Chinese ambassador was staying. No one has claimed responsibility for the Dasu attack. Pakistan last week placed blame on the Afghan Taliban, saying, “Afghan soil was used for this incident."

So far, the Chinese are being diplomatic. When asked about the connection between the Dasu attack and the Taliban, the foreign ministry countered with: Which Taliban? Beijing portrays the Afghan Taliban as “a pivotal military and political force" but sees the Pakistani Taliban as a terrorist group. In late July, during an Afghan Taliban charm- offensive visit, Beijing extracted a public pledge that they would not allow the use of Afghan soil as a base to attack China. This showcases how uneasy Beijing is with Afghanistan’s new rulers. While China has not invested much in Afghanistan, it can’t afford it to destabilize Pakistan. Beijing still has very vivid memories of its last creditor’s trap, which it stumbled into with Venezuela six years ago. One more failed bet on a failed state will cut to the heart of its BRI dreams.

Venezuela was once the Chinese policy banks’ favourite. With loan-for-oil deals, China bet that the country’s petroleum production was enough collateral for debt repayments. By April 2013, China had provided Venezuela with a $40 billion credit line, with about $30 billion of it still outstanding. That was a miscalculation. During the 2014-2015 commodities downturn, Brent crude went from $100 per barrel to half that; and China had to renew $9 billion of previous loan tranches just to help Venezuela navigate the crisis and boost oil output capacity. China still hasn’t got a big chunk of its money back. Last year, the Venezuelan government reportedly received a grace period on loans worth some $19 billion.

That creditor trap has dented confidence. China’s policy banks have not delivered fresh funding to Venezuela since 2013. Failure to protect its interests in Pakistan will raise even more questions about the BRI.

Most of Beijing’s troubles comes from the way it approaches loan-making. Where the World Bank funds projects based on concrete metrics such as country risk premium and required rate of return, China seems to operate on instinct. Instead of looking backward into a country’s credit history, Beijing tries to project what the debtor might look like if it got enough investment and infrastructure—a pie-in-the-sky approach.

There may be domestic blowback to a failure of the BRI. The Chinese people may not be all that generous about Beijing’s largesse abroad if it amounts to little. Indeed, the policy banks were set up to execute fiscal stimulus and give out business loans at home, not to fund failed states. China Development Bank, the most muscular one, is already under-capitalized compared to its global peers. Why should China’s banks get mired in distressed nations? Even with Beijing’s help, Pakistan is a basket case. It has taken 13 bailouts in 30 years from the International Monetary Fund.

While America’s Afghan debacle was spectacular, it wasn’t a win for China. One superpower wants its soldiers to return. And the other? China just wants some positive internal rates of return to justify its dream of a new Silk Road.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets.

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