‘New Silk Road’ is slowly bursting, more and more countries in trouble: ‘Just look at Montenegro’

China is definitely facing increasing resistance in its plans, and their loans have become notorious

Australia's decision to suspend cooperation with China on infrastructure projects is not large in volume, but it is significant. Because more and more countries are realizing that China’s “help” is a double-edged sword.

In particular, these were only minor infrastructure projects in the Australian state of Victoria, and they were mostly nothing more than an expression of intent. But for Beijing, it was the door to business not only in Victoria, but throughout Australia. Victoria's Prime Minister Daniel Andrews hoped that the Chinese Belt and Road Initiative (BRI) - as the official name of the project is called "The New Silk Road" - would be an opportunity for the economic growth of his federal state, Deutsche Welle writes.

All those dreams were interrupted by the Australian federal government after a short procedure. As Heribert Dieter of the Science and Policy Foundation (SWP) in Berlin explains, there is nothing strange about this: relations between China and Australia have been systematically deteriorating for two or three years now. But this is a loud slap in the face to the Chinese that resonated around the world - so it’s no wonder the loud anger and even overt threats of the Chinese to Australia.

When trouble comes the Chinese are far away

The Chinese embassy called Australia's decision "unreasonable and provocative", and Australian Foreign Minister Marisa Paine said that such international agreements were "incompatible with Australia's foreign policy".

A German expert on Asian politics reminds us that for the Chinese, this cooperation with Australia is by no means vital. But given that the Silk Road initiative comes directly from Chinese President Xi Jinping himself, it is a damage that cannot be measured in dollar terms alone. Because there are already a number of countries involved in this project that are no longer sure if it was really a smart move that will bring them economic growth, writes Deutsche Welle.

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The whole project got into big trouble because of this pandemic anyway. The economies of the poorer countries of Asia and Africa in particular have been hit hard, so they can barely see ways to repay the money China has lent them under the BRI project. This is best seen at the main station of that Silk Road: Pakistan. Heribert Dieter explains to us how this country is getting into trouble over and over again, and this pandemic is just the culmination. “China needs to extend the loan repayment deadlines it has given or even delay the realization of entire projects for some better times,” Dieter says.

Three big problems with Chinese loans

The Chinese loans themselves have become notorious: recently, experts from the Kiel Institute of World Economy, along with colleagues at Georgetown University in the United States, published a study on How China Lends in which they analyzed hundreds of loan agreements under the BRI initiative. Their conclusion boils down to three huge problems with these loans.

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First, these contracts have unusually strict confidentiality provisions for these loans. As a rule, the borrower is refused to disclose the amount at all - in some cases even to admit that he has borrowed money. This is already the root of great evil, because such agreements will gladly be signed primarily by dictators and governments in which corruption reigns anyway, so it is never clear how much money went into the pockets of local politicians.

The example of Montenegro and the absurd highway project, which will most likely never be completed, stands out here and in the world, says an expert from the Berlin Institute. The Chinese interpret this confidentiality by claiming that these are “private” contracts. Theoretically, on the Chinese side, it is not state-owned, but money of Chinese concerns - at least as a rule, they are state-owned companies. But the borrower is regularly the state, and then the question arises - if they are forbidden to publish the amount at all, how can they even introduce it into the state debt that not only the local population, but the entire financial world should know about?

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If it has to, then Beijing will decide

But this is exactly the wish of the Chinese, which is considered another big problem in the analysis of Chinese loans: the Chinese seek a privileged position with other lenders and explicitly exempt these loans from the possibility of one day "cutting" them as with all other lenders - in professional circles this clause is called No Paris Club where reprogramming and possible forgiveness of part of the debts is negotiated.

This is already an introduction to the third - and perhaps the biggest problem of these Chinese loan or investment agreements: they have provisions on how to cancel, but also accelerate and stabilize the entire economy of the country receiving the money to settle Chinese debt. In other - and quite clear words - this actually opens the possibility for the Chinese to directly influence the policy of that country in order to realize Chinese interests.

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The Australian government's resistance is not at all surprising - and it won't come as a surprise if other countries start canceling agreements with China, Dieter said. The whole process of

disintegrating the Silk Road could only be accelerated by China's military ambitions to become a major player in the Far East - and the alliance that has already emerged between Australia, India, Japan and the United States.

What is Berlin doing?

China is definitely facing increasing resistance in its plans. And after Trump’s departure, many countries see the United States as the right partner again. This applies even to the only G-7 country to join the Silk Road: Italy. And Rome is placing less and less hope in economic development that would come from the East, and more and more in cooperation with the United States. This is certainly a consequence of the departure of the populist government and the arrival of the new Italian Prime Minister Draghi.

By the way, the director of the Mercator Institute for Research in China (MERICS), Mikko Huotari, warns that one of the last countries that still persistently helps China in its ambitions is Germany. While a number of countries are already becoming more cautious towards "Chinese who carry gifts", this German government accepted an investment protection agreement with China at the end of last year. Of course, there is also Germany’s own interest in protecting its investments in China, but that is also undoubtedly the “wrong signal” of Berlin.

"There is a danger that the German government in the last months of Chancellor Merkel's rule will be stuck in a policy that does not recognize and understand the new geostrategic constellations and does not see that the course has changed in many other EU members," Huotari said.