The tremendous economic catastrophe in both Sri Lanka and Pakistan has revealed China’s ruthless ‘debt diplomacy’. Beijing has been accused of forcing developing countries to rely on it for large-scale projects by granting attractive loans, but it now looks to be running out of green in its chequebook. While Sri Lanka and Pakistan, both considered China’s allies, are experiencing severe financial crises, Xi Jinping has yet to offer any assistance.
However, Beijing has pledged Colombo USD 2.5 billion in support but has been mute on specifics. In December of last year, Sri Lankan President Gotabaya Rajapaksa requested that Xi Jinping restructure his country’s debt to China. Last month, China granted Pakistan’s request to roll over USD 4.2 billion in debt payments, providing significant relief to its all-weather partner in the midst of a massive economic crisis.
Though there was no formal statement, the then-Pakistan Foreign Minister Shah Mahmood Qureshi stated this following discussion with his Chinese counterpart Wang Yi during his March 30 visit to China. ‘Beijing has been rethinking its external lending for the past couple of years because their banks realised they were carrying a lot of debt with countries whose prospects of paying back were quite limited,’ Raffaello Pantucci, a senior fellow at Nanyang Technological University’s S. Rajaratnam School of International Studies, was quoted as saying in a Bloomberg report.
China is facing its own issues.
While China strives hard to show the world that its economy is robust and has recovered from the Covid damage, the truth remains that the Asian powerhouse is in deep crisis as a result of recurrent lockdowns, highlighting a catastrophic failure to contain Covid since its outbreak in 2002.
India acts as a neighbour in Hambantota port concerns.
China’s lease of Sri Lanka’s Hambantota port for 99 years in exchange for a USD 1.2 billion debt swap sparked worldwide worry about Beijing acquiring key assets distant from home by giving significant loans and investments to smaller states. The Hambantota port, as well as the Colombo port city project, in which China is creating a new city on the reclaimed ground in the sea, were viewed with anxiety, particularly in India, as Beijing cemented its foothold in Sri Lanka, which is strategically placed in the Indian Ocean. Despite worries over large-scale Chinese developments in Sri Lanka, India has rushed to the island’s aid.
In February, India offered USD 500 million lines of credit to Sri Lanka to help it purchase petroleum supplies. India has recently provided another USD 1 billion credit to Sri Lanka to assist in propping up the neighbouring country’s failing economy. PM Modi told Sri Lankan Finance Minister Basil Rajapaksa, who has visited India twice in recent months, that India will always stand behind the island nation, which plays an important part in New Delhi’s ‘neighbourhood first’ policy.