KATHMANDU: To discuss the prospective trade crisis related to BRI and China one should consider the types of conditions China puts forward against the countries to which it provides loans. Let’s look at the pattern of provisions in China’s loan agreement with a country.
1. ‘This Agreement as well as the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of China.
2. The choice of Chinese law as the governing law under the Loan Agreement is a valid choice of law.
3. Based on the fundamental belief that no foreign country can have sovereignty over its land or project as it is a sovereign country if China is unable to pay the debt it has taken for a project, if China considers taking ownership of that project, the debtor country cannot hold back. Moreover, in such a situation, no other multinational relations can be done.
4. In relation to where to arbitrate in case of dispute: China International Economic and Trade Arbitration Commission (CIETAC), Beijing.
The issue, in this case, is, would such conditions be acceptable if they were offered to Nepal? But for a few ‘progressive revolutionaries’ who believe that Nepal is or should be a protected sub-state of China, most Nepalis would probably say ‘No’.
Nepal has already signed the Memorandum of Understanding to join the BRI in 2017. But, it has not been revealed that any project agreement has been made under that.
However, it cannot be said that this is because of the agreed tradition that any agreement with China should be kept secret.
There is also a talk that a degree of agreement has been reached on projects such as the Kerung-Kathmandu Rail.
The Nepali people have the right to ask questions and demand transparency about the responsibility that the Nepali people have to bear for generations and the possibility of losing the sovereign rights of the country. If there is any mistake, it should be corrected to the point where it can be corrected.
Whether it is a grant or a loan, the proposal should be made after a detailed analysis of the proposed projects. Even when a person buys a house or a car, the cost and profit and loss of the investment should be analyzed.
Investments are not worthless. Interest has to be paid on the investment made by taking a loan and the principal must also be returned.
Political or social responsibility is also attached to the investment made through the grant.
In addition, the alternative value of the grant should be calculated. At the moment, we are talking about the loan and since it is a pure loan, let’s talk about the loan itself.
Let’s compare the two above-mentioned loans! Interest rates on Chinese loans are 150 times higher than on Japanese loans. The interest that should be paid to China in two and a half days is enough to be paid to the Japanese in one year!
When it comes to a loan, it is a matter of the right of the lender to give or not to give, but the right of the borrower to take or not to take or in which project to take it is a matter of right.
Here, let us talk about the serious mistakes made by Sri Lanka. Whether the huge Hambantota port built by Sri Lanka on loan was necessary or not for the country should have been determined by an objective analysis of the future benefits of the project.
If it were to be made through equity investment, even if the expected profit was not obtained from the seemingly intoxicating project, there would be only a certain amount of financial loss.
But when it was made by taking a loan, it was natural that the situation of not being able to pay the interest on the principal of the huge loan proved to be extremely difficult.
China, the creditor country, could not be unaware of the fact that the project was a white elephant, and did not carry any economic potential.
It is hard to believe that China, the shrewd merchant, did not understand this. The clauses cited at the beginning of this article indicate why China knowingly invested in a completely impossible project from a financial point of view.
Clause 3 quoted above indicates clearly that China wanted to usurp the port area for strategic or political purposes and so it happened.
Not only Hambantota, but three or four other strategically important projects, are likely to be owned by China. Not only Sri Lanka, but some countries in Africa are also entrapped in China’s debt trap and have reached the point of losing their sovereign rights.
Now let’s talk about a loan project in Nepal. Since the year 2000, Nepal has thought of building an international airport in Pokhara and commissioned JICA to study it.
Accordingly, a study was submitted to the Government of Nepal after estimating the total cost of 85 million US dollars in two phases.
Chinese company CAMC Engineering increased it to $264 million in August 2013. After some time, the same Chinese company again showed a cost of US$305 million.
Finally, in 2016, CAMC Engineering got the construction contract for 217 million dollars, including 216 million concessional loans from China Exim Bank, 25 percent loans at no interest, and 75 percent loans with two percent interest.
The same company also became a contractor here! Looking now, the first condition of China’s concessional loan was that the contract for the project should be given to the Chinese company.
Even the estimation has been done by the construction contractor company! What a condition, no one would like to build a house, let alone the airport worth 25-26 billion!
Now coming to the returns and financial feasibility of this project, 25 percent interest on the 25 billion loans and two percent interest on 75 percent, the average interest is 1.5 percent.
In simple words, the annual interest of a 25 billion loan comes to 37.5 million 1 every year, Nepal has to pay only that amount of interest, the portion of the loan payment is separate.
That is, Nepal has to pay only about one million 14 thousand interest every day! With the devaluation of the Nepalese rupee, this amount increases!
Is there a return from operating Pokhara airport, can it pay interest? Other expenses required for the operation of the airport and the obligation to pay the principal are there as well!
Considering today’s situation, Pokhara airport is absolutely a white elephant! Where will such projects lead us? Won’t the Sri Lanka case repeat itself?
Let’s look at another project costing almost the same – Nagdhunga Tunnel Marg. The project is being built with loan assistance from the Japanese government and has an interest rate of 0.01 percent. Some so-called ‘experts’ comment saying ‘two percent is terribly cheap’ to the China loan of Pokhara airport.
According to informal reports, the workers are sent abroad to work in any form of business contracts, grants, or loan assistance, selected from the Chinese People’s Liberation Army (PLA) prisoners serving sentences.
Let’s compare the two above-mentioned loans! Interest rates on Chinese loans are 150 times higher than on Japanese loans. The interest that should be paid to China in two and a half days is enough to be paid to the Japanese in one year!
The first question is whether Pokhara airport was a suitable investment from the point of view of its feasibility and whether or not an objective analysis was done accordingly.
Even if it was, it would have to be done by taking a loan, and on top of that, by taking such an expensive loan. Was the decision taken on the whim of some ‘over-enthusiastic’ businessmen, hoteliers, or leaders of Pokhara?
There is an option to get a loan for a development project at an interest rate of 0.01 percent. A good lender won’t give a loan if there is no financial viability.
It’s true. Did Japan or other international donors withdraw their hands without seeing the financial possibilities?
Another donor with no ulterior motive may have done so. Or, were the decision-makers not motivated by devotion or obligation to submit the project to China at any cost?
Now back to the BRI. The mentioned Pokhara airport project is technically not included in BRI. Yet, the Pokhara airport represents China’s intentions.
The projects coming up or coming up under the BRI may be ‘tricky’ and heady, but it might be argued that they are economically viable and profitable.
China’s aim may be to trap Nepal in a spiral of irrevocable debt without helping Nepal and use this land in its monopoly way.
That is why China encourages Nepal to ‘live luxuriously’ with it ‘on loan’. The CPEC project in Pakistan, financed by China, is worth billions of dollars.
The interest rate of the multi-billion dollar loan project from the northern border of Pakistan to Gwadar port in Balochistan is almost 4 percent and it is said that the condition of Pakistan is worse than that of Sri Lanka.
In addition to the economic aspect, there is a hidden strategic aspect in the big projects that are operated with Chinese cooperation.
Wherever it (China) goes to work, it arranges to take all the manpower from its own country as far as possible and does all the work under its complete control and supervision.
Aren’t the above-mentioned reasons enough to demand that we should be careful while doing business with China, not just in BRI?
For example, more than one-third of the workers in the construction of Nepal’s fast track tunnel are Chinese nationals.
According to informal reports, the workers are sent abroad to work in any form of business contracts, grants, or loan assistance, selected from the Chinese People’s Liberation Army (PLA) prisoners serving sentences.
The same model may have been applied in Nepal. Why so strict? It’s simple – any work from the specified category can be done without question and there is absolutely no possibility of breach of confidentiality.
Is there any guarantee that the tunnels, roads, or railway tracks built by China will not be equipped with state-of-the-art control mechanisms?
My question is especially to the ‘nationalists’ who say that missiles are installed under the transmission line of MCC.
Isn’t it possible for this to happen in Chinese projects, a country with a communist regime under authoritarian control?
It has also been learned that China buries its workers secretly who die in accidents while working abroad.
Aren’t the above-mentioned reasons enough to demand that we should be careful while doing business with China, not just in BRI?
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