By Peter Zhang<\/p>\n
It\u2019s safe to assume that Milton Friedman, the 1976 Nobel laureate in economics, wasn\u2019t kidding when he authored \u201cThere\u2019s No Such Thing as a Free Lunch.\u201d The book\u2019s title sums up Friedman\u2019s main point regarding a wide range of public policies, relevant still to this day.<\/p>\n
If an offer, therefore, appears to be too good to be true, particularly when it comes from the Chinese communist regime with its abysmal track record of credibility, one should be suspicious.<\/p>\n
In September 2013, Chinese Communist Party (CCP) General Secretary Xi Jinping proposed the Silk Road Economic Belt strategy during a state visit to Kazakhstan. In October 2013, in a speech at the People\u2019s Consultative Assembly of the Republic of Indonesia, Xi brought forward the 21st-Century Maritime Silk Road venture.<\/p>\n
The Silk Road Economic Belt and the 21st-Century Maritime Silk Road, also known as the Belt and Road Initiative (BRI), received $40 billion through the Silk Road Fund in November 2014, and an additional $14.76 billion, as announced by Xi in May 2017.<\/p>\n
China\u2019s banks, which have a record of funding white elephant infrastructure and ghost cities filled with empty apartment buildings, will be leveraging nearly $1 trillion toward constructing roads, rails, bridges, airports, and ports in some very poor countries. Such eye-catching funding has led to worldwide speculation about Beijing\u2019s motives.<\/p>\n
According to the Financial Times, the rating service \u201cFitch warns on expected returns from One Belt, One Road (OBOR).\u201d<\/p>\n
A Fitch Ratings report cast serious doubt on Beijing\u2019s ability to conduct sound risk analysis for overseas investments, given its dismal record of identifying and managing profitable projects at home, particularly in light of mounting non-performing loans in recent years. In fact, this Fitch report suggests the BRI\u2019s geopolitical interests outweigh any commercial benefits.<\/p>\n
Unlike Beijing\u2019s previous overseas investments, which focused primarily at procuring energy and natural resources, the BRI also allows Beijing to address its domestic excess capacity in virtually all industrial sectors, with some production facilities having moved to participating countries.<\/p>\n
At the same time, the BRI, with the corridor to Central Asia and Europe, may help develop China\u2019s Western regions.<\/p>\n
Western policymakers also have concerns and misgivings about Beijing\u2019s many prodigious operations around the world through its aggressive BRI. Financing infrastructure in more than 60 countries is quite an ambitious undertaking, while fraught with great financial risks.<\/p>\n
Those risks occur within a context of dangerous and increasing indebtedness.<\/p>\n
Paul Krugman, the 2008 Nobel laureate in economics, mentioned Dornbusch\u2019s Law when he described challenges that China\u2019s economy faces. Krugman finds China\u2019s excessive investment and spending, especially by state-owned enterprises, full of risks in the absence of sufficient domestic consumption.<\/p>\n
Against the backdrop of punitive tariffs and a trade dispute with the United States, China\u2019s market has been hit by an economic downturn these days. Over the years, China benefited tremendously from a trade surplus around the world and from piracy of Western technological know-how, but things are changing because of increasing protectionism in many countries, including the United States.<\/p>\n
Last month, Beijing was forced to draw $116 billion from its central bank reserves in an effort to stabilize and stimulate its economy. According to a report from the Institute of International Finance, China\u2019s total debt-to-GDP ratio has surpassed 300 percent while its corporate debt-to-GDP ratio is 160.3 percent.<\/p>\n
The size of these debts\u2014there is nothing comparable in the West\u2014are alarming for a large economy where the government is both the lender and the borrower, and, oddly, the regulator as well.<\/p>\n
With the amount of non-performing loans rising, the debts will mount to the stratosphere. China\u2019s system of state banks as lenders and state-run enterprises as borrowers is no longer sustainable, and will end up creating more losses than what can be absorbed, leading to insolvency, possibly even another Greece-like financial crisis.<\/p>\n
Despite its holding of $1.15 trillion in U.S. bonds, China won\u2019t be able to reduce debt distress for very long, given inefficiencies in its centralized financial structure.<\/p>\n
In fact, China\u2019s foreign exchange reserves dropped to $3.073 trillion by December 2018 from $4 trillion in 2014. While $3 trillion may seem like a lot, it doesn\u2019t leave much flexibility, given the demands of a modern-day monetary system like China\u2019s. Their financial system has become very tight.<\/p>\n
In the meantime, a declining birthrate and an aging population have given rise to additional concerns: a shrinking workforce and growing costs for an already strained health care system.<\/p>\n
Beijing abolished the One Child Policy in 2016, but the measure might have come too late, as the demographics aren\u2019t going to improve significantly for generations, resulting in a declining standard of living that will become a political liability for the CCP.<\/p>\n
Resources for the needs of China\u2019s population are scarce, yet Beijing is currently tightening its belt to free up some cash for its overseas political adventures.<\/p>\n
With GDP per capita under $9,000, both the World Bank and International Monetary Fund listed China in 71st place for their 2017 world rankings. World Bank\u2019s data also shows that China\u2019s health expenditure in 2015 is only 5.32 percent of GDP, while the world average is 9.90 percent.<\/p>\n
In terms of the budget for basic education (elementary and high school), China\u2019s Ministry of Education spent $2,634 per student in 2017. That pales in comparison with the global average of $10,759, according to data from the Organization for Economic Co-operation and Development (OECD) in 2017.<\/p>\n
Xinhua News Agency, the CCP\u2019s official mouthpiece, reported on Feb. 1, 2018, \u201cThere were still 30.46 million rural people living below the national poverty line at the end of 2017, according to the National Bureau of Statistics (NBS).\u201d<\/p>\n
Although independent China observers frequently find Beijing\u2019s statistics too rosy and not believable, the CCP has, at least, admitted that severe poverty exists under its watch.<\/p>\n
Not surprisingly, Chinese netizens, at some risk to themselves, express their dismay on the internet about the funneling of money abroad, as domestic needs are unmet.<\/p>\n
One popular joke goes like this: A netizen described today\u2019s China as the great \u201cSong Dynasty,\u201d a dynasty known for its traitorous acts. Since the Chinese word \u201cgiveaway\u201d shares the same pronunciation as the word \u201cSong,\u201d the netizen could be understood as saying \u201cthe great giveaway dynasty.\u201d<\/p>\n
Then someone asked, \u201cThe Southern Song Dynasty or the Northern Song Dynasty?\u201d The netizen replied, \u201cEither one, as this dynasty is giving our things away to both East and West.\u201d<\/p>\n
Another netizen posted this sarcastic comment on Weibo, \u201cMany people criticize our government for spending $650 billion in foreign aid each year instead of appropriating funding for the masses. That is actually not true, for the government invests $830 billion annually for policing social order\u2014money used to keep an eye on us.\u201d<\/p>\n
Recently, Beijing canceled a portion ($78.4 million) of Cameroon\u2019s debt of $5.5 billion in secrecy, fearing a backlash from the masses at home. Many Chinese equate these sorts of foreign aid to the idiom, \u201cthrowing a meat dumpling to a dog\u2014with no returns.\u201d<\/p>\n
These days, despite the CCP\u2019s draconian censorship, the internet has become perhaps the sole channel for Chinese citizens to voice their frustrations, particularly since corrupt officials and the privileged elite are taking advantage of the BRI for capital flight overseas in the name of overseas investment.<\/p>\n
Despite the frustrations of the masses at home and potential financial losses, Beijing\u2019s BRI is all about political calculations.<\/p>\n
The debt-trap diplomacy, with billions of dollars in infrastructure investments in participating countries in Central Asia, Europe, South Asia, and Africa, has purchased some friendship around the world. That has allowed the CCP, at least temporarily, to gain some relevance and to exert geopolitical influence.<\/p>\n
But the recipients aren\u2019t necessarily happy about the debts they can\u2019t afford, and they feel trapped.<\/p>\n
Sri Lanka\u2019s Hambantota Port development project might be a crippling debt-trap example. Sri Lanka had to hand over the port to China, through a 99-year lease in exchange for clearing a $1.4 billion debt to China.<\/p>\n
In Africa, similar situations face Kenya, where talks are underway to surrender its strategic assets to China as a result of debts owed to Beijing. These assets may include the lucrative port in Mombasa, and the Standard Gauge Railway, to name but a few.<\/p>\n
Some African countries have privately complained that the BRI often assigns its overseas infrastructure construction projects to Chinese companies. So, the borrowed money goes back to Chinese pockets in the end.<\/p>\n
With Chinese goods flooding into African markets, more than half of Beijing\u2019s foreign aid goes to the African continent. But that comes as part of a well-designed foreign-policy package to voting member states of the United Nations, in order to acquire their support in global affairs.<\/p>\n
In 2016, China began building its first overseas naval base in the Republic of Djibouti, which gives the Chinese military strategic access to the Indian Ocean and Red Sea. Unfortunately for the United States, the Chinese base is less than 10 miles from the U.S. Naval Expeditionary Base at Camp Lemonnier.<\/p>\n
A photo from \u201cChina-Africa Friendship 2019,\u201d an event held Jan. 9 at a Beijing hotel to celebrate BRI projects in Africa, went viral on the internet, as it seemed to blow the whistle on Beijing\u2019s BRI. The event was hosted by Chinese officials and attended by envoys from some 60 countries.<\/p>\n
The large video screen behind the stage displayed four English words: Innovation, Efficiency, Transcendence, and Exploitation. The Chinese word \u201cKaituo\u201d should have been translated as Exploration instead of Exploitation\u2014a parapraxis error, as netizens call it, otherwise known as a Freudian slip.<\/p>\n
Critics accuse Beijing of engaging in neo-colonialism through the BRI projects in Africa. Beijing\u2019s effort to build the \u201cunbreakable China-Africa friendship\u201d appears now to be shaky, as debts pile up rapidly, one country after another.<\/p>\n
Astute Sinologists understand that every CCP policy or initiative comes with the sole purpose of maintaining its power, irrespective of economic and political costs.<\/p>\n
The BRI is a classic example. The totalitarian Party doesn\u2019t need to seek approval from its citizens for scattering money around the world, nor have the Chinese people benefited from these overseas adventures. Yet, the BRI has effectively disrupted the international order at the expense of U.S. influence and interests around the world.<\/p>\n
Worse still, the BRI will end up harming the participating countries as well.<\/p>\n
In dealing with the party state, one shouldn\u2019t overlook these blunt words uttered by Mao Zedong, the founder of the CCP: \u201cPolitical work is the life-blood of all economic work\u201d and, \u201cCommunism is not love.\u201d<\/p>\n
Countries that are enticed by Beijing\u2019s offer of cheap loans ought to think twice about the consequences of teaming up with this red dragon. History won\u2019t look kindly at those who have partnered with a repressive regime, let alone those who feed an iniquitous beast such as the CCP.<\/p>\n
As Confucius wisely advised many centuries ago, \u201cThe cautious seldom err.\u201d\u00a0 [End of Article]<\/p>\n
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