China still needs to concentrate on debt problems. Illustration: iStock

China is using “debt-book diplomacy” to ensnare developing countries across Asia and the Pacific. A report written by Harvard scholars has warned the US State Department of the impact of what are perceived to be cheap loans.

In a damning document, the report highlighted 16 countries targeted by Beijing with Pakistan, Djibouti and Sri Lanka identified as the most vulnerable.

All are part of President Xi Jinping’s epic Belt and Road Initiative, connecting China with 68 countries across Asia, Africa, the Middle East and Europe in a maze of multi-trillion-dollar infrastructure projects.

Last year, the unprofitable Sri Lankan port of Hambantota, built with billion-dollar loans from the world’s second-largest economy, was leased to Chinese state-owned companies for 99 years to repay the debt. Already there are concerns about how the port will be used.

“There’s definitely the potential where they can have it go from commercial, to occasional visit, to logistics, to humanitarian and then maybe finally a military base,” Sam Parker, the co-author of the report, prepared at the Harvard Kennedy school of policy analysis, said.

Significantly, Pacific nations such as Vanuatu, Papua New Guinea and Tonga all owe Beijing billions of dollars in loans, “encircling United States allies Australia and New Zealand.”

A US State Department official reacted quickly to the findings, which were released earlier this week, and told CNN that it would “encourage China to promote and uphold internationally accepted best practices in funding.”

“We need to ensure recipients have options that allow them to retain their sovereignty and future control of their economies,” the official said.

In response, the Chinese government has called the report “very irresponsible” and based on stereotypes.

Lu Kang, a foreign ministry spokesman, pointed out at a media briefing earlier this week that the report’s authors “are turning to the mode of thinking they are familiar with to guess the Chinese government’s thoughts and stance in its foreign assistance and cooperation.”

“Only the governments and people that have such cooperation with China have the most right to comment on the specific effect of the cooperation,” he added.

He went on to reiterate that Beijing was abiding by the “the principles” of consultation, contribution and shared benefits, the state-run China Daily reported.

“Only the governments and people that have such cooperation with China have the most right to comment on the specific effect of the cooperation,” he said.

Still, the report about rising debt has surfaced just months after warnings from the Center for Global Development, a Washington-based think tank, and the International Monetary Fund.

They have expressed concerns about spiraling borrowing connected to the Belt and Road program, or ‘New Silk Road’ superhighways.

In a report entitled Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective, the Center for Global Development cautioned that 23 countries could be prone to “debt distress.”

Of the group, Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan were rated in the “high risk” category.

“Belt and Road provides something that countries desperately want – financing for infrastructure,” John Hurley, a visiting fellow at the Center for Global Development and co-author of the study along with Scott Morris and Gailyn Portelance, said in a statement.

“But when it comes to this type of lending, there can be too much of a good thing,” he added.

Christine Lagarde, the managing director of the IMF, touched on the same subject in Beijing last month because of the monumental scope of the planned $8 trillion network of transportation, energy and telecommunications infrastructure projects.

“The Belt and Road Initiative can provide much-needed infrastructure financing to partner countries,” Lagarde told a conference organized by the IMF and the People’s Bank of China, the country’s de facto central bank.

“However, these ventures can also lead to a problematic increase in debt, potentially limiting other spending as debt service rises, and creating balance of payment challenges,” she added.

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