Chinese Premier Li Keqiang (R) and Iraqi Prime Minister Adel Abdel Mahdi attend a signing ceremony at the Great Hall of the People in Beijing on Tuesday. Photo: AFP

When Iraqi Prime Minister Adil Abdul-Mahdi announced last month during a state visit to Beijing that his country would join China’s signature Belt and Road infrastructure investment framework, his message largely fell on deaf ears. Presented without fanfare, the project is illustrative of the two countries’ already extensive economic partnership, and will aim at deepening cooperation on oil and infrastructure projects.

Although debt-financed infrastructure investment can play a key role in catalyzing economic growth and reconstruction, both of which have been slow to recover in Iraq’s uncertain security environment, China’s investments could foreseeably harm – rather than help – Iraq’s hard-won stability. And if experience is any indication, Iraq’s decision to join the framework could raise fresh challenges to its precarious economy.

Thanks to China’s high dependence on oil, the Iraq-China relationship has greatly expanded in recent years, together with the latter’s Middle East footprint. Iraq, which sits on one of the largest oil reserves on the planet, has become China’s second-largest oil supplier and China its No 1 trade partner – illustrating just how vital Iraqi oilfields have become for Beijing’s global aspirations.

As Iraq rebuilds, it is no surprise that Baghdad and Beijing are both seeing opportunities for profitable Chinese investments. Iraq’s economy has greatly suffered since the rise of Islamic State (ISIS) and the concurrent decline in oil prices. Needs for reconstruction – especially of the country’s badly damaged infrastructure – are massive.

And indeed, Chinese investment could prove particularly beneficial to Iraq’s economy via much-needed developments in infrastructure. But there are also risks that Beijing’s aggressive lending practices and the current volatility in oil prices will overburden the country with unsustainable levels of debt, and throw Baghdad into a downward spiral of debt default, austerity measures, reduced social spending, public discontent, and instability.

China’s ambitious Belt and Road Initiative has already been accused in recent years of serving as an instrument of debt-trap diplomacy, with Beijing having a track record of turning economic relations with fragile or heavily indebted nations into political influence. Its investments, as opposed to Western financial assistance, tend not to be conditioned on political reform, or the protection of human rights.

Meanwhile, the Iraqi national debt has almost doubled in the past four years. Its government remains highly dependent on oil, which provides roughly 85% of its overall revenue, and continued to struggle with a debt-to-GDP ratio at nearly 50% in 2018. This makes Iraq particularly vulnerable to fluctuations in the global economy, and might contribute to increasing Iraq’s dependency on Beijing, eroding its sovereignty in the process.

Deadly protests this month have already highlighted the existing climate of popular resentment over unfulfilled promises of government reform by the corrupt Iraqi elite. If China is not careful to ensure that the young and marginalized also benefit from its enhanced economic partnership with Iraq, an influx of Chinese businesses, workers and private security companies could ignite fears that the interests of indigenous enterprises will be harmed in this process.

The same might occur should Chinese projects fail to generate meaningful employment opportunities, or prioritize Chinese over local interests. And without making Chinese financial assistance dependent on political reform, the Iraqi government would have fewer incentives to adhere to the protesters’ demands for greater representation, improved social services, employment opportunities, and an end to endemic corruption – or to answer calls to this effect from other governments.

Finally, China’s growing presence in Iraq could add strain to its already complex relationship with Washington, with relations between the two countries taking a turn for the worse in recent years. In Iraq’s crowded security landscape, the presence of a new strategic competitor could easily upset the fragile balance of power that has emerged after the military defeat of ISIS. Beijing’s global economic aspirations have already heightened tensions with Washington, which sees China’s lending and other economic practices as antithetical to its own interests.

Iraq’s decision to join the BRI underscores just how vital the Middle East has become for China’s development as a major power. But as it steps deeper into the political chaos of the region, one hopes that Beijing will make use of its rising influence to pursue measures that support rather than undermine the long-term stability of its partners there.

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