Wednesday, May 17, 2017

Who Do We Believe? By Erick San Juan

Tightening the Belt on a Bumpy Road? Who do we believe?

The recently concluded Belt and Road Forum as initiated by and held in Beijing, China promised a lot to boost economies of countries included in the modern silk road. But many economic and political analysts believe that in the long run it is China that will benefit the most in such a huge endeavor.

Billions of dollars in infrastructure will reportedly be given as soft loans under the guise of soft power op to gain confidence among leaders from Europe to Africa and Asia. The much needed materials for infrastructure are already in excess capacity of construction materials from China. Projects outside China are very much needed for these materials and investing on the Belt and Road initiative will favor China’s goods to reach the countries in the silk road.

Although reality check, problems may arise in the modern silk road. Unlike before, everything was smooth sailing so to speak. But now several factors have to be considered like terrorism plus the age-old piracy and of course geopolitical aspect as what is happening in the East and South China Sea.

Some other points have to be considered as what was pointed out by Bloomberg’s editorial – “The risk, for China no less than participating countries, is that vaulting ambitions could doom the project’s chances of success. What’s held back infrastructure development in Asia isn’t so much a lack of funding but a dearth of viable projects. Inevitably, as it has within China, politically motivated lending will produce more white elephants, burdening host countries with unsustainable debt burdens."

"Strategists might rationalize these losses as the price for support and stability along China’s periphery. But the costs may not be so easy to sustain. Fitch Ratings has already warned of the risk to banks’ balance sheets as loans sour. Exporting China’s investment-heavy development model will also ease pressure on inefficient state-owned enterprises to reform and slash overcapacity. And with China blocking capital outflows and holding onto reserves in order to bolster the yuan, there’s simply less money to waste on bad projects.

Nor is there any reason to think that building more roads and pipelines will in itself achieve China’s larger stated goals: to promote economic growth and hence political stability. Pouring money into development projects could just as easily encourage graft in countries along the route, fuel anti-Chinese fervor and encourage sabotage attacks. China’s historic preference for dealing with authoritarian governments—and raising few questions about their governance—can breed resentment among ordinary citizens, risking future problems.

China’s experience with the Asian Infrastructure Investment Bank, one of the main Belt-and-Road funders, is instructive. The institution’s flashy launch in 2014 inspired fears that Chinese leaders were seeking to overturn the global financial order. These fears were misplaced. Run by a cadre of international professionals and adhering to high standards, the AIIB is, according to one estimate, unlikely to lend much more than $2 billion annually for its first five years. That will limit its influence, but also its losses.

China needs to apply the same rigor to Belt-and-Road projects, which should be scrutinized not only for their headline numbers but their long-term viability. Lenders need to be transparent about financing terms and considerate of borrowers’ ability to repay. Project officers should consult with local farmers, merchants and NGOs, not just bureaucrats, or worse, corrupt leaders; environmental concerns should be aired and addressed. And along with infrastructure, China should be promoting greater openness in economies along the route."

"Most of all, China needs to treat the Belt and Road with care and a clear-eyed appreciation of risk. That will likely result in fewer, less high-profile projects. But they—and China—will be the stronger for it.”

Some pundits also fear the debt trap that developing countries may fall into in order to go with the flow of building huge projects in the process. Like in our case there is so much to loose if we will find out one day that our debt to China is so big that we will be compelled under China’s conditions especially in our sovereign territories.

Even DLSU Professor Richard Heydarian warned of getting loans from China. also warned that the projected Philippine debt of $167 billion to help finance ambitious programs under Dutertenomics could baloon to $452 billion in 10 years and could lead to debt bondage to China.

Remember the China's Northrail project during PGMA's watch, it balooned to P1 billion despite the project was scrapped.

When China’s political clout and 'soft touch op' will be used as leverage, are we really ready to thread the bumpy silk road when China will tighten the belt for us to pay our debts?

Just asking.


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