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Encroachment in WPS part of China's Debt Trap Diplomacy

The Duterte administration may be leading the country into China's debt trap diplomacy that may cost the Philippines its territory in the West Philippine Sea (WPS) as what happened to other countries heavily-indebted to the rising world power.

For this reason, a lawmaker demanded that President Duterte be transparent in its dealings with China, particularly on contracting loans for its Build, Build, Build infrastructure program.

The Philippines may not be at debt risk at the moment, but the uncontrolled massive borrowing from of the Duterte administration may lead us to the debt trap, especially seeing the overdependence of Duterte to China.

The experiences of other countries should serve as warning on the nature of loans being generously provided by China. These states are trapped in debt with China and are at risk of losing not only their valuable natural resources and strategic assets, but also their sovereignty. We may end up giving up our rights to our territory in the West Philippine Sea.

The study made by the Center for Global Development, which discussed the cases of countries such as Tajikistan, forced to give up either territory or natural resources in their inability to pay off debts to China under its Belt and Road Initiative (BRI), the core of the nation’s debt trap diplomacy.

"China is like the merciless loan shark, the ruthless 5-6 lender, who charges incredibly high interest rates in exchange for a fuss-free loan to poor countries. It is as if they expect no repayment for the loans they offer as they force and strangle nations to swap debt to equity,” Alejano explained.

And what is worse, he said, is that when infrastructure projects under these loans commence in the Philippines, China would require Chinese contractors and workers to work in these endeavors.

The Build, Build, Build may be our highway to debt trap. This will not only have the capacity to plunge us into debt default, but it will also remove employment opportunities from Filipinos due to heavily-funded Chinese projects which would favor Chinese workers.

The Duterte administration should be transparent in its borrowings with China. They should not throw caution into the wind and just plunge the country into debt. We have many other options, such as loans from other countries like Japan that come with lower interests and no threat of losing territory. I strongly recommend going that way.

In the case of Tajikistan, China wrote off an unkown amount of debt in exchange for 1,158 square kilometers (sq kms) of disputed territory. In Turkmenistan’s case, China used its loans to the poor country to acquire natural gas largely on its terms. Sri Lanka, the widely talked about case of China’s debt trap, had to give up control on its Hambantota Port to China for 99 years.

Similar situations happened to countries such as Djibouti, Pakistan, and Kenya. China demanded favorable access to their strategic assets in exchange for financing and building the infrastructure these poor countries need.

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In the case of Venezuela, Sudan, Angola, Kazakhstan and Iraq, all of these countries contracted billions of loans from China and oil is being used as collateral for their debts.

We hear pronouncements in China that the Philippines can use its natural resources as collateral for the loans. I hope the Duterte administration has thought this through, or we will be heading the same route as these countries did.

The congress should stand against this as we may be contracting loans we cannot repay. And I certainly will not sit down and allow our territory and sovereignty be payment for these debts, if that is President Duterte’s intention.

RISK OF DEBT TRAP FOR BRI COUNTRIES

• In a study conducted by the Center for Global Development, 23 countries were identified in risk of debt distress due to additional BRI-related financing.
• 8 of these countries have the highest risk to plunge into debt.
• World Bank and IMF have warned that Chinese loans are pegged with high interest rates that could go as high as 7%.
• Compare this to the soft loans provided by World Bank and IMF with only 0.25-3% interest rate.
• The high interest rates become serious challenge on the debt sustainability of a debtor country.

CHINA'S BELT AND ROAD INITIATIVE

• Comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road
• Aims to connect China – over land and water – to the economic circles in Asia, Europe, and Africa through a “trade and infrastructure network”.
• Center of China’s diplomacy.
• Envisioned to span at least 68 countries with an announced investment of $8 trillion
• Serious concerns arise on the sovereign debt sustainability of BRI countries due to loans being offered by China.