One rainy night in Hong Kong at the end of June 1997, Britain’s Union Jack came down while China’s red-and-yellow starred flag was raised, to flutter in the wind, forevermore. Hong Kong’s handover signaled the end of a story that unfolded as the first globalization episode redistributed power and wealth from the East to the West. Focused on rectifying the inequities it suffered during its Century of Humiliations, a strengthening China began campaigning in the late 1970s for the return of Hong Kong and Kowloon—both lost in the Opium Wars—when Britain’s 99-year lease of the New Territories expired in 1997.
Today, as power and wealth shift once again to the East, the world is poised to watch how the drama of another 99-year lease will unfold. In 2017, Sri Lanka handed over its Hambantota port after it was unable to service the costs related to the Hambantota projects that some say add up to around US$1.5 billion. For the next 99 years, two Chinese-owned companies will own the port. All this, critics claim, is China’s modus operandi: get developing countries hooked on infrastructure loans that they have little hope of paying back, and take over strategic real estate when the loans are eventually defaulted.
This fear of lost sovereignty is precisely what Manila-based Alito Malinao tries to underline in our first Spotlight article that was first published in the Philippine Daily Inquirer. The mix of development pressures, imprudent debt management and nationalism can lead governments to readily accept China’s offer of aid. However, China’s US$1 trillion ‘One Belt, One Road’ initiative, for example, is both a great opportunity and a worrying threat. Can recipients of Chinese money around the world turn it to their benefit, or will Chinese takeover of strategic infrastructure in defaulting countries signal the rise of a new kind of imperialism?
We’ve seen all this before. Western imperialism did not start out imperial. Rather, they started out with trading companies and lending sovereign debt that local potentates could not manage well. Our second Spotlight by Tom Holland and first published in the South China Morning Post sketches out the historical process and compares the financing of the Suez Canal to that of Hambantota Port, along with their political implications. The lesson is not pretty: foreign takeover of a country’s assets will result in nationalist reactions that have unforeseeable repercussions.
But who is to be blamed for this debt trap? Is there a debt trap? It is unlikely that China intentionally set a debt trap to unsuspecting developing countries, but once it realized it could benefit from the arrangement, it does not appear too eager to back away from the financing. It is up to governments of developing countries to be prudent in balancing the needs of infrastructure development and at the same time, guard their national sovereignty.
