Why is China more developed than Pakistan

New Silk Road debt trap?

The project has many names: in German mostly Neue Seidenstrasse, in English "One Belt one Road" or "Belt and Road Initiative".

Whatever you call it, it is a huge undertaking: two trade routes are being created to better connect China with other countries - one by land, one by sea. The routes lead through more than 60 countries in Asia, Europe and Africa.

The costs for the necessary infrastructure are just as enormous: the equivalent of 1,000 billion US dollars are to be invested in the construction of roads, ports and power plants.

This is largely financed by the Silk Road Fund set up by the Chinese government and the Asian Infrastructure Investment Bank (AIIB), a multilateral development bank that was founded in 2014 on the initiative of China and currently has 61 member countries.

Win-win situation?

New trade routes, expansion of the infrastructure in underdeveloped countries, secure financing - China's management is promoting the major project as a classic win-win situation for everyone involved.

But there is also criticism. Above all, the Europeans complain that their companies hardly get a chance in the infrastructure construction contracts.

Because China often ties its loan commitments to the condition that Chinese companies are awarded the contract for construction projects. "These companies should then also employ Chinese and, as far as possible, buy Chinese components and raw materials," says Thomas Eder from the Mercator Institute for China Studies (Merics) in Berlin.

The result: In the Asian and African countries of the New Silk Road, the share of Europeans in trade and investment is falling, Eder told DW.

Dependency through over-indebtedness

Another point of criticism concerns the poorer countries that are expanding their infrastructure with Chinese help. You would be heavily in debt for the construction projects and thus economically dependent, according to a study by the Center for Global Development, an American think tank based in Washington D.C ..

Eight countries are particularly at risk: in Asia Pakistan, Tajikistan, Kyrgyzstan, Mongolia, Laos and the Maldives, in Europe Montenegro, in Africa Djibouti. Since these countries joined the New Silk Road, their public debt has risen sharply, and China holds much of the debt, the study found.

Take Pakistan as an example

The Sino-Pakistani Economic Corridor (CPEC) is considered to be the flagship project of the New Silk Road. It comprises a 3,000-kilometer network of roads, railways, gas pipelines and power plants that stretches from western China to the Pakistani coast and ends in the newly built deep-sea port of Gwadar.

The Center for Global Development estimates the total investment at around US $ 62 billion. Around 80 percent of the money is said to come from China, and China charges around five percent interest.

Major projects like this one in some Asian countries, but "especially in Pakistan", lead to existing problems with governance intensifying, "especially with economic liability and corruption", according to a joint study by the Stockholm International Peace Research Institute and SIPRI the German Friedrich Ebert Foundation.

Of course, both sides hope that the project will bring benefits. For China, the economic corridor is a connection to Arab oil wells and also to the African continent, where China is very active. Pakistan is hoping for an economic upswing and many new jobs.

However, should the Pakistani economy develop worse than planned, the country could run into trouble because of the increased debt.

The case of Sri Lanka shows what consequences this can have. After the country could no longer service its debts, China offered it debt relief. In return, the Hambantota Silk Road port was leased to a Chinese state-owned company for 99 years.

The Chinese container ship "Cosco Shipping Taurus" in the port of Piraeus in February 2018

Example Greece

In Europe, China is focusing on some countries because the country hopes to gain access to the European market through them. As early as 2014, the then Chinese Prime Minister Li Keqiang said that Greece was "China's gateway to Europe".

China has already invested more than seven billion euros in Greece, with more billions to follow. The once controversial takeover of the port of Piraeus by the Chinese state shipping company Cosco in 2016 is now considered a showcase project. Cosco wants to expand the port to the largest in the Mediterranean, and cargo throughput has already increased significantly thanks to deliveries from China. Logistics centers and warehouses have been built around the port - and with them new jobs for the battered Greeks.

Another strategic investment: In 2016, the Chinese state electricity union took over a 24 percent stake in the partially privatized Greek electricity network operator ADMIE.

Both sides emphasize not only the economic but also the cultural aspects and encourage authorities and companies to take action here. In 2017, for example, the Chinese National Silk Museum and the Cultural Foundation of the Greek Piraeus Bank signed an agreement with the purpose of promoting bilateral cultural exchange.

The Danube Bridge on the outskirts of the Serbian capital Belgrade, financed and built by China

Take Serbia as an example

In contrast to Greece, Serbia is not a member of the EU, but it is an official candidate for membership. A bridge over the Danube is considered the largest Chinese investment to date. Of the total cost of 170 million euros, around 145 million euros were financed through a loan from the China Exim Bank; the construction work was carried out by a Chinese company.

But the bridge is only the prelude to larger projects. For the equivalent of 1.6 billion euros, the companies "China Railways International" and "China Construction Company" are to build a high-speed railway line between Belgrade and Budapest. The heads of state of Serbia and Hungary are already boasting about the flagship project, which should be completed in 2023.

Not just economic goals

Despite some risks, Chinese investments are very welcome in many countries because they promise economic boost. In addition, China does not attach any political conditions to the investments.

Nevertheless, China's New Silk Road is not just about economy and trade, but ultimately also about political influence, according to the study by the Ebert Foundation and Sipri.

The Europeans would therefore be well advised to develop their own strategic vision in order to be able to react sensibly to the large-scale project, the authors write. However, nothing has been seen of this so far. "At the moment, Brussels does not speak with one voice and has no strategic answer," the study says.