POTENTIAL BACKLASH
Chinese investment projects in South Asian countries have met with some resistance, reflecting a rising trend of internal disagreements among China and its BRI partners. High interest rates, strict commercial conditions, and lack of transparency are some of the biggest drawbacks of Chinese financing. In addition, typical conditions attached to Chinese loans- such as those extended by stateowned Exim Bank- stipulate that project contracts be given to Chinese companies and at least 50 % of material, equipment, technology, or services to be sourced from China.
In Pakistan, BRI and CPEC face growing criticism. The CPEC projects have remained under the control of Chinese companies and banks, and the project bidding, contracting, and financing processes lack transparency. In addition, the financing of these projects is done through market-rate loans and equities. Pakistan ' s government has given the sovereign guarantee of 17-34 percent returns on Chinese equities in projects. Chinese banks have charged an 8 percent interest rate on loans to Pakistan for projects under CPEC, whereas international interest rates for energy projects are only about 1.6 percent. Pakistan is expected to start repayment in 2020; however, its fiscal deficit continues to increase and the balance of payment situation remains critical. In the Gwadar Port Project, a revenue-sharing agreement dictates that 91 percent of the revenue generated goes to China for the next 40 years. Recently, Pakistan canceled the $ 14 billion Diamer-Bhasha Dam project because of China’ s tough financing terms. In Nepal, the $ 2.5 billion contract for construction of Budhi Gandaki hydro-electricity project met the same fate, with the Nepalese government accusing the Chinese company of financial irregularities and lack of transparency.
The Trump administration’ s opposition to the JCPOA and recent U. S. sanctions on Iran create value opportunities for China. Some believe the new sanctions will worsen Iran-U. S. relations and prevent future economic cooperation between Iran and the West, further establishing China as Iran’ s only reliable economic partner. As Western firms stall, China’ s CITIC Trust has pushed a $ 10 billion credit line to support projects in Iran; China Development Bank is considering a further $ 15 billion.
SPOTLIGHT ON IRAN
Jockeying with China for geopolitical influence is India. India’ s investment interest in Iran has focused on the expansion of Chabahar Port. By funding the Port in Iran, India expects to establish a secure transit route to markets in Iran, Afghanistan, Central Asia and the Gulf region. For India, easy access to Chabahar would connect the country to Afghanistan and the energy-rich Central Asia through the Jawaharlal Nehru and Kandla ports. Additionally, the port will promote Indian strategic interests in the Persian Gulf and Strait of Hormuz.
China’ s alleged predatory behavior has created another type of risk to its investments and their host countries: civil unrest. China’ s leasing in Hambantota has sparked violent protests and drawn a backlash from parliament, amid fears that Beijing seeks to establish what is effectively a Chinese colony in another sovereign state. Although the Sri Lankan government has worked out a compromise to decrease the Chinese share from 85 percent to 65 percent over a decade, it does not limit China’ s 99-year lease on the land or preclude a future security or military role for Beijing.
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