Portugal: the latest to be seduced by China’s Belt and Road

Portugal: the latest to be seduced by China’s Belt and Road

Chinese President Xi Jinping embarked on a full-scale charm offensive in Portugal last week, successfully convincing the southern European nation to sign onto his flagship Belt and Road Initiative (BRI) at a time when other EU members are beginning to register their alarm at China’s influence over the continent and contemplating a framework regulating foreign investment.

The deals signed in Lisbon include an agreement to embed the deep-water port of Sines, in southern Portugal, within Xi’s BRI— a mammoth foreign policy drive to link China with the rest of the world. Beijing is now trying to convince Madrid and Lisbon that the Iberian Peninsula is a critical piece of this new Silk Road.

Xi struck out in Spain, but cash-strapped Portugal—which suffered deeply under the 2008 financial crisis and was forced to endure a prolonged period of austerity linked to its bailout package— sees Chinese investment as a way back to financial health. Beijing has been able to leverage Lisbon’s need to strengthen its financial position to gain an ever-increasing foothold in Portuguese infrastructure.

The deals signed last week significantly increased that foothold, while their details uncomfortably recall the hard lessons which other Belt and Road countries have learned. Crushed by a mountain of Chinese loans, Sri Lanka has already handed over control of a key port to Beijing; rumours suggest that Djibouti, which hosts China’s only overseas military base, may soon do the same with a port it illegally seized in February.

Could China have similar designs on the Portuguese port of Sines, or on the deep-water port of Praia de Vitoria in the strategic Azores, next to the U.S. and Portuguese military installations at Lajes Field? Portugal’s reluctance to backslide into the economic crisis it has only just managed to claw free from is understandable, but to ignore the mounting evidence against too close an embrace of Beijing’s cash is to shackle its people with a debt they may never repay.

Disconcerting precedents

As Belt and Road projects spread across the globe, scepticism over the initiative’s effects on host countries is increasing in parallel. Under special scrutiny is the debt burden Chinese investment has already saddled a number of emerging economies with. The case of Djibouti alone should raise serious red flags for Portugal and the rest of the EU: the tiny country in the Horn of Africa’s debt-to-GDP ratio has surged from 50 percent in 2014 to a whopping 85 percent in 2016, thanks to Chinese loans.

Nor are such debt woes unique to Djibouti. After okaying costly projects such as the $4 billion railway between Nairobi and Mombasa, Kenya’s debt is ballooning to alarming levels—between now and 2021, Nairobi will have to pay the equivalent of one and a half years’ spending on healthcare just to take care of the interest on its loans. Meanwhile, the Tajik government, struggling to repay loans contracted to build everything from pipelines to railways, has opted for signing away land and mining rights to China.

This sort of equity swap is gaining traction. Last year, Sri Lanka was forced to hand over its Hambantota port, which sits astride essential trade routes criss-crossing the Indian Ocean, to Chinese creditors in exchange for getting $1.1 billion of its debt forgiven. The Hambantota debacle has sparked growing rumours that Djibouti’s already fraught situation is about to get worse: American lawmakers now suspect that the Doraleh Container Terminal, a key port Djibouti’s autocratic government forcibly nationalised earlier this year, could soon be gifted to China. A London-based court has found the port’s seizure from its lawful operator, UAE-based firm DP World, illegal, but Djibouti’s government seems to have taken little notice.

Military muscle

Giving Beijing a stranglehold over the national coffers is bad enough, but China is throwing around its military weight in Belt and Road countries as well. China chose Djibouti as the site for its only overseas military base—a hulking military installation uncomfortably close to the American Camp Lemonnier, which plays an important role in counterterrorism operations. There has been speculation that Beijing has similar plans in mind for Hambantota; so far, Sri Lanka has rejected Chinese requests to have its submarines dock at Sri Lankan ports, but this resolve may weaken as the noose of its debt burden tightens.

After Washington scaled back its presence in the Azores—islands with a highly strategic location used for surveillance of Russian submarines—China has stepped in, indicating its interest in establishing a scientific research facility which U.S. lawmakers fear could be cover for other activities, as well as in using the runway at Lajes Field.

A troubling rapprochement

Given these precedents, European capitals are understandably wary of Lisbon’s rapprochement with Beijing, even as Portugal has welcomed the influx of foreign investment. Compounding Europe’s concern is the fact that the agreements signed last week aren’t China’s first foray into Portugal.

As Jean-François Di Meglio, president of Paris-based think tank Asia Centre, hypothesized, Beijing is going after Lisbon looking for “the weak underbelly for Chinese investment in Europe” which will allow it to consolidate the assets it already has snatched up in Portugal. In 2011, Portugal’s government sold a stake of the country’s power grid to China Three Gorges (CTG) for €2.7 billion; worryingly, the European Commission was not even notified of the sale. The energy sale reflects a similar trend of Chinese cash acquiring major assets across Europe. Beijing’s state-owned enterprises (SOEs) already control major shares in Italian power grids, Britain’s gas network and the grid operator in Greece.

Europe is waking up to the risks of allowing China so much leverage over the continent—earlier this year, 27 of 28 European Union ambassadors to China signed a report charging the BRI with pushing “the balance of power in favour of subsidized Chinese companies.” Portugal’s embrace of the Belt and Road, however, indicates that the E.U. has yet to learn from the experiences of Djibouti, Sri Lanka, and others who have been burned by Chinese “generosity”.

 

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