China - Maldives

World Bank warns Asia-Pacific nations against accepting 'big' development loans from China

  • China has loaned billions of dollars to Asian and Pacific countries under 'Belt and Road Initiative'
  • They have great influence over countries that receive such loans
  • Dr Sudhir Shetty from World Bank warns countries to be wary of accepting big development loans from China

Afnan Ibrahim

K. Male' 2018 Apr 16 | Mon 09:43 4,113 business

The China-Maldives Friendship Bridge is funded by China which costs a total of USD 200 million - Ministry of Foreign Affairs

Chief Economist of the East Asia and Pacific Region of World Bank, Dr. Sudhir Shetty has adviced countries to be wary of accepting 'big' development loans from China.

China has been lending hefty sums in loans for Asian and Pacific countries under their 'Belt and Road Initiative' (BRI). 

Maldives is among those nations executing big infrastructure projects such as bridge construction and so on, with said loans. 

Under this initiative, China conducts a series of projects to revive old land and sea routes linking south-east Asia, Africa, Europe and China. Their purpose is to facilitate trade and increase Beijing's regional and international strategic influence. 

Dr. Sudhir Shetty candidly warned Asia-Pacific countries to be mindful of the loans received under BRI, as the ambitious initiative can be favorable "as long as there are safeguards in place to ensure that good projects are selected". 

World Bank's cocnerns include the level of debt countries have signed up for, with Dr. Shetty asking "how costly is this money that is coming in to finance these pieces of infrastructure, and how transparent are the terms under which the borrowings are being undertaken?"

China has spent over US 300 billion dollars for infrastructure projects such as building roads, railways and ports under BRI. This amount is expected to reach USD 1 trillion in the near future. 

"Not all transport projects are good, not all connectivity has social rates of return that are positive", added Dr Shetty. For instance, Sri Lanka had to relinquish Hambantota's southern port to China on a 99 year lease to two Chinese firms as a result of a multi-billion dollar debt. Its a good example of projects that put countries in debt while China reaps the benefits. 

Hambantota International Port was built with a loan of USD 1.3 billion from China and it had to be handed over to two Chinese firms over an agreement of 1.1 billion US dollars. Sri Lanka has taken development loans of over USD 8 billion from China.  

In addition to the bridge project in Male' funded by China which costs a total of USD 200 million- USD 116 million in-kind and 72 million as a loan- there are several other mega infrastructure projects that are being executed in Maldives. One of the projects good to highlight would be Velana International Airport (VIA) project which requires a total sum of USD 800 million and is managed solely on loans. And Maldives received a loan of 373 million dollars from China Exim Bank and the 3.2 km run-way, fuel farm and cargo complex under the said project is being constructed by Beijing Urban Construction Group. 

Dr. Shetty from World Bank also warned Asian countries to "hope for the best, expect the worst" and adviced them to be mindful of the long term implications that might emerge from projects conducted under hefty loans. 

Last updated at: 3 weeks ago | Reviewed by: Aishath Shaany

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