Dhaka’s move hurts China’s strategic play in South Asia & underscores the frustration among smaller countries over China’s strong-arm project financing methods.
New Delhi: In what is perhaps the first major blow to Chinese strategic investments in South Asia, the Sheikh Hasina government in Bangladesh blacklisted Wednesday the Chinese company which helped build key ports in Pakistan and Sri Lanka.
China Harbour and Engineering Company (CHEC) was blacklisted for alleged attempts to bribe Bangladeshi government officials. The company, which was involved in the expansion of the Dhaka-Sylhet highway, will now be disqualified from participating in any contract in Bangladesh.
Informed sources, however, told ThePrint that the nub of the issue lay in a discord over China apparently changing goalposts in the commercial negotiations with Bangladesh.
Dhaka, it’s learnt, was of the impression that this project was to be a government-to-government deal under the mega $21.5 billion soft loan Chinese package for 26 projects agreed during Chinese President Xi Jinping’s 2016 visit.
Beijing, however, is believed to have changed tack when negotiations for specific projects like the Dhaka-Sylhet highway expansion proposal started. At that point, sources said, CHEC as the nominated company from Beijing estimated a cost that was double of what had initially been built into the package.
This discord had been building over the past few months with Bangladesh even conveying this resentment officially to China. But matters came to a head when Beijing took the line that it had only assured ‘considering’ a G-to-G model but never committed to one.
CHEC has had a long presence in Bangladesh and was involved in an alleged bribery scandal in the past involving Arafat Rahman Koko, the son of former Bangladeshi PM Khaleda Zia.
But of late, CHEC has been known for its massive dredging and port operations in Gwadar port of Pakistan and Hambantota in Sri Lanka. The Sri Lankan government too faced a viability problem in Hambantota as traffic and recovery estimates were way lower than assumed. They were forced to lease the port to China in order to walk out of a bad debt trap.
In Bangladesh, China’s soft loans come with a 2 per cent interest rate, which is substantially higher than what India offers.
China gives a 15-year repayment schedule while India provides a 20-year schedule. Also, China has a fixed commitment and management fee while India only takes a commitment fee.
But the real catch is China’s condition that the contract has to mandatorily go to a Beijing-nominated company. Here, countries like India, ask Bangladesh to float a tender among Indian companies and choose accordingly.
The nomination model, thus, does not allow for a proper price discovery to take place, which is where the dispute starts as other costs get built into project estimates. This, sources said, also lay at the core of the problem in Wednesday’s blacklisting.
China, under its ‘One Belt, One Road’ programme, has planned for a major push for strategic connectivity projects in its neighbourhood and South Asia.
In that context, Wednesday’s blacklisting by Bangladesh was a move against the run of China’s strategic play in South Asia, underscoring the frustration among smaller countries over China’s strong-arm project financing methods.
India, the US and Japan, have agreed to work together to pool in resources to offer alternative financing mechanisms to developing countries in South Asia.