bne IntelliNews – Tajikistan: The cost of Chinese debt
A ubiquitous sign around Tajikistan’s capital speaks volumes about the country’s dependence on its eastern neighbor: “China’s assistance for a common future”.
The words are usually inscribed on buildings and buses paid for with loans and grants from Beijing.
The new premises of the parliament are a perfect example of this. The complex, which stands where the headquarters of the Soviet-era Communist Party was, is being completed thanks to a $250 million grant.
An additional $120 million has been distributed by China to build a new city hall.
In theory, this is all non-binding, but analysts aren’t convinced.
“All of this is very disturbing,” Tajik political scientist Parviz Mullojanov told Eurasianet. “It’s a very dangerous trend, especially since there are also big debts. Amassing Chinese debt is playing with fire. At any time now, this could be used as a pretext for political and geopolitical expansion.
The numbers tell a compelling story.
Of the $3.3 billion that Tajikistan owed international creditors at the start of 2022, 60% – $1.98 billion – is owed to the Export-Import Bank of China, better known as the Export-Import Bank of China. ‘Exim Bank. Sri Lanka’s huge debts to China have been making international headlines in recent months, yet what the country owes Beijing is only about 10% of its external debt.
The bulk of Tajikistan’s annual debt repayments unsurprisingly goes to China, but the pace at which the money is being repaid will be far from reassuring for the country’s bean counters.
Of the $131.9 million repaid by Tajikistan in 2021, $65.2 million went to China in one form or another. Nearly $22 million of the money paid to China was accrued interest.
In terms of interest payments, only the Eurobond issued by the Ministry of Finance of Tajikistan in 2017 proved to be more expensive last year. That bill was for $35.7 million.
Chinese debt has generally been extended for the purpose of building or renovating transport infrastructure or energy projects. The work is most often implemented by Chinese companies themselves.
Because Chinese debt agreements are shrouded in secrecy, determining the terms, even the size of the credit, is complicated.
To take an example, Eximbank agreed in 2014 to grant credit to complete the Vahdat-Yovon railway, a link between the center and the south of the country. When the Dushanbe-Koulob road – of which the Vahdat-Yovon section is a part – was inaugurated by President Emomali Rahmon in August 2016, all Tajik state media noted that the project cost 985 million somoni (125 million dollars at the rate of the times) to finish. The Khovar state news agency did not say where the money came from or who did the construction.
But in early 2015, First Deputy Finance Minister Jamoliddin Nuraliyev told reporters that Eximbank had provided a loan of at least $68 million at preferential rates for the completion of the Vahdat-Yovon railway. The tender for the contract was reportedly handed over to state-owned China Railway Construction Corporation without even the appearance of an open bidding process.
Another major project mainly funded by Eximbank was the epic effort, which began in 2006 and ended in 2013, to overhaul the Dushanbe-Shanak high-altitude road from the capital to the northern province of Sughd. The contribution from the Beijing-based lender on this occasion was a loan of nearly $290 million. Once again, a Chinese company – the colossal engineering firm China Road and Bridge Corporation – got the contract, which meant that the money was in fact quickly funneled back to China, although the debts remained at the Tajikistan.
As a China Road and Bridge Corporation executive told Chinese state media in 2019, his company has built 728 kilometers of road worth a total of $779 million in Tajikistan.
The relatively pristine Dushanbe-Shanak road is undoubtedly a boon for Tajik motorists, although many drivers complain that they have to pay tolls to a company registered in the British Virgin Islands. How much of these collected tolls, if any, goes to servicing foreign debt is a mystery, like so much else related to China’s debt.
Mullojanov argued that this approach was part of a well-understood strategy.
“China has a standard policy for all countries: they must employ their own workforce, so they send their own people and industrial resources to complete all projects. China needs a market for its industry,” Mullojanov said.
However, other analysts have taken a more benevolent view of Beijing’s loan program.
Marina Rudyak, a researcher at the Institute of China Studies at the University of Heidelberg, said her analysis of Chinese official and academic discourse shows that Beijing believes debt will ultimately lead to economic growth and, therefore, less debt.
“This is, you might say, a perspective more focused on needs and wants than on risk,” Rudyak wrote in emailed remarks. “For Tajikistan in particular, I think we have to consider the role that China attributes to it especially in the Afghan context. He needs a stable Tajikistan and will probably pour in as much money as he thinks is needed to keep it stable, even with the prospect of default, because the alternative of Tajikistan collapsing into a new civil war or similar is much more expensive.
Payment in kind
In the short term, however, the debt burden forces Tajikistan to give away the family’s silver – or the family’s gold, to be more precise.
In 2016, Xinjiang-based TBEA completed work on a 400-megawatt power station in Dushanbe, known as TETs-2. The Tajik government contributed only $17.4 million to the $349 million project. The rest came from TBEA itself. Three years later, to repay this debt, Tajikistan simply gave TBEA the concession to develop its Upper Kumarg and Eastern Duoba gold mines, both located in the northern district of Ayni. The decision was approved by the rubber stamp parliament. China-based news site Securities Times quoted TBEA Chairman Zhang Xin at the time as saying that if the mines did not contain enough gold to cover their costs, Tajikistan would grant a development license to another deposit.
Warming up to this approach, parliament later the same year voted to exempt another Chinese company, Kashgar Xinyu Dadi Mining Investment, from all types of taxes and customs duties for a period of seven years. The miner has also secured development rights to a silver deposit in the high altitude region of the Pamirs.
It is unclear what Kashgar Xinyu Dadi Mining Investment did to obtain such generous treatment, but whispered speculation is that it was in exchange for the Chinese government underwriting Dushanbe’s parliament and city hall projects. .
The question that constantly arises is how much Tajikistan will be willing to give as it continues to struggle to settle all its liabilities.
Critics of the government point, for example, to the contentious issue of how Tajikistan in 2011 ceded around 1,100 square kilometers of land, equivalent to around 1% of the country’s territory, to Beijing. This means that Tajikistan has grown, according to official data, from an area of 143,100 square kilometers to 142,000 square kilometers.
Tajik officials at the time insisted the development marked a major victory for them, as China had, in a territorial dispute dating back to Soviet times, demanded about 5.5% of the lands that Tajikistan claimed as its own.
Curiously, however, Tajikistan has shrunk further since 2011. Going through data from the National Statistics Agency, local media Your.tj discovered that Tajikistan covered only 141,400 square kilometres, implying only 600 additional square kilometers of territory – a piece of land not much smaller than Singapore – had disappeared. It’s unclear where these lands went, but precedent suggests China could be a strong candidate.
This article was originally published on Eurasianet here.