Chinese Pearls Circling Lebanon – Will the Government Answer the Siren Song?

Tuesday, July 28, 2020
Opinion By Jean AbiNader

Much has been made of Hezbollah’s call to look east to China rather than deal with the IMF and the West which they believe pose an existential threat to their hold on power in Lebanon. Analysts seem to understand that the debt diplomacy perfected by China in Asia and Africa can pose a real threat to Lebanese financial independence, but don’t know how that could be any worse than the current situation. What hasn’t been discussed in any great detail is why China wants to help Lebanon in the first place, given its financial and political instability, especially since there is no oil available as collateral.

For that perspective, one needs to zoom out for a broader perspective and consider the goals of China’s Belt and Road Initiative (BRI), its proposed global highway and waterway to open up new markets, secure global supply chains, and maintain Chinese access to demand and supply mechanisms that ensure its economic growth for generations, thus contributing to domestic stability.

As reported on by the Begin-Sadat Center, “The initiative has both land-based and maritime components. The different sub-branches of the Silk Road Economic Belt (a series of land-based infrastructure projects including roads, railways, and pipelines) and the 21st-century Maritime Silk Road (made up of ports and coastal development) would create a multinational network connecting China to Europe and Africa via the Middle East. This will facilitate trade, improve access to foreign energy resources, and give China access to new markets. The two schemes are inseparable, and they are meant to be implemented in parallel.”

With Chinese investments in the Middle East approaching some $100 billion in 2020, it has become a significant player for both the energy suppliers and the not so wealthy states that need to undertake large-scale infrastructure projects. Lebanon is a prime example of a target-rich country for Chinese companies – poor credit risk, critical infrastructure needs that require external financing, and a government that does not want to change its corrupt ways of doing business.

Ports and industrial parks are key links in the BRI, creating an economic chain linking China to Mediterranean via projects in Pakistan, Oman’s Dukum Port, UAE’s Khalifa Port, Saudi Arabia’s Jizan Port, Djibouti, Port Said in Egypt, Israel’s Ashdod and Haifa ports, and similar facilities in Syria, Greece, Turkey, Baku, and potentially Libya. This network positions Chinese companies to play a significant role in reconstruction projects in Iraq, Syria, Lebanon, and Yemen.

As an article in Asia Times indicates, “But there are other dangers for countries in the Middle East that might consider taking on too much Chinese debt. Chinese loans are often collateralized against infrastructure projects, and when the loans sour those projects are at risk of appropriation.” This has been the case in Myanmar and Zambia, for example. It adds, “For Middle East countries considering ways in which to rebound from the Covid-19 pandemic, or just maintain lines of credit and funding following years of poor growth and/or excessive borrowing, Chinese debt may seem an appealing option. It comes with no conditions, and little pressure for governance reforms.”

China is well known for providing funding for projects with doubtful commercial viability in order to become entrenched with the political leadership. However, seldom is debt forgiven, but renegotiated to maintain dependency that benefits China. Lebanon is not immune to the lure of Chinese interest in, for example, carving out a space in the port of Tripoli where it already is providing deep water excavation equipment to deepen the port facility. It has also expressed interest in the electricity sector, waste management, and a north-south railway that would then connect to Syria, which would run afoul of the Caesar sanctions regime.

Foreign Policy put it succinctly, “China, although it has little historic political presence in the region, is waiting in the wings, prepared to replace the United States as the country’s dominant outside actor.” With the IMF negotiations on hiatus and barely the slightest movement by the Lebanese government towards critical reforms, the dire situation in the country deepens, as it faces catastrophe in the coming months. The promise of an easing brought about by turning to China may seem appealing to some as an interim solution but certainly one that does not bode well for Lebanon’s security and independence.

The views and opinions expressed here are those of the author and do not necessarily reflect the position of the American Task Force for Lebanon.