China’s Belt and Road Initiative is not mere economic cooperation under the name of aid to developing countries. Chinese companies win the projects, bring in large numbers of Chinese workers, and impose dollar-denominated debts on host governments. When those debts cannot be repaid, China secures long-term control over ports, airports, and other infrastructure, revealing the true nature of its expansion strategy, including possible military conversion.

April 9, 2020
Local projects are almost entirely won by Chinese companies, and they also bring large numbers of Chinese workers with them.
In the project contracts concluded with the governments of the partner countries, the debts borne by those local governments are denominated in dollars.
I am republishing the chapter I sent out on April 7 under the title: For China, the Belt and Road Initiative is both a means of earning foreign currency through the export of goods and people, and an expansion strategy to extend its sphere of influence by converting occupied infrastructure to military use.
The following is a continuation of the previous chapter.
A method of winning contracts without needing foreign currency.
Graph 3 shows the year-on-year changes in China’s foreign currency reserves, external financial liabilities, and capital flight.
I stated earlier that the main source of foreign currency inflow is the trade surplus with the United States.
Strictly speaking, however, China’s foreign currency reserves are determined by the sum of the surplus in its balance of payments, including its overall external trade balance, and its liabilities from outside.
But if capital flees abroad, the foreign currency reserves decrease by that amount.
Looking at the graph, capital flight exceeded 200 billion dollars annually from 2015.
It shrank somewhat in 2018 due to tightening by the Xi administration, but from last year it began increasing again.
Under such circumstances, in order to secure foreign currency, China has no choice but to increase its external liabilities.
Those who illegally move enormous assets overseas are believed to be party executives exercising their vested interests, and the destination of that capital flight is Hong Kong.
It is common for China’s wealthy class and major corporations to establish bases in Hong Kong, and then for those Hong Kong corporations to set up paper companies in tax havens such as the Caribbean and move their assets there.
Since the summer of 2018, the Xi administration has strengthened its crackdown on the Hong Kong route on the grounds of illegal accumulation of wealth, but it has ended in failure.
Furthermore, last year it pressured the Hong Kong government and forced it to revise the extradition ordinance, including matters related to finance.
But it faced fierce democratization movements by Hong Kong’s young people, who opposed it as suppression of Hong Kong’s high degree of autonomy, and in the end it was driven into withdrawing the revision of the ordinance.
Moreover, the Trump administration signed the Hong Kong Human Rights and Democracy Act passed by the U.S. Congress, and showed its readiness to prohibit exchange between the Hong Kong dollar and the U.S. dollar if the Xi administration suppressed Hong Kong’s democracy movement.
If that happened, it would become a matter of life and death for the Chinese economy, which relies on Hong Kong for 60 to 70 percent of its incoming foreign currency.
Together with the U.S.-China trade war, this means that the Xi administration suffered a crushing defeat at the hands of the United States.
In such a situation, one would think that the Belt and Road Initiative would no longer be possible.
Yet the Xi administration’s offensive shows no sign of weakening.
Graph 4 shows the trends in Belt and Road projects on a contract basis and on an implementation basis.
It is immediately clear that, on a contract basis, the projects have been expanded substantially.
By contrast, on an implementation basis, where foreign currency is used, the level is extremely low.
And yet China has completed one project after another, including ports, airports, and railways, in Asia, Africa, and the Middle East.
The secret lies in the mechanism by which the Chinese side needs almost no foreign currency.
In other words, local projects are almost entirely won by Chinese companies, and they also bring large numbers of Chinese workers with them.
For this reason, the funds necessary to carry out the projects are lent in yuan by China’s state-owned banks to state-owned enterprises, and most of the labor costs can also be paid in yuan.
In the project contracts concluded with the governments of the partner countries, the debts borne by those local governments are denominated in dollars.
If poor developing countries become unable to repay these dollar debts, China exercises the right to occupy for nearly 100 years the ports and other facilities that the Chinese side has built.
For China, the Belt and Road Initiative is both a means of earning foreign currency through the export of goods and people, and an expansion strategy to extend its sphere of influence by converting occupied infrastructure to military use.
This article continues.